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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 1995
OR
__________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-10201
TGX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-0890264
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Pennbright, Suite 200
Houston, Texas 77090
(Address of principal executive offices) (Zip Code)
(281) 872-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of May 12, 1995 there were 25,313,533 outstanding shares of TGX Corporation
Common Stock, $.01 par value.
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TGX CORPORATION
Report on Form 10-Q/A For The Quarter Ended March 31, 1995
Index
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited) 1
Consolidated Balance Sheet-
March 31, 1995 and December 31, 1994 2
Consolidated Statement of Operations -
Three Months Ended March 31, 1995 and 1994 3
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information 16
Forward-Looking Statements
Stockholders are cautioned that all forward-looking statements involve
risks and uncertainties, including without limitation, statements about the
costs of exploring and developing new oil and natural gas reserves, the price
for which such reserves can be sold, the Company's attempts to reduce overhead
and eliminate non-core assets, environmental concerns affecting the drilling of
oil and natural gas wells, pending litigation and general market conditions,
competition and pricing. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and there can therefore be no assurance
that the forward-looking statements included in this Form 10-Q/A will prove
accurate. Because of the significant uncertainties inherent in the forward-
looking statements contained in this Form 10-Q/A, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
<PAGE>
TGX Corporation
Report on Form 10-Q/A For the Quarter Ended March 31, 1995
Part I. Financial Information.
Item 1. FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements of TGX
Corporation ("TGX") and its subsidiaries (collectively the "Company") have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements", and accordingly do not include all information and notes required
under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Company's Annual Report
on Form 10-K/A for the year ended December 31, 1994. These interim financial
statements reflect all adjustments (which were normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of March 31, 1995 and the results of its
operations and cash flows for the three month period ended March 31, 1995.
Results of operations for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995. It is recommended that these unaudited consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1994.
PRIOR PERIOD ADJUSTMENTS
In July 1994, the Company restructured and converted its Bank of
Montreal ("BMO") debt of $4,652,000 to a nonrecourse note secured only by
proceeds, if any, which might be received from the National Fuel Gas
Distribution Corporation litigation ("NFG Litigation"). This restructuring and
conversion was accounted for as an exchange transaction presented as an
extinguishment of debt in accordance with Emerging Issues Task Force Consensus
No. 86-18 and resulted in the recognition of an extraordinary gain, net of
transaction costs of $492,000, of $4,160,000 in the third quarter of 1994. In
connection with responding to comments from the Securities and Exchange
Commission in connection with a 1996 filing, the Company accepted the
Securities and Exchange Commission's determination that generally accepted
accounting principles require the Company to account for the restructuring and
conversion of debt as a troubled debt restructuring in accordance with Statement
of Financial Accounting Standards No. 15. As a result of this change, the
financial statements for September 30, 1994 through the current reported period
have been restated to restore the liability for the nonrecourse BMO debt,
including accrued interest, and to reverse the extraordinary gain recognized in
1994. This restatement did not impact cash flow during the period September 30,
1994 through the current reported period. The Company did, however, upon
resolution of the NFG Litigation in April 1996, reflect a net gain from
litigation settlement of $7,100,000 and an extraordinary debt extinguishment
gain of $1,868,000, and made a final debt payment to BMO of $3,600,000. (See
Note 6 of Notes to Consolidated Financial Statements.)
1
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TGX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
Note 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
(Restated - Note 6)
- ----------------------------------------------------------------------------------------------------
March 31, December 31,
(In thousands, except for share data) 1995 1994
- ----------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 319 $ 676
Accounts receivable, net of allowance for doubtful accounts of $373 1,205 1,206
Accounts receivable from affiliates, net 49 504
Other current assets 40 60
- ----------------------------------------------------------------------------------------------------
Total current assets 1,613 2,446
- ----------------------------------------------------------------------------------------------------
Property and equipment:
Oil and natural gas properties 10,419 10,407
Other property and equipment 166 157
Accumulated depletion, depreciation and amortization (3,489) (3,307)
- ----------------------------------------------------------------------------------------------------
Property and equipment, net 7,096 7,257
- ----------------------------------------------------------------------------------------------------
Investment in Comite Field Plant Venture 833 878
Other Assets 76 95
- ----------------------------------------------------------------------------------------------------
Total other assets 909 973
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,618 $ 10,676
====================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities - Note 5 $ 2,843 $ 3,352
Accounts payable to affiliates - 242
Notes payable - 171
- ----------------------------------------------------------------------------------------------------
Total current liabilities 2,843 3,765
- ----------------------------------------------------------------------------------------------------
Long-term debt - Note 3 5,785 6,020
- ----------------------------------------------------------------------------------------------------
Total liabilities 8,628 9,785
- ----------------------------------------------------------------------------------------------------
Commitments and contingencies - Note 4
Redeemable Senior Preferred Stock, 6,384,656 shares issued;
2,344,590 shares to be issued; redemption value $87,292 49,049 44,602
- ----------------------------------------------------------------------------------------------------
Stockholders' deficit:
9% Cumulative Convertible Preferred stock, 300,000 shares issued plus
138,000 and 131,000, , shares to be issued for dividends 438 431
Common stock, 28,976,791 shares issued; 25,313,533 outstanding 290 290
Additional paid-in capital 1,239 1,179
Accumulated deficit (50,026) (45,611)
- ----------------------------------------------------------------------------------------------------
Total stockholders' deficit (48,059) (43,711)
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,618 $ 10,676
====================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
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TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) Note 1
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------
(Restated - Note 6)
Three Months Ended March 31,
- ----------------------------------------------------------------------------
(In thousands, except per share data) 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Oil and natural gas production $ 1,091 $ 1,089
Natural gas gathering 61 67
Share of earnings of natural gas treating plant 108 129
Other, net 4 202
- ----------------------------------------------------------------------------
1,264 1,487
- ----------------------------------------------------------------------------
COSTS AND EXPENSES
Operating expenses 562 515
Depletion, depreciation and amortization 182 470
General and administrative expenses 414 665
Interest, net 150 312
- ----------------------------------------------------------------------------
1,308 1,962
- ----------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY GAIN (44) (475)
Extraordinary gain - Note 3 118 -
- ----------------------------------------------------------------------------
NET INCOME (LOSS) 74 (475)
Accretion of Senior Preferred redemption value (1,133) (918)
Preferred stock dividends, net (3,356) (2,658)
- ----------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON STOCK $(4,415) $(4,051)
============================================================================
NET LOSS PER SHARE OF COMMON STOCK $(0.17) $(0.16)
============================================================================
AVERAGE COMMON SHARES OUTSTANDING 25,314 25,314
============================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) Note 1
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
(Restated - Note 6)
Three Months Ended March 31,
- -------------------------------------------------------------------------------------------------
(In thousands) 1995 1994
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 74 $ (475)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depletion, depreciation and amortization 182 470
Interest to be paid through issuance of additional notes 115 -
Extraordinary gain (118) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 1 14,585
Decrease in accounts receivable from affiliates 213 156
Decrease (increase) in other current assets 20 (22)
Decrease in accounts payable and accrued expenses (509) (3,523)
- -------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (22) 11,191
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (21) (131)
(Increase) decrease other 64 (42)
- -------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 43 (173)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowing pursuant to revolving credit facility 100 -
Principal payments on long-term debt and notes payable (526) (11,236)
Other 48 -
- -------------------------------------------------------------------------------------------------
Net cash used by financing activities (378) (11,236)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (357) (218)
Cash and cash equivalents at beginning of period 676 1,220
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 319 $ 1,002
=================================================================================================
Supplemental Disclosure of Non-Cash Financing Activities:
Forgiveness of notes payable $ 118 $ -
Interest to be paid through issuance of additional notes 115 -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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TGX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
TGX Corporation ("TGX") and subsidiaries (collectively, the
"Company"), is a domestic independent energy company engaged in the production
of oil and natural gas. The Company is also engaged in intrastate natural gas
gathering and treating.
On February 22, 1990, TGX filed a voluntary petition in the United
States Bankruptcy Court for the Wester District of Louisiana, Shreveport
Division (the "Bankruptcy Court") for reorganization pursuant to Chapter 11,
Title 11 of the United States Code (the "Reorganization Proceeding"). On
January 7, 1992, the Bankruptcy Court confirmed an Amended Plan of
Reorganization ("Plan") for TGX, and the confirmation order became effective on
January 21, 1992 (the "Effective Date"). On September 21, 1992, the Bankruptcy
Court determined that the Plan had been substantially consummated, and the
Bankruptcy Court's order of substantial consummation became final and
nonappealable on October 2, 1992.
As a result of the substantial consummation of the Plan and due to (i)
the reallocation of the voting rights among the equity interests owners and (ii)
the Reorganization Value, as defined below, of TGX's assets being less than the
total of all post-petition liabilities and allowed claims, the effects of the
Reorganization Proceeding were accounted for in accordance with the fresh start
reporting standards promulgated under the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7").
In conjunction with implementing fresh start reporting, a
reorganization value ("RV") of the Company's assets and liabilities as of
October 2, 1992 was determined by management in the following manner:
The RV of proved oil and natural gas properties and other related assets was
determined based on future net revenues discounted to present value utilizing
a rate of twenty percent (20%). For proved undeveloped properties, the RV was
determined to be fifty percent (50%) of discounted future net revenues. For
the purpose of calculating future net revenues of oil and natural gas
properties, current oil and natural gas prices were escalated at five percent
(5%) per annum to certain maximum amounts and current operating costs and
expenses were escalated at four percent (4%) per annum for the economic life
of the properties. The initial price for natural gas dedicated under the
contract with National Fuel Gas Distribution Corporation ("NFG"), which is
currently a matter being litigated, was equal to ninety percent (90%) of the
rolling twelve month average price for No. 6 fuel oil in the Buffalo, New
York area (the "90% of No. 6 Fuel Oil Price"). The RV of oil and natural gas
properties also included $2,905,000 attributable to the difference, plus
interest, between the price that NFG has paid since September 1984 and the
90% of No. 6 Fuel Oil Price.
Current assets and liabilities were recorded at book value which approximates
RV. Long-term liabilities were recorded at the present values of amounts to
be paid and the preconsummation stockholders' deficit was adjusted to reflect
the par value of preconsummation equity interests.The recorded value of the
Series A Senior Preferred Stock ("Senior Preferred") to be issued pursuant to
the Plan was
5
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determined based on the difference between the RV of the Company's assets
less the sum of (i) the present value of liabilities plus (ii) the par value
of pre-consummation equity interests. The accretion of the difference between
the recorded value and the $10 per share redemption amount of the Senior
Preferred will be recorded as a reduction of income applicable to common
stockholders over a period of approximately ten (10) years.
The RV was determined by management on the basis of its best judgment of what
it considered to be the fair market value ("FMV") of the Company's assets and
liabilities at the time of the valuation after reviewing relevant facts
concerning the price at which similar assets were being sold between willing
buyers and sellers. However, there can be no assurances that the RV and the FMV
are comparable and the difference between the Company's calculated RV and the
FMV may, in fact, be material.
The consolidated financial statements have been prepared on a going concern
basis which contemplates continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business.
The Senior Preferred has a $10 per share redemption value and has a provision
for a 10% annual compounded cash dividend, payable quarterly, provided however,
that the payment of such dividend does not violate Delaware law or certain loan
covenants. The Company has not paid any dividends since the Effective Date of
the Plan and based on the current financial position of the Company and bank
covenants restricting dividend payments, it does not expect to make any such
dividend payments in the near future. Subject to Delaware law, the Senior
Preferred must be redeemed no later than January 21, 2002. Holders of Senior
Preferred have 95% of the voting rights of TGX. As of March 31, 1995, the
redemption value and accrued dividends related to the Senior Preferred were
$87,292,000 and $31,606,000, respectively. The Senior Preferred dividends must
be paid in full prior to paying any other dividends.
2. SALE OF OIL AND NATURAL GAS PROPERTIES AND RELATED ASSETS
In January 1994, TGX consummated the sale of substantially all of its New
York and Ohio oil and natural gas properties and related assets to Belden &
Blake Corporation ("BBC") for $16.2 million, subject to certain adjustments. The
effective date of this transaction was December 1, 1994. Substantially all of
the net proceeds from this transaction were applied toward the reduction of
TGX's obligation to Bank of Montreal as described in Note 3. In conjunction with
the BBC transaction, TGX assigned to BBC its contract with NFG pursuant to which
a substantial portion of TGX's New York natural gas production was marketed. The
assignment of TGX's contract with NFG was made with certain reservations
relating to the litigation and administrative proceedings between TGX and NFG.
3. LONG-TERM DEBT AND NOTES PAYABLE
As of March 31, 1995 and December 31, 1994, the components of long-term debt
were:
<TABLE>
<CAPTION>
March 31, December 31,
(Thousands of dollars) 1995 1994
- --------------------------------------------------------
<S> <C> <C>
Bank borrowings:
Revolving credit (secured) $ 800 $1,150
Non-recourse debt 4,985 4,870
- --------------------------------------------------------
Less current maturities - -
- --------------------------------------------------------
Long-term debt $5,785 $6,020
========================================================
</TABLE>
6
<PAGE>
On July 13, 1994, the Company entered into a series of agreements with Bank One,
Texas N.A. ("Bank One") whereby the Company's then outstanding secured debt with
the Bank of Montreal ("BMO") was restructured and all existing BMO events of
default were resolved. Pursuant to the restructuring, Bank One established a
borrowing-based facility of $2,350,000 under which the Company immediately
borrowed $1,600,000 of which $1,452,000 was paid to BMO. The Bank One debt is
secured by substantially all of the Company's oil and gas properties. The Bank
One facility at March 31, 1995 had a borrowing base of $1,864,000 which is
reduced by $56,000 per month and is redetermined every six months or at Bank
One's discretion. The loan is repayable in 36 months and matures July 13, 1997.
The Bank One facility requires the maintenance of certain financial ratios
including an adjusted working capital ratio, a tangible net worth ratio,
including Senior Preferred stock, and other financial ratios. The Company was in
compliance with all financial ratios and covenants at March 31, 1995, but can
give no assurance that it will be able to continually meet the Bank One facility
ratios and covenants.
Prior to restructuring its debt through receipt of the Bank One
facility, the Company had been subject to the terms of an Amended and Restated
Credit Agreement (the "Amended Credit Agreement") with BMO which was entered
into in February 1992 and amended thereafter and which essentially continued and
preserved the prior revolving credit agreement. Effective December 31, 1992, the
Company had been notified by BMO that an event of default had occurred under the
Amended Credit Agreement, and as a result, BMO had the right to take certain
actions under such Amended Credit Agreement including, but not limited to, the
acceleration of all of the then outstanding BMO obligations.
In January 1994, in conjunction with the Company's sale of certain
assets to Belden & Blake Corporation ("BBC") (see Note 2 above), the Company
made a debt service payment of approximately $13,367,000 which included
principal payments totaling $10,670,000 to BMO. The Company also made subsequent
BMO principal payments of $2,949,000 before July 13, 1994. As set forth above,
on July 13, 1994, in connection with the series of agreements entered into
between the Company and Bank One, the Company paid approximately $1,452,000 to
BMO which included a principal payment of $1,424,000 and simultaneously
therewith, BMO released all of its liens on the Company's properties with the
exception of its lien on the Company's currently pending litigation with NFG
pursuant to the NFG Litigation. As part of the loan restructuring, BMO converted
$4,652,000 (The "BMOF Principal") of its outstanding indebtedness, including
legal transaction costs incurred by BMO, to a non-recourse note secured only by
the NFG Litigation and any proceeds that might be received therefrom. BMO has
assigned its rights to the loan, security, and Company note to BMO's wholly
owned subsidiary, BMO Financial, Inc. ("BMOF"). Pursuant to the agreement, after
repayment of the BMOF Principal, plus applicable interest, from NFG Litigation
proceeds, if any, BMOF will, in certain instances, after the Company has
received the same amount as was paid to BMOF, be entitled to receive up to 50%
interest in certain additional litigation proceeds. If NFG Litigation proceeds
are insufficient to repay the BMOF Principal, plus applicable interest, the
Company will have no further obligation for such repayment. The BMOF note
matures on December 31, 1997, subject to each party having the right to extend
the maturity date and bears interest at the rate of 10% per annum. However,
until December 31, 1997, and for such further time as BMOF elects to extend the
maturity date of such loan, no cash payment for such interest is required;
instead, the Company will pay interest in kind through the issuance of
additional notes to BMOF. As of March 31, 1995, total accrued interest pursuant
to the BMOF note was $333,000, resulting in a total BMOF debt of $4,985,000.
During the Reorganization Proceeding, the Company incurred and
claimants filed applications for approximately $7,131,000 in administrative fees
and expenses relating to the reorganization ("Administrative Claims"). The
Company objected to certain of the Administrative Claims and negotiated
settlement amounts and terms of payment with certain holders of Administrative
Claims. As a result, administrative claimants, other than the Opposing
Administrative Claimants, upon
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execution of certain releases in favor of the Company and others, were entitled
to receive promissory notes (the "Administrative Notes") due December 31, 1994,
in satisfaction of each of their unpaid administrative claim. Substantially all
administrative claimants entitled to receive Administrative Notes perfected
their claims by executing such releases. The Administrative Notes bear interest
at a rate not to exceed 8% and are secured with certain collateral (the
"Consummation Collateral"). If the proceeds related to the Consummation
Collateral are not sufficient to satisfy the Company's obligations under the
Administrative Notes the Company's excess operating funds, if any, will be
applied toward the balances due. During the last quarter of 1994, the Company
negotiated with substantially all of those persons holding Administrative Notes.
As a result, Administrative Notes totaling approximately $990,000 in principal
and $230,000 in accrued interest were renegotiated with the Company paying in
the aggregate $389,000 in cash, issuing 141,518 shares of Senior Preferred Stock
and further issuing a non-recourse note in the aggregate amount of $90,000
payable out of proceeds received by the Company from the NFG Litigation, if any.
During the first quarter of 1995, the Company paid all remaining
perfected Administrative Notes at book value except for one claimant whose
Administrative Note of $40,000 was settled for a payment of $26,000. Those
claimants who had not timely executed the required releases and perfected their
claim, were deemed to have forfeited their claim rights pursuant to the Plan. As
a result of the discount settlement and claim forfeitures, the Company recorded
an extraordinary gain of $118,000 in the current quarter.
4. COMMITMENTS AND CONTINGENCIES
NFG Litigation
Since November 30, 1984, TGX has been involved in litigation in the
United States District Court for the Western District of New York ("New York
Federal Court") (Civ. No. 84-1372-E) with NFG concerning the validity of a
contract (the "Contract") pursuant to which TGX (as successor- in-interest to
Paragon Resources, Inc. ("Paragon"), the original contracting party) sells
certain natural gas production to NFG. The litigation addresses, among other
things, the continued validity of the Contract, the price for natural gas sold,
and certain take-or-pay claims.
In December 1983, certain pricing provisions of the Contract were
disapproved by the New York Public Service Commission ("PSC") and as a result,
in January 1991, the New York Federal Court determined that the Contract was
invalidated. However, on December 3, 1991, the Court of Appeals for the Second
Circuit ("Court of Appeals") (Case No. 91-7127) reversed the New York Federal
Court and held that the Contract remains in effect subject to the pricing
provisions set forth therein. The Court of Appeals remanded the case to the New
York Federal Court for further proceedings not inconsistent with the opinion of
the Court of Appeals.
During the Reorganization Proceeding, TGX filed an adversary
proceeding (the "Turnover Proceeding") in the Bankruptcy Court to compel NFG to
pay the amount due to TGX pursuant to the provisions of the Contract. Effective
June 19, 1992, TGX and NFG entered into a partial settlement agreement regarding
the settlement of some, but not all, of their disputes. Pursuant to the
provisions of the partial settlement agreement, in consideration of a payment of
$2,940,000 (the "Payment") from NFG, TGX (I) dismissed the Turnover Proceeding
without prejudice (ii) released NFG (subject to certain limitations) from any
and all liability and affirmative claims for relief alleged to arise from or
based upon certain evidence presented by TGX in the Turnover Proceeding, and
(iii) reserved its rights regarding the assumption or rejection of certain other
relatively minor gas purchase agreements with NFG. The Payment will be credited
against any amount due to TGX from NFG.
In July 1992, the New York Federal Court denied a motion filed by NFG
for partial summary judgment wherein NFG sought a finding that it had properly
suspended performance under, and
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eventually terminated, the Contract. A subsequent rehearing upheld this
conclusion, but determined that certain matters relating to this issue were
questions of fact that could not be resolved by summary judgment. In December
1992, NFG filed a motion with the PSC requesting a hearing to determine pricing
issues related to the Contract. In 1993, the PSC determined that it would hold
the requested hearing.
In January 1993, the New York Federal Court granted TGX's motion for
partial summary judgment regarding the price to be paid under the Contract.
Based on the New York Federal Court's order, TGX has concluded that from
December 1983, until at least, January 1, 1993, the date Federal price controls
were terminated, the Contract price is equal to the lower of (I) the applicable
maximum lawful price for December 1983 and for each month thereafter as
established by the Natural Gas Policy Act ("NGPA") subject to the escalations
provided by the NGPA or (ii) the December 1983 permitted Contract price of
approximately $4.41 per MCF. The Federal Court's decision might be interpreted
such that the December 1983 permitted contract price would be $4.41 per Mcf
during the winter months and $4.01 per Mcf during the summer months. Based on
TGX's calculations, the gross difference between the price actually paid by NFG
and the price required by the New York Federal Court's order (assuming a
contract price of $4.41 for winter and $4.01 for summer per Mcf) is
approximately $24,282,000 as of March 31, 1995, including permitted statutory
interest. The New York Federal Court's order did not determine the impact of the
termination of the NGPA, the effect of any subsequent PSC order or NFG's
defense, including the alleged repudiation by TGX of the NFG contract. As part
of its sale of substantially all of its oil and gas properties in Ohio and New
York to BBC, TGX assigned the Contract effective December 1, 1994. TGX's
assignment of the contract did not include TGX's rights in its existing claims
against NFG, any proceeds therefrom, and TGX's rights, claims or causes of
action, even if they had not yet been asserted, that arose prior to the
effective time of the assignment.
In November 1994, an Administrative Law Judge ("ALJ") appointed by the
PSC issued a preliminary Recommended Decision. Also, in November 1994, the New
York Federal Court appointed a Magistrate to review and hear various aspects of
the Federal Court litigation, including certain motions, scheduling, and certain
pre-trial discovery.
In early 1995, the Magistrate held that all discovery would be stayed
pending issuance of a decision by the PSC and a further meeting with the
Magistrate to discuss the state of the case. In May 1995, the PSC rejected the
AW's decision and determined that NFG's requested hearing and the dealings after
1983 between NFG and TGX did not constitute the type of filing appropriate for
PSC review. The PSC stated that it would not determine whether a price to be
paid under the contract was appropriate until such time as such price was
finally agreed to by the parties or determined by the New York Federal Court,
which would also need to determine the continued viability of the Contract. A
hearing with the Magistrate is scheduled for late May 1995.
New York Department of Environmental Conservation
In January 1990, the New York State Department of Environmental
Conservation, Division of Mineral Resources ("DEC") notified TGX that it
considered TGX to be in violation of certain provisions of the environmental
conservation laws of the State of New York concerning approximately 150 natural
gas wells and production facilities located in Chautauqua and Erie Counties. To
settle this dispute, TGX entered into a consent order (the "Agreed Order"),
which among other things required TGX to provide a letter of credit in the
amount of $300,000 which was to be utilized by the DEC if TGX did not comply
with the Agreed Order. The letter of credit was provided by BMO but was secured
by $300,000 in cash. Such security is released as the letter of credit is
reduced or eliminated. In May 1994, the DEC agreed to reduce the letter of
credit amount to $150,000 and a like amount of cash collateral was released. In
February 1995 TGX's obligation to maintain the letter of credit was eliminated
and the remaining cash collateral released.
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Other
In August 1992, certain unleased mineral interest owners commenced a
legal action against TGX, as operator of certain wells, in the 19th Judicial
District Court for East Baton Rouge Parish, Louisiana (Case Number 383844,
Division "A"). The complaint alleges that revenues in excess of the reasonable
costs of drilling, completing, and operating certain wells have not been
credited to the interests of the unleased mineral interest owners. This case is
in the discovery stage and if settlement negotiations are not successful, TGX
will vigorously defend itself in the litigation.
In March 1994, a hearing was conducted in the Bankruptcy Court
regarding the final allowance of pre-petition and administrative claims related
to an overriding royalty interest previously conveyed by TGX. As a result of
this hearing, the Bankruptcy Court established the method for computing these
claim amounts. The parties stipulated that the finally allowed prepetition claim
amount was $600,000 which has been satisfied with the issuance of Senior
Preferred. Previously, the Company had estimated this claim amount and therefore
it had been included in the financial statements for prior years. Pursuant to
the Bankruptcy Court's order, certain post-petition but prior to October 2, 1992
claims are to be treated as administrative claims. The administrative claim
amount will be calculated by the claimant, subject to review and approval by the
Company, and pursuant to the terms of the Plan. Any claims subsequent to
October 2, 1992 are subject to the Bankruptcy Court's review, including
ownership of the overriding royalty interest.
From time to time, in the normal course of business, the Company is a
party to various other litigation matters the outcome of which, to the extent
not otherwise provided for, should not have a material adverse effect on the
Company.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 1995 and December 31, 1994, the primary components of
accounts payable and accrued liabilities were:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Accounts payable $ 184 $ 489
Undistributed net oil and natural gas revenue 1,086 1,069
Accrued pre-petition liabilities 864 934
Accrued interest and fees - 32
Accrued operating and tax expenses 217 252
Operation advances 30 -
Miscellaneous accruals 462 576
- -----------------------------------------------------------------
$2,843 $3,352
=================================================================
</TABLE>
10
<PAGE>
6. PRIOR PERIOD ADJUSTMENTS
In July 1994, the Company restructured and converted its BMO debt of
$4,652,000 to a nonrecourse note secured only by proceeds, if any, which
might be received from the NFG Litigation. This restructuring and conversion
was accounted for as an exchange transaction presented as an extinguishment of
debt in accordance with Emerging Issues Task Force Consensus No. 86-18 and
resulted in the recognition of an extraordinary gain, net of transaction
costs of $492,000, of $4,160,000 in the third quarter of 1994. In connection
with responding to comments from the Securities and Exchange Commission in
connection with a 1996 filing, the Company accepted the Securities and
Exchange Commission's determination that generally accepted accounting
principles require the Company to account for the restructuring and conversion
of debt as a troubled debt restructuring in accordance with Statement of
Financial Accounting Standards No. 15. As a result of this change, the
financial statements for September 30, 1994 through the current reported
period have been restated to restore the liability for the nonrecourse BMO
debt, including accrued interest, and to reverse the extraordinary gain
recognized in 1994. This restatement did not impact cash flow during the
period September 30, 1994 through the current reported period. The Company
did, however, upon resolution of the NFG Litigation in April 1996, reflect
a net gain from litigation settlement of $7,100,000 and an extraordinary debt
extinguishment gain of $1,868,000, and made a final debt payment to BMO of
$3,600,000. A summary of the impact for the periods presented is shown below
(in thousands, except per share data.)
<TABLE>
<CAPTION>
Balance Sheet
- -------------
March 31, December 31,
1995 1994
(Unaudited)
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total current liabilities $ 3,006 $ 2,843 $ 3,928 $ 3,765
Long-term debt 800 5,785 1,150 6,020
Accumulated deficit (45,204) (50,026) (40,904) (45,611)
Total stockholder's deficit (43,237) (48,059) (39,004) (43,711)
Statement of Operations (Unaudited) Three Months Ended
- ----------------------------------- March 31,
1995 1994
-------- --------
Reported Restated Reported Restated
-------- -------- -------- --------
Interest expense $ 35 $ 150 $ 312 $ 312
Net loss applicable to common
stock (4,300) (4,415) (4,051) (4,051)
Net loss per share of common
stock (0.17) (0.17) (0.16) (0.16)
</TABLE>
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion provides information which management
believes is relevant to an understanding and assessment of the Company's
results of operations, financial condition, and those presently known events,
trends or uncertainties that are reasonably likely to have a material impact on
the Company's future results of operations or financial condition or that are
reasonably likely to cause the historical financial statements not to be
necessarily indicative of future operating results or financial condition. It
should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein.
Amounts in this discussion and analysis have been restated as
disclosed in Note 6 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Quarter Ended March 31. 1995 ("1995") Compared to March 31. 1994 ("1994")
- -------------------------------------------------------------------------
Following is a comparison of direct operating activity (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 Change
------- ------- ------
<S> <C> <C> <C>
Oil and natural gas revenues $1,091 $1,089 -%
Natural gas gathering and treating 169 196 (14%)
Other, net 4 202 (98%)
Operating expenses (562) (515) 9%
Depletion, depreciation and amortization (182) (470) (61%)
General and administrative expenses (414) (665) (38%)
------ ------
Operating income (loss) $ 106 $ (163) 165%
====== ====== ====
</TABLE>
Consolidated revenues for 1995 decreased $223,000 or 15% to $1,264,000
compared to $1,487,000 for 1994. Though revenues for 1995 were lower, operating
income for the current quarter increased by $467,000 or 128% to $102,000 due
primarily to lower general and administrative expenses and depletion,
depreciation and amortization, a non-cash expense.
Revenues
Oil and natural gas sales for 1995 increased slightly due to an
increase in volumes sold and higher oil prices. The benefits of the higher
volumes and oil price were offset by a significant decline in the average gas
price received. A summary of oil and natural gas sales volumes and revenues for
the respective periods follows:
Summary of Oil Volumes and Revenue
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1995 1994 Change
- -------------------------------------------------------------------
<S> <C> <C> <C>
Oil revenues (in thousands) $ 333 $ 221 51%
Oil sales volume (barrels) 20,097 17,200 17%
Oil average price per barrel $ 16.57 $ 12.85 29%
- ----------------------------- ----------------------------
Summary of Natural Gas Volumes and Revenue
- -------------------------------------------------------------------
1995 1994 Change
- -------------------------------------------------------------------
Natural gas revenues (in thousands) $ 758 $ 868 (13)%
Natural gas sales volume (BCF) .490 .392 25%
Natural gas average sales price per MCF $ 1.54 $ 2.21 (30)%
- -------------------------------------------------------------------
</TABLE>
12
<PAGE>
On an equivalent unit basis (one barrel of oil equals six MCF of
natural gas on a heating value basis), natural gas represents 80% of TGX's 1995
oil and natural gas production volumes and 69% of oil and natural gas revenues.
Due to the Company's production being heavily weighted toward gas, its revenues
and cash flow is significantly influenced by changes in gas prices. During the
first quarter of 1995, average gas prices declined by approximately $0.67 per
Mcf or 30% from the March 31, 1994 average price of $2.21. Continued low gas
prices will significantly diminish operating results for the remainder of 1995.
Included in 1995 gas revenues is approximately $138,000 related to gas
balancing revenues. The Company records gas revenues on the net sales method and
thus revenues are recorded when received or operations merit accrual.
Natural gas gathering and treating revenues decreased by 14% to
$169,000 in 1995 compared to $196,000 in 1994. This decrease in primarily
attributable to lower throughput at the plant due to well production declines.
Costs and Expenses
Consolidated costs and expenses for 1995 decreased by $654,000 or 33%
to $1,308,000 compared to $1,962,000 for 1994. The significant decrease in
expenses was due primarily to lower general and administrative and interest
costs and a decline in depletion, depreciation and amortization costs, a non-
cash expense.
For 1995, operating expenses increased $47,000 or 9% to $562,000
compared to $515,000 for 1994. Included in 1995 and 1994 operating expenses are
workover costs totaling $122,000 and $12,000, respectively. Workover expenses
represent non-recurring operation costs implemented to enhance or increase
production. Excluding workover costs, 1995 and 1994 operating expenses totaled
$440,000 and $503,000, respectively, and represented 40% and 46% of oil and gas
sales, respectively.
Depletion, depreciation, and amortization ("DD&A') expense decreased
$288,000 or 61% to $182,000 in 1995 from $470,000 in 1994 due primarily to a
lower weighted average DD&A rate per equivalent Mcf. In the fourth quarter of
1994, management determined that as a result of the Company's improving
financial condition, including expected cash flow for 1995 and beyond, it could
fund development of its oil and gas reserves which had previously not been
classified as proved undeveloped. Accordingly, in 1994 the Company treated
these reserves as proved undeveloped for purposes of accounting estimates and
financial statement disclosure. As a result of utilizing total proved reserves
in calculating DD&A, the weighted average DD&A rate for 1995 on an equivalent
Mcf basis was $0.30 as compared to 1994's rate of $1.19. Had total proved
reserves been used in calculating DD&A in the first quarter of 1994, DD&A
expense for that period would have decreased by $183,000.
General and administrative expenses in 1995 decreased by $251,000 or
38% to $414,000 from $665,000 in 1994 primarily due to lower staff, legal and
insurance costs. The savings regarding staff are the result of the Company
implementing plans to outsource certain accounting and administrative functions.
Expense reduction savings for 1995 were partially offset by decreased
reimbursements from managed partnerships. The remaining eight partnerships are
anticipated to be liquidated by the third quarter of 1995 which will negate
current partnership reimbursements of approximately $40,000 per month. The
Company anticipates reaping additional cost savings to offset a significant
portion of any loss in partnership reimbursements.
Interest expense decreased $162,000 or 52% in 1995 to $150,000 from
$312,000 in 1994. This decrease is primarily attributable to lower bank
borrowings and interest rates. During 1995, maximum bank borrowings outstanding
were $1,150,000 resulting in a quarter end balance of $800,000. For the same
period in 1994, borrowings outstanding peaked at $19,499,000 resulting in a
quarter end balance of $8,363,000. As a result of the debt restructuring on
July 13, 1994, the Company's per annum interest rate was reduced from a high of
13% in 1994 to a floating rate of prime plus two percent or approximately 11%
13
<PAGE>
for 1995. The interest rate on the restructured BMOF non-recourse note was 10%
and interest is payable in kind through the issuance of additional notes. Also
included in 1995 interest expense is $9,000 of amortization of initial credit
facility establishment costs. These credit facility establishment fees are being
amortized over the initial term of the facility.
The accretion of the Senior Preferred redemption value, a non-cash
item, is calculated based on the interest method. Accordingly, the amount of
accretion increased by 23% to $1,133,000 for 1995 compared to $918,000 in 1994.
Pursuant to the terms of the Plan, dividends for the Senior Preferred
are calculated at 10%, compounded annually. Due to the annual compounding
factor, Preferred Stock dividends for 1995 totaled $3,356,000 compared to
$2,658,000 for 1994.
FINANCIAL CONDITION
At March 31, 1995, the Company had a working capital deficit of
$1,230,000. Pursuant to the new secured borrowing base facility, the Company
must maintain certain financial ratios including a current ratio of 1.2 to 1,
after excluding certain liabilities and making other adjustments as allowed
under the facility. After making such current ratio adjustments, the Company has
to date been in compliance with the current ratio test and other financial
ratios. The Company can give no assurance that it will be able to comply with
this or any other ratio tests as required under the new credit facility in the
future. The Company also had $4,985,000, including paid in kind interest of
$333,000, of BMOF non-recourse debt, which is secured only by NFG Litigation
proceeds, if any, received therefrom, outstanding at March 31, 1995.
The Company has certain dividend and redemption obligations related to
the Senior Preferred shares. For financial reporting purposes, the Senior
Preferred shares have both debt and equity characteristics. Accordingly, it is
not classified as a component of stockholders' equity. At March 31, 1995, the
Senior Preferred redemption value and accrued dividends were $87,292,000 and
$31,606,000, respectively. These amounts plus any additional accrued dividends
must be satisfied before any value can be attributed to the holders of Old
Preferred and Common Stock.
At March 31, 1995, the Stockholders' deficit was $48,059,000. Due to
the dividend requirements for the Senior, Junior, and Old Preferred Stock and
accretion of the redemption value of Senior Preferred, it is probable that the
Company's Stockholders' equity will remain a deficit for the foreseeable future
under the current capital structure.
LIQUIDITY AND CAPITAL RESOURCES
For 1995, the Company's cash provided by operating activities was a
deficit of $22,000 and the Company had a working capital deficit of $1,230,000.
The current quarter operating activities deficit was due to changes in working
capital and non-recurring workover costs of $122,000. The Company anticipates
improved cash flow results during the second quarter based on current product
prices and production volumes.
The July 13, 1984 debt restructuring with BMO and the establishment of
a new line of credit with Bank One (See Note 3) significantly improved the
Company's liquidity. The new credit facility has a current borrowing base of
approximately $1.8 million of which $800,000 was outstanding at current quarter
end. Though the borrowing base is reduced monthly by $56,000, availability under
the facility is deemed sufficient for current operating activities.
14
<PAGE>
Pursuant to the terms of various agreements, the Company, as a working
interest owner, is responsible for marketing its share of natural gas production
from certain properties. If the Company is unable or unwilling to market its
share of natural gas production from a property, its under-produced status is
subject to balancing with other working interest owners who have sold more than
their pro-rata share of natural gas production. On an aggregate net basis for
certain natural gas properties, it appears that the Company is substantially
under-produced and the Company is conducting negotiations to recoup or otherwise
settle its net under-produced status.
During the first quarter of 1995, the Company accrued $138,000 of gas
balancing receivables of which $49,000 was collected during the quarter and the
remaining portion is anticipated to be collected within approximately 90 days.
The Company anticipates recouping additional underproduced payments in 1995 but
can give no assurance as to its ability to recoup or otherwise settle any net
under-produced status.
Subject to the availability of cash flow for 1995, the Company's
capital expenditure budget will be substantially related to the development of
proved developed non-producing and behind pipe reserves. The Company shall also
continue to review investment opportunities to determine if asset enhancement
can be better obtained through drilling or acquisition.
The Company anticipates that continued development drilling and
workovers will maintain or increase current production volumes. In addition,
the Company is continually evaluating opportunities for acquisition of producing
properties and currently intends to pursue future production volume and reserve
base growth through acquisitions. The current cash balance, projected cash
flows from existing properties and borrowings available under the Company's
current line of credit and expected future credit facility increases are
considered adequate to fund future capital growth plans. Effective
implementation of the Company's development and acquisition plans is expected to
meet the Company's long-term operation and liquidity requirements.
In addition to the on-going oil and gas production operations, a key
factor in the Company's future will be the final resolution of the litigation
with NFG. While the Company has attempted to commence settlement negotiations
with NFG, to date no meaningful discussions have taken place. If a settlement
cannot be reached, the Company is committed to prosecuting this litigation with
every reasonable resource available to it. The outcome of the NFG Litigation,
which may be many years away if a settlement cannot be reached, could materially
affect the Company's future. Under the restructured credit agreement with BMO
(Note 3), BMO's subsidiary will be entitled to receive the initial $4,652,000 of
any settlement proceeds, plus interest, and in certain instances, after TGX has
received the same initial amount paid to BMO, be entitled to receive up to 50%
of any additional settlement proceeds. (See Note 6.)
15
<PAGE>
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
Except as set forth in Note 4 of the Notes to Consolidated Financial
Statements Unaudited included in Part I hereof, since the filing date of the
Annual Report on Form 10-K/A, there have been no substantial developments
related to the legal proceedings described therein.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) Dividends for the Senior Preferred Stock began accruing on the Effective
Date, however, as of March 31, 1995, no dividends had been declared. The
Senior Preferred Stock will receive a 10% annual compounded cash
dividend, payable quarterly, provided however, that the payment of such
dividends does not violate (i) Delaware Law which prohibits the payment
of dividends when such payment would impair the capital of the Company
or (ii) certain covenants in the Company's Credit Agreement with Bank
One, Texas N.A.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K None
16
<PAGE>
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 "hereunto duly authorized".
TGX CORPORATION
(Registrant)
Date: February 25, 1997 By: /s/ Michael A. Gerlich
-----------------------
Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 319
<SECURITIES> 0
<RECEIVABLES> 1,578
<ALLOWANCES> 373
<INVENTORY> 0
<CURRENT-ASSETS> 1,613
<PP&E> 10,585
<DEPRECIATION> 3,489
<TOTAL-ASSETS> 9,618
<CURRENT-LIABILITIES> 2,843
<BONDS> 0
49,049
438
<COMMON> 290
<OTHER-SE> (48,787)
<TOTAL-LIABILITY-AND-EQUITY> 9,618
<SALES> 1,091
<TOTAL-REVENUES> 1,264
<CGS> 562
<TOTAL-COSTS> 562
<OTHER-EXPENSES> 596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150
<INCOME-PRETAX> (44)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44)
<DISCONTINUED> 0
<EXTRAORDINARY> 118
<CHANGES> 0
<NET-INCOME> (4,415)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
