UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1994 was 40,936,968.
<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 Quarter Report on Form 10-Q.
<PAGE>
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
______________ _______________
ASSETS
______
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 134,205 $ 163,488
Deposits 12,375 34,133
Receivables 173,650 218,053
Transportation and exchange gas receivable 44,361 50,635
Gas supply realignment costs recoverable from customers 39,058 19,231
Inventories 88,859 118,550
Deferred income tax benefits 34,542 21,330
Other 44,977 41,301
______________ _______________
Total current assets 572,027 666,721
______________ _______________
Investments, at cost plus equity in undistributed earnings 31,491 31,454
______________ _______________
Property, Plant and Equipment, at cost:
Natural gas transmission plant-jurisdictional 5,101,578 5,058,546
Less-Accumulated depreciation and amortization 2,738,197 2,653,534
______________ _______________
Natural gas transmission plant-jurisdictional, net 2,363,381 2,405,012
______________ _______________
Natural gas gathering and liquids separation and
fractionation plant 212,938 213,114
Less-Accumulated depreciation and amortization 14,345 11,412
______________ _______________
Natural gas gathering and liquids separation and
fractionation plant, net 198,593 201,702
______________ _______________
Coal properties 408,441 409,695
Less-Accumulated depreciation, depletion and amortization 146,906 138,280
______________ _______________
Coal properties, net 261,535 271,415
______________ _______________
Other property, plant and equipment 5,534 5,280
Less-Accumulated depreciation and amortization 3,485 3,217
______________ _______________
Other property, plant and equipment, net 2,049 2,063
______________ _______________
Total property, plant and equipment, net 2,825,558 2,880,192
______________ _______________
Other Assets:
Nonoperating interest in coalbed methane properties, net 131,334 131,287
Notes receivable 14,736 14,929
Transportation and exchange gas receivable 89,569 92,960
Other 240,161 249,507
______________ _______________
Total other assets 475,800 488,683
______________ _______________
$ 3,904,876 $ 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 BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
______________ _______________
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 4,864 $ 159,479
Payables 256,585 372,592
Transportation and exchange gas payable 33,105 16,258
Accrued federal income taxes 24,096 -
Other accrued liabilities 217,909 214,121
Reserve for rate refunds 107,123 161,991
Other 57,674 62,133
______________ _______________
Total current liabilities 701,356 986,574
______________ _______________
Long-Term Debt, less current maturities 1,934,579 1,786,571
______________ _______________
Other Liabilities and Deferred Credits:
Income taxes 291,472 284,130
Income taxes refundable to customers 20,829 26,364
Transportation and exchange gas payable 41,230 64,976
Accrued pension cost 22,178 31,958
Other 143,468 154,585
______________ _______________
Total other liabilities and deferred credits 519,177 562,013
______________ _______________
Preferred Stock of Subsidiary, net-redeemable 72,958 75,191
______________ _______________
Convertible Preferred Stock, net-non-redeemable 265,322 265,418
______________ _______________
Common Stockholders' Equity:
Common stock $0.50 par value: authorized 150,000,000
shares; issued and outstanding 41,431,419 and
41,386,861 shares in 1994 and 1993, respectively 20,716 20,693
Premium on capital stock and other paid-in capital 519,024 511,797
Retained earnings (deficit) (101,476) (115,447)
______________ _______________
438,264 417,043
Less-Treasury stock, at cost, 494,451 and 15,156 shares
in 1994 and 1993, respectively 7,346 207
Common stock held by Tran$tock, 380,868 and
524,045 shares in 1994 and 1993, respectively-
Deferred compensation 12,520 14,395
Receivable from Tran$tock 4,762 9,383
Restricted stock, 126,228 and 91,964 shares in
1994 and 1993, respectively-
Deferred compensation 2,152 1,775
______________ _______________
Total common stockholders' equity 411,484 391,283
______________ _______________
$ 3,904,876 $ 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
June 30,
___________________________________________
1994 1993
_________________ _________________
<S> <C> <C>
Operating Revenues $ 694,986 $ 679,920
_________________ _________________
Operating Costs and Expenses:
Cost of sales and transportation 451,808 431,504
Operation and maintenance 58,370 64,491
Administrative and general 61,241 62,643
Depreciation, depletion and amortization 48,598 46,624
Taxes - other than income taxes 13,403 13,146
_________________ _________________
Total operating costs and expenses 633,420 618,408
_________________ _________________
Operating Income 61,566 61,512
_________________ _________________
Other (Income) and Other Deductions:
Interest expense 47,582 47,543
Interest income (1,952) (1,731)
Capitalized interest and allowance for
funds used during construction (969) (1,542)
Dividends on preferred stock of subsidiary 1,572 2,112
Equity in earnings of unconsolidated affiliates (1,255) 202
Miscellaneous other (income) and deductions, net 3,338 2,570
_________________ _________________
Total other (income) and other deductions 48,316 49,154
_________________ _________________
Income from Continuing Operations
Before Income Taxes 13,250 12,358
Provision for Income Taxes 5,073 4,274
_________________ _________________
Income from Continuing Operations 8,177 8,084
Loss from Operations of Discontinued
Segment, Net of Income Taxes - (206)
_________________ _________________
Net Income 8,177 7,878
Dividends on Convertible Preferred Stock 5,726 6,432
_________________ _________________
Common Stock Equity in Net Income $ 2,451 $ 1,446
_________________ _________________
_________________ _________________
Primary Earnings Per Share of Common
Stock and Common Stock Equivalents -
Continuing Operations $ 0.06 $ 0.04
Discontinued Operations - -
_________________ _________________
$ 0.06 $ 0.04
_________________ _________________
_________________ _________________
Dividends Declared Per Share of Common Stock $ - $ -
_________________ _________________
_________________ _________________
Average Shares of Common Stock and Common
Stock Equivalents Outstanding 40,716 39,306
_________________ _________________
_________________ _________________
Shares of Common Stock Outstanding 40,937 40,359
_________________ _________________
_________________ _________________
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 Six Months Ended
June 30,
___________________________________________
1994 1993
_________________ _________________
<S> <C> <C>
Operating Revenues $ 1,529,076 $ 1,459,594
_________________ _________________
Operating Costs and Expenses:
Cost of sales and transportation 1,008,330 947,701
Operation and maintenance 112,877 120,522
Administrative and general 126,179 123,235
Depreciation, depletion and amortization 96,231 93,096
Taxes - other than income taxes 27,144 26,325
_________________ _________________
Total operating costs and expenses 1,370,761 1,310,879
_________________ _________________
Operating Income 158,315 148,715
_________________ _________________
Other (Income) and Other Deductions:
Interest expense 94,256 96,205
Interest income (4,118) (4,815)
Capitalized interest and allowance for
funds used during construction (1,919) (2,496)
Dividends on preferred stock of subsidiary 3,171 4,252
Equity in earnings of unconsolidated affiliates (1,508) (347)
Miscellaneous other (income) and deductions, net 8,265 6,440
_________________ _________________
Total other (income) and other deductions 98,147 99,239
_________________ _________________
Income from Continuing Operations
Before Income Taxes 60,168 49,476
Provision for Income Taxes 22,482 18,385
_________________ _________________
Income from Continuing Operations 37,686 31,091
Loss from Operations of Discontinued
Segment, Net of Income Taxes - (93)
_________________ _________________
Net Income 37,686 30,998
Dividends on Convertible Preferred Stock 11,452 12,865
_________________ _________________
Common Stock Equity in Net Income $ 26,234 $ 18,133
_________________ _________________
_________________ _________________
Primary Earnings Per Share of Common
Stock and Common Stock Equivalents -
Continuing Operations $ 0.64 $ 0.46
Discontinued Operations - -
_________________ _________________
$ 0.64 $ 0.46
_________________ _________________
_________________ _________________
Dividends Declared Per Share of Common Stock $ 0.30 $ 0.30
_________________ _________________
_________________ _________________
Average Shares of Common Stock and Common
Stock Equivalents Outstanding 40,702 39,307
_________________ _________________
_________________ _________________
Shares of Common Stock Outstanding 40,937 40,359
_________________ _________________
_________________ _________________
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 Six Months
Ended June 30,
______________________________
1994 1993
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,686 $ 30,998
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 106,493 102,694
Deferred income taxes (11,609) (31,103)
Tran$tock compensation expense 1,875 1,590
Other, net (612) 3,201
_____________ _____________
133,833 107,380
Nonrecoverable producer settlements (512) (26,992)
Changes in operating assets and liabilities:
Deposits 21,758 (370)
Receivables 46,972 69,459
Transportation and exchange gas receivable 9,665 8,751
Inventories 29,691 5,061
Payables (115,217) (87,309)
Transportation and exchange gas payable (6,900) (4,622)
Accrued liabilities 12,804 (20,459)
Reserve for rate refunds (54,868) 51,547
Other, net (16,775) 10,143
_____________ _____________
Net cash provided by operating activities 60,451 112,589
_____________ _____________
Cash flows from financing activities:
Net additions to long-term debt 146,753 -
Retirement of long-term debt (154,717) (46,801)
Retirement of preferred stock (3,391) -
Dividends on common and preferred stock (26,933) (29,257)
Other, net (1,927) (3,862)
_____________ _____________
Net cash used in financing activities (40,215) (79,920)
_____________ _____________
Cash flows from investing activities:
Property, plant and equipment and investment in
unconsolidated affiliates (54,010) (67,436)
Recovery of producer settlements 848 33,557
Other, net 3,643 5,395
_____________ _____________
Net cash used in investing activities (49,519) (28,484)
_____________ _____________
Net increase (decrease) in cash and cash equivalents (29,283) 4,185
Cash and cash equivalents at beginning of period 163,488 12,528
_____________ _____________
Cash and cash equivalents at end of period $ 134,205 $ 16,713
_____________ _____________
_____________ _____________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 94,414 $ 94,529
Income taxes (net of amounts refunded) 8,075 26,193
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 Quarter Report on Form 10-Q.
As a result of its sale 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 other
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 Quarter Report on Form
10-Q other than described below.
Rate Matters
____________
Transcontinental Gas Pipe Line Corporation (TGPL)
On November 4, 1993, the Federal Energy Regulatory Commission (FERC)
issued an order accepting the Offer of Settlement (the Settlement) filed
by TGPL on May 3, 1993 in connection with TGPL's general rate case (Docket
No. RP92-137). On December 6, 1993, certain parties, including TGPL,
filed requests for rehearing and clarification of the November 4 order.
On December 16, 1993, TGPL filed a request to accelerate partial refunds
under the Settlement on the ground that those refunds could be made
without prejudice to the pending requests for rehearing or clarification.
TGPL's request was granted by order of the FERC dated February 14, 1994,
which order also acted on the pending requests for rehearing or
clarification of the November 4 order. The Settlement became effective on
April 1, 1994. One party has appealed the FERC's November 4 and February
14 orders to the United States Court of Appeals for the D.C. Circuit (D.C.
Circuit Court). In the first six 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 sufficient for any
additional refunds that may be required under Docket No. RP92-137. At
June 30, 1994, these additional refunds, which are currently expected to
be made during the fourth quarter of 1994, are estimated to be
approximately $46 million, including interest. Such refund obligations
increase with the passage of time until the refunds are made.
<PAGE>
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 was filed on June 14, 1994. The presiding
Administrative Law Judge (ALJ) certified the agreement to the FERC on
July 18, 1994 as an uncontested settlement. Texas Gas has provided a
reserve of approximately $37 million at June 30, 1994 which it believes is
adequate for any refunds, including interest, that may be required. Such
refunds are currently expected to be made during the fourth quarter of
1994. These refund obligations increase with the passage of time until
the refunds are made.
On July 29, 1994, the FERC issued an order accepting the June 30, 1994
filing made by Texas Gas to resolve the transportation and exchange
imbalances pre-dating the implementation of Order 636. The order approved
the timetable proposed in the filing whereby such imbalances will be
reconciled by December 31, 1994. Pursuant to the filing, these reconciled
imbalances will be repaid in cash or through receipt or delivery of gas,
upon agreements for allocation and as permitted by operating conditions,
by the end of 1995.
Other Regulatory Matters
________________________
Order 636
TGPL
TGPL and certain other parties have filed appeals of certain of the FERC's
orders on TGPL's Order 636 compliance filings to the D.C. Circuit Court.
These appeals had been held in abeyance pending completion of the FERC's
rehearing process and the expiration of the time to seek judicial review.
On March 17, 1994, the FERC issued an order denying all requests for
rehearing relating to TGPL's Order 636 restructuring proceedings, which
ends the rehearing process at the FERC. On May 27, 1994, the D.C. Circuit
Court issued an order directing parties to file statements of issues and
continuing to hold these appeals in abeyance until the court establishes
a briefing schedule for the review of Order 636. Among the issues raised
by the parties are whether the separately stated gathering rates charged
by TGPL should be subject to refund and issues related to TGPL's storage
tracker authority.
Texas Gas
Texas Gas currently estimates its transition costs under Order 636 will be
primarily related to Gas Supply Realignment (GSR) contract termination
costs, GSR pricing differential costs incurred pursuant to Texas Gas'
auction process and unrecovered purchased gas costs. Through June 30,
1994, Texas Gas had paid or committed to pay a total of $41.9 million for
GSR costs, primarily as a result of the GSR contract terminations. Texas
Gas continues to make quarterly filings to recover its GSR costs as such
costs are paid. As of June 30, 1994, Texas Gas had recovered $3.9 million
of such costs.
Consolidated
Transco expects that any Order 636 transition costs incurred should be
recovered from TGPL and Texas Gas' customers, 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.
<PAGE>
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, Texas Gas
will flow through to its former sales customers approximately $39 million,
plus interest, which will resolve all of Texas Gas' issues related to the
flowthrough of upstream pipelines take-or-pay costs.
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 Quarter Report 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
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 judgement, 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 Quarter Report 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 pipelines had not complied with their respective
obligations under certain gas purchase and gas transportation contracts.
On March 30, 1994, the parties executed a definitive agreement 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. 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.
Royalty Claims
As discussed in the Company's 1993 Annual Report on Form 10-K and in the
1994 First Quarter Report 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 "excess
royalties" which producers may be required to pay as a result of such
settlements.
In the Duplantis excess royalties litigation, with respect to the claims
against Transco Exploration Company (TXC) and TXP Operating Company
(TXPO), the plaintiffs have alleged claims against TXC and TXPO of
approximately $8.5 million. In the same litigation, TGPL, based on
information supplied by the plaintiffs, believes the plaintiffs are
asserting claims against it of approximately $14 million, inclusive of
certain claims made against TXC and TXPO.
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.
D. ENVIRONMENTAL MATTERS
There have been no new developments from those described in the 1993
Annual Report on Form 10-K with regard to environmental matters.
E. FINANCING
Long-term Debt Refinancing
__________________________
On April 11, 1994, Texas Gas issued $150 million of 8 5/8% Notes (Notes)
due April 1, 2004. The Notes are not redeemable prior to maturity and are
general unsecured obligations of Texas Gas. Proceeds from the issuance
were used to redeem Texas Gas' outstanding 10% Debentures on April 29,
1994.
Restrictive Covenants
_____________________
As described in the 1993 Annual Report on Form 10-K and in the First
Quarter Report 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. 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 Quarter Report 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 Quarter Report 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.
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 June 30, 1994, the
Company had $118 million in short-term investments and no outstanding
borrowings under its $450 million working capital line. As of July 31,
1994, Transco had approximately $84 million in short-term investments and
continued to have no outstanding borrowings under its $450 million working
capital line. The Company expects to use the short-term investments later
in 1994, primarily to fund any TGPL and Texas Gas refunds that may be
required upon FERC approval of their respective general rate case
settlements.
On April 11, 1994, Texas Gas issued $150 million of 8 5/8% Notes due April
1, 2004. The Notes are not redeemable prior to maturity and are general
unsecured obligations of Texas Gas. Proceeds from the issuance were used
to redeem Texas Gas' outstanding 10% Debentures on April 29, 1994.
Capitalization and Cash Flows
_____________________________
As shown in the following table, at June 30, 1994, the percentage of
total debt to total invested capital was 72.1% compared to 72.7% at
December 31, 1993. Net income during the first six 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.
<TABLE>
<CAPTION>
June 30, Dec. 31,
1994 1993
____________ ____________
(In millions)
<S> <C> <C> <C>
Common Stockholders' Equity $ 411.5 $ 391.3
Preferred Stock 338.3 340.6
Long-term Debt, less Current Maturities 1,934.6 1,786.6
____________ ____________
Total Capitalization 2,684.4 2,518.5
Current Maturities of Long-term Debt 4.9 159.5
____________ ____________
Total Invested Capital $ 2,689.3 $ 2,678.0
____________ ____________
____________ ____________
Long-term Debt, less Current Maturities as a
Percentage of Total Capitalization 72.1% 70.9%
Common Stockholders' Equity as a Percentage
of Total Capitalization 15.3% 15.5%
Total Debt as a Percentage of Total Invested Capital 72.1% 72.7%
</TABLE>
At June 30, 1994, Transco had a working capital deficit of $129 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>
Six Months
Ended June 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided By Operating Activities $ 60.5 $ 112.6
__________ __________
__________ __________
</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 six months ended June 30, 1994, were $34 million higher
than for the six months ended June 30, 1993. This increase in cash flows
is primarily the result of lower cash payments in 1994 for producer
settlements and the return of a collateralized deposit that was no longer
needed due to the utilization of a new reimbursement facility that
provides Transco with standby letters of credit.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Financing Activities $ 40.2 $ 79.9
__________ __________
__________ __________
</TABLE>
Consolidated net cash flows used in financing activities for the six
months ended June 30, 1994 included cash outflows for dividends of $27
million on common and preferred stock, the retirement of $3 million of
preferred stock, the retirement of $5 million of long-term debt by Transco
and the retirement 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 six
months ended June 30, 1993 included cash outflows for the retirement of
$47 million of long-term debt by Transco, TGPL and Transco Coal Company
and dividends of $29 million on common and preferred stock.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Investing Activities $ 49.5 $ 28.5
__________ __________
__________ __________
</TABLE>
For the six months ended June 30, 1994 and June 30, 1993, consolidated net
cash flows used in investing activities primarily included cash outflows
for capital expenditures for property, plant and equipment and investments
in unconsolidated affiliates, as shown on the following table, partly
offset, for the six months ended June 30, 1993, by cash inflows from the
recovery of producer settlement costs by TGPL and Texas Gas.
<PAGE>
<TABLE>
<CAPTION>
Six Months
Capital Expenditures and Investments in Ended June 30,
__________________________
Unconsolidated Affiliates 1994 1993
_______________________________________ __________ __________
(In millions)
<S> <C> <C>
Pipelines
TGPL
Market-Area Projects $ 3.7 $ 1.1
Supply-Area Projects 7.3 15.1
Maintenance of Existing Facilities and Other Projects 22.6 24.2
Texas Gas
Market-Area Projects 4.6 1.4
Maintenance of Existing Facilities and Other Projects 12.5 6.8
Other 0.8 1.9
__________ _________
Total Pipelines 51.5 50.5
Gas Marketing 0.3 0.4
Coal 2.2 4.8
Other - 15.7
Intersegment Eliminations (TGPL Expenditures) - (4.0)
__________ __________
Total Capital Expenditures and Investments in
Unconsolidated Affiliates $ 54.0 $ 67.4
__________ __________
__________ __________
</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 Quarter
Report on Form 10-Q. Other than described in Notes B and C 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 Quarter Report on Form 10-Q with
regard to other capital requirements and contingencies.
Liberty Pipeline Company
In 1992, Liberty Pipeline Company, 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, the partners of Liberty Pipeline Company sent a letter
to the FERC, asking it to postpone indefinitely its review of the Liberty
Pipeline project. The decision follows the withdrawal, in early June, of
one key shipper and project partner and the recent withdrawal of another
shipper. The partners also reaffirmed their belief that an additional
delivery point to the New York facilities system, as proposed by Liberty,
will be necessary in the future and advised the FERC that the Liberty
partners will continue to pursue that goal.
1994 Southeast Expansion Project
On June 6, 1994, TGPL accepted a final certificate from the FERC
authorizing its 1994 Southeast Expansion Project. The FERC issued the
certificate on May 27, 1994.
Investment in Nonoperating Interest in Coalbed Methane Properties
As discussed in Note F 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
As discussed in Note B of the Notes to Condensed Consolidated Financial
Statements, TGPL received a FERC order accepting its Settlement in
connection with its general rate case (Docket No. RP92-137) on November 4,
1993. In the first six 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 sufficient for any additional
refunds that may be required under Docket No. RP92-137. At June 30, 1994,
these additional refunds, which are currently expected to be made during
the fourth quarter of 1994, are estimated to be approximately $46 million,
including interest. Such refund obligations increase with the passage of
time until the refunds are made.
Texas Gas
As discussed in Note B of the Notes to Condensed Consolidated Financial
Statements, the presiding ALJ certified a settlement agreement of Texas
Gas' general rate case (Docket No. RP93-106) to the FERC on July 18, 1994
as an uncontested settlement. Texas Gas has provided a reserve of
approximately $37 million at June 30, 1994 which it believes is adequate
for any refunds, including interest, that may be required. Such refunds
are currently expected to be made during the fourth quarter of 1994.
These refund obligations increase with the passage of time until the
refunds are made.
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
Transco's consolidated net income for the quarter and for the six months
ended June 30, 1994 was $1.0 million ($0.02 per share) and $8.1 million
($0.18 per share) higher, respectively, than the same periods in 1993,
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 and Coal. 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. Consolidated operating income for the quarter
ended June 30, 1994 was approximately equal to operating income for the
same period in 1993, but operating income for the six months ended
June 30, 1994 was $9.6 million higher than for the six months ended
June 30, 1993 primarily for the same reasons discussed above except for
preferred dividends.
Each segment's results of operations are discussed in more detail below.
PIPELINES
The table below shows the net income of Pipelines by company:
<TABLE>
<CAPTION>
Three Months Six Months
Net Income Ended June 30, Ended June 30,
__________ ______________________ ______________________
1994 1993 1994 1993
_________ ________ _________ ________
(In millions)
<S> <C> <C> <C> <C>
TGPL $ 24.3 $ 21.6 $ 51.9 $ 48.9
Texas Gas 2.8 8.4 18.7 23.2
Other Companies ( 0.1) ( 0.1) 0.1 ( 0.1)
________ ________ ________ ________
Total Pipelines $ 27.0 $ 29.9 $ 70.7 $ 72.0
________ ________ ________ ________
________ ________ ________ ________
</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 Quarter Report 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 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 $2.7 million and $3.0 million for the
three months and six months ended June 30, 1994 , respectively, than net
income for the three months and six months ended June 30, 1993, due
primarily to lower operating expenses, lower net interest expense, higher
allowance for equity funds used during construction and lower dividends on
preferred stock. Operating income for the three months and six months
ended June 30, 1994 was $53.8 million and $114.2 million, respectively,
compared to operating income of $51.7 million and $112.8 million for the
same periods in 1993, which reflected lower operating expenses, partially
offset by slightly lower net transportation revenues (net of the related
cost of transportation and surcharges).
Operating Revenues
TGPL's operating revenues increased $4 million to $218 million for the
quarter ended June 30, 1994, when compared to the same period in 1993 due
primarily to non-merchant sales revenues related to TGPL's cash-out
program for the settlement of current month transportation imbalances.
However, this increase in revenues had no effect on TGPL's operating or
net income since this increase also resulted in a corresponding increase
in cost of sales and transportation. TGPL's operating revenues decreased
$19 million to $438 million for the six months ended June 30, 1994, when
compared to the six months ended June 30, 1993, due primarily to lower
transportation rates resulting from the elimination of the producer
settlement surcharge which expired on May 31, 1993. However, the decrease
in transportation rates related to this surcharge did not affect TGPL's
operating or net income since the expiration of the producer settlement
surcharge also resulted in lower cost of sales and transportation when
compared with the prior year.
Operating Costs and Expenses
Excluding the cost of sales and transportation of $45 million and $88
million for the three months and six months ended June 30, 1994,
respectively, and $39 million and $106 million for the three months and
six months ended June 30, 1993, respectively, TGPL's operating expenses
for the quarter were $4 million lower than the same period in 1993 and for
the first six months of 1994, were $2 million lower than the comparable
period in 1993. The decrease in operating expenses for the quarter and
the six-month period was primarily due to lower costs for miscellaneous
contractual services, other supplies and expenses and postretirement
benefits other than pensions, somewhat offset by higher costs for main
engine repairs.
System Deliveries
As shown in the table below, TGPL's total market-area deliveries for the
three months ended June 30, 1994 were 8.1 billion cubic feet (Bcf), or 3
percent, 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 the extremely warm weather experienced on the East
Coast during June 1994. TGPL's total market-area deliveries for the six
months ended June 30, 1994 were 16.8 Bcf, or 3%, higher than the six
months ended June 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 extremely warm weather during June 1994.
The production-area deliveries for the three months and six months ended
June 30, 1994, increased 3.0 Bcf, or 6%, and 11.8 Bcf, or 15%,
respectively, when compared to the same periods in 1993, due to TGPL's
decreased rates resulting from the elimination of the producer settlement
surcharge which expired on May 31, 1993. However, as a result of a
straight fixed-variable (SFV) rate design, these increased deliveries had
no significant impact on operating income.
<TABLE>
<CAPTION>
Three Months Six Months
TGPL System Deliveries (Bcf) Ended June 30, Ended June 30,
____________________________ ______________________ _____________________
1994 1993 1994 1993
_________ ________ ________ ________
<S> <C> <C> <C> <C>
Market-area deliveries:
Long-haul transportation 186.2 194.4 417.0 429.5
Market-area transportation 90.3 74.0 224.5 195.2
________ ________ ________ ________
Total market-area deliveries 276.5 268.4 641.5 624.7
Production-area transportation 52.0 49.0 88.3 76.5
________ ________ ________ ________
Total system deliveries 328.5 317.4 729.8 701.2
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
TGPL's facilities are divided into six rate zones. Three 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 will submit 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. For a discussion of TGPL's Order 636 compliance filing, see
Note B of the Notes to Condensed Consolidated Financial Statements.
Texas Gas
_________
Net and Operating Income
Texas Gas' net income was $5.6 million lower and $4.5 million lower for
the quarter and six months ended June 30, 1994, respectively, than the
same periods in 1993. Operating income for the quarter and six months
ended June 30, 1994 was $9.2 million and $40.3 million, respectively,
compared to $18.0 million and $46.9 million for 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 an expected stated pre-tax rate of return under Texas Gas'
pending general rate case settlement which is lower than that included in
Texas Gas' previous rates.
As a result of reduced interruptible transportation revenues due to the
implementation of Order 636 and the expected lower stated pre-tax rate of
return under Texas Gas' pending general rate case settlement, Texas Gas'
interim operating income during the third quarter of 1994 could be lower
than the comparable period in 1993 and 1994 annual operating income could
be lower than the prior year. Additionally, 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.
Operating Revenues
Total operating revenues decreased $29 million in the second quarter of
1994 and $96 million for the six months ended June 30, 1994 compared to
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, 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 second quarter and six months ended June 30, 1994
was $22 million lower and $99 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
quarter and six months ended June 30, 1994 were virtually unchanged in
comparison to the same periods in 1993. For the quarter ended June 30,
1994, administrative and general expenses were $1 million lower than for
the same period in 1993, primarily due to a provision for uncollectible
accounts in 1993. Administrative and general expenses for the six months
ended June 30, 1994 were $1 million higher than 1993, primarily due to the
higher cost of postretirement benefits other than pensions, which is
included in Texas Gas' transportation rates.
System Deliveries
As shown in the table below, Texas Gas' total mainline deliveries for the
six months ended June 30, 1994 increased 23.8 Bcf, or 8%, compared to the
six months ended June 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. Mainline deliveries for the second quarter ended June 30,
1994 were unchanged from the same period in 1993. The revenues associated
with short-haul transportation volumes are not material to Texas Gas.
<TABLE>
<CAPTION>
Three Months Six Months
Texas Gas System Deliveries (Bcf) Ended June 30, Ended June 30,
_________________________________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Sales - 7.9 - 39.6
Long-haul transportation 128.9 121.1 321.1 257.7
________ ________ ________ ________
Total mainline deliveries 128.9 129.0 321.1 297.3
Short-haul transportation 46.8 48.4 97.7 101.8
________ ________ ________ ________
Total system deliveries 175.7 177.4 418.8 399.1
________ ________ ________ ________
________ ________ ________ ________
</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 as discussed in the Company's Annual
Report on Form 10-K, 1994 First Quarter Report on Form 10-Q and Note B of
the Notes to Condensed Consolidated Financial Statements. A settlement
agreement was filed on June 14, 1994. The presiding ALJ certified the
settlement agreement of Texas Gas' general rate case (Docket No. RP93-106)
to the FERC on July 18, 1994 as an uncontested settlement.
Texas Gas' November 1, 1993 implementation of Order 636 included a change
in its rate design method from modified fixed-variable (MFV) to SFV.
Under the MFV method, all fixed costs, with the exception of equity return
and income taxes, were included in the demand component of the charge to
customers; the equity return and income tax components of cost of service
were included as part of the volumetric charge to customers. Under the
SFV 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.
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. Furthermore, while the use of SFV rate design limits
Texas Gas' opportunity to earn incremental revenues through increased
throughput, it also minimizes Texas Gas' risk associated with fluctuations
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 Six Months
Net Income (Loss) Ended June 30, Ended June 30,
_________________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
(In millions)
<S> <C> <C> <C> <C>
Natural Gas Marketing $ 1.8 $( 4.3) $ 7.5 $( 3.1)
Natural Gas Liquids Marketing ( 0.3) 1.1 ( 0.9) 1.8
________ ________ ________ ________
Total Gas Marketing 1.5 $( 3.2) $ 6.6 $( 1.3)
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
Sales Volumes Ended June 30, Ended June 30,
_____________ _____________________ _____________________
1994 1993 1994 1993
________ ________ ________ ________
<S> <C> <C> <C> <C>
Gas (Bcf)
Long-term 92.2 73.5 212.8 168.5
Short-term 75.9 48.4 136.1 101.6
________ ________ ________ ________
Total gas sales 168.1 121.9 348.9 270.1
________ ________ ________ ________
________ ________ ________ ________
Liquids (million gallons) 18.8 37.0 68.7 86.7
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
Gas sales volumes increased due primarily to the inclusion of Texas Gas'
sales service volumes of 8.0 Bcf and 18.6 Bcf for the second quarter and
the first six months of 1994, respectively, incremental spot sales and
higher demand as a result of colder weather during the first quarter of
1994.
Net and Operating Income
Gas Marketing reported a $4.7 million and $7.9 million positive net income
variance for the second quarter of 1994 and the first six months of 1994,
respectively, compared to the same periods in 1993. The segment also
reported operating income of $0.8 million for the second quarter of 1994
and $8.5 million for the six months ended June 30, 1994 compared to an
operating loss of $5.7 million for the second quarter of 1993 and $3.9
million for the six months ended June 30, 1993. As discussed below, the
improvement in 1994 over 1993 is due to improved results from natural gas
marketing operations, somewhat offset by a decline in the results from
natural gas liquids marketing operations.
Natural Gas Marketing
Operating income from natural gas marketing increased $9.5 million and
$16.4 million for the quarter and six months ended June 30, 1994,
respectively, compared to the prior year periods, primarily due to
increased volumes and the positive effect 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 a charge of $3.8
million to reflect transportation and exchange imbalances at current
market prices. 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 declined $3.0 million
and $3.9 million for the second quarter and six months ended June 30,
1994, respectively, compared to the prior year periods primarily due to
decreased sales volumes and margins.
Operating Revenues
Gas Marketing's operating revenues increased to $392 million in the second
quarter of 1994 from $329 million in the second quarter of 1993.
Operating revenues increased to $906 million for the first six months of
1994 compared to $685 million for the first six months of 1993. The
higher revenues were due to higher gas sales volumes and the inclusion of
Texas Gas' sales service revenues of $28 million and $68 million in Gas
Marketing for the second quarter and six months ended June 30, 1994,
respectively.
Operating Costs and Expenses
Gas Marketing's costs of sales and transportation of $385 million and $885
million for the quarter and six months ended June 30, 1994 increased from
$328 million and $676 million for the same periods in 1993, respectively,
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 for the second quarter and six months ended June 30, 1994 were
comparable to the same periods in 1993.
COAL
Coal reported net income of $1.4 million and $2.4 million for the second
quarter and six months ended June 30, 1994, compared to net income of $2.6
million and $3.3 million for the same periods in 1993. The negative net
income variance was primarily due to a reduction in the operating margin
due to a lower average sales price, partially offset by lower interest
expense and higher income tax benefits in 1994. In addition, the results
for the second quarter of 1993 included the effects of favorable price
adjustments in a long-term sales contract. Coal's operating income
decreased to $0.9 million for the second quarter and to $1.4 million for
six months ended June 30, 1994 from $2.9 million and $4.0 million for the
same periods of 1993 due primarily to the lower average sales price and
price adjustments discussed above.
GAS GATHERING
Gas Gathering's net loss was $1.4 million and $2.5 million compared to a
$2.3 million and 4.9 million net loss for the second quarter and the first
six months of 1994 and 1993, respectively. The operating loss was $0.4
million and $0.6 million compared to operating losses of $1.2 million and
$2.4 million for the second quarter and the first six months in 1994 and
1993, respectively. The improvement was primarily due to lower
interruptible transportation expense charged by other pipelines and a
transportation rate refund. This positive variance was partially offset
by an increase in depreciation expense due to the acquisition of interests
held by Corpus Christi Gas Gathering, Inc. and certain affiliates (Corpus
Christi) in jointly-owned gas gathering and intrastate pipeline
partnerships in the third quarter of 1993. Also contributing to the net
loss reduction was the increase in equity in earnings of unconsolidated
affiliates of $0.6 million and $1.7 million for the quarter and six months
ended June 30, 1994 compared to the prior year periods. This positive
variance was primarily attributable to losses in 1993 associated with Gas
Gathering's 50% interest in the Corpus Christi pipeline partnerships, the
assets of which are now wholly-owned by Gas Gathering due to the
aforementioned Corpus Christi acquisition.
<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
The Company's Annual Meeting of Shareholders was held on May 17,
1994 in Owensboro, Kentucky. Shareholders voted on the election
of two Directors for a three-year term expiring in 1997, the
ratification of the appointment of independent accountants for the
year 1994 and an Amended and Restated 1991 Incentive Stock Plan.
The voting results on these matters are as follows:
1. Election of Directors:
<TABLE>
<CAPTION>
Votes
Votes Against or Broker
Nominees For Abstentions Withheld Non-Votes
________ __________ ___________ ___________ __________
<S> <C> <C> <C> <C>
William H. Luers 36,199,445 0 1,997,701 0
Frederick H. Schultz 36,455,195 0 1,741,951 0
Directors whose term of office continues after the meeting:
Term expiring 1995: Gordon F. Ahalt, Benjamin F. Bailar and John P. DesBarres
Term expiring 1996: Robert W. Fri and J. David Grissom
</TABLE>
2. Appointment of Arthur Andersen & Co. as the Company's
Independent Auditors:
<TABLE>
<CAPTION>
Votes
Votes Against or Broker
For Abstentions Withheld Non-Votes
__________ ___________ __________ __________
<C> <C> <C> <C>
37,062,901 299,828 834,417 0
</TABLE>
3. Adoption of Amended and Restated 1991 Incentive Stock Plan:
<TABLE>
<CAPTION>
Votes
Votes Against or Broker
For Abstentions Withheld Non-Votes
__________ ___________ __________ __________
<C> <C> <C> <C>
29,683,960 924,065 7,589,121 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
4.1 Amended and Restated Credit Agreement dated December 31,
1993 among Transco, the Banks named therein, Citibank,
N.A. as Agent and Bank of Montreal, as Co-Agent (Exhibit
(4) - 5(c) to Transco Form 10-K for 1993 Commission File
Number 1-7513).
(a) First Amendment Agreement dated as of June 30,
1994 among Transco, the Banks named therein,
Citibank, N.A. as Agent and Bank of Montreal, as
Co-Agent.
4.2 Reimbursement Agreement dated as of December 31, 1993
among Transco, the Banks named therein and Bank of
Montreal as Agent and Issuing Bank (Exhibit (4) - 7 to
Transco Form 10-K for 1993 Commission File Number 1-
7513).
(a) First Amendment Agreement dated as of June 30,
1994 among Transco, the Banks named therein and
Bank of Montreal as Agent and Issuing Bank.
(b) Reports on Form 8-K.
Transco filed a Form 8-K, Current Report dated April 7, 1994,
to report that Transco and TGPL, along with pipeline units of
the Coastal Corporation, MidCon Corp. and Tenneco Inc.,
announced that each have signed settlement agreements to
resolve litigation with Dakota Gasification Company and the
Department of Energy related to their respective contracts,
signed in 1982, to purchase gas from the Great Plains
Gasification Plant. The settlements are subject to the
approval of the Federal Energy Regulatory Commission. See
Note C of the Notes to Condensed Consolidated Financial
Statements.
<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: August 12, 1994
By /s/ Larry J. Dagley
__________________________________
(Signature)
Larry J. Dagley
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 4.1
FIRST AMENDMENT
June 30, 1994
This First Amendment dated as of June 30, 1994 (this "First
Amendment") is by and among Transco Energy Company, a Delaware
corporation (the "Borrower"), the banks (the "Banks") and co-agent
("Co-Agent") parties to that certain Amended and Restated Credit
Agreement dated as of December 31, 1993 among the Borrower, the
Banks, the Co-Agent and Citibank, N.A., as agent (the "Agent") for
the Banks (the "Credit Agreement"), and Citibank, N.A., as Agent.
In consideration of the mutual promises contained herein, the
parties hereto agree as follows:
PRELIMINARY STATEMENT. The Borrower, the Banks, the Co-Agent
and the Agent have agreed to amend the Credit Agreement as
hereinafter set forth. Unless otherwise defined herein, the terms
defined in the Credit Agreement shall be used herein as therein
defined.
Section 1. Amendment to Credit Agreement. The date
"December 31, 1994" set forth in clause (i)(b) of Section 5.02(m),
and in clause (b) of the proviso in the definition of Consolidated
Net Worth in Section 1.01, of the Credit Agreement is hereby
deleted and, in both such instances, the date "June 30, 1995" is
inserted in replacement thereof.
Section 2. Conditions of Effectiveness. This First Amendment
shall become effective when, and only when, the Agent shall have
received counterparts of, or telecopied signature pages of, this
First Amendment executed by the Borrower and the Required Banks in
accordance with Section 8.01 of the Credit Agreement.
Section 3. Representations. The Borrower represents and
warrants to each of the Banks, the Co-Agent and the Agent that:
(a) the representations and warranties contained in
Article IV of the Credit Agreement, the representations and
warranties set forth in Section 5 of the TGPL Guaranty and the
representations and warranties set forth in Section 5 of the
TXG Guaranty are true and correct on and as of the date hereof
(except that representations and warranties which expressly
related to a specific date or specific dates shall continue to
relate to such dates) and shall have the same force and effect
as if set forth in full herein; and
(b) after giving effect to this First Amendment, no
event has occurred and is continuing which constitutes a
Default or an Event of Default.
Section 4. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this First Amendment on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Credit Agreement and each reference in the
Notes to the "Credit Agreement", "thereunder", "thereof" or words
of like import referring to the Credit Agreement shall mean and be
a reference to the Credit Agreement as amended hereby.
(b) The Credit Agreement, as amended by this First Amendment,
is and shall remain in full force and effect and is hereby ratified
and confirmed.
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this First Amendment shall not
operate as a waiver of any right, power or remedy of any Bank or
the Agent under the Credit Agreement, nor constitute a waiver of
any provision of the Credit Agreement.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all reasonable costs and expenses in connection with
the preparation, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable out-of-pocket
expenses of the Agent and the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities
hereunder and under the Loan Documents. In addition, the Borrower
shall pay any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this
First Amendment and the other instruments and documents to be
delivered hereunder, and agree to save the Agent and each Bank
harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay such
taxes.
Section 6. Execution in Counterparts. This First Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 7. Bank Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent or any
other Bank and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to
enter into this First Amendment and to agree to the various matters
set forth herein. Each Bank also acknowledges that it will, inde-
pendently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall deem appropri-
ate at the time, continue to make its own credit decisions in
taking or not taking any action under the Credit Agreement as
amended hereby.
Section 8. Authority, etc. The Borrower hereby represents
and warrants to the Agent, the Co-Agent and the Banks that (i) the
Borrower and each Restricted Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware, (ii) the execution, delivery and performance
of this First Amendment, and the performance of the Credit
Agreement, as amended hereby, by the Borrower are within the power
of the Borrower, have been duly authorized by all necessary corpor-
ate action and do not contravene (A) the Borrower's certificate of
incorporation or by-laws, (B) any applicable rule, regulation,
order, writ, injunction or decree, or (C) law or any contractual
restriction binding on or affecting the Borrower, and will not
result in or require the creation or imposition of any Lien
prohibited by the Credit Agreement, as amended hereby, (iii) this
First Amendment has been duly executed and delivered by the
Borrower, (iv) this First Amendment and the Credit Agreement, as
amended hereby, constitute legal, valid and binding obligations of
the Borrower enforceable against the Borrower in accordance with
their respective terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally,
(v) no authorization, consent or approval of, or other action by,
and no notice to or filing with, any governmental authority,
regulatory body or other Person not a party hereto is required for
the due execution, delivery and performance of this First Amendment
or the performance of the Credit Agreement, as amended hereby.
Section 9. Default. Without limiting any other event which
may constitute an Event of Default, in the event any representation
or warranty set forth herein shall be incorrect or misleading in
any material respect when made, such event shall constitute an
"Event of Default" under the Credit Agreement, as amended hereby.
Section 10. Governing Law. This First Amendment and the
Credit Agreement, as amended hereby, shall be governed by and
construed in accordance with the law of the State of New York.
Section 11. Headings. Section headings in this First Amend-
ment are included herein for convenience of reference only and
shall not constitute a part of this First Amendment for any other
purpose.
WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
BORROWER:
TRANSCO ENERGY COMPANY
By: /s/ R. Scott Amann
Authorized Officer
AGENT:
CITIBANK, N.A.
as Agent
By: /s/ Barbara A. Cohen
Authorized Officer
CO-AGENT:
BANK OF MONTREAL
as Co-Agent
By: /s/ Donald G. Warmington
Authorized Officer
BANKS:
CITIBANK, N.A.
By: /s/ Barbara A. Cohen
Authorized Officer
BANK OF MONTREAL
By: /s/ Donald G. Warmington
Authorized Officer
THE BANK OF NOVA SCOTIA
By: /s/ A. S. Norsworthy
Authorized Officer
BARCLAYS BANK, PLC
By: /s/ Nancy L. Forster
Authorized Officer
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Bettylou Robert
Authorized Officer
CHEMICAL BANK
By: /s/ Cliff Wilson, III
Authorized Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Lee E. McKinstrey
Authorized Officer
THE BANK OF NEW YORK
By: /s/ Daniel T. Gates
Authorized Officer
THE FIRST NATIONAL BANK OF
BOSTON
By: /s/ Richard A. Low
Authorized Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ Kristin B. Palmer
Authorized Officer
CIBC INC.
By: /s/ Jeff D. Westland
Authorized Officer
CONTINENTAL BANK N.A.
By: /s/ Robert W. Bolt
Authorized Officer
THE NIPPON CREDIT BANK, LTD.
By: /s/ Hideaki Mori
Authorized Officer
SOCIETE GENERALE,
SOUTHWEST AGENCY
By: /s/ R. A. Erbert
Authorized Officer
SWISS BANK CORPORATION,
NEW YORK BRANCH
By: /s/ Nancy A. Hanrahan
Authorized Officer
By: /s/ Clark Worthley
Authorized Officer
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Xavier Ratouis
Authorized Officer
EXHIBIT 4.2
FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT
June 30, 1994
This First Amendment to Reimbursement Agreement dated as of
June 30, 1994 (this "First Amendment") is by and among Transco
Energy Company, a Delaware corporation (the "Borrower"), the banks
(the "Banks") parties to that certain Reimbursement Agreement dated
as of December 31, 1993 among the Borrower, the Banks and Bank of
Montreal, as agent and issuing bank (the "Agent") for the Banks
(the "Reimbursement Agreement"), and Bank of Montreal, as Agent.
In consideration of the mutual promises contained herein, the
parties hereto agree as follows:
PRELIMINARY STATEMENT. The Borrower, the Banks and the Agent
have agreed to amend the Reimbursement Agreement as hereinafter set
forth. Unless otherwise defined herein, the terms defined in the
Reimbursement Agreement shall be used herein as therein defined.
Section 1. Amendment to Reimbursement Agreement. The date
"December 31, 1994" set forth in clause (i)(b) of Section 5.02(m),
and in clause (b) of the proviso in the definition of Consolidated
Net Worth in Section 1.01, of the Reimbursement Agreement is hereby
deleted and, in both such instances, the date "June 30, 1995" is
inserted in replacement thereof.
Section 2. Conditions of Effectiveness. This First Amendment
shall become effective when, and only when, the Agent shall have
received counterparts of, or telecopied signature pages of, this
First Amendment executed by the Borrower and the Required Banks in
accordance with Section 9.01 of the Reimbursement Agreement.
Section 3. Representations. The Borrower represents and
warrants to each of the Banks and the Agent that:
(a) the representations and warranties contained in
Article IV of the Reimbursement Agreement, the representations
and warranties set forth in Section 5 of the TGPL Guaranty and
the representations and warranties set forth in Section 5 of
the TXG Guaranty are true and correct on and as of the date
hereof (except that representations and warranties which
expressly related to a specific date or specific dates shall
continue to relate to such dates) and shall have the same
force and effect as if set forth in full herein; and
(b) after giving effect to this First Amendment, no
event has occurred and is continuing which constitutes a
Default or an Event of Default.
Section 4. Reference to and Effect on the Loan Documents.
(a) Upon the effectiveness of this First Amendment on and
after the date hereof, each reference in the Reimbursement
Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Reimbursement Agreement and
each reference in the Notes to the "Reimbursement Agreement",
"thereunder", "thereof" or words of like import referring to the
Reimbursement Agreement shall mean and be a reference to the
Reimbursement Agreement as amended hereby.
(b) The Reimbursement Agreement, as amended by this First
Amendment, is and shall remain in full force and effect and is
hereby ratified and confirmed.
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this First Amendment shall not
operate as a waiver of any right, power or remedy of any Bank or
the Agent under the Reimbursement Agreement, nor constitute a
waiver of any provision of the Reimbursement Agreement.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to
pay on demand all reasonable costs and expenses in connection with
the preparation, execution and delivery of this First Amendment and
the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable out-of-pocket
expenses of the Agent and the Issuing Bank and the reasonable fees
and out-of-pocket expenses of counsel for the Agent and the Issuing
Bank with respect thereto and with respect to advising the Agent
and the Issuing Bank as to its rights and responsibilities
hereunder and under the Loan Documents. In addition, the Borrower
shall pay any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this
First Amendment and the other instruments and documents to be
delivered hereunder, and agree to save the Agent and the Issuing
Bank and each Bank harmless from and against any and all
liabilities with respect to or resulting from any delay in paying
or omission to pay such taxes.
Section 6. Execution in Counterparts. This First Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 7. Bank Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent or any
other Bank and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to
enter into this First Amendment and to agree to the various matters
set forth herein. Each Bank also acknowledges that it will, inde-
pendently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall deem appropri-
ate at the time, continue to make its own credit decisions in
taking or not taking any action under the Reimbursement Agreement
as amended hereby.
Section 8. Authority, etc. The Borrower hereby represents
and warrants to the Agent and the Banks that (i) the Borrower and
each Restricted Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, (ii) the execution, delivery and performance of this
First Amendment, and the performance of the Reimbursement
Agreement, as amended hereby, by the Borrower are within the power
of the Borrower, have been duly authorized by all necessary corpor-
ate action and do not contravene (A) the Borrower's certificate of
incorporation or by-laws, (B) any applicable rule, regulation,
order, writ, injunction or decree, or (C) law or any contractual
restriction binding on or affecting the Borrower, and will not
result in or require the creation or imposition of any Lien
prohibited by the Reimbursement Agreement, as amended hereby, (iii)
this First Amendment has been duly executed and delivered by the
Borrower, (iv) this First Amendment and the Reimbursement
Agreement, as amended hereby, constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, except as such
enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally, (v) no authorization, consent or
approval of, or other action by, and no notice to or filing with,
any governmental authority, regulatory body or other Person not a
party hereto is required for the due execution, delivery and
performance of this First Amendment or the performance of the
Reimbursement Agreement, as amended hereby.
Section 9. Default. Without limiting any other event which
may constitute an Event of Default, in the event any representation
or warranty set forth herein shall be incorrect or misleading in
any material respect when made, such event shall constitute an
"Event of Default" under the Reimbursement Agreement, as amended
hereby.
Section 10. Governing Law. This First Amendment and the
Reimbursement Agreement, as amended hereby, shall be governed by
and construed in accordance with the law of the State of New York.
Section 11. Headings. Section headings in this First Amend-
ment are included herein for convenience of reference only and
shall not constitute a part of this First Amendment for any other
purpose.
WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
BORROWER:
TRANSCO ENERGY COMPANY
By: /s/ R. Scott Amann
Name: R. Scott Amann
Title: Vice President of Finance
AGENT:
BANK OF MONTREAL
as Agent
By: /s/ Donald G. Warmington
Name: Donald G. Warmington
Title: Director
BANKS:
BANK OF MONTREAL
By: /s/ Donald G. Warmington
Authorized Officer
THE BANK OF NOVA SCOTIA
By: /s/ A. S. Norsworthy
Authorized Officer
CIBC INC.
By: /s/ Jeff D. Westland
Authorized Officer
CONTINENTAL BANK N.A.
By: /s/ Robert W. Bolt
Authorized Officer
SWISS BANK CORPORATION,
NEW YORK BRANCH
By: /s/ Nancy A. Hanrahan
Authorized Officer
By: /s/ Clark Worthley
Authorized Officer
