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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 June 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 July 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>
June 30, December 31,
ASSETS 1996 1995
--------------- --------------
(Unaudited)
<S> <C> <C>
Plant, Property and Equipment, at cost:
Gas pipeline............................................................ $ 1,086,652 $ 1,061,497
Gas and oil properties, at full-cost.................................... 141,435 138,067
--------------- --------------
1,228,087 1,199,564
Accumulated depreciation, depletion and amortization.................... 675,980 658,327
--------------- --------------
552,107 541,237
--------------- --------------
Current Assets:
Cash.................................................................... 1,011 883
Receivables............................................................. 38,794 44,518
Receivables from affiliates............................................. 222,825 221,784
Inventories............................................................. 9,206 9,494
Prepaid expenses........................................................ 300 280
Current portion of deferred income taxes................................ 22,522 25,359
--------------- --------------
294,658 302,318
--------------- --------------
Other Assets:
Other deferred charges.................................................. 14,542 17,893
--------------- --------------
$ 861,307 $ 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>
June 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....................................................... 419,670 413,212
------------- ------------
466,268 459,808
------------- ------------
Mandatory Redemption Preferred Stock, $100 par value, authorized
550,000 shares, 5,560 shares outstanding at December 31, 1995:
5.50% Series......................................................... - 556
------------- ------------
Debt:
Long-term debt.......................................................... 179,336 179,299
------------- ------------
Current Liabilities:
Current portion of mandatory redemption preferred stock................. 471 -
Accounts payable and accrued expenses................................... 101,868 115,599
Accounts payable to affiliates.......................................... 10,759 11,352
Taxes on income......................................................... 7,315 1,594
------------- ------------
120,413 128,545
------------- ------------
Deferred Credits:
Deferred income taxes................................................... 90,008 88,298
Other................................................................... 5,282 4,942
------------- ------------
95,290 93,240
------------- ------------
$ 861,307 $ 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 Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Operating revenues:
Nonaffiliates............................................. $ 77,359 $ 76,547 $ 177,396 $ 164,665
Affiliates................................................ 11,621 12,824 24,724 27,901
---------- ---------- --------- ---------
88,980 89,371 202,120 192,566
Other income - net........................................... 3,447 3,470 6,882 7,102
---------- ---------- --------- ---------
92,427 92,841 209,002 199,668
---------- ---------- --------- ---------
Costs and Expenses:
Cost of gas sold:
Nonaffiliates............................................. 9,827 8,460 27,589 18,393
Affiliates................................................ 958 1,116 1,571 2,158
---------- ---------- --------- ---------
10,785 9,576 29,160 20,551
Operation and maintenance.................................... 38,489 43,087 74,175 81,814
Depreciation, depletion and amortization..................... 10,348 9,976 20,543 19,090
Interest expense............................................. 4,460 4,873 8,919 9,296
Taxes on income.............................................. 9,936 8,609 25,831 23,936
---------- ---------- --------- ---------
74,018 76,121 158,628 154,687
---------- ---------- --------- ---------
Net Earnings.................................................... $ 18,409 $ 16,720 $ 50,374 $ 44,981
========== ========== ========= =========
</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>
Six Months Ended
June 30,
---------------------------
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings .................................................................. $ 50,374 $ 44,981
Add items not requiring cash:
Depreciation, depletion and amortization.................................... 20,543 19,090
Deferred income taxes....................................................... 4,195 3,526
Producer contract reformation cost recoveries............................... 68 72
Other....................................................................... 2,804 970
Working capital and other changes, excluding changes relating to cash
and non-operating activities:
Receivables.............................................................. 5,724 85,642
Receivables from affiliates.............................................. (3,284) 12,811
Inventories.............................................................. 288 26
Prepaid expenses......................................................... (20) 108
Accounts payable and accrued expenses.................................... (13,731) (106,926)
Accounts payable to affiliates........................................... (593) (6,590)
Taxes on income.......................................................... 5,721 (16,549)
----------- ----------
72,089 37,161
----------- ----------
Cash Flow from Investing Activities:
Purchases of plant, property and equipment..................................... (32,059) (21,503)
Proceeds from sale of plant, property and equipment............................ 1,858 114
Investments - other............................................................ (5) (1,518)
Net decrease in notes receivable from affiliates............................... 2,243 7,543
Gas supply prepayments and settlements......................................... - (12)
Recovery of gas supply prepayments............................................. - 110
----------- ----------
(27,963) (15,266)
Cash Flow from Financing Activities:
Redemption of preferred stock.................................................. (85) -
Gain on redemption of preferred stock.......................................... 2 -
Preferred dividends paid....................................................... (15) (15)
Common dividends paid.......................................................... (43,900) (21,600)
----------- ----------
(43,998) (21,615)
Net Increase in Cash.............................................................. 128 280
Cash at Beginning of Period....................................................... 883 372
----------- ----------
Cash at End of Period............................................................. $ 1,011 $ 652
=========== ==========
</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/postretirement 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 June 30, 1996, this
amount was approximately $4.8 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 $8.8 million and $10.4 million
for the six months ended June 30, 1996 and 1995, respectively. Cash payments for
income taxes amounted to $15.9 million and $30.1 million for the six months
ended June 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 $38.3 million and $36.5 million at June 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 Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal................................................... $ 6,649 $ 6,109 $ 20,955 $ 18,676
State..................................................... 532 195 681 1,734
---------- ---------- --------- ---------
7,181 6,304 21,636 20,410
---------- ---------- --------- ---------
Deferred Income Taxes
Federal................................................... 2,428 2,038 3,650 3,072
State..................................................... 327 267 545 454
---------- ---------- --------- ---------
2,755 2,305 4,195 3,526
---------- ---------- --------- ---------
Taxes on Income.............................................. $ 9,936 $ 8,609 $ 25,831 $ 23,936
========== ========== ========= =========
<FN>
Interim period provisions for income taxes are based on estimated effective
annual income tax rates.
</FN>
</TABLE>
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. 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.
5. 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
- 6 -
<PAGE>
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 and discovery will soon commence.
Other lawsuits and other proceedings which have arisen in the ordinary
course of business are pending or threatened against the Company or its
subsidiaries.
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
On October 31, 1995, as amended on February 22 and March 20, 1996, Colorado
filed an application with the FERC seeking authority to transfer to CIG Field
Services Company ("CFS"), a subsidiary of Colorado, certain facilities presently
used for the gathering of natural gas that are subject to certificates of public
convenience and necessity. In that filing, Colorado requested that the FERC
declare that in the hands of CFS the transferred facilities will be considered
"non-jurisdictional" gathering facilities. The transferred facilities under the
amended filings have a net book value of approximately $33 million. On June 26,
1996, the FERC approved Colorado's request. While Colorado has sought
clarification of that order in one specific area, other parties have filed for
rehearing. Certain producer/shippers have requested rehearing on the issues of
whether the FERC has the legal authority to allow a spindown and whether any
spindown must be predicated upon a finding of adequate competition for the
gathering market that Colorado serves. The first of those rehearing arguments
has been resolved in the recent Conoco v. FERC (Case No. 94-1724) decision of
the United States Court of Appeals for the District of Columbia Circuit in which
the court concluded that the FERC has authority to allow a spindown of gathering
systems to a non-jurisdictional affiliate. Thus, Colorado expects this aspect of
the rehearing request to be denied by the FERC. With regard to the second of the
producer/shipper issues, while the FERC has confronted the same issue in other
cases and ruled against the producer/shippers, those rulings are on appeal to
various Courts of Appeal. The FERC's rationale for such rulings has been
grounded, in part, upon the fact that it was also imposing a "default contract"
on the pipeline affiliate. A "default contract" essentially ensures continuity
of service under pre-spindown terms and conditions for a minimum of two years.
The court in Conoco, however, has now ruled
- 7 -
<PAGE>
that the FERC is without statutory authority to require the pipeline affiliate
to enter into a default contract, but has remanded the continuity of service
issue to the FERC for further consideration. Another rehearing application was
filed by another entity contesting Colorado's failure to spindown the Panhandle
Field gathering system along with the other gathering systems. Colorado
previously answered this same contention in earlier pleadings, but the FERC did
not specifically address this issue in its order. Generally, FERC precedent
allows the pipeline discretion in determining which, if any, gathering systems
to spindown or spin-off. At this point it cannot be determined when the FERC
may act on the pending rehearing applications in Colorado's spindown in light
of the remand in Conoco.
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 has also requested comments on whether this "recourse rate" program should
be extended to other terms and conditions of pipeline transportation services.
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. Hearing and discovery procedures have been
established for the case. 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.
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 forward-looking 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
---------------------------------
June 30, December 31,
1996 1995
----------------- --------------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities to capital expenditures
and debt service requirements........................................... 175.4% 147.5%
Debt to total capitalization............................................... 27.8% 28.0%
Times interest earned (before tax)......................................... 8.8 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 as a result of smaller decreases in accounts payable and accrued
expenses and increased net earnings. The decrease in the debt to total
capitalization ratio is due to increased retained earnings resulting from first
half 1996 earnings. The increase in the times interest earned ratio can be
attributed to increased earnings before tax and reduced interest expense.
The Company has entered into negotiations with a major financial
institution with respect to a $50 million term loan. The Company expects to
complete the agreement during the third quarter of 1996.
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 six month periods
ended June 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 Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................... $ 86,339 $ 87,714 $ 196,105 $ 189,847
Exploration and production................................ 3,498 3,456 8,255 6,362
Eliminations.............................................. (857) (1,799) (2,240) (3,643)
---------- ---------- --------- ---------
$ 88,980 $ 89,371 $ 202,120 $ 192,566
========== ========== ========= =========
</TABLE>
- 9 -
<PAGE>
Operating revenues from natural gas operations for the three month period
ended June 30, 1996, decreased $1.4 million from the comparable 1995 period due
to a $2.2 million increase in reservations and a $2.2 million decrease related
to gas sales volumes offset by increased average gas sales prices of $2.2
million, a $.4 million increase in revenues related to extracted products and a
$.4 million increase in miscellaneous revenue. The segment's operating revenues
for the six month period ended June 30, 1996 increased $6.3 million from the
comparable 1995 period due to an $8.0 million increase related to average gas
sales prices and a $4.2 million increase related to transportation volumes which
were offset by a $3.6 million decrease related to transportation rates, a $1.6
million decrease attributable to gas sales volumes and a $.7 million decrease in
miscellaneous revenue.
The increase in exploration and production operating revenues for the three
month period ended June 30, 1996 compared to the same period in 1995 is not
material. The $1.9 million increase in exploration and production operating
revenues for the six month period ended June 30, 1996 compared to the same
period in 1995 resulted from an $.8 million increase related to natural gas
volumes, a $.5 million increase related to natural gas prices and a $.6 million
increase in miscellaneous revenue.
Other Income - Net. The decrease for the three month period ended June 30,
1996 compared to the same period in 1995 is not material. The $.2 million
decrease for the six months ended June 30, 1996 compared to the same period in
1995 is due to decreased interest income from affiliates.
Cost of Gas Sold. The $1.2 million increase for the three month period
ended June 30, 1996 as compared to the same period last year is due to a $1.9
million increase attributable to average natural gas purchase rates and a $.2
million increase related to purchased gas volumes which were offset by a $.8
million decrease in royalties and a $.1 million decrease in net system gas
balancing requirements. The $8.6 million increase for the six month period ended
June 30, 1996 when compared to the same period for 1995 is due to a $5.7 million
increase in average gas purchase rates, $3.1 million in net gas system balancing
requirements and $.2 million in increased royalty expenses which were partially
offset by a $.4 million decrease attributable to purchased gas volumes.
Operation and Maintenance. These expenses for the three month period ended
June 30, 1996 decreased $4.6 million from the same period in 1995 due to a $1.7
million decrease in outside professional services, a $1.4 million decrease in
gas used in operations, a $1.1 million decrease in payroll and employee benefits
and $.4 million in decreased miscellaneous expenses. The $7.6 million decrease
for the six month period ended June 30, 1996 when compared to the same period in
1995 resulted from a $2.4 million decrease in gas used in operations, a $2.2
million decrease in outside professional services, a $2.1 million decrease in
property taxes and a $.9 million reduction in miscellaneous expenses.
Depreciation, Depletion and Amortization. The $.4 million increase for the
three month period ended June 30, 1996 over the same period in 1995 is due to an
increase in the natural gas segment's depreciable plant balance. The $1.5
million increase in the six month period ended June 30, 1996 when compared to
the same period in 1995 is due to increased depreciable plant balances in the
natural gas segment and a $.3 million increase in the exploration and production
segment's depreciation, depletion and amortization due primarily to increased
production volumes.
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................... $ 31,391 $ 29,164 $ 80,828 $ 75,496
Exploration and production................................ (584) (1,168) 23 (2,101)
---------- ---------- --------- ---------
$ 30,807 $ 27,996 $ 80,851 $ 73,395
========== ========== ========= =========
</TABLE>
The natural gas segment's operating profit for the three month period ended
June 30, 1996 increased $2.2 million over the comparable 1995 period due to
decreased operation and maintenance expense of $4.9 million offset by decreased
operating revenues of $1.4 million, increased cost of gas sold of $1.2 million
and an increase of $.1 million in miscellaneous expenses. The segment's increase
of $5.3 million for the six month period ended June 30, 1996 over the same
period in 1995 resulted from a decrease in operation and maintenance expense of
$7.4 million, increased
- 10 -
<PAGE>
operating revenues of $6.3 million and decreased miscellaneous expense of
$.2 million offset by an increase in cost of gas sold of $8.6 million.
The decrease in operating loss of $.6 million in the exploration and
production segment for the three month period ended June 30, 1996 from the same
period last year is due to a $.3 decrease in operation and maintenance expenses
and other benefits of $.3 million. The $2.1 million improvement for the six
month period ended June 30, 1996 when compared to the same period in 1995 is due
to a $1.9 million increase in operating revenues, a $.3 million decrease in
operation and maintenance expense and other increases of $.2 million offset by a
$.3 increase in depreciation, depletion and amortization expense.
Interest Expense. The $.4 million decrease in both the three and six month
periods ended June 30, 1996 when compared to the same periods last year are due
to increased allowance for funds used during construction resulting from an
increased construction program and decreased interest expense related to refund
obligations.
Taxes on Income. The $1.3 million increase for the three month period ended
June 30, 1996 from the comparable 1995 period is primarily due to an increase in
earnings before income taxes of $3.0 million. The $1.9 million increase for the
six month period ended June 30, 1996 from the comparable 1995 period is
primarily due to an increase in earnings before income taxes of $7.3 million.
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.
Item 2.B. Other Developments.
In January 1996, the Company announced an open season for interested
parties to request new transportation capacity on its Wind River Lateral. The
lateral has a current capacity of 195,000 Mcf per day and transports natural gas
from the Wind River Basin, where producers have increased natural gas production
by more than 25 percent since 1992. 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. The cost of the expansion is estimated to be
approximately $10.8 million. A technical conference was held at the FERC and as
a result of that conference, this application is unopposed by any party.
Colorado expects that the FERC will act on the application and issue the
requested certificate of public convenience and necessity in the third or fourth
quarter of 1996.
- 11 -
<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 5 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.
At the Annual Meeting of the Stockholder held on July 18, 1996, the number
of members of the Company's Board of Directors was fixed at five and James F.
Cordes (Chairman), David A. Arledge, Jeffrey A. Connelly, C. Scott Hobbs and Jon
R. Whitney were elected as directors.
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
June 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: August 12, 1996 By: DAN A. HOMEC
--------------------------------
Dan A. Homec
Assistant Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 12 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------------------------------------------------------------------------------
27 Financial Data Schedule
- 13 -
<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 JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,011
<SECURITIES> 0
<RECEIVABLES> 261,619
<ALLOWANCES> 0
<INVENTORY> 9,206
<CURRENT-ASSETS> 294,658
<PP&E> 1,228,087
<DEPRECIATION> 675,980
<TOTAL-ASSETS> 861,307
<CURRENT-LIABILITIES> 120,413
<BONDS> 179,336
0
0
<COMMON> 27,561
<OTHER-SE> 438,707
<TOTAL-LIABILITY-AND-EQUITY> 861,307
<SALES> 202,120
<TOTAL-REVENUES> 209,002
<CGS> 29,160
<TOTAL-COSTS> 123,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,919
<INCOME-PRETAX> 76,205
<INCOME-TAX> 25,831
<INCOME-CONTINUING> 50,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,374
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
