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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, 1998
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, 1998, 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, 1997, 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 1998 1997
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash.................................................................... $ 4,262 $ 3,508
Notes receivable from affiliates........................................ 276,847 219,655
Accounts receivable..................................................... 35,752 63,319
Accounts receivable from affiliates..................................... 32,130 39,057
Materials and supplies.................................................. 8,516 8,841
Prepaid expenses........................................................ 1,075 93
Current portion of deferred income taxes................................ 35,393 38,626
--------------- --------------
393,975 373,099
--------------- --------------
Plant, Property and Equipment, at cost:
Gas pipeline............................................................ 1,197,662 1,162,907
Gas and oil properties, at full-cost.................................... 140,187 130,500
--------------- --------------
1,337,849 1,293,407
Accumulated depreciation, depletion and amortization.................... 706,141 689,690
--------------- --------------
631,708 603,717
--------------- --------------
Other Assets:
Investments............................................................. 46,585 44,217
Other deferred charges.................................................. 39,487 42,397
--------------- --------------
86,072 86,614
--------------- --------------
$ 1,111,755 $ 1,063,430
=============== ==============
</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,
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable to affiliates............................................. $ 5,416 $ -
Accounts payable and accrued expenses................................... 116,649 138,708
Accounts payable to affiliates.......................................... 43,641 26,460
Taxes on income......................................................... 7,441 5,429
------------- ------------
173,147 170,597
------------- ------------
Debt:
Long-term debt.......................................................... 279,483 279,447
------------- ------------
Deferred Credits:
Deferred income taxes................................................... 116,413 112,063
Other................................................................... 39,194 41,947
------------- ------------
155,607 154,010
------------- ------------
Common Stock and Other Stockholder's 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 19,037
Retained earnings....................................................... 456,920 412,778
------------- ------------
503,518 459,376
------------- ------------
$ 1,111,755 $ 1,063,430
============= ============
</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,
---------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Operating revenues:
Nonaffiliates............................................. $ 69,877 $ 74,134 $ 171,758 $ 170,682
Affiliates................................................ 31,427 28,757 59,040 50,642
---------- ---------- --------- ---------
101,304 102,891 230,798 221,324
Other income - net........................................... 4,003 2,645 7,693 5,021
---------- ---------- --------- ---------
105,307 105,536 238,491 226,345
---------- ---------- --------- ---------
Costs and Expenses:
Cost of gas sold:
Nonaffiliates............................................. 24,905 16,150 53,475 43,653
Affiliates................................................ 3,201 2,843 7,346 5,135
---------- ---------- --------- ---------
28,106 18,993 60,821 48,788
Operation and maintenance.................................... 41,100 44,332 81,369 85,735
Depreciation, depletion and amortization..................... 7,105 11,028 15,866 22,214
Interest expense............................................. 6,125 5,698 12,309 11,283
Taxes on income.............................................. 7,517 9,353 23,984 21,003
---------- ---------- --------- ---------
89,953 89,404 194,349 189,023
---------- ---------- --------- ---------
Net Earnings.................................................... $ 15,354 $ 16,132 $ 44,142 $ 37,322
========== ========== ========= =========
</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,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Cash Flow From Operating Activities:
Net earnings .................................................................. $ 44,142 $ 37,322
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization.................................... 15,866 22,214
Deferred income taxes....................................................... 7,464 (1,132)
Other....................................................................... 1,534 1,933
Working capital and other changes, excluding changes relating to cash
and non-operating activities:
Accounts receivable...................................................... 27,567 (3,936)
Accounts receivable from affiliates...................................... 6,927 24,113
Materials and supplies................................................... 325 379
Prepaid expenses......................................................... (982) 245
Accounts payable and accrued expenses.................................... (22,059) 1,130
Accounts payable to affiliates........................................... 17,181 (4,427)
Taxes on income.......................................................... 2,012 (2,797)
----------- ----------
99,977 75,044
----------- ----------
Cash Flow from Investing Activities:
Purchases of plant, property and equipment..................................... (43,076) (26,193)
Proceeds from sale of plant, property and equipment............................ 230 3,391
Increase in gas stored......................................................... (2,233) (7,296)
Investments in related parties................................................. (2,368) (2,253)
Net increase in notes receivable from affiliates............................... (57,192) (92,445)
----------- ----------
(104,639) (124,796)
Cash Flow from Financing Activities:
Issuance of senior debentures.................................................. - 99,640
Repayment of notes payable - Bank.............................................. - (50,000)
Net increase in notes payable to affiliates.................................... 5,416 -
----------- ----------
5,416 49,640
----------- ----------
Net Increase (Decrease) in Cash................................................... 754 (112)
Cash at Beginning of Period....................................................... 3,508 539
----------- ----------
Cash at End of Period............................................................. $ 4,262 $ 427
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
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<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, 1997. 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, financial position or cash flows. In 1997, the Company
reexamined the useful lives of its assets. Effective October 1997, the
depreciation rates for certain of the Company's assets were revised. For the
three and six months ended June 30, 1998, this revision had the effect of
increasing net earnings by $1.4 million and $2.5 million, respectively.
Materials and supplies are carried principally at average cost.
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" in 1998. The application of the new standard
did not have a material effect on the Company's consolidated financial
statements as the Company currently does not have any material items of other
comprehensive income.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") in 1998. See Note 4 for additional information on FAS 131.
The Company adopted Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS
132"), in 1998. FAS 132, which revises employer disclosures regarding pension
plans and other postretirement plans, is not expected to have a material effect
on the Company's consolidated financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative will depend on the intended use of the
derivative and the resulting designation. The Company is currently evaluating
the impact of FAS 133.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants ("AICPA") has issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), to be effective for periods beginning after December
15, 1998. The Company adopted SOP 98-1 in 1998. SOP 98-1 establishes standards
for the treatment of costs associated with software developed or obtained for
internal use. SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial statements.
The AICPA has issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"), to be effective for periods beginning after
December 15, 1998. SOP 98-5 provides guidance on accounting for costs incurred
to open new facilities, conduct business in new territories or otherwise
commence some new operation. The application of SOP 98-5 is not expected to have
a material effect on the Company's consolidated financial statements.
Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: cash payments the Company made for interest and
financing fees, net of amounts capitalized, were $13.3 million and $10.9 million
for the six month periods ended June 30, 1998 and June 30, 1997, respectively.
Cash payments for income taxes amounted to $14.5 million and $23.4 million for
the six month periods ended June 30, 1998 and June 30, 1997, 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,
---------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal................................................... $ 4,926 $ 8,619 $ 14,977 $ 20,597
State..................................................... 567 724 1,543 1,538
---------- ---------- --------- ---------
5,493 9,343 16,520 22,135
---------- ---------- --------- ---------
Deferred Income Taxes
Federal................................................... 1,879 49 6,707 (927)
State..................................................... 145 (39) 757 (205)
---------- ---------- --------- ---------
2,024 10 7,464 (1,132)
---------- ---------- --------- ---------
Taxes on Income.............................................. $ 7,517 $ 9,353 $ 23,984 $ 21,003
========== ========== ========= =========
</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. Segment Information
The Company adopted FAS 131 in 1998. FAS 131 establishes standards for the
way that public business enterprises report information about operating segments
and requires those companies to report selected information about the operating
segments. Data for 1997 has been reclassified to conform with current reporting
practices following the standards in FAS 131 (in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
------------------------------------ -------------------------------------
Exploration Exploration
Natural and Natural and
Gas Production Total Gas Production Total
------- ------------ ----------- ------- ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues from
External Customers................ $ 100,400 $ 904 $ 101,304 $ 228,229 $ 2,569 $ 230,798
Intersegment Revenues.............. - 2,219 2,219 - 6,809 6,809
Earnings (Loss) Before Interest
and Income Taxes................. 29,455 (459) 28,996 79,756 679 80,435
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 Six Months Ended June 30, 1997
---------------------------------- --------------------------------
Exploration Exploration
Natural and Natural and
Gas Production Total Gas Production Total
------- ------------ ----------- ------- ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues from
External Customers................ $ 100,267 $ 2,624 $ 102,891 $ 215,883 $ 5,441 $ 221,324
Intersegment Revenues.............. - 1,267 1,267 - 7,282 7,282
Earnings (Loss) Before Interest
and Income Taxes.................. 31,899 (716) 31,183 66,092 3,516 69,608
</TABLE>
- 6 -
<PAGE>
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 new trial was denied on July 18, 1997, and both parties have filed appeals.
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.
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 of the associated clean-up costs.
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
consolidated financial position or results of operations.
Regulatory Matters
On January 31, 1996, the Federal Energy Regulatory Commission ("FERC")
issued a "Statement of Policy and Request for Comments" ("Policy"). Under this
Policy, (i) a pipeline and a customer are allowed to negotiate a contract 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"), and (ii) a pipeline must also make subsequent tariff
filings each time the pipeline negotiates a rate for service which is outside of
the minimum and maximum range for the pipeline's cost-based recourse rates. To
- 7 -
<PAGE>
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.
On July 29, 1998, the FERC issued a "Notice of Proposed Rulemaking," in
which the FERC has proposed a number of further significant changes to the
industry, including, among other things, removal of price caps in the short-term
market (less than one year), capacity auctions, changed reporting obligations,
the ability to negotiate terms and conditions of all service, elimination of the
requirement of a matching term cap on the renewal of existing contracts and a
review of its policies for approving capacity construction. On the same day, the
FERC also issued a "Notice of Inquiry" soliciting industry input on various
matters affecting the pricing of long-term service and certificate pricing in
light of changing market conditions. Comments on both of these matters are due
on November 9, 1998.
On March 29, 1996, Colorado filed with the FERC to change its rates, and as
part of that filing, included tariff sheets that would allow Colorado to
implement "negotiated rate" transactions pursuant to the Policy. The rate change
aspects of that filing have been fully resolved, although certain parties have
appealed the FERC's acceptance of the "negotiated rate" tariff provisions. That
appeal was dismissed by the United States Court of Appeals for the D.C. Circuit
as being premature. Separately, Colorado has appealed the FERC's holding that
pipelines which have entered into "negotiated rate" contracts will not be
allowed discount adjustments in connection with such contracts. That appeal was
consolidated with other similar appeals, and those appeals are being held in
abeyance by the Court. During the appeal process, the "negotiated rate" tariff
provisions approved by the FERC in Colorado's general rate case are fully
effective. During 1997 and for the six month period ended June 30, 1998,
Colorado did not enter into any "negotiated rate" transactions.
In July 1996, the United States Court of Appeals for the D. C. Circuit
upheld the basic structure of FERC Order 636 (issued in April 1992), but
remanded to the FERC, for further consideration, certain limited aspects of the
Order. In response to the remand, the FERC issued Order 636-C on February 27,
1997. Order 636-C: (i) reaffirmed the right of pipelines to recover 100% of
their prudently incurred transition costs, but required pipelines to file within
180 days a proposal for the level of costs to be allocated to interruptible
transportation customers; and (ii) reduced from 20 years to five years, the
maximum "cap" to be included in bids to renew existing contracts in order to
retain capacity. Colorado and others sought rehearing and clarification of Order
636-C, and Colorado also made the appropriate compliance filings with the FERC.
As to the term "cap" issue, in its order on rehearing (Order No. 636-D issued
May 28, 1998), the FERC confirmed that it would consider the existence of
settlements in determining whether any existing contracts should be shortened.
Colorado did not appeal Orders 636-C and 636-D, but certain other parties have
submitted appeals.
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. As a result, the Company anticipates that
these regulatory matters will not have a material adverse effect on its
consolidated financial position or results of operations. 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.
- 8 -
<PAGE>
Item 2.A. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking statements
reflecting the Company's expectations and objectives in the near future;
however, many factors which may affect the actual results, including natural gas
and liquids prices, market and economic conditions, industry competition and
changing regulations, are difficult to predict. Accordingly, there is no
assurance that the Company's expectations and objectives will be realized. The
forward-looking statements contained herein are intended to qualify for the safe
harbor provisions of Section 21E of the Securities Exchange Act of 1934.
The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.
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,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities to capital expenditures
and debt service requirements........................................... 184.4% 193.2%
Total debt to total capitalization......................................... 35.7% 37.8%
Times interest earned (before tax)......................................... 6.3 6.1
</TABLE>
The decrease in the cash flow from operating activities to capital
expenditures and debt service requirements ratio is due mainly to increased
capital expenditures partially offset by working capital changes. The decrease
in the total debt to total capitalization ratio is due to increased retained
earnings resulting from 1998 first half earnings. The increase in the times
interest earned ratio can be attributed to increased earnings before tax
partially offset by increased interest expense.
The Company's primary needs for cash are capital expenditures and debt
service requirements. Capital expenditures, debt retirements and other cash
needs, as well as the sources of capital to finance these expenditures, are
summarized in the Statement of Consolidated Cash Flows. 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, pursuing innovative
marketing strategies and applying strict cost-cutting measures.
The Financial Accounting Standards Board has issued FAS 133, to be
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
FAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative will
depend on the intended use of the derivative and the resulting designation. The
Company is currently evaluating the impact of FAS 133.
The AICPA has issued SOP 98-5, to be effective for periods beginning after
December 15, 1998. SOP 98-5 provides guidance on accounting for costs incurred
to open new facilities, conduct business in new territories or otherwise
commence some new operation. The application of SOP 98-5 is not expected to have
a material effect on the Company's consolidated financial statements.
- 9 -
<PAGE>
Results of Operations
The change in the Company's earnings for the three and six month periods
ended June 30, 1998, in comparison to the corresponding periods in 1997, 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,
---------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 100,400 $ 100,267 $ 228,229 $ 215,883
Exploration and production.............................. 3,123 3,891 9,378 12,723
Eliminations............................................ (2,219) (1,267) (6,809) (7,282)
---------- ---------- --------- ---------
$ 101,304 $ 102,891 $ 230,798 $ 221,324
========== ========== ========= =========
</TABLE>
Earnings Before Interest and Income Taxes. The earnings (loss) before
interest and income taxes by segment was as follows (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 29,455 $ 31,899 $ 79,756 $ 66,092
Exploration and production.............................. (459) (716) 679 3,516
---------- ---------- --------- ---------
$ 28,996 $ 31,183 $ 80,435 $ 69,608
========== ========== ========= =========
</TABLE>
Natural Gas. The increase in operating revenues of $.1 million for the
three months ended June 30, 1998 from the comparable 1997 period is due to a
$4.7 million increase in gas sales volumes, a $1.9 million increase related to
transportation volumes and other miscellaneous net increases of $.2 million
partially offset by reduced transportation revenues of $6.7 million due to lower
average rates net of reservations. The increase in operating revenues of $12.3
million for the six months ended June 30, 1998 from the comparable 1997 period
is due to a $18.4 million increase in gas sales volumes, an increase of $6.5
million related to transportation volumes and an increase of $3.5 million due to
average transportation rates net of reservations, partially offset by a $9.6
million decrease due to average gas sales prices, a decrease of $2.9 million in
gas stored for others, a $2.9 million decrease in extracted products revenues
and other miscellaneous net decreases of $.7 million.
Other income increased $1.2 million for the three month period and $2.4
million for the six month period ended June 30, 1998 from the respective
comparable 1997 periods due to increased interest income from affiliates.
Cost of gas sold increased by $9.9 million for the three month period ended
June 30, 1998 from the comparable period in 1997 primarily as a result of $6.4
million from increases in average gas purchase rates and reduced net system
balancing requirements of $5.0 million partially offset by other net decreases
of $1.5 million. Cost of gas sold increased by $11.6 million during the six
month period ended June 30, 1998 from the comparable period in 1997 primarily as
a result of a $16.0 million increase due to gas purchase volumes and reduced net
system balancing requirements of $9.3 million offset by a $12.0 million decrease
related to decreased average gas purchase rates and $1.7 million in other net
decreases.
Operation and maintenance expenses decreased by $3.3 million for the three
months ended June 30, 1998 from the comparable period in 1997 due primarily to a
$2.1 million decrease in gas used in operations, a $.7 million decrease in
materials and supplies expenses and other miscellaneous decreases of $.5
million. Operating and maintenance expenses decreased by $4.8 million for the
six months ended June 30, 1998 from the comparable period in 1997 due primarily
to
- 10 -
<PAGE>
a $4.0 million decrease in gas used in operations and a $1.9 million decrease
in materials and supplies expenses partially offset by other miscellaneous
increases of $1.1 million.
Depreciation, depletion and amortization decreased $2.9 million for the
three month period and $5.8 million for the six month period ended June 30, 1998
from the comparable periods in 1997 due primarily to depreciation rate
adjustments pursuant to the Company's settlement of FERC Docket No. RP96-190 and
the revision of depreciation rates as discussed in Note 1 of Notes to
Consolidated Financial Statements.
Exploration and Production. The decrease in operating revenues of $.8
million for the three months ended June 30, 1998 from the comparable 1997 period
is primarily due to decreased gas sales volumes equating to $2.6 million and
other net decreases of $.2 million partially offset by a $2.0 million increase
related to higher average natural gas prices. The decrease in operating revenues
of $3.3 million for the six months ended June 30, 1998, as compared to the same
period in 1997, is a result of a $1.5 million decrease in average natural gas
prices, a $1.2 million decrease in gas sales volumes and other net decreases of
$.6 million.
Other income increased by $.2 million for the three month period and by $.3
million for the six month period ended June 30, 1998 from the respective
comparable 1997 periods as a result of increased interest income from
affiliates.
Operation and maintenance expenses increased by $.1 million for the three
month period and $.4 million for the six month period ended June 30, 1998 from
the respective comparable 1997 periods primarily as a result of increased
property taxes.
Depreciation, depletion and amortization expenses decreased by $1.0 million
for the three month period and by $.5 million for the six month period ended
June 30, 1998 from the respective comparable 1997 periods due to lower
production volumes partially offset by higher depreciation rates.
Interest Expense. The increases in the three and six month periods ended
June 30, 1998 as compared to the same periods in 1997 are primarily the result
of interest on $100 million, 6.85% senior debenture issued in June 1997 which
were used in part to retire a $50 million senior term loan.
Taxes on Income. The income tax decrease for the three months ended June
30, 1998 compared to the same period in 1997 is due primarily to decreased
earnings before income taxes and a lower effective federal income tax rate. The
increase for the six month period ended June 30, 1998 as compared to the same
period in 1997 is due primarily to increased 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 of the associated clean-up costs.
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
Public Service Company of Colorado ("PSCo"), Colorado's largest customer,
began construction of the Front Range Pipeline (the "Pipeline") in June 1998.
After Securities and Exchange Commission approval is obtained, the Pipeline will
be conveyed to an equal joint venture between the Company and PSCo. The 24-inch,
53-mile pipeline along the Colorado Front Range will cost approximately $24.3
million and will increase the volume of natural gas delivered into Denver and
the Front Range area. The Pipeline is projected to be in service in November
1998.
- 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 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.
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 June 30, 1998.
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, 1998 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 JUNE 30,
1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,262
<SECURITIES> 0
<RECEIVABLES> 344,729
<ALLOWANCES> 0
<INVENTORY> 8,516
<CURRENT-ASSETS> 393,975
<PP&E> 1,337,849
<DEPRECIATION> 706,141
<TOTAL-ASSETS> 1,111,755
<CURRENT-LIABILITIES> 173,147
<BONDS> 279,483
0
0
<COMMON> 27,561
<OTHER-SE> 475,957
<TOTAL-LIABILITY-AND-EQUITY> 1,111,755
<SALES> 230,798
<TOTAL-REVENUES> 238,491
<CGS> 60,821
<TOTAL-COSTS> 158,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,309
<INCOME-PRETAX> 68,126
<INCOME-TAX> 23,984
<INCOME-CONTINUING> 44,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,142
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
