<PAGE>
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 June 30, 1995
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 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 August 29, 1995 there were 24,956,033 outstanding shares of TGX
Corporation Common Stock, $.01 par value.
<PAGE>
TGX CORPORATION
Report on Form 10-Q/A For The Quarter Ended June 30, 1995
Index
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information............................................... 1
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994........................ 2
Consolidated Statement of Operations -
Three and Six Month Periods Ended June 30, 1995 and 1994... 3
Consolidated Statement of Cash Flows -
Six Month Periods Ended June 30, 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................................................... 17
</TABLE>
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 June 30, 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 opinion of management, necessary for a fair presentation of the
Company's financial position as of June 30, 1995 and the results of its
operations and cash flows for the six month period ended June 30, 1995. Results
of operations for the six month period ended June 30, 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 recent
1996, 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
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Unaudited) Note 1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(Restated - Note 6)
June 30, December 31,
(In thousands, except for share data) 1995 1994
- -------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 276 $ 676
Accounts receivable, net 842 1,206
Accounts receivable from affiliates, net 121 504
Other current assets 114 60
- -------------------------------------------------------------------------------------
Total current assets 1,353 2,446
- -------------------------------------------------------------------------------------
Property and equipment:
Oil and natural gas properties 10,575 10,407
Other property and equipment 167 157
Accumulated depletion, depreciation and amortization (3,678) (3,307)
- -------------------------------------------------------------------------------------
Property and equipment, net 7,064 7,257
- -------------------------------------------------------------------------------------
Investment in Comite Field Plant Venture 824 878
Other assets 67 95
- -------------------------------------------------------------------------------------
Total other assets 891 973
- -------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,308 $ 10,676
=====================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities - Note 5 $ 3,171 $ 3,352
Accounts payable to affiliates - 242
Notes payable - 171
- -------------------------------------------------------------------------------------
Total current liabilities 3,171 3,765
- -------------------------------------------------------------------------------------
Long-term debt - Note 3 5,301 6,020
- -------------------------------------------------------------------------------------
Total liabilities 8,472 9,785
- -------------------------------------------------------------------------------------
Commitments and Contingencies - Note 4
Redeemable Senior Preferred Stock, 7,484,656 shares
issued, 1,244,590 shares to be issued; redemption value
$87,292 53,569 44,602
- -------------------------------------------------------------------------------------
Stockholders' deficit:
9% Cumulative Convertible Preferred stock, 300,000
shares issued plus 144,000 and 131,000 shares to
be issued for dividends, respectively 444 431
Common stock, 28,976,791 shares issued
and 24,956,033 outstanding 290 290
Additional paid-in capital 1,300 1,179
Accumulated deficit (54,767) (45,611)
- -------------------------------------------------------------------------------------
Total stockholders' deficit (52,733) (43,711)
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 9,308 $ 10,676
=====================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) Note 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(Restated - Note 6)
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands, except share data) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas production $ 695 $ 900 $ 1,662 $ 1,989
Natural gas gathering 64 112 125 179
Share of earnings of natural gas treating plant 108 71 216 200
Other, net 89 820 93 1,022
- ---------------------------------------------------------------------------------------------
956 1,903 2,096 3,390
- ---------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Operating expenses 551 429 989 944
Depletion, depreciation and amortization 189 494 371 964
General and administrative expenses 168 450 582 1,115
Exploration costs 38 - 38 -
Interest, net 139 276 289 588
- ---------------------------------------------------------------------------------------------
1,085 1,649 2,269 3,611
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY
GAIN (LOSS) (129) 254 (173) (221)
Extraordinary gain (loss) - Note 3 (25) - 93 -
- ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) (154) 254 (80) (221)
Accretion of Senior Preferred redemption value (1,193) (968) (2,326) (1,886)
Preferred stock dividends, net (3,394) (2,688) (6,750) (5,346)
- ---------------------------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON STOCK $(4,741) $(3,402) $(9,156) $(7,453)
=============================================================================================
NET LOSS PER SHARE OF COMMON STOCK $(0.19) $(0.13) $(0.36) $(0.29)
=============================================================================================
AVERAGE COMMON SHARES OUTSTANDING 25,254 25,314 25,254 25,314
=============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) Note 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(Restated - Note 6)
Six Months Ended
June 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (80) $ (221)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depletion, depreciation and amortization 371 964
Interest to be paid through issuance of additional notes 231 -
Extraordinary gain (93) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 364 214
Decrease in accounts receivable from affiliates 141 461
Decrease (increase) in other current assets (54) 26
Decrease in accounts payable and accrued expenses (183) (1,024)
- -----------------------------------------------------------------------------------
Net cash provided by operating activities 697 420
- -----------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (178) (403)
Proceeds from asset sale, net - 16,371
Decrease in other assets 109 55
- -----------------------------------------------------------------------------------
Net cash provided by (used by) investing activities (69) 16,023
- -----------------------------------------------------------------------------------
Cash flows from financing activities:
Advances pursuant to Revolving Credit Facility 200 -
Principal payments on long-term debt and notes payable (1,228) (13,904)
Payment of accrued interest and fees in default - (3,067)
- -----------------------------------------------------------------------------------
Net cash used by financing activities (1,028) (16,971)
- -----------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (400) (528)
Cash and cash equivalents at beginning of period 676 1,220
- -----------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 276 $ 692
===================================================================================
Supplemental Disclosure of Non-Cash Financing Activities:
- -----------------------------------------------------------------------------------
Forgiveness of notes payable $ 93 -
Interest to be paid through issuance of additional notes $ 231 -
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
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 Western 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 (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
approximated RV. Long-term liabilities were recorded at the present values of
amounts to be paid and the pre-
5
<PAGE>
consummation stockholders deficit was adjusted to reflect the par value of
pre-consummation equity interests.
The recorded value of the Series A Senior Preferred Stock ("Senior
Preferred) issued pursuant to the Plan was determined based on the difference
between the RV of the Company's assets less the sum of (I) the then 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 has been 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 June 30, 1995, the
redemption value and accrued dividends related to the Senior Preferred were
$87,292,000 and $36,066,000 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 (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.
6
<PAGE>
3. LONG-TERM DEBT AND NOTES PAYABLE
As of June 30, 1995 and December 31, 1994, the components of long-term debt
were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
June 30, December 31,
(Thousands of dollars) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Bank borrowings:
Revolving credit (secured) $ 200 $1,150
Non recourse note $5,101 $4,870
Less current maturities - -
- ------------------------------------------------------------------------------------------
Long-term debt $5,301 $6,020
==========================================================================================
</TABLE>
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 June 30, 1995 had a borrowing base of $2,400,000 which is
reduced by $53,000 per month and is redetermined every six months or at Bank
One's discretion. The loan is repayable over 36 months and matures on 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 June 30, 1995, but can
give no assurance that it will be able to continually meet the Bank One facility
ratios and covenants.
In conjunction with the debt restructuring, BMO released all of its liens on
the Company's BMOF Principal") of its outstanding indebtedness, including legal
transaction costs properties with the incurred by 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 " 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 the Company's note to BMO's wholly owned subsidiary, BMO Financial, Inc.
("BMOF"). Pursuant to agreement, after repayment of the outstanding 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
June 30, 1995, total accrued interest pursuant to the BMOF note was
approximately $449,000 resulting in a total BMOF debt balance of $5,101,000.
7
<PAGE>
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 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 bore interest at a rate not to exceed 8% and were secured
with certain collateral (the "Consummation Collateral"). If the proceeds related
to the Consummation Collateral were not sufficient to satisfy the Company's
obligations under the Administrative Notes the Company's excess operating funds,
if any, was to be applied toward the balances due. During the fourth 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 its 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 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. During the second quarter the Company settled
an administrative claim of $66,000 by the payment of $25,000 and issuance of
10,000 shares of Senior Preferred Stock. All other 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
settlements and claim forfeitures, the Company recorded an extraordinary loss in
the second quarter of $25,000 resulting in an extraordinary net gain for the
current six months of $93,000. As a result of the Administrative Note
settlements, all Consummation Collateral was released to the Company.
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.
8
<PAGE>
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
future amount due to TGX from During the Reorganization Proceeding, TGX filed an
adversary proceeding (the "Turnover NFG, if any.
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 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. the requested
hearing. In May 1995, the PSC 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.
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 $24,651,000 as of June 30, 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, 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 July 1995 the
Magistrate issued a scheduling order regarding all pre-trial discovery.
9
<PAGE>
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 pre-petition 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. TGX is considering whether or not
to appeal the Bankruptcy Court decision.
On May 31, 1995, the Company entered into a Settlement Agreement among
itself, Paragon Resources, Inc., J. C. Templeton, W. M. Templeton and a number
of other former directors of the Company, trusts on behalf of members of the
Templeton family and other entities pursuant to which all lawsuits between and
among the parties were dismissed with prejudice. In consideration therefore, the
Company received $325,000, an assignment of certain oil and gas leases, and
receipt of past due joint operating expenses payable by certain of the
defendants. The Company released lis pendens against certain of the defendants'
properties and conveyed to the defendants an interest in certain properties to
which they were entitled. The parties to the litigation also conveyed to the
Company any Common Stock or Preferred Stock which they held.
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 June 30, 1995 and December 1994, the primary components of accounts
payable and accrued liabilities were (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accounts payable $ 163 $ 489
Undistributed net oil and natural gas revenue 1,346 1,069
Accrued interest and fees - 32
Accrued prepetition liabilities 829 934
Accrued operating and tax expenses 220 252
Miscellaneous accruals 613 576
------ ------
$3,171 $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>
June 30, 1995 December 31, 1994
------------- -----------------
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited)
BALANCE SHEET
Total current liabilities $ 3,334 3,171 $ 3,928 $ 3,765
Long-term debt 200 5,301 1,150 6,020
Accumulated deficit (49,829) (54,767) (40,904) (45,611)
Total stockholders' deficit (47,795) (52,733) (39,004) (43,711)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
Reported Restated Reported Restated Reported Restated Reported Restated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (Unaudited)
Interest expense $ 23 $ 139 $ 276 $ 276 $ 58 $ 289 $ 588 $ 588
Net loss applicable to (4,625) (4,741) (3,402) (3,402) (8,925) (9,156) (7,453) (7,453)
common stock
Net loss per share of (0.18) (0.19) (0.13) (0.13) (0.35) (0.36) (0.29) (0.29)
common stock
</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
Six Months Ended June 30, 1995 ("1995") Compared to June 30, 1994 ("1994")
- --------------------------------------------------------------------------
Following is a comparison of operating activity (amounts in thousands):
<TABLE>
<CAPTION>
Change
------
1995 1994 $ %
---- ---- - -
<S> <C> <C> <C> <C>
Oil and natural gas revenues $ 1,662 $ 1,989 $(327) (16)%
Natural gas gathering and treating 341 379 (38) (10)%
Other, net 93 1,022 (929) (91)%
Operating and exploration expenses (1,027) (944) 83 9 %
Depletion, depreciation and (371) (964) (593) (62)%
amortization
General and administrative expenses (582) (1,115) (533) (48)%
---------------------------------
Operating income $ 116 $ 367 $(251) (68%)
=================================
</TABLE>
Revenues
- --------
Oil and natural gas revenues for 1995 decreased $327,000 primarily due to
significantly lower average gas prices received. The impact of lower gas prices
was partially offset by higher oil prices and a slight increase in natural gas
volumes sold during 1995. A summary of oil and natural gas sales volumes and
revenues for the respective periods follows:
12
<PAGE>
Summary of Oil Volumes and Revenue
<TABLE>
<CAPTION>
- --------------------------------------------------------
1995 1994 Change
- --------------------------------------------------------
<S> <C> <C> <C>
Oil revenues (in thousands) $ 561 $ 465 21%
Oil sales volume (barrels) 31,630 32,344 (2)%
Oil average price per barrel $ 17.74 $ 14.38 23%
- --------------------------------------------------------
</TABLE>
Summary of Natural Gas Volumes and Revenue
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1995 1994 Change
- ------------------------------------------------------------------
<S> <C> <C> <C>
Natural gas revenues (in thousands) $1,101 1,524 (28)%
Natural gas sales volume (BCF) .748 .731 2%
Natural gas average sales price per Mcf $ 1.47 $ 2.08 (29)%
- ------------------------------------------------------------------
</TABLE>
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 66% 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
half of 1995, average gas prices declined by approximately $0.61 per Mcf from
the June 30, 1994 average price of $2.08. The 29% decrease in average 1995 gas
prices resulted in $456,000 of lower gas revenues, which was partially offset by
higher gas sales volume. Continued low gas prices will significantly diminish
operating results for the remainder of 1995.
Included in 1995 gas revenues is approximately $138,000 of 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 $38,000 or 10% to
$341,000 in 1995 compared to $379,000 in 1994. This decrease in primarily
attributable to lower throughput at the plant due to well production declines
and lower fee rates.
Other revenues for 1995 and 1994 represent primarily the gain related to
certain oil and gas property sales. During 1994, the Company was actively
liquidating certain managed partnership assets and other non-strategic assets
and such activity yielded significant financial benefit in the prior year. The
Company plans to liquidate eight remaining managed partnerships in 1995, but any
future benefit from such sales will be minimal due to the Company's small
ownership.
Costs and Expenses
- ------------------
Consolidated costs and expenses for 1995 decreased by $1,342,000 or 37% to
$2,269,000 compared to $3,611,000 for 1994. The significant decrease in expenses
was due primarily to lower general and administrative and interest expenses and
a decline in depletion, depreciation and amortization cost, a non-cash expense.
13
<PAGE>
For 1995, operating expenses increased $45,000 or 5% to $989,000 compared
to $944,000 for 1994. Included in 1995 and 1994 operating expenses are workover
costs totaling $193,000 and $15,000, respectively. Workover expenses represent
non-recurring operation costs implemented to enhance or increase production.
Also, in 1995 the Company incurred exploration costs of approximately $38,000.
Pursuant to successful efforts reporting, unsuccessful exploration costs are
expensed as opposed to capitalized. Excluding workover and exploration costs,
1995 and 1994 operating expenses totaled $758,000 and $929,000, respectively,
and represented 46% and 47% of oil and natural gas revenues, respectively.
Depletion, depreciation, and amortization ("DD&A") expense decreased
$593,000 or 62% to $371,000 in 1995 from $964,000 in 1994 due primarily to a As
a result of utilizing total proved reserves in calculating 1995 DD&A, the
weighted 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 the Company treated these
reserves as proved undeveloped for purposes of accounting estimates and
financial disclosures. As a result of utilizing total proved reserves in
calculating 1995 DD&A, the weighted average DD&A rate for 1995 was $0.41 as
compared to 1994's rate of $1.24. Had totaled proved reserves been used in
calculating DD&A in the first half of 1994, DD&A expense for that period would
have decreased by $376,000.
General and administrative expenses in 1995 decreased by $533,000 or 48% to
$582,000 from $100,000 of $1,115,000 in 1994 primarily due to a one time
recoupment of previously allowed for receivables and lower staff costs. As
discussed in Note 4, the Company received as settlement of litigation a
combination of cash and properties totaling approximately $425,000. The $325,000
of cash and the estimated fair market value properties received were deemed as a
recoupment of previously allowed for receivables totaling approximately
$2,027,000 and thus was credited against general and administrative expenses.
General and administrative expenses for 1994, reflected a similar accounts
receivable allowance recoupment of approximately $242,000.
The Company also realized general and administrative savings in the area of
staff costs due to outsourcing of certain accounting functions. Staff costs net
savings (after outsourcing expenses) to date for 1995 has been approximately
$215,000. Total expense reduction savings for 1995 were partially offset by a
decrease in reimbursements from managed partnerships of approximately $135,000
to a current year total of $241,000. The net decrease in partnership
reimbursements was due to the liquidation of approximately 17 partnerships in
late 1994. The remaining eight (8) managed partnerships are anticipated to be
liquidated by the third quarter of 1995, which will negate current partnership
reimbursements of approximately $40,000 per month.
Interest expense decreased $299,000 or 51% in 1995 to $289,000 from
$588,000 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 current quarter end balance of $200,000. For the
same period in 1994, borrowings outstanding peaked at $19,499,000 resulting in a
quarter end balance of $5,823,000. As a result of the debt restructuring on
July 13, 1994, the Company's per annum bank interest rate was reduced from a
high of 13% in 1994 to a floating rate of prime plus two percent or
approximately 11% for 1995. The interest rate on the restructured BMOF non-
recourse notes was 10% and interest is payable in kind through the issuance of
additional BMOF notes. Also, included in 1995 interest expense is $18,000 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 $2,326,000 for 1995 compared to $1,886,000 in 1994.
14
<PAGE>
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 $6,616,000 as compared to $5,212,000
for 1994. Dividends on the Old Preferred stock were $134,000 for 1995 and 1994.
FINANCIAL CONDITION
-------------------
For 1995, the Company's capitalized expenditures totaled approximately
$178,000, of which $100,000 related to properties received as a result of
litigation settlement. The Company also incurred workover and dry hole
exploration costs of $193,000 and $38,000, respectively.
At June 30, 1995, the Company had a working capital deficit of $1,818,000
which included $829,000 of various pre-petition obligations. Based on current
borrowing availability and projected 1995 activity, capital resources are deemed
sufficient for current operating needs.
The Bank One credit facility had borrowings outstanding of $200,000 at
June 30, 1995 and a borrowing base of $2,300,000. Pursuant to the Bank One
secured borrowing base facility, the Company must maintain certain financial
ratios including a current ratio of 1 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 the current ratio test or any other ratio
tests as required under the new credit facility. The Company also had
$5,101,000, including paid in kind interest of $449,000, of BMOF non-recourse
debt, which is secured only by NFG Litigation proceeds, if any, received
therefrom, outstanding at June 30, 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 June 30, 1995, the Senior
Preferred redemption value and accrued dividends were $87,292,000 and
$36,066,000, respectively. These amounts plus any additional accrued dividends,
must be paid before any value can be attributed to the holders of Old Preferred
and Common Stock.
At June 30, 1994, the stockholders' deficit was $52,733,000. 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 $697,000.
At June 30, 1995, the current operating activities cash flow was benefited by a
one-time litigation settlement of $425,000. The Company had a working capital
deficit of $1,818,000 at current quarter end.
The July 13, 1994 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
$2.3 million of which $200,000 was outstanding at June 30, 1995. Though the
borrowing base is reduced monthly by approximately $53,000, availability under
the facility is deemed sufficient for current operating activities.
15
<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 that quarter and the remaining portion is anticipated to be
collected before year end.
The Company anticipates recouping additional under-produced payments in 1995
but can give no assurance as to its ability to recoup or otherwise settle any
net under-produced status and thus no accruals are reflected in the financial
statements.
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 (see Note 4). Under the restructured credit
agreement with BMO (see 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.)
16
<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 June 30, 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
Employment Agreement dated April 1, 1995 between the Company and
Larry H. Carpenter. (Filed with original 10-Q filing).
(b) Reports on Form 8-K - None
17
<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 thereunto duly authorized.
TGX CORPORATION
(Registrant)
Date: February 25, 1997 By: /s/ Michael A. Gerlich
------------------------
Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 276
<SECURITIES> 0
<RECEIVABLES> 1,321
<ALLOWANCES> 358
<INVENTORY> 0
<CURRENT-ASSETS> 1,353
<PP&E> 10,742
<DEPRECIATION> 3,678
<TOTAL-ASSETS> 9,308
<CURRENT-LIABILITIES> 3,171
<BONDS> 0
53,569
444
<COMMON> 290
<OTHER-SE> (53,467)
<TOTAL-LIABILITY-AND-EQUITY> 9,308
<SALES> 1,662
<TOTAL-REVENUES> 2,096
<CGS> 989
<TOTAL-COSTS> 989
<OTHER-EXPENSES> 991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> (173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (173)
<DISCONTINUED> 0
<EXTRAORDINARY> 93
<CHANGES> 0
<NET-INCOME> (9,156)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
