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, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ..........
Commission File Number 1-7513
TRANSCO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-1758039
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 Post Oak Boulevard
P. O. Box 1396
Houston, Texas 77251
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 439-2000
None
(Former name, former address and former fiscal year, if changed
since last report)
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 / /
The number of shares of Common Stock, par value $0.50 per share,
outstanding as of September 30, 1994 was 40,927,847.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COMPANY OR GROUP OF COMPANIES FOR WHICH REPORT IS FILED:
TRANSCO ENERGY COMPANY AND SUBSIDIARIES (TRANSCO)
The condensed consolidated financial statements included herein have
been prepared by Transco, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of Transco's management, however, all
adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the financial position as of the
dates and results of operations for the periods included herein have been
made and the disclosures contained herein are adequate to make the
information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements, notes thereto and management's discussion contained
in Items 7 and 8 of Transco's 1993 Annual Report on Form 10-K and included
in Transco's 1994 First and Second Quarter Reports on Form 10-Q.
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
______________ _______________
ASSETS
______
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 62,237 $ 163,488
Deposits 13,661 34,133
Receivables -
Trade 133,687 195,306
Other 12,160 22,747
Transportation and exchange gas receivable 42,068 50,635
Gas supply realignment costs recoverable from customers 37,885 19,231
Inventories 100,626 118,550
Deferred income tax benefits 33,867 21,330
Other 53,451 41,301
_____________ ______________
Total current assets 489,642 666,721
_____________ ______________
Investments, at cost plus equity in undistributed earnings 33,444 31,454
_____________ ______________
Property, Plant and Equipment, at cost:
Natural gas transmission plant-jurisdictional 5,151,094 5,058,546
Less-Accumulated depreciation and amortization 2,781,215 2,653,534
_____________ ______________
Natural gas transmission plant-jurisdictional, net 2,369,879 2,405,012
_____________ ______________
Natural gas gathering and liquids separation and
fractionation plant 212,938 213,114
Less-Accumulated depreciation and amortization 15,891 11,412
_____________ ______________
Natural gas gathering and liquids separation and
fractionation plant, net 197,047 201,702
_____________ ______________
Coal properties 407,344 409,695
Less-Accumulated depreciation, depletion and amortization 148,323 138,280
_____________ ______________
Coal properties, net 259,021 271,415
_____________ ______________
Other property, plant and equipment 10,533 5,280
Less-Accumulated depreciation and amortization 4,325 3,217
_____________ ______________
Other property, plant and equipment, net 6,208 2,063
_____________ ______________
Total property, plant and equipment, net 2,832,155 2,880,192
_____________ ______________
Other Assets:
Nonoperating interest in coalbed methane properties, net 131,334 131,287
Notes receivable 14,639 14,929
Transportation and exchange gas receivable 89,314 92,960
Other 234,704 249,507
_____________ ______________
Total other assets 469,991 488,683
_____________ ______________
$ 3,825,232 $ 4,067,050
_____________ ______________
_____________ ______________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
______________ _______________
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 2,500 $ 159,479
Payables -
Trade 156,933 284,469
Other 51,991 88,123
Transportation and exchange gas payable 28,614 16,258
Accrued federal income taxes 22,009 -
Other accrued liabilities 207,508 214,121
Reserve for rate refunds 119,132 161,991
Other 48,635 62,133
_____________ _____________
Total current liabilities 637,322 986,574
_____________ _____________
Long-Term Debt, less current maturities 1,935,077 1,786,571
_____________ _____________
Other Liabilities and Deferred Credits:
Income taxes 294,457 284,130
Income taxes refundable to customers 18,068 26,364
Transportation and exchange gas payable 38,447 64,976
Accrued pension cost 20,273 31,958
Other 140,254 154,585
_____________ _____________
Total other liabilities and deferred credits 511,499 562,013
_____________ _____________
Preferred Stock of Subsidiary, net-redeemable 71,741 75,191
_____________ _____________
Convertible Preferred Stock, net-non-redeemable 265,322 265,418
_____________ _____________
Common Stockholders' Equity:
Common stock $0.50 par value: authorized 150,000,000
shares; issued and outstanding 41,431,419 and
41,386,861 shares in 1994 and 1993, respectively 20,716 20,693
Premium on capital stock and other paid-in capital 519,152 511,797
Retained earnings (deficit) (112,156) (115,447)
_____________ _____________
427,712 417,043
Less-Treasury stock, at cost, 503,572 and 15,156 shares
in 1994 and 1993, respectively 7,507 207
Common stock held by Tran$tock, 310,975 and
524,045 shares in 1994 and 1993, respectively-
Deferred compensation 11,712 14,395
Receivable from Tran$tock 2,399 9,383
Restricted stock, 106,959 and 91,964 shares in
1994 and 1993, respectively-
Deferred compensation 1,823 1,775
_____________ _____________
Total common stockholders' equity 404,271 391,283
_____________ _____________
$ 3,825,232 $ 4,067,050
_____________ ______________
_____________ ______________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
___________________________________________
1994 1993
_________________ _________________
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 300,742 $ 378,017
Natural gas transportation 201,530 182,526
Natural gas storage 37,980 37,565
Coal sales 59,513 66,892
Other sales 5,891 9,960
________________ ________________
Total operating revenues 605,656 674,960
________________ ________________
Operating Costs and Expenses:
Cost of sales 326,614 384,697
Cost of transportation 47,509 47,703
Operation and maintenance 63,803 60,793
Administrative and general 58,549 64,540
Depreciation, depletion and amortization 48,036 46,953
Taxes - other than income taxes 13,337 12,476
Corpus Christi settlement - 50,269
Write-off of note receivable - 20,125
________________ ________________
Total operating costs and expenses 557,848 687,556
________________ ________________
Operating Income (Loss) 47,808 (12,596)
________________ ________________
Other (Income) and Other Deductions:
Interest expense 47,882 47,114
Interest income (1,979) (1,674)
Capitalized interest and allowance for
funds used during construction (1,378) (3,319)
Dividends on preferred stock of subsidiary 1,551 2,091
Equity in earnings of unconsolidated affiliates (881) (329)
Loss on sale of assets - 924
Miscellaneous other (income) and deductions, net 1,965 4,362
________________ ________________
Total other (income) and other deductions 47,160 49,169
________________ ________________
Income (Loss) from Continuing Operations
Before Income Taxes 648 (61,765)
Benefit of Income Taxes (493) (18,600)
________________ ________________
Income (Loss) from Continuing Operations 1,141 (43,165)
Loss from Operations of Discontinued
Segment, Net of Income Taxes - -
Gain on Sale of Discontinued Segment, Net
of Income Taxes - 31,572
________________ ________________
Net Income from Discontinued Operations - 31,572
________________ ________________
Net Income (Loss) 1,141 (11,593)
Dividends on Convertible Preferred Stock 5,726 6,433
________________ ________________
Common Stock Equity in Net Income (Loss) $ (4,585) $ (18,026)
________________ ________________
________________ ________________
Primary Earnings (Loss) Per Share of Common
Stock and Common Stock Equivalents -
Continuing Operations $ (0.11) $ (1.27)
Discontinued Operations - 0.81
________________ ________________
$ (0.11) $ (0.46)
________________ ________________
________________ ________________
Dividends Declared Per Share of Common Stock $ 0.15 $ 0.15
________________ ________________
________________ ________________
Average Shares of Common Stock and Common
Stock Equivalents Outstanding 40,632 38,990
________________ ________________
________________ ________________
Shares of Common Stock Outstanding 40,928 40,385
________________ ________________
________________ ________________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
___________________________________________
1994 1993
_________________ _________________
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 1,174,134 $ 1,201,332
Natural gas transportation 652,301 598,180
Natural gas storage 110,986 111,300
Coal sales 165,718 176,720
Other sales 31,593 47,022
________________ ________________
Total operating revenues 2,134,732 2,134,554
________________ ________________
Operating Costs and Expenses:
Cost of sales 1,229,185 1,206,461
Cost of transportation 153,268 176,340
Operation and maintenance 176,680 178,615
Administrative and general 184,728 187,775
Depreciation, depletion and amortization 144,267 140,049
Taxes - other than income taxes 40,481 38,801
Corpus Christi settlement - 50,269
Write-off of note receivable - 20,125
________________ ________________
Total operating costs and expenses 1,928,609 1,998,435
________________ ________________
Operating Income 206,123 136,119
________________ ________________
Other (Income) and Other Deductions:
Interest expense 142,138 143,319
Interest income (6,097) (6,489)
Capitalized interest and allowance for
funds used during construction (3,297) (5,815)
Dividends on preferred stock of subsidiary 4,722 6,343
Equity in earnings of unconsolidated affiliates (2,389) (676)
Loss on sale of assets - 924
Miscellaneous other (income) and deductions, net 10,230 10,802
________________ ________________
Total other (income) and other deductions 145,307 148,408
________________ ________________
Income (Loss) from Continuing Operations
Before Income Taxes 60,816 (12,289)
Provision for (Benefit of) Income Taxes 21,989 (215)
________________ ________________
Income (Loss) from Continuing Operations 38,827 (12,074)
Loss from Operations of Discontinued
Segment, Net of Income Taxes - (93)
Gain on Sale of Discontinued Segment, Net
of Income Taxes - 31,572
________________ ________________
Net Income from Discontinued Operations - 31,479
________________ ________________
Net Income 38,827 19,405
Dividends on Convertible Preferred Stock 17,178 19,298
________________ ________________
Common Stock Equity in Net Income $ 21,649 $ 107
________________ ________________
________________ ________________
Primary Earnings (Loss) Per Share of Common
Stock and Common Stock Equivalents -
Continuing Operations $ 0.53 $ (0.80)
Discontinued Operations - 0.80
________________ ________________
$ 0.53 $ -
________________ ________________
________________ ________________
Dividends Declared Per Share of Common Stock $ 0.45 $ 0.45
________________ ________________
________________ ________________
Average Shares of Common Stock and Common
Stock Equivalents Outstanding 40,707 39,282
________________ ________________
________________ ________________
Shares of Common Stock Outstanding 40,928 40,385
________________ ________________
________________ ________________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
______________________________
1994 1993
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 38,827 $ 19,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 158,561 154,118
Deferred income taxes (10,538) (71,724)
Tran$tock compensation expense 2,683 2,912
Net gain on sales of assets - (49,556)
Corpus Christi settlement - 50,269
Write-off of note receivable - 20,125
Other, net (1,700) 80
____________ ____________
187,833 125,629
Nonrecoverable producer settlements - (27,109)
Changes in operating assets and liabilities:
Deposits 20,472 (1,402)
Receivables 65,419 53,654
Transportation and exchange gas receivable 12,213 67,250
Inventories 19,627 (23,447)
Payables (162,975) (71,074)
Transportation and exchange gas payable (14,173) (56,720)
Accrued liabilities 269 41,002
Reserve for rate refunds (41,813) 73,797
Other, net (31,069) 11,650
____________ ____________
Net cash provided by operating activities 55,803 193,230
____________ ____________
Cash flows from financing activities:
Net additions to long-term debt 146,619 -
Retirement of long-term debt (157,080) (61,527)
Retirement of preferred stock (4,639) (3,498)
Dividends on common and preferred stock (40,371) (43,856)
Other, net (1,906) 3,555
____________ ____________
Net cash used in financing activities (57,377) (105,326)
____________ ____________
Cash flows from investing activities:
Property, plant and equipment and investment in
unconsolidated affiliates (111,646) (111,611)
Recovery of producer settlements 1,126 33,557
Acquisition of companies (12,500) -
Proceeds from sales of assets 8,000 146,626
Other, net 15,343 31,479
____________ ____________
Net cash provided by (used in)
investing activities (99,677) 100,051
____________ ____________
Net increase (decrease) in cash and cash equivalents (101,251) 187,955
Cash and cash equivalents at beginning of period 163,488 12,528
____________ ____________
Cash and cash equivalents at end of period $ 62,237 $ 200,483
____________ ____________
____________ ____________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 137,499 $ 137,176
Income taxes (net of amounts refunded) 9,765 27,303
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Transco Energy Company and its wholly-owned subsidiaries. As used herein,
the terms "Transco" and the "Company" refer to Transco Energy Company and
its wholly-owned subsidiaries unless the context otherwise requires.
The condensed consolidated financial statements have been prepared from
the books and records of Transco without audit. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and the notes thereto included in Transco's 1993 Annual Report on Form 10-
K and included in Transco's 1994 First and Second Quarter Reports on Form
10-Q.
As a result of the sale of Transco Energy Ventures Company (TEVCO)
described in Transco's 1993 Annual Report on Form 10-K, the Power
Generation segment has been classified in the 1993 Condensed Consolidated
Statement of Operations as discontinued operations; and, as such, revenues
and expenses of the Power Generation segment have been excluded from the
results for continuing operations.
Certain reclassifications have been made in the 1993 financial statements
to conform with the 1994 presentation.
B. REGULATORY MATTERS
There have been no new developments from those described in the 1993
Annual Report on Form 10-K and in the 1994 First and Second Quarter
Reports on Form 10-Q other than described below.
Rate Matters
____________
Transcontinental Gas Pipe Line Corporation (TGPL)
In the first nine months of 1994, TGPL made partial refunds of
approximately $123 million, including interest, under Docket No. RP92-137.
TGPL had previously provided a reserve for these refunds. TGPL has also
provided a reserve which it believes is adequate for any additional
refunds that may be required under Docket No. RP92-137. At September 30,
1994, these additional refunds, which are currently expected to be made
during the fourth quarter of 1994, are estimated to be approximately $52
million, including interest. Interest will continue to accrue until all
refunds are made.
On October 20, 1994, an Administrative Law Judge (ALJ) issued an initial
decision granting a motion filed by certain parties for summary
disposition with respect to the issue of the allocation of certain costs
to TGPL's merchant sales service. That issue, among others, was referred
to the hearing in Docket No. RP92-137 by the Federal Energy Regulatory
Commission's (FERC) orders approving TGPL's implementation of Order 636.
TGPL had opposed the motion. In his initial decision, the ALJ determined
that there is no genuine issue of material fact warranting a trial-type
hearing on the issue. The ALJ's decision directs TGPL to remove from its
gathering function approximately $5.6 million of indirect costs and to
reassign this amount to its merchant sales service. The ALJ's decision is
subject to final approval by the FERC. Briefs on exceptions to the ALJ's
decision are due on or before November 21, 1994. Any changes in TGPL's
rates or services resulting from this issue would have a prospective
effect only. Although no assurances can be given, Transco believes that
the final resolution of this cost allocation issue will not have a
material adverse effect on its financial position or results of
operations.
On October 26, 1994, the FERC issued a notice of a request for initiation
of a complaint proceeding in TGPL's Order 636 restructuring docket. The
notice states that Fina Natural Gas Company has filed a complaint
requesting that the FERC initiate a proceeding under Natural Gas Act of
1938 (NGA) section 5 to investigate the functionalization of TGPL's
production-area facilities. Fina asserts that some of TGPL's production-
area facilities have been misfunctionalized as transmission, and that
under recent gathering orders, those facilities should properly be
functionalized as gathering facilities. Responses to the notice are due
on or before November 28, 1994. If the FERC elects to initiate a
proceeding, any change in classification of the function of plant
facilities between transmission and gathering would be prospective only.
Although no assurances can be given, Transco does not believe the final
outcome of this issue will have a material adverse effect on its financial
position or results of operations.
Texas Gas Transmission Corporation (Texas Gas)
On April 29, 1993, Texas Gas filed a general rate case (Docket No. RP93-
106), which became effective November 1, 1993, subject to refund. A
settlement agreement regarding the general rate case was filed on June 14,
1994. On September 21, 1994, the FERC issued an "Order Approving
Settlement" accepting the settlement as filed with no significant
modifications, which became final October 21, 1994. Texas Gas has
provided a reserve which it believes is adequate for refunds, including
interest, that will be required. As of September 30, 1994, such refunds,
which are currently expected to be made in December 1994, were estimated
to be approximately $40 million, including interest. Interest will
continue to accrue until all refunds are made.
On September 30, 1994, Texas Gas filed a general rate case (Docket No.
RP94-423) which, pursuant to a FERC suspension order issued October 28,
1994, will be effective April 1, 1995, subject to refund. This rate
change reflects a requested annual revenue increase of approximately $66.9
million, based on the filed rate. The increase is primarily attributable
to increases in the utility rate base, operating expenses and rate of
return and related taxes.
On July 29, 1994, and in rehearing on September 16, 1994, the FERC issued
an order accepting the June 30, 1994 filing made by Texas Gas to resolve
its transportation and exchange imbalances pre-dating the implementation
of Order 636. The order approved the timetable proposed in the filing
whereby such imbalances must be reconciled by December 31, 1994.
Following the parties' agreement as to the allocations, reconciled
imbalances will be repaid in cash, or through receipt or delivery of gas,
as permitted by operating conditions, by the end of 1995. Although no
assurances can be given, Transco believes that the final resolution of
Texas Gas' transportation and exchange imbalances will not have a material
adverse effect on its financial position or results of operations.
Other Regulatory Matters
________________________
Order 636
Texas Gas
Texas Gas' transition costs under Order 636 are primarily related to Gas
Supply Realignment (GSR) contract termination costs, GSR pricing
differential costs incurred pursuant to Texas Gas' monthly auction process
and unrecovered purchased gas costs. Through September 30, 1994, Texas
Gas had paid or committed to pay a total of $44.4 million for GSR costs,
primarily as a result of certain GSR contract terminations. Texas Gas
continues to make quarterly filings to recover its GSR costs as such costs
are paid. As of September 30, 1994, Texas Gas had recovered $7.6 million
of such costs.
Consolidated
Transco expects that any Order 636 transition costs incurred should be
recovered from customers of TGPL and Texas Gas, subject only to the costs
and other risks associated with the difference between the time such costs
are incurred and the time when those costs may be recovered from
customers.
Order 500 and Order 528
Texas Gas
On August 4, 1994, the FERC issued an order approving the settlement
agreements of Texas Gas and its upstream pipelines in Texas Gas' pending
Order 528 flowthrough proceedings. Pursuant to the settlements, on
September 30, 1994, Texas Gas flowed through to its former sales customers
$39.9 million, which Texas Gas had received from upstream pipelines. This
order resolves all of Texas Gas' issues related to the flowthrough of
upstream pipelines' take-or-pay costs.
Order 94-A
On January 12, 1994, the FERC issued its "Order Granting Rehearing" which
found that the FERC had committed a legal error in allowing the direct
bill of FERC Order 94-A costs to certain customers. The effect of this
order, as issued, would be to require Texas Gas to make refunds to certain
customers of $13.5 million, recover $2.7 million through direct billing of
other customers, recover $5.4 million as part of the direct billing of its
unrecovered purchase gas costs and absorb the remaining $5.4 million.
Texas Gas filed for rehearing of this order and received an extension
staying the effectiveness of this order until 30 days after the FERC rules
on rehearing. On October 18, 1994, the FERC issued its "Order Denying
Rehearing" which affirmed its January 12, 1994 Order. Texas Gas intends
to assert all available legal rights and remedies to stay the Order's
requirements to make refunds by November 17, 1994. Texas Gas continues to
believe that it is entitled to full recovery of these FERC ordered costs
and is considering appropriate appellate action. Texas Gas has
established reserves which it believes are adequate to provide for any
costs incurred or refunds required.
C. LEGAL PROCEEDINGS
There have been no new developments from those described in the 1993
Annual Report on Form 10-K or in the 1994 First and Second Quarter Reports
on Form 10-Q other than as described below.
Producer Contract Litigation
____________________________
As discussed in the Company's 1993 Annual Report on Form 10-K, in TGPL's
only remaining proceeding involving take-or-pay and other producer
contract claims, a producer filed in United States District Court for the
Southern District of Texas (Federal District Court) claiming that it
should have received more favorable terms for settlement of its contract
claims and asserting federal antitrust claims. The Federal District Court
issued an order granting TGPL's motion for summary judgment, which was
appealed by the producer to the United States Court of Appeals for the
Fifth Circuit (Fifth Circuit Court). On July 1, 1994, the Fifth Circuit
Court affirmed the judgment of the Federal District Court dismissing the
producer's claims in all respects and on July 27, 1994, denied the
producer's petition for rehearing.
Other Litigation and Claims
___________________________
Dakota Gasification Litigation
As discussed in the Company's 1993 Annual Report on Form 10-K and in the
1994 First and Second Quarter Reports on Form 10-Q, in October 1990,
Dakota Gasification Company (Dakota), the owner of the Great Plains Coal
Gasification Plant, filed suit in the United States District Court in
North Dakota against TGPL and three other pipeline companies alleging that
TGPL and the other pipeline companies had not complied with their
respective obligations under certain gas purchase and gas transportation
contracts. On March 30, 1994, the parties executed definitive agreements
which would settle the litigation subject to final nonappealable
regulatory approvals. The settlement is also subject to a FERC ruling
that TGPL's existing authority to recover in rates certain costs related
to the purchase and transportation of gas produced by Dakota will pertain
to gas purchase and transportation costs TGPL will pay Dakota under the
terms of the settlement. On June 23, 1994, TGPL filed a petition with the
FERC seeking approval of the settlement provisions and the contract
amendment including pass-through of all costs to TGPL's customers. On
October 18, 1994, the FERC issued an order consolidating TGPL's petition
with the petitions filed by the other three pipeline companies and setting
the matter for hearing before an ALJ. The hearing will be limited to the
issues of (i) whether the revised agreements are prudent, and (ii) the
level of Dakota costs to be recovered in the proceeding. The FERC
directed the ALJ to convene a prehearing conference within 20 days of
October 18, 1994, and directed that the ALJ issue an initial decision by
December 31, 1995 in order that final FERC approval may take place by
December 31, 1996. On November 7, 1994, the ALJ convened a prehearing
conference and adopted a procedural schedule to govern the hearing. Under
that procedural schedule, the hearing is scheduled to commence on June 20,
1995. In the event that the necessary regulatory approvals are not
obtained, TGPL, Transco and Transco Coal Gas Company intend to vigorously
defend the suit. Although no assurances can be given, Transco does not
believe that the ultimate resolution of this litigation will have a
material adverse effect on its financial position or results of
operations.
Coal Litigation
In April 1985, a lawsuit was filed in the Clay Circuit Court of the 41st
Judicial Circuit of the Commonwealth of Kentucky (Spurlock, Stewart,
Allen, et. al. vs. Leeco, Inc.) in which the plaintiffs alleged
intentional trespass and the wrongful taking of coal from their property
by Leeco, Inc., a subsidiary of Transco Coal Company. On July 22, 1992,
the Special Judge of the Clay Circuit Court awarded the plaintiffs
approximately $3.5 million in damages, with interest accruing post-
judgment. Leeco appealed the judgment, based on advice of counsel that
the lower court had committed reversible error. On September 2, 1994,
the Kentucky Court of Appeals affirmed an earlier
judgment for the plaintiffs, although the court remanded an award of
attorneys' fees for reconsideration by the trial court. On September 22,
1994, Leeco filed a Petition for Rehearing with the Court of Appeals. A
decision is expected within 12 months. If the Petition for Rehearing is
denied, Leeco may appeal to the Kentucky Supreme Court. Leeco has
provided a reserve of approximately $4.5 million, which is reflected in
the accompanying financial statements as of September 30, 1994. Interest
will continue to accrue on the judgment until payment is made.
<PAGE>
Royalty Claims
As discussed in the Company's 1993 Annual Report on Form 10-K and in the
1994 First and Second Quarter Reports on Form 10-Q, in connection with
TGPL and Texas Gas' renegotiations with producers to resolve take-or-pay
and other contract claims and to amend gas purchase contracts, TGPL and
Texas Gas have each entered into certain settlements which may require the
indemnification by TGPL or Texas Gas of certain claims for additional
royalties which producers may be required to pay as a result of such
settlements. TGPL and Texas Gas have been made aware of demands on
producers for additional royalties and such producers may receive other
demands which could result in claims against TGPL and Texas Gas pursuant
to the indemnification provisions in their respective 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 either TGPL or Texas Gas.
All parties in the Duplantis lawsuit, including Transco Exploration
Company (TXC) and TXP Operating Company (TXPO), have reached a settlement
in principle. Under the terms of the settlement, TXC and TXPO will pay,
in total, approximately $2.5 million, which represents TXC and TXPO's
portion of an $8.4 million settlement to be paid by all of the defendant-
producers. The settlement also releases TGPL from any liability to the
plaintiffs and the defendant-producers. The settlement is expected to
close on November 30, 1994.
In the Marathon lawsuit, trial has been set for July 31, 1995.
In the Vaquillas Ranch lawsuit, a motion by the plaintiffs to extend the
December 2, 1994 trial date has been granted. However, a new trial date
has not been set. In addition, the U.S. District Court judge recently
recommended that the case be remanded to state court. Texaco and TGPL
have moved for reconsideration of this ruling and a determination is
expected soon.
On July 5, 1994, the plaintiffs in the Vaquillas Ranch lawsuit filed a
separate lawsuit in the 111th Judicial District Court of Webb County,
Texas (Vaquillas Ranch Company, Ltd., et. al. vs. Transcontinental Gas
Pipe Line Corporation and Transco Gas Supply Company) in which the
plaintiffs contend that TGPL tortiously interfered with the plaintiffs'
lease by inducing the producer to enter into certain agreements that
reduced TGPL's take-or-pay obligations and the price TGPL was obligated to
pay for the gas it purchased. The plaintiffs are requesting an
unspecified amount of actual and punitive damages for the alleged tortious
interference. No trial date has been set.
In the Billings lawsuit, the U.S. District Court judge authorized the
plaintiffs to amend their complaint to exclude the parent of the producer-
defendant as a defendant and remanded the case to state court. The
producer-defendant has filed a motion to reconsider this order and TGPL
joined this motion. No trial date has been set.
Each of these lawsuits is in the discovery process. TGPL has denied
liability in the litigation and believes that it has meritorious defenses
to the claims which it intends to pursue vigorously. TGPL believes at
this time that its exposure, if any, under the provisions of its
settlements with the producers is substantially less than the amounts
claimed by the royalty owners.
Although no assurances can be given, Transco believes that the ultimate
resolution of the TGPL and Texas Gas royalty claims and litigation will
not have a material adverse effect on Transco's financial position or
results of operations.
<PAGE>
D. ENVIRONMENTAL MATTERS
There have been no new developments from those described in the 1993
Annual Report on Form 10-K other than as described below.
Magnolia Methane Corp. was named as a potentially responsible party at one
Superfund waste disposal site and has negotiated a de minimis buyout for
$11,000. Magnolia Methane Corp. does not anticipate future exposure at
this site to exceed $100,000.
Transco and certain of its subsidiaries are subject to the Federal Clean
Air Act and the Federal Clean Air Act Amendments of 1990 (1990
Amendments), which added significantly to the existing requirements
established by the Federal Clean Air Act. The 1990 Amendments required
that the Environmental Protection Agency (EPA) issue new regulations,
mainly related to mobile sources, air toxics, ozone non-attainment areas
and acid rain. Transco is installing new emission control devices where
required and conducting certain emission testing programs to comply with
the Federal Clean Air Act standards and the 1990 Amendments. In addition,
pursuant to the 1990 Amendments, the EPA has issued regulations under
which states must implement new air pollution controls to achieve
attainment of national ambient air quality standards in areas where they
are not currently achieved. Both TGPL and Texas Gas have compressor
stations in ozone non-attainment areas that could require substantial air
pollution reduction expenditures, depending on the requirements imposed.
While it will not be possible to estimate the ultimate costs of compliance
with these new requirements until states approve TGPL's proposed plans for
modifications, Transco expects that significant capital spending will be
required to modify Transco's facilities, particularly the compressor
engines along TGPL's pipeline system. Additions to facilities for
compliance with currently known Federal Clean Air Act standards and the
1990 Amendments are expected to cost in the range of $50 million to $65
million over the next five years and will be recorded as additions to
property, plant and equipment as the facilities are added. Such costs,
however, may increase, depending on the requirements imposed.
E. FINANCING
Restrictive Covenants
_____________________
As described in the 1993 Annual Report on Form 10-K and in the 1994 First
and Second Quarter Reports on Form 10-Q, certain of Transco's credit
facilities and indentures contain restrictive covenants which could, among
other things, affect Transco's ability to incur debt, pay dividends on its
common and preferred stock and to make certain investments.
F. ACQUISITION OF TREN-FUELS, INC.
On June 30, 1993, Transco entered into a definitive agreement to sell the
common stock of TEVCO to National Power America, Inc. (National Power), a
subsidiary of National Power PLC, under which Transco received cash
proceeds of $150 million, subject to certain adjustments. The TEVCO sales
agreement provided Transco a right of first refusal in the event that
National Power elected to sell Tren-Fuels, Inc., a compressed natural gas
fueling company and subsidiary of TEVCO. Pursuant to its right of first
refusal, Transco acquired Tren-Fuels from National Power in September
1994. In addition, Transco and National Power reached agreement on a net
worth adjustment to the TEVCO purchase price to reflect the net increase
in the net worth of TEVCO between March 31, 1993 and September 13, 1993,
the closing date of the sale. Under the agreements, Transco paid
National Power $12.5 million with respect to the acquisition of Tren-Fuels
and National Power paid Transco $8 million associated with the net worth
adjustment.
G. INVESTMENT IN NONOPERATING INTEREST IN COALBED METHANE PROPERTIES
As discussed in Transco's 1993 Annual Report on Form 10-K and in the 1994
First and Second Quarter Reports on Form 10-Q, the ultimate recovery of
Transco's remaining investment through future production payments depends
on production from the properties and future gas prices. The Company
cannot predict at this time the ultimate results of these operations or
the amounts of reserves that may ultimately be recoverable. If future
development operations do not result in establishing sufficient reserves
to recover the Company's remaining coalbed methane investment, or if other
factors cause the Company's evaluation of its investment to diminish,
additional reductions in the book value of the Company's investment would
be required in future periods through non-cash charges to earnings. Any
resulting non-cash charge to earnings could reduce the Company's financial
flexibility, including its ability to remain in compliance with certain
restrictive provisions in various debt instruments and to pay dividends on
its capital stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements, notes and management's discussion
contained in Items 7 and 8 of Transco's 1993 Annual Report on Form 10-K
and in the 1994 First and Second Quarter Reports on Form 10-Q and with the
condensed consolidated financial statements and notes contained in this
report.
INTRODUCTION
Over the past two years, Transco has made significant progress in
improving its results of operations and financial flexibility. The
Company remains committed to deleveraging its balance sheet, further
eliminating or mitigating the potentially adverse impact from the
resolution of remaining litigation and contingencies and further improving
financial results.
Accordingly, as one of the options to achieve these goals, on November 10,
1994, Transco announced its plans to file with the FERC to transfer the
assets of Texas Gas to a partnership. The partnership structure, if
approved, will provide financing flexibility to Texas Gas and flexibility
to Transco if Transco chooses to monetize a part of its ownership in Texas
Gas. It is Transco's intention to retain operational control of Texas Gas
to preserve the synergies between Texas Gas and TGPL and maintain the
high-quality services Texas Gas' customers enjoy. It is anticipated that
this filing will be made during the fourth quarter of 1994.
In addition, Transco announced that it will retain its coal company
operations. Continued review of possible exit strategies indicate that
exiting the coal operations in the current coal market environment is not
in the best interest of Transco and its shareholders. Transco will
continue to manage the business with the objective to operate profitably,
and pursue a strategy to invest in additional coal reserves as needed to
meet contractual commitments and fulfill customer obligations.
CAPITAL RESOURCES AND LIQUIDITY
Financing
_________
Transco funds its capital requirements, including its working capital
requirements, with cash flows from operating activities, including the
sale of trade receivables, supplemented, when necessary, with borrowings
under its $450 million working capital line. At September 30, 1994, the
Company had $48 million in short-term investments and no outstanding
borrowings under its $450 million working capital line.
Capitalization and Cash Flows
_____________________________
As shown in the following table, at September 30, 1994, the percentage of
total debt to total invested capital was 72.3%, compared to 72.7% at
December 31, 1993. Net income during the first nine months of 1994,
combined with a slight decline in total debt, had the effect of reducing
the percentage of total debt to total invested capital.
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
_____________ ____________
(In millions)
<S> <C> <C>
Common Stockholders' Equity $ 404.3 $ 391.3
Preferred Stock 337.0 340.6
Long-term Debt, less Current Maturities 1,935.1 1,786.6
__________ ___________
Total Capitalization 2,676.4 2,518.5
Current Maturities of Long-term Debt 2.5 159.5
__________ ___________
Total Invested Capital $ 2,678.9 $ 2,678.0
__________ ___________
__________ ___________
Long-term Debt, less Current Maturities as a
Percentage of Total Capitalization 72.3% 70.9%
Common Stockholders' Equity as a Percentage
of Total Capitalization 15.1% 15.5%
Total Debt as a Percentage of Total Invested Capital 72.3% 72.7%
</TABLE>
At September 30, 1994, Transco had a working capital deficit of $148
million, compared to a deficit of $320 million at December 31, 1993. The
most significant factor influencing the reduction in the working capital
deficit was the refinancing of Texas Gas' debt.
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided By Operating Activities $ 55.8 $ 193.2
__________ _________
__________ _________
</TABLE>
Excluding TGPL's rate refunds of $123 million in 1994 and Texas Gas' rate
refund of $36 million in 1993, consolidated net cash flows from operating
activities for the nine months ended September 30, 1994, were $51 million
lower than for the nine months ended September 30, 1993. This decrease in
cash flows was primarily the result of payments for GSR costs and take-or-
pay flowthrough costs and the amount and timing of disbursements for gas
purchases. These decreases were partially offset by no producer
settlement cash payments being made in 1994, a reduction in gas and
liquids inventory in 1994 compared to an increase in gas inventory in
1993, and the return of a collateralized deposit in 1994 that was no
longer needed due to the utilization of a new reimbursement facility that
provides Transco with standby letters of credit.
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Financing Activities $ 57.4 $ 105.3
__________ _________
__________ _________
</TABLE>
Consolidated net cash flows used in financing activities for the nine
months ended September 30, 1994 included cash outflows for dividends of
$40 million on common and preferred stock, the retirement of $5 million of
preferred stock, the retirement of $7 million of long-term debt by Transco
and the refinancing in April of Texas Gas' $150 million of 10% Debentures,
partially offset by cash inflows from Texas Gas' issuance of $150 million
of 8 5/8% Notes.
Consolidated net cash flows used in financing activities for the nine
months ended September 30, 1993 included cash outflows for the retirement
of $62 million of long-term debt by Transco, TGPL and Transco Coal Company
and dividends of $44 million on common and preferred stock.
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided By (Used in) Investing Activities $( 99.7) $ 100.1
__________ _________
__________ _________
</TABLE>
For the nine months ended September 30, 1994, consolidated net cash flows
used in investing activities primarily included cash outflows for capital
expenditures for property, plant and equipment and investment in
unconsolidated affiliates, as shown on the following table. Also
contributing to the net cash outflow was the acquisition of Tren-Fuels,
Inc., which was partially offset by the collection of the net worth
adjustment in connection with the sale of TEVCO as discussed in Note F of
the Notes to Condensed Consolidated Financial Statements.
For the nine months ended September 30, 1993, consolidated net cash flows
from investing activities included cash inflows from the sale of the TEVCO
common stock, the transfer of Transco's interest in the coalbed methane
properties to TECO Coalbed Methane, Inc. and the recovery of producer
settlement costs by TGPL and Texas Gas. Cash outflows included capital
expenditures for property, plant and equipment and investment in
affiliates, as shown on the following table.
<TABLE>
<CAPTION>
Nine Months
Capital Expenditures and Investment in Ended September 30,
__________________________
Unconsolidated Affiliates 1994 1993
_______________________________________ __________ __________
(In millions)
<S> <C> <C>
Pipelines
TGPL
Market-Area Projects $ 10.0 $ 6.9
Supply-Area Projects 7.6 19.8
Maintenance of Existing Facilities and Other Projects 54.1 40.4
Texas Gas
Market-Area Projects 5.1 4.4
Maintenance of Existing Facilities and Other Projects 27.7 17.9
Other 0.8 1.9
__________ _________
Total Pipelines 105.3 91.3
Gas Marketing 0.6 1.0
Coal 5.7 6.7
Other - 16.6
Intersegment Eliminations (TGPL Expenditures) - (4.0)
__________ _________
Total Capital Expenditures and Investment in
Unconsolidated Affiliates $ 111.6 $ 111.6
__________ _________
__________ _________
</TABLE>
Other Capital Requirements and Contingencies
____________________________________________
Transco's capital requirements and contingencies are discussed in the
Company's 1993 Annual Report on Form 10-K and in the 1994 First and Second
Quarter Reports on Form 10-Q. Other than described in Notes B, C and D of
the Notes to Condensed Consolidated Financial Statements and below, there
have been no new developments from those described in the Company's 1993
Annual Report on Form 10-K and in the 1994 First and Second Quarter
Reports on Form 10-Q with regard to other capital requirements and
contingencies.
Liberty Pipeline Company
In 1992, Liberty Pipeline Company (Liberty), a partnership of interstate
pipelines and local distribution companies, filed for FERC approval to
construct and operate a natural gas pipeline to provide 500 million cubic
feet per day in firm transportation service to the greater New York City
area. The partnership was comprised of subsidiaries of Transco and two
other interstate pipelines and subsidiaries of three Transco customers in
New York.
On August 1, 1994, Liberty asked the FERC to postpone indefinitely its
review of the project. The decision followed the withdrawal of two key
shippers from the project. The partners reaffirmed their belief that an
additional delivery point to the New York facilities system, as proposed
by Liberty, would be necessary in the future and advised the FERC that the
Liberty partners would continue to pursue that goal. On August 12, 1994,
the FERC dismissed, without prejudice, the applications of Liberty and
other upstream pipeline companies for authority to build the pipeline and
other related facilities. Transco currently believes that the capital
expenditures by the Company of approximately $4 million related to Liberty
will be of benefit in the future.
Investment in Nonoperating Interest in Coalbed Methane Properties
As discussed in Note G of the Notes to Condensed Consolidated Financial
Statements, the ultimate recovery of Transco's remaining investment
through future production payments depends on production from the
properties and future gas prices. The Company cannot predict at this time
the ultimate results of these operations or the amounts of reserves that
may ultimately be recoverable. If future development operations do not
result in establishing sufficient reserves to recover the Company's
remaining coalbed methane investment, or if other factors cause the
Company's evaluation of its investment to diminish, additional reductions
in the book value of the Company's investment would be required in future
periods through non-cash charges to earnings.
Rate Refunds
TGPL
In the first nine months of 1994, TGPL made partial refunds of
approximately $123 million, including interest, under Docket No. RP92-137.
TGPL had previously provided a reserve for these refunds. TGPL has also
provided a reserve which it believes is adequate for any additional
refunds that may be required under Docket No. RP92-137. At September 30,
1994, these additional refunds, which are currently expected to be made
during the fourth quarter of 1994, are estimated to be approximately $52
million, including interest. Interest will continue to accrue until all
refunds are made.
Texas Gas
As discussed in Note B of the Notes to Condensed Consolidated Financial
Statements, Texas Gas' general rate case (Docket No. RP93-106) was
accepted by the FERC and became final on October 21, 1994. Texas Gas has
provided a reserve which it believes is adequate for refunds, including
interest, that will be required. As of September 30, 1994, such refunds,
which are currently expected to be made in December 1994, were estimated
to be approximately $40 million, including interest. Interest will
continue to accrue until all refunds are made.
As discussed in Note B of the Notes to Condensed Consolidated Financial
Statements, under Order 94-A, on October 18, 1994, the FERC issued its
"Order Denying Rehearing" which affirmed its January 12, 1994 Order.
Texas Gas intends to assert all available legal rights and remedies to
stay the Order's requirements to make refunds of $13.5 million, plus
interest, by November 17, 1994. Texas Gas continues to believe that it is
entitled to full recovery of these FERC ordered costs and is considering
appropriate appellate action. Texas Gas has established reserves which it
believes are adequate to provide for any costs incurred or refunds
required.
CONCLUSION
__________
Although no assurances can be given, the Company currently believes that
the aggregate of cash flows from operating activities, supplemented, when
necessary, by borrowings under the working capital line of the Amended
Transco Bank Credit Facility, will provide sufficient liquidity to meet
its capital requirements.
<PAGE>
RESULTS OF OPERATIONS
CONSOLIDATED
The tables below show Transco's consolidated results of operations for the
periods presented and the effects of certain selected items that have
impacted those results.
<TABLE>
<CAPTION>
Three Months Ended September 30,
_________________________________________________
1994 1993
_______________________ _______________________
(millions) (per share) (millions) (per share)
<S> <C> <C> <C> <C>
Consolidated Net Income (Loss)
Before Selected Items $( 0.1) $ - $( 2.3) $( 0.06)
Coal litigation ( 2.9) ( 0.07) - -
Royalty claims settlement ( 1.6) ( 0.04) - -
Gain on sale of TEVCO - - 31.6 0.81
Corpus Christi settlement - - ( 32.7) ( 0.84)
Write-off of note receivable - - ( 12.5) ( 0.32)
Federal tax rate increase - - ( 1.6) ( 0.04)
Gains (losses) on sales of assets, net - - ( 0.5) ( 0.01)
________ ________ ________ ________
Consolidated Net Income (Loss) As
Reported $( 4.6) $( 0.11) $( 18.0) $( 0.46)
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
_________________________________________________
1994 1993
_______________________ _______________________
(millions) (per share) (millions) (per share)
<S> <C> <C> <C> <C>
Consolidated Net Income (loss)
Before Selected Items $ 26.1 $ 0.64 $ 15.9 $ 0.40
Coal litigation ( 2.9) ( 0.07) - -
Royalty claims settlement ( 1.6) ( 0.04) - -
Gain on sale of TEVCO - - 31.6 0.81
Corpus Christi settlement - - ( 32.7) ( 0.84)
Write-off of note receivable - - ( 12.5) ( 0.32)
Federal tax rate increase - - ( 1.6) ( 0.04)
Gains (losses) on sales of assets, net - - ( 0.5) ( 0.01)
Loss from operations of discontinued
segment - - ( 0.1) -
________ ________ ________ ________
Consolidated Net Income (Loss) As
Reported $ 21.6 $ 0.53 $ 0.1 $ -
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
Excluding the net income impact of the selected items in 1994 and 1993
shown above, Transco's consolidated results for the three months and nine
months ended September 30, 1994 were $2.2 million ($0.06 per share) and
$10.2 million ($0.24 per share) higher than the same periods in 1993,
respectively, primarily as a result of improved financial results from Gas
Marketing and Gas Gathering and lower preferred dividends, offset in part
by lower net income from Pipelines. In addition, operating losses from
Transco's coalbed methane investment were significantly reduced due to the
transfer of the Company's operating interest in that project to TECO
Energy, Inc. in July 1993. Excluding the pre-tax impact of the selected
items in 1994 and 1993, consolidated operating income for the quarter
ended September 30, 1994 was $3.0 million lower than operating income for
the same period in 1993, primarily due to lower operating income from
Pipelines, but operating income for the nine months ended September 30,
1994 was $6.6 million higher than for the nine months ended September 30,
1993, primarily due to the same segment results discussed above.
Each segment's results of operations are discussed in more detail below.
<PAGE>
PIPELINES
The table below shows the net income of Pipelines by company:
<TABLE>
<CAPTION>
Three Months Nine Months
Net Income Ended September 30, Ended September 30,
__________ ______________________ ______________________
1994 1993 1994 1993
_________ ________ _________ ________
(In millions)
<S> <C> <C> <C> <C>
TGPL $ 23.0 $ 7.0 $ 74.9 $ 56.0
Texas Gas 0.8 6.0 19.5 29.2
Other Companies ( 0.1) ( 0.1) - ( 0.3)
________ ________ ________ ________
Total Pipelines $ 23.7 $ 12.9 $ 94.4 $ 84.9
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
The two major operating companies in this segment, TGPL and Texas Gas,
provide substantially all of the segment's revenues, operating income and
net income. As discussed in Transco's 1993 Annual Report on Form 10-K and
in the 1994 First and Second Quarter Reports on Form 10-Q, effective
January 1, 1993 for TGPL and November 1, 1993 for Texas Gas, substantially
all sales revenues and the related costs, including gas costs applicable
to TGPL and Texas Gas' sales service, are reported by Transco in Gas
Marketing. The financial performance of TGPL (excluding its 1993 and 1994
merchant sales service) and Texas Gas (excluding its 1994 variable-
market-based sales service) is discussed below.
TGPL
____
Net and Operating Income
TGPL's net income was higher by $16.0 million and $18.9 million for the
three months and nine months ended September 30, 1994, respectively, than
net income for the three months and nine months ended September 30, 1993,
due primarily to the 1993 third quarter after-tax charge of $12.5 million
related to the write-off of a note receivable from TGPL's prior sale of an
interest in a gas field and related gas processing plant. Excluding the
net income impact of this write-off of a note receivable, TGPL's net
income was higher by $3.5 million for the three months ended September 30,
1994, compared to the three months ended September 30, 1993, due primarily
to higher net transportation revenues (net of the related cost of
transportation) and lower dividends on preferred stock, partly offset by
a lower allowance for funds used during construction (AFUDC). Operating
income for the three months ended September 30, 1994 was $51.5 million,
compared to operating income of $28.2 million ($48.3 million excluding the
write-off of the note receivable) for the three months ended September 30,
1993. This $3.2 million increase, excluding the write-off of the note
receivable, was primarily due to higher net transportation revenues.
Excluding the net income impact of the write-off of a note receivable in
1993, TGPL's net income for the nine months ended September 30, 1994 was
$6.4 million higher than the comparable period in 1993, primarily due to
higher net transportation revenues, lower net interest expense and lower
dividends on preferred stock. Operating income for the nine months ended
September 30, 1994 was $165.7 million, compared to operating income of
$140.9 million ($161.0 million excluding the write-off of the note
receivable) for the nine months ended September 30, 1993. This increase
of $4.7 million, excluding the write-off of the note receivable, reflects
the higher net transportation revenues.
Operating Revenues
TGPL's operating revenues increased $14 million to $219 million for the
quarter ended September 30, 1994, when compared to the same period in
1993, reflecting higher transportation revenues of $9 million and higher
non-merchant sales revenues of $5 million related to TGPL's cash
settlement of historical transportation imbalances. However, the increase
in non-merchant sales revenues had no effect on TGPL's operating or net
income since this increase also resulted in a corresponding increase in
cost of sales. TGPL's operating revenues decreased $5 million to $656
million for the nine months ended September 30, 1994, when compared to the
nine months ended September 30, 1993. The lower operating revenues
reflect a decrease of $29 million due to lower transportation rates
resulting from the elimination of the producer settlement surcharge which
expired on May 31, 1993, partly offset by higher transportation revenues
of $13 million and an increase in non-merchant sales revenues of $11
million related to the cash settlement of historical transportation
imbalances and TGPL's cash-out program for the settlement of current month
transportation imbalances. However, neither the decrease in
transportation rates related to the surcharge nor the increase in non-
merchant sales related to the settlement of historical and current month
transportation imbalances had any affect on TGPL's operating or net income
since these revenue variances were offset by corresponding variances in
the cost of sales and transportation when compared with the prior year.
Operating Costs and Expenses
Excluding the pre-tax effects of the note receivable write-off in 1993 and
the cost of sales and transportation of $43 million and $132 million for
the three months and nine months ended September 30, 1994, respectively,
and $34 million and $140 million for the three months and nine months
ended September 30, 1993, respectively, TGPL's operating expenses for the
quarter and for the first nine months of 1994 were comparable to the same
periods in 1993.
System Deliveries
As shown in the table below, TGPL's total market-area deliveries for the
three months ended September 30, 1994 were 17.5 billion cubic feet (Bcf),
or 7%, higher than the same period in 1993. The increased deliveries,
primarily firm transportation volumes, are higher than the same period in
1993 primarily due to increased injections into storage during the quarter
resulting from the colder-than-normal weather in the market area during
January and February 1994 and to recapturing business from competing
pipelines due to TGPL's implementation of Order 636. TGPL's total market-
area deliveries for the nine months ended September 30, 1994 were 34.4
Bcf, or 4%, higher than the nine months ended September 30, 1993. The
increased deliveries, primarily firm transportation volumes, are higher
than the same period in 1993 mainly due to the colder-than-normal weather
in the market area during January and February 1994, coupled with the
strong deliveries of gas used for electric generation for summer cooling.
The production-area deliveries for the three months ended September 30,
1994, decreased 2.2 Bcf, or 4%, when compared to the same period in 1993,
due to competitive pressures. The production-area deliveries for the nine
months ended September 30, 1994 increased 9.5 Bcf, or 7%, when compared to
the same period in 1993 due to TGPL's decreased rates resulting from the
elimination of the producer settlement surcharge which expired on May 31,
1993. As a result of a straight fixed-variable (SFV) rate design and the
interruptible transportation revenue crediting requirement, these
increases in system deliveries have no significant impact on operating
income, however, these increases show the strength of the TGPL franchise.
<TABLE>
<CAPTION>
Three Months Nine Months
TGPL System Deliveries (Bcf) Ended September 30, Ended September 30,
____________________________ ______________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Market-area deliveries:
Long-haul transportation 167.4 178.6 584.4 608.0
Market-area transportation 95.2 66.5 319.7 261.7
_____ _____ _______ _______
Total market-area deliveries 262.6 245.1 904.1 869.7
Production-area transportation 54.5 56.7 142.8 133.3
_____ _____ _______ _______
Total system deliveries 317.1 301.8 1,046.9 1,003.0
_____ _____ _______ _______
_____ _____ _______ _______
</TABLE>
TGPL's facilities are divided into seven rate zones. Four are located in
the production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones
and delivered in a market-area zone. Market-area transportation is gas
that is both received and delivered within market-area zones. Production-
area transportation is gas that is both received and delivered within
production-area zones.
Rates
TGPL has expressed to the FERC concerns that inconsistent treatment under
Order 636 of TGPL and its competitor pipelines with regard to rate design
and cost allocation issues in the production area may result in rates
which could make TGPL less competitive, both in terms of production-area
and long-haul transportation. A hearing before a FERC ALJ, dealing with,
among other things, TGPL's production-area rate design, concluded in June
1994 and the parties submitted briefs to the ALJ in August and September
1994. The decision of the ALJ, when issued, will be subject to review by
the FERC. TGPL is unable at this time to fully assess the competitive
effect and resulting financial impact on TGPL of having to maintain its
current production-area rate design which is different than that of its
competitors.
On October 26, 1994, the FERC issued a notice of a request for initiation
of a complaint proceeding in TGPL's Order 636 restructuring docket. The
notice states that Fina Natural Gas Company has filed a complaint
requesting that the FERC initiate a proceeding under NGA section 5 to
investigate the functionalization of TGPL's production-area facilities.
Fina asserts that some of TGPL's production area facilities have been
misfunctionalized as transmission, and that under recent gathering orders,
those facilities should properly be functionalized as gathering
facilities. Responses to the notice are due on or before November 28,
1994. If the FERC elects to initiate a proceeding, any change in
classification of the function of plant facilities between transmission
and gathering would be prospective only. Although no assurances can be
given, TGPL does not believe the final outcome of this issue will have a
material adverse effect on TGPL's financial position or results of
operations.
On October 20, 1994, an ALJ issued an initial decision granting a motion
filed by certain parties for summary disposition with respect to the issue
of the allocation of certain costs to TGPL merchant sales service. That
issue, among others, was referred to the hearing in Docket No. RP92-137 by
the FERC's orders approving TGPL's implementation of Order 636. TGPL had
opposed the motion. In his initial decision, the ALJ determined that
there is no genuine issue of material fact warranting a trial-type hearing
on the issue. The ALJ's decision directs TGPL to remove from its
gathering function approximately $5.6 million of indirect costs and to
reassign this amount to its merchant sales service. The ALJ's decision is
subject to final approval by the FERC. Briefs on exceptions to the ALJ's
decision are due on or before November 21, 1994. Any changes in TGPL's
rates or services resulting from this issue would have a prospective
effect only. Although no assurances can be given, Transco believes that
the final resolution of this cost allocation issue will not have a
material adverse effect on its financial position or results of
operations.
Texas Gas
_________
Net and Operating Income
Texas Gas' net income was $5.2 million and $9.7 million lower for the
three months and nine months ended September 30, 1994, respectively, than
the same periods in 1993. Operating income for the three months and nine
months ended September 30, 1994 was $10.0 million and $16.5 million lower
for the three months and nine months ended September 30, 1994, than the
same periods in 1993. The decrease in both net income and operating
income was primarily due to lower interruptible transportation revenues
resulting from the implementation of Order 636, seasonal demand revenues
that are lower in the second and third quarters than in the first and
fourth quarters, and reserving for a lower stated pre-tax rate of return
under Texas Gas' recently settled general rate case.
As a result of reduced interruptible transportation revenues due to the
implementation of Order 636 and the lower stated pre-tax rate of return
under Texas Gas' recently settled general rate case, Texas Gas' 1994
annual operating income will be lower than the prior year.
Operating Revenues
Total operating revenues for the three months and nine months ended
September 30, 1994 was $36 million lower and $132 million lower than in
the same periods in 1993. The decrease was primarily the result of lower
gas sales revenues due to the implementation of Order 636, which ended
Texas Gas' bundled sales service and the subsequent realignment of Texas
Gas' variable-market-based sales service under Transco Gas Marketing
Company (TGMC) effective November 1, 1993, partially offset by higher gas
transportation revenues. In 1994, the only sales administered by Texas
Gas are from volumes purchased from a limited number of contracts with
pricing provisions that are not variable market based which are auctioned
each month to the highest bidder pursuant to Order 636. The increase in
gas transportation revenues was primarily due to higher firm
transportation demand revenues as a result of the conversion of customers'
firm sales service to firm transportation service due to the
implementation of Order 636. Although long-haul transportation volumes
increased, the decrease in average commodity transportation rates, which
resulted from the implementation of Order 636, SFV rate design and reduced
interruptible transportation revenues, more than offset the effect on
transportation revenues of the higher transportation volumes.
Operating Costs and Expenses
Cost of gas sold for the three months and nine months ended September 30,
1994 was $20 million lower and $119 million lower than in the same periods
in 1993, respectively. The decrease was primarily due to the realignment
of Texas Gas' variable-market-based sales service under TGMC effective
November 1, 1993. Texas Gas' operation and maintenance expenses for the
three months and nine months ended September 30, 1994 were $3.5 million
and $3.9 million higher than in the same periods in 1993, respectively,
due primarily to a third quarter 1993 adjustment for income taxes
refundable to customers as a result of an increase in federal income tax
rates. For the three months and nine months ended September 30, 1994,
administrative and general expenses were $5.0 million and $3.6 million
lower than for the same periods in 1993, respectively, primarily due to a
reduction in the reserve for uncollectible accounts, partially offset by
higher costs of post-retirement benefits other than pensions, which are
included in rates.
System Deliveries
As shown in the table below, Texas Gas' mainline deliveries for the three
months ended September 30, 1994 increased 13.7 Bcf, or 12%, compared to
the same period in 1993 primarily due to increased service to other
interstate natural gas pipelines. Mainline deliveries for the nine
months ended September 30, 1994 increased 37.6 Bcf, or 9%, compared to the
nine months ended September 30, 1993, primarily due to increased service
to other interstate natural gas pipelines and slightly colder weather on
a degree-day basis during the first quarter of 1994 in Texas Gas' primary
market area.
Texas Gas' implementation of Order 636 included a change in its rate
design method from modified fixed-variable (MFV) to SFV. Under the SFV
rate design method, all fixed costs, including equity return and income
taxes, are included in the demand charge to customers. Accordingly, under
SFV, overall throughput has a less significant impact on Texas Gas'
results of operations. However, while presently not adding significantly
to Texas Gas' operating income, these increases show the strength of the
Texas Gas franchise.
<TABLE>
<CAPTION>
Three Months Nine Months
Texas Gas System Deliveries (Bcf) Ended September 30, Ended September 30,
_________________________________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Sales - 7.5 - 47.1
Long-haul transportation 126.8 105.6 447.9 363.2
_____ _____ _____ _____
Total mainline deliveries 126.8 113.1 447.9 410.3
Short-haul transportation 47.8 54.3 145.5 156.2
_____ _____ _____ _____
Total system deliveries 174.6 167.4 593.4 566.5
_____ _____ _____ _____
_____ _____ _____ _____
</TABLE>
Texas Gas' facilities are divided into five rate zones. Generally, gas
delivered in the northern four zones is classified as long-haul
transportation. Gas delivered in the remaining southernmost zone is
classified as short-haul transportation. Auction sales made under the
Order 636 environment by Texas Gas are generally made in the southernmost
zone; however, the sales are made off system and, therefore, do not
constitute system deliveries.
Rates
Effective November 1, 1993, Texas Gas placed rates into effect, subject to
refund, under a new general rate case (Docket No. RP93-106) as discussed
in the Company's 1993 Annual Report on Form 10-K and in the 1994 First and
Second Quarter Reports on Form 10-Q and Note B of the Notes to Condensed
Consolidated Financial Statements. A settlement agreement regarding the
general rate case was filed on June 14, 1994. On September 21, 1994, the
FERC issued an "Order Approving Settlement" accepting the settlement as
filed with no significant modifications, which became final October 21,
1994. Texas Gas has provided a reserve which it believes is adequate for
refunds, including interest, that will be required. As of September 30,
1994, such refunds, which are currently expected to be made in December
1994, were estimated to be approximately $40 million, including interest.
Interest will continue to accrue until all refunds are made.
On January 12, 1994, the FERC issued its "Order Granting Rehearing" which
found that the FERC had committed a legal error in allowing the direct
bill of FERC Order 94-A costs to certain customers. The effect of this
order, as issued, would be to require Texas Gas to make refunds to certain
customers of $13.5 million, recover $2.7 million through direct billing of
other customers, recover $5.4 million as part of the direct billing of its
unrecovered purchase gas costs and absorb the remaining $5.4 million.
Texas Gas filed for rehearing of this order and received an extension
staying the effectiveness of this order until 30 days after the FERC rules
on rehearing. On October 18, 1994, the FERC issued its "Order Denying
Rehearing" which affirmed its January 12, 1994 Order. Texas Gas intends
to assert all available legal rights and remedies to stay the Order's
requirements to make refunds by November 17, 1994. Texas Gas continues to
believe that it is entitled to full recovery of these FERC ordered costs
and is considering appropriate appellate action. Texas Gas has
established reserves which it believes are adequate to provide for any
costs incurred or refunds required.
On September 30, 1994, Texas Gas filed a general rate case (Docket No.
RP94-423) which, pursuant to a FERC suspension order issued October 28,
1994, will be effective April 1, 1995, subject to refund. This rate
change reflects a requested annual revenue increase of approximately $66.9
million, based on the filed rate. The increase is primarily attributable
to increases in the utility rate base, operating expenses and rate of
return and related taxes.
There are various factors which may affect Texas Gas' actual operating
results, including, but not limited to, competition from other pipelines,
its rate design structure, cost management, and, to a lesser extent,
fluctuations in its throughput which may result from a number of factors,
including weather. Texas Gas' interim operating results are impacted by
customers' ability to reserve firm transportation levels on a seasonal
basis; which, combined with SFV rate design, results in lower operating
income in the second and third quarters than in the first and fourth
quarters. While the use of SFV rate design limits Texas Gas' opportunity
to earn incremental revenues through increased throughput, it also
minimizes Texas Gas' fluctuations in revenue due to variations in
throughput. Texas Gas believes that under Order 636, with SFV rate design
and its anticipated transition cost recovery, its rate structure will
remain competitive.
GAS MARKETING
TGMC, through agency management agreements with TGPL and Texas Gas, has
assumed operation of substantially all of TGPL and Texas Gas' sales
service. Accordingly, effective January 1, 1993, and November 1, 1993,
substantially all sales service for TGPL and Texas Gas, respectively, is
being reported in Gas Marketing.
The tables below show the results of operations and sales volumes for Gas
Marketing for the periods presented:
<TABLE>
<CAPTION>
Three Months Nine Months
Net Income (Loss) Ended September 30, Ended September 30,
_________________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
(In millions)
<S> <C> > <C> <C> <C>
Natural Gas Marketing $ 0.2 $( 2.2) $ 7.7 $( 5.1)
Natural Gas Liquids Marketing - ( 1.9) ( 1.0) ( 0.3)
________ ________ ________ ________
Total Gas Marketing $ 0.2 $( 4.1) $ 6.7 $( 5.4)
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Sales Volumes Ended September 30, Ended September 30,
_____________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Gas (Bcf)
Long-term 84.1 80.0 296.9 248.5
Short-term 62.9 52.7 198.3 152.7
_____ _____ _____ _____
Total gas sales 147.0 132.7 495.2 401.2
_____ _____ _____ _____
_____ _____ _____ _____
Liquids (million gallons) 8.4 27.9 77.1 114.6
_____ _____ _____ _____
_____ _____ _____ _____
</TABLE>
Gas sales volumes increased due primarily to the inclusion of Texas Gas'
sales service volumes of 6.1 Bcf and 24.8 Bcf for the three months and
nine months ended September 30, 1994, respectively, incremental spot sales
and, for the nine month period, higher demand as a result of colder
weather during the first quarter of 1994.
Net and Operating Income
Gas Marketing reported $4.3 million and $12.1 million higher net income
for the three months and nine months ended September 30, 1994,
respectively, compared to the same periods in 1993. The segment also
reported an operating loss of $1.3 million for the third quarter of 1994
and operating income of $7.3 million for the nine months ended September
30, 1994, compared to an operating loss of $6.6 million and $10.5 million
for the three months and nine months ended September 30, 1993,
respectively. As discussed below, the improvement in 1994 over 1993 is
due to improved results from natural gas marketing operations.
Natural Gas Marketing
Operating income from natural gas marketing increased $3.0 million and
$19.1 million for the quarter and nine months ended September 30, 1994,
respectively, compared to the prior year periods, primarily due to
increased volumes and the positive effects of restructuring, in 1993,
certain long-term gas purchase contracts with prices formerly at a premium
to market prices. In addition, the 1993 results include charges of $3.8
million to reflect transportation and exchange imbalances at current market
prices and $3.0 million to establish a reserve to restructure a gas sales
contract as a part of the settlement with Corpus Christi Gas Gathering, Inc.
and certain affiliates (Corpus Christi). While the 1994 periods reflect the
substantial progress made in 1993 to restructure certain long-term gas
purchase contracts with prices at a premium to market prices and to find
alternatives for currently underutilized firm transportation capacity,
additional progress needs to be made toward permanent utilization of Gas
Marketing's firm transportation capacity.
Natural Gas Liquids Marketing
Operating income from natural gas liquids marketing increased by $2.3
million for the third quarter of 1994, compared to the prior year period
primarily due to lower administrative and general expenses and higher
margins. For the nine months ended September 30, 1994, compared to 1993,
operating income decreased by $1.3 million due to lower margins partially
offset by lower administrative and general expenses.
Operating Revenues
Gas Marketing's operating revenues decreased to $310 million in the third
quarter of 1994 from $345 million in the third quarter of 1993 due to a
lower average gas sales price, partially offset by higher gas sales
volumes and the inclusion in Gas Marketing in 1994 of Texas Gas' sales
service revenues of $20 million. Operating revenues increased to $1,216
million for the nine months ended September 30, 1994 from $1,031 million
for the nine months ended September 30, 1993 due to higher gas sales
volumes and the inclusion of Texas Gas' sales service revenues of $88
million.
Operating Costs and Expenses
Gas Marketing's cost of sales and transportation decreased to $304 million
in the third quarter 1994 from $341 million in the third quarter 1993 due
to a lower average gas purchase cost, partially offset by higher gas
purchase volumes and the inclusion of Texas Gas' sales service costs in
Gas Marketing in 1994. The cost of sales and transportation increased to
$1,189 million for the nine months ended September 30, 1994 from $1,017
million for the nine months ended September 30, 1993, due to higher gas
purchase volumes and the inclusion of Texas Gas' sales service costs in
Gas Marketing in 1994. Gas Marketing's other operating expenses decreased
for the third quarter and nine months ended September 30, 1994, compared
to the same periods in 1993 due primarily to the contract restructuring
cost recorded in 1993 related to the Corpus Christi settlement.
COAL
Coal reported a net loss of $0.5 million and net income of $1.9 million
for the three months and nine months ended September 30, 1994,
respectively, compared to net income of $0.6 million and $3.9 million for
the same periods in 1993. Excluding a $2.9 million after-tax charge in
1994 for a litigation reserve due to an adverse court decision against
Leeco, Inc., a subsidiary of Transco Coal Company, as discussed in Note C
of the Notes to Condensed Consolidated Financial Statements, and excluding
a $0.5 million after-tax loss in 1993 on the sale of a coal loading and
storage facility and a $1.1 million additional income tax expense in 1993
due to the corporate federal income tax rate increase, the segment
reported net income of $2.4 million and $2.2 million for the three months
ended September 30, 1994 and 1993, respectively, and $4.8 million and $5.5
million for the nine months ended September 30, 1994 and 1993,
respectively. Excluding the litigation reserve, Coal's operating income
decreased to $2.0 million for the three months ended September 30, 1994
and to $3.4 million for the nine months ended September 30, 1994 from $2.8
million and $6.8 million for the same periods of 1993 due primarily to the
lower operating margins.
GAS GATHERING
Gas Gathering's net loss was $1.4 million and $3.9 million, compared to a
$33.0 million and $37.9 million net loss for the three months and the nine
months ended September 1994 and 1993, respectively. The operating loss
was $0.3 million and $0.8 million, compared to operating losses of $48.3
million and $50.8 million for the three months and the nine months ended
September 30, 1994 and 1993, respectively. Excluding a $47.3 million pre-
tax ($30.7 million after-tax) charge related to an agreement with Corpus
Christi to resolve litigation and acquire Corpus Christi's interest in
jointly owned gas gathering and intrastate pipeline assets in 1993, Gas
Gathering experienced a positive operating income variance of $0.7 million
and $2.7 million, as well as a positive net income variance of $0.9
million and $3.3 million, for the three months and nine months ended
September 30, 1994, respectively, compared to the same periods of 1993.
Contributing to the improvement was decreased interruptible transportation
expense charged by other pipelines, a transportation rate refund, and an
increase in equity in earnings of unconsolidated affiliates.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion of legal proceedings in Note C of the Notes to
Condensed Consolidated Financial Statements included herein.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER EVENTS
1 - Tran$tock, an employee stock ownership plan (the "Tran$tock
Plan" or the "Plan") established by Transco in January 1987,
will be merged into the Transco Thrift Plan, effective as of
January 1, 1995. At the time of formation, the Tran$tock
Plan purchased 3,966,942 shares of newly issued Transco
common stock at $45 3/8 per share (Tran$tock Shares). The
Plan was funded by a $180 million loan incurred by the Plan
at an interest rate of 7.39%, then $120 million of recovered
excess assets from the Transco Retirement Plan were applied
to the loan. The remaining balance of the loan will be paid
in full by December 31, 1994.
Participants in the Plan will have several options available
regarding their Tran$tock Shares. As of January 1, 1995, the
options available to participants, depending on certain
factors, include (i) allowing such shares to remain in the
Transco Thrift Plan; (ii) directing the trustee to transfer
the Tran$tock Shares directly into a qualified retirement
plan or individual retirement account; (iii) receiving a
share certificate representing such participant's Tran$tock
Shares and cash for any fractional shares; (iv) directing
the Plan trustee to sell all or a portion of such
participant's Tran$tock Shares and receiving cash; (v)
receiving a combination of Tran$tock Shares and cash from the
sale of Tran$tock Shares by the trustee; and (vi) receiving
the Tran$tock Shares or cash from the sale of Tran$tock
Shares by the trustee, or a combination thereof, in five
annual installments.
Transco has contacted the participants to advise them of the
options available and to obtain their election forms for
withdrawals or distributions. In January 1995, approximately
3.3 million Tran$tock Shares will be made available to the
participants. Transco is unable to predict which option each
participant will select, but if a significant number of
participants elects to sell, or requests the trustee to sell,
a large amount of their Tran$tock Shares at the same time,
all of such sales may adversely affect, for a time, the
market price of Transco's common stock.
The number of shares of Transco common stock outstanding as
of October 31, 1994 was 40,924,223.
2 - On November 10, 1994, Transco announced its plans to file
with the FERC to transfer the assets of Texas Gas to a
partnership. The partnership structure, if approved, will
provide financing flexibility to Texas Gas and flexibility to
Transco if Transco chooses to monetize a part of its
ownership in Texas Gas. It is Transco's intention to retain
operational control of Texas Gas to preserve the synergies
between Texas Gas and TGPL and maintain the high-quality
services Texas Gas' customers enjoy. It is anticipated that
this filing will be made within the next several weeks.
In addition, Transco announced that it will retain its coal
company operations. Continued review of possible exit
strategies indicate that exiting the coal operations in the
current coal market environment is not in the best interest
of Transco and its shareholders. Transco will continue to
manage the business with the objective to operate profitably,
and pursue a strategy to invest in additional coal reserves
as needed to meet contractual commitments and fulfill
customer obligations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURE
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.
TRANSCO ENERGY COMPANY
Dated: November 14, 1994
By /s/ Larry J. Dagley
__________________________________
(Signature)
Larry J. Dagley
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS INCLUDED
IN THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994, OF
TRANSCO ENERGY COMPANY AND SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 75,898
<SECURITIES> 0
<RECEIVABLES> 133,687
<ALLOWANCES> 0
<INVENTORY> 100,626
<CURRENT-ASSETS> 489,642
<PP&E> 5,781,909
<DEPRECIATION> 2,949,754
<TOTAL-ASSETS> 3,825,232
<CURRENT-LIABILITIES> 637,322
<BONDS> 1,935,077<F1>
<COMMON> 20,716
71,741<F2>
265,322<F2>
<OTHER-SE> 383,555
<TOTAL-LIABILITY-AND-EQUITY> 3,825,232
<SALES> 1,371,445
<TOTAL-REVENUES> 2,134,732
<CGS> 1,229,185
<TOTAL-COSTS> 1,743,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,138
<INCOME-PRETAX> 60,816
<INCOME-TAX> 21,989
<INCOME-CONTINUING> 38,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,827<F3>
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0
<FN>
<F1>NET OF UNAMORTIZED DEBT PREMIUM AND DISCOUNT
<F2>NET OF ISSUE EXPENSE
<F3>BEFORE PREFERRED DIVIDENDS OF 17,178
</FN>
</TABLE>
