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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 March 31, 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 (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
---------------------------
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 April 30, 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.
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash.................................................................... $ 897 $ 109
Notes receivable from affiliates........................................ 277,048 243,049
Accounts receivable..................................................... 28,246 41,309
Accounts receivable from affiliates..................................... 31,796 43,057
Materials and supplies.................................................. 8,797 8,666
Prepaid expenses........................................................ 715 820
Current portion of deferred income taxes................................ 32,783 34,653
--------------- --------------
380,282 371,663
--------------- --------------
Plant, Property and Equipment, at cost:
Gas pipeline............................................................ 1,234,230 1,227,928
Gas and oil properties, at full-cost.................................... 137,560 136,334
--------------- --------------
1,371,790 1,364,262
Accumulated depreciation, depletion and amortization.................... 719,442 711,957
--------------- --------------
652,348 652,305
--------------- --------------
Other Assets:
Investments in related parties.......................................... 36,708 48,742
Other deferred charges.................................................. 39,952 43,557
--------------- --------------
76,660 92,299
--------------- --------------
$ 1,109,290 $ 1,116,267
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Note payable to affiliate............................................... $ 1,158 $ 2,784
Accounts payable and accrued expenses................................... 116,671 123,070
Accounts payable to affiliates.......................................... 17,590 41,147
Taxes on income......................................................... 15,330 21,565
------------- ------------
150,749 188,566
------------- ------------
Debt:
Long-term debt.......................................................... 279,539 279,520
------------- ------------
Deferred Credits:
Deferred income taxes................................................... 113,641 111,679
Other................................................................... 38,196 40,031
------------- ------------
151,837 151,710
------------- ------------
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....................................................... 480,567 449,873
------------- ------------
527,165 496,471
------------- ------------
$ 1,109,290 $ 1,116,267
============= ============
</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
March 31,
---------------------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Revenues:
Operating revenues:
Nonaffiliates.................................................................... $ 69,703 $ 101,880
Affiliates....................................................................... 17,356 27,614
--------- ---------
87,059 129,494
Other income - net.................................................................. 3,329 3,690
--------- ---------
90,388 133,184
--------- ---------
Costs and Expenses:
Cost of gas sold:
Nonaffiliates.................................................................... - 34,060
Affiliates....................................................................... - 4,145
--------- ---------
- 38,205
Operation and maintenance........................................................... 29,045 34,779
Depreciation, depletion and amortization............................................ 7,671 8,761
Interest expense.................................................................... 6,142 6,184
Taxes on income..................................................................... 16,836 16,467
--------- ---------
59,694 104,396
--------- ---------
Net Earnings........................................................................... $ 30,694 $ 28,788
========= =========
</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>
Three Months Ended
March 31,
---------------------------
1999 1998
----------- ----------
(Unaudited)
<S> <C> <C>
Cash Flow From Operating Activities:
Net earnings .................................................................. $ 30,694 $ 28,788
Add items not requiring cash:
Depreciation, depletion and amortization.................................... 7,671 8,761
Deferred income taxes....................................................... 3,781 5,440
Other....................................................................... 2,235 2,386
Working capital and other changes, excluding changes relating to cash and
nonoperating activities:
Receivables.............................................................. 13,063 16,008
Receivables from affiliates.............................................. 11,261 3,968
Materials and supplies................................................... (131) 209
Prepaid expenses......................................................... 105 (1,000)
Accounts payable and accrued expenses.................................... (6,399) (2,291)
Accounts payable to affiliates........................................... (23,557) 289
Taxes on income.......................................................... (6,235) 8,907
----------- ----------
32,488 71,465
----------- ----------
Cash Flow from Investing Activities:
Purchases of plant, property and equipment..................................... (7,857) (21,015)
Net proceeds from sale of plant, property and equipment........................ (252) 586
Investments in related parties................................................. 12,034 (818)
Net increase in notes receivable from affiliates............................... (33,999) (52,602)
----------- ----------
(30,074) (73,849)
----------- ----------
Cash Flow from Financing Activities:
Net decrease in note payable to affiliate...................................... (1,626) -
----------- ----------
(1,626) -
----------- ----------
Net Increase (Decrease) in Cash................................................... 788 (2,384)
Cash at Beginning of Period....................................................... 109 3,508
----------- ----------
Cash at End of Period............................................................. $ 897 $ 1,124
=========== ==========
</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, 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"), 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 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 not material for the
three-month periods ended March 31, 1999 and March 31, 1998. Cash payments for
income taxes amounted to $19.3 million and $3.0 million for the three-month
periods ended March 31, 1999 and March 31, 1998, respectively.
2. Income Taxes
Provisions for income taxes are composed of the following (thousands of
dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Current Income Taxes:
Federal..................................................................... $ 12,367 $ 10,051
State....................................................................... 688 976
--------- ---------
13,055 11,027
--------- ---------
Deferred Income Taxes
Federal..................................................................... 3,423 4,828
State....................................................................... 358 612
--------- ---------
3,781 5,440
--------- ---------
Taxes on Income................................................................ $ 16,836 $ 16,467
========= =========
<FN>
Interim period provisions for income taxes are based on estimated
effective annual income tax rates.
</FN>
</TABLE>
- 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 months
ended March 31, 1999 and 1998 are shown as follows (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Operating Revenues
Natural gas.................................................................... $ 83,701 $ 127,829
Exploration and production..................................................... 3,370 6,255
Exploration and production intersegment revenue eliminations................... (12) (4,590)
--------- ---------
Consolidated Totals......................................................... $ 87,059 $ 129,494
========= =========
Earnings Before Interest and Income Taxes
Natural gas.................................................................... $ 53,580 $ 50,301
Exploration and production..................................................... 92 1,138
--------- ---------
Consolidated Totals......................................................... $ 53,672 $ 51,439
========= =========
</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 for the 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 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. 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. 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.
In
- 6 -
<PAGE>
April 1999, the United States Department of Justice notified the Company
that the United States will not intervene in these cases.
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
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 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.
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.
- 7 -
<PAGE>
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-month period ended March
31, 1999, in comparison to the corresponding period 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
March 31,
---------------------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Natural gas....................................................................... $ 83,701 $ 127,829
Exploration and production........................................................ 3,370 6,255
Eliminations...................................................................... (12) (4,590)
--------- ---------
$ 87,059 $ 129,494
========= =========
</TABLE>
Earnings Before Interest and Income Taxes. The earnings before interest and
income taxes by segment were as follows (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------- ---------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Natural gas....................................................................... $ 53,580 $ 50,301
Exploration and production........................................................ 92 1,138
--------- ---------
$ 53,672 $ 51,439
========= =========
</TABLE>
Natural Gas. The decrease in operating revenues of $44.1 million for the
three months ended March 31, 1999 from the comparable 1998 period is due to both
a $34.1 million decrease related to gas sales volumes and a $7.6 million
decrease related to average gas sales prices caused primarily by the assignment
of the Company's Merchant Division activity to an affiliate effective July 1,
1998, and a $3.3 million decrease related to extracted products revenue
partially offset by other miscellaneous net increases of $.9 million.
Other income decreased $.3 million for the three-month period ended March
31, 1999 from the respective period in 1998 is due to decreased interest income
from affiliates.
- 8 -
<PAGE>
Cost of gas sold decreased by $42.8 million for the three-month period
ended March 31, 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 decreased by $5.3 million for the three
months ended March 31, 1999 from the comparable period in 1998 due primarily to
a $2.6 million decrease in employee benefits, a $1.6 million decrease in gas
transportation expense, a $1.6 million adjustment of property tax expense, a
$1.4 million increase in administrative expense transfers and other net
decreases of $.9 million partially offset by a $2.8 million increase in net
system balancing requirements.
Depreciation, depletion and amortization increased $.4 million for the
three-month period ended March 31, 1999 from the comparable period in 1998 due
primarily to increased depreciable plant.
Exploration and Production. The decrease in operating revenues of $2.9
million for the three months ended March 31, 1999 from the comparable 1998
period is primarily due to a $2.6 million decrease related to gas sales volumes
and a $.3 million decrease related to average natural gas sales prices.
Other income decreased by $.1 million for the three-month period ended
March 31, 1999 from the respective 1998 period as a result of decreased interest
income from affiliates.
Operation and maintenance expenses decreased by $.4 million for the
three-month period ended March 31, 1999 from the respective 1998 period
primarily as a result of decreased supplies and lower management service fees.
Depreciation, depletion and amortization expenses decreased by $1.5 million
for the three-month period ended March 31, 1999 from the comparable 1998 period
due to lower production volumes and a lower depreciation rate.
Taxes on Income. The minor income tax increase for the three-month period
ended March 31, 1999 compared to the same period in 1998 is due primarily to
increased earnings before income taxes.
- 9 -
<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 March
31, 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: May 13, 1999 By: DAN A. HOMEC
--------------------------------
Dan A. Homec
Assistant Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 10 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------------------------------------------------------------------------------
27 Financial Data Schedule
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COLORADO INTERSTATE GAS COMPANY
FORM 10-Q QUARTERLY REPORT FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 897
<SECURITIES> 0
<RECEIVABLES> 337,090
<ALLOWANCES> 0
<INVENTORY> 8,797
<CURRENT-ASSETS> 380,282
<PP&E> 1,371,790
<DEPRECIATION> 719,442
<TOTAL-ASSETS> 1,109,290
<CURRENT-LIABILITIES> 150,749
<BONDS> 279,539
0
0
<COMMON> 27,561
<OTHER-SE> 499,604
<TOTAL-LIABILITY-AND-EQUITY> 1,109,290
<SALES> 87,059
<TOTAL-REVENUES> 90,388
<CGS> 0
<TOTAL-COSTS> 36,716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,142
<INCOME-PRETAX> 47,530
<INCOME-TAX> 16,836
<INCOME-CONTINUING> 30,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,694
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
