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, 1997
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 May 9, 1997
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 AND SUBSIDIARY
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements........................... 3
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996.................. 3-4
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996............ 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996............ 6
Condensed Notes to Consolidated Financial Statements.... 7-10
Item 2. Management's Narrative Analysis of
the Results of Operations......................11-12
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K ................ 13
Signatures.............................................. 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS GAS TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 725 $ 115
Receivables:
Trade 6,792 8,415
Affiliates 1,216 1,409
Other 1,489 1,418
Advances to affiliates 139,021 147,144
Transportation and exchange gas receivable 866 718
Costs recoverable from customers:
Gas supply realignment 4,339 8,640
Other 16,590 17,980
Inventories 15,364 15,081
Deferred income taxes 6,762 4,945
Gas stored underground 11,115 11,115
Other 791 1,311
Total current assets 205,070 218,291
Advances to Affiliates 25,000 25,000
Investments, at Cost 1,336 1,339
Property, Plant and Equipment:
Natural gas transmission plant, at cost 966,948 958,896
Less -- Accumulated depreciation and
amortization 74,632 65,265
Property, plant and equipment, net 892,316 893,631
Other Assets:
Gas stored underground 103,531 100,709
Costs recoverable from customers 51,169 54,817
Other 15,007 13,313
Total other assets 169,707 168,839
Total Assets $1,293,429 $1,307,100
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Payables:
Trade $ 3,584 $ 4,850
Affiliates 25,841 41,954
Other 5,101 9,252
Transportation and exchange gas payable 2,524 3,306
Accrued liabilities 81,808 68,784
Accrued gas supply realignment costs 3,833 3,833
Costs refundable to customers 1,103 1,626
Total current liabilities 123,794 133,605
Long-Term Debt 253,110 253,611
Other Liabilities and Deferred Credits:
Deferred income taxes 145,920 143,288
Postretirement benefits other than pensions 41,761 43,765
Other 45,136 47,951
Total other liabilities and
deferred credits 232,817 235,004
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 674,146 678,146
Retained earnings 9,561 6,733
Total stockholder's equity 683,708 684,880
Total Liabilities and
Stockholder's Equity $1,293,429 $1,307,100
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
<S> <C> <C>
Operating Revenues:
Gas sales $ 10,720 $ 21,772
Gas transportation 96,390 100,695
Other 829 503
Total operating revenues 107,939 122,970
Operating Costs and Expenses:
Cost of gas sold 10,789 21,786
Cost of gas transportation 10,459 16,602
Operation and maintenance 14,333 13,686
Administrative and general 15,214 16,193
Depreciation and amortization 10,518 10,730
Taxes other than income taxes 4,191 3,911
Total operating costs and expenses 65,504 82,908
Operating Income 42,435 40,062
Other (Income) Deductions:
Interest expense 5,015 5,316
Interest income (2,359) (3,553)
Miscellaneous other (income) deductions (61) 300
Total other deductions 2,595 2,063
Income Before Income Taxes 39,840 37,999
Provision for Income Taxes 15,850 15,057
Net Income $ 23,990 $ 22,942
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 23,990 $ 22,942
Adjustments to reconcile to cash
provided from operations:
Depreciation and depletion 10,518 10,730
Provision for deferred income taxes 816 9,589
Changes in receivables sold (400) 400
Changes in receivables 1,804 2,422
Changes in inventories (283) (145)
Changes in other current assets 7,755 8,531
Changes in accounts payable (5,417) (14,302)
Changes in accrued liabilities 11,700 (4,176)
Other, including changes in noncurrent
assets and liabilities (23,542) 838
Net cash provided by operating
activities 26,941 36,829
FINANCING ACTIVITIES:
Dividends and returns of capital (25,162) (20,000)
Net cash (used in) financing activities (25,162) (20,000)
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures, net of AFUDC (9,451) (4,443)
Proceeds from sales and salvage values,
net of costs of removal 159 (11)
Advances to affiliates, net 8,123 (12,041)
Net cash (used in) investing
activities (1,169) (16,495)
Increase in Cash and Cash Equivalents 610 334
Cash and Cash Equivalents at Beginning
of Period 115 206
Cash and Cash Equivalents at End of Period $ 725 $ 540
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,607 $ 4,752
Income taxes, net 2,827 5,414
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Corporate Structure and Control, Nature of Operations and
Basis of Presentation
Corporate Structure and Control
Texas Gas Transmission Corporation and its wholly owned
subsidiary, TGT Enterprises, Inc., (collectively, the Company) is
a wholly owned subsidiary of The Williams Companies, Inc.
(Williams). As used herein, the term the Company refers to Texas
Gas Transmission Corporation together with its wholly owned
subsidiary; and 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. Based on current rate
structure, the Company experiences higher operating income in the
first and fourth quarters as compared to the second and third
quarters.
Basis of Presentation
The consolidated 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 consolidated financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted. The accompanying unaudited
consolidated 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 March 31, 1997, and results of operations
and cash flows for the three months ended March 31, 1997 and
1996. These consolidated financial statements should be read in
conjunction with the financial statements, notes thereto and
management's narrative analysis contained in the Company's 1996
Annual Report on Form 10-K.
The Company was acquired in 1995 by Williams, and the
acquisition was 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 consolidated
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 March 31, 1997 is an
aggregate of approximately $430 million related to amounts in
excess of the original cost of the regulated facilities as a
result of the Williams' and prior acquisitions. This amount is
being amortized over 40 years, the estimated useful lives of
these assets at the date of acquisition, 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.
<PAGE>
Certain reclassifications have been made in the 1996 financial
statements to conform to the 1997 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 issued an order which in part affirmed and
in part remanded FERC Order 636. On February 27, 1997, FERC
issued Order 636-C in response to the court's remand affirming
that pipelines may recover all of their GSR costs, but requiring
pipelines to individually propose the percentage of such costs to
be allocated to interruptible transportation services, instead of
a uniform 10 percent allocation. However, the Company's GSR
settlement, discussed below, is not subject to appeal and should
be unaffected by this Order. The Order also prospectively
relaxed the eligibility requirements for receiving no-notice
service and reduced the right of first refusal matching period
from 20 years to five years. FERC Order 636-C is still subject
to potential rehearing at the FERC.
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 percent 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 is
being collected via demand surcharges on the Company's firm
transportation rates; the remaining 10 percent should be
recovered from its interruptible transportation service.
Through March 31, 1997, the Company has paid $76.2 million and
expects to pay no more than $80.0 million for GSR costs,
primarily as a result of contract terminations. The Company has
recovered approximately $62.9 million, plus interest, in GSR
costs and has recorded a regulatory asset of approximately $4.3
million for the estimated future recovery of its GSR costs, most
of which will be collected from customers prior to December 31,
1997.
General Rate Issues
On April 30, 1997, the Company filed a general rate case
(Docket No. RP97-344) which will be effective November 1, 1997,
<PAGE>
subject to refund. This new rate case reflects a requested
annual revenue increase of approximately $70.9 million, based on
filed rates, primarily attributable to increases in the utility
rate base, operating expenses and rate of return and related
taxes.
1 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 percent 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.
Other Litigation
On July 18, 1996, an individual filed a lawsuit in the United
States District Court for the District of Columbia (D.C. District
Court) against 70 natural gas pipelines and other gas purchasers
or former gas purchasers. All of Williams' natural gas pipeline
subsidiaries, including the Company, were named as defendants in
the lawsuit. The plaintiff claimed, 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 claimed that the United States
had lost royalty payments as a result of these practices. The
D.C. District Court recently dismissed the claims against
Williams' natural gas pipeline subsidiaries, including the
Company, and most of the other defendants.
Environmental Matters
As of March 31, 1997, the Company had a reserve of
approximately $4 million for estimated costs associated with
environmental assessment and remediation. 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 reserve discussed above.
<PAGE>
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
reserve discussed above.
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.
The Company's current rate design incorporates the recovery of
anticipated environmental costs, and it is the Company's intent
to continue seeking recovery of such costs, as anticipated,
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, potential recovery from customers or other
indemnification arrangements, will have a materially adverse
effect on the Company's future financial position, results of
operations or cash flow requirements.
C. Adoption of Accounting Standard
The Financial Accounting Standards Board (FASB) has issued
Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," effective for transactions
occurring after December 31, 1996. The adoption of this standard
has not had a material impact on the Company's financial
position, results of operations, or cash flow requirements.
<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 in 1995 by
Williams, at which date the effects of the acquisition were
pushed down and recorded on the books and records of the Company.
The financial analysis presented below represents a pro forma
comparison of the full first quarters of the current and prior
years.
Financial Analysis of Operations
Three Months Ended March 31, 1997 Compared to
Three Months Ended March 31, 1996
Operating income was $2 million higher for the three months
ended March 31, 1997, than for the three months ended March 31,
1996. The increase in operating income was due primarily to
favorable resolutions in 1997 of certain contractual issues,
partially offset by a 1996 adjustment to rate refund. Compared
to 1996, net income was $1 million higher due to the same reasons
discussed above, partially offset by an increase in other
deductions and income taxes.
Operating revenues decreased $15 million primarily
attributable to lower gas transportation costs charged to the
Company by others and passed through to customers as provided in
the Company's rates. Total deliveries were 226.2 Tbtu and 251.1
Tbtu for the first quarter of 1997 and 1996, respectively. The
decrease of 24.9 Tbtu was due primarily to a warmer 1997 winter
heating season, which, to a lesser extent, also contributed to
decreased revenues. As discussed in Note B, "Summary of
Significant Accounting Policies," of the Company's 1996 Annual
Report on Form 10-K, the Company's gas sales have no impact on
the results of operations.
Operating expenses decreased $17 million primarily
attributable to lower costs of gas sold and lower cost of gas
transportation both of which are passed through to customers.
Financial Condition and Liquidity
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. Williams' ownership
of the Company further enhances its financial and operational
strength, as well as allows the Company to take advantage of new
opportunities for growth. The Company expects to access public
and private capital markets, as needed, to finance its capital
requirements.
The Company is a participant with other Williams subsidiaries
in a $1 billion credit agreement under which the Company may
<PAGE>
borrow up to $200 million, subject to borrowings by other
affiliated companies. Interest rates vary with current market
conditions. To date, the Company has 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. Although the amount available under the $1 billion credit
agreement is sufficient to meet this obligation, the Company
plans to issue new long-term debt by July 15, 1997, to replace
its maturing debt.
The Company is a participant in Williams' cash management
program. The advances due the Company by Williams are
represented by demand notes payable. 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 0.35%.
The FASB has issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities," effective for transactions occurring after December
31, 1996. The adoption of this standard has not had a material
impact on the Company's financial position, results of
operations, or cash flow requirements.
The Company's capital expenditures for the first three months
of 1997 and 1996 were $9 million and $4 million, respectively.
Capital expenditures for 1997 are expected to approximate $66
million. The Company's debt as a percentage of total
capitalization at March 31, 1997 and December 31, 1996 was 27.0%.
On April 30, 1997, the Company filed a general rate case
(Docket No. RP97-344) which will be effective November 1, 1997,
subject to refund. This new rate case reflects a requested
annual revenue increase of approximately $70.9 million, based on
filed rates, primarily attributable to increases in the utility
rate base, operating expenses and rate of return and related
taxes.
<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: May 12, 1997 BY: /s/ G. D. Lauderdale
G. D. Lauderdale
Senior Vice President
and General Manager
DATE: May 12, 1997 BY: /s/ E. J. Ralph
E. J. Ralph
Vice President, Treasurer,
Controller, and Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000097452
<NAME> TEXAS GAS TRANSMISSION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 725
<SECURITIES> 0
<RECEIVABLES> 6,792
<ALLOWANCES> 0
<INVENTORY> 15,364
<CURRENT-ASSETS> 205,070
<PP&E> 966,948
<DEPRECIATION> 74,632
<TOTAL-ASSETS> 1,293,429
<CURRENT-LIABILITIES> 123,794
<BONDS> 253,110
0
0
<COMMON> 1
<OTHER-SE> 683,707
<TOTAL-LIABILITY-AND-EQUITY> 1,293,429
<SALES> 10,720
<TOTAL-REVENUES> 107,939
<CGS> 10,789
<TOTAL-COSTS> 35,581
<OTHER-EXPENSES> 14,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,015
<INCOME-PRETAX> 39,840
<INCOME-TAX> 15,850
<INCOME-CONTINUING> 23,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,990
<EPS-PRIMARY> 0
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</TABLE>
