<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4101
---------------------
TENNESSEE GAS PIPELINE COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 74-1056569
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $5 per share. Shares outstanding on May 10, 2000:
208
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED
MARCH 31,
--------------
2000 1999
---- ----
<S> <C> <C>
Operating revenues.......................................... $186 $187
---- ----
Operating expenses
Operation and maintenance................................. 53 49
Depreciation, depletion, and amortization................. 35 34
Taxes, other than income taxes............................ 12 12
---- ----
100 95
---- ----
Operating income............................................ 86 92
Other income, net........................................... 6 9
---- ----
Income before interest and income taxes..................... 92 101
---- ----
Non-affiliated interest and debt expense.................... 34 33
Affiliated interest income, net............................. (11) (8)
Income tax expense.......................................... 23 26
---- ----
46 51
---- ----
Net income.................................................. $ 46 $ 50
==== ====
</TABLE>
See accompanying notes.
1
<PAGE> 3
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 3 $ 4
Accounts and notes receivable, net........................ 312 624
Materials and supplies.................................... 17 17
Deferred income tax benefit............................... 47 44
Other..................................................... 14 18
------ ------
Total current assets.............................. 393 707
Property, plant, and equipment, net......................... 4,477 4,488
Other....................................................... 224 226
------ ------
Total assets...................................... $5,094 $5,421
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable.......................................... $ 200 $ 216
Short-term borrowings (including current maturities of
long-term debt)........................................ 223 650
Taxes payable............................................. 126 105
Other..................................................... 100 85
------ ------
Total current liabilities......................... 649 1,056
Long-term debt, less current maturities..................... 1,354 1,353
Deferred income taxes....................................... 1,178 1,175
Other....................................................... 305 275
Commitments and contingencies
Stockholder's equity
Common stock, par value $5 per share; authorized 300
shares; issued 208 shares.............................. -- --
Additional paid-in capital................................ 1,388 1,388
Retained earnings......................................... 220 174
------ ------
Total stockholder's equity........................ 1,608 1,562
------ ------
Total liabilities and stockholder's equity........ $5,094 $5,421
====== ======
</TABLE>
See accompanying notes.
2
<PAGE> 4
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED
MARCH 31,
----------------
2000 1999
----- -----
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 46 $ 50
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion, and amortization.............. 35 34
Deferred income taxes.................................. -- 15
Other.................................................. (4) (2)
Working capital changes, net of non-cash transactions..... (18) (10)
Other..................................................... 33 (5)
----- -----
Net cash provided by operating activities......... 92 82
----- -----
Cash flows from investing activities
Purchases of property, plant, and equipment............... (20) (17)
Net change in other affiliated advances receivable........ 356 (320)
Other..................................................... (2) (3)
----- -----
Net cash provided by (used in) investing
activities....................................... 334 (340)
----- -----
Cash flows from financing activities
Net borrowings (repayments) from commercial paper......... (427) 334
Net change in other affiliated advances payable........... -- (76)
----- -----
Net cash provided by (used in) financing
activities....................................... (427) 258
----- -----
Decrease in cash and cash equivalents....................... (1) --
Cash and cash equivalents
Beginning of period............................... 4 5
----- -----
End of period..................................... $ 3 $ 5
===== =====
</TABLE>
See accompanying notes.
3
<PAGE> 5
TENNESSEE GAS PIPELINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Our 1999 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The condensed consolidated financial
statements at March 31, 2000, and for the quarters ended March 31, 2000 and
1999, are unaudited. The condensed consolidated balance sheet at December 31,
1999, is derived from the audited financial statements. These financial
statements do not include all disclosures required by generally accepted
accounting principles, but have been prepared pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission. In our opinion, all
material adjustments, all of which are of a normal, recurring nature, have been
made to fairly present our results of operations. Information for any interim
period may not necessarily indicate the results of operations for the entire
year due to the seasonal nature of our businesses. The prior period information
includes reclassifications which were made to conform to the current
presentation. These reclassifications have no effect on reported net income or
stockholder's equity.
2. PROPERTY, PLANT, AND EQUIPMENT
Our property, plant, and equipment consisted of the following at March 31,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost..................... $2,502 $2,479
Less accumulated depreciation and depletion................. 334 304
------ ------
2,168 2,175
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 2,309 2,313
------ ------
Total property, plant, and equipment, net......... $4,477 $4,488
====== ======
</TABLE>
3. DEBT AND OTHER CREDIT FACILITIES
At March 31, 2000, our weighted average interest rate on short-term
borrowings was 6.3%, and at December 31, 1999, it was 6.6%. We had the following
short-term borrowings, including current maturities of long-term debt, at March
31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
----- -----
(IN MILLIONS)
<S> <C> <C>
Commercial paper............................................ $222 $649
Current maturities of long-term debt........................ 1 1
---- ----
$223 $650
==== ====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Rates and Regulatory Matters
In April 1997, the Federal Energy Regulatory Commission (FERC) approved the
settlement of all issues related to the recovery of our Gas Supply Realignment
(GSR) and other transition costs and related proceedings. Under the terms of
this agreement, we are entitled to collect up to $770 million from our
customers, $693 million through a demand surcharge and $77 million through an
interruptible transportation surcharge. The demand portion has been fully
collected. As of March 31, 2000, $48 million of the interruptible transportation
portion had been collected. There is no time limit for collection of the
interruptible transportation surcharge. The terms of this agreement also provide
for a rate case moratorium through
4
<PAGE> 6
November 2000 (subject to certain limited exceptions) and an escalating rate
cap, indexed to inflation, through October 2005, for some of our customers. In
March 2000, we provided a report to our firm and interruptible customers
detailing our GSR costs and collections through December 31, 1999. At December
31, 1999, we were over-collected from our firm customers by approximately $30
million. We will be required to refund amounts collected in excess of each firm
customer's share of the final transition costs based on the final GSR
reconciliation report, which will be filed in March 2001. We do not expect
future refunds to have a material adverse effect on our financial position,
results of operations, or cash flows.
In December 1996, we filed for a general rate increase with FERC. In
October 1998, FERC approved our settlement resolving that proceeding. The
settlement included a structural rate design change that resulted in a larger
portion of our transportation revenues being dependent upon throughput. One of
our competitors filed a petition for review of the settlement with the Court of
Appeals, which remanded the case to FERC to respond to the competitor's argument
that our cost allocation methodology deterred the development of market centers.
Comments were filed with FERC in January 1999. This matter is still pending
before FERC.
We have contracts covering a portion of our firm transportation capacity
which have various terms of maturity. As of March 31, 2000, 20 percent of our
firm transportation capacity contracts will expire by November 2000. We have
aggressively pursued renegotiating and renewing these expiring contracts, and
selling our excess capacity under firm transportation arrangements, and have
made progress in our efforts. However, it is uncertain if future contracts will
be on terms as favorable to us as those that exist currently. Also, new and
renewed contracts can be disputed by customers and other groups, and there is no
certainty that regulators or other jurisdictional bodies will not intercede in
the re-contracting process and alter the ultimate outcome of our efforts.
As an interstate pipeline, we are subject to FERC audits of our books and
records. Also, from time to time, the FERC audit staff requests supporting
documentation from us as evidence of our compliance.
As our rate and regulatory matters are fully and unconditionally resolved,
we may either recognize an additional refund obligation, a non-cash write-down
of a previously established asset, or a non-cash benefit to finalize previously
estimated liabilities. While we cannot predict with certainty the final outcome
or timing of the final resolution of our rates and regulatory matters, the
outcome of our current re-contracting efforts, or the outcome of ongoing
industry trends and initiatives, we believe that the ultimate resolution of
these pending rate and regulatory matters will not have a material adverse
effect on our financial position, results of operations, or cash flows.
Legal Proceedings
In February 1998, the United States and the State of Texas filed in a U.S.
District Court a Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) cost recovery action against fourteen companies,
including certain of our affiliated companies and us, relating to the Sikes
Disposal Pits Superfund Site located in Harris County, Texas. The suit claims
that the United States and the State of Texas have spent over $125 million in
remediating Sikes, and seeks to recover that amount plus interest from the
defendants to the suit. Although an investigation relating to Sikes is in the
preliminary stages, we believe that the amount of material, if any, disposed at
Sikes by our former affiliates was small, possibly de minimis. However, the
plaintiffs have alleged that the defendants are each jointly and severally
liable for the entire remediation costs and have also sought a declaration of
liability for future response costs such as groundwater monitoring.
TGP is a party in proceedings involving federal and state authorities
regarding the past use of a lubricant containing polychlorinated biphenyls
(PCBs) in its starting air systems. TGP has executed a consent order with the
EPA governing the remediation of some compressor stations and is working with
the EPA and the relevant states regarding those remediation activities. TGP is
also working with the Pennsylvania and New York environmental agencies regarding
remediation and post-remediation activities at the Pennsylvania and New York
stations.
5
<PAGE> 7
In November 1988, the Kentucky environmental agency filed a complaint in a
Kentucky state court alleging that TGP discharged pollutants into the waters of
the state and disposed of PCBs without a permit. The agency sought an injunction
against future discharges, sought an order to remediate or remove PCBs, and
sought a civil penalty. TGP entered into agreed orders with the agency to
resolve many of the issues raised in the original allegations, has received
water discharge permits from the agency for its Kentucky compressor stations,
and continues to work to resolve the remaining issues. The relevant Kentucky
compressor stations are scheduled to be characterized and remediated under the
consent order with the EPA.
TGP is a named defendant in actions brought by Jack Grynberg on behalf of
the U.S. Government under the False Claims Act. Generally, these complaints
allege an industry-wide conspiracy to under report the heating value as well as
the volumes of the natural gas produced from federal and Indian lands, which
deprived the U.S. Government of royalties. We have also been named as a
defendant in a similar class action suit, Quinque Operating Company v. Gas
Pipelines. This complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The Quinque complaint was transferred to the same court handling
the Grynberg complaint. We believe both complaints are without merit.
We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.
While the outcome of the matters discussed above cannot be predicted with
certainty, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, results of operations, or
cash flows.
Environmental
We are subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites. As of March 31, 2000, we had reserved $106 million for expected
environmental costs.
In addition, we expect to make capital expenditures of approximately $3
million in 2000 and a total of $86 million for the years 2001 through 2007 for
environmental matters primarily relating to compliance with air regulations and
control of water discharges. Some of our subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a potentially
responsible party (PRP) with respect to 3 sites under CERCLA.
It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations, and claims for
damages to property, employees, other persons and the environment resulting from
our current or discontinued operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the recorded
reserves are adequate.
5. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, to establish accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. This pronouncement requires us to
classify derivatives as either assets or liabilities
6
<PAGE> 8
on the balance sheet and measure those instruments at fair value. If certain
conditions are met, we may specifically designate a derivative as a hedge of:
- the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment,
- the exposure to variable cash flows of a forecasted transaction, or
- the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. Statement of
Financial Accounting Standards No. 137 amended the standard in June 1999. The
amendment defers the effective date to fiscal years beginning after June 15,
2000. We are currently evaluating the effects of this pronouncement.
6. SUBSEQUENT EVENTS
In May 2000, we formed Clydesdale Associates, L.P., a limited partnership,
and several other separate legal entities, for the purpose of generating funds
for El Paso Energy Corporation to invest in capital projects and other assets.
Certain assets of El Paso Energy, including proceeds we receive from renting our
office building in Houston, Texas, collateralize the proceeds.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A, and 8, in our
Annual Report on Form 10-K for the year ended December 31, 1999, in addition to
the interim financial statements and notes presented in Item 1 of this Quarterly
Report on Form 10-Q.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FIRST QUARTER
ENDED
MARCH 31,
----------------
2000 1999
------ ------
(IN MILLIONS,
EXCEPT VOLUME
AMOUNTS)
<S> <C> <C>
Operating revenues.......................................... $ 186 $ 187
Operating expenses.......................................... (100) (95)
Other, net.................................................. 6 9
------ ------
EBIT...................................................... $ 92 $ 101
====== ======
Throughput volumes (BBtu/d)(1).............................. 4,839 4,836
====== ======
</TABLE>
- ---------------
(1) BBtu/d means billion British thermal units per day.
Operating revenues for the quarter ended March 31, 2000, were $1 million
lower than 1999. The decrease was due to the favorable resolution of a
regulatory issue during the first quarter of 1999, partially offset by an
increase in interruptible transportation rates in 2000.
Operating expenses for the quarter ended March 31, 2000, were $5 million
higher than 1999. The increase was due to the favorable resolution of regulatory
issues during 1999, partially offset by lower shared services allocations and
lower fuel costs.
Other income for the quarter ended March 31, 2000, was $3 million lower
than 1999. The decrease was due to the favorable settlement of a regulatory
issue in 1999.
AFFILIATED INTEREST INCOME, NET
Affiliated interest income, net for the quarter ended March 31, 2000, was
$3 million higher than 1999 due to higher average interest rates on net advances
with El Paso in 2000.
INCOME TAX EXPENSE
Our income tax expense for the quarters ended March 31, 2000 and 1999, was
$23 million and $26 million, respectively, resulting in an effective tax rate of
33 percent and 34 percent, respectively. The effective tax rates are lower than
the statutory rate of 35 percent due to state income taxes.
8
<PAGE> 10
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations. These statements may relate to information or
assumptions about:
- capital and other expenditures;
- dividends;
- financing plans;
- capital structure;
- cash flow;
- pending legal proceedings and claims, including environmental matters;
- future economic performance;
- operating income;
- cost savings;
- management's plans; and
- goals and objectives for future operations.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the increasing competition within our industry;
- the timing and extent of changes in commodity prices for natural gas and
power;
- the uncertainties associated with customer contract expirations on our
pipeline systems;
- the potential contingent liabilities and tax liabilities related to our
acquisitions; and
- the conditions of equity and other capital markets.
These risk factors are more fully described in our other filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 1999, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
There are no material changes in market risk from those reported in our
Annual Report on Form 10-K for the year ended December 31, 1999.
9
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Financial Information, Note 4, which is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Each exhibit identified below is filed as a part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------- DESCRIPTION
<C> <S>
27 -- Financial Data Schedule
</TABLE>
Undertaking
The undersigned hereby undertakes, pursuant to Regulation S-K, Item
601(b), paragraph (4)(iii), to furnish to the U.S. Securities and Exchange
Commission, upon request, all constituent instruments defining the rights
of holders of long-term debt of Tennessee Gas Pipeline Company and its
consolidated subsidiaries not filed herewith for the reason that the total
amount of securities authorized under any of such instruments does not
exceed 10 percent of the total consolidated assets of Tennessee Gas
Pipeline Company and its consolidated subsidiaries.
b. Reports on Form 8-K
None.
10
<PAGE> 12
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.
TENNESSEE GAS PIPELINE COMPANY
Date: May 11, 2000 /s/ H. BRENT AUSTIN
------------------------------------
H. Brent Austin
Executive Vice President and
Chief Financial Officer
Date: May 11, 2000 /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Senior Vice President and Controller
(Chief Accounting Officer)
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------- DESCRIPTION
<C> <S>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 312
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 393
<PP&E> 4,477
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 5,094
<CURRENT-LIABILITIES> 649
<BONDS> 1,354
0
0
<COMMON> 0
<OTHER-SE> 1,608
<TOTAL-LIABILITY-AND-EQUITY> 5,094
<SALES> 0
<TOTAL-REVENUES> 186
<CGS> 0
<TOTAL-COSTS> 100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 69
<INCOME-TAX> 23
<INCOME-CONTINUING> 46
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
<FN>
<F1>Not separately indentified in the consolidated financial statements or
accompanying notes thereto.
</FN>
</TABLE>
