<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1999
Commission File Number 0-23580
----------------------
TRANSTEXAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0401023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 310
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip Code)
(281) 987-8600
(Registrant's telephone number, including area code)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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
--- ---
The number of shares of common stock of the registrant outstanding on
December 15, 1999 was 57,515,566.
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<PAGE> 2
TRANSTEXAS GAS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I.
FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Report of Independent Accountants........................................................ 2
Condensed Consolidated Balance Sheet as of October 31, 1999 and January 31, 1999......... 3
Condensed Consolidated Statement of Operations for the three and nine months ended
October 31, 1999 and 1998.......................................................... 4
Condensed Consolidated Statement of Cash Flows for the nine months ended
October 31, 1999 and 1998.......................................................... 5
Notes to Condensed Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ................................................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 20
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 21
Item 6. Exhibits and Reports on Form 8-K......................................................... 21
Signature......................................................................................... 22
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of TransTexas Gas Corporation
We have reviewed the accompanying condensed consolidated balance sheet
of TransTexas Gas Corporation (debtor-in-possession) as of October 31, 1999, the
related condensed consolidated statements of operations for the three and nine
months ended October 31, 1999 and 1998 and of cash flows for the nine months
ended October 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of January 31, 1999, and
the related consolidated statements of operations, of stockholders' equity
(deficit), and of cash flows for the year then ended (not presented herein); and
in our report dated May 20, 1999, which contains an explanatory paragraph
regarding the Company's ability to continue as a going concern, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Houston, Texas
December 15, 1999
2
<PAGE> 4
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 15,655 $ 3,775
Accounts receivable ......................................................... 28,974 16,091
Receivable from affiliates .................................................. 1,117 1,286
Inventories ................................................................. 2,480 3,210
Other current assets ........................................................ 4,562 3,693
----------- -----------
Total current assets ................................................... 52,788 28,055
----------- -----------
Property and equipment ......................................................... 1,485,811 1,459,630
Less accumulated depreciation, depletion and amortization ...................... 1,220,246 1,167,487
----------- -----------
Net property and equipment -- based on the full cost method of accounting
for gas and oil properties of which $19,782 and $20,477 was excluded
from amortization at October 31, 1999 and January 31, 1999 respectively ... 265,565 292,143
----------- -----------
Other assets, net .............................................................. 22,999 25,169
----------- -----------
$ 341,352 $ 345,367
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable ................................................................ $ 30,000 $ --
Revolving credit agreement .................................................. 3,510 --
Accounts payable ............................................................ 6,886 --
Accrued liabilities ......................................................... 8,664 983
----------- -----------
Total current liabilities .............................................. 49,060 983
----------- -----------
Production payments, less current portion ...................................... 41,047 56,260
Liabilities subject to compromise (Note 2) ..................................... 726,694 718,139
Commitments and contingencies (Note 3) ......................................... -- --
Stockholders' deficit:
Common stock, $0.01 par value, 100,000,000
shares authorized, 57,515,566 shares issued and outstanding
at October 31, 1999 and January 31, 1999 ................................... 740 740
Additional paid-in capital .................................................. 20,615 19,915
Accumulated deficit ......................................................... (234,399) (188,265)
----------- -----------
(213,044) (167,610)
Treasury stock, at cost, 16,484,434 shares .................................. (262,405) (262,405)
----------- -----------
Total stockholders' deficit ............................................ (475,449) (430,015)
----------- -----------
$ 341,352 $ 345,367
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Gas, condensate and natural gas liquids ....... $ 28,763 $ 27,213 $ 75,252 $ 67,081
Gain (loss) on the sale of assets ............. (7) 5,813 (538) 65,833
Other ......................................... 649 (233) 2,329 4,785
------------ ------------ ------------ ------------
Total revenues .............................. 29,405 32,793 77,043 137,699
------------ ------------ ------------ ------------
Costs and expenses:
Operating ..................................... 3,538 4,521 15,080 17,094
Depreciation, depletion and amortization ...... 17,837 19,493 53,877 45,209
General and administrative .................... 3,468 4,209 15,274 15,986
Taxes other than income taxes ................. 2,073 2,345 6,183 5,795
Impairment loss ............................... -- 164,899 -- 186,742
------------ ------------ ------------ ------------
Total costs and expenses .................... 26,916 195,467 90,414 270,826
------------ ------------ ------------ ------------
Operating income (loss) ..................... 2,489 (162,674) (13,371) (133,127)
------------ ------------ ------------ ------------
Other income (expense):
Interest income ............................... 153 105 289 1,132
Interest expense, net ......................... (3,247) (20,593) (27,966) (61,117)
------------ ------------ ------------ ------------
Total other income (expense) ................ (3,094) (20,488) (27,677) (59,985)
------------ ------------ ------------ ------------
Loss before reorganization items,
income taxes and extraordinary item ...... (605) (183,162) (41,048) (193,112)
Reorganization items ............................. (4,167) -- (5,086) --
Income tax benefit ............................... -- (35,399) -- (38,882)
------------ ------------ ------------ ------------
Loss before extraordinary item .............. (4,772) (147,763) (46,134) (154,230)
Extraordinary item - early extinguishment
of debt (net of income tax benefit) ......... -- -- -- (1,142)
------------ ------------ ------------ ------------
Net loss .................................... $ (4,772) $ (147,763) $ (46,134) (155,372)
============ ============ ============ ============
Basic and diluted net loss per share:
Loss before extraordinary item .............. $ (0.08) $ (2.57) $ (0.80) $ (2.68)
Extraordinary item .......................... -- -- -- (0.02)
------------ ------------ ------------ ------------
Basic and diluted net loss per share ..... $ (0.08) $ (2.57) $ (0.80) $ (2.70)
============ ============ ============ ============
Weighted average number of shares outstanding
for basic and diluted net loss per share ....... 57,515,566 57,515,566 57,515,566 57,515,566
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net loss ..................................................... $ (46,134) $(155,372)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item ........................................ -- 1,142
Depreciation, depletion and amortization .................. 53,877 45,209
Impairment loss ........................................... -- 186,742
Amortization of debt issue costs .......................... 1,655 3,904
(Gain) loss on the sale of assets ......................... 538 (65,833)
Deferred income taxes ..................................... -- (38,882)
Changes in assets and liabilities:
Accounts receivable ..................................... (12,883) (3,041)
Receivable from affiliates .............................. 169 --
Inventories ............................................. 730 7,079
Other current assets .................................... (869) 5,933
Accounts payable ........................................ 2,699 17,614
Accrued interest payable to affiliates .................. 14,629 13,010
Accrued liabilities ..................................... (867) 5,582
Transactions with affiliates, net ....................... 700 (7,944)
Other assets ............................................ 394 568
Other liabilities ....................................... (1,796) (1,147)
--------- ---------
Net cash provided by operating activities ............ 12,842 14,564
--------- ---------
Investing activities:
Capital expenditures ......................................... (20,310) (182,085)
Proceeds from the sale of assets ............................. 556 135,110
--------- ---------
Net cash used by investing activities ................ (19,754) (46,975)
--------- ---------
Financing activities:
Issuance of production payments .............................. -- 62,214
Principal payments on production payments .................... (12,958) (9,205)
Issuance of note payable to affiliate ........................ -- 13,748
Principal payment on note payable to affiliate ............... (1,093) (48,206)
Issuance of note payable ..................................... 30,000 --
Issuance of long-term debt ................................... -- 14,000
Principal payments on long-term debt ......................... (322) (33,171)
Revolving credit agreement, net .............................. 3,165 (2,867)
Debt issue costs ............................................. -- 9
--------- ---------
Net cash provided (used) by financing activities ..... 18,792 (3,478)
--------- ---------
Increase (decrease) in cash and cash equivalents ..... 11,880 (35,889)
Beginning cash and cash equivalents ............................. 3,775 38,502
--------- ---------
Ending cash and cash equivalents ................................ $ 15,655 $ 2,613
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 7
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made that are necessary to fairly state the
financial position of TransTexas Gas Corporation ("TransTexas" or the "Company")
as of October 31, 1999 and the results of its operations and cash flows for the
interim periods ended October 31, 1999 and 1998. The condensed consolidated
balance sheet as of January 31, 1999 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The results of operations for interim periods should not
be regarded as necessarily indicative of results that may be expected for the
entire year. The financial information presented herein should be read in
conjunction with the consolidated financial statements and notes included in
TransTexas' annual report on Form 10-K for the year ended January 31, 1999.
Unless otherwise noted, the terms "TransTexas" and the "Company" refer to
TransTexas Gas Corporation and its subsidiaries, including Galveston Bay
Processing Corporation ("Galveston Bay Processing") and Galveston Bay Pipeline
Company ("Galveston Bay Pipeline"). TransTexas is a subsidiary of TransAmerican
Energy Corporation ("TEC"), which is an indirect subsidiary of TransAmerican
Natural Gas Corporation ("TransAmerican"). TransAmerican Refining Corporation
("TARC") is a wholly owned subsidiary of TEC.
2. CHAPTER 11 FILING AND LIQUIDITY
On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20, 1999, TEC and TARC also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
United States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division (the "Bankruptcy Court"). The bankruptcy cases are being
jointly administered. See Note 3. TransTexas, TEC and TARC are operating their
businesses and managing their properties as debtors-in-possession. TransTexas'
Chapter 11 filing does not include its subsidiaries, including Galveston Bay
Processing and Galveston Bay Pipeline. See Note 6 for summarized financial
information of TransTexas' subsidiaries. As a result of the Chapter 11 filings,
absent approval from the Bankruptcy Court, the Company is prohibited from
paying, and creditors are prohibited from attempting to collect, claims or debts
arising prior to the bankruptcy.
Pursuant to a Credit Agreement (the "DIP Facility") dated April 27, 1999
among TransTexas, as Borrower, various financial institutions, as Lenders,
Credit Suisse First Boston Management Corporation, as Administrative Agent, and
TEC and TARC, as Guarantors, the Lenders have agreed to provide $30 million in
postpetition financing to the Company. As of October 31, 1999, outstanding
advances under the DIP Facility totaled $30 million and bear interest at the
rate of 13% per annum. TransTexas' obligations are guaranteed by TEC and TARC
and are secured by a first priority senior priming lien (subject to certain
exceptions) on all property of TransTexas, TEC and TARC. Amounts outstanding
under the DIP Facility will mature on the earlier of January 10, 2000 or the
effective date of a plan of reorganization. The maturity date may be extended by
the Lenders under the DIP Facility; however, there is no assurance that an
extension, if needed, will be granted.
TransTexas finances a portion of its working capital needs through a
postpetition revolving credit facility. See Note 4.
The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. On September 29,
1999, the Company filed its Second Amended Plan of Reorganization with the
Bankruptcy Court. The Company's Plan of Reorganization, as amended, is referred
to herein as the "Plan." The Plan sets forth TransTexas' proposal for satisfying
claims, including liabilities subject to compromise, and interests in the
Company. The Plan will likely result in, among other things, material dilution
or elimination of the interests of existing security holders.
6
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TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Consummation of the Plan will require approval of the Bankruptcy Court. A
hearing on confirmation of the Plan commenced on November 9, 1999 and is
continuing. There can be no assurance that the terms of the Plan will not be
modified prior to approval or that the Plan will be approved.
As a result of the bankruptcy filing, a significant amount of the
Company's liabilities, including secured debt, are subject to compromise. As of
October 31, 1999 and January 31, 1999, liabilities subject to compromise
included the following (in thousands of dollars):
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
---------- ----------
<S> <C> <C>
Long-term debt ......................... $ 124,554 $ 125,170
Notes payable to affiliates ............ 456,835 457,928
Accounts payable ....................... 69,955 66,231
Accrued interest payable to affiliates . 23,242 8,613
Accrued liabilities .................... 38,668 44,961
Other liabilities ...................... 13,440 15,236
---------- ----------
$ 726,694 $ 718,139
========== ==========
</TABLE>
As of the petition date, in accordance with current accounting
pronouncements applicable to companies operating under Chapter 11, TransTexas
discontinued the accrual of interest and amortization of deferred debt issue
costs related to liabilities subject to compromise. If such interest had
continued to be accrued, based on contractual terms without increase for default
provisions, and related deferred debt issue costs continued to be amortized,
interest expense for the three and nine months ended October 31, 1999 would have
increased approximately $18.4 million and $37.2 million, respectively.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. As a
result of the bankruptcy filing and related events, there is no assurance that
the carrying amounts of assets will be realized or that liabilities will be
liquidated or settled for the amounts recorded. In addition, confirmation of a
plan of reorganization, or rejection thereof, could change the amounts reported
in the financial statements. As a result, there is substantial doubt about the
Company's ability to continue as a going concern. The ability of TransTexas to
continue as a going concern is dependent upon confirmation of a plan of
reorganization, availability of adequate sources of capital and the ability to
sustain positive results of operations and cash flows sufficient to continue to
explore for and develop gas and oil reserves.
In the ordinary course of business, TransTexas makes substantial capital
expenditures for the exploration and development of natural gas and oil
reserves. TransTexas historically has financed its capital expenditures, debt
service and working capital requirements with cash flow from operations, public
and private offerings of debt and equity securities, the sale of production
payments, asset sales, an accounts receivable revolving credit facility and
other financings. Cash flow from operations is sensitive to the prices
TransTexas receives for its natural gas and oil. A reduction in planned capital
spending or an extended decline in gas and oil prices could result in less than
anticipated cash flow from operations in fiscal year 2000 and later years, which
could have a material adverse effect on TransTexas.
Management's plans are to continue to incur capital expenditures with the
goal of increasing production and reserves. To finance these planned capital
expenditures, TransTexas will be required to supplement its anticipated cash
flow from operations with a combination of asset sales, financings or other
capital-raising transactions. The ability to incur capital expenditures, sell
properties and obtain additional financing is subject to the approval and
ongoing supervision of the Bankruptcy Court, as well as the approval of the
lenders under the DIP Facility or, if subsequent to
7
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TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
confirmation of the Plan, the postconfirmation lenders. There is no assurance
that adequate funds can be obtained on a timely basis or that the Bankruptcy
Court will approve such transactions.
3. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Chapter 11 Bankruptcy. On April 19, 1999 (the "Petition Date"), TransTexas
filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware. On
April 20, 1999, TEC and TARC also filed voluntary petitions under Chapter 11. On
May 20, 1999, the cases were transferred to the United States Bankruptcy Court
for the Southern District of Texas, Corpus Christi Division. The bankruptcy
cases are being jointly administered under the caption "In re: TransTexas Gas
Corporation, et al., Debtors," Case No. 99-21550-C-11. TransTexas filed a Plan
of Reorganization with the Bankruptcy Court on July 16, 1999. A first amended
Plan was filed on July 23, 1999 and a second amended Plan was filed on September
29, 1999. The Debtors filed a Joint Disclosure Statement with the Bankruptcy
Court on August 13, 1999. A first amended Disclosure Statement was filed with
and approved by the Bankruptcy Court on September 29, 1999. A hearing on
confirmation of the Plan commenced on November 9, 1999 and is continuing.
Arabian Offshore Partners. On June 27, 1997, Arabian Offshore Partners
filed a lawsuit against TransTexas in the 14th Judicial District Court, Dallas
County, Texas, seeking $20 million in damages in connection with TransTexas'
refusal to proceed with the acquisition of two jack-up drilling rigs.
TransTexas' motion for summary judgment was granted on January 13, 1998. The
plaintiffs have appealed. This matter is stayed as a result of the Company's
Chapter 11 filing.
Blue Gulf. On July 14, 1998, Blue Gulf Seafood, an owner of oyster leases,
sued TransTexas in the U. S. District Court, Southern District of Texas,
Galveston Division. Blue Gulf is claiming damages in excess of $5 million as a
result of alleged economic injury to its oyster beds caused by TransTexas'
drilling and development activities in the Eagle Point Prospect in Galveston
Bay. In October 1998, TransTexas obtained a final judgment in its favor,
principally on the grounds that Blue Gulf lacked standing. Blue Gulf has
appealed. Blue Gulf's motion for relief from stay was denied; therefore, this
matter is stayed as a result of the Company's Chapter 11 filing.
Finkelstein. On April 22, 1991, Finkelstein filed a suit against
TransAmerican and various affiliates in the 49th Judicial District Court, Zapata
County, Texas, alleging an improper calculation of overriding royalties
allegedly owed to the plaintiff and seeking damages and attorneys' fees in
excess of $33.7 million. On November 18, 1993, the plaintiff added TransTexas as
an additional defendant. The parties arbitrated this matter in January 1997. In
May 1998, the arbitration panel awarded $13 million to plaintiff, and plaintiff
subsequently obtained a judgment against TransTexas for the awarded amount. The
parties entered into a settlement agreement, which called for payment over a
24-month period. Enforcement of the judgment and settlement agreement is stayed
as a result of the Company's Chapter 11 filing.
Hein Minerals. On April 3, 1998, Henry and Luz A. Hein Minerals, L.C.
("Hein") filed suit in the 49th Judicial District Court, Zapata County, Texas,
against TransAmerican, TransTexas, TransTexas Transmission Corporation ("TTC")
and Conoco, Inc. Plaintiff alleges that a 1990 mineral lease from plaintiffs to
TransAmerican, comprising approximately 2,000 acres, was breached by failure to
release certain acreage from the lease. Plaintiff alleges trespass, tortious
interference, conversion, fraud, breach of fiduciary duty, breach of contract,
conversion and slander of title, and claim damages including $10 per day per
acre that was not released. On April 29, 1999, TransTexas removed the case to
the United States Bankruptcy Court for the Southern District of Texas, Laredo
Division. On May 28, 1999, plaintiffs filed a motion to remand the case to the
49th Judicial District Court, Zapata County, Texas. TransTexas intends to
vigorously defend against these claims.
8
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TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Zurich. On May 5, 1998, The Home Insurance Company and Zurich Insurance
Company filed suit against TransTexas in the United States District Court,
Southern District of New York, to enforce an arbitration award of approximately
$7.25 million relating to additional collateral for payments under workers'
compensation policies. In January 1999, the court entered a judgment in favor of
Zurich and Home, confirming the arbitration award. Zurich has also, by notice
dated November 25, 1998, filed a second arbitration against TransAmerican with
respect to its attempt to satisfy a disputed premium payment of approximately
$4.2 million. Zurich has also made claims on collateral to cover unpaid loss
billings of over $1 million. Although Zurich's notice of arbitration names only
TransAmerican, TransTexas has provided significant collateral to Zurich and
objected to any draw on its collateral. The Bankruptcy Court has ruled that the
stay be lifted and arbitration proceed to determine amounts due under certain
specified policy years.
Vendor Claims. Numerous suppliers of goods and services have filed or
asserted liens against property of the Company and Galveston Bay Processing to
secure the payment of invoices which are included in liabilities subject to
compromise. Many of these vendors have also filed collection suits against the
Company and Galveston Bay Processing and/or suits to enforce their liens. These
matters, with respect to the Company, are stayed as a result of the Company's
Chapter 11 filing. The amount of claims as to which liens have been asserted or
filed against property of the Company and its subsidiaries, including Galveston
Bay Processing, was approximately $37.3 million as of December 7, 1999. Of
this amount, approximately $3.5 million in liens have been filed against
property of Galveston Bay Processing and approximately $1.8 million in liens
have been filed against property of Galveston Bay Pipeline.
Royalty Claims. Numerous royalty owners have made claims and filed suits
against the Company for payment of unpaid prepetition royalties under mineral
leases and other agreements. These matters are stayed as a result of the
Company's Chapter 11 filing. Unpaid prepetition royalties totaled approximately
$9.4 million at October 31, 1999. This amount is included in liabilities subject
to compromise.
General. The resolution in any reporting period of one or more of the
foregoing matters in a manner adverse to TransTexas could have a material
adverse effect on TransTexas' results of operations and cash flows for that
period. TransTexas is also a named defendant in other ordinary course, routine
litigation incidental to its business. Although the outcome of these other
lawsuits cannot be predicted with certainty, TransTexas does not expect these
matters to have a material adverse effect on its financial position. At October
31, 1999, the possible range of estimated losses related to litigation claims,
in addition to the estimates accrued by TransTexas, is $0 to $20 million.
Environmental Matters
TransTexas' operations and properties are subject to extensive federal,
state, and local laws and regulations relating to the generation, storage,
handling, emission, transportation, and discharge of materials into the
environment. Permits are required for various of TransTexas' operations, and
these permits are subject to revocation, modification, and renewal by issuing
authorities. TransTexas also is subject to federal, state, and local laws and
regulations that impose liability for the cleanup or remediation of property
which has been contaminated by the discharge or release of hazardous materials
or wastes into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines
or injunctions, or both. Certain aspects of TransTexas' operations may not be in
compliance with applicable environmental laws and regulations, and such
noncompliance may give rise to compliance costs and administrative penalties. It
is not anticipated that TransTexas will be required in the near future to expend
amounts that are material to the financial condition or operations of TransTexas
by reason of environmental laws and regulations, but because such laws and
regulations are frequently changed and, as a result, may impose increasingly
strict requirements, TransTexas is unable to predict the ultimate cost of
complying with such laws and regulations.
9
<PAGE> 11
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Gas Sales and Delivery Commitments
In January 1997, TransTexas and Koch Energy Trading Inc. entered into a
gas purchase contract pursuant to which TransTexas was required to deliver
25,000 MMBtu per day to a specified delivery point. On August 10, 1999, the
Company obtained Bankruptcy Court approval to reject this contract.
As of October 31, 1999, TransTexas had delivery commitments for an
aggregate of approximately 125 MMcf of natural gas per day pursuant to certain
contracts. These contracts require TransTexas to pay certain charges if it does
not deliver the specified quantities. Such charges, which are included in
operating costs and expenses, totaled $0.8 million for the three months ended
October 31, 1998, and approximately $1.0 million and $1.1 million for the nine
months ended October 31, 1999 and 1998, respectively. Such charges were nominal
for the three months ended October 31, 1999. The Company expects to obtain
Bankruptcy Court approval to reject these contracts.
Pursuant to the Bankruptcy Code, the Company has the right to assume or
reject executory contracts. As of December 7, 1999, the Company had obtained
Bankruptcy Court approval to reject 13 contracts.
Lobo Sale
Pursuant to the Lobo Sale Agreement, TransTexas is required to indemnify
the buyer for certain liabilities related to the assets previously owned by a
former subsidiary. Although TransTexas does not anticipate that it will incur
any material indemnity liability with respect to the Lobo Sale Agreement, no
assurance can be given that TransTexas will not incur such indemnity liability.
Potential Tax Liabilities
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and a contingent
liability for interest of $102 million owed by TransAmerican. TransAmerican has
taken the federal tax position that the entire amount of this debt cancellation
is excluded from its income under the cancellation of indebtedness provisions
(the "COD Exclusion") of the Internal Revenue Code of 1986, as amended, and has
reduced its tax attributes (including its net operating loss and credit
carryforwards) as a consequence of the COD Exclusion. No federal tax opinion was
rendered with respect to this transaction, however, and TransAmerican has not
obtained a ruling from the IRS regarding this transaction. TransTexas believes
that there is substantial legal authority to support the position that the COD
Exclusion applies to the cancellation of TransAmerican's indebtedness. However,
due to factual and legal uncertainties, there can be no assurance that the IRS
will not challenge this position, or that such challenge would not be upheld.
Under an agreement between TNGC Holdings Corporation, the sole stockholder of
TransAmerican ("TNGC"), TransAmerican and its existing subsidiaries, including
TARC, TEC and TransTexas (the "Tax Allocation Agreement"), TransTexas has agreed
to pay an amount equal to any federal tax liability (which would be
approximately $25.4 million) attributable to the inapplicability of the COD
Exclusion. Any such tax could be offset in subsequent years by alternative
minimum tax credits and retained loss and credit carryforwards to the extent
recoverable from TransAmerican. As a member of the TNGC Consolidated Group
(defined below), each of TransTexas, TEC and TARC will be severally liable for
any tax liability resulting from the above-described transactions. The IRS has
commenced an audit of the consolidated federal income tax returns of the TNGC
Consolidated Group for its taxable years ended July 31, 1995 and 1994. At this
time, it is not possible to predict the scope of the IRS' review or whether any
tax deficiencies will be proposed by the IRS as a result of its review.
TransTexas is required, under the Tax Allocation Agreement, to pay any
Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to prior year transactions by any member of the TNGC Consolidated
Group. As of October 31, 1999, TransTexas had paid $9.6 million of these
franchise taxes.
10
<PAGE> 12
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Based in part upon independent legal advice, TransTexas determined that it
was not required to report any significant federal income tax liability as a
result of the Lobo Sale. There are, however, significant uncertainties regarding
TransTexas' tax position and no assurance can be given that its position will be
sustained if challenged by the IRS. TransTexas is part of an affiliated group
for tax purposes (the "TNGC Consolidated Group"), which also includes TNGC,
TransAmerican, TEC and TARC. No letter ruling has been or will be obtained from
the IRS regarding the Lobo Sale by any member of the TNGC Consolidated Group. If
the IRS were to successfully challenge TransTexas' position, each member of the
TNGC Consolidated Group would be severally liable under the consolidated tax
return regulations for the resulting taxes, in the estimated amount of up to
$270 million (assuming no reduction of tax attributes of the TNGC Consolidated
Group), possible penalties equal to 20% of the amount of the tax, and interest
at the statutory rate (currently 8%) on the tax and penalties (if any). The Tax
Allocation Agreement provides that TransAmerican will be obligated to fund the
entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to fund any such payment at the time
due and the other members of the TNGC Consolidated Group may be required to pay
the tax. As a result of subsequent net operating losses and the bankruptcy
filing, it is more likely than not that any claims against TransTexas as a
result of the Lobo Sale will be in the form of reduced net operating loss
carryforwards.
If the aggregate ownership of TransTexas by members of the TNGC
Consolidated Group (excluding TransTexas) is less than 80% (measured by voting
power and value), TransTexas will no longer be a member of the TNGC Consolidated
Group for federal tax purposes ("Deconsolidation") and, with certain exceptions,
will no longer be obligated under the terms and conditions of, or entitled to
the benefits of, the Tax Allocation Agreement. A Deconsolidation could result
from the issuance of additional equity securities by TransTexas, or from the
sale or other disposal of shares of TransTexas by TEC or TransAmerican. Upon a
Deconsolidation of TransTexas, members of the TNGC Consolidated Group that own
TransTexas' common stock could incur a substantial amount of federal income tax
liability. If such Deconsolidation occurred during the fiscal year ending
January 31, 2000, the aggregate amount of this tax liability is estimated to be
approximately $100 million, assuming no reduction for tax attributes of the TNGC
Consolidated Group. However, such tax liability would be substantially reduced
or eliminated in the event that the IRS successfully challenged TransTexas'
position on the Lobo Sale. Each member of a consolidated group filing a
consolidated federal income tax return is severally liable to the IRS for the
consolidated federal income tax liability of the consolidated group. There can
be no assurance that each TNGC Consolidated Group member will have the ability
to satisfy any tax obligation attributable to these transactions at the time due
and, therefore, other members of the group, including TEC, TransTexas or TARC,
may be required to pay the tax.
Generally, under the Tax Allocation Agreement, if net operating losses of
TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable) of
such losses in later years to the extent TransTexas has taxable income, remains
a member of the TNGC Consolidated Group and the other group members have the
ability to pay such taxes. If Deconsolidation of TransTexas occurs, TransTexas
would not thereafter receive any benefit pursuant to the Tax Allocation
Agreement for net operating losses of TransTexas used by other members of the
TNGC Consolidated Group prior to the Deconsolidation of TransTexas. Should
Deconsolidation occur, TransTexas would retain, as of October 31, 1999,
approximately $406 million of net operating loss carryforwards. However, such
net operating loss carryforwards could be reclaimed by the remaining members of
the TNGC Consolidated Group if certain events occur. Such events would include a
successful challenge to the tax treatment of the Lobo Sale.
It is not possible to predict the impact of the bankruptcy filing on the
Tax Allocation Agreement, any obligations of TransTexas to the TNGC Consolidated
Group or the tax attributes of TransTexas, including its net operating loss
carryforwards. In addition, the utilization of any remaining net operating loss
carryforwards after discharge from bankruptcy may be limited.
11
<PAGE> 13
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
4. CREDIT AGREEMENT
TransTexas and GMAC Commercial Credit LLC, formerly known as BNY Factoring
LLC, successor by merger to BNY Financial Corporation ("GMAC"), are parties to a
Second Amended and Restated Accounts Receivable Management and Security
Agreement dated as of October 14, 1997, as amended (the "GMAC Facility").
Interest accrues on advances at the rate of the higher of (a) the prime rate
of The Bank of New York plus 1/2 of 1%, or (b) the Federal Funds Rate plus 1%.
Obligations under the GMAC Facility are secured by liens on TransTexas'
receivables and inventory and are guaranteed by John R. Stanley. The GMAC
Facility contains certain financial covenants including monthly and quarterly
earnings requirements. Pursuant to an order of the Bankruptcy Court, TransTexas
can borrow up to $10 million and access cash collateral under the GMAC Facility.
The amounts that may be advanced under the GMAC Facility are based on a
percentage of certain of the Company's receivables and inventory. As of October
31, 1999, outstanding advances under the GMAC Facility totaled approximately
$3.5 million with availability for additional advances of approximately $0.9
million.
5. TRANSACTIONS WITH AFFILIATES
In connection with a December 15, 1998 transaction pursuant to which TARC
transferred its refinery assets to a minority-owned subsidiary, TCR Holding
Corporation, a Delaware corporation ("TCR Holding"), and TCR Holding transferred
such assets to its majority-owned subsidiary, Orion Refining Corporation, a
Delaware corporation ("Orion"), TransTexas entered into an Amended and Restated
Services Agreement with TransAmerican and its affiliates (other than TCR Holding
and Orion) and an Amended and Restated Services Agreement (the "TCR Group
Services Agreement") with TCR Holding and Orion. Pursuant to the TCR Group
Services Agreement, TransTexas will provide accounting, legal, administrative
and other services to TCR Holding and Orion through December 15, 2000. The fee
for such services, from December 15, 1998 through February 28, 1999, was
$200,000 per month. Subsequent to February 28, 1999, the monthly fee will be
adjusted based on an assessment of the cost to TransTexas of providing such
services. For the nine months ended October 31, 1999, TransTexas charged Orion
$0.5 million for such services. For the three months ended October 31, 1999,
charges to Orion for such services were nominal. As of October 31, 1999 and
January 31, 1999, respectively, the receivable from Orion for such services was
$0.1 million and $0.3 million. The Company is evaluating whether to reject this
contract.
In December 1998, TransTexas executed a note payable to TransAmerican in
the original principal amount of $1.4 million plus interest at a rate of 15% per
annum. On December 31, 1998, TransTexas used the proceeds from this loan to pay
a portion of its interest payment obligations on its public debt securities.
This note is secured by a lien on the assets of Galveston Bay Processing. During
the quarter ended October 31, 1999, Galveston Bay Processing made payments of
principal and interest under this note to TransAmerican of approximately $1.3
million. As of October 31, 1999 and January 31, 1999, the balance due on the
note was $0.3 million and $1.4 million, respectively.
In April 1999, TEC made a cash contribution of $0.7 million to TransTexas.
6. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES NOT IN BANKRUPTCY
Summarized combined financial information of TransTexas' subsidiaries not
in bankruptcy is as follows (in thousands of dollars):
12
<PAGE> 14
TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1999 1999
---------- ----------
ASSETS
<S> <C> <C>
Current assets .................... $ 824 $ 115
Net property and equipment ........ 12,328 145
Other assets ...................... 8 1
---------- ----------
$ 13,160 $ 261
========== ==========
LIABILITIES AND EQUITY
Current liabilities ............... $ 223 $ --
Payable to affiliates ............. 13,596 251
Equity ............................ (659) 10
---------- ----------
$ 13,160 $ 261
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1999 1999
---------- ----------
<S> <C> <C>
Revenues .......................... $ 2,391 $ 5,998
Costs and expenses ................ 1,608 4,203
---------- ----------
Operating income ............... 783 1,795
Interest income ................... -- 4
Interest expense .................. (18) (82)
---------- ----------
Income before income taxes ..... 765 1,717
Income taxes ...................... 268 601
---------- ----------
Net income ..................... $ 497 $ 1,116
========== ==========
</TABLE>
In October 1998, TransTexas and Galveston Bay Processing entered into a
natural gas treating and condensate handling agreement. Pursuant to the
agreement, Galveston Bay Processing treats and dehydrates gas and separates,
stabilizes and handles condensate produced from TransTexas' Eagle Bay Field at
its processing facility located in Winnie, Texas. Included in revenues above for
the three and nine months ended October 31, 1999 are processing fees, pursuant
to the handling agreement, from TransTexas of $1.8 million and $4.5 million,
respectively. Substantially all of the stock and assets of certain of these
subsidiaries are pledged to secure certain indebtedness of the Company. See
Note 3.
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of TransTexas included
elsewhere in this report.
RESULTS OF OPERATIONS
GENERAL
TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate and
natural gas liquids ("NGLs"). The profitability of TransTexas also depends on
its ability to minimize finding and lifting costs and maintain its reserve base
while maximizing production.
TransTexas' operating data for the three and nine months ended October 31,
1999 and 1998, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales volumes:
Gas (Bcf) ....................... 6.4 10.2 21.3 26.7
NGLs (MMgal) .................... 14.3 5.6 31.2 8.9
Condensate (MBbls) .............. 419 449 1,333 668
Average prices:
Gas (dry) (per Mcf) ............. $ 2.72 $ 1.94 $ 2.27 $ 2.11
NGLs (per gallon) ............... .28 .20 .26 .21
Condensate (per Bbl) ............ 21.57 12.22 17.63 12.36
Number of gross wells drilled ..... 4 7 9 36
Percentage of wells completed ..... 75% 43% 33% 61%
</TABLE>
A summary of TransTexas' operating expenses is set forth below (in
millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating costs and expenses:
Lease ................................ $ 1.5 $ 2.1 $ 7.5 $ 8.8
Pipeline and gathering ............... 2.0 1.7 7.6 5.4
Drilling services .................... -- 0.7 -- 2.9
--------- --------- --------- ---------
3.5 4.5 15.1 17.1
Taxes other than income taxes (1) ...... 2.1 2.3 6.2 5.8
--------- --------- --------- ---------
$ 5.6 $ 6.8 $ 21.3 $ 22.9
========= ========= ========= =========
</TABLE>
- ----------------------------
(1) Taxes other than income taxes include severance, property and other taxes.
TransTexas' average depletion rates have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Depletion rates (per Mcfe)..................... $ 2.06 $ 1.43 $ 1.88 $ 1.38
========= ======== ======== =======
</TABLE>
14
<PAGE> 16
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED WITH THE THREE MONTHS ENDED
OCTOBER 31, 1998
Gas, condensate and NGL revenues for the three months ended October 31,
1999 increased $1.6 million from the prior period due primarily to an increase
in NGL sales volumes and higher prices for all products offset in part by
decreases in natural gas and condensate sales volumes. The average monthly
prices received per Mcf of gas ranged from $2.56 to $2.89 in the three months
ended October 31, 1999, compared to a range of $1.86 to $2.02 in the prior
period. For the three months ended October 31, 1998, TransTexas recognized a
pretax gain of $5.8 million on the sale of certain drilling services division
assets. Included in other revenues for the three months ended October 31, 1999
are natural gas treating and condensate handling fees of $0.6 million.
Lease operating expenses for the three months ended October 31, 1999
decreased $0.6 million from the prior period due primarily to decreases in
maintenance costs. Pipeline and gathering expenses increased $0.3 million
primarily due to operations at Galveston Bay Processing's natural gas treating
facility in Winnie, Texas. Drilling service expenses for the three months ended
October 31, 1999 decreased $0.7 million due to the sale of certain drilling
assets in the prior period. Depreciation, depletion and amortization expense for
the three months ended October 31, 1999 decreased $1.6 million due to a decrease
in depletable production offset by an increase in the depletion rate resulting
from higher cost properties and unsuccessful drilling results. General and
administrative expenses decreased by $0.7 million primarily as a result of a
decrease in professional fees, excluding professional fees classified as
reorganization items. Taxes other than income taxes decreased by $0.2 million
from the prior period due primarily to decreases in severance and franchise
taxes. The impairment loss of $164.9 million for the three months ended October
31, 1998 related to a write-down of TransTexas' net capitalized costs of gas and
oil properties to the cost center ceiling in accordance with the full cost
method of accounting.
Interest expense decreased $17.3 million primarily as a result of
discontinuing interest accruals on prepetition unsecured debt obligations.
Reorganization items of $4.2 million for the three months ended October 31, 1999
included legal and other professional fees and expenses directly related to
TransTexas' Chapter 11 proceedings.
NINE MONTHS ENDED OCTOBER 31, 1999 COMPARED WITH THE NINE MONTHS ENDED
OCTOBER 31, 1998
Gas, condensate and NGL revenues for the nine months ended October 31,
1999 increased by $8.2 million from the prior period due primarily to increases
in condensate and NGL sales volumes and higher prices for all products offset in
part by a decrease in natural gas sales volumes. The average monthly prices
received per Mcf of gas ranged from $1.74 to $2.89 in the nine months ended
October 31, 1999, compared to a range of $1.86 to $2.36 in the prior period.
Drilling services revenues decreased by $2.9 million for the nine months ended
October 31, 1999 due to the sale of certain drilling services division assets in
the prior period. For the nine months ended October 31, 1998, TransTexas
recognized a pretax gain of $68.4 million from the sale of certain drilling
services division assets and a pretax loss of $2.6 million due to postclosing
adjustments to the Lobo Sale purchase price.
Lease operating expenses for the nine months ended October 31, 1999
decreased $1.3 million from the prior period due primarily to decreases in
maintenance costs. Pipeline and gathering expenses increased $2.2 million
primarily due to operations at Galveston Bay Processing's natural gas treating
facility at Winnie, Texas. Drilling services expenses for the nine months ended
October 31, 1999 decreased $2.9 million due to the sale of certain drilling
assets in the prior period. Depreciation, depletion and amortization expense for
the nine months ended October 31, 1999 increased $8.7 million due to an increase
in the depletion rate resulting from higher cost properties and unsuccessful
drilling results. General and administrative expenses decreased by $0.7 million
primarily as a result of a decrease in personnel and related costs. Taxes other
than income taxes increased by $0.4 million over the prior period due primarily
to increases in property taxes. The impairment loss of $186.7 million for the
nine months ended October 31, 1998 related to a write-down of $181.2 million of
TransTexas' net capitalized costs of gas and oil properties to the cost center
ceiling and a $5.5 million write-down of an underutilized pipeline system that
was exchanged as part of a settlement of certain natural gas delivery
commitments.
Interest income for the nine months ended October 31, 1999 decreased by
$0.8 million as compared to the prior period due to lower cash balances
available for investment. Interest expense decreased $33.2 million primarily as
a result of discontinuing interest accruals on prepetition unsecured debt
obligations. Reorganization items of $5.1 million for the nine months ended
October 31, 1999 included legal and other professional fees and expenses
directly related to TransTexas' Chapter 11 proceedings.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20, 1999, TEC and TARC also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
Southern District of Texas, Corpus Christi Division. The bankruptcy cases are
being jointly administered. TransTexas, TEC and TARC are operating their
businesses and managing their properties as debtors-in-possession. As a result
of the Chapter 11 filings, absent approval from the Bankruptcy Court, the
Company is prohibited from paying, and creditors are prohibited from attempting
to collect, claims or debts arising prior to the bankruptcy.
Pursuant to a Credit Agreement (the "DIP Facility") dated April 27, 1999
among TransTexas, as Borrower, various financial institutions, as Lenders,
Credit Suisse First Boston Management Corporation, as Administrative Agent, and
TEC and TARC, as Guarantors, the Lenders have agreed to provide up to $30
million in postpetition financing to the Company. As of October 31, 1999,
outstanding advances under the DIP Facility totaled $30 million and bear
interest at the rate of 13% per annum. TransTexas' obligations are guaranteed by
TEC and TARC and are secured by a first priority senior priming lien (subject to
certain exceptions) on all property of TransTexas, TEC and TARC. Amounts
outstanding under the DIP Facility will mature on the earlier of January 10,
2000 or the effective date of a plan of reorganization. The maturity date may
be extended by the Lenders under the DIP Facility; however, there is no
assurance that an extension, if needed, will be granted.
TransTexas and GMAC Commercial Credit LLC, formerly known as BNY Factoring
LLC, successor by merger to BNY Financial Corporation, are parties to a Second
Amended and Restated Accounts Receivable Management and Security Agreement dated
as of October 14, 1997, as amended (the "GMAC Facility"). Interest accrues on
advances at the rate of the higher of (a) the prime rate of The Bank of New York
plus 1/2 of 1%, or (b) the Federal Funds Rate plus 1%. Obligations under the
GMAC Facility are secured by liens on TransTexas' receivables and inventory and
are guaranteed by John R. Stanley. Pursuant to an order of the Bankruptcy Court,
the Company can borrow up to $10 million and access cash collateral under the
GMAC Facility. The amounts that may be advanced under the GMAC Facility are
based on a percentage of certain of the Company's receivables and inventory. As
of October 31, 1999, outstanding advances under the GMAC Facility totaled
approximately $3.5 million with availability for additional advances of
approximately $0.9 million.
The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. On September 29,
1999, the Company filed its Second Amended Plan with the Bankruptcy Court. The
Plan sets forth TransTexas' proposal for satisfying claims, including
liabilities subject to compromise, and interests in the Company. The Plan will
likely result in, among other things, material dilution or elimination of the
interests of existing security holders. Consummation of the Plan will require
approval of the Bankruptcy Court. A hearing on confirmation of the Plan
commenced on November 9, 1999 and is continuing. There can be no assurance that
the terms of the Plan will not be modified prior to approval or that the Plan
will be approved.
At this time, it is not possible to predict the outcome of the bankruptcy
proceedings, in general, or the effect on the business of the Company or on the
interests of creditors, royalty owners or stockholders. There can be no
assurance that the Plan will be approved or that the Bankruptcy Court will
permit TransTexas to continue to operate as a debtor-in-possession. As a result
of these uncertainties and other matters, there is substantial doubt about the
Company's ability to continue as a going concern. See Notes to Condensed
Consolidated Financial Statements of the Company included under Item 1 of this
report.
TransTexas makes substantial capital expenditures for the exploration and
development of natural gas and oil reserves in the normal course of business.
TransTexas historically has financed its capital expenditures, debt service and
working capital requirements with cash flow from operations, public and private
offerings of debt and equity securities, the sale of production payments, asset
sales, an accounts receivable revolving credit facility and other financings.
Cash flow from operations is sensitive to the prices TransTexas receives for its
natural gas and oil. A reduction in planned capital spending or an extended
decline in gas and oil prices could result in less than anticipated cash flow
from operations in fiscal year 2000 and later years which could have a material
adverse effect on TransTexas. Proceeds from natural gas and oil sales are
received at approximately the same time that production-related burdens, such as
royalties, production taxes and drilling program obligations, are payable.
16
<PAGE> 18
For the nine months ended October 31, 1999, total capital expenditures
incurred were $29 million, including $5 million for lease acquisitions, $22
million for drilling and development and $2 million for gas gathering, other
equipment and seismic acquisitions. Capital expenditures for the remainder of
fiscal 2000 are estimated to be approximately $17 million which amount is in
excess of anticipated cash flows from operating activities. To finance these
planned capital expenditures, TransTexas will be required to supplement its
anticipated cash flow from operations with a combination of asset sales,
financings or other capital-raising transactions. The ability to incur capital
expenditures, sell properties and obtain additional financing is subject to the
approval and ongoing supervision of the Bankruptcy Court, as well as the
approval of the lenders under the DIP Facility or, if subsequent to confirmation
of the Plan, the postconfirmation lenders. There is no assurance that adequate
funds can be obtained on a timely basis or that the Bankruptcy Court will
approve such transactions.
In February 1998, TransTexas entered into a production payment drilling
program agreement with an unaffiliated third party for the reimbursement of
certain drilling costs with respect to wells drilled by TransTexas. Pursuant to
the agreement, upon the approval of the third party of a recently drilled or
currently drilling well for inclusion in the program, the third party will
commit to the reimbursement of all or a portion of the cost of such well. The
program wells are subject to a dollar-denominated production payment equal to
the primary sum of such reimbursed costs, plus an amount equivalent to a 15%
annual interest rate on the unpaid portion of such primary sum. As of October
31, 1999, the outstanding balance of the production payment was $37.2 million.
In September 1998, TransTexas sold to an unaffiliated third party a term
overriding royalty in the form of a dollar-denominated production payment in
certain of TransTexas' producing properties for net proceeds of $10 million. The
production payment calls for the repayment of the primary sum plus an amount
equivalent to a 16% annual interest rate on the unpaid portion of such primary
sum. As of October 31, 1999, the outstanding balance of the production payment
was $7.1 million.
In December 1998, TransTexas executed a note payable to TransAmerican in
the original principal amount of $1.4 million plus interest at a rate of 15% per
annum. On December 31, 1998, TransTexas used the proceeds from this loan to pay
a portion of its interest payment obligations on its public debt securities.
This note is secured by a lien on the assets of Galveston Bay Processing. During
the quarter ended October 31, 1999, Galveston Bay Processing made payments of
principal and interest under this note to TransAmerican of approximately $1.3
million. As of October 31, 1999 and January 31, 1999, the balance due on the
note was $0.3 million and $1.4 million, respectively.
In April 1999, TEC made a cash contribution of $0.7 million to TransTexas.
CONTINGENT LIABILITIES
TransTexas has significant contingent liabilities. Although the outcome of
these contingencies or the probability of the occurrence of these contingencies
cannot be predicted with certainty, TransTexas does not expect these matters to
have a material adverse effect on its financial position. However, these
contingencies, individually and in the aggregate, amount to potential liability
that could have a material adverse effect on TransTexas' cash flows or results
of operations.
In January 1997, TransTexas and Koch Energy Trading Inc. entered into a
gas purchase contract pursuant to which TransTexas was required to deliver
25,000 MMBtu per day to a specified delivery point. On August 10, 1999, the
Company obtained Bankruptcy Court approval to reject this contract.
As of October 31, 1999, TransTexas had delivery commitments for an
aggregate of approximately 125 MMcf of natural gas per day pursuant to certain
contracts. These contracts require TransTexas to pay certain charges if it does
not deliver the specified quantities. Such charges totaled $1.0 million during
the nine months ended October 31, 1999. Such charges were nominal for the three
months ended October 31, 1999. The Company expects to obtain Bankruptcy Court
approval to reject these contracts.
Pursuant to the Bankruptcy Code, the Company has the right to assume or
reject executory contracts. As of December 7, 1999, the Company had obtained
Bankruptcy Court approval to reject 13 contracts.
17
<PAGE> 19
Pursuant to the Lobo Sale Agreement, TransTexas is required to indemnify
the buyer for certain liabilities related to the assets previously owned by a
former subsidiary. Although TransTexas does not anticipate that it will incur
any material indemnity liability with respect to the Lobo Sale Agreement, no
assurance can be given that TransTexas will not incur such indemnity liability.
POTENTIAL TAX LIABILITIES
Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended, and has reduced its tax attributes (including its net
operating loss and credit carryforwards) as a consequence of the COD Exclusion.
No federal tax opinion was rendered with respect to this transaction, however,
and TransAmerican has not obtained a ruling from the IRS regarding this
transaction. TransTexas believes that there is substantial legal authority to
support the position that the COD Exclusion applies to the cancellation of
TransAmerican's indebtedness. However, due to factual and legal uncertainties,
there can be no assurance that the IRS will not challenge this position, or that
such challenge would not be upheld. Under an agreement between TNGC Holdings
Corporation, the sole stockholders of TransAmerican ("TNGC"), TransAmerican and
certain of TransAmerican's subsidiaries including TransTexas, TEC and TARC (the
"Tax Allocation Agreement"), TransTexas has agreed to pay an amount equal to any
federal tax liability (which would be approximately $25.4 million) attributable
to the inapplicability of the COD Exclusion. Any such tax could be offset in
subsequent years by alternative minimum tax credits and retained loss and credit
carryforwards to the extent recoverable from TransAmerican. As a member of the
TNGC Consolidated Group (defined below), each of TransTexas, TEC and TARC will
be severally liable for any tax liability resulting from the above-described
transactions. The IRS has commenced an audit of the consolidated federal income
tax returns of the TNGC Consolidated Group for its taxable years ended July 31,
1995 and 1994. At this time, it is not possible to predict the scope of the IRS'
review or whether any tax deficiencies will be proposed by the IRS as a result
of its review.
TransTexas is required, under the Tax Allocation Agreement, to pay any
Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to transactions by any member of the TNGC Consolidated Group in
prior years. As of October 31, 1999, TransTexas had paid approximately $9.6
million of these franchise taxes.
Based in part upon independent legal advice, TransTexas determined that it
was not required to report any significant federal income tax liability as a
result of the Lobo Sale. There are, however, significant uncertainties regarding
TransTexas' tax position and no assurance can be given that its position will be
sustained if challenged by the IRS. TransTexas is part of an affiliated group
for tax purposes (the "TNGC Consolidated Group"), which also includes TNGC,
TransAmerican, TEC and TARC. No letter ruling has been or will be obtained from
the IRS regarding the Lobo Sale by any member of the TNGC Consolidated Group. If
the IRS were to successfully challenge TransTexas' position, each member of the
TNGC Consolidated Group would be severally liable under the consolidated tax
return regulations for the resulting taxes, in the estimated amount of up to
$270 million (assuming no reduction of tax attributes of the TNGC Consolidated
Group), possible penalties equal to 20% of the amount of the tax, and interest
at the statutory rate (currently 8%) on the tax and penalties (if any). The Tax
Allocation Agreement provides that TransAmerican will be obligated to fund the
entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to fund any such payment at the time
due; therefore, the other members of the TNGC Consolidated Group may be required
to pay the tax. TransTexas' obligations for any liability arising from the Lobo
Sale would likely be in the form of reduced net operating loss carryforwards.
If the aggregate ownership of TransTexas by members of the TNGC
Consolidated Group (excluding TransTexas) is less than 80% (measured by voting
power and value), TransTexas will no longer be a member of the TNGC Consolidated
Group for federal tax purposes ("Deconsolidation") and, with certain exceptions,
will no longer be obligated under the terms and conditions of, or entitled to
the benefits of, the Tax Allocation Agreement. A Deconsolidation could result
from the issuance of additional equity securities by TransTexas, or from the
sale or other disposal of shares of TransTexas by TEC or TransAmerican. Upon a
Deconsolidation of TransTexas, members of the TNGC Consolidated Group that own
TransTexas' common stock could incur a substantial amount of federal income tax
liability. If such Deconsolidation occurred during the fiscal year ending
January 31, 2000, the aggregate amount of this tax liability is estimated to be
approximately $100 million, assuming no reduction for tax attributes of the TNGC
Consolidated Group. However, such tax liability would be substantially reduced
or eliminated in the event that the IRS
18
<PAGE> 20
successfully challenged TransTexas' position on the Lobo Sale. Each member of a
consolidated group filing a consolidated federal income tax return is severally
liable to the IRS for the consolidated federal income tax liability of the
consolidated group. There can be no assurance that each TNGC Consolidated Group
member will have the ability to satisfy any tax obligation attributable to these
transactions at the time due and, therefore, other members of the group,
including TEC, TransTexas or TARC, may be required to pay the tax.
Generally, under the Tax Allocation Agreement, if net operating losses of
TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable) of
such losses in later years to the extent TransTexas has taxable income, remains
a member of the TNGC Consolidated Group and the other group members have the
ability to pay such taxes. If Deconsolidation of TransTexas occurs, TransTexas
would not thereafter receive any benefit pursuant to the Tax Allocation
Agreement for net operating losses of TransTexas used by other members of the
TNGC Consolidated Group prior to the Deconsolidation of TransTexas. Should
Deconsolidation occur, TransTexas would retain, as of October 31, 1999,
approximately $406 million of net operating loss carryforwards. However, such
net operating loss carryforwards could be reclaimed by the remaining members of
the TNGC Consolidated Group if certain events occur. Such events would include a
successful challenge to the tax treatment of the Lobo Sale.
It is not possible to predict the impact of the bankruptcy filing on the
Tax Allocation Agreement, any obligations to the TNGC Consolidated Group or
TransTexas' tax attributes, including its net operating loss carryforwards. In
addition, the amount of net operating loss carryforwards remaining after
discharge from the bankruptcy that may be used in any future year may be
limited.
YEAR 2000 COMPLIANCE ISSUES
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
information technology ("IT") systems to malfunction in and around the Year
2000. Such malfunctions may lead to significant business delays in the U.S. and
internationally. The Year 2000 problem will potentially impact the Company's
normal business activities because information necessary to monitor and control
various operations is controlled by computers. In addition to potential problems
from computer systems, potential problems could arise from equipment with
embedded chips.
TransTexas has defined a Year 2000-compliant system as one capable of
correct identification, manipulation and calculation when processing data in
connection with the year change from December 31, 1999 to January 1, 2000. A
Year 2000-compliant system is also capable of correct identification,
manipulation and calculation using leap years both alone and in conjunction with
other dates.
Not all of TransTexas' systems are compliant under the above definition.
However, TransTexas is addressing the issues associated with this problem in the
following manner.
o In the first stage, TransTexas commenced preparation of an inventory
of all IT and non-IT systems, as well as equipment that could have
embedded chips, whether or not critical to the operation of the
business. TransTexas also compiled a listing of material relationships
with third parties with which it conducts business. These
relationships include contractors, suppliers and financial
institutions. This stage of the Year 2000 compliance process is
substantially complete.
o In stage two, TransTexas assessed the results of the completed
inventory done in the first stage to determine the Year 2000 impact
and what actions need to be taken to obtain Year 2000 compliance. For
TransTexas' internal systems, actions needed include obtaining vendor
certification of Year 2000 compliance, remediating internal systems or
replacing systems and equipment that cannot be remediated. This stage
is substantially complete with respect to internal systems. TransTexas
surveyed and obtained information about Year 2000 readiness of its
material third-party relationships.
o The third stage included the repair, replacement or retirement of
systems that are not Year 2000 compliant. This stage of the Year 2000
process is substantially complete. TransTexas has been upgrading
packaged software throughout the organization. TransTexas has
implemented a new financial reporting system and is currently
implementing a new payroll system. Several operational systems are in
various stages of implementation, and
19
<PAGE> 21
should be completed prior to January 1, 2000. The vendors of these new
systems have provided certification that their respective software
packages are Year 2000 compliant according to TransTexas' definition.
o The last stage of the implementation process, which is substantially
complete, included testing all of the changes implemented individually
and integrating those changes with all of the systems of TransTexas
and its suppliers and customers. Various forms of testing were used
depending on the type of change implemented. Each upgrade, to the
extent economically feasible, was run through a test environment
before it was implemented. It then was tested to see how well it
integrated into TransTexas' overall IT environment. TransTexas did not
employ any independent verification processes of its systems' tests.
As of October 31, 1999, TransTexas had incurred approximately $2 million
in direct costs with respect to its Year 2000 compliance program and does not
anticipate that it will incur any additional significant costs to complete this
program.
Despite TransTexas' best efforts to ready its systems and infrastructure
for the Year 2000, there are many factors outside of TransTexas' control that
could affect readiness for the Year 2000. Failure of significant third parties
to complete their Year 2000 compliance programs could interrupt the supply of
materials and contract services needed for TransTexas' operations. Disruptions
to natural gas, condensate and NGL transportation systems controlled by third
parties could result in reduced production volumes delivered to market. Such
occurrences could have a material adverse effect on TransTexas' business,
results of operations and financial position. Although the Company does not
currently anticipate any such problems, TransTexas is developing contingency
plans to identify alternative suppliers of goods and services in the event of
such third party nonreadiness.
FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this report regarding TransTexas' financial
position, business strategy, and plans and objectives of management for future
operations, including, but not limited to words such as "anticipates,"
"expects," "estimates," "believes" and "likely" indicate forward-looking
statements. TransTexas' management believes its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include fluctuations in the commodity prices for
natural gas, crude oil, condensate and natural gas liquids, the extent of
TransTexas' success in discovering, developing and producing reserves,
conditions in the equity and capital markets, competition, Year 2000 readiness
and the ultimate resolution of litigation, including bankruptcy.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of October 31, 1999, the Company did not have any market risk sensitive
instruments.
20
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3 to the condensed consolidated financial statements for a
discussion of TransTexas' legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 -- Second Amended Plan of Reorganization dated September 29,
1999 (filed as Appendix 4 to Exhibit T3E to the Company's
Application for Qualification of Indenture on Form T-3
(Registration No. 22-22445), and incorporated herein by
reference).
10.1 -- Employment Agreement dated November 8, 1999 between the
Company and Ronald P. Nowak.
15.1 -- Letter of Independent Accountants regarding awareness of
incorporation by reference.
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended October
31, 1999.
21
<PAGE> 23
SIGNATURE
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.
TRANSTEXAS GAS CORPORATION
(Registrant)
By: /s/ Ed Donahue
------------------------------------
Ed Donahue, Vice President
and Chief Financial Officer
December 15, 1999
22
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------- -------
<S> <C> <C>
2.1 -- Second Amended Plan of Reorganization dated September 29, 1999
(filed as Appendix 4 to Exhibit T3E to the Company's Application
for Qualification of Indenture on Form T-3 (Registration No.
22-22445), and incorporated herein by reference).
10.1 -- Employment Agreement dated November 8, 1999 between the Company
and Ronald P. Nowak.
15.1 -- Letter of Independent Accountants regarding awareness of
incorporation by reference.
27.1 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This agreement is made and entered into as of the 8th day of November, 1999, by
and between TransTexas Gas Corporation, hereinafter called "Company" and Ron
Nowak, hereinafter called "Employee".
1. The term of this Agreement is for six (6) months commencing on November 8,
1999, and ending on May 7, 2000. Thereafter this contract shall be subject to
renegotiations and renewal. This agreement may be terminated prior to the end of
the term pursuant to paragraph 6, 7 or 8 hereof.
2. The Company agrees to employ Employee for the term of this Agreement, and
Employee shall have and fulfill such duties, responsibilities and obligations as
are usual and customary for the President and Chief Operating Officer, subject
to the direction and control of the Board of Directors and the Chief Executive
Officer.
3. Employee agrees Employee will faithfully and diligently serve the Company to
the best of his ability.
4. During his service hereunder, Employee's salary shall be $25,000.00 per month
payable in installments in accordance with the Company's regular payroll
practices.
5. At such costs and eligibility restrictions applicable to all employees,
Employee shall participate in all plans and benefits generally applicable or
available to employees of the Company, including but not limited to health,
hospital and surgical benefits, disability, life insurance plans, and AD&D
insurance.
b. During his service hereunder, Employee shall receive two (2) weeks
of vacation.
6. This agreement shall be terminable by the Company for "cause" without advance
notice. In the event of such termination properly for cause, the salary set
forth above shall cease on the effective date of termination, however, benefits
earned to date shall be paid in full. "Cause" shall mean:
a. Neglect or mismanagement by Employee of his duties, responsibilities
and obligations which either significantly damages or could have
significantly damaged the property or interest of the Company; or
b. Material breach of this Agreement by Employee; or
c. Inability of Employee to perform his duties, responsibilities and
obligations by reason of illness, accident or other incapacity for a
continuous period of six months.
7. This Agreement shall be terminable by Employee for cause. In the event that
Employee terminates this Agreement properly for cause within thirty days after
he knows or should have known of the existence of such cause, the Company shall
be obligated to pay Employee his salary through the effective date of contract
period.
<PAGE> 2
"Cause" shall mean:
a. Wrongful behavior or willful neglect by the Company, not caused by
Employee; or
b. Material breach of its obligations under this Agreement by the
Company; or
c. Sale, reorganization (other than the reorganization of the Company
pursuant to the Plan of Reorganization of the Company in Case No.
99-21550-C in the United States Bankruptcy Court, Southern District of
Texas, Corpus Christi Division) or merger of the Company resulting in a
change in the actual control of the Company.
8. The Company shall have the right to terminate this Agreement without cause
by giving Employee written notice of such termination.
9. In the event that the Company terminates Employee other than for cause
before the end of the term of this Agreement, or Employee terminates this
Agreement for cause before the end of the term of this Agreement, the Company
shall pay to Employee his salary for the remaining term of this Agreement.
10. The entire understanding and agreement between the parties has been
incorporated into this Agreement. This Agreement shall inure to the benefit of,
and shall be binding upon the Company, its successors and assigns and upon
Employee and his heirs, successors, and assigns. This agreement may not
otherwise be assigned without the prior written approval of the other party.
11. Any disputes concerning or arising out of interpretation or application of
this Agreement shall be determined by final and binding arbitration under and in
accordance with the rules and procedures of the American Arbitration Association
provided that the dispute is submitted to arbitration by written demand therefor
delivered to and received by the other party within sixty days after occurrence
of the event giving rise to the dispute.
12. If there is a conflict between the Company personnel policies and this
Agreement, this Agreement shall prevail.
TransTexas Gas Corporation Ronald P. Nowak
By: /s/ John R. Stanley By: /s/ Ronald P. Nowak
------------------------------- ------------------------------
John R. Stanley
Date: Date: November 1, 1999
----------------------------- ----------------------------
<PAGE> 1
EXHIBIT 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: TransTexas Gas Corporation
Registration Statement on Form S-3
Ladies and Gentlemen:
We are aware that our report dated December 15, 1999 on our review of
interim condensed consolidated financial information of TransTexas Gas
Corporation for the three and nine months ended October 31 1999 and 1998
included in this Form 10-Q for the quarter then ended is incorporated by
reference in the Company's registration statement on Form S-3 (Registration No.
33-91494), as filed with the Securities and Exchange Commission. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be a part
of the registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
PricewaterhouseCoopers LLP
Houston, Texas
December 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1999 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 15,655
<SECURITIES> 0
<RECEIVABLES> 30,091
<ALLOWANCES> 0
<INVENTORY> 2,480
<CURRENT-ASSETS> 52,788
<PP&E> 1,485,811
<DEPRECIATION> 1,220,246
<TOTAL-ASSETS> 341,352
<CURRENT-LIABILITIES> 49,060
<BONDS> 581,389
0
0
<COMMON> 740
<OTHER-SE> (476,189)
<TOTAL-LIABILITY-AND-EQUITY> 341,352
<SALES> 75,252
<TOTAL-REVENUES> 77,043
<CGS> 0
<TOTAL-COSTS> 90,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,966
<INCOME-PRETAX> (46,134)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,134)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
