COLORADO INTERSTATE GAS CO
10-Q, 1999-11-12
NATURAL GAS TRANSMISSION
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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, 1999
                                                        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
 incorporation or organization)           (I.R.S. Employer 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



                           ---------------------------




     Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this Report with reduced disclosure
format.

     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 29, 1999, 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, 1998, 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.




<TABLE>
                COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             (Thousands of Dollars)


<CAPTION>
                                                                                 September 30,      December 31,
                                     ASSETS                                         1999                1998
                                                                               ---------------     --------------
                                                                                  (Unaudited)

<S>                                                                            <C>                 <C>
Current Assets:
   Cash....................................................................    $         1,155     $          109
   Notes receivable from affiliates........................................            295,296            243,049
   Accounts receivable.....................................................             30,012             41,309
   Accounts receivable from affiliates.....................................             44,357             43,057
   Materials and supplies..................................................              8,558              8,666
   Prepaid expenses........................................................                516                820
   Current portion of deferred income taxes................................             33,621             34,653
                                                                               ---------------     --------------
                                                                                       413,515            371,663
                                                                               ---------------     --------------

Plant, Property and Equipment, at cost:
   Gas pipeline............................................................          1,246,985          1,227,928
   Gas and oil properties, at full-cost....................................            139,681            136,334
                                                                               ---------------     --------------
                                                                                     1,386,666          1,364,262

   Accumulated depreciation, depletion and amortization....................            733,246            711,957
                                                                               ---------------     --------------
                                                                                       653,420            652,305
                                                                               ---------------     --------------

Other Assets:
   Investments in related parties..........................................             37,109             48,742
   Other deferred charges..................................................             44,059             43,557
                                                                               ---------------     --------------
                                                                                        81,168             92,299
                                                                               ---------------     --------------

                                                                               $     1,148,103     $    1,116,267
                                                                               ===============     ==============



                 See Notes to Consolidated Financial Statements.

</TABLE>

                                      - 1 -

<PAGE>



<TABLE>
                COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             (Thousands of Dollars)


<CAPTION>
                                                                                 September 30,      December 31,
                      LIABILITIES AND STOCKHOLDER'S EQUITY                          1999                1998
                                                                               ---------------     --------------
                                                                                  (Unaudited)

<S>                                                                            <C>                  <C>
Current Liabilities:
   Notes payable to affiliates.............................................    $       1,820        $      2,784
   Accounts payable and accrued expenses...................................          126,815             123,070
   Accounts payable to affiliates..........................................           21,107              41,147
   Taxes on income.........................................................            7,956              21,565
                                                                               -------------        ------------
                                                                                     157,698             188,566
                                                                               -------------        ------------

Debt:
   Long-term debt..........................................................          279,576             279,520
                                                                               -------------        ------------

Deferred Credits:
   Deferred income taxes...................................................          118,069             111,679
   Other...................................................................           38,967              40,031
                                                                               -------------        ------------
                                                                                     157,036             151,710
                                                                               -------------        ------------

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.......................................................          507,195             449,873
                                                                               -------------        ------------
                                                                                     553,793             496,471
                                                                               -------------        ------------

                                                                               $   1,148,103        $  1,116,267
                                                                               =============        ============



                 See Notes to Consolidated Financial Statements.
</TABLE>


                                      - 2 -

<PAGE>



<TABLE>
                COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
                       STATEMENT OF CONSOLIDATED EARNINGS
                             (Thousands of Dollars)


<CAPTION>
                                                                     Three Months Ended        Nine Months Ended
                                                                        September 30,            September 30,
                                                                   ----------------------   ---------------------
                                                                      1999        1998        1999         1998
                                                                   ----------  ----------   ---------   ---------
                                                                         (Unaudited)              (Unaudited)

<S>                                                                <C>         <C>          <C>         <C>
Revenues:
   Operating revenues:
      Nonaffiliates.............................................   $   45,415  $   51,048   $ 161,834   $ 222,806
      Affiliates................................................       24,444      12,095      65,260      71,135
                                                                   ----------  ----------   ---------   ---------
                                                                       69,859      63,143     227,094     293,941
   Other income - net...........................................        3,924       4,046      10,901      11,739
                                                                   ----------  ----------   ---------   ---------
                                                                       73,783      67,189     237,995     305,680
                                                                   ----------  ----------   ---------   ---------

Costs and Expenses:
   Cost of gas sold:
      Nonaffiliates.............................................            -           -           -      61,156
      Affiliates................................................            -           -           -       7,346
                                                                   ----------  ----------   ---------   ---------
                                                                            -           -           -      68,502
   Operation and maintenance....................................       39,624      39,549     106,528     113,237
   Depreciation, depletion and amortization.....................        7,742       9,355      23,440      25,221
   Interest expense.............................................        6,192       6,078      18,565      18,387
   Taxes on income..............................................        7,723       3,944      32,140      27,928
                                                                   ----------  ----------   ---------   ---------
                                                                       61,281      58,926     180,673     253,275
                                                                   ----------  ----------   ---------   ---------

Net Earnings....................................................   $   12,502  $    8,263   $  57,322   $  52,405
                                                                   ==========  ==========   =========   =========



                 See Notes to Consolidated Financial Statements.
</TABLE>


                                      - 3 -

<PAGE>



<TABLE>
                COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
                      STATEMENT OF CONSOLIDATED CASH FLOWS
                             (Thousands of Dollars)


<CAPTION>
                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                      ---------------------------
                                                                                          1999            1998
                                                                                      -----------      ----------
                                                                                               (Unaudited)

<S>                                                                                   <C>              <C>
Cash Flow From Operating Activities:
   Net earnings ..................................................................    $    57,322      $   52,405
   Add items not requiring cash:
      Depreciation, depletion and amortization....................................         23,440          25,221
      Deferred income taxes.......................................................          7,894          10,910
      Other.......................................................................           (745)           (571)

   Working capital and other changes, excluding changes relating to cash and
      non-operating activities:
         Accounts receivable......................................................         11,297          40,556
         Accounts receivable from affiliates......................................         (1,300)        (25,996)
         Materials and supplies...................................................            108             305
         Prepaid expenses.........................................................            304            (870)
         Accounts payable and accrued expenses....................................          3,745          (6,018)
         Accounts payable to affiliates...........................................        (20,040)         31,235
         Taxes on income..........................................................        (13,609)         (3,204)
                                                                                      -----------      ----------
                                                                                           68,416         123,973
                                                                                      -----------      ----------

Cash Flow from Investing Activities:
   Purchases of plant, property and equipment.....................................        (26,814)        (72,253)
   Proceeds from sale of plant, property and equipment............................          1,022             976
   Net decrease (increase) in investments in related parties......................         11,633          (3,654)
   Net increase in notes receivable from affiliates...............................        (52,247)        (57,391)
                                                                                      -----------      ----------
                                                                                          (66,406)       (132,322)

Cash Flow from Financing Activities:
   Net (decrease) increase in notes payable to affiliates.........................           (964)          5,067
                                                                                      -----------      ----------
                                                                                             (964)          5,067
                                                                                      -----------      ----------

Net Increase (Decrease) in Cash...................................................          1,046          (3,282)

Cash at Beginning of Period.......................................................            109           3,508
                                                                                      -----------      ----------

Cash at End of Period.............................................................    $     1,155      $      226
                                                                                      ===========      ==========



                 See Notes to Consolidated Financial Statements.
</TABLE>


                                      - 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, 1998. 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.

      The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), as amended by Statement of Financial
Accounting Standards No. 137, to be effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. 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, if any, of FAS 133.

      The Company adopted American Institute of Certified Public Accountants
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), in 1999. The application of SOP 98-5 did not have a material
effect on the Company's consolidated financial statements.

      The Company adopted FASB Emerging Issues Task Force Issue No. 98-10,
"Accounting for Contracts in Energy Trading and Risk Management Activities," in
1999. The application of Issue No. 98-10 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 $12.3 million and $12.2 million
for the nine-month periods ended September 30, 1999 and 1998, respectively. Cash
payments for income taxes amounted to $37.9 million and $28.9 million for the
nine-month periods ended September 30, 1999 and 1998, respectively.

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,
                                                                   ----------------------   ---------------------
                                                                      1999        1998        1999         1998
                                                                   ----------  ----------   ---------   ---------
                                                                         (Unaudited)              (Unaudited)

<S>                                                                <C>         <C>          <C>         <C>
   Current Income Taxes:
      Federal...................................................   $    5,757  $      455   $  22,444   $  15,432
      State.....................................................          826          43       1,802       1,586
                                                                   ----------  ----------   ---------   ---------
                                                                        6,583         498      24,246      17,018
                                                                   ----------  ----------   ---------   ---------

   Deferred Income Taxes
      Federal...................................................        1,073       3,014       7,123       9,721
      State.....................................................           67         432         771       1,189
                                                                   ----------  ----------   ---------   ---------
                                                                        1,140       3,446       7,894      10,910
                                                                   ----------  ----------   ---------   ---------

   Taxes on Income..............................................   $    7,723  $    3,944   $  32,140   $  27,928
                                                                   ==========  ==========   =========   =========
</TABLE>

      Interim period provisions for income taxes are based on estimated
effective annual income tax rates.


                                      - 5 -

<PAGE>



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 ("Coastal"). Therefore, earnings and cash dividends per common share
have no significance and are not presented.

4.    Segment Information

      The Company's operating revenues from external customers and intersegment
revenues and earnings before interest and income taxes for the three and nine
months ended September 30, 1999 and 1998 are shown as follows (thousands of
dollars):

<TABLE>
<CAPTION>
                                                                     Three Months Ended        Nine Months Ended
                                                                        September 30,            September 30,
                                                                   ----------------------   ---------------------
                                                                      1999        1998        1999         1998
                                                                   ----------  ----------   ---------   ---------
                                                                         (Unaudited)              (Unaudited)

<S>                                                                <C>         <C>          <C>         <C>
Operating Revenues
   Natural gas..................................................   $   64,455  $   58,142   $ 213,792   $ 286,371
   Exploration and production...................................        5,422       5,001      13,343      14,379
   Exploration and production intersegment revenue
     eliminations...............................................          (18)          -         (41)     (6,809)
                                                                   ----------  ----------   ---------   ---------
      Consolidated Totals.......................................   $   69,859  $   63,143   $ 227,094   $ 293,941
                                                                   ==========  ==========   =========   =========

Earnings Before Interest and Income Taxes
   Natural gas..................................................   $   24,509  $   18,229   $ 105,028   $  97,985
   Exploration and production...................................        1,908          56       2,999         735
                                                                   ----------  ----------   ---------   ---------
      Consolidated Totals.......................................   $   26,417  $   18,285   $ 108,027   $  98,720
                                                                   ==========  ==========   =========   =========
</TABLE>

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, Northern District
of Texas, claiming underpayment of royalties, 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 and 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 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. Oral arguments were heard before the Fifth Circuit Court of
Appeals on December 4, 1998 and the parties are awaiting the Court's decision.

      In 1996, Jack Grynberg filed a claim under the False Claims Act on behalf
of the U.S. government in the U.S. District Court, District of Columbia, against
70 defendants, including Colorado and another subsidiary of Coastal. The suit
sought damages for the alleged underpayment of royalties due to the purported
improper measurement of gas. The 1996 suit was dismissed without prejudice in
March 1997, and the dismissal was affirmed by the D.C. Court of Appeals in
October 1998. In September 1997, Mr. Grynberg filed 77 separate, similar False
Claims Act suits against natural gas transmission companies and producers,
gatherers, and processors of natural gas, seeking unspecified damages which


                                      - 6 -

<PAGE>



could include treble damages for the maximum period permitted by law
(potentially as much as 10 years) and penalties of up to $10,000 per false
claim. Colorado, Coastal and several other Coastal subsidiaries have been
included in two of the September 1997 suits. The suits were filed in both the
U.S. District Court, District of Colorado and the U.S. District Court, Eastern
District of Michigan (the "Grynberg suits"). In April 1999, the United States
Department of Justice notified the Company that the United States will not
intervene in these cases. In response to a motion filed by Mr. Grynberg, the
MultiDistrict Litigation Panel has consolidated the Grynberg suits with several
other Grynberg cases for pre-trial proceedings in Wyoming.

      In May 1999, the Quinque Operating Company, on behalf of itself and
subclasses of gas producers, royalty owners, overriding royalty owners and state
taxing authorities, instituted a legal proceeding in State Court, Stevens
County, Kansas against over 200 gas pipeline companies, including Colorado
and other Coastal subsidiaries (the "Quinque suit"). The Quinque suit seeks
unspecified damages and seeks treble damages for the alleged mismeasurement of
the heating value and the volume of all natural gas measured in the United
States since 1974. The plaintiffs are seeking certification of a national class
of all similarly situated gas producers, royalty owners, overriding royalty
owners and state taxing authorities. The suit has been removed to the U.S.
District Court, Southern District of Kansas. The defendants in the Quinque suit
have filed a motion under the MultiDistrict Litigation rules to have the suit
transferred to Wyoming and consolidated with the Grynberg proceedings.

      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 and production facilities. Compliance with such
laws and regulations can be costly. Additionally, governmental authorities may
enforce the laws and regulations with a variety of civil and criminal
enforcement measures, including monetary penalties and remediation requirements.

      Future information and developments, including legislative and enforcement
developments, will require the Company to continually reassess the expected
impact of these environmental matters. However, the Company has evaluated its
total environmental exposure based on currently available data, including its
potential joint and several liability, and believes that compliance with all
applicable laws and regulations will not have a material adverse impact on the
Company's consolidated financial position or results of operations.

      Regulatory Matters

      On July 29, 1998, the Federal Energy Regulatory Commission ("FERC") issued
a "Notice of Proposed Rulemaking," in which the FERC has proposed a number of
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 services, 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. The FERC has indicated that it may consider both proposals together
inasmuch as they raise several common issues. Comments on both of these matters
were due on April 22, 1999, and Colorado and its affiliates filed comments with
the FERC on that date, urging the FERC, among other things, to modify its rate,
service and certification policies for such pipelines.

      On September 15, 1999, the FERC issued a Policy Statement addressing the
certification and pricing of new pipeline construction projects. Under the
Policy Statement, applicants must first satisfy a threshold pricing requirement


                                      - 7 -

<PAGE>



of demonstrating that their projects can be constructed without subsidies from
existing customers. Second, the applicants must show that any adverse impacts of
the project on identified interests (existing customers of the applicant, other
existing pipelines and their captive customers, landowners and the surrounding
communities) are outweighed by its benefits. On October 19, 1999, Colorado and
its affiliates sought clarification and/or rehearing of the Policy Statement
insofar as it does not apply directly to those projects filed for approval under
the FERC's "optional certificate" regulations. Other parties also sought
rehearing of this and other aspects of the Policy Statement. The matter is still
pending.

      Certain 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.


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

      This report includes certain forward-looking statements. The
forward-looking statements reflect the Company's expectations, objectives and
goals with respect to future events and financial performance, and are based on
assumptions and estimates which the Company believes are reasonable. However,
actual results could differ materially from anticipated results. Important
factors which may affect the actual results include, but are not limited to,
commodity prices, political developments, market and economic conditions,
industry competition, the weather, changes in financial markets, changing
legislation and regulations, and the impact of the Year 2000 issue. The
forward-looking statements contained in this Report are intended to qualify for
the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended.

      The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.

      The information required by this Item is presented in a reduced disclosure
format pursuant to General Instruction (H) of Form 10-Q.

                              Results of Operations

      The change in the Company's earnings for the three- and nine-month periods
ended September 30, 1999, in comparison to the corresponding periods in 1998, 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,
                                                                   ----------------------   ---------------------
                                                                      1999        1998        1999         1998
                                                                   ----------  ----------   ---------   ---------
                                                                         (Unaudited)              (Unaudited)

<S>                                                                <C>         <C>          <C>         <C>
        Natural gas.............................................   $   64,455  $   58,142   $ 213,792   $ 286,371
        Exploration and production..............................        5,422       5,001      13,343      14,379
        Eliminations............................................          (18)          -         (41)     (6,809)
                                                                   ----------  ----------   ---------   ---------
                                                                   $   69,859  $   63,143   $ 227,094   $ 293,941
                                                                   ==========  ==========   =========   =========
</TABLE>



                                      - 8 -

<PAGE>



      Earnings Before Interest and Income Taxes. The earnings before interest
and income taxes by segment was as follows (thousands of dollars):

<TABLE>
<CAPTION>
                                                                     Three Months Ended        Nine Months Ended
                                                                        September 30,            September 30,
                                                                   ----------------------   ---------------------
                                                                      1999        1998        1999         1998
                                                                   ----------  ----------   ---------   ---------
                                                                         (Unaudited)              (Unaudited)

<S>                                                                <C>         <C>          <C>         <C>
        Natural gas.............................................   $   24,509  $   18,229   $ 105,028   $  97,985
        Exploration and production..............................        1,908          56       2,999         735
                                                                   ----------  ----------   ---------   ---------

                                                                   $   26,417  $   18,285   $ 108,027   $  98,720
                                                                   ==========  ==========   =========   =========
</TABLE>

      Natural Gas. The increase in operating revenues of $6.3 million for the
three months ended September 30, 1999 from the comparable 1998 period is due to
a $4.1 million increase related to gas sales volumes, a $2.3 million increase in
extracted products revenue, a $1.9 million increase in gas transportation
revenues and other net increases of $.4 million partially offset by a $2.4
million decrease related to average gas sales prices, net of reservations. The
decrease in operating revenues of $72.6 million for the nine months ended
September 30, 1999 from the comparable 1998 period is due to a $59.0 million
decrease related to gas sales volumes and a $13.3 million decrease related to
average gas sales prices, net of reservations, caused primarily by the
assignment of the Company's Merchant Division activity to an affiliate effective
July 1, 1998, a $5.2 million decrease related to extracted products revenue and
other net decreases of $.5 million partially offset by increased gathering
revenues of $4.1 million and increased gas transportation revenues of $1.3
million.

      Other income decreased $.5 million for the nine-month period ended
September 30, 1999 from the respective period in 1998 due to decreased interest
income from affiliates.

      Cost of gas sold decreased by $75.3 million before intercompany
elimination for the nine-month period ended September 30, 1999 from the
comparable period in 1998 as a result of the decrease in gas purchase volumes
caused by the assignment of the Company's Merchant Division activity to an
affiliate effective July 1, 1998.

      Operation and maintenance expenses increased by $.7 million for the three
months ended September 30, 1999 from the comparable period in 1998 due primarily
to a $1.8 million increase in net gas system balancing requirements and a $1.5
million increase in professional services expense partially offset by a $1.5
million increase in administrative expense transfers, a $.6 million decrease in
gas transportation expense and a $.5 million decrease in materials and supplies
expense. Operation and maintenance expenses decreased by $5.1 million for the
nine months ended September 30, 1999 from the comparable period in 1998 due
primarily to a $5.2 million increase in administrative expense transfers, a $3.0
million decrease in gas transportation expense, a $2.6 million decrease in
employee benefits expense, a $1.3 million decrease in materials and supplies
expense and other net decreases of $.2 million partially offset by a $7.2
million increase in net gas system balancing requirements.

      Exploration and Production. The increase in operating revenues of $.4
million for the three months ended September 30, 1999 from the comparable 1998
period is primarily due to a $1.8 million increase related to average natural
gas sales prices and a $.2 million increase related to condensate and natural
gas liquids sales volumes partially offset by a $1.6 million decrease related to
gas sales volumes. The decrease in operating revenues of $1.0 million for the
nine months ended September 30, 1999 from the comparable 1998 period is
primarily due to a $3.2 million decrease related to gas sales volumes partially
offset by a $1.9 million increase in average natural gas sales prices and an
increase of $.3 million related to condensate and natural gas liquids sales
volumes.

      Other income decreased by $.1 million for the three-month period and $.3
million for the nine-month period ended September 30, 1999 from the respective
1998 periods as a result of decreased interest income from affiliates.

      Operation and maintenance expenses decreased by $.6 million for the
three-month period and $1.6 million for the nine-month period ended September
30, 1999 from the respective 1998 periods primarily as a result of decreased
management service fees.


                                      - 9 -

<PAGE>



      Depreciation, depletion and amortization decreased by $.9 million for the
three-month period ended September 30, 1999 from the respective 1998 period due
to decreased production volumes. Depreciation, depletion and amortization
decreased by $2.0 million for the nine-month period ended September 30, 1999
from the respective 1998 period due to decreased production volumes and a
reduced depreciation rate.

      Taxes on Income. The income tax increases of $3.8 million for the
three-month period and $4.2 million for the nine-month period ended September
30, 1999 compared to the same periods in 1998 are due primarily to increased
earnings before income taxes and increased effective federal income tax rates.



                                     - 10 -

<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.

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, 1999.


                                   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, 1999                   By:         DAN A. HOMEC
                                              ---------------------------------
                                                       Dan A. Homec
                                                 Assistant Vice President
                                                      and Controller
                                                (As Authorized Officer and
                                                 Chief Accounting Officer)


                                     - 11 -


<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, 1999 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-31-1999
<PERIOD-END>                                SEP-30-1999
<CASH>                                            1,155
<SECURITIES>                                          0
<RECEIVABLES>                                   369,665
<ALLOWANCES>                                          0
<INVENTORY>                                       8,558
<CURRENT-ASSETS>                                413,515
<PP&E>                                        1,386,666
<DEPRECIATION>                                  733,246
<TOTAL-ASSETS>                                1,148,103
<CURRENT-LIABILITIES>                           157,698
<BONDS>                                         279,576
                                 0
                                           0
<COMMON>                                         27,561
<OTHER-SE>                                      526,232
<TOTAL-LIABILITY-AND-EQUITY>                  1,148,103
<SALES>                                         227,094
<TOTAL-REVENUES>                                237,995
<CGS>                                                 0
<TOTAL-COSTS>                                   129,968
<OTHER-EXPENSES>                                      0
<LOSS-PROVISION>                                      0
<INTEREST-EXPENSE>                               18,565
<INCOME-PRETAX>                                  89,462
<INCOME-TAX>                                     32,140
<INCOME-CONTINUING>                              57,322
<DISCONTINUED>                                        0
<EXTRAORDINARY>                                       0
<CHANGES>                                             0
<NET-INCOME>                                     57,322
<EPS-BASIC>                                         0
<EPS-DILUTED>                                         0


</TABLE>


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