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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-4456
TEXAS EASTERN TRANSMISSION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-0378240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TEXAS 77251-1642
(Address, including zip code, of principal executive offices)
(713) 627-5400
(Telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
8 1/4% Notes Due 2004 The New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The Registrant meets the conditions set forth in General Instructions
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the
reduced disclosure format. Items 4, 10, 11, 12 and 13 have been omitted and Item
7 has been reduced in accordance with such Instruction J.
The Registrant's parent, PanEnergy Corp (File No. 1-8157), files reports
and proxy materials pursuant to the Securities Exchange Act of 1934.
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State the aggregate market value of the voting stock held by non-affiliates
of the Registrant.
NONE
Indicate number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AS OF FEBRUARY 28, 1997
------------------- ----------------------------
<S> <C>
Common Stock, $1.00 par value 1,000
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Business.................................................... 1
General..................................................... 1
Natural Gas Transmission.................................... 2
Regulation.................................................. 3
Rates and Regulatory Proceedings............................ 4
Competition................................................. 4
Environmental Matters....................................... 4
General Matters............................................. 4
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 5
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 8. Financial Statements and Supplementary Data................. 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 10
Index to Financial Statements and Schedules........................... 11
</TABLE>
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All gas volumes used herein are stated at 14.73 pounds per square inch, on
a dry basis, at 60 degrees Fahrenheit.
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Texas Eastern Transmission Corporation ("TETCO" or the "Company"), a
subsidiary of PanEnergy Corp ("PEC"), was incorporated in Delaware in 1947 and
is primarily engaged in the interstate transportation and storage of natural
gas.
On November 25, 1996, PEC, Duke Power Company ("Duke Power") and Duke
Transaction Corporation announced a definitive merger agreement for a tax-free,
stock-for-stock transaction. Under the agreement, each share of PEC common stock
would be converted into 1.0444 common shares of Duke Power. The merger is
conditioned upon, among other things, the approval of PEC and Duke Power
shareholders, and approvals of appropriate state and federal regulatory
agencies. The Company anticipates that the stockholder and regulatory approvals
can be completed within 12 months. At closing, Duke Power will change its name
to Duke Energy Corporation ("Duke Energy") and PEC will become a wholly-owned
subsidiary of Duke Energy. The merger will be accounted for under the pooling of
interests method.
Information concerning components of consolidated operating revenues,
including revenues attributable to transportation and storage of natural gas,
for the years 1996, 1995 and 1994 is contained in the Consolidated Statement of
Income on page F-2, which is incorporated herein by reference.
Executive offices of TETCO are located at 5400 Westheimer Court, Houston,
Texas 77056-5310, and the telephone number is (713) 627-5400.
Certain Terms
Certain terms used in the description of the Company's business are
explained below.
Federal Energy Regulatory Commission ("FERC"): The agency that regulates
the transportation of natural gas in interstate commerce under the Natural Gas
Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA").
FERC's jurisdiction includes rate-making, construction of facilities and
authorization to provide service.
Firm Service: Transportation or storage of third-party gas, for which
customers pay a charge to reserve pipeline or storage capacity.
Gathering Systems: Pipeline, processing and related facilities that access
production and other sources of natural gas supplies for delivery to mainline
transportation systems.
Interruptible Service: Transportation or storage of third-party gas
provided by pipelines on a capacity-available, non-firm basis.
Local Distribution Company ("LDC"): A municipal or investor-owned utility
that sells or transports gas to local commercial, industrial and residential
consumers.
Order 636: The FERC pipeline service restructuring rule that guided the
industry's transition to unbundled, open-access pipeline contract transportation
and related services, creating a more market-responsive environment.
Reservation Charge: The amount paid by firm transportation or storage
customers to reserve pipeline or storage capacity.
Transition Costs: Those costs incurred as a result of the pipelines'
transition to unbundled services under Order 636. The disposition of natural gas
contracts tied to the former merchant function comprises the majority of such
costs.
1
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Units of Measure:
BBtu/d: Billion British thermal units per day
TBtu: Trillion British thermal units
Bcf: Billion cubic feet
Tcf: Trillion cubic feet
NATURAL GAS TRANSMISSION
General
TETCO, together with Algonquin Gas Transmission Company ("Algonquin"),
Panhandle Eastern Pipe Line Company ("PEPL") and Trunkline Gas Company
("Trunkline"), all subsidiaries of PEC, owns and operates one of the nation's
largest gas transmission networks. This fully interconnected 22,000-mile system
can receive natural gas from most major North American producing regions for
delivery to markets in the Mid-Atlantic, New England and Midwest states. During
1996, PEC's interstate pipelines delivered 2,939 TBtu of natural gas, equal to
approximately 12% of U.S. consumption.
Market and Supply Area Deliveries
As used herein, "market area" with respect to each pipeline refers to those
portions of the pipeline that include primarily delivery points for natural gas
leaving the pipeline, and "supply area" with respect to each pipeline refers to
those portions of the pipeline that include primarily receipt points for gas
entering the pipeline. Market-area deliveries represent volumes of gas delivered
to the market area, while supply-area deliveries represent volumes of gas
delivered to the supply area. Generally, rates for supply-area service have
lower margins than rates for market-area service.
A substantial majority of the delivered volumes of the Company's interstate
pipelines represents gas transported under long-term firm service agreements
with LDC customers in the pipelines' market areas. Firm transportation services
are also provided under contract to gas marketers, other pipelines and a variety
of end-users. In addition, the pipelines offer interruptible transportation to
customers on a short-term or seasonal basis. See "Regulation" and "Competition."
Set forth below is information concerning throughput volumes for TETCO for
1996, 1995 and 1994 (volumes in TBtu).
<TABLE>
<CAPTION>
1996 % TOTAL 1995 % TOTAL 1994 % TOTAL
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Market Area............................... 1,214 90 1,106 90 1,049 88
Supply Area............................... 135 10 128 10 145 12
----- --- ----- --- ----- ---
Total........................... 1,349 100 1,234 100 1,194 100
===== === ===== === ===== ===
</TABLE>
During 1996, total billings for transportation and storage services
provided by TETCO to Public Service Electric and Gas Company ("Public")
accounted for approximately 13% of the Company's consolidated revenues. Public
was the only customer of the Company accounting for 10% or more of consolidated
revenues in 1996.
Demand for gas transmission on the Company's interstate pipeline system is
seasonal, with the highest throughput occurring during the colder periods in the
first and fourth quarters -- the winter heating season.
TETCO's major customers are located in Pennsylvania, New Jersey and New
York, and include LDCs serving the Pittsburgh, Philadelphia, Newark and New York
City metropolitan areas. Total throughput increased 9% in 1996 on the TETCO
system.
In June 1996, TETCO filed with FERC to construct and lease approximately
142 BBtu/d of firm transportation capacity to Columbia Gas Transmission
Corporation ("Columbia") starting in 1997, with full volumes flowing in 1999 for
15 years. TETCO plans to construct 26 miles of 36-inch- and 24-inch-diameter
pipeline and add compression in Pennsylvania for the project.
2
<PAGE> 5
In another project, previously called WinterNet, TETCO will lease firm
transportation capacity to CNG Transmission Corporation ("CNG") beginning in
1997 and reaching full volumes of 64 BBtu/d in the year 2000 under a 22-year
agreement. TETCO filed with FERC in June 1996 to construct eight miles of
36-inch-diameter pipeline looping in Pennsylvania for the project.
The final phase of the Integrated Transportation Program ("ITP") was
completed as planned in 1996. ITP utilizes transportation services on all four
of PEC's interstate natural gas pipeline systems, with ultimate delivery by
TETCO and Algonquin, and serves five Northeast customers.
TETCO and PEPL signed contracts to provide 50 BBtu/d of firm service to a
new market, the greater Cincinnati area, starting in November 1996. The
contracts with the Cincinnati Gas & Electric Co call for firm transportation
service by TETCO and firm transportation and storage service by PEPL. Also,
Trunkline will provide interruptible transportation service.
Storage
TETCO provides firm and interruptible open-access storage services. Since
the implementation of the Order 636 restructuring, storage is offered as a
stand-alone unbundled service or as part of a no-notice bundled service. TETCO's
storage services utilize two joint venture storage projects in Pennsylvania and
one wholly-owned and operated storage field in Maryland. TETCO also leases
storage capacity. TETCO's certificated working capacity in these three fields is
70 Bcf, and on December 31, 1996, the combined working gas in storage was 59
Bcf.
REGULATION
TETCO is a "natural gas company" under the NGA and NGPA and, as such, is
subject to the jurisdiction of FERC.
The NGA grants to FERC authority over the construction and operation of
pipeline and related facilities utilized in the transportation and sale of
natural gas in interstate commerce, including the extension, enlargement or
abandonment of such facilities. TETCO holds required certificates of public
convenience and necessity issued by FERC, authorizing it to construct and
operate the pipelines, facilities and properties now in operation for which
certificates are required, and to transport and store natural gas in interstate
commerce.
FERC also has authority to regulate rates and charges for natural gas
transported in or stored for interstate commerce or sold by a natural gas
company in interstate commerce for resale. TETCO files with FERC applications
for changes in transportation and storage rates and charges. These changes are
normally allowed to become effective after a suspension period, subject to
refund, until such time as FERC authorizes the actual level of rates and
charges.
TETCO operates as an open-access transporter of natural gas. In 1992, FERC
issued Order 636, which requires open-access pipelines to provide firm and
interruptible transportation services on an equal basis for all gas supplies,
whether purchased from the pipeline or from another gas supplier. To implement
this requirement, Order 636 provides, among other things, for mandatory
unbundling of services that have historically been provided by pipelines into
separate open-access transportation, sales and storage services.
Order 636 provided for the use of the straight fixed-variable rate design,
which assigns return on equity, related taxes and other fixed costs to the
reservation component of rates. In addition, Order 636 allows pipelines to
recover eligible costs resulting from implementation of Order 636 ("transition
costs"). On July 16, 1996, the U.S. Court of Appeals for the District of
Columbia upheld, in general, all aspects of Order 636 and remanded certain
issues, including recovery of gas supply realignment costs, for further
explanation. This decision is on appeal to the U.S. Supreme Court. On February
27, 1997, FERC issued an order reaffirming the right of interstate pipelines to
recover 100% of gas supply realignment costs. In addition, this matter is
substantially mitigated by TETCO's transition cost settlements.
On August 1, 1994, TETCO implemented a FERC-approved settlement that
resolved regulatory issues related primarily to Order 636 transition costs and a
number of other issues related to services prior to Order
3
<PAGE> 6
636. TETCO's final and nonappealable settlement provides for the recovery of a
significant portion of transition costs through volumetric and reservation
charges through 2002 and beyond, if necessary. Pursuant to the settlement, TETCO
will absorb a certain portion of the transition costs, the amount of which
continues to be subject to change dependent upon natural gas prices and
deliverability levels. The Company has established provisions to reflect the
impact of the settlement.
Regulation of the importation and exportation of natural gas is vested in
the Secretary of Energy, who has delegated various aspects of this jurisdiction
to FERC and the Office of Fossil Fuels of the Department of Energy.
TETCO is subject to the Natural Gas Pipeline Safety Act of 1968, which
regulates gas pipeline safety requirements and to federal and state
environmental legislation.
RATES AND REGULATORY PROCEEDINGS
When rate cases are pending final FERC approval, a portion of the revenues
collected by TETCO is subject to possible refund. A summary of the status of
significant regulatory matters involving TETCO is contained in Note 3 of the
Notes to Consolidated Financial Statements, which is incorporated herein by
reference.
COMPETITION
In the Mid-Atlantic and Northeast Markets, TETCO competes with other
interstate and intrastate pipeline companies in the transportation and storage
of natural gas. The principal elements of competition among pipelines are rates,
terms of service, and flexibility and reliability of service. TETCO continues to
offer selective discounting to maximize revenues from existing capacity.
TETCO competes directly with Transcontinental Gas Pipe Line Corporation,
Tennessee Gas Pipeline Company, Iroquois Gas Transmission System, CNG and
Columbia.
Natural gas competes with other forms of energy available to the Company's
customers and end users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural gas
and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by TETCO.
ENVIRONMENTAL MATTERS
For a discussion of environmental matters involving the Company, see Notes
9 and 10 of the Notes to Consolidated Financial Statements, which are
incorporated herein by reference. Except as set forth therein, compliance with
Federal, State and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
protecting the environment, are not expected to have a material effect upon the
capital expenditures, earnings or financial position of the Company.
GENERAL MATTERS
While the Company does engage in some research and development activities,
no such activities conducted during the past three years have been material to
the Company's business, nor have there been any material customer-sponsored
research activities during that period relating to the Company's business
activities.
TETCO is a member of and provides support to the Gas Research Institute
("GRI"), which plans and manages research and development efforts for the gas
industry. The funds used to support GRI are derived from a surcharge on the
pipelines' rates pursuant to FERC authorization. Payments amounted to
approximately $6.7 million, $5.7 million and $8.3 million in 1996, 1995 and
1994, respectively.
Foreign operations and export sales are not material to the Company's
business as a whole.
4
<PAGE> 7
As of December 31, 1996, the Company had approximately 1,100 employees.
ITEM 2. PROPERTIES
TETCO's gas transmission system extends approximately 1,700 miles from
producing fields in the Gulf Coast region of Texas and Louisiana to Ohio,
Pennsylvania, New Jersey and New York. It consists of two parallel systems, one
consisting of three large-diameter parallel pipelines and the other consisting
of from one to three large-diameter pipelines over its length. TETCO's system,
including the gathering systems, has 73 compressor stations. The TETCO system
connects with the PEPL and Trunkline systems through the Lebanon Lateral.
TETCO owns and operates two offshore Louisiana gas supply systems, which
extend over 100 miles into the Gulf of Mexico and consist of 490 miles of
pipeline.
For information concerning natural gas storage properties, see "Natural Gas
Transmission -- Storage" under Item 1, which is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
For information concerning material legal proceedings, see Notes 3, 9 and
10 of the Notes to Consolidated Financial Statements, which are incorporated
herein by reference.
5
<PAGE> 8
[MAP of PanEnergy Corp
Showing Pipelines, Storage Facilities,
Principal Supply Areas and Proposed Pipelines.]
6
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of TETCO's outstanding common stock, $1.00 par value per share, is
owned by PanEnergy. In December 1995, TETCO declared and paid a $355 million
dividend on common stock in the form of a promissory note due PanEnergy bearing
interest at prime rate. No dividends were declared in 1996.
ITEM 6. SELECTED FINANCIAL DATA
Selected consolidated financial and operating data is presented on Page
F-18, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information is provided to facilitate increased understanding
of the 1996 and 1995 consolidated financial statements and accompanying notes of
the Company, and should be read in conjunction therewith and with the
information set forth under Item 1. Because all of the outstanding capital stock
of TETCO is owned by PanEnergy, the following discussion has been prepared in
accordance with the reduced disclosure format permitted by Form 10-K for issuers
that are wholly-owned subsidiaries of reporting companies under the Securities
Exchange Act of 1934.
OPERATING ENVIRONMENT
TETCO continues to advance projects that provide expanded services to meet
the specific needs of customers. In 1996, TETCO announced a project to construct
and lease new firm capacity to a customer with new volumes flowing under a
15-year lease agreement. In another project, previously called WinterNet, TETCO
will lease firm transportation capacity to another customer beginning in 1997,
reaching full volumes in 2000 under a 22-year agreement. In addition, TETCO
offers selective discounting to maximize revenues from existing capacity.
Order 636 Transition Costs. With implementation of FERC Order 636 and the
unbundling of services, the Company is incurring certain costs related to the
transition, primarily TETCO's gas purchase contract commitments. At December 31,
1996, TETCO's gross commitments under gas purchase contracts that do not contain
market-sensitive pricing provisions were approximately $120 million, $55
million, $50 million and $15 million for the years 1997 through 2000,
respectively, with no significant amounts thereafter. These estimates reflect
significant assumptions regarding natural gas contract reserves and prices.
In 1994, TETCO refunded $84 million to customers pursuant to a
FERC-approved settlement that resolved regulatory issues related primarily to
Order 636 transition costs and a number of other issues related to services
prior to Order 636. TETCO's final and nonappealable settlement provides for the
recovery of a significant portion of transition costs through volumetric and
reservation charges through 2002 and beyond, if necessary. Pursuant to the
settlement, TETCO will absorb a certain portion of the transition costs, the
amount of which continues to be subject to change dependent upon natural gas
prices and contract reserve levels. In 1995, based upon producers' discoveries
of additional natural gas reserves, the Company increased its estimated
liabilities for transition costs by $125.8 million. Under the terms of the
existing settlement, regulatory assets were increased by $85.8 million and the
Company recognized a $40 million charge to operating expenses ($26 million after
tax).
At December 31, 1996 and 1995, the Company had recorded $64.8 million and
$249.8 million (1996), and $65 million and $310 million (1995), of current and
long-term regulatory assets, respectively, representing transition costs
incurred or estimated to be incurred that will be recovered. At December 31,
1996 and 1995, the Company had recorded estimated current and long-term
liabilities related to Order 636 transition costs of $84.4 million and $121.9
million (1996), and $125 million and $165 million (1995), respectively.
7
<PAGE> 10
As a result of the sale in 1996 of the right to collect certain Order 636
transition costs, above-market gas purchase contract payments by TETCO are
expected to exceed transition cost collections from customers through 2000. Net
cash receipts related to transition costs are expected to occur thereafter.
The Company believes the exposure associated with gas purchase contract
commitments is substantially mitigated by transition cost recoveries pursuant to
TETCO's settlement, Order 636 and other mechanisms, and that this issue will not
have a material adverse effect on consolidated results of operations, financial
position or liquidity.
RESULTS OF OPERATIONS
The Company reported consolidated income of $129 million before an
extraordinary item, and net income of $112.3 million in 1996 compared with
consolidated net income of $126.2 million in 1995.
OPERATING INCOME AND EARNINGS BEFORE INTEREST AND TAX ANALYSIS
<TABLE>
<CAPTION>
MILLIONS 1996 1995
- -------- ------ ------
<S> <C> <C>
Transportation Revenue...................................... $798.7 $774.2
Storage Revenue............................................. 68.5 69.0
Other Revenue............................................... 46.4 31.2
------ ------
TOTAL REVENUES.............................................. 913.6 874.4
Operating Expenses.......................................... 447.2 436.4
Depreciation and Amortization............................... 145.8 143.9
------ ------
OPERATING INCOME............................................ 320.6 294.1
Other Income, Net of Deductions............................. 7.1 3.7
------ ------
EARNINGS BEFORE INTEREST AND TAX............................ $327.7 $297.8
====== ======
VOLUMES, TBtu
Market area................................................. 1,214 1,106
Supply area................................................. 135 128
------ ------
Total Deliveries............................................ 1,349 1,234
====== ======
</TABLE>
Operating income for 1996 was $320.6 million, $26.5 million over 1995.
Earnings before interest and tax increased $29.9 million in 1996 as compared
with 1995. Revenues increased $39.2 million, or 4%, primarily due to a 9%
increase in throughput, resulting from new pipeline expansion projects placed in
service in late 1995, including the ITP and the Riverside project, and colder
weather. This increase in revenues was partially offset by increased operating
expenses in 1996, which included higher benefit costs and $2.3 million of
severance expense. Operating expenses in 1995 included a $40 million charge for
higher Order 636 transition cost estimates, as well as a $33 million benefit for
lower-than-projected PCB (polychlorinated biphenyl) cleanup costs incurred.
INTEREST EXPENSE AND EXTRAORDINARY ITEM
Interest expense increased $27.9 million in 1996 compared with 1995. This
increase reflects higher average debt balances outstanding, partially offset by
lower average interest rates.
On October 1, 1996, TETCO redeemed its $150 million, 10% debentures due
2011 and its $100 million, 10 1/8% debentures also due 2011. TETCO recorded a
non-cash extraordinary charge of $16.7 million (net of income tax of $10.3
million) related to the unamortized discount on this early retirement of debt.
INCOME TAX
The effective tax rates for 1996 and 1995 differed from the statutory
federal income tax rates primarily because of the effects of state income taxes
and amortization of goodwill.
8
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CAPITAL EXPENDITURES
Capital expenditures totaled $125.2 million in 1996, compared with $135.3
million in 1995. Market-expansion projects represented approximately 45% of 1996
total expenditures.
The Company currently expects to invest approximately $150 million in 1997
capital expenditures. The Company's expenditure plans include approximately 50%
for market-expansion projects. Funding for 1997 capital expenditures is expected
to be provided by cash from operations, periodic sales of customer accounts with
limited recourse and/or collection of intercompany advances receivable. In
addition, TETCO has an effective shelf registration statement with the
Securities and Exchange Commission for the issuance of $100 million of unsecured
debt securities.
INTERCOMPANY FINANCING ACTIVITY
Net intercompany advances are carried as open accounts and are not
segregated between current and non-current amounts. Effective January 1, 1995,
intercompany advances do not bear interest. Increases and decreases in advances
result from the movement of funds to provide for operations, capital
expenditures and debt payments of PanEnergy and its subsidiaries. The collection
of advances receivable is subject to the availability of funds to PanEnergy,
whose major sources of internally-generated funds include dividends and advances
from subsidiaries. Net advances receivable aggregated $909.2 million and $686.1
million at December 31, 1996 and 1995, respectively.
In December 1994, TETCO declared and paid a cash dividend on common stock
of $180 million. In December 1995, TETCO declared and paid a $355 million
dividend on common stock in the form of a promissory note due PanEnergy maturing
on June 30, 1996 and bearing interest at prime. In 1996, the maturity date of
TETCO's $355 million note payable-parent was extended to October 1, 2001. In
addition, a $250 million note payable to PanEnergy was issued by TETCO in 1996,
with a maturity date of October 1, 2006.
FORWARD-LOOKING INFORMATION
This report may contain certain forward-looking information regarding the
Company, including projections, estimates, forecasts, plans and objectives.
Although management believes that all such statements are based upon reasonable
assumptions, no assurance can be given that the actual results will not differ
materially from those contained in such forward-looking statements.
Important factors that could cause actual results to differ include, but
are not limited to, general economic conditions, natural gas and liquids prices,
competition from other pipelines and alternative fuels, weather conditions,
state and federal regulation, legal and regulatory proceedings, the development
of new markets, services and products, and the condition of the capital markets
utilized by the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to "Index -- Financial Statements" under Item 14(a)(1).
See the consolidated quarterly financial data on page F-17, which is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or
incorporated herein by reference:
(1) The Consolidated Financial Statements and Financial Statement
Schedules of Texas Eastern Transmission Corporation and Subsidiaries are
listed on the Index, page 11.
(2) Exhibits filed herewith are designated by an asterisk(*); all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
------- ----------- --------------------------- --------
<C> <S> <C> <C>
3.01 Restated Certificate of 3.1 to Form 10-Q of TETCO for 1-4456
Incorporation of Texas Eastern quarter ended September 30,
Transmission Corporation dated 1993
October 25, 1993
3.02 By-Laws of Texas Eastern 3.2 to Form 10-Q of TETCO for 1-4456
Transmission Corporation as quarter ended September 30,
adopted on August 17, 1993 1993
*23 Consent of KPMG Peat Marwick
LLP
*24 Powers of Attorney
*27 Financial Data Schedule for
December 31, 1996
</TABLE>
The total amount of securities of the Registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as an
Exhibit does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees, upon request of the
Securities and Exchange Commission, to furnish copies of any or all of such
instruments.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
10
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TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
INDEX
FINANCIAL STATEMENTS AND SCHEDULES
---------------------
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Statement of Income............................ F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Common Stockholder's Equity....... F-5
Consolidated Statement of Cash Flows........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
All Schedules are omitted because they are not applicable, not required or
the information is included in the Consolidated Financial Statements or the
Notes thereto.
11
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Texas Eastern Transmission Corporation:
We have audited the accompanying consolidated balance sheets of Texas
Eastern Transmission Corporation and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, common stockholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Eastern Transmission Corporation and Subsidiaries at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
January 16, 1997
F-1
<PAGE> 15
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
MILLIONS 1996 1995 1994
- -------- ------ ------ ------
<S> <C> <C> <C>
OPERATING REVENUES
Transportation and storage of natural gas................. $867.2 $843.2 $788.7
Other..................................................... 46.4 31.2 38.0
------ ------ ------
Total (Notes 2 and 5)............................. 913.6 874.4 826.7
------ ------ ------
COSTS AND EXPENSES
Operating and maintenance (Note 3)........................ 295.5 306.3 272.9
General and administrative (Note 10)...................... 110.1 92.0 109.2
Depreciation and amortization (Note 6).................... 145.8 143.9 141.1
Miscellaneous taxes....................................... 41.6 38.1 38.8
------ ------ ------
Total (Note 2).................................... 593.0 580.3 562.0
------ ------ ------
Operating Income............................................ 320.6 294.1 264.7
------ ------ ------
OTHER INCOME AND DEDUCTIONS
Miscellaneous income...................................... 12.4 9.2 9.1
Miscellaneous deductions.................................. (5.3) (5.5) (15.4)
------ ------ ------
Total............................................. 7.1 3.7 (6.3)
------ ------ ------
Earnings Before Interest and Tax............................ 327.7 297.8 258.4
------ ------ ------
Interest Income -- Parent (Note 2).......................... -- -- 34.5
------ ------ ------
INTEREST EXPENSE
Long-term debt (Note 7)................................... 80.8 89.9 80.4
Parent (Note 7)........................................... 34.7 0.3 --
Other..................................................... 3.0 0.4 (0.4)
------ ------ ------
Total............................................. 118.5 90.6 80.0
------ ------ ------
Earnings Before Income Tax.................................. 209.2 207.2 212.9
Income Tax (Note 4)......................................... 80.2 81.0 86.8
------ ------ ------
Income Before Extraordinary Item............................ 129.0 126.2 126.1
Extraordinary Item, Net of Tax (Note 7)..................... (16.7) -- --
------ ------ ------
NET INCOME.................................................. $112.3 $126.2 $126.1
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 16
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
MILLIONS 1996 1995
-------- -------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ -- $ 0.1
Accounts receivable
Customers (Note 5)..................................... 66.2 71.8
Affiliates (Note 2).................................... 10.9 4.9
Other.................................................. 0.1 2.6
Inventory and supplies.................................... 16.1 19.1
Current deferred income tax (Note 4)...................... 21.9 45.1
Other (Notes 3 and 9)..................................... 98.1 114.2
-------- --------
Total............................................. 213.3 257.8
-------- --------
INVESTMENTS
Advances receivable -- parent (Note 2).................... 909.2 686.1
Other..................................................... 17.8 16.6
-------- --------
Total............................................. 927.0 702.7
-------- --------
PLANT, PROPERTY AND EQUIPMENT
Cost (Note 6)............................................. 3,317.5 3,218.9
Accumulated depreciation and amortization................. (796.9) (681.9)
-------- --------
Net plant, property and equipment................. 2,520.6 2,537.0
-------- --------
DEFERRED CHARGES
Goodwill, net (Notes 1 and 4)............................. 161.2 173.4
Other (Notes 1, 3, 9 and 11).............................. 496.0 537.4
-------- --------
Total............................................. 657.2 710.8
-------- --------
TOTAL ASSETS................................................ $4,318.1 $4,208.3
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 17
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
MILLIONS 1996 1995
- -------- -------- --------
<S> <C> <C>
CURRENT LIABILITIES
Note payable -- parent (Note 7)........................... $ -- $ 355.0
Accounts payable
Trade.................................................. 28.6 28.3
Affiliates (Note 2).................................... 19.3 16.0
Accrued income tax -- parent (Note 4)..................... 53.3 41.9
Other accrued taxes....................................... 30.2 26.8
Accrued interest.......................................... 14.1 21.3
Other (Notes 3, 5 and 9).................................. 261.8 311.6
-------- --------
Total............................................. 407.3 800.9
-------- --------
DEFERRED LIABILITIES AND CREDITS
Deferred income tax (Note 4).............................. 600.9 586.0
Other (Notes 3 and 9)..................................... 443.7 444.2
-------- --------
Total............................................. 1,044.6 1,030.2
-------- --------
LONG-TERM DEBT
Notes payable -- parent................................... 605.0 --
Other..................................................... 599.4 820.5
-------- --------
Total (Note 7).................................... 1,204.4 820.5
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 3, 5, 8, 9, 10
and 11)
COMMON STOCKHOLDER'S EQUITY
Common stock, one thousand shares authorized, issued and
outstanding, $1 par value per share.................... -- --
Paid-in capital........................................... 1,463.5 1,470.7
Retained earnings......................................... 198.3 86.0
-------- --------
Total............................................. 1,661.8 1,556.7
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $4,318.1 $4,208.3
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 18
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
MILLIONS 1996 1995 1994
- -------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................................ $ -- $ -- $ --
-------- -------- --------
PAID-IN CAPITAL
Balance at beginning of year.............................. 1,470.7 1,572.5 1,768.3
Goodwill adjustments (Note 4)............................. (7.2) (101.8) (195.8)
-------- -------- --------
Balance at end of year.................................... 1,463.5 1,470.7 1,572.5
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of year.............................. 86.0 314.8 368.7
Net income................................................ 112.3 126.2 126.1
Common stock dividends paid............................... -- (355.0) (180.0)
-------- -------- --------
Balance at end of year.................................... 198.3 86.0 314.8
-------- -------- --------
TOTAL COMMON STOCKHOLDER'S EQUITY........................... $1,661.8 $1,556.7 $1,887.3
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 19
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
MILLIONS 1996 1995 1994
- -------- ------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 112.3 $ 126.2 $ 126.1
Adjustments to reconcile net income to operating cash
flows
Depreciation and amortization.......................... 145.8 143.9 141.1
Deferred income tax expense............................ 40.9 36.4 48.0
Interest income -- parent.............................. -- -- (34.5)
Extraordinary charge, net of tax....................... 16.7 -- --
Other non-cash items in net income..................... 6.8 9.6 4.0
Net change in operating assets and liabilities (detail
below)............................................... 33.3 (56.5) (95.7)
------- ------- -------
Net Cash Flows Provided by Operating Activities........... 355.8 259.6 189.0
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures...................................... (125.2) (135.3) (160.5)
Net decrease (increase) in advances
receivable -- parent................................... (223.1) (132.3) 79.8
Property retirements and other............................ 0.4 2.2 (5.6)
------- ------- -------
Net Cash Flows Used in Investing Activities............... (347.9) (265.4) (86.3)
------- ------- -------
FINANCING ACTIVITIES
Retirement of debt........................................ (250.0) -- --
Issuance of debt.......................................... -- -- 99.2
Net increase (decrease) in notes payable.................. 250.0 -- (18.4)
Dividends paid............................................ -- -- (180.0)
Net increase (decrease) in accounts payable -- banks...... 4.6 (5.1) 2.5
Other..................................................... (12.6) -- (3.2)
------- ------- -------
Net Cash Flows Used in Financing Activities............... (8.0) (5.1) (99.9)
------- ------- -------
NET CHANGE IN CASH
Increase (decrease) in cash and cash equivalents.......... (0.1) (10.9) 2.8
Cash and cash equivalents, beginning of year.............. 0.1 11.0 8.2
------- ------- -------
Cash and Cash Equivalents, End of Year.................... $ -- $ 0.1 $ 11.0
======= ======= =======
NET CHANGE IN OPERATING ASSETS AND LIABILITIES
Accounts receivable....................................... $ (55.5) $ 6.7 $ 19.8
Inventory and supplies.................................... 3.0 1.0 (0.9)
Other current assets...................................... 41.1 47.0 108.3
Accounts payable.......................................... (0.9) 9.6 7.6
Other current liabilities................................. (10.9) (31.7) (102.8)
Transition cost recoveries (payments), net................ 79.0 (81.9) (118.7)
Other deferred charges and liabilities, net............... (22.5) (7.2) (9.0)
------- ------- -------
Total..................................................... $ 33.3 $ (56.5) $ (95.7)
======= ======= =======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest (net of amount capitalized)........ $ 117.6 $ 85.0 $ 81.2
Cash paid for income tax (including intercompany
amounts)............................................... 45.3 45.2 56.8
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 20
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<C> <S> <C>
1. Accounting Policies Summary................................. F-7
2. Transactions with Affiliates................................ F-8
3. FERC Order 636 and Transition Costs......................... F-9
4. Income Tax.................................................. F-9
5. Financial Instruments and Credit Risk....................... F-11
6. Plant, Property and Equipment............................... F-12
7. Debt and Credit Facilities.................................. F-12
8. Leases...................................................... F-12
9. Environmental Matters....................................... F-13
10. Litigation.................................................. F-13
11. Pension and Other Benefits.................................. F-14
</TABLE>
1. ACCOUNTING POLICIES SUMMARY
The accounting policies are presented to assist the reader in evaluating
the consolidated financial statements of Texas Eastern Transmission Corporation
(TETCO) and its subsidiaries (the Company). TETCO is a wholly-owned subsidiary
of PanEnergy Corp (PanEnergy). Certain amounts for prior years have been
reclassified in the consolidated financial statements to conform to the current
presentation.
The Company is involved in the interstate transportation and storage of
natural gas. The interstate gas transmission and storage operations of TETCO are
subject to the rules and regulations of the Federal Energy Regulatory Commission
(FERC). TETCO meets the criteria and, accordingly, follows the reporting and
accounting requirements of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation."
Accordingly, certain net costs totaling $326 million have been deferred as
regulatory assets for amounts recoverable from customers, including costs
related to environmental matters, Order 636 transition, certain employee
benefits and the early retirement of debt. TETCO regularly evaluates the
continued applicability of SFAS No. 71, considering such factors as regulatory
changes and the impact of competition.
Principles of Consolidation. The consolidated financial statements include
the accounts of TETCO and all subsidiaries. Significant intercompany items have
been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts in the financial
statements. Actual results could differ from those estimates.
Revenue Recognition. The Company recognizes transportation and storage
revenues in the period service is provided. When rate cases are pending final
FERC approval, a portion of the revenues collected by TETCO is subject to
possible refund. The Company has established adequate reserves where required
for such cases. See Note 3 for a summary of regulatory matters.
Gas Supply Costs. Provisions are made in the consolidated statement of
income for all estimated probable future losses associated with gas supply
contracts which were established prior to implementation of FERC Order 636. See
Note 3 for a discussion of gas supply contracts and other costs related to the
Order 636 transition.
Cash and Cash Equivalents. All liquid investments with maturities at date
of purchase of three months or less are considered cash equivalents.
Inventory Valuation. Inventory, which consists of materials and supplies,
is recorded using the average cost method.
F-7
<PAGE> 21
Plant, Property and Equipment. Plant, property and equipment is stated at
cost, which does not purport to represent replacement or realizable value.
Assets, including goodwill, are grouped and evaluated for potential impairment
based on the ability to identify separate cash flows generated therefrom.
At the time FERC-regulated properties are retired, the cost plus the cost
of retirement, less salvage, is charged to accumulated depreciation and
amortization. When entire FERC-regulated operating units are sold or
non-regulated properties are retired or sold, the plant and related accumulated
depreciation and amortization accounts are reduced and any gain or loss is
credited or charged to income, unless otherwise required by FERC. Depreciation
of plant, property and equipment is computed using the straight-line method. See
Note 6.
Amortization of Goodwill. The Company amortizes goodwill relating to
PanEnergy's purchase of Texas Eastern Corporation (TEC) and its subsidiaries in
1989 on a straight-line basis over 40 years. Accumulated amortization of
goodwill at December 31, 1996 and 1995 was $83.6 million and $78.5 million,
respectively. See Note 4.
Early Retirement of Debt. The Company defers certain costs and losses, as
permitted by FERC, related to the early retirement of long-term debt and
amortizes such amounts as they are recovered through rates. At December 31, 1996
and 1995, other deferred charges included $48.7 million and $39.4 million,
respectively, of such costs. See Note 7.
Interest Cost Capitalization. The Company capitalizes interest on major
projects during construction. The rates used by TETCO are calculated pursuant to
FERC rules and include an allowance for equity funds.
Deferred Income Tax. The Company follows the asset and liability method of
accounting for income tax. Under this method, the effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period the rate change is enacted. See Note 4.
2. TRANSACTIONS WITH AFFILIATES
A summary of transactions with affiliates included in the consolidated
statement of income follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
MILLIONS 1996 1995 1994
- -------- ----- ----- -----
<S> <C> <C> <C>
Transportation and storage of natural gas................... $30.3 $18.0 $11.1
Other operating revenues.................................... 38.5 16.3 17.2
Operating expenses
Billed to affiliates...................................... 1.9 0.9 0.9
Billed from affiliates.................................... 30.3 24.9 25.6
General and administrative expenses
Billed to affiliates...................................... 0.9 -- --
Billed from affiliates.................................... 78.2 66.0 67.5
Interest expense............................................ 34.7 0.3 --
Interest income............................................. -- -- 34.5
</TABLE>
During 1994, net intercompany advances bore interest at variable rates
based on LIBOR (London Interbank Offered Rates). Effective January 1, 1995,
intercompany advances do not bear interest. Advances are carried as open
accounts and are not segregated between current and non-current amounts.
Increases and decreases in advances result from the movement of funds to provide
for operations, capital expenditures and debt payments of PanEnergy and its
subsidiaries. The collection of advances receivable is subject to the
availability of funds to PanEnergy, whose major sources of internally-generated
funds include dividends and advances from subsidiaries.
See also Notes 4, 7 and 11 for discussion of other specific transactions
with affiliates.
F-8
<PAGE> 22
3. FERC ORDER 636 AND TRANSITION COSTS
TETCO primarily provides transportation and storage services pursuant to
FERC Order 636. Order 636 allows pipelines to recover eligible costs resulting
from implementation of the order (transition costs). On July 16, 1996, the U.S.
Court of Appeals for the District of Columbia upheld, in general, all aspects of
Order 636 and remanded certain issues, including recovery of gas supply
realignment (GSR) costs, for further explanation. This decision is on appeal to
the U.S. Supreme Court. On February 27, 1997, FERC issued an order reaffirming
the right of interstate pipelines to recover 100% of GSR costs. In addition,
this matter is substantially mitigated by TETCO's transition cost settlement.
In 1994, TETCO refunded $84 million to customers pursuant to a
FERC-approved settlement that resolved regulatory issues related primarily to
Order 636 transition costs and a number of other issues related to services
prior to Order 636. TETCO's final and nonappealable settlement provides for the
recovery of a significant portion of transition costs through volumetric and
reservation charges through 2002 and beyond, if necessary. Pursuant to the
settlement, TETCO will absorb a certain portion of the transition costs, the
amount of which continues to be subject to change dependent upon natural gas
prices and contract reserve levels. In 1995, based upon producers' discoveries
of additional natural gas reserves, the Company increased its estimated
liabilities for transition costs by $125.8 million. Under the terms of the
existing settlement, regulatory assets were increased $85.8 million and the
Company recognized a $40 million charge to operating expenses ($26 million after
tax).
At December 31, 1996 and 1995, the Company had recorded $64.8 million and
$249.8 million (1996), and $65 million and $310 million (1995), of current and
long-term regulatory assets, respectively, representing transition costs
incurred or estimated to be incurred that will be recovered. At December 31,
1996 and 1995, the Company had recorded estimated current and long-term
liabilities related to Order 636 transition costs of $84.4 million and $121.9
million (1996), and $125 million and $165 million (1995), respectively.
The Company believes the exposure associated with gas purchase contract
commitments is substantially mitigated by transition cost recoveries pursuant to
TETCO's settlement, Order 636 and other mechanisms, and that this issue will not
have a material adverse effect on consolidated results of operations or
financial position.
In 1993, the U.S. Department of the Interior (the Department) announced its
intention to seek additional royalties from gas producers as a result of
payments received by such producers in connection with past take-or-pay
settlements, and buyouts and buydowns of gas sales contracts with natural gas
pipelines. TETCO, with respect to certain producer contract settlements, may be
contractually required to reimburse or, in some instances, to indemnify
producers against such royalty claims. The potential liability of the producers
to the government and of TETCO to the producers involves complex issues of law
and fact which are likely to take substantial time to resolve. On August 27,
1996, the U.S. Court of Appeals for the District of Columbia overturned a lower
court ruling in favor of the government in litigation brought on behalf of
producers. The Department's petition for rehearing was denied in November 1996.
The Department may continue to seek further appellate review. If TETCO
ultimately has to reimburse or indemnify the producers, TETCO will file with
FERC to recover these costs from pipeline customers. The Company believes the
resolution of this matter will not have a material adverse effect on the
Company's consolidated financial position.
4. INCOME TAX
The Company's taxable income is included in a consolidated federal income
tax return with PanEnergy. Therefore, income tax has been provided in accordance
with PanEnergy's tax allocation policy, which requires regulated subsidiaries to
calculate federal income tax as if separate taxable income, as defined, was
reported.
F-9
<PAGE> 23
Income tax as presented in the consolidated statement of income is
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
MILLIONS 1996 1995 1994
- -------- ----- ----- -----
<S> <C> <C> <C>
Current
Federal.................................................. $34.9 $40.2 $31.3
State.................................................... 4.4 4.4 7.5
----- ----- -----
Total current.................................... 39.3 44.6 38.8
----- ----- -----
Deferred
Federal.................................................. 36.4 31.4 41.2
State.................................................... 4.5 5.0 6.8
----- ----- -----
Total deferred................................... 40.9 36.4 48.0
----- ----- -----
Total income tax........................................... $80.2 $81.0 $86.8
===== ===== =====
</TABLE>
Total income tax differs from the amount computed by applying the federal
income tax rate to income before income tax. The reasons for this difference are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
MILLIONS 1996 1995 1994
- -------- ----- ----- -----
<S> <C> <C> <C>
Federal income tax rate.................................... 35% 35% 35%
===== ===== =====
Income tax, computed at the statutory rate................. $73.2 $72.5 $74.5
Adjustments resulting from
State income tax, net of federal income tax effect....... 5.8 6.1 9.3
Goodwill amortization.................................... 1.8 2.1 2.9
Other items, net......................................... (0.6) 0.3 0.1
----- ----- -----
Total income tax................................. $80.2 $81.0 $86.8
===== ===== =====
Effective tax rate......................................... 38.3% 39.1% 40.8%
===== ===== =====
</TABLE>
The tax effects of temporary differences that resulted in deferred income
tax assets and liabilities, and a description of the significant financial
statement items that created these differences, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
MILLIONS 1996 1995
- -------- ------- -------
<S> <C> <C>
Deferred liabilities and credits............................ $ 129.8 $ 150.0
Other accrued liabilities................................... 50.8 75.2
Other....................................................... 1.3 2.7
------- -------
Total deferred income tax assets.................. 181.9 227.9
------- -------
Plant, property and equipment............................... (511.6) (487.6)
Deferred charges............................................ (163.0) (184.2)
State deferred income tax, net of federal tax effect........ (54.3) (52.3)
Other....................................................... (32.0) (44.7)
------- -------
Total deferred income tax liabilities............. (760.9) (768.8)
------- -------
Net deferred income tax liability, net of current amounts... $(579.0) $(540.9)
======= =======
</TABLE>
In 1990, the Internal Revenue Service (IRS) issued regulations which
disallow for tax purposes losses incurred in PanEnergy's 1989 sales of certain
assets that were acquired in the purchase of TEC. Consequently, PanEnergy
established a provision in 1990 for this and certain other issues, resulting in
increases in TETCO's goodwill and paid-in capital. Following further discussions
with the IRS, PanEnergy revised its estimates in 1994 with respect to the
disallowed loss issue, and in 1995 and 1996 with respect to the remaining
issues. As a result, PanEnergy reduced its provision and TETCO's related
goodwill and paid-in capital by approximately $7 million, $100 million and $200
million in 1996, 1995 and 1994, respectively.
F-10
<PAGE> 24
5. FINANCIAL INSTRUMENTS AND CREDIT RISK
Financial Instruments
<TABLE>
<CAPTION>
APPROXIMATE
MILLIONS BOOK VALUE FAIR VALUE
- -------- ---------- -----------
ASSETS (LIABILITIES)
<S> <C> <C> <C>
DECEMBER 31, 1996
Other current receivables......................... $ 0.1 $ 0.1
Other investments................................. 12.7 12.7(1)
Notes payable -- parent........................... Note 7 (605.0) (605.0)(2)
Other long-term debt.............................. Note 7 (599.4) (658.6)(2)
DECEMBER 31, 1995
Cash.............................................. $ 0.1 $ 0.1
Other current receivables......................... 2.6 2.6
Other investments................................. 11.6 11.6(1)
Note payable -- parent............................ Note 7 (355.0) (355.0)(2)
Long-term debt.................................... Note 7 (820.5) (951.8)(2)
</TABLE>
- ---------------
(1) The fair value of these financial instruments, which are insurance
contracts, is based on determinations by insurance companies.
(2) Based on quoted market prices for the same or similar issues, discounted
cash flows and/or rates currently available to the Company for debt with
similar terms and remaining maturities.
PanEnergy's four interstate natural gas pipelines have implemented an
agreement to sell with limited recourse, on a continuing basis, current accounts
receivable at a discount. At December 31, 1996, the Company had a $56 million
liability recorded for collections by the Company of accounts receivable sold in
December 1996. In 1996, TETCO received $98.6 million from the sale of the right
to collect certain Order 636 transition costs, with limited recourse. At
December 31, 1996, $87.3 million remained outstanding on the transition cost
recovery rights sold. In the opinion of management, the probability that the
Company will be required to perform under the recourse provisions is remote.
The recourse provisions of the trade accounts receivable and Order 636
transition cost recovery sales agreements have no book value associated with
them and there are no fair values readily determinable since quoted market
prices are not available. The fair values of advances receivable-parent are not
readily determinable since such amounts are carried as non-interest bearing open
accounts. See Note 2.
Significant Customers and Concentrations. Customer billings that exceeded
10% of consolidated revenues during the years ended December 31, 1996, 1995 or
1994 were those to Public Service Electric and Gas Company totaling $119.6
million, $130.4 million and $112.3 million, respectively.
The Company's primary market area is located in the Northeast region of the
United States. The Company has a concentration of receivables due from gas and
electric utilities in this area, which may affect the Company's overall credit
risk in that certain customers may be similarly affected by changes in economic,
regulatory or other factors. Trade receivables are generally not collateralized;
however, the Company analyzes customers' credit positions, establishes credit
limits and monitors the appropriateness of those limits on an ongoing basis.
F-11
<PAGE> 25
6. PLANT, PROPERTY AND EQUIPMENT
A summary of plant, property and equipment by classification follows:
<TABLE>
<CAPTION>
DECEMBER 31
DEPRECIATION --------------------
MILLIONS RATES 1996 1995
- -------- ------------ -------- --------
<S> <C> <C> <C>
Transmission........................................ 3% $3,098.7 $3,024.1
Underground storage................................. 2% 100.9 96.7
General plant....................................... 3%-20% 57.7 56.1
Construction work in progress....................... -- 60.2 42.0
-------- --------
Total plant, property and equipment....... $3,317.5 $3,218.9
======== ========
</TABLE>
7. DEBT AND CREDIT FACILITIES
A summary of long-term debt follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
MILLIONS 1996 1995
- -------- -------- ------
<S> <C> <C>
Notes Payable -- Parent
8.25% maturing 2001....................................... $ 355.0 $ --
8.25% maturing 2006....................................... 250.0 --
Notes Payable -- Other
10 3/8% maturing 2000..................................... 200.0 200.0
10% maturing 2001......................................... 100.0 100.0
8% maturing 2002.......................................... 100.0 100.0
8 1/4% maturing 2004...................................... 100.0 100.0
Medium Term, Series A, 7.64-9.07% maturing 1999-2012...... 100.0 100.0
Debentures
10 1/8% maturing 2011..................................... -- 100.0
10% maturing 2011......................................... -- 150.0
Unamortized Discount........................................ (0.6) (29.5)
-------- ------
Total Long-term Debt.............................. $1,204.4 $820.5
======== ======
</TABLE>
The interest rates indicated were in effect on principal balances
outstanding at December 31, 1996. Interest costs capitalized in 1996, 1995 and
1994 were $0.7 million, $1.4 million and $2.8 million, respectively.
Required sinking fund and installment payments applicable to long-term debt
for the years 1999 through 2001 are $49 million, $200 million and $471 million,
respectively. There are no required payments due in 1997 or 1998.
In December 1995, TETCO declared and paid a $355 million dividend on common
stock in the form of a promissory note due PanEnergy. This promissory note bears
interest at prime and was to mature on June 30, 1996. In 1996, the maturity date
of the note was extended to October 1, 2001.
On October 1, 1996, TETCO redeemed its $150 million, 10% debentures due
2011 and its $100 million, 10 1/8% debentures also due 2011. TETCO recorded a
non-cash extraordinary charge of $16.7 million (net of income tax of $10.3
million) related to the unamortized discount on this early retirement of debt.
TETCO has an effective shelf registration statement with the Securities and
Exchange Commission for the issuance of $100 million of unsecured debt
securities.
8. LEASES
The Company utilizes assets under operating leases in several areas of
operations. Consolidated rental expense for these leases and for lease expenses
billed from affiliates amounted to $11 million in 1996,
F-12
<PAGE> 26
$10.5 million in 1995 and $10 million in 1994. Minimum rental payments under the
Company's various operating leases for the years 1997 through 2001 are $3.2
million, $2.8 million, $2.5 million, $1.8 million and $0.5 million,
respectively. Thereafter, payments aggregate $0.9 million through 2004.
9. ENVIRONMENTAL MATTERS
TETCO is currently conducting PCB (polychlorinated biphenyl) assessment and
cleanup programs at certain of its compressor station sites under conditions
stipulated by a U.S. Consent Decree. The programs include on- and off-site
assessment, installation of on-site source control equipment and groundwater
monitoring wells, and on- and off-site cleanup work. TETCO expects to complete
these cleanup programs during 1997. Groundwater monitoring activities will
continue beyond 1997.
In 1987, the Commonwealth of Kentucky instituted suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three compressor
station sites in Kentucky. This suit, which is still pending, seeks penalties
for violations of Kentucky environmental statutes. The Company previously
established a reserve for potential fines and penalties. In 1996, TETCO
completed cleanup of these sites.
At December 31, 1996 and 1995, the Company had current and long-term
liabilities recorded of $26.1 million and $136.6 million (1996), and $44.9
million and $168.3 million (1995), respectively, for remaining estimated cleanup
costs. These amounts represent an estimate of probable gross cleanup costs to be
incurred by TETCO, have not been discounted or reduced by customer recoveries
and do not include fines, penalties or third-party claims. Estimated liabilities
for remaining TETCO PCB cleanup costs were reduced $77.6 million in the fourth
quarter 1995 as a result of lower-than-projected cleanup costs incurred on
completed sites. As a result of the reduction in estimated cleanup costs,
TETCO's share of the cleanup estimate was lowered, which decreased operating
expenses $33 million ($21.5 million after tax) and reduced related regulatory
assets by $44.6 million. At December 31, 1996 and 1995, the Company had current
and long-term regulatory assets recorded of $10.8 million and $90.4 million
(1996), and $17 million and $101.7 million (1995), respectively, representing
costs to be recovered from customers.
The federal and state cleanup programs are not expected to interrupt or
diminish TETCO's ability to deliver natural gas to customers. The Company
believes the resolution of matters relating to the environmental issues
discussed above will not have a material adverse effect on consolidated results
of operations or financial position due to customer settlements and past
experience with environmental cleanup costs.
10. LITIGATION
Edison. In connection with a rupture and fire that occurred on TETCO's
36-inch natural gas pipeline on March 23, 1994 in Edison, New Jersey, claims
have been made and numerous lawsuits have been filed in the Superior Court of
New Jersey, Middlesex County against TETCO and other private and governmental
entities by or on behalf of hundreds of individuals and businesses. These
claimants seek compensatory damages for personal injuries, property losses
and/or lost business income, as well as punitive damages. The property insurers
of an apartment complex adjacent to the asphalt plant where the rupture occurred
also filed suits against TETCO and other defendants in Superior Court seeking to
recover amounts paid under pertinent policies of insurance. Quality Materials,
Inc. (Quality), the owner of the asphalt plant, filed suit in the U.S. District
Court for the District of New Jersey against TETCO seeking to recover
unspecified property damages, lost income and punitive damages. TETCO has filed
a counterclaim against Quality and has settled the claims of the property
insurers and some individuals and businesses, while retaining the right to seek
recovery of those settlement amounts from other defendants. In April 1996, the
U.S. District Court dismissed the suit by Quality and the counterclaim by TETCO
on the grounds that all claims should be resolved in the pending Middlesex
County litigation.
The findings of an investigation of the incident by the National
Transportation Safety Board indicate third-party damage to be the cause of the
rupture. The Company recorded a provision in 1994 for costs related to this
incident that are not recoverable under the Company's insurance policies.
F-13
<PAGE> 27
PCBs. On August 30, 1995, two plaintiffs filed a lawsuit with class action
allegations in Jefferson County, Texas, against PanEnergy, TETCO and TEC, among
others. While that suit ultimately was dismissed, one of the two original
plaintiffs refiled the suit on June 3, 1996 in the Circuit Court of the City of
St. Louis, Missouri. The defendants removed the suit to the U.S. District Court
for the Eastern District of Missouri, Eastern Division in July 1996. In March
1997, the case was remanded to the same state court in St. Louis. The plaintiff
seeks recovery of compensatory and punitive damages, in unspecified amounts, for
personal injuries and property damage resulting from alleged exposure to PCBs.
The Company believes the resolution of the legal matters discussed above
will not have a material adverse effect on the Company's consolidated results of
operations or financial position.
Marathon/Amerada Hess. On December 16, 1996, TETCO received notification
that Marathon Oil Company (Marathon) intended to commence substitution of other
gas reserves, deliverability and leases for those dedicated to a certain natural
gas purchase contract (the Marathon Contract) with TETCO. In TETCO's view, the
tendered substitute gas reserves, deliverability and leases are not subject to
the Marathon Contract and TETCO filed a declaratory judgment action on December
17, 1996 in the U.S. District Court for the Eastern District of Louisiana
seeking a ruling that Marathon's interpretation of the Marathon Contract is
incorrect. On January 7, 1997, Marathon filed an answer and a counterclaim to
TETCO's complaint seeking a declaratory judgment enforcing its interpretation of
the Marathon Contract. On February 18, 1997, Amerada Hess Corporation (Amerada
Hess) notified TETCO that it intended to commence substitution of other gas
reserves, deliverability, and leases for those dedicated to its natural gas
purchase contract (the Amerada Hess Contract) with TETCO. On the same date,
Amerada Hess also filed a petition in the District Court of Harris County,
Texas, 157th Judicial District, seeking a declaratory judgment that its
interpretation of the Amerada Hess Contract, which covers the same leases and
reserves as the Marathon Contract, is correct. TETCO now has removed that suit
to the U.S. District Court for the Southern District of Texas, Houston Division.
TETCO also filed a declaratory judgment action with respect to Amerada Hess
contentions in the U.S. District Court for the Eastern District of Louisiana on
February 21, 1997. The Louisiana action now has been transferred to the judge
presiding over the Marathon Contract matter. The potential liability of the
Company should TETCO be contractually obligated to purchase natural gas based
upon the substitute gas reserves, deliverability and leases, and the effect of
transition cost recoveries pursuant to TETCO's Order 636 settlement involve
numerous complex legal and factual matters which will take a substantial period
of time to resolve. Because these matters are in the early stages of litigation,
the Company cannot estimate the effects of these issues, based on information
currently available.
Grynberg. A lawsuit filed in the United States District Court for the
District of Columbia by natural gas producer Jack Grynberg was served in July
1996 naming TETCO and certain affiliated companies as defendants, among others.
The action was brought under the federal False Claims Act against 70 defendants,
including every major pipeline, asserting that the defendants intentionally
underreported volumes and heating content of gas purchased from producers on
federal and Indian lands, with the result that the United States was underpaid
royalties. The plaintiff seeks recovery of the royalty amounts due the United
States, treble damages and civil penalties. Because this matter is in the early
stages of litigation, the Company cannot estimate the effects of this issue,
based on information currently available.
The Company is also involved in various other legal actions and claims
arising in the normal course of business. Based upon its current assessment of
the facts and the law, management does not believe that the outcome of any such
action or claim will have a material adverse effect upon the consolidated
results of operations or financial position of the Company. However, these
actions and claims in the aggregate seek substantial damages against the Company
and are subject to the uncertainties inherent in any litigation. The Company is
defending itself vigorously in all the above suits.
11. PENSION AND OTHER BENEFITS
Pension Benefits. PanEnergy has, and the Company participates in, a
non-contributory trusteed pension plan covering eligible employees with a
minimum of one year vesting service. The plan provides pension benefits for
eligible employees of TETCO that are generally based on an employee's years of
benefit accrual
F-14
<PAGE> 28
service and highest average eligible earnings. PanEnergy's policy is to fund
amounts, as necessary, on an actuarial basis to provide assets sufficient to
meet benefits to be paid to plan members.
The components of the Company's net pension benefit, allocated by
PanEnergy, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
MILLIONS 1996 1995 1994
- -------- ------ ------ ------
<S> <C> <C> <C>
Actual return on plan assets............................. $ 36.5 $ 48.3 $ (0.7)
Amount deferred.......................................... (15.5) (28.4) 21.0
------ ------ ------
Expected return on plan assets........................... 21.0 19.9 20.3
Service cost benefits earned during the period........... (3.7) (3.0) (3.5)
Interest cost on projected benefit obligations........... (14.5) (14.7) (14.4)
------ ------ ------
Net pension benefit............................ $ 2.8 $ 2.2 $ 2.4
====== ====== ======
</TABLE>
Assumptions used in the Company's pension and other postretirement benefits
accounting are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
PERCENT 1996 1995 1994
- ------- ---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.5 7.5 8.5
Rate of increase in compensation levels..................... 5.0 5.0 5.0
Expected long-term rate of return on plan assets............ 9.5 9.5 9.5
Assumed tax rate, where applicable.......................... 39.6 39.6 39.6
</TABLE>
PanEnergy also sponsors, and the Company participates in, an employee
savings plan which covers substantially all employees. The Company expensed plan
contributions of $3.7 million in 1996 and $3.6 million in both 1995 and 1994.
Other Postretirement Benefits. The Company's postretirement benefits, in
conjunction with PanEnergy, consist of certain health care and life insurance
benefits. Substantially all of TETCO's employees may become eligible for these
benefits when they reach retirement age while working for the Company and have
attained 10 years of specified service. The benefits are provided through
contributory and noncontributory trusteed benefit plans.
The Company accrues such benefit costs over the active service period of
employees to the date of full eligibility for the benefits. The net unrecognized
transition obligation, resulting from implementation of accrual accounting in
1993, is being amortized over approximately 20 years.
It is the Company's and PanEnergy's general policy to fund accrued
postretirement health care costs. PanEnergy's retiree life insurance plan is
fully funded based on actuarially-determined requirements. FERC policy generally
allows, subject to individual pipeline proceedings, for current rate recovery of
funded accrued postretirement benefit costs including amortization of the
transition obligation. Pending FERC approval in rate proceedings, TETCO has
deferred certain postretirement benefit costs.
F-15
<PAGE> 29
The components of the Company's net postretirement benefits cost, allocated
by PanEnergy, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
MILLIONS 1996 1995 1994
- -------- ----- ----- -----
<S> <C> <C> <C>
Actual return on plan assets................................ $ 1.2 $ 0.6 $ 0.2
Amount deferred............................................. (0.5) (0.3) --
----- ----- -----
Expected return on plan assets.............................. 0.7 0.3 0.2
Service cost benefits earned during the period.............. (0.6) (0.5) (0.6)
Interest cost on accumulated obligations.................... (6.2) (6.3) (6.2)
Net amortization and deferral............................... (0.8) (0.7) (0.7)
----- ----- -----
Net postretirement benefits cost.................. $(6.9) $(7.2) $(7.3)
===== ===== =====
</TABLE>
The assumed health care cost trend rate used to estimate postretirement
benefits was 7% for 1997. The health care cost trend rate is expected to
decrease, with a 5.5% ultimate trend rate expected to be achieved by 1999. The
effect of a 1% increase in the assumed health care cost trend rate for each
future year is $0.3 million on the annual aggregate postretirement benefit cost
and $4.8 million on PanEnergy's accumulated postretirement benefit obligation
attributable to the Company at December 31, 1996.
Other Postemployment Benefits. The Company accrues such benefit costs
provided by the Company to certain former or inactive employees. TETCO has
received permission from FERC to defer such costs, pending approval in rate
proceedings.
F-16
<PAGE> 30
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------
MILLIONS MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
1996
Operating revenues.................................. $239.2 $221.8 $220.5 $232.1
Operating expenses.................................. 154.1 145.2 140.1 153.6
------ ------ ------ ------
Operating income.................................... 85.1 76.6 80.4 78.5
Other income, net of deductions..................... 1.7 1.7 2.4 1.3
------ ------ ------ ------
Earnings before interest and tax.................... 86.8 78.3 82.8 79.8
Interest expense.................................... 29.9 29.2 30.1 29.3
------ ------ ------ ------
Earnings before income tax.......................... 56.9 49.1 52.7 50.5
Income tax.......................................... 22.4 19.3 20.4 18.1
------ ------ ------ ------
Income before extraordinary item.................... 34.5 29.8 32.3 32.4
Extraordinary item, net of tax(1)................... -- -- -- (16.7)
------ ------ ------ ------
Net income.......................................... $ 34.5 $ 29.8 $ 32.3 $ 15.7
====== ====== ====== ======
1995
Operating revenues.................................. $227.6 $212.8 $209.7 $224.3
Operating expenses.................................. 148.8 136.3 142.9 152.3
------ ------ ------ ------
Operating income.................................... 78.8 76.5 66.8 72.0
Other income, net of deductions..................... 0.7 0.7 1.5 0.8
------ ------ ------ ------
Earnings before interest and tax.................... 79.5 77.2 68.3 72.8
Interest expense.................................... 23.9 22.3 21.8 22.6
------ ------ ------ ------
Earnings before income tax.......................... 55.6 54.9 46.5 50.2
Income tax.......................................... 22.2 21.9 18.7 18.2
------ ------ ------ ------
Net income.......................................... $ 33.4 $ 33.0 $ 27.8 $ 32.0
====== ====== ====== ======
</TABLE>
Certain amounts for the prior year have been reclassified to conform to the
current reporting presentation.
- ---------------
(1) Resulting from the early retirement of debt.
F-17
<PAGE> 31
TEXAS EASTERN TRANSMISSION CORPORATION AND SUBSIDIARIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------
MILLIONS 1996 1995 1994 1993 1992
- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES................. $ 913.6 $ 874.4 $ 826.7 $ 905.6 $1,083.5
COSTS AND EXPENSES
Natural gas purchased............ -- -- -- 96.2 214.5
Operating and maintenance........ 295.5 306.3 272.9 346.3(1) 317.7
Depreciation and amortization.... 145.8 143.9 141.1 140.8 136.1
Other costs and expenses......... 151.7 130.1 148.0 140.4 137.4
-------- -------- -------- -------- --------
OPERATING INCOME................... $ 320.6 $ 294.1 $ 264.7 $ 181.9 $ 277.8
EARNINGS BEFORE INTEREST AND TAX... $ 327.7 $ 297.8 $ 258.4 $ 182.6 $ 259.0
INTEREST EXPENSE................... $ 118.5 $ 90.6 $ 80.0 $ 114.7 $ 107.2
INCOME BEFORE EXTRAORDINARY ITEM... $ 129.0 $ 126.2 $ 126.1 $ 54.7(1) $ 123.3
NET INCOME......................... $ 112.3(2) $ 126.2 $ 126.1 $ 54.7(1) $ 123.3
PLANT, PROPERTY AND EQUIPMENT...... $3,317.5 $3,218.9 $3,122.8 $2,982.1 $2,774.0
Accumulated depreciation and
amortization..................... (796.9) (681.9) (584.6) (478.5) (359.6)
-------- -------- -------- -------- --------
Net plant, property and
equipment........................ $2,520.6 $2,537.0 $2,538.2 $2,503.6 $2,414.4
TOTAL ASSETS............. $4,318.1 $4,208.3 $4,198.9 $4,590.6 $4,714.1
CAPITAL STRUCTURE
Long-term debt, including current
maturities.................... $1,204.4 $ 820.5 $ 818.4 $ 717.2 $1,158.5
Notes payable.................... -- 355.0 -- 18.4 17.0
Common stockholder's equity...... 1,661.8 1,556.7 1,887.3 2,137.0 2,084.9
-------- -------- -------- -------- --------
TOTAL CAPITALIZATION..... $2,866.2 $2,732.2 $2,705.7 $2,872.6 $3,260.4
OPERATING CASH FLOW................ $ 355.8 $ 259.6 $ 189.0 $ 230.8 $ 12.6
CAPITAL EXPENDITURES............... $ 125.2 $ 135.3 $ 160.5 $ 216.4 $ 107.5
VOLUMES, TBtu(3)
Transports....................... 1,349 1,234 1,194 1,081 956
Sales............................ -- -- -- 34 100
-------- -------- -------- -------- --------
Total.................... 1,349 1,234 1,194 1,115 1,056
======== ======== ======== ======== ========
</TABLE>
Certain amounts for the prior years have been reclassified to conform to
the current reporting presentation.
(1) Includes a $100 million charge ($60.2 million after tax) reflecting TETCO's
settlement of Order 636 implementation and other issues.
(2) Includes an extraordinary charge of $16.7 million (net of income tax of
$10.3 million) resulting from the early retirement of debt.
(3) Trillion British thermal units.
See the Notes to Consolidated Financial Statements for a discussion of material
contingencies
F-18
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TEXAS EASTERN TRANSMISSION CORPORATION
By /s/ ROBERT W. REED
----------------------------------------
(Robert W. Reed,
Secretary)
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 26, 1997.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
------------------ -----
<S> <C>
(i) Principal executive officer:*
/s/ FRED J. FOWLER
--------------------------------------------------
(Fred J. Fowler) President
(ii) Principal financial officer:*
/s/ PAUL F. FERGUSON, JR.
- --------------------------------------------------
(Paul F. Ferguson, Jr.) Senior Vice President and Chief Financial Officer
(iii) Principal accounting officer:*
/s/ SANDRA P. MEYER
- --------------------------------------------------
(Sandra P. Meyer) Vice President and Treasurer
(iv) Directors:*
PAUL M. ANDERSON
FRED J. FOWLER
DENNIS R. HENDRIX
- ---------------
* Signed on behalf of each of these persons:
By /s/ ROBERT W. REED
----------------------------------------------
(Robert W. Reed,
Attorney-in-Fact)
</TABLE>
F-19
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILE
NUMBER DESCRIPTION ORIGINALLY FILED AS EXHIBIT NUMBER
------- ----------- --------------------------- ------
<C> <S> <C> <C>
3.01 Restated Certificate of 3.1 to Form 10-Q of TETCO for 1-4456
Incorporation of Texas Eastern quarter ended September 30, 1993
Transmission Corporation dated
October 25, 1993
3.02 By-Laws of Texas Eastern 3.2 to Form 10-Q of TETCO for 1-4456
Transmission Corporation as quarter ended September 30, 1993
adopted on August 17, 1993
*23 Consent of KPMG Peat Marwick LLP
*24 Powers of Attorney
*27 Financial Data Schedule for
December 31, 1996
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Texas Eastern Transmission Corporation:
We consent to incorporation by reference in the registration statement
(No. 33-67690) on Form S-3 of Texas Eastern Transmission Corporation of our
report dated January 16, 1997, relating to the consolidated balance sheets of
Texas Eastern Transmission Corporation and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, common
stockholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the December 31, 1996
annual report on Form 10-K of Texas Eastern Transmission Corporation.
KPMG PEAT MARWICK LLP
Houston, Texas
March 26, 1997
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Officers and/or
Directors of TEXAS EASTERN TRANSMISSION CORPORATION (the "Company"), a Delaware
corporation, do hereby constitute and appoint PAUL F. FERGUSON, JR., CARL B.
KING AND ROBERT W. REED, and each of them, their true and lawful attorney and
agent to do any and all acts and things, and execute any and all instruments
which, with the advice of Counsel, said attorney and agent may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1934,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the filing under said Act of the Form
10-K Annual Report with the Securities and Exchange Commission, including
specifically, but without limitation thereof, to sign their names as Officers
and/or Directors of the Company to the Form 10-K Report, and to any instrument
or document filed as a part of, or in connection with, said Form 10-K Report or
Amendment thereto; and the undersigned do hereby ratify and confirm all that
said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents this
26th day of March, 1997
/s/ PAUL M. ANDERSON /s/ DENNIS R. HENDRIX
- ----------------------------- -----------------------------
Paul M. Anderson Dennis R. Hendrix
/s/ FRED J. FOWLER
- -----------------------------
Fred J. Fowler
/s/ PAUL F. FERGUSON, JR. /s/ SANDRA P. MEYER
- ----------------------------- -----------------------------
Paul F. Ferguson, Jr. Sandra P. Meyer
Senior Vice President and Vice President, Treasurer and
Chief Financial Officer Assistant Secretary
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TEXAS
EASTERN TRANSMISSION CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000097432
<NAME> TEXAS EASTERN TRANSMISSION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 77,200
<ALLOWANCES> 0
<INVENTORY> 16,100
<CURRENT-ASSETS> 213,300
<PP&E> 3,317,500
<DEPRECIATION> 796,900
<TOTAL-ASSETS> 4,318,100
<CURRENT-LIABILITIES> 407,300
<BONDS> 1,204,400
0
0
<COMMON> 0
<OTHER-SE> 1,661,800
<TOTAL-LIABILITY-AND-EQUITY> 4,318,100
<SALES> 0
<TOTAL-REVENUES> 913,600
<CGS> 0
<TOTAL-COSTS> 295,500
<OTHER-EXPENSES> 187,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,500
<INCOME-PRETAX> 209,200
<INCOME-TAX> 80,200
<INCOME-CONTINUING> 129,000
<DISCONTINUED> 0
<EXTRAORDINARY> (16,700)
<CHANGES> 0
<NET-INCOME> 112,300
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>NOT MEANINGFUL SINCE TEXAS EASTERN TRANSMISSION CORPORATON IS A WHOLLY-OWNED
SUBSIDIARY.
</FN>
</TABLE>
