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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-4874
COLORADO INTERSTATE GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 84-0173305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Nevada Avenue
Colorado Springs, Colorado 80903-1727
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 473-2300
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
As of October 31, 1996, there were outstanding 10 shares of common stock of
the Registrant, $5.00 par value per share, its only class of common stock. None
of the voting stock of the Registrant is held by non-affiliates.
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of Colorado Interstate Gas Company and its
subsidiaries (the "Company" or "Colorado") are presented herein and are
unaudited, except for balances as of December 31, 1995, and therefore are
subject to year-end adjustments; however, all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the periods covered have been made. The adjustments which have
been made are of a normal recurring nature. Such results are not necessarily
indicative of results to be expected for the year due to seasonal variations and
market conditions affecting natural gas sales and transportation services.
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
--------------- --------------
(Unaudited)
<S> <C> <C>
Plant, Property and Equipment, at cost:
Gas pipeline............................................................ $ 1,125,903 $ 1,061,497
Gas and oil properties, at full-cost.................................... 141,739 138,067
--------------- --------------
1,267,642 1,199,564
Accumulated depreciation, depletion and amortization.................... 682,631 658,327
--------------- --------------
585,011 541,237
--------------- --------------
Current Assets:
Cash.................................................................... 425 883
Receivables............................................................. 39,334 44,518
Receivables from affiliates............................................. 207,254 221,784
Inventories............................................................. 9,055 9,494
Prepaid expenses........................................................ 270 280
Current portion of deferred income taxes................................ 21,729 25,359
--------------- --------------
278,067 302,318
--------------- --------------
Other Assets:
Other deferred charges.................................................. 17,537 17,893
--------------- --------------
$ 880,615 $ 861,448
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Common Stock and Other Stockholders' Equity:
Common stock, $5 par value, authorized 10,000 shares; issued and
outstanding 10 shares at stated value................................ $ 27,561 $ 27,561
Additional paid-in capital.............................................. 19,037 19,035
Retained earnings....................................................... 362,031 413,212
------------- ------------
408,629 459,808
------------- ------------
Mandatory Redemption Preferred Stock, $100 par value, authorized 550,000
shares, 5,560 shares outstanding at December 1995:
5.50% Series......................................................... - 556
------------- ------------
Debt:
Long-term debt.......................................................... 229,354 179,299
------------- ------------
Current Liabilities:
Accounts payable and accrued expenses................................... 127,034 115,599
Accounts payable to affiliates.......................................... 11,928 11,352
Taxes on income......................................................... 8,312 1,594
------------- ------------
147,274 128,545
------------- ------------
Deferred Credits:
Deferred income taxes................................................... 90,096 88,298
Other................................................................... 5,262 4,942
------------- ------------
95,358 93,240
------------- ------------
$ 880,615 $ 861,448
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED EARNINGS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Operating revenues:
Nonaffiliates............................................. $ 88,293 $ 77,632 $ 265,689 $ 242,297
Affiliates................................................ 14,749 11,133 39,473 39,034
---------- ---------- --------- ---------
103,042 88,765 305,162 281,331
Other income - net........................................... 3,350 3,649 10,232 10,751
---------- ---------- --------- ---------
106,392 92,414 315,394 292,082
---------- ---------- --------- ---------
Costs and Expenses:
Cost of gas sold:
Nonaffiliates............................................. 17,625 8,513 45,214 26,906
Affiliates................................................ 3,111 1,139 4,682 3,297
---------- ---------- --------- ---------
20,736 9,652 49,896 30,203
Operation and maintenance.................................... 43,759 40,734 117,934 122,548
Depreciation, depletion and amortization..................... 10,635 9,759 31,178 28,849
Interest expense............................................. 4,680 4,366 13,599 13,662
Taxes on income.............................................. 9,223 9,480 35,054 33,416
---------- ---------- --------- ---------
89,033 73,991 247,661 228,678
---------- ---------- --------- ---------
Net Earnings.................................................... $ 17,359 $ 18,423 $ 67,733 $ 63,404
========== ========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings .................................................................. $ 67,733 $ 63,404
Add items not requiring cash:
Depreciation, depletion and amortization.................................... 31,178 28,849
Deferred income taxes....................................................... 5,806 9,325
Producer contract reformation cost recoveries............................... 101 106
Other....................................................................... 2,502 3,051
Working capital and other changes, excluding changes relating to cash and
non-operating activities:
Receivables.............................................................. 5,184 88,656
Receivables from affiliates.............................................. (5,806) 13,419
Inventories.............................................................. 439 140
Prepaid expenses......................................................... - 243
Accounts payable and accrued expenses.................................... 11,435 (122,001)
Accounts payable to affiliates........................................... 576 (6,613)
Taxes on income.......................................................... 6,718 (18,601)
----------- ----------
125,866 59,978
----------- ----------
Cash Flow from Investing Activities:
Purchases of plant, property and equipment..................................... (81,144) (39,525)
Proceeds from sale of plant, property and equipment............................ 3,950 231
Investments - other............................................................ (8) (1,845)
Net decrease in notes receivable from affiliates............................... 20,336 2,921
Gas supply prepayments and settlements......................................... - (12)
Recovery of gas supply prepayments............................................. 11 245
----------- ----------
(56,855) (37,985)
Cash Flow from Financing Activities:
Redemption of preferred stock.................................................. (556) -
Gain on redemption of preferred stock.......................................... 2 -
Preferred dividends paid....................................................... (15) (23)
Common dividends paid.......................................................... (118,900) (21,600)
Notes payable - banks.......................................................... 50,000 -
----------- ----------
(69,469) (21,623)
Net Increase (Decrease) in Cash................................................... (458) 370
Cash at Beginning of Period....................................................... 883 372
----------- ----------
Cash at End of Period............................................................. $ 425 $ 742
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
For additional information relative to operations and financial position,
reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. Certain minor reclassifications of prior period
statements have been made to conform with current reporting practices. The
effect of the reclassifications was not material to the Company's consolidated
results of operations or financial position.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" in 1996. The application of the new standard did not have a
material effect on the Company's consolidated results of operations or financial
position.
The Company is subject to the regulations and accounting procedures of the
Federal Energy Regulatory Commission ("FERC"). Colorado meets the criteria and,
accordingly, follows the reporting and accounting requirements of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("FAS 71"). FAS 71 provides that rate-regulated public
utilities account for and report assets and liabilities consistent with the
economic effect of the way in which regulators establish rates, if the rates
established are designed to recover the costs of providing the regulated service
and if the competitive environment makes it reasonable to assume that such rates
can be charged and collected. Although the accounting methods for companies
subject to rate regulation may differ from those used by non-regulated
companies, the accounting methods prescribed by the regulatory authority conform
to the generally accepted accounting principle of matching costs with the
revenue to which they apply.
Transactions which the Company has recorded differently than a
non-regulated entity include the following: the Company (i) has capitalized the
cost of equity funds used during construction, and, (ii) has deferred purchase
gas costs, gas transportation surcharges, contract reformation costs,
postemployment benefit costs and income tax reductions related to changes in
federal income tax rates. These items are being, or are anticipated to be,
recovered or refunded in rates chargeable to customers.
The Company has applied FAS 71 and evaluates the applicability of
regulatory accounting and the recoverability of these assets through rate or
other contractual mechanisms on an ongoing basis. If FAS 71 accounting
principles should no longer be applicable to the Company's operations, an amount
would be charged to earnings as an extraordinary item. At September 30, 1996,
this amount was approximately $6.3 million, net of income taxes. The Company
does not expect that its cash flows would be affected by discontinuing
application of FAS 71. Any potential charge to earnings would be noncash and
would have no direct effect on the Company's ability to include the underlying
deferred items in future rate proceedings or on its ability to collect the rates
set thereby.
Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: The Company made cash payments for interest and
financing fees, net of amounts capitalized, of $9.1 million and $10.3 million
for the nine months ended, September 30, 1996 and 1995, respectively. Cash
payments for income taxes amounted to $23.4 million and $31.3 million for the
nine months ended September 30, 1996 and 1995, respectively.
Materials and supplies inventories are carried principally at average cost.
Gas stored underground is carried at last-in, first-out cost ("LIFO"). The
excess of replacement cost over the carrying value of gas in underground storage
carried by the LIFO method, which is classified as Plant, Property and
Equipment, was $33.2 million and $36.5 million at September 30, 1996 and
December 31, 1995, respectively.
- 5 -
<PAGE>
2. Income Taxes
Provisions for income taxes are composed of the following (thousands of
dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal................................................... $ 7,322 $ 3,582 $ 28,277 $ 22,258
State..................................................... 290 99 971 1,833
---------- ---------- --------- ---------
7,612 3,681 29,248 24,091
---------- ---------- --------- ---------
Deferred Income Taxes
Federal................................................... 1,301 5,174 4,951 8,246
State..................................................... 310 625 855 1,079
---------- ---------- --------- ---------
1,611 5,799 5,806 9,325
---------- ---------- --------- ---------
Taxes on Income.............................................. $ 9,223 $ 9,480 $ 35,054 $ 33,416
========== ========== ========= =========
</TABLE>
Interim period provisions for income taxes are based on estimated effective
annual income tax rates.
3. Common Stock
All of the issued and outstanding common stock of the Company is owned by
Coastal Natural Gas Company, a wholly-owned subsidiary of The Coastal
Corporation. Therefore, earnings and cash dividends per common share have no
significance and are not presented.
4. Litigation, Environmental and Regulatory Matters
Litigation Matters
In December 1992, certain of Colorado's natural gas lessors in the West
Panhandle Field filed a complaint in the U.S. District Court for the Northern
District of Texas claiming underpayment, breach of fiduciary duty, fraud and
negligent misrepresentation. Management believes that Colorado has numerous
defenses to the lessors' claims, including (i) that the royalties were properly
paid, (ii) that the majority of the claims were released by written agreement,
and (iii) that the majority of the claims are barred by the statute of
limitations. In March of 1995, the Trial Court granted a partial summary
judgment in favor of Colorado, holding that the four-year statute of limitations
had not been tolled, that the releases are valid, and dismissing all tort claims
and claims for breach of any duty of disclosure. The remaining claim for
underpayment of royalties was tried to a jury which, in May 1995, made findings
favorable to Colorado. On June 7, 1995, the Trial Court entered a judgment that
the lessors recover no monetary damages from Colorado and permanently estopping
the lessors from asserting any claim based on an interpretation of the contract
different than that asserted by Colorado in the litigation. The lessors' motion
for a new trial is pending. On June 7, 1996, the same Plaintiffs sued Colorado
in state court in Amarillo, Texas for underpayment of royalties. Colorado
removed the second lawsuit to federal court which granted a stay of the second
lawsuit pending the outcome of the first lawsuit.
A natural gas producer has filed a claim on behalf of the U.S. government
in the U.S. District Court for the District of Columbia under the federal False
Claims Act. The Second Amended Complaint filed on May 24, 1996, against seventy
(70) defendants, including Colorado, alleges that the defendants' methods of
measuring the heating content and volume of natural gas purchased from
federally-owned or Indian properties have caused underpayment of royalties to
the U.S. government. Responsive pleadings will be filed.
Other lawsuits and other proceedings which have arisen in the ordinary
course of business are pending or threatened against the Company or its
subsidiaries.
- 6 -
<PAGE>
Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, the Company
believes there are meritorious defenses to substantially all of the above claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations which may affect such
operations and costs as a result of their effect on the construction, operation,
and maintenance of its pipeline facilities. The Company anticipates annual
environmental capital expenditures of $1 to $2 million over the next several
years aimed at maintaining compliance with such laws and regulations.
Additionally, appropriate governmental authorities may enforce the laws and
regulations with a variety of civil and criminal enforcement measures, including
monetary penalties and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund", as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." The Company is not presently, and has not been in the past, a
potentially responsible party ("PRP") in any "Superfund" waste disposal sites.
However, the Company has received notice from a committee formed from a group of
55 companies who are named as PRPs at one site requesting the Company pay a de
minimis share (approximately $36,000) of the associated clean-up costs.
There are additional areas of environmental remediation responsibilities to
which the Company may be subject. The states have regulatory programs that
mandate waste clean-up. The Clean Air Act Amendments of 1990 include new
permitting regulations which will result in increased operating expenditures.
Future information and developments will require the Company to continually
reassess the expected impact of all applicable environmental laws and
regulations. Compliance with all applicable environmental protection laws and
regulations is not expected to have a material adverse impact on the Company's
liquidity, consolidated financial position or results of operations.
Regulatory Matters
In October, 1995, as amended in February and March, 1996, Colorado filed
with the FERC seeking authority to transfer to its affiliate, CIG Field Services
Company ("CFS"), substantially all of Colorado's facilities as to which there
were in effect certificates of public convenience and necessity. Such facilities
were used to provide "gathering" services (as distinct from "transmission"
services). Colorado did not seek to abandon any of its Panhandle Field
facilities under this filing. Colorado also sought a declaration that such filed
for facilities would be considered "non-jurisdictional" in the hands of CFS. The
net book value of the facilities spun-down at October 1, 1996 was approximately
$42 million. On June 26, 1996, the FERC approved Colorado's request. Thereafter,
certain parties sought rehearing of that order. Separately, on August 2, 1996,
the U.S. Court of Appeals for the District of Columbia Circuit issued its
decision in Conoco, Inc. v. FERC, 90 F.3d 536 (D.C. Cir. 1996) in which it
upheld the FERC's authority to allow the transfer of certificated gathering
facilities to "non-jurisdictional" affiliates of the regulated pipeline. The
court in Conoco, however, rejected the FERC's imposition of a "default contract"
requirement in such cases as a means to ensure that historic gathering shippers
had assurances of continuity of service for a 2-year period. On October 31,
1996, several parties filed a petition for a Writ of Certiorari in the U.S.
Supreme Court seeking review of the D.C. Circuit's Conoco decision, which is
pending. In a filing dated August 27, 1996, Colorado informed the FERC that
Colorado and CFS were prepared to offer to Colorado's historic gathering
customers a 2-year "default contract" irrespective of the holding in Conoco that
the FERC could not affirmatively impose such a requirement as a condition of
approving a spin-down of gathering services from a pipeline to an affiliate.
Thereafter, on September 25, 1996, the FERC issued an order denying the requests
for rehearing and thereby authorizing the abandonment of the certificated
properties to CFS to be effective October 1, 1996. On September 26, 1996, the
FERC issued a related order accepting Colorado's filing under Section 4 of the
Natural Gas Act confirming that Colorado no longer offered gathering services
through the abandoned/spundown facilities.
- 7 -
<PAGE>
On January 31, 1996, the FERC issued a "Statement of Policy and Request for
Comments" in Docket Nos. RM95-6 and RM96-7 with respect to a pipeline's ability
to negotiate and charge rates for individual customers' services which would not
be limited to the "cost-based" rates established by the FERC in traditional rate
making. Under this Policy, a pipeline and a customer will be allowed to
negotiate a contract for service which provides for rates and charges that
exceed the pipeline's posted maximum tariff rates, provided that the shipper
agreeing to such negotiated rates has the ability to elect to receive service at
the pipeline's posted maximum rate (known as a "recourse rate"). In order to
implement this Policy, a pipeline must make an initial tariff filing with the
FERC to indicate that it intends to contract for services under this Policy, and
subsequent tariff filings will indicate each instance where the pipeline has
negotiated a rate for service which exceeds the posted maximum tariff rate. The
FERC is also considering comments on whether this "recourse rate" program should
be extended to other terms and conditions of pipeline transportation services.
On July 31, 1996, the FERC also issued a "Notice of Proposed Rulemaking" in
Docket No. RM96-14 requesting comments on various aspects of secondary market
transactions on interstate natural gas pipelines, including the comparability of
pipeline capacity with released capacity.
On March 29, 1996, Colorado filed with the FERC under Docket No. RP96-190
to increase its rates by approximately $30 million annually and to realign
certain transportation services. On April 25, 1996, the FERC accepted the filing
to become effective October 1, 1996, subject to refund. In this filing, Colorado
also established a new tariff provision to allow Colorado to enter into
negotiated rate arrangements. The FERC has also accepted this provision, subject
to refund, effective May 1, 1996. As of November 11, 1996, Colorado has had two
settlement conferences and a third is scheduled for November 19, 1996. In the
event that the case cannot be settled prior to hearing, the schedule provides
for commencement of hearings before an Administrative Law Judge at the FERC in
June 1997.
Certain of the above regulatory matters and other regulatory issues remain
unresolved among the Company, its customers, its suppliers, and the FERC. The
Company has made provisions which represent management's assessment of the
ultimate resolution of these issues. While the Company estimates the provisions
to be adequate to cover potential adverse rulings on these and other issues, it
cannot estimate when each of these issues will be resolved.
5. Preferred Stock
The Company has redeemed all outstanding shares of its Mandatory Redemption
Preferred Stock 5.50% series, at the redemption price of $100 per share plus
accrued dividends to the redemption date of July 31, 1996.
6. Debt
On August 27, 1996, the Company entered into a $50 million senior term loan
agreement with a commercial bank which expires on August 30, 1999. The loan
carries a variable interest rate equal to the corporate base rate or a margin
over the London interbank offered rate, with the interest rate option selected
by the Company.
Item 2.A. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forwardlooking statements reflecting the Company's
expectations in the near future; however, many factors which may affect the
actual results, especially natural gas prices and changing regulations, are
difficult to predict. Accordingly, there is no assurance that the Company's
expectations will be realized.
The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.
- 8 -
<PAGE>
Liquidity and Capital Resources
The Company uses the following consolidated ratios to measure liquidity and
its ability to meet future funding needs and debt service requirements.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities to capital expenditures
and debt service requirements........................................... 152.0% 147.5%
Debt to total capitalization............................................... 35.9% 28.0%
Times interest earned (before tax)......................................... 8.6 8.3
</TABLE>
The increase in the cash flow from operating activities to capital
expenditures and debt service requirements ratio is due mainly to working
capital changes and increased net earnings partially offset by increased capital
expenditures. The increase in the debt to total capitalization ratio is due to
decreased retained earnings resulting from common stock dividends paid in 1996
and a $50 million senior term loan. The increase in the times interest earned
ratio can be attributed to increased earnings before tax and reduced interest
expense.
On August 27, 1996, the Company entered into a $50 million senior term loan
agreement with a commercial bank. This agreement matures on August 30, 1999.
The Company has redeemed all outstanding shares of its Mandatory Redemption
Preferred Stock, 5.50% Series, at the redemption price of $100 per share plus
accrued dividends to the redemption date of July 31, 1996.
The Company's primary needs for cash are capital expenditures and debt
service requirements. Management believes that the Company's stable financial
position and earnings ability will enable it to continue to generate and obtain
capital for financing needs in the foreseeable future.
The Company is responding to the extensive changes in the natural gas
industry by continuing to take steps to operate its facilities at their maximum
efficient capacity, renegotiating the remaining gas purchase contracts which are
above market in an effort to lower its cost of gas and reduce take-or-pay
obligations, pursuing innovative marketing strategies and applying strict
cost-cutting measures.
Results of Operations
The change in the Company's earnings for the three and nine month periods
ended September 30, 1996, in comparison to the corresponding periods in 1995, is
a result of the following:
Operating Revenues. The operating revenues by segment were as follows
(thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas.................................................. $ 100,556 $ 86,777 $ 296,661 $ 276,624
Exploration and production................................... 4,229 2,650 12,484 9,012
Eliminations................................................. (1,743) (662) (3,983) (4,305)
---------- ---------- --------- ---------
$ 103,042 $ 88,765 $ 305,162 $ 281,331
========== ========== ========= =========
</TABLE>
- 9 -
<PAGE>
Operating revenues from natural gas operations for the three month period
ended September 30, 1996 increased $13.8 million from the comparable 1995 period
due to a $9.1 million increase resulting from increased average gas sales
prices, a $3.9 million increase related to higher gas sales volumes and a $3.8
million increase related to transportation volumes which were offset by a $2.9
million decrease due to reduced average transportation rates and other net
decreases of $.1 million. The segment's operating revenues for the nine month
period ended September 30, 1996 increased $20.0 million from the comparable 1995
period due to a $16.5 million increase related to average gas sales prices, an
$8.0 million increase resulting from greater transportation volumes, $2.9
million due to increased gas sales volumes, increased extracted product revenues
of $1.4 million and other increases of $.3 million offset by a $6.5 million
decrease due to reduced average transportation rates and a $2.6 million increase
in reservations.
The $1.6 million increase in exploration and production operating revenues
for the three month period ended September 30, 1996 compared to the same period
in 1995 is due to a $.7 million increase resulting from increased average gas
sales prices, a $.6 million increase related to higher gas sales volumes and a
$.3 million increase in crude, condensate and natural gas liquids sales. The
$3.5 million increase in exploration and production operating revenues for the
nine month period ended September 30, 1996 compared to the same period in 1995
is due to a $1.7 million increase related to higher gas sales volumes, a $1.1
million increase as a result of higher average gas sales prices and a $.7
million increase in other revenue.
Other Income - Net. The decreases for the three month and nine month
periods ended September 30, 1996 versus the comparable 1995 periods are due to
decreased interest income from affiliates.
Cost of Gas Sold. The $11.1 million increase for the three month period
ended September 30, 1996 over the same period in 1995 is due to a $7.4 million
increase attributable to higher average gas purchase rates, $3.0 million in net
system gas balancing requirements, $.5 million in increased royalty expenses and
a $.2 million increase attributable to increased gas purchased volumes. The
$19.7 million increase for the nine month period ended September 30, 1996 over
the same period in 1995 is due to a $13.6 million increase attributable to
higher average gas purchase rates, $6.1 million in net system gas balancing
requirements and a $.8 million increase in royalty expenses partially offset by
a $.8 million decrease resulting from reduced natural gas purchase volumes.
Operation and Maintenance. These expenses increased $3.0 million for the
three month period ended September 30, 1996 from the same period in 1995 due to
a $2.9 million increase in material and supplies and other net increases of $.1
million. The $4.6 million decrease for the nine month period ended September 30,
1996 when compared to the same period in 1995 resulted from a $2.4 million
decrease in gas used in operations, a $2.9 million decrease in property taxes, a
$1.1 million decrease in outside professional services and a $2.1 million
decrease in payroll and employee benefits partially offset by a $3.3 million
increase in material and supplies expenses and other increases of $.6 million.
Depreciation, Depletion and Amortization. The $.9 million increase for the
three month period ended September 30, 1996 over the same period in 1995 is due
to a $.7 million increase in the exploration and production segment's
depreciation, depletion and amortization due primarily to increased production
volumes and a $.2 million increase in the natural gas segment's depreciation,
depletion and amortization as a result of increases in its depreciable plant
balance. The $2.3 million increase for the nine month period ended September 30,
1996 when compared to the same period in 1995 is due to a $1.3 million increase
resulting from the natural gas segment's increased depreciable plant balance and
a $1.0 million increase in the exploration and production segment's
depreciation, depletion and amortization due primarily to increased production
volumes.
- 10 -
<PAGE>
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas.................................................. $ 29,355 $ 30,924 $ 110,183 $ 106,420
Exploration and production................................... (222) (1,157) (199) (3,258)
---------- ---------- --------- ---------
$ 29,133 $ 29,767 $ 109,984 $ 103,162
========== ========== ========= =========
</TABLE>
The natural gas segment's operating profit for the three month period ended
September 30, 1996 decreased $1.6 million from the comparable 1995 period due to
increased cost of gas sold of $11.1 million, a $3.0 million increase in
operation and maintenance expense and other changes of $1.3 million offset by a
$13.8 million increase in operating revenue. The segment's increase of $3.8
million for the nine month period ended September 30, 1996 over the same period
in 1995 resulted from a $20.0 million increase in operating revenues, a $4.4
million decrease in operation and maintenance expense and other increases of $.4
million partially offset by a $19.7 million increase in cost of gas sold and a
$1.3 million increase in depreciation, depletion and amortization expense.
The decreased operating loss of $.9 million in the exploration and
production segment for the three month period ended September 30, 1996 from the
same period last year is due to a $1.6 million increase in operating revenues
partially offset by a $.7 million increase in depreciation, depletion and
amortization expense. The $3.1 million improvement for the nine month period
ended September 30, 1996 when compared to the same period in 1995 is due to a
$3.5 million increase in operating revenues, a $.2 million decrease in operation
and maintenance expense and other increases of $.4 million offset by a $1.0
million increase in depreciation, depletion and amortization expense.
Taxes on Income. The $1.6 million increase for the nine months ended
September 30, 1996 compared to the same period in 1995 is due primarily to an
increase in earnings before income taxes.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations which may affect such
operations and costs as a result of their effect on the construction, operation
and maintenance of its pipeline facilities. The Company anticipates annual
environmental capital expenditures of $1 to $2 million over the next several
years aimed at maintaining compliance with such laws and regulations.
Additionally, appropriate governmental authorities may enforce the laws and
regulations with a variety of civil and criminal enforcement measures, including
monetary penalties and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." The Company is not presently, and has not been in the past, a
potentially responsible party ("PRP") in any "Superfund" waste disposal sites.
However, the Company has received notice from a committee formed from a group of
55 companies who are named as PRPs at one site requesting the Company pay a de
minimis share (approximately $36,000) of the associated clean-up costs.
There are additional areas of environmental remediation responsibilities to
which the Company may be subject. The states have regulatory programs that
mandate waste clean-up. The Clean Air Act Amendments of 1990 include new
permitting regulations which will result in increased operating expenditures.
Future information and developments will require the Company to continually
reassess the expected impact of all applicable environmental laws and
regulations. Compliance with all applicable environmental protection laws and
regulations is not expected to have a material adverse impact on the Company's
liquidity, consolidated financial position or results of operations.
- 11 -
<PAGE>
Item 2.B. Other Developments.
On March 29, 1996, Colorado filed an application with the FERC for
authority to expand the capacity of the Wind River Lateral by 68 MMcf per day
above the current capacity of 195,000 Mcf per day. The cost of the expansion is
estimated to be approximately $10.8 million. On September 11, 1996, the FERC
issued an order granting Colorado a certificate to construct and operate
facilities to increase capacity on the Wind River Lateral. The projected
in-service date of the full expansion is during the third quarter of 1997.
- 12 -
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The information required hereunder is incorporated by reference into Part
II of this Report from Note 4 of the Notes to Consolidated Financial Statements
set forth in Part I of this Report and from Item 2.A., "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Environmental
Matters," set forth in Part I of this Report.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLORADO INTERSTATE GAS COMPANY
(Registrant)
Date: November 12, 1996 By: DAN A. HOMEC
--------------------------------
Dan A. Homec
Assistant Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 13 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------------------------------------------------------------------------------
27 Financial Data Schedule
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM COLORADO INTERSTATE GAS COMPANY FORM
10-Q QUARTERLY REPORT FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 425
<SECURITIES> 0
<RECEIVABLES> 246,588
<ALLOWANCES> 0
<INVENTORY> 9,055
<CURRENT-ASSETS> 278,067
<PP&E> 1,267,642
<DEPRECIATION> 682,631
<TOTAL-ASSETS> 880,615
<CURRENT-LIABILITIES> 147,274
<BONDS> 229,354
0
0
<COMMON> 27,561
<OTHER-SE> 381,068
<TOTAL-LIABILITY-AND-EQUITY> 880,615
<SALES> 305,162
<TOTAL-REVENUES> 315,394
<CGS> 49,896
<TOTAL-COSTS> 199,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,599
<INCOME-PRETAX> 102,787
<INCOME-TAX> 35,054
<INCOME-CONTINUING> 67,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,733
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
