<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------
TEXAS UTILITIES COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-3591 No. 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
TEXAS UTILITIES ELECTRIC COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 0-11442 No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
---------
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes x No
--- ---
COMMON STOCK OUTSTANDING AT JULY 31, 1996:
Texas Utilities Company: 224,602,557 shares, without par value.
Texas Utilities Electric Company: 156,800,000 shares, without par value.
THIS COMBINED FORM 10-Q IS FILED SEPARATELY BY TEXAS UTILITIES COMPANY AND
TEXAS UTILITIES ELECTRIC COMPANY. INFORMATION CONTAINED HEREIN RELATING TO AN
INDIVIDUAL REGISTRANT IS FILED BY THAT REGISTRANT ON ITS OWN BEHALF EXCEPT THAT
THE INFORMATION WITH RESPECT TO TEXAS UTILITIES ELECTRIC COMPANY, OTHER THAN
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TEXAS UTILITIES ELECTRIC
COMPANY, IS FILED BY EACH OF TEXAS UTILITIES ELECTRIC COMPANY AND TEXAS
UTILITIES COMPANY. NEITHER TEXAS UTILITIES ELECTRIC COMPANY NOR TEXAS UTILITIES
COMPANY MAKES ANY REPRESENTATIONS AS TO INFORMATION FILED BY THE OTHER
REGISTRANT.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1996 and 1995.............. 3
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1996 and 1995................................ 4
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995.................................... 5
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1996 and 1995.............. 7
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1996 and 1995................................ 8
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995.................................... 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS......................... 11
INDEPENDENT ACCOUNTANTS' REPORTS............................................. 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation................................................. 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................... 21
SIGNATURES................................................................................. 22
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C>
OPERATING REVENUES ......................................... $ 1,691,313 $ 1,353,998 $ 3,155,213 $ 2,598,263
----------- ----------- ----------- -----------
OPERATING EXPENSES
Fuel and purchased power ................................ 554,620 392,277 1,036,451 782,869
Operation ............................................... 231,021 203,862 441,445 399,478
Maintenance ............................................. 86,670 65,970 157,689 134,801
Depreciation and amortization ........................... 154,444 139,245 307,753 278,159
Taxes other than income ................................. 129,511 130,339 261,890 269,307
----------- ----------- ----------- -----------
Total operating expenses ............................. 1,156,266 931,693 2,205,228 1,864,614
----------- ----------- ----------- -----------
OPERATING INCOME ........................................... 535,047 422,305 949,985 733,649
OTHER INCOME AND (DEDUCTIONS) - NET ........................ (4,382) 4,394 (792) 9,076
----------- ----------- ----------- -----------
TOTAL INCOME ............................................... 530,665 426,699 949,193 742,725
----------- ----------- ----------- -----------
INTEREST AND OTHER CHARGES
Interest ................................................. 217,249 177,097 416,824 353,618
Allowance for borrowed funds used during construction .... (2,581) (4,643) (6,537) (9,813)
Impairment of assets ..................................... -- -- -- --
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts distributions ..................... 8,250 -- 16,499 --
Preferred stock dividends of subsidiary .................. 13,306 21,235 27,725 44,781
----------- ----------- ----------- -----------
Total interest and other charges ...................... 236,224 193,689 454,511 388,586
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......................... 294,441 233,010 494,682 354,139
INCOME TAX EXPENSE (BENEFIT) ............................... 91,484 84,578 165,651 130,296
----------- ----------- ----------- -----------
CONSOLIDATED NET INCOME (LOSS) ............................. $ 202,957 $ 148,432 $ 329,031 $ 223,843
=========== =========== =========== ===========
Average shares of common stock outstanding (thousands) ..... 225,593 225,841 225,717 225,841
Earnings (loss) and dividends per share of common stock:
Earnings (loss) (on average shares outstanding) ......... $ 0.90 $ 0.66 $ 1.46 $ 0.99
Dividends declared ...................................... $ 0.50 $ 0.77 $ 1.00 $ 1.54
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
OPERATING REVENUES ......................................... $ 6,195,638 $ 5,520,970
----------- -----------
OPERATING EXPENSES
Fuel and purchased power ................................ 1,894,572 1,660,372
Operation ............................................... 861,601 844,417
Maintenance ............................................. 312,898 284,421
Depreciation and amortization ........................... 593,414 554,001
Taxes other than income ................................. 529,190 535,744
----------- -----------
Total operating expenses ............................. 4,191,675 3,878,955
----------- -----------
OPERATING INCOME ........................................... 2,003,963 1,642,015
OTHER INCOME AND (DEDUCTIONS) - NET ........................ 14,716 25,236
----------- -----------
TOTAL INCOME ............................................... 2,018,679 1,667,251
----------- -----------
INTEREST AND OTHER CHARGES
Interest ................................................. 769,389 709,381
Allowance for borrowed funds used during construction .... (12,051) (15,953)
Impairment of assets ..................................... 1,233,320 --
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts distributions ..................... 18,299 --
Preferred stock dividends of subsidiary .................. 67,859 92,592
----------- -----------
Total interest and other charges ...................... 2,076,816 786,020
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......................... (58,137) 881,231
INCOME TAX EXPENSE (BENEFIT) ............................... (24,680) 327,562
----------- -----------
CONSOLIDATED NET INCOME (LOSS) ............................. $ (33,457) $ 553,669
=========== ===========
Average shares of common stock outstanding (thousands) ..... 225,779 225,841
Earnings (loss) and dividends per share of common stock:
Earnings (loss) (on average shares outstanding) ......... $ (0.15) $ 2.45
Dividends declared ...................................... $ 2.27 $ 3.08
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income ................................................ $ 329,031 $ 223,843
Adjustments to reconcile consolidated net income to cash provided by
operating activities:
Depreciation and amortization (including amounts charged to fuel) .... 381,644 352,533
Deferred federal income taxes-- net .................................. 93,862 98,176
Federal investment tax credits-- net ................................. (11,501) (11,518)
Allowance for equity funds used during construction .................. (912) 48
Changes in operating assets and liabilities:
Receivables ........................................................ (168,312) (65,329)
Inventories ........................................................ 11,054 4,810
Accounts payable ................................................... 53,916 45,426
Interest and taxes accrued ......................................... 27,142 (48,393)
Other working capital .............................................. 532 (40,923)
Over/(under)-recovered fuel revenue-- net of deferred taxes ........ (61,407) 85,388
Other-- net ........................................................ 38,589 (9,911)
---------- ----------
Cash provided by operating activities ............................ 693,638 634,150
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds ................................................. 133,010 317,176
Other long-term debt ................................................. 300,000 300,000
Retirement of long-term debt, preferred stock and common stock ......... (284,255) (501,251)
Change in notes payable ................................................ (308,386) (64,781)
Common stock dividends paid ............................................ (225,843) (347,861)
Debt premium, discount, financing and reacquisition expenses ........... (9,012) (44,672)
---------- ----------
Cash used in financing activities ................................ (394,486) (341,389)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures .............................................. (205,366) (199,428)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel) ............................................. 535 (48)
Change in construction receivables/payables-- net ...................... 249 1,328
Non-utility property-- net ............................................. (5,140) (63,039)
Nuclear fuel (excluding allowance for equity funds used
during construction) ................................................. (42,581) (18,552)
Other investments ...................................................... (92,400) (13,185)
---------- ----------
Cash used in investing activities ................................ (344,703) (292,924)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ................................... 34,628 --
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................................... (10,923) (163)
CASH AND CASH EQUIVALENTS-- BEGINNING BALANCE ............................. 24,853 7,426
---------- ----------
CASH AND CASH EQUIVALENTS-- ENDING BALANCE ................................ $ 13,930 $ 7,263
========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
<S> <C> <C>
UTILITY PLANT
In service:
Production ........................................................... $ 16,680,492 $ 16,661,053
Transmission ......................................................... 1,598,305 1,592,610
Distribution ......................................................... 5,511,299 5,333,396
General .............................................................. 488,933 466,474
------------ ------------
Total .............................................................. 24,279,029 24,053,533
Less accumulated depreciation ........................................ 5,851,376 5,562,190
------------ ------------
Utility plant in service less accumulated depreciation ............. 18,427,653 18,491,343
Construction work in progress ......................................... 274,776 271,033
Nuclear fuel (net of accumulated amortization: 1996 -- $330,386,000;
1995-- $295,390,000) ................................................ 274,697 266,735
Held for future use ................................................... 25,065 25,096
------------ ------------
Utility plant less accumulated depreciation and amortization ....... 19,002,191 19,054,207
Less reserve for regulatory disallowances ............................. 1,308,460 1,308,460
------------ ------------
Net utility plant .................................................. 17,693,731 17,745,747
------------ ------------
INVESTMENTS
Non-utility property .................................................. 427,560 422,421
Other investments ..................................................... 704,002 617,583
------------ ------------
Total investments .................................................. 1,131,562 1,040,004
------------ ------------
CURRENT ASSETS
Cash in banks ......................................................... 13,930 24,853
Special deposits ...................................................... 4,835 19,455
Accounts receivable:
Customers ............................................................ 445,410 275,275
Other ................................................................ 49,634 51,735
Allowance for uncollectible accounts ................................. (5,445) (5,965)
Inventories -- at average cost:
Materials and supplies ............................................... 199,982 200,145
Fuel stock ........................................................... 117,119 128,028
Prepayments ........................................................... 76,745 55,528
Deferred federal income taxes ......................................... 42,611 84,410
Other current assets .................................................. 19,611 14,924
------------ ------------
Total current assets ............................................... 964,432 848,388
------------ ------------
DEFERRED DEBITS
Unamortized regulatory assets ......................................... 1,856,328 1,901,310
Other deferred debits ................................................. 84,496 73,087
------------ ------------
Total deferred debits .............................................. 1,940,824 1,974,397
Less reserve for regulatory disallowances ............................. 72,685 72,685
------------ ------------
Net deferred debits ................................................ 1,868,139 1,901,712
------------ ------------
Total ...................................................... $ 21,657,864 $ 21,535,851
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
<S> <C> <C>
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares: 1996-- 224,602,557; 1995-- 225,841,037 .................... $ 4,784,571 $ 4,806,912
Retained earnings ............................................................... 1,006,037 924,444
Cumulative currency translation adjustment ...................................... 37,228 397
------------ ------------
Total common stock equity .................................................. 5,827,836 5,731,753
Preferred stock:
Not subject to mandatory redemption ........................................... 489,695 489,695
Subject to mandatory redemption ............................................... 250,796 263,196
TU Electric obligated, mandatorily redeemable, preferred securities of trusts ... 381,679 381,476
Long-term debt, less amounts due currently ...................................... 8,971,681 9,174,575
------------ ------------
Total capitalization ....................................................... 15,921,687 16,040,695
------------ ------------
CURRENT LIABILITIES
Notes payable:
Commercial paper .............................................................. 291,000 321,990
Banks ......................................................................... 11,813 275,000
Long-term debt due currently .................................................... 517,179 61,321
Accounts payable ................................................................ 355,052 300,726
Dividends declared .............................................................. 125,626 125,929
Customers' deposits ............................................................. 79,556 76,963
Taxes accrued ................................................................... 182,037 167,951
Interest accrued ................................................................ 178,446 165,277
Over-recovered fuel revenue ..................................................... 21,385 115,858
Other current liabilities ....................................................... 111,826 101,566
------------ ------------
Total current liabilities ................................................. 1,873,920 1,712,581
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes ....................................... 2,732,302 2,669,808
Unamortized federal investment tax credits ...................................... 601,414 622,786
Other deferred credits and noncurrent liabilities ............................... 528,541 489,981
------------ ------------
Total deferred credits and other noncurrent liabilities ................... 3,862,257 3,782,575
COMMITMENTS AND CONTINGENCIES (Note 5)
------------ ------------
Total ................................................................ $ 21,657,864 $ 21,535,851
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C>
OPERATING REVENUES ......................................... $ 1,558,778 $ 1,341,245 $ 2,907,108 $ 2,575,017
----------- ----------- ----------- -----------
OPERATING EXPENSES
Fuel and purchased power ............................... 507,472 410,127 957,293 816,829
Operation .............................................. 193,748 189,939 374,315 377,471
Maintenance ............................................ 85,217 63,853 155,042 131,231
Depreciation and amortization .......................... 139,733 136,871 278,797 273,428
Federal income taxes ................................... 119,022 87,580 197,831 135,024
Taxes other than income ................................ 122,567 124,254 247,754 257,022
----------- ----------- ----------- -----------
Total operating expenses ............................. 1,167,759 1,012,624 2,211,032 1,991,005
----------- ----------- ----------- -----------
OPERATING INCOME ........................................... 391,019 328,621 696,076 584,012
----------- ----------- ----------- -----------
OTHER INCOME (LOSS)
Allowance for equity funds used during construction .... 359 -- 899 (58)
Impairment of assets ................................... -- -- -- --
Other income and (deductions)-- net .................... (4,682) 2,680 (4,910) 5,042
Federal income taxes ................................... 17,307 (808) 17,419 (1,592)
----------- ----------- ----------- -----------
Total other income (loss) ............................ 12,984 1,872 13,408 3,392
----------- ----------- ----------- -----------
TOTAL INCOME ............................................... 404,003 330,493 709,484 587,404
----------- ----------- ----------- -----------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds ............................. 121,511 135,205 247,477 272,147
Interest on other long-term debt ....................... 8,357 12,823 16,653 21,422
Other interest ......................................... 40,593 12,887 54,733 27,667
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts distributions ................... 8,250 -- 16,499 --
Allowance for borrowed funds used during construction .. (2,577) (4,641) (6,532) (9,809)
----------- ----------- ----------- -----------
Total interest and other charges ..................... 176,134 156,274 328,830 311,427
----------- ----------- ----------- -----------
CONSOLIDATED NET INCOME .................................... 227,869 174,219 380,654 275,977
PREFERRED STOCK DIVIDENDS .................................. 13,306 21,235 27,725 44,781
----------- ----------- ----------- -----------
CONSOLIDATED NET INCOME AVAILABLE FOR
COMMON STOCK ........................................... $ 214,563 $ 152,984 $ 352,929 $ 231,196
=========== =========== =========== ===========
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
THOUSANDS OF DOLLARS
<S> <C> <C>
OPERATING REVENUES ......................................... $ 5,892,553 $ 5,471,212
----------- -----------
OPERATING EXPENSES
Fuel and purchased power ............................... 1,837,554 1,728,798
Operation .............................................. 764,594 793,040
Maintenance ............................................ 305,095 275,653
Depreciation and amortization .......................... 554,980 544,842
Federal income taxes ................................... 445,123 338,570
Taxes other than income ................................ 502,777 511,561
----------- -----------
Total operating expenses ............................. 4,410,123 4,192,464
----------- -----------
OPERATING INCOME ........................................... 1,482,430 1,278,748
----------- -----------
OTHER INCOME (LOSS)
Allowance for equity funds used during construction .... 7,615 4,717
Impairment of assets ................................... (486,350) --
Other income and (deductions)-- net .................... (1,327) 10,567
Federal income taxes ................................... 188,373 (3,734)
----------- -----------
Total other income (loss) ............................ (291,689) 11,550
----------- -----------
TOTAL INCOME ............................................... 1,190,741 1,290,298
----------- -----------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds ............................. 502,307 549,306
Interest on other long-term debt ....................... 39,302 37,464
Other interest ......................................... 85,566 58,414
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts distributions ................... 18,299 --
Allowance for borrowed funds used during construction .. (12,042) (15,943)
----------- -----------
Total interest and other charges ..................... 633,432 629,241
----------- -----------
CONSOLIDATED NET INCOME .................................... 557,309 661,057
PREFERRED STOCK DIVIDENDS .................................. 67,859 92,592
----------- -----------
CONSOLIDATED NET INCOME AVAILABLE FOR
COMMON STOCK ........................................... $ 489,450 $ 568,465
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
<PAGE> 8
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
---------- ----------
THOUSANDS OF DOLLARS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income ...................................................... $ 380,654 $ 275,977
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel) .......... 337,978 337,374
Deferred federal income taxes-- net ........................................ 91,500 105,474
Federal investment tax credits-- net ....................................... (10,714) (10,730)
Allowance for equity funds used during construction ........................ (899) 58
Changes in operating assets and liabilities:
Receivables .............................................................. (147,168) (59,401)
Inventories .............................................................. 7,273 (3,309)
Accounts payable ......................................................... 43,798 16,439
Interest and taxes accrued ............................................... 46,108 (48,370)
Other working capital .................................................... (14,485) (33,066)
Over/(under)-recovered fuel revenue-- net of deferred taxes .............. (61,407) 85,388
Other-- net .............................................................. 2,976 (18,692)
---------- ----------
Cash provided by operating activities .................................. 675,614 647,142
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds ....................................................... 133,010 317,176
Other long-term debt ....................................................... -- 300,000
Retirement of long-term debt and preferred stock ............................. (230,647) (496,976)
Change in notes payable ...................................................... (30,990) (64,781)
Change in notes receivable ................................................... (34,724) (30,614)
Preferred stock dividends paid ............................................... (19,982) (47,141)
Common stock dividends paid .................................................. (244,608) (360,640)
Debt premium, discount, financing and reacquisition expenses ................. (6,562) (44,672)
---------- ----------
Cash used in financing activities ...................................... (434,503) (427,648)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures .................................................... (175,100) (190,942)
Allowance for equity funds used during construction
(excluding amount for nuclear fuel) ........................................ 522 (58)
Change in construction receivables/payables-- net ............................ (249) 1,328
Non-utility property-- net ................................................... -- 16
Nuclear fuel (excluding allowance for equity funds used during construction) . (42,581) (18,552)
Other investments ............................................................ (34,472) (11,423)
---------- ----------
Cash used in investing activities ...................................... (251,880) (219,631)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ......................................... (10,769) (137)
CASH AND CASH EQUIVALENTS-- BEGINNING BALANCE ................................... 22,633 6,699
---------- ----------
CASH AND CASH EQUIVALENTS-- ENDING BALANCE ...................................... $ 11,864 $ 6,562
========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
8
<PAGE> 9
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
<S> <C> <C>
ELECTRIC PLANT
In service:
Production ........................................................... $ 15,719,508 $ 15,699,488
Transmission ......................................................... 1,592,168 1,586,547
Distribution ......................................................... 4,335,282 4,229,794
General .............................................................. 427,845 407,897
------------ ------------
Total .............................................................. 22,074,803 21,923,726
Less accumulated depreciation ........................................ 5,336,229 5,075,428
------------ ------------
Electric plant in service less accumulated depreciation ............ 16,738,574 16,848,298
Construction work in progress ......................................... 238,335 236,913
Nuclear fuel (net of accumulated amortization: 1996 -- $330,386,000;
1995-- $295,390,000) ................................................ 274,697 266,735
Held for future use ................................................... 25,065 25,096
------------ ------------
Electric plant less accumulated depreciation and amortization ...... 17,276,671 17,377,042
Less reserve for regulatory disallowances ............................. 1,308,460 1,308,460
------------ ------------
Net electric plant ................................................. 15,968,211 16,068,582
------------ ------------
INVESTMENTS
Non-utility property ................................................. 332,234 332,234
Other investments .................................................... 138,361 103,888
------------ ------------
Total investments .................................................. 470,595 436,122
------------ ------------
CURRENT ASSETS
Cash in banks ......................................................... 11,864 22,633
Special deposits ...................................................... 552 527
Notes receivable-- affiliates ......................................... 37,080 2,356
Accounts receivable:
Customers ............................................................ 364,334 212,165
Other ................................................................ 30,177 34,906
Allowance for uncollectible accounts ................................. (4,186) (3,914)
Inventories -- at average cost:
Materials and supplies ............................................. 179,995 179,001
Fuel stock ......................................................... 74,622 82,889
Prepayments ........................................................... 54,973 31,225
Deferred federal income taxes ......................................... 54,032 79,629
Other current assets .................................................. 1,359 1,455
------------ ------------
Total current assets ............................................... 804,802 642,872
------------ ------------
DEFERRED DEBITS
Unamortized regulatory assets ......................................... 1,836,307 1,879,369
Other deferred debits ................................................. 61,740 49,114
------------ ------------
Total deferred debits .............................................. 1,898,047 1,928,483
Less reserve for regulatory disallowances ............................. 72,685 72,685
------------ ------------
Net deferred debits ................................................ 1,825,362 1,855,798
------------ ------------
Total ......................................................... $ 19,068,970 $ 19,003,374
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
9
<PAGE> 10
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
<S> <C> <C>
CAPITALIZATION Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares-- 156,800,000 .............................................. $ 4,732,305 $ 4,732,305
Retained earnings ............................................................... 1,175,915 1,067,593
------------ ------------
Total common stock equity ................................................. 5,908,220 5,799,898
Preferred stock:
Not subject to mandatory redemption ........................................... 489,695 489,695
Subject to mandatory redemption ............................................... 250,796 263,196
TU Electric obligated, mandatorily redeemable, preferred securities of trusts ... 381,679 381,476
Long-term debt, less amounts due currently ...................................... 6,674,743 7,212,070
------------ ------------
Total capitalization ...................................................... 13,705,133 14,146,335
------------ ------------
CURRENT LIABILITIES
Notes payable-- commercial paper ................................................ 291,000 321,990
Long-term debt due currently .................................................... 499,316 43,458
Accounts payable:
Affiliates .................................................................... 142,328 101,722
Other ......................................................................... 112,345 109,402
Dividends declared .............................................................. 12,707 13,210
Customers' deposits ............................................................. 67,192 63,564
Taxes accrued ................................................................... 180,696 142,364
Interest accrued ................................................................ 149,591 141,815
Over-recovered fuel revenue ..................................................... 21,385 115,858
Other current liabilities ....................................................... 77,427 63,716
------------ ------------
Total current liabilities ................................................. 1,553,987 1,117,099
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes ....................................... 2,936,701 2,869,049
Unamortized federal investment tax credits ...................................... 588,880 609,466
Other deferred credits and noncurrent liabilities ............................... 284,269 261,425
------------ ------------
Total deferred credits and other noncurrent liabilities ................... 3,809,850 3,739,940
COMMITMENTS AND CONTINGENCIES (Note 5)
------------ ------------
Total ................................................................... $ 19,068,970 $ 19,003,374
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
10
<PAGE> 11
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
THE COMPANY AND TU ELECTRIC
Basis of Presentation -- The condensed consolidated financial statements of
Texas Utilities Company (Company) and its subsidiaries and Texas Utilities
Electric Company and its subsidiaries (TU Electric) have been prepared on the
same basis as those in the 1995 Annual Reports of the Company and TU Electric
on Form 10-K and, in the opinion of the Company or TU Electric, as the case may
be, all adjustments (constituting only normal recurring accruals) necessary to
a fair presentation of the results of operation and financial position have
been included therein. The statements are presented pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
These condensed consolidated financial statements, and notes thereto,
should be considered in conjunction with the consolidated financial statements,
and the notes thereto, of the Company and TU Electric included in the 1995
Annual Reports of the Company and TU Electric on Form 10-K, and the information
under Management's Discussion and Analysis of Financial Condition and Results
of Operation herein. The Company and TU Electric each believes that its
respective disclosures are adequate to make the information presented not
misleading. Certain financial statement items have been reclassified to
conform to the current period presentation.
Impairment of Assets -- In September 1995, the Company and TU Electric
recorded the impairment of several non- performing assets in accordance with
the early adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which prescribes a methodology for assessing and measuring
impairments in the carrying value of certain assets.
Use of Estimates -- The preparation of the Company's and TU Electric's
condensed consolidated financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenue and expense during the reporting periods. In
the event estimates and/or assumptions prove to be different from actual
amounts, appropriate adjustments will be made in subsequent periods.
THE COMPANY
Consolidation -- The condensed consolidated financial statements include
the Company and all of its subsidiaries (System Companies):
<TABLE>
<S> <C>
TU Electric Texas Utilities Services Inc. (TU Services)
Texas Utilities Australia Pty. Ltd. (TU Australia) Texas Utilities Properties Inc. (TU Properties)
Southwestern Electric Service Company (SESCO) Texas Utilities Communications Inc. (TU Communications)
Texas Utilities Fuel Company (Fuel Company) Basic Resources Inc. (Basic)
Texas Utilities Mining Company (Mining Company) Chaco Energy Company (Chaco)
</TABLE>
All significant intercompany items and transactions have been eliminated in
consolidation.
TU ELECTRIC
Consolidation -- The condensed consolidated financial statements of TU
Electric include all of its subsidiaries, all of which are business trusts.
All significant intercompany items and transactions have been eliminated in
consolidation.
11
<PAGE> 12
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SHORT-TERM FINANCING
THE COMPANY AND TU ELECTRIC
In April 1996, the Company and TU Electric entered into two new credit
agreements (Credit Agreements) with a group of commercial banks. The Credit
Agreements, for each of which the Company pays a fee, have three facilities.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup. Facility A provides for
short-term borrowings of up to $375,000,000 at a variable interest rate and
terminates April 25, 1997. Facility B provides for short-term borrowings of
up to $875,000,000 at a variable interest rate and terminates April 26, 2001.
The Company's borrowings under Facilities A and B are limited to an aggregate
of $750,000,000 outstanding at any one time. Facility C is a separate
five-year, unsecured long-term loan to the Company in the principal amount of
$300,000,000.
3. CAPITALIZATION
THE COMPANY
COMMON STOCK
In June 1996, the Company purchased and retired 1,238,480 shares of its
issued and outstanding common stock.
LONG-TERM DEBT
In April 1996, the Company borrowed $300,000,000 pursuant to Facility C of
the Credit Agreements as discussed in Note 2. The proceeds were used to
refinance outstanding indebtedness of the Company. Facility C matures April
26, 2001. The Company may choose to use either or both of two methods of
calculating a variable interest rate for portions of the term loan. The
initial interest rate for the entire term loan, 5.95%, is based on three-month
LIBOR.
TU ELECTRIC
PREFERRED STOCK
At June 30, 1996 and December 31, 1995, TU Electric had 17,000,000 shares
of preferred stock authorized by its articles of incorporation of which
7,484,103 and 7,609,103 shares were issued and outstanding, respectively.
TU Electric redeemed 125,000 shares of its $9.64 Cumulative Preferred Stock
on May 1, 1996, which fulfills its mandatory redemption requirements, with
respect to preferred stock, until November 1, 1996.
LONG-TERM DEBT
In March 1996, the Brazos River Authority, the Sabine River Authority of
Texas and the Trinity River Authority of Texas issued $133,010,000 aggregate
principal amount of Pollution Control Revenue Bonds collateralized by TU
Electric's First Mortgage Bonds. All such bonds mature on March 1, 2026, have
variable interest rates and are subject to mandatory tender and remarketing
from time to time. The remarketing of the bonds is supported by standby bond
purchase agreements. Scheduled payments of interest and of principal at
maturity or on mandatory redemption, upon the occurrence of certain events, are
supported by municipal bond insurance policies. Interest rates on all the
bonds are currently determined daily. For the period ended June 30, 1996, such
rates ranged from 3.60% to 3.80%.
12
<PAGE> 13
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TU Electric redeemed or reacquired the following long-term debt during the
six months ended June 30, 1996:
<TABLE>
<CAPTION>
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ --------------- ---------
<S> <C> <C> <C>
First mortgage bonds ........................ $129,595,000 7-3/8% to 9.95% 2001-2025
Taxable pollution control revenue bonds ..... 25,060,000 5.16% to 6.65% 2021
Pollution control revenue bonds ............. 57,950,000 7-3/4% 2016
------------
Total .................................. $212,605,000
============
</TABLE>
4. FEDERAL INCOME TAXES
THE COMPANY
As a part of its ongoing large case audit program, the Internal Revenue
Service (IRS) has audited the consolidated Federal income tax returns of the
System Companies for the years 1987 through 1990. During the course of the
audit, the IRS proposed a number of adjustments to the returns as filed, the
most significant of which related to a proposed reclassification of certain
costs incurred in connection with the construction of Comanche Peak Unit 1 as
costs incurred to procure a nuclear operating license. In accordance with an
agreement reached by both parties in May 1996, the Company made an additional
tax payment to the IRS which resolved all issues proposed in the audit. The
additional payment did not have a material effect on the Company and its
financial position or results of operation.
5. COMMITMENTS AND CONTINGENCIES
COOLING WATER CONTRACTS
TU ELECTRIC
TU Electric has entered into contracts with public agencies to purchase
cooling water for use in the generation of electric energy. In connection with
certain contracts, TU Electric has agreed, in effect, to guarantee the
principal, $34,575,000 at June 30, 1996, and interest on bonds issued to
finance the reservoirs from which the water is supplied. The bonds mature at
various dates through 2011 and have interest rates ranging from 5-1/2% to 7%.
TU Electric is required to make periodic payments equal to such principal and
interest, including amounts assumed by a third party and reimbursed to TU
Electric. In addition, TU Electric is obligated to pay certain variable costs
of operating and maintaining the reservoirs. TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $79,865,000 remaining principal amount of bonds at June 30, 1996, issued
for similar purposes which had previously been guaranteed by TU Electric. TU
Electric is, however, contingently liable in the unlikely event of default by
the municipality.
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL
TU ELECTRIC
TU Electric has established a reserve, charged to depreciation expense and
included in accumulated depreciation, for the decommissioning of Comanche Peak
nuclear generating station (Comanche Peak), whereby decommissioning costs are
being recovered from customers over the life of the plant and deposited in
external trust funds (included in other investments). At June 30, 1996, such
reserve totaled $87,077,000 which includes an accrual of $9,089,000 and
$18,179,000 for the six and twelve months ended June 30, 1996, respectively.
As of June 30, 1996, the market value of deposits in the external trust for
decommissioning of Comanche Peak was $100,246,000. Realized earnings on funds
deposited in the external trust are recognized in the reserve. Based on a
site-specific study during 1992 using the prompt dismantlement method and
then-current dollars, decommissioning costs for Comanche Peak Unit 1, and Unit
2 and common facilities were estimated to be $255,000,000 and $344,000,000,
respectively. Decommissioning activities are projected to begin in 2030 and
2033 for Comanche Peak Unit 1, and Unit 2 and common facilities, respectively.
TU Electric is recovering such costs based upon the 1992 study through its
rates placed in effect under Docket 11735.
13
<PAGE> 14
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TU Electric has a contract with the United States Department of Energy for
the future disposal of spent nuclear fuel at a cost of one mill per
kilowatt-hour of Comanche Peak net generation. The disposal fee is included in
nuclear fuel expense.
GENERAL
THE COMPANY AND TU ELECTRIC
In addition to the above, the Company and TU Electric are involved in
various legal and administrative proceedings which, in the opinion of each,
should not have a material effect upon its financial position or results of
operation.
14
<PAGE> 15
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries as of June 30, 1996, and the related
condensed statements of consolidated income for the three-month, six month and
twelve-month periods ended June 30, 1996 and 1995, and of consolidated cash
flows for the six-month periods ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Utilities Company and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, retained earnings and cash flows for the year then ended (not
presented herein); and in our report dated February 29, 1996, we expressed an
unqualified opinion on those consolidated financial statements, which opinion
included an explanatory paragraph concerning Texas Utilities Company and
subsidiaries' change in accounting for the impairment of long-lived assets and
long-lived assets to be disposed of. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1995, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
August 6, 1996
15
<PAGE> 16
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Electric Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Electric Company and subsidiaries (TU Electric) as of June 30, 1996,
and the related condensed statements of consolidated income for the
three-month, six month and twelve-month periods ended June 30, 1996 and 1995,
and of consolidated cash flows for the six-month periods ended June 30, 1996
and 1995. These financial statements are the responsibility of TU Electric's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TU Electric and subsidiaries as of
December 31, 1995, and the related consolidated statements of income, retained
earnings and cash flows for the year then ended (not presented herein); and in
our report dated February 29, 1996, we expressed an unqualified opinion on
those consolidated financial statements, which opinion included an explanatory
paragraph concerning TU Electric and subsidiaries' change in accounting for the
impairment of long-lived assets and long-lived assets to be disposed of. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1995, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
August 6, 1996
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Texas Utilities Company (Company) and its subsidiaries and
Texas Utilities Electric Company and its subsidiaries (TU Electric) Annual
Reports on Form 10-K for the year 1995. Quarterly results presented herein are
not necessarily indicative of expectations for a full year's operations because
of seasonal and other factors, including variations in maintenance and other
operating expense patterns. No significant changes or events which might affect
the financial condition of the Company and its subsidiaries (System Companies)
have occurred subsequent to year-end other than as disclosed in the reports of
the Company and TU Electric included herein .
THE COMPANY AND TU ELECTRIC
In April 1996, the Company and TU Electric entered into two new credit
agreements (Credit Agreements) with a group of commercial banks. The Credit
Agreements, for each of which the Company pays a fee, have three facilities.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup. Facility A provides for
short-term borrowings of up to $375,000,000 at a variable interest rate and
terminates April 25, 1997. Facility B provides for short-term borrowings of
up to $875,000,000 at a variable interest rate and terminates April 26, 2001.
The Company's borrowings under Facilities A and B are limited to an aggregate
of $750,000,000 outstanding at any one time. Facility C is a separate
five-year, unsecured long-term loan to the Company in the principal amount of
$300,000,000.
In addition to the above, the Company and Texas Utilities Fuel Company have
separate arrangements for uncommitted lines of credit. For more information
regarding short-term and long-term financings of the Company and TU Electric,
see Notes 2 and 3 to Condensed Consolidated Financial Statements.
The System Companies expect to issue additional debt and equity securities
as needed, including (i) the possible future sale by TU Electric of up to
$350,000,000 principal amount of First Mortgage Bonds currently registered with
the Securities and Exchange Commission (SEC) for offering pursuant to Rule 415
under the Securities Act of 1933 and (ii) the possible future sale by TU
Electric of up to 250,000 shares of Cumulative Preferred Stock ($100
liquidation value) similarly registered. In addition, TU Electric has the
ability to issue from time to time up to $98,850,000 of First Mortgage Bonds
designated as Medium-Term Notes, Series D.
In order to remain competitive, the Company and TU Electric are
aggressively managing their operating costs and capital expenditures through
streamlined business processes and are developing and implementing strategies
to address an increasingly competitive environment. These strategies include
initiatives to improve their return on corporate assets and to maximize
shareholder value through new marketing programs, creative rate design, and new
business opportunities. Additional initiatives under consideration include the
potential disposition or alternative utilization of existing assets and the
restructuring of strategic business units.
While TU Electric and Southwestern Electric Service Company (SESCO) have
experienced competitive pressures in the wholesale market resulting in a small
loss of load for TU Electric since the beginning of 1993, wholesale sales
represented a relatively low percentage of TU Electric's consolidated operating
revenues for the three-, six- and twelve-month periods ended June 30, 1996. TU
Electric and SESCO are unable to predict the extent of future competitive
developments in either the wholesale or retail markets or what impact, if any,
such developments may have on their operations.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Under the current regulatory environment, TU Electric and SESCO are subject
to the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). In the
event the companies no longer meet the criteria for application of SFAS 71 due
to significant changes in regulation or competition, the companies would
discontinue the application of SFAS 71. If a portion of either company's
operations continues to meet the criteria for application of SFAS 71, only that
portion would be subject to SFAS 71 treatment. Should significant changes in
regulation or competition occur, TU Electric and SESCO would be required to
assess the recoverability of other assets, including plant, and, if impaired,
to write down the assets to reflect their fair market value. Neither TU
Electric nor SESCO can predict whether or to what extent changes in the
business environment may occur requiring the discontinuation of SFAS 71
application.
THE COMPANY
External funds of a permanent or long-term nature are obtained through the
issuance of common stock, preferred stock, preferred securities and long-term
debt by the System Companies. The capitalization ratios of the Company and its
subsidiaries at June 30, 1996 consisted of approximately 56% long-term debt, 2%
TU Electric obligated, mandatorily redeemable, preferred securities of trusts,
5% preferred stock and 37% common stock equity.
To date in 1996, the System Companies redeemed, reacquired or made
principal payments of $285,859,000 (including $230,658,000 for TU Electric) on
long-term debt, preferred stock and common stock, including the Company's June
1996 purchase and retirement of 1,238,480 shares of its issued and outstanding
common stock.
In April 1996, the Company borrowed $300,000,000 pursuant to Facility C of
the Credit Agreements previously discussed. The proceeds were used to
refinance outstanding indebtedness of the Company. Facility C matures April
26, 2001. The Company may choose to use either or both of two methods of
calculating a variable interest rate for portions of the term loan. The
initial interest rate for the entire term loan, 5.95%, is based on three-month
LIBOR.
In April 1996, the Company announced that it had entered into a merger
agreement with Dallas-based ENSERCH Corporation (ENSERCH). Under the terms of
the agreement, Lone Star Gas Company (Lone Star Gas) and Lone Star Pipeline
Company (Lone Star Pipeline), the local distribution and pipeline divisions of
ENSERCH, and other businesses, excluding Enserch Exploration Inc. (EEX), a
subsidiary of ENSERCH, will be acquired by the Company. Lone Star Gas is one of
the largest gas distribution companies in the United States and the largest in
Texas, serving over 1.3 million customers and providing service through over
23,500 miles of distribution mains. Lone Star Pipeline has one of the largest
pipelines in the United States and consists of 9,200 miles of gathering and
transmission pipelines in Texas. Also included in the acquisition are ENSERCH's
subsidiaries engaged in natural gas processing, natural gas marketing and
independent power production. The Company is expected to issue approximately
$550 million of the Company's common stock to ENSERCH shareholders and
approximately $1.15 billion of ENSERCH's debt and preferred stock would remain
outstanding. The transaction is subject to certain conditions which include the
approval of ENSERCH's, EEX's and the Company's shareholders, approval by the
SEC, review by the Antitrust Division of the U.S. Department of Justice and
receipt by ENSERCH of a favorable ruling from the Internal Revenue Service
(IRS). The Texas Railroad Commission has been notified of the proposed
transaction and has indicated no objection to it.
TU ELECTRIC
The capitalization ratios of TU Electric at June 30, 1996 consisted of
approximately 49% long-term debt, 3% TU Electric obligated, mandatorily
redeemable, preferred securities of trusts, 5% preferred stock and 43% common
stock equity.
Long-term debt financings to date in 1996 by TU Electric consisted of the
issuance of pollution control revenue bonds in the amount of $133,010,000 and
maturing in 2026. Current interest rates on such issuance range from 3.40% to
3.55%. Proceeds from such financings were used for the early redemption or
reacquisition of debt and for general corporate purposes.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
THE COMPANY AND TU ELECTRIC
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes to the estimated construction costs
and dates of completion in the Company's and TU Electric's construction
programs. Commitments in connection with the construction program are
generally revocable subject to reimbursement to manufacturers for expenditures
incurred or other cancellation penalties.
The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders. Other than the ENSERCH acquisition discussed above, the timing
and amounts of any specific new business investment opportunities are presently
undetermined.
RESULTS OF OPERATION
THE COMPANY AND TU ELECTRIC
For the three-, six- and twelve-month periods ended June 30, 1996,
consolidated net income for the Company increased approximately 37% and 47%,
and decreased approximately 106% as compared to the respective periods ended
June 30, 1995. For the Company and TU Electric, from which most of
consolidated earnings is derived, the major factors affecting earnings for the
three-month and six-month periods were customer growth and a change in weather
conditions as compared to the prior periods. For the twelve-month period, the
major factors affecting earnings were cost control efforts, customer growth, a
change to above normal weather conditions and an after-tax asset impairment of
approximately $802 million ($316 million for TU Electric) in September 1995.
TU ELECTRIC
For the three-, six- and twelve-month periods, operating revenues increased
approximately 16%, 13% and 8%, respectively. The following table details the
factors contributing to these changes:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------ ---------------- -------------------
FACTORS THOUSANDS OF DOLLARS
-------
<S> <C> <C> <C>
Base rate revenue (billed) ............. $86,690 $154,913 $198,423
Fuel revenue ........................... 92,109 132,275 100,531
Power cost recovery factor revenue ..... 1,021 (910) (3,692)
Unbilled revenue and other ............. 37,713 45,813 126,079
-------- -------- --------
Total ............................... $217,533 $332,091 $421,341
======== ======== ========
</TABLE>
Total energy sales (including unbilled energy sales) increased
approximately 12%, 11% and 7% for the three-month, six-month and twelve-month
periods, respectively. The effect on billed energy sales and base rate revenue
for all periods was primarily a result of an increase in customers and a change
to above normal weather conditions as compared to the prior periods. The
change in fuel revenue for all periods was primarily due to increases in spot
market gas prices. The change in unbilled revenue and other for all periods
resulted from warmer than normal weather conditions as compared to the prior
periods.
Fuel and purchased power expense increased approximately 24%, 17% and 6%
for the three-month, six-month and twelve- month periods primarily due to
increased energy sales and increased spot market gas prices as compared to the
prior periods.
Other income and deductions - net decreased for all three periods due
primarily to an increase in non-utility property expenses.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Interest on mortgage bonds decreased as compared to the prior periods due
to reduced interest requirements resulting from the Company's refinancing
efforts, partially offset by increased interest requirements for new issues
sold. The decrease in interest on other long-term debt for three-month and
six-month periods was affected by the prepayment of TU Electric's promissory
note to Brazos Electric Power Cooperative. For the three-, six- and
twelve-month periods, other interest charges increased due to a current period
interest payment related to a settlement with the IRS and interest on
short-term borrowings. Preferred securities of trusts distributions resulted
from the issuance, in December 1995, of TU Electric obligated, mandatorily
redeemable, preferred securities of trusts.
For the three-, six- and twelve-month periods, preferred stock dividends
decreased due primarily to the partial redemption of certain series.
20
<PAGE> 21
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
15 - Letters from Deloitte & Touche LLP as to unaudited interim
financial information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
(b) Reports on Form 8-K filed since March 31, 1996 are as follows:
Date of Report Item Reported
-------------- -------------
THE COMPANY
-----------
April 13, 1996 Item 5. OTHER EVENTS
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
21
<PAGE> 22
SIGNATURE
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 hereunto duly authorized.
TEXAS UTILITIES COMPANY
By /s/ Cathryn C. Hulen
-----------------------------------
Cathryn C. Hulen
Controller and
Principal Accounting Officer
Date: August 6, 1996
- --------------------------------------------------------------------------------
SIGNATURE
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 hereunto duly authorized.
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Cathryn C. Hulen
-----------------------------------
Cathryn C. Hulen
Controller and
Principal Accounting Officer
Date: August 6, 1996
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ------------
<S> <C> <C>
15 - Letters from Deloitte & Touche LLP as to unaudited
interim financial information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
</TABLE>
<PAGE> 1
EXHIBIT 15(a)
Texas Utilities Company:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited condensed consolidated
interim financial information of Texas Utilities Company and subsidiaries for
the periods ended June 30, 1996 and 1995, as indicated in our report dated
August 6, 1996; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated by reference in Registration Statement No. 33-55931 on Form S-3
and Registration Statements No. 33-59575, 33-59759 and 33-59961 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
August 6, 1996
<PAGE> 1
EXHIBIT 15(b)
Texas Utilities Electric Company:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited condensed consolidated
interim financial information of Texas Utilities Electric Company and
subsidiaries for the periods ended June 30, 1996 and 1995, as indicated in our
report dated August 6, 1996; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated by reference in Registration Statements No. 33-68100 and
33-69554 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
August 6, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF CONSOLIDATED INCOME, CONDENSED STATEMENTS OF
CONSOLIDATED CASH FLOWS, AND CONDENSED CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000097561
<NAME> Texas Utilities Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,693,731
<OTHER-PROPERTY-AND-INVEST> 1,131,562
<TOTAL-CURRENT-ASSETS> 964,432
<TOTAL-DEFERRED-CHARGES> 1,868,139
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 21,657,864
<COMMON> 4,784,571
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,043,265
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,827,836
632,475
489,695
<LONG-TERM-DEBT-NET> 8,971,681
<SHORT-TERM-NOTES> 11,813
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 291,000
<LONG-TERM-DEBT-CURRENT-PORT> 517,179
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,916,185
<TOT-CAPITALIZATION-AND-LIAB> 21,657,864
<GROSS-OPERATING-REVENUE> 3,155,213
<INCOME-TAX-EXPENSE> 165,651
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 2,205,228
<OPERATING-INCOME-LOSS> 949,985
<OTHER-INCOME-NET> (792)
<INCOME-BEFORE-INTEREST-EXPEN> 949,193
<TOTAL-INTEREST-EXPENSE> 454,511
<NET-INCOME> 494,682
0
<EARNINGS-AVAILABLE-FOR-COMM> 329,031
<COMMON-STOCK-DIVIDENDS> 225,843
<TOTAL-INTEREST-ON-BONDS> 247,549
<CASH-FLOW-OPERATIONS> 693,638
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF INCOME, CONDENSED STATEMENTS OF CASH FLOWS, AND
CONDENSED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000710182
<NAME> Texas Utilities Electric Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 15,968,211
<OTHER-PROPERTY-AND-INVEST> 470,595
<TOTAL-CURRENT-ASSETS> 804,802
<TOTAL-DEFERRED-CHARGES> 1,825,362
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 19,068,970
<COMMON> 4,732,305
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,175,915
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,908,220
632,475
489,695
<LONG-TERM-DEBT-NET> 6,674,743
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 291,000
<LONG-TERM-DEBT-CURRENT-PORT> 499,316
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,573,521
<TOT-CAPITALIZATION-AND-LIAB> 19,068,970
<GROSS-OPERATING-REVENUE> 2,907,108
<INCOME-TAX-EXPENSE> 197,831
<OTHER-OPERATING-EXPENSES> 2,013,201
<TOTAL-OPERATING-EXPENSES> 2,211,032
<OPERATING-INCOME-LOSS> 696,076
<OTHER-INCOME-NET> 13,408
<INCOME-BEFORE-INTEREST-EXPEN> 709,484
<TOTAL-INTEREST-EXPENSE> 312,331
<NET-INCOME> 397,153
44,224
<EARNINGS-AVAILABLE-FOR-COMM> 352,929
<COMMON-STOCK-DIVIDENDS> 244,608
<TOTAL-INTEREST-ON-BONDS> 247,477
<CASH-FLOW-OPERATIONS> 675,614
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
