UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number 1-4169
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: (270)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 10, 2000
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
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets.................................. 3
Consolidated Statements of Income............................ 5
Consolidated Statements of Cash Flows........................ 6
Condensed Notes to Consolidated Financial Statements......... 7
Item 2. Management's Narrative Analysis of the Results of Operation.. 11
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K.............................. 13
Signature............................................................ 14
Certain matters discussed in this report, excluding historical
information, include forward-looking statements. Although Texas
Gas Transmission Corporation believes such forward-looking
statements are based on reasonable assumptions, no assurance can
be given that every objective will be achieved. Such statements
are made in reliance on the "safe harbor" protections provided
under the Private Securities Reform Act of 1995. Additional
information about issues that could lead to material changes in
performance is contained in Texas Gas Transmission Corporation's
1999 Annual Report on Form 10-K.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
<S>
Current Assets: <C> <C>
Cash and cash equivalents $ 179 $ 266
Receivables:
Trade 4,103 7,011
Affiliates 1,989 1,056
Other 265 219
Gas Receivables:
Transportation and exchange 1,238 1,300
Storage 8,177 93
Advances to affiliates 102,997 73,765
Inventories 15,912 15,627
Deferred income taxes 9,920 10,992
Costs recoverable from customers 13,964 13,714
Gas stored underground 5,600 10,409
Other 883 1,483
Total current assets 165,227 135,935
Investments, at cost 373 367
Property, Plant and Equipment, at cost:
Natural gas transmission plant 961,766 960,208
Other natural gas plant 152,242 149,602
1,114,008 1,109,810
Less - Accumulated depreciation and
amortization 149,778 146,245
Property, plant and equipment, net 964,230 963,565
Other Assets:
Gas stored underground 81,819 110,961
Costs recoverable from customers 47,887 48,482
Other 38,492 38,394
Total other assets 168,198 197,837
Total Assets $ 1,298,028 $ 1,297,704
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2000 1999
<S> <C> <C>
Current Liabilities:
Payables:
Trade $ 653 $ 3,160
Affiliates 36,802 10,071
Other 5,476 5,633
Gas Payables:
Transportation and exchange 3,488 15,387
Storage 352 13,453
Accrued taxes 24,183 21,964
Accrued interest 1,510 6,557
Accrued payroll and employee benefits 32,304 37,734
Other accrued liabilities 14,367 11,661
Total current liabilities 119,135 125,620
Long-Term Debt 250,781 250,860
Other Liabilities and Deferred Credits:
Deferred income taxes 172,369 168,824
Postretirement benefits other than pensions 37,753 38,505
Other 53,174 52,255
Total other liabilities and deferred credits 263,296 259,584
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 627,046 627,046
Retained earnings 37,769 34,593
Total stockholder's equity 664,816 661,640
Total Liabilities and Stockholder's Equity $ 1,298,028 $ 1,297,704
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
<S> <C> <C>
Operating Revenues:
Gas transportation $ 84,363 $ 87,391
Gas storage 724 656
Other 1,119 321
Total operating revenues 86,206 88,368
Operating Costs and Expenses:
Cost of gas transportation 156 1,759
Operation and maintenance 11,065 11,634
General and administrative 14,788 13,417
Depreciation and amortization 11,382 11,033
Taxes other than income taxes 4,177 4,289
Total operating costs and expenses 41,568 42,132
Operating Income 44,638 46,236
Other (Income) Deductions:
Interest expense 4,976 4,875
Interest income (1,506) (1,036)
Miscellaneous other deductions 84 60
Total other deductions 3,554 3,899
Income Before Income Taxes 41,084 42,337
Provision for Income Taxes 15,908 16,844
Net Income $ 25,176 $ 25,493
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
(CAPTION>
Three Months Ended March 31,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25,176 $ 25,493
Adjustments to reconcile to cash provided
from operations:
Depreciation and amortization 11,382 11,033
Provision for deferred income taxes 4,617 4,370
Changes in receivables sold (100) (900)
Changes in receivables (5,060) (4,602)
Changes in inventories (285) (368)
Changes in other current assets 5,159 (294)
Changes in payables (12,361) (9,077)
Changes in accrued liabilities (20,855) (32,824)
Other, including changes in noncurrent
assets and liabilities 28,066 11,507
Net cash provided by operating activities 35,739 4,338
FINANCING ACTIVITIES:
Dividends and returns of capital - (15,000)
Net cash used in financing activities - (15,000)
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures, net of allowance
for funds used during construction (6,600) (8,769)
Proceeds from sales and salvage values,
net of costs of removal 6 (2,069)
Advances to affiliates, net (29,232) 21,622
Net cash used in investing activities (35,826) 10,784
Increase (decrease) in cash and cash equivalents (87) 122
Cash and cash equivalents at beginning of period 266 201
Cash and cash equivalents at end of period $ 179 $ 323
</TABLE>
The accompanying condensed notes are an integral part of these
consolidated financial statements.
<PAGE>
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Corporate Structure and Control and Basis of Presentation
Corporate Structure and Control
Texas Gas Transmission Corporation and its wholly owned
subsidiary, TGT Enterprises, Inc., (collectively, Texas Gas) is
wholly owned by Williams Gas Pipeline Company (WGP), which is a
wholly owned subsidiary of The Williams Companies, Inc.
(Williams).
Basis of Presentation
The consolidated financial statements have been prepared from
the books and records of Texas Gas without audit. 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, consisting of only normal
operating adjustments, which, in the opinion of Texas Gas'
management, are necessary to present fairly its financial
position at March 31, 2000, and results of operations and cash
flows for the three months ended March 31, 2000 and 1999. These
consolidated financial statements should be read in conjunction
with the financial statements, notes thereto and management's
narrative analysis contained in Texas Gas' 1999 Annual Report on
Form 10-K.
Certain reclassifications have been made in the 1999 financial
statements to conform to the 2000 presentation.
Seasonal Variation
Operating income may vary by quarter. Based on its current
rate structure, Texas Gas experiences higher operating income in
the first and fourth quarters as compared to the second and third
quarters.
B. Contingent Liabilities and Commitments
Regulatory and Rate Matters and Related Litigation
FERC Order 637
On February 9, 2000, the FERC issued a final rule, Order 637,
in which FERC adopted certain policies that it finds are necessary
to adjust its current regulatory model to the needs of the
evolving markets, but determined that any fundamental changes to its
regulatory policy will be considered after further study and evaluation
of the evolving marketplace. Most significantly, in Order 637, the
FERC (i) revised its pricing policy to waive, for a two-year period,
the maximum price ceilings for short-term releases of capacity of
less than one year, and (ii) permits pipelines
<PAGE>
to file proposals to implement seasonal rates for short-
term services and term-differentiated rates, subject to certain
requirements including the requirement that a pipeline be limited
to recovering its annual revenue requirement under those rates.
FERC Order 636
Effective November 1, 1993, Texas Gas 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 Texas
Gas, are primarily related to gas supply realignment (GSR) costs
and unrecovered purchased gas costs. Certain aspects of Texas
Gas' FERC Order 636 restructuring are under appeal.
In September 1995, Texas Gas received FERC approval of a
settlement agreement which resolves all issues regarding Texas
Gas' recovery of GSR costs. To date, Texas Gas has paid $76.2
million and collected $66.4 million, plus interest, related to
GSR. Texas Gas expects to pay no more than $80 million for GSR
costs, primarily as a result of contract terminations, and has
provided reserves for the remaining GSR costs it may be required
to pay, as well as a regulatory asset for the estimated future
amounts recoverable.
General Rate Issues
On April 28, 2000, Texas Gas filed a general rate case (Docket
No. RP00-260) which will be effective November 1, 2000, subject
to refund. This new rate case reflects a requested annual
revenue increase of approximately $81 million, based on filed
rates, primarily attributable to increases in the utility rate
base, depreciation expense, rate of return and related taxes, and
revised system rate design quantities. Texas Gas also proposes
in this new rate case to implement value-based, term-
differentiated seasonal rates for short-term services effective
November 1, 2000, as permitted by FERC Order 637.
Royalty Claims and Producer Litigation
In connection with Texas Gas' renegotiations of supply
contracts with producers to resolve take-or-pay and other
contract claims, Texas Gas has entered into certain settlements
which may require the indemnification by Texas Gas of certain
claims for royalties which a producer may be required to pay as a
result of such settlements. Texas Gas has been made aware of
demands on producers for additional royalties and may receive
other demands which could result in claims against Texas Gas
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 Texas
Gas.
In June 1999, Texas Gas filed to recover approximately $1.3
million (75%) of such costs pursuant to the provisions of FERC
Order 528. The FERC approved the filing, subject to conditions,
which allows for a surcharge on all mainline throughput beginning
July 1, 1999, to run through a twelve-month period. Texas Gas
has provided reserves for the estimated settlement costs of other
royalty claims and litigation.
<PAGE>
Environmental Matters
As of March 31, 2000, Texas Gas had a reserve of approximately
$1.5 million for estimated costs associated with environmental
assessment and remediation, including remediation associated with
the historical use of polychlorinated biphenyls and hydrocarbons.
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. Texas Gas 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.
Texas Gas 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.
Texas Gas is also subject to the federal Clean Air Act (CAA)
and the CAA Amendments of 1990 (Amendments) which added
significant provisions to the existing federal CAA. The
Amendments require the Environmental Protection Agency (EPA) to
promulgate new regulations pertaining to mobile sources, air
toxics, areas of ozone non-attainment, and acid rain. Texas Gas
operates facilities in some areas designated as non-attainment
for the current ozone standard and is aware that the EPA may
designate additional non-attainment areas during 2000 which may
potentially impact Texas Gas operations. Emission control
modifications of compression equipment located at facilities
required to comply with current federal CAA provisions, the
Amendments, and State Implementation Plans for NOx reductions are
estimated to cost in the range of $6 million to $14 million by
May 2003 and will be recorded as additions to property, plant
and equipment as the facilities are added. If EPA designates
additional new non-attainment areas in 2000 which impact Texas
Gas' operations, the cost of additions to property, plant and
equipment is expected to increase; however, Texas Gas is unable
at this time to estimate with any certainty the cost of additions
that may be required. Moreover, new regulations pertaining to
Hazardous Air Pollutants (HAPs) are anticipated to be promulgated
by November 2000 which will require emission controls in addition
to the controls mentioned above. Texas Gas cannot predict the
costs with any certainty at this time resulting from the
installation of these controls. The effective compliance date
for the HAPs regulations and installation of associated controls
is anticipated to be November 2003.
Texas Gas considers environmental assessment, 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 U.S. Environmental Protection Agency or other governmental
authorities, and other factors.
<PAGE>
Other Legal Issues
In 1998, the United States Department of Justice informed
Williams that Jack Grynberg, an individual, had filed claims in
the United States District Court for the District of Colorado
under the False Claims Act against Williams and certain of
its wholly owned subsidiaries including Texas Gas. Mr. Grynberg
has also filed claims against approximately 300 other energy
companies and alleges that the defendants violated the False
Claims Act in connection with the measurement and purchase of
hydrocarbons. The relief sought is an unspecified amount of
royalties allegedly not paid to the federal government, treble
damages, a civil penalty, attorneys' fees, and costs. On April
9, 1999, the United States Department of Justice announced that
it was declining to intervene in any of the Grynberg qui tam
cases, including the actions filed against the Williams entities
in the United States District Court for the District of Colorado.
On October 21, 1999, the Panel on Multi-District Litigation
transferred all of the Grynberg qui tam cases, including the ones
filed against Williams, to the United States District Court for
the District of Wyoming for pre-trial purposes. Motions to
dismiss the complaints, filed by various defendants including
Williams, are pending.
Summary of Contingent Liabilities and Commitments
While no assurances may be given, Texas Gas does not believe
that the ultimate resolution of the foregoing matters taken as a
whole, based on advice from counsel and after consideration of
amounts accrued, insurance coverage, potential recovery from
customers or other indemnification arrangements, will have a
materially adverse effect on Texas Gas' future financial
position, results of operations or cash flow requirements.
C. Adoption of Accounting Standard
The Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard, as amended,
is effective for Texas Gas on January 1, 2001. This standard
requires that all derivatives be recognized as assets or
liabilities on the balance sheet and that those instruments be
measured at fair value. The effect of this standard on Texas
Gas' results of operations and financial position is being
evaluated.
<PAGE>
Item 2. Management's Narrative Analysis of the Results of Operations
(Filed Pursuant to General Instruction H)
Financial Analysis of Operations
Three Months Ended March 31, 2000 Compared to
Three Months Ended March 31, 1999
Operating income was $1.6 million lower for the three months
ended March 31, 2000, than for the three months ended March 31,
1999. The decrease in operating income was due primarily to 1999
recognition of $3.0 million of deferred revenues associated with
a January 1999 GSR reconciliation filing with the FERC and $1.4
million of increased general and administrative costs related to
the 2000 consolidation of Texas Gas' office operations with
Williams Gas Pipeline Central. Decreases to operating income
were partially offset by a $1.6 million reduction in the cost of
gas transportation and a $0.8 million increase in other revenues.
Operating revenues decreased $2.2 million primarily
attributable to the 1999 GSR adjustment discussed above and to a
lesser extent lower throughput. Other revenues increased by $0.8
million primarily due to higher processing revenues resulting
from higher energy prices. Total deliveries were 218.9 Tbtu and
235.9 Tbtu for the first quarter of 2000 and 1999, respectively.
Operating costs and expenses decreased $0.6 million primarily
attributable to $1.6 million reduction in the cost of gas
transportation partially offset by $1.4 million relating to the
office consolidation discussed above.
Financial Condition and Liquidity
Through the years, Texas Gas has consistently maintained its
financial strength and experienced strong operational results.
Williams' ownership of Texas Gas further enhances its financial
and operational strength, as well as allows Texas Gas to take
advantage of new opportunities for growth. Texas Gas expects to
access public and private capital markets, as needed, to finance
its own capital requirements.
Texas Gas is a participant with other Williams' subsidiaries in
a $1 billion credit agreement under which Texas Gas may borrow up
to $200 million, subject to borrowings by other affiliated
companies. Interest rates vary with current market conditions.
To date, Texas Gas has no amounts outstanding under this
facility.
As of March 31, 2000, Texas Gas has $100 million of shelf
availability remaining under a Registration Statement filed with
the Securities and Exchange Commission in 1997.
Effective February 1, 2000, Texas Gas began participating in
WGP's cash management program. The advances due Texas Gas by WGP
are represented by demand notes. The interest rate on
intercompany demand notes is the London Interbank Offered Rate on
the first day of the month plus an applicable margin based on the
current Standard and Poor's Rating of the Borrower. Prior to
February 1, Texas Gas was a participant in Williams' cash
management program which operated under the same terms as the WGP
program.
<PAGE>
Texas Gas' capital expenditures for the first three months of
2000 and 1999 were $6.6 million and $8.8 million, respectively.
Capital expenditures for 2000 are expected to approximate $88.4
million.
Texas Gas' debt as a percentage of total capitalization at
March 31, 2000 and December 31, 1999 was 27.4% and 27.5%,
respectively.
On April 28, 2000, Texas Gas filed a general rate case (Docket
No. RP00-260) which will be effective November 1, 2000 subject to
refund. This new rate case reflects a requested annual revenue
increase of approximately $81 million, based on filed rates,
primarily attributable to increases in the utility rate base,
depreciation expense, rate of return and related taxes, and
revised system rate design quantities. Texas Gas also proposes in
this new rate case to implement value-based, term-differentiated
seasonal rates for short-term services effective November 1,
2000, as permitted by FERC Order 637.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
* 27.1 Financial Data Schedule for Texas Gas Transmission
Corporation for the first quarter ending March 31, 2000.
(b) Reports on Form 8-K
None
_____________________________
* Filed herewith
<PAGE>
S I G N A T U R E
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 10, 2000 BY: /s/ S. W. Harris
S. W. Harris
Controller and Chief Accounting Officer
<PAGE>
[ARTICLE] 5
[CIK] 0000097452
[NAME] TEXAS GAS TRANSMISSION CORPORATION
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-END] MAR-31-2000
[CASH] 179
[SECURITIES] 0
[RECEIVABLES] 15,772
[ALLOWANCES] 0
[INVENTORY] 15,912
[CURRENT-ASSETS] 165,227
[PP&E] 1,114,008
[DEPRECIATION] 149,778
[TOTAL-ASSETS] 1,298,028
[CURRENT-LIABILITIES] 119,135
[BONDS] 250,781
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1
[OTHER-SE] 664,815
[TOTAL-LIABILITY-AND-EQUITY] 1,298,028
[SALES] 252
[TOTAL-REVENUES] 86,206
[CGS] 251
[TOTAL-COSTS] 41,568
[OTHER-EXPENSES] (1,422)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 4,976
[INCOME-PRETAX] 41,084
[INCOME-TAX] 15,908
[INCOME-CONTINUING] 25,176
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 25,176
[EPS-BASIC] 0
[EPS-DILUTED] 0
</TABLE>
