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 September 30, 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 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 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.
1,000 shares as of November 8, 1996
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
Number
Part I. Financial Information
Item 1. Financial Statements..................................... 3
Post-acquisition and Pre-acquisition Operations:
Balance Sheets at
September 30, 1996 and December 31, 1995..................... 3-4
Statements of Income
For the Three Months Ended September 30, 1996 and 1995,
For the Nine Months Ended September 30, 1996,
For the Period January 18, 1995 to September 30, 1995, and
For the Period January 1, 1995 to January 17, 1995........... 5-6
Statements of Cash Flows
For the Nine Months Ended September 30, 1996,
For the Period January 18, 1995 to September 30, 1995, and
For the Period January 1, 1995 to January 17, 1995........... 7
Condensed Notes to Financial Statements......................... 8-12
Item 2. Management's Narrative Analysis of
the Results of Operations................................13-15
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K .......................... 16
Signatures........................................................ 17
<PAGE>
Item 1. Financial Statements
TEXAS GAS TRANSMISSION CORPORATION
BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 461 $ 206
Receivables:
Trade 1,346 6,798
Affiliates 491 1,546
Other 1,377 1,150
Advances to affiliates 62,937 113,289
Transportation and exchange gas receivable 1,263 3,113
Costs recoverable from customers:
Gas purchase - 1,729
Gas supply realignment 7,747 15,730
Other 15,146 10,912
Inventories 16,601 14,707
Deferred income taxes 5,743 12,744
Gas stored underground 11,115 -
Other 1,908 2,636
Total current assets 126,135 184,560
Advances to Affiliates 125,000 125,000
Investments, at Cost 1,329 5,853
Property, Plant and Equipment:
Natural gas transmission plant, at cost 940,300 925,829
Less -- Accumulated depreciation and
amortization 55,843 26,643
Property, plant and equipment, net 884,457 899,186
Other Assets:
Gas stored underground 107,081 103,421
Costs recoverable from customers 62,142 73,879
Other 10,356 6,218
Total other assets 179,579 183,518
Total Assets $1,316,500 $1,398,117
</TABLE>
The accompanying condensed notes are an integral part of these
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
Current Liabilities:
Payables:
Trade $ 3,466 $ 6,857
Affiliates 22,845 20,566
Other 7,250 20,733
Transportation and exchange gas payable 5,108 8,031
Accrued liabilities 63,819 52,250
Accrued gas supply realignment costs 5,589 16,717
Costs refundable to customers 4,315 4,618
Reserve for regulatory and rate matters - 25,576
Total current liabilities 112,392 155,348
Long-Term Debt 254,101 255,860
Other Liabilities and Deferred Credits:
Income taxes refundable to customers 3,839 4,979
Deferred income taxes 140,112 138,308
Postretirement benefits other than pensions 45,405 54,400
Other 53,350 43,984
Total other liabilities and deferred
credits 242,706 241,671
Contingent Liabilities and Commitments
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 707,146 740,446
Retained earnings 154 4,791
Total stockholder's equity 707,301 745,238
Total Liabilities and Stockholder's
Equity $1,316,500 $1,398,117
</TABLE>
The accompanying condensed notes are an integral part of these
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For theThree
Months Ended Months Ended
September 30, 1996 September 30, 1995
<S> <C> <C>
Operating Revenues:
Gas sales $ 9,929 $ 10,445
Gas transportation 53,944 54,692
Other 510 589
Total operating revenues 64,383 65,726
Operating Costs and Expenses:
Cost of gas sold 9,483 10,403
Cost of gas transportation 7,280 9,050
Operation and maintenance 17,487 15,476
Administrative and general 14,164 13,312
Depreciation and amortization 10,359 11,151
Taxes other than income taxes 3,717 3,445
Total operating costs and expenses 62,490 62,837
Operating Income 1,893 2,889
Other (Income) Deductions:
Interest expense 5,198 5,857
Interest income (3,005) (3,382)
Miscellaneous other deductions 19 109
Total other deductions 2,212 2,584
Income (Loss) Before Income Taxes (319) 305
Provision for Income Taxes 43 816
Net Income (Loss) $ (362) $ (511)
</TABLE>
The accompanying condensed notes are an integral part of these
financial statements.
<PAGE>
The acquisition of the Company by The Williams Companies, Inc.
was accounted for using the purchase method of accounting.
Accordingly, the purchase price was "pushed down" and recorded in
the accompanying financial statements which affects the
comparability of the post-acquisition and pre-acquisition results
of operations and cash flows.
TEXAS GAS TRANSMISSION CORPORATION
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Post-Acquisition Pre-Acquisition
For the Period
For the Nine For the Period January 1,
Months Ended January 18, 1995 1995 to
September 30, to September 30, January 17,
1996 1995 1995
<S> <C> <C> <C>
Operating Revenues:
Gas sales $ 44,553 $ 36,788 $ 3,239
Gas transportation 216,396 181,416 15,932
Other 1,528 1,866 130
Total operating revenues 262,477 220,070 19,301
Operating Costs and Expenses:
Cost of gas sold 43,976 36,570 3,188
Cost of gas transportation 30,670 27,574 2,134
Operation and maintenance 46,706 40,536 2,433
Administrative and general 45,507 40,767 3,086
Provision for severance
benefits - - 6,772
Depreciation and amortization 31,435 30,392 1,779
Taxes other than income taxes 11,372 10,014 721
Total operating costs
and expenses 209,666 185,853 20,113
Operating Income (Loss) 52,811 34,217 (812)
Other (Income) Deductions:
Interest expense 15,796 16,194 1,122
Interest income (9,939) (8,956) (560)
Miscellaneous other (income)
deductions 611 34 56
Total other deductions 6,468 7,272 618
Income (Loss) Before Income
Taxes 46,343 26,945 (1,430)
Provision for Income Taxes 18,428 12,409 1,884
Net Income (Loss) $ 27,915 $ 14,536 $ (3,314)
</TABLE>
The accompanying condensed notes are an integral part of these
financial statements.
<PAGE>
The acquisition of the Company by The Williams Companies, Inc.
was accounted for using the purchase method of accounting.
Accordingly, the purchase price was "pushed down" and recorded in
the accompanying financial statements which affects the
comparability of the post-acquisition and pre-acquisition results
of operations and cash flows.
TEXAS GAS TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Post-Acquisition Pre-Acquisition
For the Period
For the Nine For the Period January 1,
Months Ended January 18, 1995 1995 to
September 30, to September 30, January 17,
1996 1995 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 27,915 $ 14,536 $ (3,314)
Adjustments to reconcile to
cash provided from
operations:
Depreciation and depletion 31,435 30,392 1,779
Provision for deferred
income taxes 8,805 (12,867) (695)
Changes in receivables sold (11,900) (8,100) (14,806)
Changes in receivables 18,356 31,834 2,113
Changes in inventories (1,894) 648 118
Changes in other current
assets 11,253 34,625 2,048
Changes in accounts payable (16,868) (4,708) (3,607)
Changes in accrued
liabilities (38,007) 7,166 4,913
Other, including changes
in noncurrent assets
and liabilities 11,897 12,649 5,490
Net cash provided (used)
by operating activities 40,992 106,175 (5,961)
FINANCING ACTIVITIES:
Dividends and returns of
capital (61,394) (15,000) -
Other -- net - 112 59
Net cash (used) provided by
financing activities (61,394) (14,888) 59
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures,
net of AFUDC (29,004) (25,583) (1,898)
Proceeds from sales and
salvage values, net of
costs of removal (691) 1,725 (21)
Advances to affiliates, net 50,352 (68,020) 7,852
Net cash provided (used) by
investing activities 20,657 (91,878) 5,933
Increase (Decrease) in Cash
and Cash Equivalents 255 (591) 31
Cash and Cash Equivalents
at Beginning of Period 206 943 912
Cash and Cash Equivalents
at End of Period $ 461 $ 352 $ 943
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the
period for:
Interest (net of amount
capitalized) $ 17,093 $ 11,639 $ 4,856
Income taxes (refunds), net 9,210 21,865 (7,395)
</TABLE>
The accompanying condensed notes are an integral part of these
financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
A. Corporate Structure and Control, Nature of Operations and
Basis of Presentation
Corporate Structure and Control
Effective May 1, 1995, Texas Gas Transmission Corporation (the
Company) became a wholly owned subsidiary of The Williams
Companies, Inc. (Williams). Prior to May 1, 1995, the Company
was a wholly owned subsidiary of Transco Gas Company, which was a
wholly owned subsidiary of Transco Energy Company (Transco). As
used herein, the term Williams refers to The Williams Companies,
Inc. together with its wholly owned subsidiaries, unless the
context otherwise requires.
Seasonal Variation
Operating income may vary by quarter. Because of its current
rate structure, the Company experiences lower operating income in
the second and third quarters as compared to the first and fourth
quarters.
Basis of Presentation
The financial statements have been prepared from the books and
records of the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
As a result of the change in control of the Company to Williams
on January 18, 1995, the Statement of Income and Statement of
Cash Flows for the nine months ended September 30, 1995 have been
segregated into a pre-acquisition period ending January 17, 1995
and a post-acquisition period beginning January 18, 1995. The
accompanying unaudited financial statements include all
adjustments, both normal recurring and others, which, in the
opinion of the Company's management, are necessary to present
fairly its financial position at September 30, 1996, and December
31, 1995; results of operations and cash flows for the nine
months ended September 30, 1996, the period January 18, 1995 to
September 30, 1995, and the period January 1, 1995 to January 17,
1995; and results of operations for the three months ended
September 30, 1996 and 1995. These financial statements should
be read in conjunction with the financial statements, notes
thereto and management's narrative analysis contained in the
Company's 1995 Annual Report on Form 10-K and the Company's 1996
First and Second Quarter Reports on Form 10-Q.
The acquisition by Williams has been accounted for using the
purchase method of accounting. Accordingly, an allocation of the
purchase price was assigned to the assets and liabilities of the
Company, based on their estimated fair values. The accompanying
financial statements reflect the pushdown of the purchase price
allocation (amounts in excess of book value) to the Company.
Included in property, plant and equipment at September 30, 1996
is an aggregate of $430 million related to amounts in excess of
<PAGE>
the original cost of the regulated facilities as a result of the
Williams' and prior acquisitions. This amount is being amortized
over the estimated useful lives of these assets at approximately
$11 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 1995 financial
statements to conform to the 1996 presentation.
B. Contingent Liabilities and Commitments
Regulatory and Rate Matters and Related Litigation
FERC Order 636
Effective November 1, 1993, the Company restructured its
business to implement the provisions of FERC Order 636, which,
among other things, required pipelines to unbundle their merchant
role from their transportation services. FERC Order 636 also
provides that pipelines should be allowed the opportunity to
recover all prudently incurred transition costs which, for the
Company, are primarily related to Gas Supply Realignment (GSR)
costs and unrecovered purchased gas costs. Certain aspects of the
Company's FERC Order 636 restructuring are under appeal.
On July 16, 1996, the United States Court of Appeals for the
District of Columbia (D.C. Circuit Court) issued an order which
in part affirmed and in part remanded FERC Order 636. However,
the court stated that FERC Order 636 would remain in effect until
the FERC issued a final order on remand after considering the
remanded issues. With the issuance of this decision, the stay on
the appeals of individual pipeline's restructuring cases has been
lifted. Although no assurances can be given as regards the
appeals of the Company's restructuring case, the effect of those
appeals should be limited since FERC Order 636 was largely
upheld.
In September 1995, the Company received FERC approval of a
settlement agreement which resolves all issues regarding the
Company's recovery of GSR costs. The settlement provides that
the Company will recover 100% of its GSR costs up to $50 million,
will share in costs incurred between $50 million and $80 million
and will absorb any GSR costs above $80 million. Under the
settlement, all challenges to these costs, on the grounds of
imprudence or otherwise, will be withdrawn and no future
challenges will be filed. Ninety percent of the cost recovery
will be collected via demand surcharges on the Company's firm
transportation rates; the remaining 10% should be recovered from
its interruptible transportation service.
The aforementioned July 16, 1996, D.C. Circuit Court decision
concerning FERC Order 636 has remanded to the FERC the issues of
whether pipelines should absorb a portion of FERC Order 636
transition costs and whether 10% of such costs should be
allocated to interruptible transportation services; however, the
Company should be unaffected by such remand due to the Company's
GSR settlement, discussed below, which is not subject to appeal.
<PAGE>
Through September 30, 1996, the Company has paid, or expects
to pay, approximately $80.0 million for GSR costs, primarily as a
result of contract terminations. The Company has recovered
approximately $54.5 million, plus interest, in GSR costs and has
recorded a regulatory asset of approximately $12.7 million for
the estimated future recovery of its GSR costs, most of which
will be collected from customers prior to December 31, 1997.
The settlement also extends the Company's pricing differential
recovery mechanism for GSR contracts in litigation as of November
1, 1996. This mechanism allows the Company to recover purchased
gas costs incurred under these remaining GSR contracts in excess
of amounts recovered through the sale of such gas at auction.
Additionally, the Company's transition costs included
unrecovered purchased gas costs for periods prior to November 1,
1993, pursuant to FERC Order 636. In October 1995, the Company
received FERC approval of a settlement with its customers, under
which requirements the Company ultimately absorbed approximately
$0.7 million of these costs, which was recognized as expense in
1995. Refunds of overrecovered amounts totaling $4 million were
issued in December 1995 and January 1996.
General Rate Issues
On September 30, 1994, the Company filed a general rate case
(Docket No. RP94-423) which became effective April 1, 1995,
subject to refund. A proposed settlement was filed with the FERC
on September 29, 1995, and approved by the FERC on February 20,
1996. Refunds of approximately $23.2 million including interest,
for which the Company had provided a reserve, were made to
customers in April 1996.
During 1995 and 1996, the Company made filings to reflect
changes in costs of transportation by others, pursuant to the
Transportation Cost Adjustment tracker provisions of its approved
tariff. Pursuant to that tariff, in May 1995, the Company
refunded $13.3 million of overcollected transportation costs.
Royalty Claims and Producer Litigation
In connection with the Company's renegotiations of supply
contracts with producers to resolve take-or-pay and other
contract claims, the Company has entered into certain settlements
which may require the indemnification by the Company of certain
claims for royalties which a producer may be required to pay as a
result of such settlements. The Company has been made aware of
demands on producers for additional royalties and may receive
other demands which could result in claims against the Company
pursuant to the indemnification provision in its settlements.
Indemnification for royalties will depend on, among other things,
the specific lease provisions between the producer and the lessor
and the terms of the settlement between the producer and the
Company. The Company may file to recover 75% of any such amounts
it may be required to pay pursuant to indemnifications for
royalties under the provisions of FERC Order 528. The Company
has provided reserves for the estimated settlement costs of its
royalty claims and litigation.
<PAGE>
On March 3, 1995, Ergon, Inc. and Ergon Exploration (Ergon)
filed a lawsuit against the Company in the U.S. District Court,
West District Louisiana, seeking approximately $45,000 in damages
for gas purchased in calendar year 1994, a declaratory judgment
concerning the proper construction of the pricing provisions of a
gas purchase contract, unspecified future damages and,
alternatively, a reformation of or rescission of an agreement
amending the gas purchase contract. The Company is currently
recovering costs incurred under subject contract as GSR costs
pursuant to FERC Order 636 and anticipates continued recovery of
future amounts consistent with the GSR settlement discussed
above.
Other Litigation
On July 18, 1996, an individual filed a lawsuit in the United
States District Court for the District of Columbia against 70
natural gas pipelines and other gas purchasers or former gas
purchasers. All of Williams' natural gas pipeline subsidiaries,
including the Company, are named as defendants in the lawsuit.
The plaintiff claims, on behalf of the United States under the
False Claims Act, that the pipelines have incorrectly measured
the heating value or volume of gas purchased by the defendants.
The plaintiff claims that the United States has lost royalty
payments as a result of these practices. The Williams' natural
gas pipeline subsidiaries, as well as other natural gas
pipelines, intend to vigorously defend against these claims.
Environmental Matters
Since 1989, the Company has had studies underway to test
certain of its facilities for the presence of toxic and hazardous
substances to determine to what extent, if any, remediation may
be necessary. On the basis of the findings to date, the Company
estimates that environmental assessment and remediation costs
that may be incurred over the next two to three years will total
approximately $4 million to $10 million. As of September 30,
1996, the Company has a reserve of approximately $5 million for
these estimated costs. This estimate depends upon a number of
assumptions concerning the scope of remediation that will be
required at certain locations and the cost of remedial measures
to be undertaken. The Company is continuing to conduct
environmental assessments and is implementing a variety of
remedial measures that may result in increases or decreases in
the total estimated costs.
The Company used lubricating oils containing polychlorinated
biphenyls (PCBs) and, although the use of such oils was
discontinued in the 1970's, has discovered residual PCB
contamination in equipment and soils at certain gas compressor
station sites. The Company continues to work closely with the U.
S. Environmental Protection Agency (EPA) and state regulatory
authorities regarding PCB issues and has programs to assess and
remediate such conditions where they exist, the costs of which
are a significant portion of the $4 million to $10 million range
discussed above.
The Company currently is either named as a potentially
responsible party or has received an information request
regarding its potential involvement at certain Superfund and
state waste disposal sites. The anticipated remediation costs,
if any, associated with these sites have been included in the $4
million to $10 million range discussed above.
<PAGE>
The Company considers environmental assessment and remediation
costs and costs associated with compliance with environmental
standards to be recoverable through rates, as they are prudent
costs incurred in the ordinary course of business. The actual
costs incurred will depend on the actual amount and extent of
contamination discovered, the final cleanup standards mandated by
the EPA or other governmental authorities, and other factors. To
date, the Company has been permitted recovery of environmental
costs incurred, and it is the Company's intent to continue
seeking recovery of such costs, as incurred, through rate
filings. Therefore, the estimated recoveries of environmental
assessment and remediation costs have been recorded as regulatory
assets in the accompanying balance sheets.
Summary of Contingent Liabilities and Commitments
While no assurances may be given, the Company does not believe
that the ultimate resolution of the foregoing matters, taken as a
whole and after consideration of amounts accrued, insurance
coverage, recovery from customers or other indemnification
arrangements, will have a materially adverse effect upon the
Company's future financial position, results of operations and
cash flow requirements.
C. Adoption of Accounting Standard
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Adoption of the standard had no effect on the
Company's financial position or results of operations.
<PAGE>
Item 2. Management's Narrative Analysis of the Results of
Operations
(Filed Pursuant to General Instruction H)
Introduction
As discussed in Note A, the Company was acquired by Williams
through a merger of a Williams' subsidiary and Transco, effective
May 1, 1995. Williams became a majority owner of Transco
effective January 18, 1995, at which date the effects of the
acquisition were pushed down and recorded on the books and
records of the Company. The pushdown of the acquisition affects
the comparability of the Company's pre- and post-acquisition
results of operations. The following analysis represents a pro
forma comparison of the full first nine months of the current and
prior years, with disclosure of material variances due to the
acquisition.
Financial Analysis of Operations
Nine Months Ended September 30, 1996 Compared to
Nine Months Ended September 30, 1995
Operating income was $19 million higher for the nine months
ended September 30, 1996, than for the nine months ended
September 30, 1995. The increase in operating income was
primarily attributable to higher transportation revenues due to
new rates that became effective on April 1, 1995, and a recent
rate case settlement which resulted in a first quarter 1996
adjustment to regulatory accruals. The revenue increase was
partially offset by higher operating and maintenance expenses and
the first quarter 1995 provision for severance benefits that
resulted from the acquisition by Williams. Compared to 1995, net
income was $17 million higher due to the same reasons discussed
above and lower interest expense. The lack of tax benefits
associated with the provision for severance benefits incurred in
1995 resulted in a higher effective tax rate in 1995 than in
1996. Because of its rate structure, the Company typically
experiences lower operating income in the second and third
quarters as compared to the first and fourth quarters.
Operating revenues increased $23 million primarily
attributable to higher transportation revenues due to new rates
that became effective on April 1, 1995, a recent rate case
settlement which resulted in a first quarter 1996 adjustment to
regulatory accruals and higher gas sales due to higher gas prices
in 1996 than in 1995. System deliveries were 578.2 TBtu and
498.4 TBtu for the nine months of 1996 and 1995, respectively,
which, to a lesser extent, also contributed to increased
revenues. As discussed in Note B, "Summary of Significant
Accounting Policies," of the Company's 1995 Annual Report on Form
10-K, the Company's gas sales have no impact on its results of
operations.
Operating expenses increased $4 million primarily attributable
to higher cost of gas sold due to higher gas prices and higher
costs related to pipeline maintenance projects. Higher operating
expenses were partially offset by the first quarter 1995
provision for severance benefits that resulted from the
acquisition by Williams.
<PAGE>
Competition for natural gas transportation has intensified in
recent years due to customer access to other pipelines, rate
competitiveness among pipelines and customers' desire to have
more than one supplier. The FERC's stated purpose for its Order
636 was to improve the competitive structure of the natural gas
pipeline industry. Future utilization of the Company's pipeline
capacity will depend on competition from other pipelines and
alternative fuels, the general level of natural gas demand and
weather conditions. Several of the ultimate consumers within the
Company's markets have the ability to switch to alternate fuels;
to date, however, losses due to fuel switching have not been
significant. The Company estimates its maximum potential loss to
fuel switching is less than one quarter of total deliveries.
When restructured tariffs became effective under FERC Order
636, all suppliers of natural gas were able to compete for any
gas markets capable of being served by the pipelines using
nondiscriminatory transportation services provided by the
pipelines. As the FERC Order 636 regulated environment has
matured, many pipelines have faced reduced levels of subscribed
capacity as contractual terms expire and customers opt for
alternative sources of transmission and related services. This
issue is known as "capacity turnback" in the industry. The
Company is working diligently to replace any and all markets lost
due to capacity turnback, as well as to pursue new markets.
During 1996, the Company increased firm service to one of its
largest customers and extended the service agreement through the
third quarter of the year 2000. All capacity turned back this
year has been fully subscribed, and the Company anticipates that
it will continue to be able to remarket future capacity turnback.
Financial Condition and Liquidity
On May 1, 1995, Transco paid as a dividend to Williams all of
Transco's interests in the Company. Williams intends to maintain
and expand the existing core business of the Company and to
promptly pursue new business opportunities made available to the
Company. Through the years, the Company has consistently
maintained its financial strength and experienced strong
operational results. The Company's acquisition by Williams
further enhances its financial and operational strength, as well
as allows the Company to take advantage of new opportunities for
growth. If necessary, the Company also expects to be able to
access public and private capital markets to finance its capital
requirements.
The Company is a participant with other Williams subsidiaries
in an $800 million credit agreement under which the Company may
borrow up to $200 million, subject to borrowings by other
affiliated companies. Interest rates vary with current market
conditions. As of September 30, 1996, the Company had no amounts
outstanding under this facility.
For financial statement reporting purposes, a $100 million
current debt obligation has been classified as noncurrent based
on the Company's intent and ability to refinance on a long-term
basis. The amount available under the $800 million credit
agreement is sufficient to complete this refinancing.
Effective May 1, 1995, the Company began participation in
Williams' cash management program. On that date, the balance of
the advances due from Transco were transferred by Transco to
<PAGE>
Williams. These advances are represented by demand notes payable
to the Company. Those amounts that the Company anticipates
Williams will repay in the next twelve months are classified as
current assets, while the remainder are classified as noncurrent.
The interest rate on intercompany demand notes is the London
Interbank Offered Rate on the first day of the month plus 0.45%.
In May 1995, the Company entered into a program with a bank to
sell up to $35 million of trade receivables with limited
recourse. On September 30, 1996, and on December 31, 1995, $15
million and $27 million, respectively, of such receivables were
sold.
The Company's capital expenditures for the first nine months
of 1996 and 1995 were $29 million and $27 million, respectively.
Capital expenditures for 1996 are expected to approximate $55
million. The Company's debt as a percentage of total
capitalization at September 30, 1996 and December 31, 1995 was
26.4% and 25.6%, respectively.
In September 1994, the Company filed a general rate case
(Docket No. RP94-423) which was effective April 1, 1995, subject
to refund. A proposed settlement was filed with the FERC on
September 29, 1995, and was approved by the FERC on February 20,
1996. Refunds of approximately $23.2 million including interest,
for which the Company had provided a reserve, were made to
customers in April 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
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: November 7, 1996 BY: /s/ G. D. Lauderdale
---------------------------
G. D. Lauderdale
Senior Vice President
and General Manager
DATE: November 7, 1996 BY: /s/ E. J. Ralph
---------------------------
E. J. Ralph
Vice President, Treasurer,
Controller, and Assistant
Secretary
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