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, 1994
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 1-4169
TEXAS GAS TRANSMISSION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-0405152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3800 FREDERICA STREET, OWENSBORO, KENTUCKY 42301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 926-8686
Indicate by check mark whether the registrant (1) has filed all reports re-
quired 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 reg-
istrant 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. 1,000 shares as of
May 12, 1994
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) and
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 4-5
Condensed Statements of Income -
Three Months Ended March 31, 1994 and 1993 6
Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 7
Notes to Condensed Financial Statements 8-11
Item 2. Management's Narrative Analysis of the Results of
Operations 12-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Company or group of companies for which report is filed:
TEXAS GAS TRANSMISSION CORPORATION
The condensed financial statements included herein have been prepared by Texas
Gas Transmission Corporation (the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain in-
formation and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of the Company's management, however, all adjustments, consisting only of nor-
mal and recurring adjustments, necessary for a fair presentation of the finan-
cial position as of the date and results of operations for the periods in-
cluded herein have been made and the disclosures contained herein are adequate
to make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements, notes
thereto and management's discussion contained in the Company's 1993 Annual
Report on Form 10-K.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
ASSETS
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 410 $ 292
Receivables:
Trade 3,787 16,441
Affiliates 8,014 4,761
Other 882 1,934
Advances to affiliates 39,707 65,667
Transportation and exchange gas receivable 24,196 25,112
Costs recoverable from customers:
Gas purchase 2,798 5,590
Producer settlement 537 1,067
Gas supply realignment 39,125 19,231
Inventories 14,950 14,724
Deferred income tax benefits 16,387 17,680
Other 8,518 5,751
Total current assets 159,311 178,250
Advances to Affiliates 177,000 137,000
Investments, at Cost 2,576 2,635
Property, Plant and Equipment, at cost:
Natural gas transmission plant 839,784 835,044
Less - Accumulated depreciation and
amortization 183,558 173,201
Property, plant and equipment, net 656,226 661,843
Other Assets:
Gas stored underground 95,373 92,103
Other 39,894 60,515
Total other assets 135,267 152,618
Total Assets $1,130,380 $1,132,346
</TABLE>
The accompanying condensed notes are an integral part of these condensed
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ - $ 150,000
Payables:
Trade 12,158 13,821
Affiliates 16,253 13,274
Other 4,249 30,714
Advances from affiliates 1,625 1,576
Transportation and exchange gas payable 21,833 17,109
Accrued liabilities 52,367 45,659
Accrued gas supply realignment costs 17,750 24,750
Costs refundable to customers 8,056 4,643
Reserve for regulatory and rate matters 36,978 23,063
Other 1,176 676
Total current liabilities 172,445 325,285
Long-Term Debt 248,772 98,678
Other Liabilities and Deferred Credits:
Income taxes refundable to customers 7,073 7,243
Deferred income taxes 30,210 35,348
Other 59,516 58,556
Total other liabilities and
deferred credits 96,799 101,147
Stockholder's Equity:
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding 1 1
Premium on capital stock and other paid-in
capital 584,712 584,712
Retained earnings 27,651 22,523
Total stockholder's equity 612,364 607,236
Total Liabilities and Stockholder's
Equity $1,130,380 $1,132,346
</TABLE>
The accompanying condensed notes are an integral part of these condensed
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED STATEMENTS OF INCOME
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Operating Revenues:
Gas sales $ 42,925 $109,196
Gas transportation 90,668 49,703
Other 645 1,801
Total operating revenues 134,238 160,700
Operating Costs and Expenses:
Cost of gas sold 41,898 79,532
Cost of transportation of gas by others 17,290 12,808
Operation and maintenance 12,894 12,491
Administrative and general 17,359 14,037
Depreciation and amortization 9,807 9,579
Taxes other than income taxes 3,816 3,351
Total operating costs and expenses 103,064 131,798
Operating Income 31,174 28,902
Other (Income) Deductions:
Interest expense 6,447 6,338
Interest income (2,467) (3,039)
Miscellaneous other deductions 769 1,141
Total other (income) deductions 4,749 4,440
Income Before Income Taxes 26,425 24,462
Provision for Income Taxes 10,462 9,594
Net Income $ 15,963 $ 14,868
</TABLE>
The accompanying condensed notes are an integral part of these condensed
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,963 $ 14,868
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 10,252 10,119
Deferred income taxes (3,845) (182)
Nonrecoverable producer settlements (512) (38)
Decrease (increase) in:
Receivables 10,548 2,665
Transportation and exchange gas receivable 916 (11,995)
Inventories (226) 39,145
Deferred gas costs 2,791 (1,735)
Other current assets (10,661) 3,160
Increase (decrease) in:
Payables (25,148) (13,394)
Transportation and exchange gas payable 4,724 1,147
Accrued liabilities (292) (33,982)
Reserve for regulatory and rate matters 15,962 -
Other current liabilities 3,913 2,742
Other, net 5,953 (2,094)
Net cash from operating activities 30,338 10,426
Cash flows from financing activities:
Advances from affiliates, net (2) 85
Dividends and returns of capital on common stock (10,835) (10,000)
Net cash from financing activities (10,837) (9,915)
Cash flows from investing activities:
Property, plant and equipment, net of equity AFUDC (5,509) (1,695)
Recoverable producer settlements (1,535) (115)
Recovery of producer settlements 530 3,145
Advances to affiliates, net (14,040) (2,516)
Other, net 1,171 490
Net cash from investing activities (19,383) (691)
Net increase (decrease) in cash and cash equivalents 118 (180)
Cash and cash equivalents at beginning of period 292 560
Cash and cash equivalents at end of period $ 410 $ 380
___________________________________________________________________________________________________________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,832 $ 8,481
Income taxes, net 8,537 (5,586)
The accompanying condensed notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. CORPORATE STRUCTURE AND CONTROL AND BASIS OF PRESENTATION
Corporate Structure and Control
Texas Gas Transmission Corporation (the Company) is a wholly owned subsidiary
of Transco Gas Company (TGC), which is a wholly owned subsidiary of Transco
Energy Company (Transco). As used herein, the term Transco refers to Transco
Energy Company and its wholly owned subsidiary companies, the term TGMC refers
to Transco Gas Marketing Company, a wholly owned subsidiary of Transco, and
its wholly owned subsidiary companies; and the term TGPL refers to
Transcontinental Gas Pipe Line Corporation, a wholly owned subsidiary of TGC,
unless the context otherwise requires.
The condensed financial statements have been prepared from the books and
records of the Company without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These condensed financial statements should be read in conjunction with the
financial statements, notes thereto and management's discussion contained in
the Company's 1993 Annual Report on Form 10-K.
As a subsidiary of Transco, the Company engages in transactions with Transco
and other Transco subsidiaries, characteristic of group operations. For
consolidated cash management purposes, the Company makes interest-bearing
advances to Transco. These advances are represented by demand notes payable
to the Company. Those amounts that the Company anticipates Transco will repay
in the next twelve months are classified as current assets, while the
remainder are classified as non-current. As general corporate policy, the
interest rate on intercompany demand notes is 1-1/2% below the prime rate of
Citibank, N.A.
Basis of Presentation
The acquisition of the Company in 1989 by Transco was accounted for using the
purchase method of accounting. The total acquisition cost was allocated to
the net assets of the Company based on their estimated fair values at the date
of acquisition. Included in property, plant and equipment, as of the date of
acquisition, was an aggregate of $226 million related to amounts in excess of
the original cost of the regulated facilities. This amount is amortized over
the estimated life of the assets acquired at approximately $9 million per
year. Current Federal Energy Regulatory Commission (FERC) policy does not
permit the Company to recover through its rates amounts in excess of original
cost.
Certain reclassifications have been made in the 1993 financial statements to
conform to the 1994 presentation.
<PAGE>
B. REGULATORY AND RATE MATTERS
There have been no new reportable developments from those described in the
1993 Annual Report on Form 10-K other than described below.
FERC Order 636
As discussed in the Company's 1993 Annual Report on Form 10-K, the Company has
restructured its business to implement the provisions of FERC Order 636. On
October 1, 1993, the FERC issued an Order, which essentially approved the
major aspects of the Company's FERC Order 636 compliance plan. On October 18,
1993, the Company filed revised tariff sheets and other changes pursuant to
the October 1, 1993 order, which permitted implementation of FERC Order 636
restructured services on November 1, 1993. The Company currently estimates
its transition costs under FERC Order 636 will not exceed $90 million,
primarily related to Gas Supply Realignment (GSR) contract termination costs,
GSR pricing differential costs incurred pursuant to the Company's auction
process and unrecovered purchased gas costs. As of March 31, 1994, the
Company had paid or committed to pay $39.9 million of GSR costs, as discussed
below in "Gas Supply Realignment Costs." FERC Order 636 provides that
pipelines should be allowed the opportunity to recover all prudently incurred
transition costs. Therefore, the Company expects that any transition costs
incurred should be recovered from its customers, subject only to the costs and
other risks associated with the difference between the time such costs are
incurred and the time when those costs may be recovered from customers.
Pursuant to FERC Order 636, the Company terminated its Purchased Gas
Adjustment (PGA) clause on November 1, 1993. On January 31, 1994, the Company
filed a limited Section 4(e) filing, pursuant to its approved FERC Gas Tariff,
to direct bill the balance of its unrecovered purchased gas costs at October
31, 1993 to its former sales customers. This filing was necessary to recover
$3.0 million of deferred gas costs applicable to the period September 1992
through October 1993. Recovery of such deferred gas costs from former sales
customers began in February 1994. The Company may file for future recovery,
via additional direct billings, of pre-November 1, 1993 adjustments to
purchased gas costs, when these amounts become known. The Company has no
outstanding deferred gas cost issues pending in any other proceeding.
General Rate Issues
On April 29, 1993, the Company filed a general rate case (Docket No. RP93-106)
which became effective on November 1, 1993, subject to refund. The Company
has been engaged in settlement proceedings over the past several months
regarding this case. As a result of these discussions, a preliminary
settlement in principle, which would resolve all issues, has been reached with
the majority of the parties, subject to the approval of definitive
documentation by the parties and ultimate approval by the FERC. Under the
terms of this preliminary settlement, if approved by the parties and the FERC,
the Company's stated pre-tax rate of return on equity would be reduced from
16.6%, included in its previous rate settlement, to 13.9%. The Company has
<PAGE>
established a reserve, which it believes to be adequate, to reflect the
difference between the rates currently being collected and the rates expected
to ultimately be effective upon settlement of the rate case.
Reserve for Regulatory and Rate Matters
The Company has established reserves for its outstanding regulatory and rate
matters which it believes are adequate to provide for any costs incurred or
refunds to be made in regard to the resolution of its regulatory and rate
issues. Although no assurances can be given, the Company believes that the
resolution of these matters will not have a material adverse effect on its
financial position or results of operations.
Gas Supply Realignment Costs
During 1993, as part of the Company's restructuring under FERC Order 636, the
Company engaged in negotiations which have resulted in the successful
termination of approximately 90% of the Company's deliverability under its
non-market responsive gas purchase contracts. Gas purchased under its
remaining non-market responsive contracts is being resold at a monthly auction
pursuant to FERC Order 636. The Company continues to pay to the supplier the
actual contract price and is entitled to file for full recovery of the
difference between said contract price and the auction price as GSR costs
under FERC Order 636.
Through March 31, 1994, the Company had paid or committed to pay a total of
$39.9 million for GSR costs, primarily as a result of the contract
terminations. As of March 31, 1994, the Company had paid $22.1 million of
such costs; the remaining $17.8 million is recorded as a current liability in
the accompanying balance sheet. Pursuant to FERC Order 636, the Company may
file to recover 100% of these costs as GSR costs.
To date, the Company has made two quarterly filings to recover $19.4 million
of GSR costs paid through February 1994, pursuant to FERC Order 636 and the
Company's approved FERC Gas Tariff. Such amount represents 90% of GSR costs
paid which are to be recovered over a twelve-month period from the effective
date of each filing, through a surcharge to its transportation rates. The
remaining 10% of GSR costs is expected to be recovered from interruptible
transportation service. The Company plans to continue to make future
quarterly filings to recover its GSR costs as such costs are paid.
The Company's market-responsive gas purchase contracts are being separately
managed by its marketing affiliate, TGMC, as agent for the Company.
C. Royalty Claims and Legal Proceedings
There have been no new reportable developments from those described in the
Company's 1993 Annual Report on Form 10-K with regard to royalty claims and
legal proceedings.
<PAGE>
D. Financing
On April 11, 1994, the Company issued $150 million of 8.625% ten-year Notes
(Notes) due April 1, 2004. The Notes are not redeemable prior to maturity.
The Notes are senior unsecured obligations of the Company. Proceeds from the
issuance of the Notes were used to redeem the Company's 10% Debentures (Deben-
tures) on April 29, 1994. Due to the issuance of the Notes in April 1994 and
subsequent redemption of the Debentures, $150 million of current maturities of
long-term debt at March 31, 1994 has been reclassified to long-term debt in
the accompanying condensed balance sheets.
As discussed in Note A, the Company engages in transactions with Transco and
other Transco subsidiaries, characteristic of group operations. Certain of
Transco's credit facilities prohibit the Company from, among other things,
incurring or guaranteeing any additional indebtedness (except for indebtedness
incurred to refinance existing indebtedness), issuing preferred stock or
advancing cash to affiliates other than Transco. Further, these credit
facilities and Transco's indentures contain restrictive covenants which could
limit Transco's ability to make additional borrowings and, therefore, under
certain circumstances, its ability to repay advances or make capital contri-
butions to the Company.
<PAGE>
Item 2. Management's Narrative and Analysis of the Results of Operations
(Filed Pursuant to General Instruction H)
Financial Analysis of Operations
Three Months Ended March 31, 1994 Compared to
Three Months Ended March 31, 1993
On November 1, 1993, the Company implemented FERC Order 636, which required
pipelines to "unbundle" services and offer transportation and storage services
separately from the sale of gas. As a result, the Company's gas sales result
primarily from requirements to meet its remaining gas purchase commitments.
The Company's monthly gas purchases under non-market-responsive commitments
are sold at auction with any underrecovery of such costs deferred as a regula-
tory asset for future recovery as a transition cost. All other gas purchase
and sales commitments are being managed by the Company's marketing affiliate,
TGMC, as agent for the Company. The Company's gas sales currently have no
impact on its results of operations.
As part of its implementation of FERC Order 636, the Company has been allowed
to retain its storage gas, in part to meet operational balancing needs on its
system, and in part to meet the requirements of the Company's "no-notice"
transportation service, which allows customers to temporarily draw from the
Company's storage gas to be repaid in-kind during the following summer season.
The Company's implementation of FERC Order 636 also included a change in its
rate design method from Modified Fixed Variable (MFV) to Straight Fixed
Variable (SFV). Under the MFV method, all fixed costs, with the exception of
equity return and income taxes, were included in the demand component of the
charge to customers; the equity return and income tax components of cost of
service were included as part of the volumetric charge to customers. Under
the SFV method, all fixed costs, including equity return and income taxes, are
included in the demand charge to customers. Accordingly, under SFV, the
demand component has a greater impact on the Company's operating income, while
overall throughput has a less significant impact. The Company's demand
charges, under FERC Order 636, are seasonal and are generally higher during
the winter heating season.
Effective November 1, 1993, the Company placed rates into effect, subject to
refund, under a new general rate case as discussed in the Company's Annual
Report on Form 10-K. The Company has been engaged in settlement proceedings
over the past several months regarding this case. As a result of these
discussions, a preliminary settlement in principle, which would resolve all
issues, has been reached with a majority of the parties, subject to the
approval of definitive documentation by the parties and ultimate approval by
the FERC. Under the terms of this preliminary settlement, if approved by the
parties and the FERC, the Company's stated pre-tax rate of return on equity
would be reduced from 16.6%, included in its previous rate settlement, to
13.9%. If the settlement is ultimately approved upon its current terms, the
Company currently estimates that the settlement could, along with reduced
interruptible transportation revenue associated with the implementation of
FERC Order 636, result in lower annual operating income, in the low $70
million dollar range.
<PAGE>
There are various factors which may affect the Company's actual operating
results, including, but not limited to, competition from other pipelines, its
rate design structure, cost management, and, to a lesser extent, fluctuations
in its throughput which may result from a number of factors, including
weather. Furthermore, while the use of SFV rate design limits the Company's
opportunity to earn incremental revenues through increased throughput, it also
minimizes the Company's risk associated with fluctuations in throughput. The
Company believes that under FERC Order 636, with SFV rates and its anticipated
transition cost recovery, its rate structure will remain competitive.
Operating and Net Income
Operating income was $2 million higher for the three months ended March 31,
1994 than for the three months ended March 31, 1993. The increase in
operating income was primarily due to higher gas transportation revenues,
partially offset by lower net gas sales revenues and increased operating costs
and expenses. Each of these factors is discussed below. Net income was $1
million higher than 1993 for the same reasons that resulted in higher
operating income.
Operating Revenues
Operating revenues decreased $26 million, primarily as a result of lower gas
sales revenues due to implementation of FERC Order 636, which ended the
Company's bundled sales service. Effective November 1, 1993 the Company's
unbundled gas sales are managed by its marketing affiliate, TGMC, as agent for
the Company.
The increase in gas transportation revenues was primarily due to higher firm
transportation demand revenues as a result of the conversion of customers'
firm sales service to firm transportation service due to the implementation of
FERC Order 636. Although long-haul transportation volumes increased, the
decrease in the average commodity transportation rate, which resulted from the
implementation of FERC Order 636 and SFV rates, more than offset the effect on
transportation revenues of the higher transportation volumes.
Operating Costs and Expenses
Cost of gas sold decreased $38 million from the prior year. This decrease was
primarily due to the implementation of FERC Order 636 and the resultant
decrease in gas sales volumes. The Company's administrative and general
expenses increased $3 million. The increase was primarily due to $2 million
higher cost of postretirement benefits other than pensions which is included
in rates.
System Deliveries
As shown in the table below, the Company's total mainline deliveries for the
three months ended March 31, 1994 increased 23.9 Bcf, or 14.2%, as compared to
<PAGE>
the three months ended March 31, 1993, primarily due to increased service to
other interstate natural gas pipelines and slightly colder weather on a
degree-day basis in the Company's primary market area. The revenues
associated with short-haul transportation volumes are not material to the
Company.
Three Months
Ended March 31,
System Deliveries (Bcf): 1994 1993
Sales - 31.7
Long-haul transportation 192.2 136.6
Total mainline deliveries 192.2 168.3
Short-haul transportation 50.8 53.4
Total system deliveries 243.0 221.7
The Company's facilities are divided into five rate zones. Generally, gas
delivered in the northern four zones is classified as long-haul transporta-
tion. Gas delivered in the remaining southernmost zone is classified as
short-haul transportation. The Company's sales under the FERC Order 636
environment are generally made in the southernmost zone; however, the sales
are made off system and, therefore, do not constitute system deliveries.
Competition
The Company and its primary market area competitors (ANR Pipeline Company,
Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Texas Eastern
Transmission Corporation, Columbia Gas Transmission Corporation, Tennessee Gas
Pipeline Company and Midwestern Gas Transmission Company) implemented FERC
Order 636 on their respective systems during 1993. The Company and its major
competitors all employ SFV rate design for firm transportation as mandated by
FERC Order 636.
Future utilization of the Company's pipeline capacity will depend on
competition from other pipelines and alternative fuels, weather conditions and
participation by the Company's customers in its FERC Order 636 Capacity
Release Program which allows firm customers to release to third parties any
unneeded firm capacity on a temporary or permanent basis.
The end-use markets of several of the Company's customers have the ability to
switch to alternative fuels. To date, however, losses from fuel switching
have not been significant.
Capital Resources and Liquidity
Introduction
Through the years, the Company has consistently maintained its financial
strength and experienced strong operational results. Since its 1989
<PAGE>
acquisition by Transco, the Company has continued to enjoy financial and
operational strength. As an indirect wholly owned subsidiary of Transco, the
Company may be affected by the financial position and performance of Transco
and its other subsidiaries. The Company does not currently anticipate that
such relationship will have a material adverse effect on its financial
position or results of operations.
In October 1991, Transco's Board of Directors approved a comprehensive
strategic and financial plan (Plan) designed to stabilize Transco's financial
position, improve financial flexibility and restore earnings. Since the
Plan's adoption, Transco has made significant progress in its implementation,
including the sale of certain non-core and non-strategic businesses, reduction
in capital expenditures, resolution of certain material litigation and
improvement in its results of operations and financial flexibility.
Transco remains committed to deleveraging its balance sheet, further
eliminating or mitigating the potentially adverse impact from resolution of
remaining litigation and contingencies and improving financial results.
Financing
As a subsidiary of Transco, the Company engages in transactions with Transco
and other Transco subsidiaries characteristic of group operations. The
Company meets its working capital requirements by participation in the Transco
consolidated cash management program, pursuant to which the Company, for
investment purposes, both makes advances to and receives repayments of
advances from Transco, and by accessing capital markets to fund its long-term
debt maturities. As general corporate policy, the interest rate on
intercompany demand notes is 1-1/2% below the prime rate of Citibank, N.A.
At March 31, 1994, the Company had outstanding current and non-current
advances to Transco of $40 million and $177 million, respectively. Those
amounts that the Company anticipates Transco will repay in the next twelve
months are classified as current assets, while the remainder are classified as
non-current.
The Company and Transco's other subsidiaries pay dividends, based on the level
of their earnings and net cash flows, to provide funds to Transco for debt
service and dividend payments.
On April 11, 1994, the Company issued $150 million of 8.625% ten-year Notes
due April 1, 2004. The Notes are not redeemable prior to maturity. The Notes
are senior unsecured obligations of the Company. Proceeds from the issuance
of the Notes were used to redeem the Company's 10% Debentures on April 29,
1994.
To meet the working capital requirements of Transco and its subsidiaries,
Transco has in place a $450 million working capital line with a group of
fifteen banks. The Company is guarantor of up to $180 million of this working
capital line. At March 31, 1994, Transco had no outstanding borrowings under
this facility.
<PAGE>
Transco also has in place a $50 million reimbursement facility, dated as of
December 31, 1993, between Transco and a group of five banks. This facility
provides Transco the opportunity to obtain standby letters of credit under
certain circumstances from the banks. The Company is guarantor of up to $20
million of the obligations that arise under this facility.
Certain of Transco's credit facilities prohibit the Company from, among other
things, incurring or guaranteeing any additional indebtedness (except for
indebtedness incurred to refinance existing indebtedness), issuing preferred
stock or advancing cash to affiliates other than Transco. Further, these
credit facilities and Transco's indentures contain restrictive covenants which
could limit Transco's ability to make additional borrowings and, therefore,
under certain circumstances, its ability to repay advances or make capital
contributions to the Company.
Cash Flows and Capitalization
Net cash inflows from operating activities for the three months ended March
31, 1994 were approximately $20 million higher than for the three months ended
March 31, 1993, primarily as a result of the January 1993 payment of the
RP90-104 rate refunds in the amount of $36 million and to the 1994 reserve for
Docket No. RP93-106 rate refunds, partially offset by higher net withdrawals
from gas stored underground in the first quarter of 1993.
Net cash outflows from financing activities for the three months ended March
31, 1994 were $1 million higher than for the three months ended March 31,
1993, due to increased dividends paid to Transco.
Net cash outflows from investing activities for the three months ended March
31, 1994 were $19 million higher than the three months ended March 31, 1993,
primarily due to increases in cash advanced to Transco under Transco's cash
management program and in capital expenditures.
The Company's capital expenditures for the first three months of 1994 were $6
million, including $3 million for maintenance of existing facilities and $3
million for market expansion projects. Capital expenditures for the first
three months of 1993 were $2 million, including $1 million for maintenance of
existing facilities and $1 million for market expansion projects.
The Company's debt as a percentage of total capitalization was 29% at March
31, 1994. Net of current maturities, debt as a percentage of total
capitalization was 14% at December 31, 1993.
Transition Cost Recoveries
To date, the Company has made two quarterly filings to recover $19.4 million
of GSR costs paid through February 1994, pursuant to FERC Order 636 and the
Company's approved FERC Gas Tariff. Such amount represents 90% of GSR costs
paid which are to be recovered, over a twelve-month period from the effective
date of each filing, through a surcharge to its transportation rates. The
<PAGE>
remaining 10% of GSR costs is expected to be recovered from interruptible
transportation service. The Company plans to continue to make future
quarterly filings to recover its GSR costs as such costs are paid.
On November 1, 1993, the Company implemented the provisions of FERC Order 636.
Pursuant to FERC Order 636, the Company terminated its PGA clause on that
date. On January 31, 1994, the Company filed a limited Section 4(e) filing,
pursuant to its approved FERC Gas Tariff, to direct bill the balance of its
unrecovered purchased gas costs at October 31, 1993 to its former sales
customers. This filing was necessary to recover $3.0 million of deferred gas
costs applicable to the period September 1992 through October 1993. Recovery
of such deferred gas costs from former sales customers began in February 1994.
The Company may file for future recovery, via additional direct billings, of
pre-November 1, 1993 adjustments to purchase gas costs, when these amounts
become known. The Company has no outstanding deferred gas cost issues pending
in any other proceeding.
Other Future Capital Requirements and Contingencies
The Company's future capital requirements and contingencies are discussed in
the Company's 1993 Annual Report on Form 10-K. Other than described in Note B
of the Notes to Condensed Financial Statements, there have been no new
reportable developments from those described in the Company's 1993 Annual
Report on Form 10-K with regard to other future capital requirements and
contingencies.
Conclusion
Although no assurances can be given, the Company currently believes that the
aggregate of cash flows from operating activities supplemented, if necessary,
by repayments of funds advanced to Transco, will provide the Company with
sufficient liquidity to meet its capital requirements.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company filed Form 8-K, Current Report dated April 13,
1994, in connection with the sale of $150 million of Notes
due April 1, 2004 of Texas Gas Transmission Corporation
pursuant to its Registration Statement on Form S-2 under
the Securities Act of 1933 (Registration No. 33-52707),
which became effective March 28, 1994.
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S I G N A T U R E S
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.
TEXAS GAS TRANSMISSION CORPORATION
Date: May 16, 1994 By /s/ G. D. Lauderdale
G. D. Lauderdale
Senior Vice President
Rates and Finance/
Treasurer
Date: May 16, 1994 By /s/ E. J. Ralph
E. J. Ralph
Vice President and Controller
