1
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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 MARCH 31, 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 APRIL 30, 1996:
Texas Utilities Company: 225,841,037 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.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three and Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 3
Condensed Statements of Consolidated Cash Flows
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three and Twelve Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 7
Condensed Statements of Consolidated Cash Flows
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 8
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 11
INDEPENDENT ACCOUNTANTS' REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES . . . . . . . . . . . . . . . . . . $1,463,900 $1,244,265 $5,858,323 $5,606,430
---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power . . . . . . . . . . . . . . 481,831 390,592 1,732,230 1,702,398
Operation . . . . . . . . . . . . . . . . . . . . . 210,424 195,616 834,441 853,577
Maintenance . . . . . . . . . . . . . . . . . . . . 71,019 68,831 292,198 301,393
Depreciation and amortization . . . . . . . . . . . 153,309 138,914 578,214 551,855
Taxes other than income . . . . . . . . . . . . . . 132,379 138,968 530,019 550,416
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . 1,048,962 932,921 3,967,102 3,959,639
---------- ---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 414,938 311,344 1,891,221 1,646,791
OTHER INCOME AND (DEDUCTIONS) - NET . . . . . . . . . . 3,590 4,681 23,491 30,846
---------- ---------- ---------- ----------
TOTAL INCOME 418,528 316,025 1,914,712 1,677,637
---------- ---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest . . . . . . . . . . . . . . . . . . . . . . 199,575 176,520 729,236 716,861
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . (3,956) (5,169) (14,114) (13,956)
Impairment of assets . . . . . . . . . . . . . . . . -- -- 1,233,320 --
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts distributions . . . . . . . . 8,249 -- 10,050 --
Preferred stock dividends of subsidiary . . . . . . . 14,419 23,546 75,788 97,346
---------- ---------- ---------- ----------
Total interest and other charges . . . . . . . . . 218,287 194,897 2,034,280 800,251
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . 200,241 121,128 (119,568) 877,386
INCOME TAX EXPENSE (BENEFIT) . . . . . . . . . . . . . 74,167 45,717 (31,586) 325,922
---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME (LOSS) . . . . . . . . . . . . $ 126,074 $ 75,411 $ (87,982) $ 551,464
========== ========== ========== ==========
Average shares of common stock
outstanding (thousands) . . . . . . . . . . . . . . . 225,841 225,841 225,841 225,841
Earnings (loss) and dividends per share of common stock:
Earnings (loss) (on average shares outstanding) . . $0.56 $0.33 $(0.39) $2.44
Dividends declared per share of common stock . . . . $0.50 $0.77 $2.54 $3.08
See accompanying Notes to Condensed Consolidated Financial Statements.
3
4
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
---------- -----------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,074 $ 75,411
Adjustments to reconcile consolidated net income to cash provided
by operating activities:
Depreciation and amortization (including amounts charged to fuel) . . . . . . . . 189,781 177,885
Deferred federal income taxes -- net . . . . . . . . . . . . . . . . . . . . . . . 59,964 46,811
Federal investment tax credits -- net . . . . . . . . . . . . . . . . . . . . . . (5,761) (5,753)
Allowance for equity funds used during construction . . . . . . . . . . . . . . . (546) 54
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,806 55,868
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,090 17,510
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,323) (12,817)
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,766) (71,590)
Other working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,935) (33,053)
Over/(under) -- recovered fuel revenue -- net of deferred taxes . . . . . . . . (37,695) 44,774
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,321 12,442
---------- -----------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 337,010 307,542
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,010 --
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 300,000
Retirement of long-term debt and preferred stock . . . . . . . . . . . . . . . . . . (172,438) (139,705)
Change in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,121) (171,886)
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,921) (173,872)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . . (10,257) (2,862)
---------- -----------
Cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . (180,727) (188,325)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (94,804) (87,443)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 (54)
Change in construction receivables/payables -- net . . . . . . . . . . . . . . . . . -- 1,097
Non-utility property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,599 (15,947)
Nuclear fuel (excluding allowance for equity funds used during construction) . . . . (14,785) (15,663)
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82,574) (5,996)
---------- -----------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . (190,227) (124,006)
---------- -----------
INCREASE IN CASH DUE TO EXCHANGE RATE CHANGES . . . . . . . . . . . . . . . . . . . . . 22,057 --
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . (11,887) (4,789)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . . 24,853 7,426
---------- -----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE . . . . . . . . . . . . . . . . . . . . . . $ 12,966 $ 2,637
========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
5
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
UTILITY PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,664,437 $16,661,053
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,596,837 1,592,610
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,433,028 5,333,396
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473,175 466,474
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,167,477 24,053,533
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 5,713,947 5,562,190
----------- -----------
Utility plant in service less accumulated depreciation . . . . . . . . 18,453,530 18,491,343
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . 299,399 271,033
Nuclear fuel (net of accumulated amortization: 1996 -- $312,751,000;
1995 -- $295,390,000) . . . . . . . . . . . . . . . . . . . . . . . . . 264,368 266,735
Held for future use . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,096 25,096
----------- -----------
Utility plant less accumulated depreciation and amortization . . . . . 19,042,393 19,054,207
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 1,308,460 1,308,460
----------- -----------
Net utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . 17,733,933 17,745,747
----------- -----------
INVESTMENTS
Non-utility property . . . . . . . . . . . . . . . . . . . . . . . . . . 420,822 422,421
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697,465 617,583
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . 1,118,287 1,040,004
----------- -----------
CURRENT ASSETS
Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,966 24,853
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,980 19,455
Accounts receivable:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,195 275,275
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,166 51,735
Allowance for uncollectible accounts . . . . . . . . . . . . . . . . . . (5,054) (5,965)
Inventories -- at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . 199,140 200,145
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,932 128,028
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,761 55,528
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . . 43,628 84,410
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 15,202 14,924
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 753,916 848,388
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets . . . . . . . . . . . . . . . . . . . . . . 1,879,481 1,901,310
Other deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . 74,560 73,087
----------- -----------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . 1,954,041 1,974,397
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . . 72,685 72,685
----------- -----------
Net deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . 1,881,356 1,901,712
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,487,492 $21,535,851
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
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6
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares -- 225,841,037 . . . . . . . . . . . . . . . . . . . $ 4,808,958 $ 4,806,912
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 938,620 924,444
Cumulative currency translation adjustment . . . . . . . . . . . . . . . 32,832 397
------------ ------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 5,780,410 5,731,753
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . 489,695 489,695
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 263,246 263,196
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 381,578 381,476
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . 8,877,670 9,174,575
------------ ------------
Total capitalization 15,792,599 16,040,695
------------ ------------
CURRENT LIABILITIES
Notes payable:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . 235,000 321,990
Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,469 275,000
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . 367,150 61,321
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,480 300,726
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,113 125,929
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,276 76,963
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,821 167,951
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,639 165,277
Over-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . 57,865 115,858
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 81,671 101,566
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,873,484 1,712,581
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . 2,707,575 2,669,808
Unamortized federal investment tax credits . . . . . . . . . . . . . . . 617,026 622,786
Other deferred credits and noncurrent liabilities . . . . . . . . . . . . 496,808 489,981
------------ ------------
Total deferred credits and other noncurrent liabilities . . . . . . 3,821,409 3,782,575
COMMITMENTS AND CONTINGENCIES (Note 6)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,487,492 $ 21,535,851
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
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7
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- --------------------------
1996 1995 1996 1995
THOUSANDS OF DOLLARS
OPERATING REVENUES . . . . . . . . . . . . . . . . . . $ 1,348,330 $ 1,233,772 $ 5,675,020 $ 5,556,331
------------ ------------- ----------- ------------
OPERATING EXPENSES
Fuel and purchased power . . . . . . . . . . . . . 449,821 406,702 1,740,210 1,771,652
Operation . . . . . . . . . . . . . . . . . . . . . 180,567 187,532 760,785 800,431
Maintenance . . . . . . . . . . . . . . . . . . . . 69,825 67,378 283,731 292,205
Depreciation and amortization . . . . . . . . . . . 139,064 136,557 552,118 542,787
Federal income taxes . . . . . . . . . . . . . . . 78,809 47,444 413,680 337,052
Taxes other than income . . . . . . . . . . . . . . 125,187 132,768 504,464 526,495
------------ ------------- ----------- ------------
Total operating expenses . . . . . . . . . . . . 1,043,273 978,381 4,254,988 4,270,622
------------ ------------- ----------- ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . 305,057 255,391 1,420,032 1,285,709
------------ ------------- ----------- ------------
OTHER INCOME
Allowance for equity funds used during construction 540 (58) 7,256 7,802
Impairment of assets . . . . . . . . . . . . . . . -- -- (486,350) --
Other income and deductions -- net . . . . . . . . (228) 2,362 6,035 9,736
Federal income taxes . . . . . . . . . . . . . . . 112 (784) 170,258 (4,060)
------------ ------------- ----------- ------------
Total other income . . . . . . . . . . . . . . . 424 1,520 (302,801) 13,478
------------ ------------- ----------- ------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . 305,481 256,911 1,117,231 1,299,187
------------ ------------- ----------- ------------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds . . . . . . . . . . . . 125,966 136,942 516,001 555,659
Interest on other long-term debt . . . . . . . . . 8,296 8,599 43,768 32,699
Other interest . . . . . . . . . . . . . . . . . . 14,140 14,780 57,860 63,587
TU Electric obligated, mandatorily redeemable,
preferred securities of trusts distributions . . 8,249 -- 10,050 --
Allowance for borrowed funds used during construction (3,955) (5,168) (14,106) (13,947)
------------ ------------- ----------- ------------
Total interest and other charges . . . . . . . . 152,696 155,153 613,573 637,998
------------ ------------- ----------- ------------
CONSOLIDATED NET INCOME . . . . . . . . . . . . . . . . 152,785 101,758 503,658 661,189
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . . 14,419 23,546 75,788 97,346
------------ ------------- ----------- ------------
CONSOLIDATED NET INCOME AVAILABLE FOR COMMON
STOCK . . . . . . . . . . . . . . . . . . . . . . . $ 138,366 $ 78,212 $ 427,870 $ 563,843
============ ============= =========== ============
See accompanying Notes to Condensed Consolidated Financial Statements.
7
8
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
---------- -----------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,034 $ 101,758
Adjustments to reconcile consolidated net income to cash provided by
operating activities:
Depreciation and amortization (including amounts charged to fuel) . . . . . . . 168,480 170,450
Deferred federal income taxes -- net . . . . . . . . . . . . . . . . . . . . . . 55,336 43,143
Federal investment tax credits -- net . . . . . . . . . . . . . . . . . . . . . (5,367) (5,365)
Allowance for equity funds used during construction . . . . . . . . . . . . . . (540) 58
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,812 53,553
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,860 2,609
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,414 13,470
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . 3,089 (52,936)
Other working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,496) (25,065)
Over/(under) -- recovered fuel revenue -- net of deferred taxes . . . . . . . (37,695) 44,774
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,843 4,461
---------- -----------
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . 382,770 350,910
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,010 --
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 300,000
Retirement of long-term debt and preferred stock . . . . . . . . . . . . . . . . . . (168,874) (136,140)
Change in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,990) (208,904)
Change in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563 --
TU Electric obligated, mandatorily redeemable, preferred securities of trusts
distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,147) --
Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,386) (23,629)
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122,304) (180,320)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . . (8,355) (2,862)
---------- -----------
Cash used in financing activities . . . . . . . . . . . . . . . . . . . . . (267,483) (251,855)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,019) (84,239)
Allowance for equity funds used during construction (excluding amount
for nuclear fuel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 (58)
Change in construction receivables/payables -- net . . . . . . . . . . . . . . . . . -- 1,097
Non-utility property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 16
Nuclear fuel (excluding allowance for equity funds used during construction) . . . . (14,785) (15,663)
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,206) (5,383)
---------- -----------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (127,679) (104,230)
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . (12,392) (5,175)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . . 22,633 6,699
---------- -----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE . . . . . . . . . . . . . . . . . . . . . . $ 10,241 $ 1,524
========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
8
9
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
ELECTRIC PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,700,514 $15,699,488
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,590,775 1,586,547
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,274,264 4,229,794
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,511 407,897
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,976,064 21,923,726
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 5,209,784 5,075,428
----------- -----------
Electric plant in service less accumulated depreciation . . . . . . . 16,766,280 16,848,298
Construction work in progress . . . . . . . . . . . . . . . . . . . . . 258,787 236,913
Nuclear fuel (net of accumulated amortization: 1996 -- $312,751,000;
1995 -- $295,390,000) . . . . . . . . . . . . . . . . . . . . . . . . 264,368 266,735
Held for future use . . . . . . . . . . . . . . . . . . . . . . . . . . 25,096 25,096
----------- -----------
Electric plant less accumulated depreciation and amortization . . . . 17,314,531 17,377,042
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . 1,308,460 1,308,460
----------- -----------
Net electric plant . . . . . . . . . . . . . . . . . . . . . . . . . . 16,006,071 16,068,582
----------- -----------
INVESTMENTS
Non-utility property . . . . . . . . . . . . . . . . . . . . . . . . . . 332,234 332,234
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,094 103,888
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . 466,328 436,122
----------- -----------
CURRENT ASSETS
Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,241 22,633
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 527
Notes receivable -- affiliates . . . . . . . . . . . . . . . . . . . . 1,793 2,356
Accounts receivable:
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,987 212,165
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,262 34,906
Allowance for uncollectible accounts . . . . . . . . . . . . . . . . . (2,904) (3,914)
Inventories -- at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . 178,512 179,001
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,518 82,889
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,596 31,225
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . . 52,724 79,629
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,705 1,455
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 572,986 642,872
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets . . . . . . . . . . . . . . . . . . . . . 1,858,624 1,879,369
Other deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . 52,251 49,114
----------- -----------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . 1,910,875 1,928,483
Less reserve for regulatory disallowances . . . . . . . . . . . . . . . 72,685 72,685
----------- -----------
Net deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . 1,838,190 1,855,798
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,883,575 $19,003,374
=========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
9
10
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares -- 156,800,000 . . . . . . . . . . . . . . . . . . . $ 4,732,305 $ 4,732,305
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,083,655 1,067,593
------------ ------------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 5,815,960 5,799,898
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . 489,695 489,695
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 263,246 263,196
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts . . . . . . . . . . . . . . . . . . . . . . . . . 381,578 381,476
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . 6,872,071 7,212,070
------------ ------------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . 13,822,550 14,146,335
------------ ------------
CURRENT LIABILITIES
Notes payable -- commercial paper . . . . . . . . . . . . . . . . . . . . 235,000 321,990
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . 349,287 43,458
Accounts payable:
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,127 101,722
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,411 109,402
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,193 13,210
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,681 63,564
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,930 142,364
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,338 141,815
Over-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . 57,865 115,858
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 46,749 63,716
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,289,581 1,117,099
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . 2,907,659 2,869,049
Unamortized federal investment tax credits . . . . . . . . . . . . . . . 604,099 609,466
Other deferred credits and noncurrent liabilities . . . . . . . . . . . . 259,686 261,425
------------ ------------
Total deferred credits and other noncurrent liabilities . . . . . . 3,771,444 3,739,940
COMMITMENTS AND CONTINGENCIES (Note 6)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,883,575 $ 19,003,374
============ ============
See accompanying Notes to Condensed Consolidated Financial Statements.
10
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 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 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 year 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 consolidated financial statements include the Company
and all of its subsidiaries (System Companies):
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.
TU ELECTRIC
Consolidation -- The 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
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
At March 31, 1996, the Company and TU Electric had joint lines of credit
aggregating $1,000,000,000 under two credit facility agreements with a group of
commercial banks. In addition, the Company had a revolving credit facility
agreement with a group of commercial banks which provided for borrowings, on a
standby basis, of up to $200,000,000. Borrowings under these facilities were
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 March 31, 1996, from banks or other lenders, was
$1,500,000,000.
On April 26, 1996, the Company and TU Electric entered into two new credit
facility agreements (Credit Agreements) with a group of commercial banks which
replaced the facilities referred to above. The Credit Agreements, for which
the Company pays a fee, have three facilities. 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 at any one time outstanding. Borrowings under these facilities
will be used for working capital and other corporate purposes, including
commercial paper backup. 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 1990, the Company's Employee Thrift Plan (Thrift Plan) borrowed
$250,000,000 from an outside lender in the form of a note payable and
purchased 7,142,857 shares of common stock (LESOP Shares) from the Company in
connection with the leveraged employee stock ownership provision of the Thrift
Plan. LESOP Shares are held by the trustee until allocated to Thrift Plan
participants when required to meet the System Companies' obligations under the
terms of the Thrift Plan. The Company has purchased the note from the outside
lender, which has been recorded as a reduction to common stock equity. The
Thrift Plan uses dividends on the LESOP Shares purchased and contributions from
the System Companies, if required, to repay interest and principal on the note.
Common stock equity increases at such time as LESOP Shares are allocated to
participants' accounts even though shares of common stock outstanding include
unallocated LESOP Shares held by the trustee. Allocations to participants'
accounts during the three months ended March 31, 1996, increased common stock
equity by $2,046,000.
LONG-TERM DEBT
On April 26, 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 a
three-month LIBOR rate.
TU ELECTRIC
PREFERRED STOCK
At March 31, 1996 and December 31, 1995, TU Electric had 17,000,000 shares
of preferred stock authorized by its articles of incorporation of which
7,609,103 shares were issued and outstanding.
12
13
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
PREFERRED SECURITIES OF TRUSTS
At March 31, 1996 and December 31, 1995, TU Electric Capital I, TU Electric
Capital II and TU Electric Capital III had an aggregate of 15,862,297 units of
preferred securities outstanding.
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, is
supported by insurance policies. Interest rates on all the bonds are currently
determined daily. For the period ended March 31, 1996, such rates ranged from
3.15% to 3.85%.
TU Electric redeemed or reacquired the following long-term debt during the
three months ended March 31, 1996:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- ------------ ----------------- -------------
First mortgage bonds . . . . . . . . . . . . . . . . . . . . . . $ 80,595,000 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,605,000
============
4. RETAINED EARNINGS
THE COMPANY AND TU ELECTRIC
The articles of incorporation and the mortgages, as supplemented, of TU
Electric and SESCO contain provisions which, under certain conditions, restrict
distributions on or acquisitions of their common stock. At March 31, 1996,
$76,954,000 of retained earnings of TU Electric and $13,969,000 of retained
earnings of SESCO were thus restricted as a result of such provisions.
5. RATE PROCEEDINGS
TU ELECTRIC
As a result of recent legislation, flexible retail and wholesale pricing
may be approved by the Public Utility Commission of Texas (PUC) at levels lower
than a utility's approved rates but higher than a utility's marginal cost. In
September 1995, TU Electric filed an application for such a wholesale rate with
the PUC for service to two rural electric cooperatives it has served since
1963. The proposed rate was approved by the PUC in March 1996. Such approval
enables TU Electric to retain a combined load of approximately 23 megawatts.
The rate includes provisions for a five- year term of service. TU Electric is
actively pursuing several other opportunities through flexible pricing to
enhance its ability to compete for new wholesale loads, as well as to retain
existing wholesale loads.
13
14
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. 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 March 31, 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 March 31, 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 March 31, 1996, such
reserve totaled $81,888,000 which includes an accrual of $4,545,000 and
$18,179,000 for the three and twelve months ended March 31, 1996, respectively.
As of March 31, 1996, the market value of deposits in the external trust for
decommissioning of Comanche Peak was $93,689,000. 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.
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
15
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. SUBSEQUENT EVENT
THE COMPANY
In April 1996, the Company announced that it had entered into an 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), 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
in effect. The transaction is subject to certain conditions which include the
approval of ENSERCH's and EEX's shareholders and, under certain circumstances,
the Company's shareholders. The transaction will be reported to the Texas
Railroad Commission and is subject to 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.
15
16
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries as of March 31, 1996, and the related
condensed statements of consolidated income for the three-month and
twelve-month periods ended March 31, 1996 and 1995, and of consolidated cash
flows for the three-month periods ended March 31, 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
Dallas, Texas
May 7, 1996
16
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 March 31, 1996,
and the related condensed statements of consolidated income for the three-month
and twelve-month periods ended March 31, 1996 and 1995, and of consolidated
cash flows for the three-month periods ended March 31, 1996 and 1995. These
financial statements are the responsibility of the 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
Dallas, Texas
May 7, 1996
17
18
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 Texas Utilities Electric
Company (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 rate
changes, variations in maintenance and other operating expense patterns, the
impact of the change in AFUDC accruals and the charges for regulatory
disallowances. 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
On April 26, 1996, the Company and TU Electric entered into two new credit
facility agreements (Credit Agreements) with a group of commercial banks. The
Credit Agreements, for which the Company pays a fee, have three facilities.
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.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup. 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 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
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.
The National Energy Policy Act of 1992 (Energy Act) addresses a wide range
of energy issues and is intended to increase competition in electric generation
and broaden access to electric transmission systems. In addition, the Public
Utility Regulatory Act of 1995, as amended (PURA), impacts the Public Utility
Commission of Texas (PUC) and its regulatory practices and encourages increased
competition in some aspects of the electric utility industry in Texas.
Although TU Electric and Southwestern Electric Service Company (SESCO) are
unable to predict the ultimate impact of the Energy Act, PURA and any related
regulations or legislation on their operations, they believe that such actions
are consistent with the trend toward increased competition in the energy
industry.
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 and twelve months
ended March 31, 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.
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
For other information regarding Rate Proceedings, see Note 5 to Condensed
Consolidated Financial Statements.
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 the timing or extent of changes in the business
environment that may require the discontinuation of SFAS 71 application.
THE COMPANY
External funds of a permanent or long-term nature are obtained through the
sales 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 March 31, 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 $184,944,000 (including $181,379,000 for TU Electric) on long-term
debt and preferred stock.
On April 26, 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 a
three-month LIBOR rate.
TU ELECTRIC
The capitalization ratios of TU Electric at March 31, 1996 consisted of
approximately 50% long-term debt, 3% TU Electric obligated, mandatorily
redeemable, preferred securities of trusts, 5% preferred stock and 42% 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 3.95% to
4.00%. Proceeds from such financings were used for the early redemption or
reacquisition of debt and for general corporate purposes.
THE COMPANY
In October 1995, the Company announced a modification of its dividend
policy as a part of a financial strategy supporting the Company's overall
business plan. As a result, a quarterly dividend of $0.50 per share, payable
January 2, 1996, was declared by the Company's Board of Directors. The
previous quarterly dividend was $0.77 per share.
In December 1995, the Company's newly formed Australian subsidiary, Texas
Utilities Australia Pty. Ltd., acquired the common stock of Eastern Energy
Limited (Eastern Energy) for $1.55 billion. Eastern Energy is an Australian
electric distribution company serving approximately 475,000 customers,
including a portion of the Melbourne, Victoria metropolitan area. The
Company's equity investment is approximately $600 million. The remainder of
the acquisition cost was borrowed by Eastern Energy under a A$1.2 billion
(Australian dollar) term credit facility with a group of banks. Eastern Energy
also has a A$100 million facility with a group of banks used for working
capital purposes. Both facilities are non-recourse to the Company but are
secured by all of the property, assets and rights of Eastern Energy both
present and future.
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
In April 1996, the Company announced that it had entered into an 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), 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
in effect. The transaction is subject to certain conditions which include the
approval of ENSERCH's and EEX's shareholders and, under certain circumstances,
the Company's shareholders. The transaction will be reported to the Texas
Railroad Commission and is subject to 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 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.
TU ELECTRIC
The PUC's final order in connection with TU Electric's January 1990 rate
increase request (Docket 9300) was reviewed by the 250th Judicial District
Court of Travis County, Texas and thereafter was appealed to the Court of
Appeals for the Third District of Texas (Court of Appeals) and to the Supreme
Court of Texas (Supreme Court). As a result of such review and appeals, an
aggregate of $909 million of disallowances with respect to TU Electric's
reacquisitions of minority owners' interests in Comanche Peak
nuclear-generating station (Comanche Peak) has been remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC will also be required to reevaluate the appropriate level of TU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing.
The Court of Appeals' holding that tax benefits generated by costs,
including capital costs, not allowed in rates must be used to reduce rates
charged to customers was reversed by the Supreme Court in a February 1996
decision. The Supreme Court's ruling eliminates the potential normalization
violation that two Private Letter Rulings issued by the IRS said would have
resulted from the treatment that previously had been ordered by the Court of
Appeals.
Although TU Electric cannot predict the outcome of any appeal or
reconsideration of the Docket 9300 rate decision, future regulatory actions or
any changes in economic and securities market conditions, no changes are
expected in trends or commitments which might significantly alter its basic
financial position or results of operation.
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATION
THE COMPANY AND TU ELECTRIC
For the three-month and twelve-month periods ended March 31, 1996,
consolidated net income for the Company increased approximately 67% and
decreased approximately 116% as compared to the respective periods ended March
31, 1995. For the Company and TU Electric, from which most of consolidated
earnings is derived, the major factors affecting earnings for the three-month
period were customer growth and a change in weather conditions as compared to
the prior period. For the twelve-months ended, the major factors affecting
earnings were cost control efforts, customer growth, a change to more normal
weather conditions and an after-tax asset impairment of approximately $802
million ($316 million for TU Electric).
TU ELECTRIC
For the three - and twelve - month periods, operating revenues increased
approximately 9% and 2%, respectively. The following table details the factors
contributing to these changes:
INCREASE (DECREASE)
-------------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
---------------------- ----------------------
FACTORS THOUSANDS OF DOLLARS
---------
Base rate revenue (billed) . . . . . . . . . . . . . . . . . $ 68 ,222 $ 121,776
Fuel revenue . . . . . . . . . . . . . . . . . . . . . . . . 40,166 (31,175)
Power cost recovery factor revenue . . . . . . . . . . . . . (1,931) (6,153)
Unbilled revenue and other . . . . . . . . . . . . . . . . . 8 ,101 34,241
----------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,558 $ 118,689
=========== =========
Total energy sales (including unbilled energy sales) increased
approximately 9% for the three-month period and 4% for the twelve-month period.
The effect on billed energy sales and base rate revenue for both periods was
primarily a result of an increase in customers and a change to more normal
weather conditions as compared to the prior periods. The change in fuel
revenue for both periods was primarily due to fluctuations in gas prices. The
change in unbilled revenue and other for both periods resulted from warmer
weather conditions as compared to the prior periods.
Fuel and purchased power expense increased approximately 11% for the
three-month period primarily due to an increase in gas prices as compared to
the prior period.
Allowance for funds used during construction (AFUDC) decreased
approximately 12% for the three-month period due primarily to a reduction in
the rate used for capitalizing AFUDC.
Other income and deductions - net decreased for both periods due primarily
to a decrease in miscellaneous interest income and an increase in non-operating
expenses.
Total interest and other charges, excluding AFUDC, decreased approximately
2% and 4% for the three- and twelve-month periods, respectively. Interest on
mortgage bonds decreased over the prior period as a result of reduced interest
requirements due to 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 both periods was affected by the prepayment of TU
Electric's promissory note to Brazos Electric Power Cooperative. For the
twelve-month period, other interest charges decreased due to decreased interest
on short-term borrowings and bonded rates, partially offset by increased
interest on unbilled fuel revenue. 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 - and twelve-month periods, preferred stock dividends
decreased approximately 39% and 22%, respectively due primarily to the partial
redemption of certain series.
21
22
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
THE COMPANY
In April 1996, the Company announced that it had entered into an 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), 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
in effect. The transaction is subject to certain conditions which include the
approval of ENSERCH's and EEX's shareholders and, under certain circumstances,
the Company's shareholders. The transaction will be reported to the Texas
Railroad Commission and is subject to approval by the Securities and Exchange
Commission, 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
4(a) - Fifty-fifth Supplemental Indenture, dated as of March 1,
1996, to the TU Electric 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.
4(b) - Supplement No. 1, dated October 25, 1995, to Trust Indenture,
Security Agreement and Mortgage, dated as of December 1,
1989, among the Owner Trustee, TU Electric and the Indenture
Trustee.
4(c) - Supplement No. 1, dated October 19, 1995, to Amended and
Restated Participation Agreement, dated as of November 28,
1989, among the Owner Trustee, The First National Bank of
Chicago, as Original Indenture trustee, the Indenture
Trustee, the Owner Participant, Mesquite Power Corporation
and TU Electric.
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
99(a) - Amended and Restated Competitive Advance and Revolving Credit
Facility Agreement, Facility A, dated as of April 26, 1996,
among the Company, TU Electric, certain banks and Chemical
Bank and Texas Commerce Bank National Association, as Agents.
22
23
PART II. OTHER INFORMATION
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
99(b) - Amended and Restated Term Loan and Competitive Advance and
Revolving Credit Facility Agreement, Facilities B and C,
dated as of April 26, 1996, among the Company, TU Electric,
certain banks and Chemical Bank and Texas Commerce Bank
National Association, as Agents.
(b) Reports on Form 8-K filed since December 31, 1995 are as follows:
Date of Report Item Reported
-------------- -------------
THE COMPANY
-----------
April 13, 1996 Item 5. OTHER EVENTS
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
23
24
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: May 7, 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: May 7, 1996
24
25
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4(a) - Fifty-fifth Supplemental Indenture, dated as of March 1,
1996, to the TU Electric 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.
4(b) - Supplement No. 1, dated October 25, 1995, to Trust Indenture,
Security Agreement and Mortgage, dated as of December 1,
1989, among the Owner Trustee, TU Electric and the Indenture
Trustee.
4(c) - Supplement No. 1, dated October 19, 1995, to Amended and
Restated Participation Agreement, dated as of November 28,
1989, among the Owner Trustee, The First National Bank of
Chicago, as Original Indenture trustee, the Indenture
Trustee, the Owner Participant, Mesquite Power Corporation
and TU Electric.
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
99(a) - Amended and Restated Competitive Advance and Revolving Credit
Facility Agreement, Facility A, dated as of April 26, 1996,
among the Company, TU Electric, certain banks and Chemical
Bank and Texas Commerce Bank National Association, as Agents.
99(b) - Amended and Restated Term Loan and Competitive Advance and
Revolving Credit Facility Agreement, Facilities B and C,
dated as of April 26, 1996, among the Company, TU Electric,
certain banks and Chemical Bank and Texas Commerce Bank
National Association, as Agents.