SECURITIES AND EXCHANGE COMMISSION
ccomm
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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 0-17389
TEJAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0263364
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 MCKINNEY, SUITE 700
HOUSTON, TEXAS 77010
(Address of principal executive offices) (Zip Code)
(713) 658-0509
(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 [ ]
As of April 30, 1996, Tejas Gas Corporation had 17,405,307 shares of common
stock, par value $.25 per share, outstanding.
TEJAS GAS CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Tejas Gas Corporation
("Tejas") included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in Tejas' Annual Report on Form 10-K
for the year ended December 31, 1995.
Because of the seasonal nature of Tejas' operations, among other
factors, the results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for an entire year.
1
TEJAS GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 937 $ 4,816
Accounts receivable ..................................................... 185,081 181,704
Exchange gas receivable ................................................. 9,547 10,004
Storage gas inventory ................................................... 10,484 38,733
Prepaids and other current assets ....................................... 3,042 9,124
Deferred income tax asset ............................................... 2,948 2,024
-------- --------
Total current assets ............................................ 212,039 246,405
-------- --------
PROPERTY, PLANT AND EQUIPMENT - AT COST ...................................... 799,817 793,376
Less accumulated depreciation ........................................... 186,364 178,642
-------- --------
Property, plant and equipment, net .............................. 613,453 614,734
-------- --------
GOODWILL, NET ................................................................ 10,161 10,278
-------- --------
INVESTMENTS IN UNCONSOLIDATED ENTITIES ....................................... 35,005 31,927
-------- --------
OTHER ASSETS ................................................................. 11,300 12,107
-------- --------
TOTAL ........................................................... $881,958 $915,451
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Gas purchases payable ................................................... $163,820 $153,867
Exchange gas payable .................................................... 14,285 9,825
Accounts payable ........................................................ 10,929 9,508
Accrued liabilities ..................................................... 25,591 25,397
Income taxes payable .................................................... 3,821 1,881
Current maturities of long-term obligations ............................. 5,317 5,317
-------- --------
Total current liabilities ........................................... 223,763 205,795
-------- --------
LONG-TERM DEBT ............................................................... 242,075 306,075
-------- --------
DEFERRED INCOME TAXES ........................................................ 54,105 50,413
-------- --------
COMMITMENTS AND CONTINGENCIES ................................................ -- --
-------- --------
PREFERRED MEMBERSHIP UNITS OF A SUBSIDIARY ................................... 50,683 50,683
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value; 6,000,000 shares authorized 200,000 shares
of 9.96% Cumulative Preferred Stock issued
and outstanding in 1996 and 1995; $250 liquidation
preference per share ....................................... 200 200
260,000 shares of 5 1/4% Convertible Preferred Stock issued
and outstanding in 1996 and 1995; $250 liquidation
preference per share ....................................... 260 260
Common Stock, $.25 par value; 30,000,000 shares authorized;
17,405,307 and 17,404,895 shares issued and outstanding
in 1996 and 1995, respectively .................................. 4,351 4,351
Capital surplus ......................................................... 191,497 191,490
Retained earnings ....................................................... 115,024 106,184
-------- --------
Total stockholders' equity ...................................... 311,332 302,485
-------- --------
TOTAL ........................................................... $881,958 $915,451
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES ................................................ $ 432,401 $ 215,633
--------- ---------
COSTS AND EXPENSES:
Cost of sales ...................................... 389,072 173,770
Operating expenses ................................. 9,516 9,372
Depreciation and amortization ...................... 8,079 7,947
General and administrative ......................... 6,047 5,294
--------- ---------
Total ............................ 412,714 196,383
--------- ---------
EARNINGS FROM OPERATIONS ................................ 19,687 19,250
--------- ---------
Other Income (Expense):
Equity in earnings (loss) of unconsolidated entities 3,666 (74)
Interest income .................................... 302 127
Interest expense ................................... (5,155) (6,321)
Distributions on Preferred Membership Units
of a Subsidiary ............................... (947) --
Other, net ......................................... 92 27
--------- ---------
Total ............................ (2,042) (6,241)
--------- ---------
EARNINGS BEFORE INCOME TAXES ............................ 17,645 13,009
--------- ---------
Income Taxes:
Current ............................................ 3,939 1,955
Deferred ........................................... 2,768 2,875
--------- ---------
Total ............................ 6,707 4,830
--------- ---------
NET EARNINGS ............................................ 10,938 8,179
--------- ---------
PREFERRED STOCK DIVIDEND REQUIREMENTS ................... 2,098 2,098
--------- ---------
NET EARNINGS APPLICABLE TO COMMON STOCK ................. $ 8,840 $ 6,081
--------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (SEE NOTE BELOW) ................ 17,405 17,339
========= =========
EARNINGS PER COMMON SHARE (SEE NOTE BELOW) .............. $ 0.51 $ 0.35
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE: Weighted average number of Common Shares outstanding and earnings per
common share have been restated to reflect the following: (i) a three-for-two
split of the Common Stock, effected in the form of a stock dividend payable to
stockholders of record as of April 26, 1996 and (ii) a dividend of one-tenth of
one share of Common Stock payable to stockholders of record as of July 27, 1995.
3
TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .............................................. $ 10,938 $ 8,179
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ........................ 8,079 7,947
Amortization of deferred loan costs .................. 221 232
Deferred income taxes ................................ 2,768 2,875
Equity in (earnings) loss of unconsolidated entities . (3,666) 74
Distributions from unconsolidated entities ........... 2,389 385
Other ................................................ 238 290
-------- --------
20,967 19,982
-------- --------
Changes in current assets and current liabilities:
(Increase) decrease in -
Accounts and exchange gas receivable ............ (2,920) 21,601
Storage gas inventory ........................... 28,249 (4,932)
Prepaids and other current assets ............... 6,082 (2,353)
Increase (decrease) in-
Gas purchases, exchange gas, and accounts payable 15,834 (18,292)
Accrued liabilities ............................. 194 (3,457)
Deferred credits ................................ -- (1,264)
Income tax payable .............................. 1,940 1,380
-------- --------
Net cash provided by operating activities ................. 70,346 12,665
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and acquisition ...................... (6,758) (10,139)
Investments in unconsolidated entities .................... (1,801) (162)
Other, net ................................................ 425 (1,192)
-------- --------
Net cash used in investing activities ..................... (8,134) (11,493)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line-of-credit agreements 3,000 (5,600)
Proceeds from issuance of long-term debt .................. -- 15,000
Retirement of long-term debt .............................. (67,000) (10,000)
Preferred stock dividends ................................. (2,098) (2,098)
Exercise of stock options ................................. 7 --
-------- --------
Net cash used in financing activities ..................... (66,091) (2,698)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... (3,879) (1,526)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 4,816 7,954
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 937 $ 6,428
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
TEJAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto for
Tejas Gas Corporation ("Tejas") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In connection with the preparation of
these financial statements, management was required to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues,
expenses and disclosure of contingent liabilities. Actual results could differ
from such estimates. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Tejas' Annual Report on Form 10-K for
the year ended December 31, 1995.
In the opinion of Tejas' management, all adjustments (all of which are
normal and recurring) have been made which are necessary to fairly state the
consolidated financial position of Tejas and subsidiaries as of March 31, 1996,
and the results of their operations and cash flows for the three month periods
ended March 31, 1996 and 1995.
2. COMMITMENTS AND CONTINGENCIES
Tejas' West Clear Lake Storage Facility ("WCLSF") requires the maintenance
of cushion gas in order to sustain anticipated operational requirements. Such
cushion gas requirements may be satisfied by the combination of cushion gas
purchased by Tejas and the volume of gas stored for third parties in the storage
cavern. At March 31, 1996, Tejas owned approximately 10.4 BCF of cushion gas and
a third party owned 18.5 BCF of natural gas, valued at $33.1 million for which
Tejas is obligated to pay a reservation fee. Based upon volumes and rates in
effect at March 31, 1996, Tejas estimates the net 1996 cost related to the
reservation of the 18.5 BCF to be approximately $1.2 million.
In addition to the obligation to redeliver the 18.5 BCF of natural gas,
Tejas has an obligation to redeliver 1.7 BCF of natural gas held in storage for
Exxon Corporation as a result of the acquisition of the WCLSF. Tejas will bear
the cost of physical loss, if any, incurred during storage. Management estimates
that physical losses will not be significant and has insured for physical losses
due to catastrophic events. Of the total 35 BCF of natural gas in the WCLSF at
March 31, 1996, a total of 20.3 BCF was owned by third parties.
3. STOCKHOLDERS' EQUITY
On April 11, 1996, the Tejas Board of Directors authorized a three-for-two
split of the Common Stock effected in the form of a stock dividend payable to
stockholders of record as of April 26, 1996. All references to shares issued and
outstanding, average shares outstanding and earnings per share included in the
financial statements and accompanying notes and schedules have been restated to
give effect to the stock split. As a result of the stock split, 5,801,769 shares
of Common Stock were added to the 11,603,263 common shares outstanding at
December 31, 1995. The par value of the additional shares, approximately $1.5
million, has been transferred
5
from retained earnings to Common Stock. As a result of the stock split, the
conversion price of Tejas' 5 1/4% Convertible Preferred Stock was adjusted from
$63.6364 to $42.4243 (equivalent to an adjustment in the conversion rate from
.7857 to 1.1786 shares of Common Stock for each Depositary Share representing a
one-fifth interest in a share of the 5 1/4% Convertible Preferred Stock). The
adjustment to the conversion price (and conversion rate) was effective as of
April 27, 1996. Additionally, options to purchase Common Stock under Tejas'
Stock Option Plans as well as option prices were adjusted as a result of the
Common Stock split.
4. TRANSOK, INC. ACQUISITION
As announced on May 9, 1996, Tejas has entered into a definitive agreement
to acquire Transok, Inc. ("Transok"), a subsidiary of Central and South West
Corporation ("CSW"). Transok operates intrastate natural gas pipeline systems in
Oklahoma, Louisiana and Texas. The agreement between Tejas and CSW provides for
the merger of Transok and a newly created subsidiary of Tejas. The transaction
is anticipated to be completed during the second quarter of 1996, subject to
environmental review and customary regulatory and closing requirements.
Transok operates approximately 6,500 miles of gathering and transmission
pipelines in Oklahoma, Louisiana and Texas with approximately 2.3 billion cubic
feet ("BCF") per day of pipeline capacity. Transok also operates a natural gas
reservoir storage facility with 26 BCF of storage capacity and eight natural gas
processing plants with a total capacity of 564 million cubic feet per day.
Pursuant to the merger agreement, Tejas has agreed to pay CSW $690 million
in cash and to acquire Transok subject to $200 million of existing debt. Tejas
expects to finance the proposed acquisition using funds borrowed under existing
credit facilities and funds to be obtained under a new credit facility to be
created in connection with the acquisition. Following consummation of the
acquisition, the remaining availability under Tejas' existing credit facilities
will be approximately $70 million. Subsequent to the acquisition, Tejas expects
to obtain funds through financing arrangements, including the sale of equity, in
order to reduce the acquisition debt. The acquisition is subject to certain
closing requirements referred to above. Further, if successfully completed,
Tejas believes the consummated transaction will significantly impact all aspects
of Tejas' operations and enhance Tejas' consolidated results of operations.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
A summary of natural gas average daily throughput in millions of cubic feet
("MMCF") is set forth below:
THREE MONTHS ENDED MARCH 31,
1996 1995
----- -----
Systems sales ........................................ 1,860 1,352
Transportation ....................................... 1,480 1,492
Gulf Coast (Tejas' share) ............................ 113 115
----- -----
Total system throughput .................... 3,453 2,959
Gas processed and other .............................. 80 82
----- -----
Total average daily throughput ............. 3,533 3,041
===== =====
Tejas' net earnings for the first three months of 1996 were $10.9 million
as compared to $8.2 million for the first three months of 1995, an increase of
$2.7 million. Net earnings applicable to common stock for the first quarter of
1996 were $8.8 million as compared to $6.1 million for the first quarter of
1995, an increase of $2.7 million. Earnings per common share, after restatement
for the three-for-two stock split (see Note 3 of "Notes to Consolidated
Financial Statements"), increased to $0.51 for the 1996 first quarter as
compared to $0.35 for the 1995 first quarter. Net earnings applicable to common
stock and per share results include a provision for dividends on Tejas' 9.96%
Cumulative Preferred Stock (the "9.96% Preferred Stock") and Tejas' 5 1/4%
Convertible Preferred Stock (the "5 1/4% Preferred Stock").
NATURAL GAS SYSTEMS
Sales and transportation of natural gas through its owned and/or operated
natural gas pipeline systems is Tejas' core business. For the first quarter of
1996, Tejas' system volumes increased 16% from the first quarter of 1995 to a
total of 3.5 billion cubic feet ("BCF") per day. Improved sales volumes resulted
in a $1.6 million increase in gross profit for the first three months of 1996 as
compared to the first three months of 1995. A significant portion of this
improvement was the result of the availability of natural gas and the
operational flexibility at the West Clear Lake Storage Facility, the upward
pressure on natural gas prices due to weather-related demands and a 38% increase
in system sales throughput.
ENERGY MARKETING PARTNERSHIP- CORAL ENERGY RESOURCES, L.P.
The Coral Energy Resources, L.P. ("Coral") energy marketing venture between
Tejas and Shell commenced operations in November, 1995. Coral's total sales
volume for the first quarter of 1996 averaged 4.1 BCF per day which contributed
$3.9 million to Tejas' pre-tax income.
7
NATURAL GAS PROCESSING/OFF-SYSTEM
During the first quarter of 1996, Tejas' natural gas processing and
off-system marketing activities contributed gross profit of $2.0 million as
compared to $2.1 million for the corresponding period in 1995. The decrease in
gross profit for such activities reflects decreased profitability for natural
gas processing primarily as a result of decreased processing throughput.
REVENUES
Revenues for the first three months of 1996 were $432.4 million as compared
to $215.6 million for the first three months of 1995, an increase of $216.8
million. This revenue increase of over 100% resulted primarily from increased
system sales throughput due to weather-related demands. This increase in demand
also caused an increase in natural gas prices.
OPERATING EXPENSES/DEPRECIATION/GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses, depreciation, and general and administrative expenses
increased by $1.0 million for the first quarter of 1996 as compared to the 1995
first quarter. The increase was primarily due to the expensing of one-time
project development costs in the first quarter of 1996.
OTHER INCOME (EXPENSE)
Interest expense decreased by $1.2 million in the first quarter of 1996 as
compared to the first quarter of 1995 as a result of lower average debt
balances. This decrease was partially offset by $.9 million of Distributions on
Preferred Membership Units of a subsidiary that were issued to a third party in
December, 1995.
CAPITAL RESOURCES, LIQUIDITY AND OUTLOOK
CASH FLOWS FROM OPERATING ACTIVITIES
For the quarter ended March 31, 1996, net cash provided by operating
activities totaled $70.3 million as compared to $12.7 million for the same
period in 1995. This $57.6 million increase in net cash provided by operations
is primarily due to changes in working capital. Excluding net changes in working
capital components, Tejas' operating activities generated $21.0 million in cash
during the first three months of 1996 as compared to $20.0 million in the first
three months of 1995, an increase of $1.0 million.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities during the first quarter of 1996
totaled $8.1 million. Approximately $6.8 million was used for capital
expenditures, primarily related to the West Clear Lake Storage Facility
expansion.
CASH FLOWS FROM FINANCING ACTIVITIES
Tejas reduced long-term debt by $64.0 million during the first quarter of
1996 with the necessary funds being provided primarily from cash generated by
its operating activities and proceeds from the sale of gas storage inventory.
8
LIQUIDITY
Tejas' working capital decreased $28.9 million to $11.7 million at March
31, 1996 from $40.6 million at December 31, 1995. This decrease was due
primarily to the sale of a significant portion of Tejas' investment in storage
gas inventory. In order to effectively utilize its cash balances, Tejas will
continue to make periodic borrowings under its revolving credit facilities and
money market credit lines to meet immediate cash needs.
At March 31, 1996, Tejas' long-term debt with banks totaled $231.9 million
consisting of $217.9 million borrowed under its $480 million revolving credit
facilities established for its subsidiaries, Tejas Acadian Holding Company
("TAHC") and Tejas Natural Gas Company ("TNGC") and $14.0 million borrowed under
various money market credit lines. Following the acquisition of Transok, (see
Note 4 of "Notes to Consolidated Financial Statements"), availability under the
revolving credit facilities will be reduced by approximately $180 million. In
addition, Tejas had $11.2 million in notes payable related to industrial
development revenue bonds issued by Lewis and Pleasants Counties, West Virginia.
The notes payable related to Lewis & Pleasants counties' bonds are secured
by bank letters of credit which in turn are secured by mortgages on two natural
gas processing plants located in West Virginia. The notes are also subject to
certain covenants and require that Tejas' subsidiaries, Gulf Energy Development
Corporation and Gulf Energy Gathering & Processing Corporation, maintain certain
financial standards.
Although TAHC and TNGC have additional borrowing capacity available under
their credit facilities, the amount of loans, advances and distributions
(collectively "Distributions") that may be made to Tejas from TAHC or TNGC is
subject to certain limitations. At March 31, 1996, Distributions to Tejas of
$212.8 million were permitted, of which $49.5 million and $163.3 million could
be paid in dividends and loaned, respectively. Such limitations as herein
described are not expected to have any material effect on the ability of Tejas
to meet its cash obligations. Tejas' liquidity is ultimately dependent on cash
generated by operations, and Tejas believes its earnings from operations will
generate sufficient cash to fund expansion projects, make required debt payments
and meet anticipated dividend requirements of the 9.96% Preferred Stock and 5
1/4% Preferred Stock in the foreseeable future. Based on the terms of Tejas'
amended revolving credit facilities and the outstanding principal balance at
March 31, 1996, no principal payments are required until late 2001. However,
Tejas' credit facilities are subject to certain covenants, including the
maintenance of certain financial ratios, with which Tejas expects to be able to
comply in the ordinary course of business.
Tejas frequently enters into swaps, futures and other contracts to hedge
the price risks associated with inventories, commitments, and certain
anticipated transactions. The swaps, futures and other contracts are with
established exchanges, energy companies, and major financial institutions and
Tejas believes that its counterparties will be able to satisfy their obligations
under these contracts.
As announced on May 9, 1996, Tejas has entered into a definitive agreement
to acquire Transok, Inc. ("Transok"), a subsidiary of Central and South West
Corporation ("CSW"). Transok operates intrastate natural gas pipeline systems in
Oklahoma, Louisiana and Texas. The agreement between Tejas and CSW provides for
the merger of Transok and a newly created subsidiary of Tejas. The transaction
is anticipated to be completed during the second quarter of 1996, subject to
environmental review and customary regulatory and closing requirements.
9
Transok operates approximately 6,500 miles of gathering and transmission
pipelines in Oklahoma, Louisiana and Texas with approximately 2.3 billion cubic
feet ("BCF") per day of pipeline capacity. Transok also operates a natural gas
reservoir storage facility with 26 BCF of storage capacity and eight natural gas
processing plants with a total capacity of 564 million cubic feet per day.
Pursuant to the merger agreement, Tejas has agreed to pay CSW $690 million
in cash and to acquire Transok subject to $200 million of existing debt. Tejas
expects to finance the proposed acquisition using funds borrowed under existing
credit facilities and funds to be obtained under a new credit facility to be
created in connection with the acquisition. Following consummation of the
acquisition, the remaining availability under Tejas' existing credit facilities
will be approximately $70 million. Subsequent to the acquisition, Tejas expects
to obtain funds through financing arrangements, including the sale of equity, in
order to reduce the acquisition debt. The acquisition is subject to certain
closing requirements referred to above. Further, if successfully completed,
Tejas believes the consummated transaction will significantly impact all aspects
of Tejas' operations and enhance Tejas' consolidated results of operations.
In the normal course of business, Tejas regularly reviews opportunities
such as Transok for the possible acquisition of additional natural gas pipelines
and companies that own natural gas pipelines. When potential acquisition
opportunities are deemed to be consistent with Tejas' growth strategy, bids or
offers in amounts and with terms acceptable to Tejas may be submitted. It is
uncertain whether any such bids or offers which may be submitted by Tejas would
be acceptable to the sellers of such acquisition targets. In the event of a
future significant acquisition, Tejas may require additional financing in
connection therewith.
OUTLOOK
Tejas' management expects its results of operations for the entire year of
1996 to be favorable when compared to the 1995 annual period due to several
factors. Tejas is encouraged by the many opportunities available for future
growth and continued expansion of operations. While no prediction can be made as
to the impact of Coral on Tejas' prospects, Tejas' management believes that over
the next several years Coral should be in a position to take advantage of the
unutilized capacity in Tejas' major long-distance transmission lines. In
addition, the large number of interconnects between Tejas pipelines and other
intrastate and interstate pipelines have the potential to become important
supply points for Coral. Additionally, substantial capacity remains to be
developed at the WCLSF which has the potential to continue to enhance profits
from services provided to both suppliers and consumers and from gas held in
storage for future delivery. While Tejas' management believes that the WCLSF can
be operated in such a manner as to achieve these goals, there are no assurances
that market conditions, including the average cost of natural gas held in
storage, will always be conducive to maintaining the current level of
profitability. Tejas has historically shown the ability to adapt to changing
operational requirements and capitalize on new market opportunities. Although
the foregoing factors present Tejas with opportunities to grow and expand, there
can be no assurance that such factors will result in future growth and expansion
of Tejas' operations, revenues and earnings.
Tejas' management knows of no trends or uncertainties that will impair
Tejas' ability to comply with its debt covenants or pay the dividends on the
9.96% Preferred Stock and 5 1/4% Preferred Stock.
10
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES
On April 11, 1996, the Tejas Board of Directors authorized a three-for-two
split of the Common Stock effected in the form of a stock dividend payable to
stockholders on record as of April 26, 1996. As a result of the split, 5,801,769
shares of Common Stock were added to the 11,603,263 common shares outstanding at
December 31, 1995. Also as a result of the split, the conversion price of Tejas'
5 1/4% Convertible Preferred Stock was adjusted from $63.6364 to $42.4243
(equivalent to an adjustment in the conversion rate from .7857 to 1.1786 shares
of Common Stock for each Depositary Share representing a one-fifth interest in a
share of the 5 1/4% Convertible Preferred Stock). The adjustment to the
conversion price (and conversion rate) was effective as of April 27, 1996.
Additionally, options to purchase Common Stock under Tejas' Stock Option Plans
as well as option prices were adjusted as a result of the Common Stock split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Description of the Tejas Gas Corporation
Annual Incentive Compensation Plan
11.1 Computation of Earnings per Common Share
(b) Reports on Form 8-K
A Current Report on Form 8-K dated November 2, 1995,
filed during the third quarter of 1995 was amended by
a Form 8-K/A dated January 31, 1996, filed during the
first quarter of 1996. Such form and amendment were
filed with respect to Item 5 of Form 8-K "Other
Events" to report the formation of Coral Energy
Resources, L.P., a partnership with Shell Oil
Company, and to file certain exhibits with respect
thereto.
11
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.
TEJAS GAS CORPORATION
(Registrant)
By: /S/ JAMES W. WHALEN
James W. Whalen
Executive Vice President -
Chief Financial Officer
(principal financial
officer and principal
accounting officer)
Date: May 10, 1996
12
Exhibit 10.1
TEJAS GAS CORPORATION
DESCRIPTION OF THE TEJAS GAS CORPORATION ANNUAL INCENTIVE
COMPENSATION PLAN
In 1992, the Company adopted an annual incentive compensation plan (the
"Incentive Plan") under which a participant may receive incentive compensation
in addition to base salary, subject to the attainment of stated performance
goals, based on the participant's level of authority and responsibility and a
discretionary assessment of individual performance during the year. Plan
participants and performance goals are established annually by the Compensation
Committee of the Board of Directors upon review of recommendations made by
management. Under the Incentive Plan, as amended in 1996, participants are
eligible to receive payments if the Company meets minimum performance goals with
payments increasing as these goals are exceeded by predetermined margins. There
is no formal plan document relating to the Incentive Plan and the Compensation
Committee has reserved the right to change the terms of the Incentive Plan in
the future. The Compensation Committee expects that the performance goals under
the Incentive Plan may change from year to year. The performance goals are
generally expected to be based on a combination of factors including the
Company's earnings per share and the Company's earnings from operations before
deduction of certain expenses.
Exhibit 11.1
TEJAS GAS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
Three Months Ended March 31,
1996 1995
------- -------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Weighted average number of common shares
outstanding ....................................... 17,405 17,339
Incremental common shares resulting from
assumed exercise of stock options based
on the stock's daily average market price ......... -- --
------- -------
Weighted average number of common shares
outstanding and common equivalent shares
for primary calculation ........................... 17,405 17,339
Incremental common shares resulting from
assumed exercise of stock options based
on the more dilutive of the stock's daily
average market price or ending price .............. -- --
------- -------
Weighted average number of common shares
outstanding and common equivalent shares
assuming full dilution ............................ 17,405 17,339
======= =======
NET EARNINGS APPLICABLE TO COMMON STOCK ................ $ 8,840 $ 6,081
======= =======
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE:
Primary ................................................ $ 0.51 $ 0.35
======= =======
FULLY-DILUTED .......................................... $ 0.51 $ 0.35
======= =======
NOTE: Weighted average number of Common Shares outstanding and primary and
fully-diluted earnings per common share have been restated to reflect the
following: (i) a three-for-two split of the Common Stock, effected in the form
of a stock dividend payable to stockholders of record as of April 26, 1996 and
(ii) a dividend of one-tenth of one share of Common Stock payable to
stockholders of record as of July 27, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 937
<SECURITIES> 0
<RECEIVABLES> 194,628
<ALLOWANCES> 0
<INVENTORY> 10,484
<CURRENT-ASSETS> 212,039
<PP&E> 799,817
<DEPRECIATION> 186,364
<TOTAL-ASSETS> 881,958
<CURRENT-LIABILITIES> 223,764
<BONDS> 243,075
55,000
460
<COMMON> 4,351
<OTHER-SE> 306,521
<TOTAL-LIABILITY-AND-EQUITY> 881,958
<SALES> 432,401
<TOTAL-REVENUES> 432,401
<CGS> 389,072
<TOTAL-COSTS> 406,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,155
<INCOME-PRETAX> 17,645
<INCOME-TAX> 6,707
<INCOME-CONTINUING> 10,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,938
<EPS-PRIMARY> .51
<EPS-DILUTED> 0
</TABLE>
