================================================================================
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, 1997
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
--------------------
TEXAS UTILITIES COMPANY
(now known as Texas Energy Industries, Inc.)
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-3591 No. 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(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 75201-3411
(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, 1997:
Texas Utilities Company: 224,649,557 shares, without par value.
Texas Utilities Electric Company: 152,252,800 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.
================================================================================
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1997 and 1996... 3
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1997 and 1996..................... 4
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996......................... 5
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1997 and 1996... 7
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1997 and 1996..................... 8
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996......................... 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........... 11
INDEPENDENT ACCOUNTANTS' REPORTS............................... 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation....................... 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................... 24
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 5. Other Information........................................ 25
Item 6. Exhibits and Reports on Form 8-K......................... 25
SIGNATURES.................................................................. 26
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES...................... $1,588,485 $1,691,313 $3,082,289 $3,155,213 $6,478,004 $6,195,638
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power............... 499,114 554,620 991,395 1,036,451 2,091,253 1,894,572
Operation and maintenance.............. 345,953 317,691 671,153 599,134 1,328,299 1,174,499
Depreciation and amortization.......... 158,581 154,444 316,791 307,753 629,543 593,414
Taxes other than income................ 124,908 129,511 261,214 261,890 534,168 529,190
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses.............. 1,128,556 1,156,266 2,240,553 2,205,228 4,583,263 4,191,675
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME........................ 459,929 535,047 841,736 949,985 1,894,741 2,003,963
OTHER INCOME AND (DEDUCTIONS) - NET..... (7,813) (4,382) (9,869) (792) (10,225) 14,716
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME............................ 452,116 530,665 831,867 949,193 1,884,516 2,018,679
---------- ---------- ---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest.............................. 182,007 217,249 363,691 416,824 744,760 769,389
Allowance for borrowed funds
used during construction............ (2,633) (2,581) (4,938) (6,537) (9,649) (12,051)
Impairment of assets.................. -- -- -- -- -- 1,233,320
Distributions on TU Electric
obligated, mandatorily
redeemable, preferred
securities of subsidiary trusts
holding solely debentures of
TU Electric......................... 18,293 8,250 33,296 16,499 49,798 18,299
Preferred stock dividends of
subsidiary.......................... 3,711 13,306 16,018 27,725 41,651 67,859
---------- ---------- ---------- ---------- ---------- ----------
Total interest and other charges...... 201,378 236,224 408,067 454,511 826,560 2,076,816
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... 250,738 294,441 423,800 494,682 1,057,956 (58,137)
INCOME TAX EXPENSE (BENEFIT)............ 89,992 91,484 148,255 165,651 357,837 (24,680)
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME (LOSS).......... $ 160,746 $ 202,957 $ 275,545 $ 329,031 $ 700,119 $ (33,457)
========== ========== ========== ========== ========== ==========
Average shares of common stock
outstanding (thousands)................ 224,616 225,593 224,609 225,717 224,606 225,779
Earnings (loss) and dividends
per share of common stock:
Earnings (loss) (on average
shares outstanding)................. $ 0.72 $ 0.90 $ 1.23 $ 1.46 $ 3.12 $ (0.15)
Dividends declared.................... $ 0.525 $ 0.50 $ 1.05 $ 1.00 $ 2.075 $ 2.27
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1997 1996
--------- ---------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income................ $ 275,545 $ 329,031
Adjustments to reconcile consolidated
net income to cash provided by
operating activities:
Depreciation and amortization
(including amounts charged to fuel).. 391,116 382,311
Deferred income taxes -- net.......... 76,176 94,245
Federal investment tax credits -- net. (11,397) (11,501)
Allowance for equity funds used
during construction.................. (660) (912)
Changes in operating assets and
liabilities:
Accounts receivable.................. (137,633) (164,858)
Inventories.......................... 7,027 11,466
Accounts payable..................... 12,960 51,447
Interest and taxes accrued........... 35,772 26,736
Other working capital................ 44,356 (50)
Over/(under)-recovered fuel revenue
-- net of deferred taxes............ 6,467 (61,407)
Other -- net......................... 31,650 36,777
--------- ---------
Cash provided by operating
activities........................ 731,379 693,285
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds.................. 106,350 133,010
Other long-term....................... -- 300,000
TU Electric obligated, mandatorily
redeemable, preferred securities of
subsidiary trusts holding solely
debentures of TU Electric........... 493,273 --
Retirements of securities:
First mortgage bonds.................. (367,165) (217,620)
Other long-term debt.................. (348,773) (4,092)
Preferred stock of subsidiary......... (543,148) (12,500)
Common stock.......................... -- (50,043)
Change in notes payable:
Commercial paper...................... 486,516 5,955
Banks................................. 7,546 (316,541)
Common stock dividends paid............ (235,833) (225,843)
Debt premium, discount, financing and
reacquisition expenses................ (27,924) (8,563)
--------- ---------
Cash used in financing activities.. (429,158) (396,237)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures.............. (226,902) (195,560)
Allowance for equity funds used during
construction (excluding amount for
nuclear fuel)......................... 404 535
Change in construction receivables/
payables -- net....................... (313) 249
Non-utility property -- net............ (22,146) (5,140)
Nuclear fuel (excluding allowance for
equity funds used during construction) (28,395) (42,581)
Other investments...................... (17,913) (65,522)
--------- ---------
Cash used in investing activities.. (295,265) (308,019)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES......... 530 48
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS. 7,486 (10,923)
CASH AND CASH EQUIVALENTS -- BEGINNING
BALANCE................................ 15,845 24,853
--------- ---------
CASH AND CASH EQUIVALENTS -- ENDING
BALANCE................................ $ 23,331 $ 13,930
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
UTILITY PLANT
In service:
Production........................................................... $16,279,919 $16,277,151
Transmission......................................................... 1,652,229 1,607,925
Distribution......................................................... 5,723,863 5,655,677
General.............................................................. 505,665 503,688
----------- -----------
Total.............................................................. 24,161,676 24,044,441
Less accumulated depreciation........................................ 6,420,371 6,127,610
----------- -----------
Utility plant in service, less accumulated depreciation............ 17,741,305 17,916,831
Construction work in progress......................................... 260,632 240,612
Nuclear fuel (net of accumulated amortization: 1997 -- $414,678,000;
1996 -- $369,114,000)............................................... 235,676 252,589
Held for future use................................................... 23,966 24,483
----------- -----------
Utility plant, less accumulated depreciation and amortization....... 18,261,579 18,434,515
Less reserve for regulatory disallowances............................. 836,005 836,005
----------- -----------
Net utility plant................................................... 17,425,574 17,598,510
----------- -----------
INVESTMENTS............................................................ 1,167,616 1,158,223
----------- -----------
CURRENT ASSETS
Cash in banks......................................................... 23,331 15,845
Special deposits...................................................... 2,932 805
Accounts receivable:
Customers............................................................ 425,108 290,111
Other................................................................ 42,243 44,032
Allowance for uncollectible accounts................................. (5,714) (6,262)
Inventories -- at average cost:
Materials and supplies............................................... 199,049 200,601
Fuel stock........................................................... 115,911 121,699
Prepayments........................................................... 74,482 56,324
Deferred income taxes................................................. 54,338 40,021
Other current assets.................................................. 19,009 13,279
----------- -----------
Total current assets............................................... 950,689 776,455
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets......................................... 1,864,773 1,753,418
Other deferred debits................................................. 101,205 89,101
----------- -----------
Total deferred debits.............................................. 1,965,978 1,842,519
----------- -----------
Total......................................................... $21,509,857 $21,375,707
=========== ===========
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares: 1997 - 224,649,557; 1996 - 224,602,557.............................. $ 4,791,193 $ 4,787,047
Retained earnings......................................................................... 1,244,057 1,202,390
Cumulative currency translation adjustment................................................ 8,253 43,476
----------- -----------
Total common stock equity............................................................. 6,043,503 6,032,913
Preferred stock of subsidiary:
Not subject to mandatory redemption..................................................... 139,140 464,427
Subject to mandatory redemption......................................................... 20,593 238,391
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric................................................ 874,865 381,311
Long-term debt, less amounts due currently................................................ 8,303,859 8,668,111
----------- -----------
Total capitalization.................................................................. 15,381,960 15,785,153
----------- -----------
CURRENT LIABILITIES
Notes payable:
Commercial paper........................................................................ 439,667 253,151
Banks................................................................................... 73,835 69,788
Long-term debt due currently.............................................................. 371,377 356,076
Accounts payable.......................................................................... 346,895 336,391
Dividends declared........................................................................ 120,656 129,879
Customers' deposits....................................................................... 84,827 80,390
Taxes accrued............................................................................. 166,258 143,424
Interest accrued.......................................................................... 169,249 156,758
Over-recovered fuel revenue............................................................... 52,934 42,984
Other current liabilities................................................................. 164,501 90,485
----------- -----------
Total current liabilities............................................................. 1,990,199 1,659,326
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes......................................................... 3,008,886 2,801,626
Unamortized federal investment tax credits................................................ 578,316 589,713
Other deferred credits and noncurrent liabilities......................................... 550,496 539,889
----------- -----------
Total deferred credits and other noncurrent liabilities............................... 4,137,698 3,931,228
COMMITMENTS AND CONTINGENCIES
----------- -----------
Total............................................................................ $21,509,857 $21,375,707
=========== ===========
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
---------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES............... $1,451,541 $1,558,778 $2,817,000 $2,907,108 $5,939,503 $5,892,553
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power........ 451,854 507,472 902,062 957,293 1,910,525 1,837,554
Operation and maintenance....... 310,397 278,965 603,887 529,357 1,186,442 1,069,689
Depreciation and amortization... 143,139 139,733 285,745 278,797 568,850 554,980
Income taxes.................... 98,449 119,022 176,141 197,831 399,322 445,123
Taxes other than income......... 117,831 122,567 247,427 247,754 506,105 502,777
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses...... 1,121,670 1,167,759 2,215,262 2,211,032 4,571,244 4,410,123
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME................. 329,871 391,019 601,738 696,076 1,368,259 1,482,430
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction............ 341 359 647 899 1,298 7,615
Impairment of assets............ -- -- -- -- -- (486,350)
Other income and (deductions)
-- net......................... (638) (4,682) (275) (4,910) 5,138 (1,327)
Income tax benefit (expense).... (1,354) 17,307 14,158 17,419 12,252 188,373
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss)..... (1,651) 12,984 14,530 13,408 18,688 (291,689)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME..................... 328,220 404,003 616,268 709,484 1,386,947 1,190,741
---------- ---------- ---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds...... 112,548 121,511 227,237 247,477 466,552 502,307
Interest on other long-
term debt...................... 3,569 8,357 7,143 16,653 16,945 39,302
Other interest.................. 13,281 40,593 27,262 54,733 54,988 85,566
Distribution on TU
Electric obligated,
mandatorily redeemable,
preferred securities of
subsidiary trusts holding
solely debentures of TU
Electric....................... 18,293 8,250 33,296 16,499 49,798 18,299
Allowance for borrowed
funds used during
construction................... (2,458) (2,577) (4,668) (6,532) (9,375) (12,042)
---------- ---------- ---------- ---------- ---------- ----------
Total interest and other
charges..................... 145,233 176,134 290,270 328,830 578,908 633,432
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME.......... 182,987 227,869 325,998 380,654 808,039 557,309
PREFERRED STOCK DIVIDENDS........ 7,102 13,306 19,562 27,725 45,195 67,859
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME
AVAILABLE FOR COMMON
STOCK........................... $ 175,885 $ 214,563 $ 306,436 $ 352,929 $ 762,844 $ 489,450
========== ========== ========== ========== ========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements.
7
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1997 1996
--------- ---------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income................................................................ $ 325,998 $ 380,654
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel)..................... 356,763 337,978
Deferred income taxes -- net.......................................................... 69,288 91,500
Federal investment tax credits -- net................................................. (10,611) (10,714)
Allowance for equity funds used during construction................................... (647) (899)
Changes in operating assets and liabilities:
Accounts receivable.................................................................. (122,082) (147,168)
Inventories.......................................................................... 899 7,273
Accounts payable..................................................................... 23,188 43,798
Interest and taxes accrued........................................................... 50,011 46,108
Other working capital................................................................ 52,620 (14,485)
Over/(under)-recovered fuel revenue -- net of deferred taxes......................... 6,467 (61,407)
Other -- net......................................................................... 42,261 2,976
--------- ---------
Cash provided by operating activities............................................... 794,155 675,614
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds.................................................................. 106,350 133,010
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary
trusts holding solely debentures of TU Electric...................................... 493,273 --
Retirements of securities:
First mortgage bonds.................................................................. (367,150) (217,605)
Other long-term debt.................................................................. (600) (542)
Preferred stock....................................................................... (543,148) (12,500)
Change in notes payable:
Parent................................................................................ 306,607 --
Commercial paper...................................................................... (253,151) (30,990)
Change in notes receivable............................................................. 35,515 (34,724)
Preferred stock dividends paid......................................................... (28,724) (19,982)
Common stock dividends paid............................................................ (272,832) (244,608)
Debt premium, discount, financing and reacquisition expenses........................... (23,247) (6,562)
--------- ---------
Cash used in financing activities................................................... (547,107) (434,503)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures.............................................................. (200,155) (175,100)
Allowance for equity funds used during construction (excluding amount for nuclear fuel) 391 522
Change in construction receivables/payables -- net..................................... (313) (249)
Non-utility property -- net............................................................ 263 --
Nuclear fuel (excluding allowance for equity funds used during construction)........... (28,395) (42,581)
Other investments...................................................................... (10,488) (34,472)
--------- ---------
Cash used in investing activities................................................... (238,697) (251,880)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................. 8,351 (10,769)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE.......................................... 13,005 22,633
--------- ---------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE............................................. $ 21,356 $ 11,864
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
8
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
ELECTRIC PLANT
In service:
Production............................................................ $15,334,275 $15,330,974
Transmission.......................................................... 1,645,845 1,601,628
Distribution.......................................................... 4,556,633 4,442,547
General............................................................... 433,819 432,178
----------- -----------
Total................................................................ 21,970,572 21,807,327
Less accumulated depreciation......................................... 5,855,752 5,594,363
----------- -----------
Electric plant in service, less accumulated depreciation............. 16,114,820 16,212,964
Construction work in progress.......................................... 221,194 210,573
Nuclear fuel (net of accumulated amortization: 1997 -- $414,678,000;
1996 -- $369,114,000)................................................ 235,676 252,589
Held for future use.................................................... 23,966 24,483
----------- -----------
Electric plant, less accumulated depreciation and amortization....... 16,595,656 16,700,609
Less reserve for regulatory disallowances.............................. 836,005 836,005
----------- -----------
Net electric plant................................................... 15,759,651 15,864,604
----------- -----------
INVESTMENTS............................................................. 522,768 508,437
----------- -----------
CURRENT ASSETS
Cash in banks.......................................................... 21,356 13,005
Special deposits....................................................... 552 552
Notes receivable -- affiliates......................................... -- 35,515
Accounts receivable:
Customers............................................................. 345,243 215,706
Other................................................................. 15,288 23,282
Allowance for uncollectible accounts.................................. (4,482) (5,021)
Inventories -- at average cost:
Materials and supplies................................................ 181,569 181,405
Fuel stock............................................................ 76,056 77,119
Prepayments............................................................ 43,449 31,758
Deferred income taxes.................................................. 66,019 50,882
Other current assets................................................... 1,307 2,694
----------- -----------
Total current assets................................................ 746,357 626,897
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets.......................................... 1,850,413 1,735,306
Other deferred debits.................................................. 64,815 59,695
----------- -----------
Total deferred debits............................................... 1,915,228 1,795,001
----------- -----------
Total............................................................. $18,944,004 $18,794,939
=========== ===========
See Accompanying Notes to Condensed Consolidated Financial Statements.
9
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares: 1997 - 152,252,800; 1996 - 156,800,000............................... $ 4,595,889 $ 4,732,305
Retained earnings......................................................................... 1,543,623 1,373,602
----------- -----------
Total common stock equity.............................................................. 6,139,512 6,105,907
Preferred stock:
Not subject to mandatory redemption...................................................... 139,140 464,427
Subject to mandatory redemption.......................................................... 20,593 238,391
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric................................................ 874,865 381,311
Long-term debt, less amounts due currently................................................ 6,040,031 6,310,594
----------- -----------
Total capitalization................................................................... 13,214,141 13,500,630
----------- -----------
CURRENT LIABILITIES
Notes payable:
Parent................................................................................... 306,607 --
Commercial paper......................................................................... -- 253,151
Long-term debt due currently.............................................................. 352,464 338,213
Accounts payable:
Affiliates............................................................................... 275,826 126,143
Other.................................................................................... 146,009 136,401
Dividends declared........................................................................ 2,739 148,379
Customers' deposits....................................................................... 72,712 70,141
Taxes accrued............................................................................. 173,275 132,514
Interest accrued.......................................................................... 142,197 132,947
Over-recovered fuel revenue............................................................... 52,934 42,984
Other current liabilities................................................................. 118,033 57,681
----------- -----------
Total current liabilities.............................................................. 1,642,796 1,438,554
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes......................................................... 3,189,698 2,989,612
Unamortized federal investment tax credits................................................ 567,354 577,965
Other deferred credits and noncurrent liabilities......................................... 330,015 288,178
----------- -----------
Total deferred credits and other noncurrent liabilities................................ 4,087,067 3,855,755
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total................................................................................ $18,944,004 $18,794,939
=========== ===========
See Accompany Notes to Condensed Consolidated Financial Statements.
10
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
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 1996 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 1996 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 previously reported amounts have been reclassified to conform to current
classifications.
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 about future events that affect the reporting and disclosure of
assets and liabilities at the balance sheet dates and the reported amounts of
revenue and expense during the periods covered by the condensed consolidated
financial statements. In the event estimates and/or assumptions prove to be
different from actual amounts, adjustments are made in subsequent periods to
reflect more current information. No material adjustments were made to previous
estimates during the current period.
THE COMPANY
- -----------
Consolidation -- The condensed consolidated financial statements include the
Company and all of its majority-owned subsidiaries:
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)
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method.
TU ELECTRIC
- -----------
Consolidation -- The condensed consolidated financial statements of TU
Electric include its subsidiaries, all of which are business trusts. All
significant intercompany items and transactions have been eliminated in
consolidation.
Income Taxes -- Effective January 1, 1997, TU Electric's state franchise tax
status changed from taxes based on net taxable capital to taxes based on net
taxable earned surplus. Net taxable earned surplus is based on the federal
income tax return. TU Electric has determined that a portion of the taxes
calculated under the new tax status method is, in effect, a state income tax.
As a result, TU Electric recorded an accumulated deferred tax liability,
partially offset by a corresponding regulatory asset.
11
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 1997, the Company, TU Electric and TUC Holding Company (TUC), the new
holding company resulting from the completion of the merger transactions
involving the Company and ENSERCH Corporation (ENSERCH) (see Note 7), entered
into new credit agreements (Credit Agreements) with a group of commercial banks.
The Credit Agreements replaced prior lines of credit with two new facilities.
Facility A provides for short-term borrowings aggregating up to $570,000,000
outstanding at any one time at variable interest rates and terminates April 23,
1998. Facility B provides for short-term borrowings aggregating up to
$1,330,000,000 outstanding at any one time at variable interest rates and
terminates April 24, 2002. Prior to the effective date of the merger
transactions involving the Company and ENSERCH, the Company's and TU Electric's
borrowings under Facilities A and B were limited to an aggregate of up to
$1,500,000,000 outstanding at any one time. Upon completion of the merger
transactions involving the Company and ENSERCH: (i) TUC will replace the
Company as a borrower, (ii) ENSERCH is expected to become a party to the Credit
Agreements with ENSERCH borrowings under both facilities limited to an aggregate
of up to $650,000,000 outstanding at any one time, and (iii) TUC's, TU
Electric's and ENSERCH's borrowings under both facilities will be limited to an
aggregate of up to $1,900,000,000 outstanding at any one time. Borrowings under
these facilities will be used for working capital and other corporate purposes,
including commercial paper backup. The total of short-term borrowings authorized
by the Board of Directors of the Company at June 30, 1997 from banks or other
lenders, was $2,150,000,000.
3. CAPITALIZATION
THE COMPANY
- -----------
COMMON STOCK
The Company has purchased from a third party a note that was issued by the
Company's Employee Thrift Plan (Thrift Plan) to finance the purchase of shares
of common stock (LESOP Shares). The purchase of the note was recorded by the
Company as a reduction to common stock equity. LESOP Shares are outstanding
shares, but are held by the Thrift Plan trustee until allocated to accounts of
participants, at which time increases to common stock equity are recorded.
Allocations to participants' accounts during the six months ended June 30, 1997,
increased common stock equity by $4,047,000.
In June 1997, the Company sold 47,000 shares of its authorized but unissued
common stock to the Long-Term Incentive Compensation Plan of Texas Utilities
Company System as approved at the Company's Annual Meeting of Shareholders held
on May 23, 1997.
PREFERRED STOCK
In March 1997, the Company completed its tender offer for any and all shares
of 20 series of TU Electric's preferred stock and depositary shares. The
Company funded the purchase of 3,989,640 shares of such stock at a total cost of
approximately $404,000,000 primarily through the issuance of commercial paper.
In May and June 1997, the Company sold such shares to TU Electric for
approximately $408,000,000. (See TU Electric -- Preferred Stock below.)
TU ELECTRIC
- -----------
COMMON STOCK
In June 1997, TU Electric purchased from the Company and retired 4,547,200
shares of its issued and outstanding common stock.
PREFERRED STOCK
At June 30, 1997 and December 31, 1996, TU Electric had 17,000,000 shares of
preferred stock authorized by its articles of incorporation of which 1,624,240
and 7,101,879 shares were issued and outstanding, respectively.
12
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During the six months ended June 30, 1997, TU Electric redeemed or purchased
5,477,639 shares of its preferred stock (including the 3,989,640 shares
tendered to the Company and subsequently sold to TU Electric) with annual
dividend rates ranging from 4.00% to 9.64%.
TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF TU ELECTRIC
Three statutory business trusts, TU Electric Capital I, TU Electric Capital II
and TU Electric Capital III (each a TU Electric Trust) were established in 1995
as financing subsidiaries of TU Electric for the purposes, in each case, of
issuing common and preferred trust securities, with a liquidation preference of
$25 per unit, and holding Junior Subordinated Debentures issued by TU Electric
(Debentures). In January 1997, two additional TU Electric Trusts, TU Electric
Capital IV and TU Electric Capital V, were established for the purposes, in each
case, of issuing common and preferred trust securities, with a liquidation
preference of $1,000 per unit, and holding Debentures. The Debentures held
by each TU Electric Trust are its only assets. Each TU Electric Trust will use
interest payments received on the Debentures it holds to make cash distributions
on the trust securities it has issued.
At June 30, 1997 and December 31, 1996, preferred and common trust securities
of each TU Electric Capital Trust were outstanding as follows:
UNITS OUTSTANDING AMOUNT
---------------------------------- --------------------------------
COMPANY JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1996
------- ------------- ----------------- ------------- -----------------
THOUSANDS OF DOLLARS
TU Electric Capital I (a) 5,871,044 5,871,044 $140,761 $140,671
TU Electric Capital II (b)... 1,991,253 1,991,253 47,338 47,301
TU Electric Capital III (c).. 8,000,000 8,000,000 193,425 193,339
TU Electric Capital IV (d)... 100,000 -- 97,554 --
TU Electric Capital V (e).... 400,000 -- 395,787 --
---------- ---------- -------- --------
Total 16,362,297 15,862,297 $874,865 $381,311
========== ========== ======== ========
_______________________
(a) Trust assets are $154,869,150 principal amount, Junior Subordinated
Debentures Series A, 8.25% due 9/30/30.
(b) Trust assets are $51,418,575 principal amount, Junior Subordinated
Debentures Series B, 9.00% due 9/30/30.
(c) Trust assets are $206,185,575 principal amount, Junior Subordinated
Debentures Series C, 8.00% due 12/31/35.
(d) Trust assets are $103,093,000 principal amount, Junior Subordinated
Debentures Series D, Floating Interest Rate due 1/30/37.
(e) Trust assets are $412,372,000 principal amount, Junior Subordinated
Debentures Series E, 8.175% due 1/30/37.
LONG-TERM DEBT
In July 1997, the Brazos River Authority, the Sabine River Authority of Texas
and the Trinity River Authority of Texas issued $92,290,000 aggregate principal
amount of Pollution Control Revenue Refunding Bonds due July 1, 2002
collateralized by TU Electric's First Mortgage Bonds. In February 1997, the
Brazos River Authority issued $106,350,000 aggregate principal amount of
Pollution Control Revenue Refunding Bonds due February 1, 2032 collateralized by
TU Electric's First Mortgage Bonds. All such bonds 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 insurance
policies. Interest rates on all the bonds are determined daily. At June 30,
1997, such rates ranged from 4.10% to 4.25%.
During the six months ended June 30, 1997, TU Electric redeemed or reacquired
the following long-term debt:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ --------------- ----------
First mortgage bonds......................... $100,000,000 9.00% 2022
Pollution control revenue bonds.............. 106,350,000 5.41% to 7-7/8% 2017-2021
------------
Total...................................... $206,350,000
============
13
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. DERIVATIVE INSTRUMENTS
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company's and TU Electric's operations involve managing market risks
related to changes in interest rates and, for the Company, foreign exchange and
commodity price exposures. Derivative instruments including swaps and forward
contracts are used to reduce and manage a portion of those risks. The Company's
and TU Electric's participations in derivative transactions have been designed
for hedging purposes and are not held or issued for trading purposes.
INTEREST RATE RISK MANAGEMENT
At June 30, 1997, Eastern Energy Limited (Eastern Energy) had interest rate
swaps outstanding with respect to certain of its debt with an aggregate notional
amount of $868,452,000. These swap agreements establish a mix of fixed and
variable interest rates on the outstanding debt and have remaining terms between
5 and 20 years.
In February 1997, TU Electric entered into an interest rate swap agreement
with respect to preferred securities of TU Electric Capital IV, with a notional
principal amount of $100,000,000 expiring 2002 and a fixed interest rate of
7.183% per annum.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company's foreign exchange exposures result from transactions denominated
in currencies other than the local currency of its foreign subsidiary. At June
30, 1997, Eastern Energy had cross-currency swap agreements outstanding with an
aggregate notional amount of $325,716,000 expiring on various dates through
2016.
ELECTRICITY PRICE RISK MANAGEMENT
Eastern Energy and the other distribution companies in Victoria purchase their
power from a competitive power pool operated by a statutory, independent
corporation. Eastern Energy purchases about 95% of its energy from this pool,
the cost of which is based on spot market price. Eastern Energy has entered
into wholesale market contracts to cover a substantial majority of its
forecasted load through the end of 2000. These contracts fix the price of
energy within a certain range for the purpose of hedging or protecting against
fluctuations in the spot market price. Eastern Energy's contracts related to
its forecasted contestable and franchise load cover a notional volume of
approximately 18 million MWh's for 1997 through 2000. Under these contracts,
payments are made between Eastern Energy and the generators representing the
difference between the wholesale electricity market price and the contract
price. The net payable or receivable is recognized in earnings as adjustments
to purchased power expense in the period the related transactions are completed.
CREDIT RISK
Credit risk relates to the risk of loss that the Company and TU Electric would
incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company and TU Electric believe the risk of
nonperformance by counterparties is minimal.
5. REGULATION AND RATES
TU ELECTRIC
- -----------
In late 1996, as part of its regular earnings monitoring process, the Public
Utility Commission of Texas (PUC) staff, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, advised the PUC that it
believed TU Electric was earning in excess of a reasonable rate of return, and
the PUC and TU Electric subsequently began discussions concerning possible
remedies. It was decided to limit negotiations to a resolution of issues
concerning TU Electric's earnings through 1997, and discussion of a long-term
resolution was deferred until it could be determined whether the 1997 Texas
legislature, then in session, would enact applicable legislation.
14
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers in August 1997
billings and to leave rates unchanged during the remainder of 1997. TU Electric
recorded the charge in July 1997. The proposal was the result of a joint
stipulation in which TU Electric was joined by the PUC General Counsel, on
behalf of the PUC Staff and the public interest, the Office of Public Utility
Counsel, the state agency charged with representing the interests of residential
and small commercial customers, and the Coalition of Cities served by TU
Electric. TU Electric is continuing its negotiations with respect to a longer-
term settlement of the issues, including a resolution of the appeals of TU
Electric's last two general rate cases. TU Electric is unable to predict the
outcome of any of these negotiations.
Also in July 1997, the PUC ruled on TU Electric's petition seeking final
reconciliation of all eligible fuel and purchased power expenses incurred during
the reconciliation period of July 1, 1992 through June 30, 1995 (approximately
$4.7 billion). In the ruling, the PUC disallowed approximately $69 million of
eligible fuel related costs incurred during the reconciliation period. The
majority of the disallowance (approximately $67 million) is related to
replacement fuel costs as a result of the November 1993 collapse of the
emissions chimney serving Unit 3 of the Monticello lignite-fueled generating
station. In addition, the PUC ruled that approximately $10 million from the
gain on sale of sulfur dioxide allowances should be deferred and reconsidered at
a future date. TU Electric is still reviewing the ruling, but strongly
disagrees with the disallowance and will continue to vigorously defend its
position. It is anticipated that TU Electric will file a motion for rehearing.
A final written order from the PUC is expected in the near future, the terms of
which could vary from the ruling. TU Electric will record the charge upon
receipt of a final written order from the PUC.
TU Electric, in July 1997, petitioned the PUC for and received interim
approval of a fuel refund to customers of approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997. Such over-collection was primarily due to TU Electric's ability to use
less expensive nuclear fuel and purchased power to offset a higher-priced
natural gas market during the period. Refunds will be included in August 1997
billings.
6. COMMITMENTS AND CONTINGENCIES
TU ELECTRIC
- -----------
COOLING WATER CONTRACTS
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, $32,365,000 at June 30, 1997, 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 $74,780,000 remaining principal amount of bonds at June 30, 1997, 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 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 an
external trust fund (included in other investments). At June 30, 1997, such
reserve totaled $108,659,000 which includes an accrual of $9,089,000 and
$18,179,000 for the six and twelve months ended June 30, 1997, respectively. As
of June 30, 1997, the market value of assets in the external trust fund for
decommissioning of Comanche Peak was $139,360,000. Any difference between the
market value of the external trust fund and the decommissioning reserve that
represents unrealized gains or losses of the trust fund is treated as a
regulatory liability or a regulatory asset. 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
15
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Comanche Peak Unit 1, and Unit 2 and common facilities, respectively. TU
Electric is recovering such costs based upon the 1992 study through rates placed
in effect under its January 1993 rate increase request. An updated site-specific
study will be performed and completed by the end of 1997. Actual
decommissioning costs are expected to differ from estimates due to changes in
the assumed dates of decommissioning activities, regulatory requirements,
technology and costs of labor, materials and equipment.
THE COMPANY AND TU ELECTRIC
- ---------------------------
GENERAL
In addition to the above, the Company and TU Electric are involved in various
legal and administrative proceedings which, in the opinion of the management of
each, should not have a material effect upon its financial position, results of
operation or cash flows.
7. SUBSEQUENT EVENT
THE COMPANY
- -----------
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH were completed.
At the effective time of the Merger: (i) the Company and ENSERCH merged into
wholly owned subsidiaries of TUC, which, as a result, now owns all the common
stock of the Company and of ENSERCH, (ii) TUC changed its name to Texas
Utilities Company, (iii) the Company changed its name to Texas Energy
Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired 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 ENSERCH businesses, excluding
Enserch Exploration Inc. 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, consisting 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.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
16
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries (the Company) as of June 30, 1997, and the
related condensed statements of consolidated income for the three-month, six-
month and twelve-month periods ended June 30, 1997 and 1996, and of consolidated
cash flows for the six-month periods ended June 30, 1997 and 1996. 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 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 the Company as of December 31,
1996, 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 March 12, 1997, we expressed an unqualified opinion on those consolidated
financial statements, which opinion included an explanatory paragraph concerning
the Company's 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,
1996, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
17
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,
1997, and the related condensed statements of consolidated income for the three-
month, six-month and twelve-month periods ended June 30, 1997 and 1996, and of
consolidated cash flows for the six-month periods ended June 30, 1997 and 1996.
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 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, 1996, 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 March 12, 1997, we expressed an unqualified opinion on those
consolidated financial statements, which opinion included an explanatory
paragraph concerning TU Electric's 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, 1996, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Dallas, Texas
August 11, 1997
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
This report and other presentations made by Texas Utilities Company (Company)
and its subsidiaries or Texas Utilities Electric Company and its subsidiaries
(TU Electric) contain forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Although the Company
and TU Electric each believes that in making any such statement its expectations
are based on reasonable assumptions, any such statement involves uncertainties
and is qualified in its entirety by reference to the following important factors
that could cause the actual results of the Company or TU Electric to differ
materially from those projected in such forward-looking statement: (i)
prevailing governmental policies and regulatory actions, including those of the
Federal Energy Regulatory Commission, the Public Utility Commission of Texas
(PUC), the Nuclear Regulatory Commission, and, in the case of the Company, the
Office of the Regulator General of Victoria, Australia, with respect to allowed
rates of return, industry and rate structure, purchased power and investment
recovery, operations of nuclear generating facilities, acquisitions and disposal
of assets and facilities, operation and construction of plant facilities,
decommissioning costs, present or prospective wholesale and retail competition,
changes in tax laws and policies and changes in and compliance with
environmental and safety laws and policies, (ii) weather conditions and other
natural phenomena, (iii) unanticipated population growth or decline, and changes
in market demand and demographic patterns, (iv) competition for retail and
wholesale customers, (v) pricing and transportation of crude oil, natural gas
and other commodities, (vi) unanticipated changes in interest rates, rates of
inflation or in foreign exchange rates, (vii) unanticipated changes in operating
expenses and capital expenditures, (viii) capital market conditions, (ix)
competition for new energy development opportunities, and (x) legal and
administrative proceedings and settlements.
Any forward-looking statement speaks only as of the date on which such
statement is made, and neither the Company nor TU Electric undertakes any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time and it
is not possible for the Company or TU Electric to predict all of such factors,
nor can they assess the impact of each such factor or the extent to which any
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement.
GENERAL
Certain comparisons in this Quarterly Report on Form 10-Q have been affected
by the December 1995 acquisition of Eastern Energy Limited (Eastern Energy) by
Texas Utilities Australia Pty. Ltd. (TU Australia), a wholly-owned subsidiary of
the Company. The results of operation of Eastern Energy are included only for
the periods subsequent to acquisition.
FINANCIAL CONDITION
THE COMPANY AND TU ELECTRIC
- ---------------------------
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 Company and TU Electric Annual Reports on Form 10-K for the
year 1996 (1996 Form 10-K). 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 other reports of
the Company and TU Electric or included herein.
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, 1997 consisted of approximately 54% long-term debt, 6%
preferred securities of trusts, 1% preferred stock and 39% common stock equity.
The capitalization ratios of TU Electric at June 30, 1997 consisted of
approximately 46% long-term debt, 7% preferred securities of trusts, 1%
preferred stock and 46% common stock equity.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
In July 1997, the Brazos River Authority, the Sabine River Authority of Texas
and the Trinity River Authority of Texas issued $92,290,000 aggregate principal
amount of Pollution Control Revenue Refunding Bonds due July 1, 2002
collateralized by TU Electric's First Mortgage Bonds. In February 1997, the
Brazos River Authority issued $106,350,000 aggregate principal amount of
Pollution Control Revenue Refunding Bonds due February 1, 2032 collateralized by
TU Electric's First Mortgage Bonds. All such bonds 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 insurance
policies. Interest rates on all the bonds are determined daily. Currently, such
rates range from 3.40% to 3.55%.
To date in 1997, the System Companies have redeemed, reacquired or made
principal payments of $1,191,699,000 (including $1,188,134,000 for TU Electric)
on long-term debt and preferred stock. In July 1997, TU Electric completed its
purchase of 4,547,200 shares ($316,416,000) of its issued and outstanding common
stock from the Company.
In March 1997, the Company completed its tender offer for any and all shares
of 20 series of TU Electric's preferred stock and depositary shares. The
Company funded the purchase of 3,989,640 shares of such stock at a total cost of
approximately $404,000,000 primarily through the issuance of commercial paper.
In May and June 1997, the Company sold such shares to TU Electric for
approximately $408,000,000. Upon purchase by TU Electric, the shares were
retired. TU Electric's purchase of the shares was funded with excess proceeds
from the sale of capital securities in early 1997.
In April 1997, the Company, TU Electric and TUC Holding Company (TUC), the new
holding company resulting from the completion of the merger transactions
involving the Company and ENSERCH Corporation (ENSERCH) (see Note 7 to Condensed
Consolidated Financial Statements), entered into new credit agreements (Credit
Agreements) with a group of commercial banks. The Credit Agreements replaced
prior lines of credit with two new facilities. Facility A provides for short-
term borrowings aggregating up to $570,000,000 outstanding at any one time at
variable interest rates and terminates April 23, 1998. Facility B provides for
short-term borrowings aggregating up to $1,330,000,000 outstanding at any one
time at variable interest rates and terminates April 24, 2002. Prior to the
effective date of the merger transactions involving the Company and ENSERCH, the
Company's and TU Electric's borrowings under Facilities A and B were limited to
an aggregate of up to $1,500,000,000 outstanding at any one time. Upon
completion of the merger transactions involving the Company and ENSERCH: (i) TUC
will replace the Company as a borrower, (ii) ENSERCH is expected to become a
party to the Credit Agreements with ENSERCH borrowings under both facilities
limited to an aggregate of up to $650,000,000 outstanding at any one time, and
(iii) TUC's, TU Electric's and ENSERCH's borrowings under both facilities will
be limited to an aggregate of up to $1,900,000,000 outstanding at any one time.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup. The total of short-term
borrowings authorized by the Board of Directors of the Company at June 30, 1997
from banks or other lenders, was $2,150,000,000.
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
$448,850,000 principal amount of First Mortgage Bonds and debt securities, or a
combination thereof, 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.
The Company's and TU Electric's operations involve managing market risks
related to changes in interest rates and, for the Company, foreign exchange and
commodity price exposures. Derivative instruments including swaps and forward
contracts are used to reduce and manage a portion of those risks. The Company's
and TU Electric's participations in derivative transactions have been designed
for hedging purposes and are not held or issued for trading purposes. The
Company's foreign exchange exposures result from transactions denominated in
currencies other than the local currency of its foreign subsidiary. As of June
30, 1997, the aggregate notional amount of such exposure was $325,716,000. The
Company enters into currency swaps to reduce foreign exchange exposure. As of
June 30, 1997, net deferred gains and losses associated with the currency swaps
were not material. Credit risk relates to the risk of loss that the Company and
TU Electric would incur as a result of nonperformance by counterparties to their
respective derivative instruments. The Company and TU Electric believe the risk
of nonperformance by counterparties is minimal. For other information regarding
Derivative Instruments, see Note 4 to Condensed Consolidated Financial
Statements.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
REGULATION, RATES AND COMPETITION
Under the current regulatory environment, TU Electric and Southwestern
Electric Service Company (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 partial or complete
discontinuation of SFAS 71 application.
In late 1996, as part of its regular earnings monitoring process, the PUC
staff, after reviewing the 1995 Electric Investor-Owned Utilities Earnings
Report of TU Electric, advised the PUC that it believed TU Electric was earning
in excess of a reasonable rate of return, and the PUC and TU Electric
subsequently began discussions concerning possible remedies. It was decided to
limit negotiations to a resolution of issues concerning TU Electric's earnings
through 1997, and discussion of a long-term resolution was deferred until it
could be determined whether the 1997 Texas legislature, then in session, would
enact applicable legislation.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers in August 1997
billings and to leave rates unchanged during the remainder of 1997. TU Electric
recorded the charge in July 1997. The proposal was the result of a joint
stipulation in which TU Electric was joined by the PUC General Counsel, on
behalf of the PUC Staff and the public interest, the Office of Public Utility
Counsel, the state agency charged with representing the interests of residential
and small commercial customers, and the Coalition of Cities served by TU
Electric. TU Electric is continuing its negotiations with respect to a longer-
term settlement of the issues, including a resolution of the appeals of TU
Electric's last two general rate cases. TU Electric is unable to predict the
outcome of any of these negotiations.
Also in July 1997, the PUC ruled on TU Electric's petition seeking final
reconciliation of all eligible fuel and purchased power expenses incurred during
the reconciliation period of July 1, 1992 through June 30, 1995 (approximately
$4.7 billion). In the ruling, the PUC disallowed approximately $69 million of
eligible fuel related costs incurred during the reconciliation period. The
majority of the disallowance (approximately $67 million) is related to
replacement fuel costs as a result of the November 1993 collapse of the
emissions chimney serving Unit 3 of the Monticello lignite-fueled generating
station. In addition, the PUC ruled that approximately $10 million from the
gain on sale of sulfur dioxide allowances should be deferred and reconsidered at
a future date. TU Electric is still reviewing the ruling, but strongly
disagrees with the disallowance and will continue to vigorously defend its
position. It is anticipated that TU Electric will file a motion for rehearing.
A final written order from the PUC is expected in the near future, the terms of
which could vary from the ruling. TU Electric will record the charge upon
receipt of a final written order from the PUC.
TU Electric, in July 1997, petitioned the PUC for and received interim
approval of a fuel refund to customers of approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997. Such over-collection was primarily due to TU Electric's ability to use
less expensive nuclear fuel and purchased power to offset a higher-priced
natural gas market during the period. Refunds will be included in August 1997
billings.
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.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
While TU Electric and 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, 1997. 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.
CAPITAL EXPENDITURES
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
(see Item 2. Properties -- Capital Expenditures in the 1996 Form 10-K).
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. The timing and amounts of any specific new business investment
opportunities are presently undetermined.
THE COMPANY
- -----------
BUSINESS MERGERS AND ACQUISITIONS
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH were completed.
At the effective time of the Merger: (i) the Company and ENSERCH merged into
wholly owned subsidiaries of TUC, which, as a result, now owns all the common
stock of the Company and of ENSERCH, (ii) TUC changed its name to Texas
Utilities Company, (iii) the Company changed its name to Texas Energy
Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired 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 ENSERCH businesses, excluding
Enserch Exploration Inc. 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, consisting 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.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
RESULTS OF OPERATION
THE COMPANY
- -----------
For the three-, six- and twelve-month periods ended June 30, 1997, the
Company's consolidated net income, excluding the after-tax effect of the 1995
asset impairment representing approximately $802 million ($316 million for TU
Electric), decreased approximately 21%, 16% and 9% as compared to the respective
periods ended June 30, 1996. For the Company and TU Electric, from which most
of the Company's consolidated earnings is derived, the major factor affecting
earnings for all current periods was milder weather conditions as compared to
the respective prior periods.
The Company's condensed statement of consolidated income for the twelve months
ended June 30, 1997, is affected by a full twelve month's results of operation
of Eastern Energy, which was acquired by TU Australia in December 1995.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
For the twelve months ended June 30, 1997, the Company's condensed statement
of consolidated income includes operating revenues of $496 million, operating
expenses of $401 million and interest expense of $82 million, which represent TU
Australia's results of operation.
TU ELECTRIC
- -----------
For the three- and six-month periods, operating revenues decreased
approximately 7% and 3%, respectively. Operating revenues increased
approximately 1% for the twelve-month period. The following table details the
factors contributing to these changes:
INCREASE (DECREASE)
---------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------ ---------------- -------------------
FACTORS THOUSANDS OF DOLLARS
-------
Base rate revenue (including unbilled)............... $ (76,321) $ (83,643) $ (74,881)
Fuel revenue and power cost recovery factor revenue.. (52,719) (50,891) 74,893
Transmission service revenue......................... 27,952 56,488 56,488
Other revenue........................................ (6,149) (12,062) (9,550)
----------- ----------- -------------
Total............................................... $ (107,237) $ (90,108) $ 46,950
=========== =========== =============
Total energy sales (including unbilled energy sales) for the three-month and
six-month periods decreased by approximately 7% and 4% respectively, primarily
as a result of milder weather conditions. Total energy sales (including
unbilled energy sales) did not change significantly for the twelve-month period.
The decrease in base rate revenue for all periods is due primarily to milder
weather conditions. The increase in transmission service revenue for the three-,
six- and twelve-month periods is due to the recognition of revenues from
implementing the PUC's Open Access Transmission Rule.
Fuel revenue for the three-month and six-month periods decreased as a result
of decreases in energy sales. The increase in fuel revenue for the twelve-month
period was primarily due to increases in spot market gas prices.
Fuel and purchased power expense for the three-month and six-month periods
decreased 11% and 6%, respectively, and increased 4% for the twelve-month
period. The decrease in the three-month and six-month periods was primarily due
to decreased energy sales. The increase in the twelve-month period was
primarily due to increased spot market gas prices as compared to the prior
period.
Other income and (deductions) -- net was affected for the three-, six- and
twelve-month periods by decreases in non-utility property expenses.
Income tax benefits related to other income (loss) decreased for the three-
month and six-month periods primarily due to an IRS audit adjustment reflected
in the respective prior periods. The decrease for the six-month period was
partially offset by the initial effect of the implementation of a change in TU
Electric's state franchise tax status effective January 1, 1997 (see Note 1 to
Condensed Consolidated Financial Statements). The resulting increase in TU
Electric's effective income tax rate increased the value of its deferred tax
assets.
Interest on mortgage bonds decreased as compared to the prior periods due to
reduced interest requirements resulting from TU Electric's refinancing efforts.
Decreases in interest on other long-term debt for the three-, six- and twelve-
month periods were affected by the prepayment in August and September 1996 of TU
Electric's borrowings under a term credit agreement. The decrease in interest
on other long-term debt for the twelve-month period was also affected by the
prepayment of TU Electric's promissory note to Brazos Electric Power Cooperative
in October 1995. Other interest decreased for the three-, six-, and twelve-month
periods due primarily to an interest payment related to a settlement with the
Internal Revenue Service in June 1996. Preferred securities of trusts
distributions resulted from the issuance, in December 1995 and January 1997, 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 redemption of significant portions of TU
Electric's preferred stock.
23
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
TU ELECTRIC
- -----------
At a special meeting of the shareholders of Texas Utilities Electric Company
(TU Electric) held May 20, 1997, amendments to the Restated Articles of
Incorporation of TU Electric were approved. (See Item 4. Submission of Matters
to a Vote of Security Holders.) The amendments included: (i) elimination of
certain restrictions on the issuance of unsecured indebtedness, (ii) elimination
of certain restrictions on the repurchase of common stock junior to the
preferred stock, (iii) clarification and condensation of the restrictions on the
issuance of additional shares of preferred stock, (iv) changing from four to six
the number of quarterly dividends that must be in arrears before holders of
preferred stock are entitled to certain voting rights, and (v) changing from
two-thirds to a majority the number of shares of preferred stock of which
consent is required for certain corporate actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company
Texas Utilities Company (Company) held its Annual Meeting of Shareholders on
May 23, 1997. The following items were presented to the shareholders with the
following results:
VOTES
WITHHELD OR
VOTES FOR AGAINST ABSTENTIONS
----------- ---------- -----------
ELECTION OF DIRECTORS
- ---------------------
J. S. Farrington 193,200,015 1,508,390 None
Bayard H. Friedman 193,111,831 1,596,574 None
William M. Griffin 193,123,540 1,584,865 None
Kerney Laday 193,168,353 1,540,052 None
Margaret N. Maxey 193,131,419 1,576,986 None
James A. Middleton 193,229,049 1,479,356 None
Erle Nye 193,215,805 1,492,600 None
J. E. Oesterreicher 193,198,611 1,509,794 None
Charles R. Perry 193,162,154 1,540,251 None
Herbert H. Richardson 193,167,564 1,540,841 None
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS 192,777,074 991,155 940,176
- -------------------------------------------------------------
APPROVAL OF LONG-TERM INCENTIVE PLAN 173,573,904 18,646,416 2,488,085
- ------------------------------------
A comprehensive, stock-based incentive compensation plan
of the Company to assist the Company in attracting, retaining
and motivating executive officers and other key employees.
The Plan will be administered entirely by outside directors.
TU ELECTRIC
- -----------
Certain amendments to TU Electric's Restated Articles of Incorporation were
approved by shareholders of TU Electric at a special meeting of shareholders of
TU Electric held on May 20, 1997. (See Item 2. Changes in Securities.)
Approval of the amendments required the affirmative vote of (i) two-thirds of
the outstanding shares of common stock entitled to vote and (ii) with respect to
those amendments which affected the rights of holders of preferred stock, two-
thirds of the outstanding shares of preferred stock, voting together as a class.
At the time of the meeting, the Company owned all shares of TU Electric's common
stock and approximately 71% of the outstanding shares of TU Electric's preferred
stock.
The Company voted all shares of common stock for the amendments. Of the
outstanding shares of preferred stock, 5,017,963 voted for the amendments,
including 3,632,149 which were held by the Company, and 29,716.25 voted against
the amendments. There were 8,976 abstentions and broker non-votes, none of which
was counted as an affirmative vote.
24
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
THE COMPANY
- -----------
On August 5, 1997, the merger transactions (Merger) provided for in a
previously announced agreement between the Company and ENSERCH Corporation
(ENSERCH) were completed. At the effective time of the Merger: (i) the Company
and ENSERCH merged into wholly owned subsidiaries of TUC, which, as a result,
now owns all the common stock of the Company and of ENSERCH, (ii) TUC changed
its name to Texas Utilities Company, (iii) the Company changed its name to Texas
Energy Industries, Inc., (iv) each share of the Company's common stock was
automatically converted into one share of common stock of TUC, and (v) each
share of common stock of ENSERCH was automatically converted into 0.225 share of
common stock of TUC with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions.
Under the terms of the Merger, TUC acquired 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 ENSERCH businesses, excluding
Enserch Exploration Inc. 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, consisting 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.
In the Merger, approximately 15,861,000 shares of TUC common stock, with a
market value of approximately $550 million at the time of the Merger, were
issued to former holders of ENSERCH common stock. Approximately $1.3 billion of
ENSERCH's debt and preferred stock will remain outstanding. The acquisition of
ENSERCH will be accounted for as a purchase business combination.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
THE COMPANY AND TU ELECTRIC
- ---------------------------
(a) Exhibits filed as a part of Part II are:
4(a) - Restated Articles of Incorporation of TU Electric.
4(b) - Fifty-eighth Supplemental Indenture, dated as of July 1, 1997, to
the Texas Utilities Electric Company Mortgage and Deed of Trust,
dated as of December 1, 1983, between TU Electric and Irving Trust
Company (now the Bank of New York), Trustee.
10 - Long-Term Incentive Compensation Plan of Texas Utilities Company
System.
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, 1997:
None.
25
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 ENERGY INDUSTRIES, INC.
(formerly Texas Utilities Company)
By /s/ Marc D. Moseley
-----------------------------
Marc D. Moseley
Controller and Principal
Accounting Officer
Date: August 11, 1997
- --------------------------------------------------------------------------------
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/ Marc D. Moseley
-----------------------------
Marc D. Moseley
Controller and Principal
Accounting Officer
Date: August 11, 1997
26
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
4(a) - Restated Articles of Incorporation of Texas Utilities Electric
Company.
4(b) - Fifty-eighth Supplemental Indenture, dated as of July 1, 1997, to
the Texas Utilities Electric Company Mortgage and Deed of Trust,
dated as of December 1, 1983, between TU Electric and Irving Trust
Company (now the Bank of New York), Trustee.
10 - Long-Term Incentive Compensation Plan of Texas Utilities Company
System.
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