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 June 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 August 9, 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
June 30, 1996 and December 31, 1995....................... 3-4
Statements of Income
For the Three Months Ended June 30, 1996 and 1995,
For the Six Months Ended June 30, 1996,
For the Period January 18, 1995 to June 30, 1995, and
For the Period January 1, 1995 to January 17, 1995........ 5-6
Statements of Cash Flows
For the Six Months Ended June 30, 1996,
For the Period January 18, 1995 to June 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>
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 195 $ 206
Receivables:
Trade 2,574 6,798
Affiliates 4,085 1,546
Other 952 1,150
Advances to affiliates 84,850 113,289
Transportation and exchange gas
receivable 14,301 3,113
Costs recoverable from customers:
Gas purchase - 1,729
Gas supply realignment 10,133 15,730
Other 9,236 10,912
Inventories 15,996 14,707
Deferred income taxes 8,284 12,744
Gas stored underground 11,115 -
Other 2,209 2,636
Total current assets 163,930 184,560
Advances to Affiliates 125,000 125,000
Investments, at Cost 1,519 5,853
Property, Plant and Equipment
Natural gas transmission plant, at cost 925,618 925,829
Less -- Accumulated depreciation and
amortization 44,998 26,643
Property, plant and equipment, net 880,620 899,186
Other Assets:
Gas stored underground 96,890 103,421
Costs recoverable from customers 68,452 73,879
Other 6,342 6,218
Total other assets 171,684 183,518
Total Assets $1,342,753 $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>
June 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
Current Liabilities:
Payables:
Trade $ 4,661 $ 6,857
Affiliates 22,015 20,566
Other 6,472 20,733
Transportation and exchange gas payable 2,303 8,031
Accrued liabilities 67,649 52,250
Accrued gas supply realignment costs 5,827 16,717
Costs refundable to customers 6,840 4,618
Reserve for regulatory and rate matters 1,018 25,576
Total current liabilities 116,785 155,348
Long-Term Debt 254,583 255,860
Other Liabilities and Deferred Credits:
Income taxes refundable to customers 3,967 4,979
Deferred income taxes 139,983 138,308
Postretirement benefits other than pensions 50,940 54,400
Other 47,437 43,984
Total other liabilities and deferred
credits 242,327 241,671
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 728,446 740,446
Retained earnings 611 4,791
Total stockholder's equity 729,058 745,238
Total Liabilities and Stockholder's
Equity $1,342,753 $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 the Three
Months Ended Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Operating Revenues:
Gas sales $ 12,852 $ 12,071
Gas transportation 61,757 59,914
Other 515 881
Total operating revenues 75,124 72,866
Operating Costs and Expenses:
Cost of gas sold 12,708 12,007
Cost of gas transportation 6,788 10,485
Operation and maintenance 15,533 14,051
Administrative and general 15,149 14,122
Depreciation and amortization 10,347 9,738
Taxes other than income taxes 3,744 3,616
Total operating costs and expenses 64,269 64,019
Operating Income 10,855 8,847
Other (Income) Deductions:
Interest expense 5,281 5,703
Interest income (3,380) (3,164)
Miscellaneous other (income) deductions 291 (50)
Total other deductions 2,192 2,489
Income Before Income Taxes 8,663 6,358
Provision for Income Taxes 3,328 3,118
Net Income $ 5,335 $ 3,240
</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 Six For the Period January 1,
Months Ended January 18,1995 1995 to
June 30, to June 30, January 17,
1996 1995 1995
<S> <C> <C> <C>
Operating Revenues:
Gas sales $ 34,624 $ 26,343 $ 3,239
Gas transportation 162,452 126,724 15,932
Other 1,018 1,277 130
Total operating revenues 198,094 154,344 19,301
Operating Costs and Expenses:
Cost of gas sold 34,493 26,167 3,188
Cost of gas transportation 23,390 18,524 2,134
Operation and maintenance 29,219 25,060 2,433
Administrative and general 31,343 27,445 3,086
Provision for severance benefits - - 6,772
Depreciation and amortization 21,076 19,241 1,779
Taxes other than income taxes 7,655 6,569 721
Total operating costs
and expenses 147,176 123,006 20,113
Operating Income (Loss) 50,918 31,338 (812)
Other (Income) Deductions:
Interest expense 10,598 10,337 1,122
Interest income (6,934) (5,574) (560)
Miscellaneous other (income)
deductions 592 (65) 56
Total other deductions 4,256 4,698 618
Income (Loss) Before Income
Taxes 46,662 26,640 (1,430)
Provision for Income Taxes 18,385 11,593 1,884
Net Income (Loss) $ 28,277 $ 15,047 $(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 Six For the Period January 1,
Months Ended January 18,1995 1995 to
June 30, to June 30, January 17,
1996 1995 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 28,277 $ 15,047 $ (3,314)
Adjustments to reconcile to cash
provided from operations:
Depreciation and depletion 21,076 19,241 1,779
Provision for deferred income
taxes 6,135 (8,900) (695)
Changes in receivables sold (11,600) - (14,806)
Changes in receivables 4,220 4,992 2,113
Changes in inventories (1,289) 374 118
Changes in other current assets 11,564 26,638 2,048
Changes in accounts payable (16,456) (4,165) (3,607)
Changes in accrued liabilities (30,713) (7,752) 4,913
Other, including changes in
noncurrent assets and
liabilities 15,563 (6,702) 5,490
Net cash provided (used) by
operating activities 26,777 38,773 (5,961)
FINANCING ACTIVITIES:
Dividends and returns of capital (40,000) - -
Other -- net - (50) 59
Net cash (used) provided by
financing activities (40,000) (50) 59
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures,
net of AFUDC (14,723) (17,535) (1,898)
Proceeds from sales and
salvage values, net of costs
of removal (504) 11,563 (21)
Advances to affiliates, net 28,439 (33,593) 7,852
Net cash provided (used) by
investing activities 13,212 (39,565) 5,933
(Decrease) Increase in Cash and
Cash Equivalents (11) (842) 31
Cash and Cash Equivalents at
Beginning of Period 206 943 912
Cash and Cash Equivalents at
End of Period $ 195 $ 101 $ 943
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount
capitalized) $ 12,389 $ 6,797 $ 4,856
Income taxes (refunds), net 8,706 10,770 (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 six months ended June 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 June 30, 1996, and December 31,
1995; results of operations and cash flows for the six months
ended June 30, 1996, the period January 18, 1995 to June 30,
1995, the period January 1, 1995 to January 17, 1995; and results
of operations for the three months ended June 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 Quarter Report 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 June 30, 1996 is an
aggregate of $430 million related to amounts in excess of the
<PAGE>
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 will be
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 June 30, 1996, the Company had paid approximately
$64.2 million for GSR costs, primarily as a result of contract
terminations, and has recorded a liability of approximately $15.8
million for its estimated remaining GSR costs. The Company has
recovered approximately $52.1 million, plus interest, in GSR
costs and has recorded a regulatory asset of approximately $15.1
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 to November 1, 1996, and beyond that date for
GSR contracts in litigation as of that date. This mechanism
allows the Company to recover purchased gas costs incurred under
remaining GSR contracts in excess of amounts recovered through
the sale of such gas at auction. Except for any contracts in
litigation, the Company anticipates that all of its remaining GSR
contracts will expire or be negotiated for termination by
November 1, 1996.
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
<PAGE>
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.
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, Jack J. Grynberg 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 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 June 30, 1996,
the Company had 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 two Superfund waste
disposal sites and one state waste disposal site. 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 six months of the current and
prior years, with disclosure of material variances due to the
acquisition.
Financial Analysis of Operations
Six Months Ended June 30, 1996 Compared to
Six Months Ended June 30, 1995
Operating income was $20 million higher for the six months
ended June 30, 1996, than for the six months ended June 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, a recent rate case settlement which
resulted in a first quarter 1996 adjustment to rate refund
accruals 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 the lack of tax benefits
associated with the provision for severance benefits incurred in
1995. 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 $24 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
rate refund accruals and higher gas sales due to higher gas
prices in 1996 than in 1995. 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. Mainline deliveries were 414.4 TBtu
and 321.5 TBtu for the six months of 1996 and 1995, respectively,
which, to a lesser extent, also contributed to increased
revenues.
Operating expenses increased $4 million primarily attributable
to higher cost of gas sold due to higher gas prices and higher
cost of transportation of gas by others which is recovered
through rates, partially offset by the first quarter 1995
provision for severance benefits that resulted from the
acquisition by Williams.
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
<PAGE>
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. While the
Company has not currently experienced any major capacity
turnback, the Company, like other pipelines, is evaluating the
consequences of potential demand reductions on system utilization
and cost structure to remaining customers. The Company expects
it will be able to remarket most, if not all, capacity which
becomes available on its system.
Financial Condition and Liquidity
On May 1, 1995, Transco paid as a dividend to Williams all of
Transco's interests in the Company. Williams has indicated that
it intends to maintain and expand the existing core business of
the Company and to promptly pursue new business opportunities
made available as a result of the merger. Through the years, the
Company has consistently maintained its financial strength and
experienced strong operational results. The Company expects that
its acquisition by Williams will further enhance its financial
and operational strength, as well as allow 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. Interest rates vary with current
market conditions. As of June 30, 1996, the Company had no
amounts outstanding under this facility.
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
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 June 30, 1996, and on December 31, 1995, $16
million and $27 million, respectively, of such receivables were
sold.
<PAGE>
The Company's capital expenditures for the first six months of
1996 and 1995 were $15 million and $19 million, respectively.
Capital expenditures for 1996 are expected to approximate $55
million. The Company's debt as a percentage of total
capitalization at June 30, 1996 and December 31, 1995 was 25.9%
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: August 12, 1996 BY: /s/ G. D. Lauderdale
---------------------------
G. D. Lauderdale
Senior Vice President
and General Manager
DATE: August 12, 1996 BY: /s/ E. J. Ralph
---------------------------
E. J. Ralph
Vice President, Treasurer,
Controller, and Assistant Secretary
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<NAME> TEXAS GAS TRANSMISSION CORPORATION
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