================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 1-4456
TEXAS EASTERN TRANSMISSION CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 72-0378240
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TX 77251-1642
(Address of Principal Executive Offices)
(Zip code)
713-627-5400
(Registrant's telephone number, including area code)
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 [ ]
The Registrant meets the conditions set forth in General Instructions (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format. Part I, Item 2 has been reduced and Part II, Item 4 has been
omitted in accordance with such Instruction H.
All of the Registrant's common shares are indirectly owned by Duke Energy
Corporation (File No. 1-4928), which files reports and proxy materials pursuant
to the Securities Exchange Act of 1934.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, $1 par value, outstanding at
April 28, 2000.............................................................1,000
================================================================================
<PAGE>
TEXAS EASTERN TRANSMISSION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C>
ITEM PAGE
- ---- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements ...................................................................................1
Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999....................1
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999................2
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999..................................3
Notes to Consolidated Financial Statements..............................................................5
2. Management's Discussion and Analysis of Results of Operations and Financial Condition...................6
PART II. OTHER INFORMATION
1. Legal Proceedings.......................................................................................7
6. Exhibits and Reports on Form 8-K........................................................................7
Signatures..............................................................................................8
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
From time to time, the Company's reports, filings and other public announcements
may include assumptions, projections, expectations, intentions or beliefs about
future events. These statements are intended as "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. The Company cautions
that assumptions, projections, expectations, intentions or beliefs about future
events may and often do vary from actual results and the differences between
assumptions, projections, expectations, intentions or beliefs and actual results
can be material. Accordingly, there can be no assurance that actual results will
not differ materially from those expressed or implied by the forward-looking
statements. Some of the factors that could cause actual achievements and events
to differ materially from those expressed or implied in such forward-looking
statements include state and federal legislative and regulatory initiatives that
affect cost and investment recovery, have an impact on rate structures and
affect the speed and degree to which competition enters the natural gas
industry; the weather and other natural phenomena; the timing and extent of
changes in commodity prices and interest rates; changes in environmental and
other laws and regulations to which the Company is subject or other external
factors over which the Company has no control; the results of financing efforts,
including the Company's ability to obtain financing on favorable terms, which
can be affected by the Company's credit rating and general economic conditions;
growth in opportunities for the Company; and the effect of accounting policies
issued periodically by accounting standard-setting bodies.
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEXAS EASTERN TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions)
Three Months Ended
March 31,
----------------------------
2000 1999
-------- ------
OPERATING REVENUES
Transportation of natural gas $ 191 $ 206
Storage of natural gas 19 17
Other 25 11
-------- ------
Total operating revenues 235 234
-------- ------
OPERATING EXPENSES
Operation and maintenance 97 94
Depreciation and amortization 22 21
Property and other taxes 12 12
-------- ------
Total operating expenses 131 127
-------- ------
OPERATING INCOME 104 107
-------- ------
OTHER INCOME AND EXPENSES 4 3
-------- ------
EARNINGS BEFORE INTEREST AND TAXES 108 110
INTEREST EXPENSE 27 26
-------- ------
EARNINGS BEFORE INCOME TAXES 81 84
INCOME TAXES 30 32
-------- ------
NET INCOME $ 51 $ 52
======== ======
See Notes to Consolidated Financial Statements.
1
<PAGE>
TEXAS EASTERN TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Ended
March 31,
------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 51 $ 52
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 23 22
Deferred income taxes (6) (3)
Transition cost recoveries 24 23
Net change in current assets and liabilities (62) (44)
Other, net (6) (5)
---- ----
Net cash provided by operating activities 24 45
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures (24) (17)
Net increase in advances receivable - parent (8) (28)
Retirements and other 8 -
---- ----
Net cash used in investing activities (24) (45)
---- ----
Net change in cash and cash equivalents - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - -
---- ----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ -
==== ====
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amount capitalized $ 24 $ 24
Cash paid for income taxes $ 112 $ 92
See Notes to Consolidated Financial Statements.
2
<PAGE>
TEXAS EASTERN TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions)
March 31, December 31,
2000 1999
(Unaudited)
----------- ------------
ASSETS
CURRENT ASSETS
Accounts receivable $ 81 $ 83
Inventory 27 27
Current portion of regulatory assets 57 81
Other 33 29
------- -------
Total current assets 198 220
------- -------
INVESTMENTS AND OTHER ASSETS
Advances receivable - parent 1,275 1,267
Goodwill, net 145 146
------- -------
Total investments and other assets 1,420 1,413
------- -------
PROPERTY, PLANT AND EQUIPMENT
Cost 3,697 3,677
Less accumulated depreciation and amortization 1,079 1,054
------- -------
Net property, plant and equipment 2,618 2,623
------- -------
REGULATORY ASSETS AND DEFERRED DEBITS 144 138
------- -------
TOTAL ASSETS $ 4,380 $ 4,394
======= =======
See Notes to Consolidated Financial Statements.
3
<PAGE>
TEXAS EASTERN TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
March 31, December 31,
2000 1999
(Unaudited)
----------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 18 $ 10
Taxes accrued 77 157
Deferred income taxes 15 25
Interest accrued 15 13
Current maturities of long-term debt 200 200
Other 70 60
------- -------
Total current liabilities 395 465
------- -------
LONG-TERM DEBT
Notes payable - parent 605 605
Other 351 351
------- -------
Total long-term debt 956 956
------- -------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 605 601
Environmental clean-up liabilities 48 49
Other 123 121
------- -------
Total deferred credits and other liabilities 776 771
------- -------
COMMON STOCKHOLDER'S EQUITY
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding - -
Paid-in capital 1,482 1,482
Retained earnings 771 720
------- -------
Total common stockholder's equity 2,253 2,202
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 4,380 $ 4,394
======= =======
See Notes to Consolidated Financial Statements.
4
<PAGE>
TEXAS EASTERN TRANSMISSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Texas Eastern Transmission Corporation (TETCO) is a wholly owned subsidiary of
PanEnergy Corp, which is an indirect wholly owned subsidiary of Duke Energy
Corporation. TETCO and its subsidiaries (the Company) are primarily engaged in
the interstate transportation and storage of natural gas. The interstate natural
gas transmission and storage operations of the Company are subject to the rules
and regulations of the Federal Energy Regulatory Commission (FERC).
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. These consolidated financial statements reflect
all normal recurring adjustments that are, in the opinion of management,
necessary to present fairly the financial position and results of operations for
the respective periods.
NOTE 2. RELATED PARTY TRANSACTIONS
Certain balances due to or from related parties included in the Consolidated
Balance Sheets at March 31, 2000 and December 31, 1999 are as follows:
- --------------------------------------------------------------------------------
In millions
- --------------------------------------------------------------------------------
March 31, December 31,
2000 1999
----------------------------------
Accounts receivable $ 7 $ 7
Accounts payable 13 -
Taxes accrued 36 113
- --------------------------------------------------------------------------------
For the three months ended March 31, 2000 and 1999, interest expense included
$13 million and $12 million, respectively, of interest associated with notes
payable to parent.
NOTE 3. GAS IMBALANCES
The consolidated balance sheets include in-kind balances as a result of
differences in gas volumes received and delivered. At March 31, 2000 and
December 31, 1999, other current assets included $24 million and $22 million,
respectively, and other current liabilities included $30 million and $15
million, respectively, related to gas imbalances.
NOTE 4. COMMITMENTS AND CONTINGENCIES
LITIGATION. The Company is involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding performance, contracts and other matters arising in the ordinary
course of business, some of which involve substantial amounts. Where
appropriate, the Company has made accruals in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies," to provide
for such matters. Management believes that the final disposition of these
proceedings will not have a material adverse effect on consolidated results of
operations or financial position.
OTHER COMMITMENTS AND CONTINGENCIES. In 1993, the U.S. Department of the
Interior 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, buyouts and buydowns of gas sales contracts with
natural gas pipelines. The Company, 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 the pipelines to the producers involves
complex issues of law and fact which are likely to take
5
<PAGE>
substantial time to resolve. If required to reimburse or indemnify the
producers, the Company will file with FERC to recover a portion of these costs
from pipeline customers.
Periodically, the Company may become involved in contractual disputes with
natural gas transmission customers involving potential or threatened abrogation
of contracts by the customers. If the customers are successful, the Company may
not receive the full value of anticipated benefits under the contracts.
Management believes that these commitments and contingencies will not have a
material adverse effect on consolidated results of operations or financial
position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
INTRODUCTION
Texas Eastern Transmission Corporation (TETCO) is a wholly owned subsidiary of
PanEnergy Corp, which is an indirect wholly owned subsidiary of Duke Energy
Corporation. TETCO and its subsidiaries (the Company) are primarily engaged in
the interstate transportation and storage of natural gas for customers primarily
in the Mid-Atlantic and New England states. The interstate natural gas
transmission and storage operations of the Company are subject to the rules and
regulations of the Federal Energy Regulatory Commission.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 was $51 million compared to
$52 million for the same period in 1999. Total operating revenues and expenses
remained relatively flat when comparing the first three months of 2000 to the
same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Capital and investment expenditures for the first three months of 2000 and 1999
totaled $24 million and $17 million, respectively. Projected 2000 capital and
investment expenditures, including allowance for funds used during construction,
are approximately $95 million, with market-expansion expenditures approximating
25% of the capital budget. These projections are subject to periodic review and
revision. Actual expenditures incurred may vary from estimates due to various
factors, including business expansion opportunities and environmental matters.
Expenditures for 2000 are expected to be funded by cash from operations and/or
collection of intercompany advances receivable.
CURRENT ISSUES
ENVIRONMENTAL MATTERS. AIR QUALITY CONTROL. In October 1998, the Environmental
Protection Agency (EPA) issued a final ruling on regional ozone control that
requires revised State Implementation Plans for 22 eastern states and the
District of Columbia. This EPA ruling was challenged in court by various states,
industry and other interests, including the Company. In March 2000, the court
upheld most aspects of the EPA's rule. Petitioners have asked the court to
rehear the case and overturn the March decision. In May 1999, the court had
ordered that no state need submit a plan "pending further order of the court."
That order is still in place, although the EPA had asked the court to lift the
order. The EPA has undertaken other ozone-related actions having virtually
identical goals to its October 1998 action. These actions have likewise been
challenged in court by the same or similar parties. The final resolution of the
October 1998 action is expected to resolve these other ozone-related actions as
well. Depending on the resolution of these matters, costs to the Company may
range up to $10 million for additional capital improvements.
6
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning material litigation and other contingencies, see Note
4 to the Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the first quarter of 2000.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXAS EASTERN TRANSMISSION CORPORATION
May 12, 2000 /s/ Dorothy M. Ables
--------------------
Dorothy M. Ables
Senior Vice President, Finance
and Administration and Chief
Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the Texas Eastern Transmission Corporation Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 81000
<ALLOWANCES> 0
<INVENTORY> 27000
<CURRENT-ASSETS> 198000
<PP&E> 3697000
<DEPRECIATION> 1079000
<TOTAL-ASSETS> 4380000
<CURRENT-LIABILITIES> 395000
<BONDS> 956000
0
0
<COMMON> 0
<OTHER-SE> 2253000
<TOTAL-LIABILITY-AND-EQUITY> 4380000
<SALES> 0
<TOTAL-REVENUES> 235000
<CGS> 0
<TOTAL-COSTS> 97000
<OTHER-EXPENSES> 34000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27000
<INCOME-PRETAX> 81000
<INCOME-TAX> 30000
<INCOME-CONTINUING> 51000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51000
<EPS-BASIC> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1>Not meaningful since Texas Eastern Transmission Corporation is a
wholly-owned subsidiary.
</FN>
</TABLE>
