UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 March 31, 1995 was 41,071,366.
<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 the pushdown of the purchase price paid by
Williams as described in Note A, Organization and Control and Basis of
Presentation, of the Notes to Condensed Consolidated Financial Statements,
and 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 1994
Annual Report on Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
The acquisition of the Company by The Williams Companies, Inc. was accounted for using the purchase method of
accounting. Accordingly, the purchase price was "pushed-down" and recorded in the accompanying financial
statements which affects the comparability of the post-acquisition and pre-acquisition financial position,
results of operations and cash flows.
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
Post-Acquisition | Pre-Acquisition
________________ | _______________
March 31, | December 31,
1995 | 1994
________________ | _______________
ASSETS |
______ |
|
<S> <C> | <C>
Current Assets: |
Cash and temporary cash investments $ 15,861 | $ 32,343
Deposits 8,253 | 12,276
Receivables - |
Trade, net 236,975 | 146,776
Other 13,206 | 16,038
Transportation and exchange gas receivable 111,157 | 108,905
Gas supply realignment costs recoverable from customers 17,730 | 26,710
Inventories 97,601 | 99,030
Deferred income tax benefits 178,771 | 36,413
Assets held for sale 121,910 | -
Other 55,778 | 62,665
______________ | _______________
Total current assets 857,242 | 541,156
______________ | _______________
|
Investments, at cost plus equity in undistributed earnings 17,910 | 21,505
______________ | _______________
|
Property, Plant and Equipment, at cost: |
Natural gas transmission plant-jurisdictional 3,871,406 | 5,214,320
Less-Accumulated depreciation and amortization 39,583 | 2,795,650
______________ | _______________
|
Natural gas transmission plant-jurisdictional, net 3,831,823 | 2,418,670
______________ | _______________
|
Natural gas gathering and liquids separation and |
fractionation plant 28,600 | 212,974
Less-Accumulated depreciation and amortization 330 | 35,036
______________ | _______________
Natural gas gathering and liquids separation and |
fractionation plant, net 28,270 | 177,938
______________ | _______________
|
Coal properties - | 413,951
Less-Accumulated depreciation, depletion and amortization - | 152,686
______________ | _______________
Coal properties, net - | 261,265
______________ | _______________
|
Other property, plant and equipment 1,092 | 10,646
Less-Accumulated depreciation and amortization 86 | 4,921
______________ | _______________
Other property, plant and equipment, net 1,006 | 5,725
______________ | _______________
|
Total property, plant and equipment, net 3,861,099 | 2,863,598
______________ | _______________
|
Other Assets: |
Nonoperating interest in coalbed methane properties, net - | 86,334
Notes receivable 2,000 | 13,000
Other 372,457 | 247,026
______________ | _______________
Total other assets 374,457 | 346,360
______________ | _______________
|
$ 5,110,708 | $ 3,772,619
______________ | _______________
______________ | _______________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The acquisition of the Company by The Williams Companies, Inc. was accounted for using the purchase method of
accounting. Accordingly, the purchase price was "pushed-down" and recorded in the accompanying financial
statements which affects the comparability of the post-acquisition and pre-acquisition financial position,
results of operations and cash flows.
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
Post-Acquisition | Pre-Acquisition
________________ | _______________
March 31, | December 31,
1995 | 1994
________________ | _______________
LIABILITIES AND STOCKHOLDERS' EQUITY |
____________________________________ |
|
<S> <C> | <C>
Current Liabilities: |
Short-term debt $ - | $ 27,000
Current maturities of long-term debt 166,345 | 150,102
Payables - |
Trade 201,461 | 206,325
Other 57,014 | 82,053
Transportation and exchange gas payable 55,962 | 52,765
Accrued federal income taxes 24,884 | 19,219
Other accrued liabilities 244,258 | 193,491
Reserve for producer settlements, legal and regulatory issues 7,990 | 17,724
Reserve for rate refunds 24,082 | 68,863
Other 56,796 | 41,732
______________ | ______________
Total current liabilities 838,792 | 859,274
______________ | ______________
|
Advances from Williams 661,619 | -
______________ | ______________
|
Long-Term Debt, less current maturities 1,540,446 | 1,785,575
______________ | ______________
|
Other Liabilities and Deferred Credits: |
Income taxes 744,441 | 285,438
Income taxes refundable to customers 11,387 | 14,150
Accrued pension cost 7,414 | 12,496
Other 417,437 | 139,438
______________ | ______________
Total other liabilities and deferred credits 1,180,679 | 451,522
______________ | ______________
|
Commitments and Contingencies (Notes C, D and E) |
|
Preferred Stock of Subsidiary, net-redeemable - | 49,375
______________ | ______________
|
|
Convertible Preferred Stock, net-non-redeemable 121,328 | 265,322
______________ | ______________
|
Common Stockholders' Equity: |
Common stock $0.50 par value: authorized 150,000,000 |
shares; issued and outstanding 41,071,366 and |
41,431,419 shares in 1995 and 1994, respectively 20,536 | 20,716
Premium on capital stock and other paid-in capital 734,247 | 507,448
Retained earnings (deficit) 13,061 | (156,921)
______________ | ______________
767,844 | 371,243
Less-Treasury stock, at cost, 514,444 shares in 1994 - | 7,695
Restricted stock, 87,689 shares in 1994 |
Deferred compensation - | 1,997
______________ | ______________
Total common stockholders' equity 767,844 | 361,551
______________ | ______________
|
$ 5,110,708 | $ 3,772,619
______________ | ______________
______________ | ______________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The acquisition of the Company by The Williams Companies, Inc. was accounted for using the purchase method of accounting.
Accordingly, the purchase price was "pushed-down" and recorded in the accompanying financial statements which affects the
comparability of the post-acquisition and pre-acquisition financial position, results of operations and cash flows.
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands, except per share amounts)
(Unaudited)
Post-Acquisition | Pre-Acquisition
__________________ | __________________________________________
| For the Period
For the Period | January 1, 1995 For the Three
January 18, 1995 | to Months Ended
to March 31, 1995 | January 17, 1995 March 31, 1994
__________________ | __________________ ________________
|
|
<S> <C> | <C>
Operating Revenues: |
Natural gas sales $ 280,077 | $ 67,406 $ 487,995
Natural gas transportation 195,005 | 45,262 237,660
Natural gas storage 32,851 | 7,452 37,727
Other sales 4,067 | (437) 16,548
_________________ | _________________ _______________
Total operating revenues 512,000 | 119,683 779,930
_________________ | _________________ _______________
|
Operating Costs and Expenses: |
Cost of sales 247,260 | 57,578 456,788
Cost of transportation 41,288 | 9,883 54,434
Operation and maintenance 47,362 | 11,230 54,507
Administrative and general 48,146 | 11,355 63,162
Depreciation, depletion and amortization 40,576 | 7,614 41,527
Taxes - other than income taxes 10,284 | 2,470 13,243
Provision for executive severance benefits - | 24,939 -
_________________ | _________________ _______________
Total operating costs and expenses 434,916 | 125,069 683,661
_________________ | _________________ _______________
|
Operating Income (Loss) 77,084 | (5,386) 96,269
_________________ | _________________ _______________
|
Other (Income) and Other Deductions: |
Interest expense 40,018 | 8,686 46,385
Interest income (626) | (196) (2,164)
Capitalized interest and allowance for |
funds used during construction (1,074) | (257) (950)
Dividends on preferred stock of subsidiary 723 | 193 1,599
Equity in earnings of unconsolidated affiliates (416) | (202) (253)
Miscellaneous other (income) and deductions, net 749 | 415 4,941
_________________ | _________________ _______________
Total other (income) and other deductions 39,374 | 8,639 49,558
_________________ | _________________ _______________
|
Income (Loss) from Continuing Operations |
Before Income Taxes 37,710 | (14,025) 46,711
|
Provision for Income Taxes 15,529 | 3,210 18,229
_________________ | _________________ _______________
|
Income (Loss) from Continuing Operations 22,181 | (17,235) 28,482
|
Income (Loss) from Operations of Discontinued |
Segment, Net of Income Taxes - | (346) 1,027
_________________ | _________________ _______________
Net Income (Loss) 22,181 | (17,581) 29,509
|
Dividends on Convertible Preferred Stock 2,988 | 1,047 5,726
_________________ | _________________ _______________
|
Common Stock Equity in Net Income (Loss) $ 19,193 | $ (18,628) $ 23,783
_________________ | _________________ _______________
_________________ | _________________ _______________
|
Primary Earnings (Loss) Per Share of Common |
Stock and Common Stock Equivalents - |
Continuing Operations $ 0.46 | $ (0.45) $ 0.56
Discontinued Operations - | - 0.02
_________________ | _________________ _______________
|
$ 0.46 | $ (0.45) $ 0.58
_________________ | _________________ _______________
_________________ | _________________ _______________
|
Dividends Declared Per Share of Common Stock $ 0.15 | $ - $ 0.30
_________________ | _________________ _______________
_________________ | _________________ _______________
|
Average Shares of Common Stock and Common |
Stock Equivalents Outstanding 41,114 | 41,095 40,690
_________________ | _________________ _______________
_________________ | _________________ _______________
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
The acquisition of the Company by The Williams Companies, Inc. was accounted for using the purchase method of accounting.
Accordingly, the purchase price was "pushed-down" and recorded in the accompanying financial statements which affects the
comparability of the post-acquisition and pre-acquisition financial position, results of operations and cash flows.
TRANSCO ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Post-Acquisition | Pre-Acquisition
__________________ | _____________________________________
| For the Period
For the Period | January 1, 1995 For the Three
January 18, 1995 | to Months Ended
to March 31, 1995 | January 17, 1995 March 31, 1994
__________________ | __________________ ________________
|
|
<S> <C> | <C>
Cash flows from operating activities: |
Net income (loss) $ 22,181 | $ (17,581) $ 29,509
Adjustments to reconcile net income (loss) to net cash |
provided by (used in) operating activities: |
Depreciation, depletion and amortization 44,711 | 9,604 53,079
Deferred income taxes 2,891 | 12,729 (13,453)
Provision for executive severance benefits - | 25,150 -
Changes in operating assets and liabilities: |
Deposits 1,239 | 2,784 20,327
Receivables (65,934) | (22,075) 10,220
Transportation and exchange gas receivable 890 | (3,141) (3,312)
Inventories (5,190) | (1,224) 28,234
Payables (18,122) | (4,809) (77,070)
Transportation and exchange gas payable 1,649 | 1,548 12,481
Accrued liabilities 5,559 | (13,695) 37,360
Reserve for rate refunds (17,934) | (26,846) (45,986)
Other, net 9,346 | (1,481) 2,204
_____________ | _____________ _____________
Net cash provided by (used in) operating activities (18,714) | (39,037) 53,593
_____________ | _____________ _____________
|
Cash flows from financing activities: |
Net increase (decrease) in short-term debt (78,300) | 51,300 -
Additions to long-term debt 20,000 | - -
Retirement of long-term debt (286,204) | - (2,304)
Retirement of preferred stock (200,154) | - (1,141)
Dividends on common and preferred stock (15,352) | - (13,466)
Advances from Williams, net 661,619 | - -
Other, net (75,406) | 283 (2,461)
_____________ | _____________ _____________
Net cash provided by (used in) financing activities 26,203 | 51,583 (19,372)
_____________ | _____________ _____________
|
|
Cash flows from investing activities: |
Investment in property, plant and equipment and |
unconsolidated affiliates (40,721) | (7,350) (18,207)
Proceeds from sales of assets 11,755 | - -
Other, net (129) | (72) 3,253
_____________ | _____________ _____________
Net cash used in investing activities (29,095) | (7,422) (14,954)
_____________ | _____________ _____________
Net increase (decrease) in cash and cash equivalents (21,606) | 5,124 19,267
Cash and cash equivalents at beginning of period 37,467 | 32,343 163,488
_____________ | _____________ _____________
Cash and cash equivalents at end of period $ 15,861 | $ 37,467 $ 182,755
_____________ | _____________ _____________
_____________ | _____________ _____________
|
Supplemental disclosures of cash flow information: |
Cash paid during the period for: |
Interest (net of amount capitalized) $ 25,014 | $ 27,760 $ 46,239
Income taxes (net of amounts refunded) 445 | - (8,780)
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. ORGANIZATION AND CONTROL AND BASIS OF PRESENTATION
Organization and Control
________________________
As discussed in the Company's 1994 Annual Report on Form 10-K, on December
12, 1994, Transco Energy Company (Transco) and The Williams Companies,
Inc. (Williams) announced that they had entered into a merger agreement
(Merger Agreement) pursuant to which Williams acquired through a cash
tender offer 24.6 million shares, or approximately 60%, of the outstanding
shares of Transco's common stock for $430.5 million. The cash offer was
then followed by a stock merger (Merger) in which shares of Transco's
common stock not purchased in the tender offer were exchanged for
approximately 10.2 million shares of Williams common stock at a value of
$319 million.
The tender offer began on December 16, 1994 and expired on January 17,
1995. Approximately 35.2 million shares, or approximately 86.7%, of the
outstanding shares of Transco's common stock were tendered to Williams for
purchase and not withdrawn. Pursuant to the Merger Agreement, on
January 18, 1995, Williams accepted for payment 24.6 million shares of
Transco's common stock for $17.50 per share as the first step in acquiring
the entire equity interest of Transco. Also pursuant to the Merger
Agreement, shortly before Williams' acceptance for payment, all of the
common stock purchase rights attached to the Transco common shares were
redeemed by Transco for $0.05 per right. The exchange of the remainder of
the outstanding shares of Transco's common stock for Williams' common
stock was approved by a majority of Transco's stockholders on April 28,
1995 and occurred on the May 1, 1995 effective date of the Merger.
In addition, at the effective date of the Merger, each issued and
outstanding share of the Company's $3.50 Series Cumulative Convertible
Preferred Stock was converted into the right to receive one share of
Williams' $3.50 Series Cumulative Convertible Preferred Stock and the
balance of Transco's (parent) long-term debt of $750 million was assumed
by Williams.
Further, at the effective date of the Merger, Transco declared and paid as
dividends to Williams all of Transco's interests in its principal
operating subsidiaries, Transcontinental Gas Pipe Line Corporation (TGPL),
Texas Gas Transmission Corporation (Texas Gas), Transco Gas Marketing
Company, and Transco Coal Company (TCC). After giving effect to the
dividends, substantially all of Transco's remaining assets are non-core
assets which Williams has stated it intends to dispose of during 1995.
Basis of Presentation
_____________________
The condensed consolidated financial statements include the accounts of
Transco 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 1994 Annual Report on Form
10-K.
<PAGE>
The acquisition by Williams has been accounted for using the purchase
method of accounting. Accordingly, a preliminary allocation of the
estimated purchase price was assigned to the assets and liabilities of
Transco based on their estimated fair values. The accompanying financial
statements reflect the pushdown of 100% of the estimated purchase price,
even though Williams owned only 60% of Transco at March 31, 1995, due to
the certainty of Williams closing on the remaining 40% of Transco on
May 1, 1995. The estimated purchase price has been allocated primarily to
property, plant and equipment of TGPL and Texas Gas and will be amortized
over the useful lives of those assets. Current Federal Energy Regulatory
Commission (FERC) policy does not permit TGPL and Texas Gas to recover
through rates amounts in excess of original cost.
Williams is continuing to evaluate the purchase price allocation.
Therefore, Transco's Condensed Consolidated Balance Sheet as of March 31,
1995 and Condensed Consolidated Statement of Operations for the period
January 18, 1995 to March 31, 1995 have been prepared based on a
preliminary allocation of the purchase price prior to the completion of
studies and other information necessary for the final purchase price
allocation. Accordingly, the amounts presented are subject to change, but
any differences in the final purchase price allocation are not expected to
have a material effect on Transco's condensed consolidated financial
statements.
As a result of Williams intent to dispose of non-core assets during 1995,
the preliminary allocation of the estimated purchase price also includes
adjustments to reduce the carrying value of the assets to be sold to
estimated net realizable value. The estimated net realizable value of
such assets held for sale is shown as a current asset in the Condensed
Consolidated Balance Sheet as of March 31, 1995.
In addition, as a result of its planned sale by Williams, the Coal
segment's results of operations prior to January 18, 1995 have been
classified in the Consolidated Statement of Operations as discontinued
operations; and, as such, revenues and expenses have been excluded from
the results from continuing operations. Prior years' results of the Coal
segment have been reclassified to conform with this presentation.
Further, as a result of the change in control of Transco on January 18,
1995 and the effects of the preliminary allocation of the estimated
purchase price, the Condensed Consolidated Statement of Operations and
Condensed Consolidated Statement of Cash Flows for the three months ended
March 31, 1995, have been segregated into a pre-acquisition period ending
January 17, 1995 and a post-acquisition period beginning January 18, 1995.
Certain other reclassifications have been made in the 1994 financial
statements to conform with the 1995 presentation.
B. MERGER WITH THE WILLIAMS COMPANIES, INC.
As discussed in Note A, Williams intends to dispose of non-core assets
during 1995. Such assets include TCC, which has been reported as a
segment of Transco's consolidated operations. Accordingly, the Coal
segment's results of operations prior to January 18, 1995 have been
classified in the Condensed Consolidated Statement of Operations as
discontinued operations. In addition, as an asset held for sale, the
segment's results of operations subsequent to January 17, 1995 have not
been reflected in the Condensed Consolidated Statement of Operations.
<PAGE>
Excluding the effects of these adjustments, operating results for the Coal
segment were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1995 1994
__________ ___________
<S> <C> <C> <C>
Revenues $ 49,632 $ 54,160
Costs and expenses 49,725 53,953
__________ ___________
Income (loss) before income taxes (93) 207
Benefit of income taxes (436) (820)
__________ ___________
Net income from operations of discontinued segment $ 343 $ 1,027
__________ ___________
__________ ___________
</TABLE>
The following table presents the changes in the components of Transco's
common stockholders' equity, including the effects of the acquisition by
Williams, for the three months ended March 31, 1995.
<TABLE>
<CAPTION>
Post-Acquisition | Pre-Acquisition
_________________ | ___________________
For the Period | For the Period
January 18, 1995 | January 1, 1995
to March 31, 1995 | to January 17, 1995
_________________ | ___________________
|
<S> <C> | <C>
Common Stock: |
Balance at beginning of period $ 20,716 | $ 20,716
Acquisition adjustment for retirement of |
treasury stock (180) | -
_____________ | ______________
Balance at end of period 20,536 | 20,716
_____________ | ______________
|
|
Premium on Capital Stock and Other Paid-in Capital: |
Balance at beginning of period 505,383 | 507,448
Exercise of stock options (520) | -
Loss on reacquired preferred stock of subsidiary, net (369) | -
Issued under restricted stock plan 72 | (17)
Redemption of common stock purchase rights - | (2,048)
Other 24 | -
Acquisition adjustment to eliminate retained earnings (175,549) | -
Acquisition adjustment for treasury stock and |
restricted stock (5,424) | -
Acquisition adjustment to record assets and liabilities |
at fair value 410,630 | -
_____________ | ______________
|
Balance at end of period 734,247 | 505,383
_____________ | ______________
|
|
Retained Earnings (Deficit): |
Balance at beginning of period (175,549) | (156,921)
Net income (loss) 22,181 | (17,581)
Dividends on common stock (6,132) | -
Dividends on convertible preferred stock (2,988) | (1,047)
Acquisition adjustment to eliminate retained earnings 175,549 | -
______________ | ______________
|
Balance at end of period 13,061 | (175,549)
______________ | ______________
|
Less Treasury Stock: |
Balance at beginning of period 8,322 | 7,695
Forfeitures and purchases from restricted stock plan 2,521 | 627
Issued under stock option plan (5,441) | -
Acquisition adjustment (5,402) | -
______________ | ______________
|
Balance at end of period - | 8,322
______________ | ______________
______________ | ______________
|
|
Less Restricted Stock: |
Deferred compensation |
Balance at beginning of period 1,445 | 1,997
Awarded, earned, or forfeited, net - | (503)
Compensation expense (1,243) | (49)
Acquisition adjustment (202) | -
_______________ | ______________
|
Balance at end of period - | 1,445
_______________ | ______________
|
Total Common Stockholders' Equity $ 767,844 | $ 340,783
_______________ | ______________
_______________ | ______________
</TABLE>
<PAGE>
C. REGULATORY MATTERS
There have been no new developments from those described in the 1994
Annual Report on Form 10-K other than described below.
Rate Matters
____________
TGPL
On March 1, 1995, TGPL filed with the FERC a general rate case (Docket No.
RP95-197). The general rate filing proposes changes in the rates for
TGPL's transportation, sales and storage service rate schedules effective
April 1, 1995. The changes in rates would generate additional
jurisdictional revenues of approximately $132 million over the rates
currently in effect, based primarily on: (1) an increase in rate base
resulting from additional plant and higher working capital requirements
and a reduction in accumulated deferred income taxes; (2) an increase in
operation and maintenance expenses; and (3) an increase in TGPL's cost of
capital resulting from an increase in the equity component of the capital
structure used (the filing is based on TGPL's own capital structure) and
in the cost of equity from the pre-filed rate of return on equity of 14.45
percent to the proposed rate of return on equity of 15.25 percent.
TGPL also proposes to: (1) eliminate the non-gas demand charge under Rate
Schedule FS; (2) refunctionalize certain jointly owned transmission
facilities to the gathering function; and (3) eliminate the interruptible
transportation (IT) crediting mechanism. TGPL also filed pro forma tariff
sheets, to be effective on a prospective basis, for two new Part 284
services, an interconnect transfer service and a gas management service,
and a pro forma tariff sheet to reflect market-based rates for its non-IT
feeder transactions, should the FERC decide to set TGPL's IT rates for
hearing in this docket. TGPL further proposed to eliminate the "at risk"
certificate condition governing its Mobile Bay facilities on a
prospective basis. Finally, TGPL proposed certain other changes to the
terms and conditions of its tariff, none of which would have a significant
impact on operating income.
On March 31, 1995, the FERC issued an order on TGPL's filing which accepts
and suspends the tariff sheets relating to TGPL's rates, to be effective
September 1, 1995, subject to refund, and establishes hearing procedures.
The March 31 order also accepts, to be effective April 1, 1995, the tariff
sheets changing TGPL's terms and conditions of service, subject to the
outcome of a technical conference at which parties will have the
opportunity to discuss TGPL's terms and conditions of service, system
operations and proposed new services. As to market-based IT rates, the
FERC accepted TGPL's pro forma tariff sheet but deferred action until
after the FERC has completed its generic review of market-based rates. As
to the elimination of the IT crediting mechanism, the FERC permitted TGPL
to eliminate the IT crediting mechanism subject to the outcome of the
hearing where the reasonableness of TGPL's test period projections for
interruptible services must be examined.
At a prehearing conference on April 18, 1995, the presiding Administrative
Law Judge (ALJ) adopted a procedural schedule establishing a phased
hearing for the rate issues raised by TGPL's filing. The first phase will
address the rate of return and capital structure in the filing with a
hearing schedule to commence in October 1995, and the second phase will
address the remaining rate issues with a hearing to commence in May 1996.
<PAGE>
As discussed in the Company's 1994 Annual Report on Form 10-K, the issue
of the allocation of certain costs to TGPL's merchant sales service, among
others, was referred to the hearing in TGPL's general rate case (Docket
No. RP92-137) by the FERC orders approving TGPL's implementation of Order
636. In an ALJ's initial decision issued on October 20, 1994, the ALJ
determined that there is no genuine issue of material fact warranting a
trial-type hearing on the issue, and directed TGPL to remove from its
gathering function approximately $5.6 million of indirect costs and to
reassign this amount to its merchant sales service. On November 21, 1994,
TGPL filed a brief on exceptions with the FERC, seeking to reverse the
ALJ's decision. On December 12, 1994, certain parties, including the
FERC's staff, filed briefs opposing TGPL's exceptions. In late February
1995, the FERC issued an order affirming the ALJ's October 20, 1994
decision and directing TGPL to file, within 15 days after the FERC's final
order on the initial decision, to remove from its gathering function a
total of $5.6 million of indirect costs and to reassign that amount to its
merchant service. TGPL has filed for rehearing of the FERC's February
1995 order. 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,
results of operations or net cash flows.
Texas Gas
On September 30, 1994, Texas Gas filed a general rate case (Docket No.
RP94-423) which became effective April 1, 1995, subject to refund. This
new rate case reflects a requested annual revenue increase of
approximately $66.9 million, based on filed rates, primarily attributable
to increases in the utility rate base, operating expenses and rate of
return and related taxes. Settlement proceedings are on-going with the
FERC staff and interveners.
Other Regulatory Matters
________________________
Order 636
Texas Gas
As discussed in the Company's 1994 Annual Report on Form 10-K, Texas Gas
has restructured its business to implement the provisions of Order 636 on
November 1, 1993. Order 636 provides that pipelines should be allowed the
opportunity to recover all prudently incurred transition costs, which for
Texas Gas, are primarily related to gas supply realignment (GSR) contract
termination costs, GSR pricing differential costs incurred pursuant to
Texas Gas' monthly gas auction process and unrecovered purchased gas
costs. Texas Gas currently estimates its GSR costs under Order 636 to be
approximately $90 million.
During 1993, as part of Texas Gas' restructuring under Order 636, Texas
Gas engaged in negotiations which have resulted in the successful
termination of approximately 90% of Texas Gas' deliverability under its
non-market-responsive gas purchase contracts. Gas purchased under its
remaining non-market-responsive contracts is being resold at a monthly
auction pursuant to Order 636. Texas Gas continues to pay to the supplier
the actual contract price and is entitled to file for full recovery of the
difference between said contract price and the auction price as GSR costs
under Order 636.
Through March 31, 1995, Texas Gas had paid a total of $48.6 million for
GSR costs, primarily as a result of the contract terminations, and has
recorded a liability of approximately $40 million as the amount of
estimated remaining GSR costs. Pursuant to Order 636, Texas Gas may file
to recover 100% of these costs as GSR costs. Certain parties are,
however, challenging Texas Gas' right to fully recover its GSR costs.
Settlement proceedings are pending at the FERC.
<PAGE>
Through the first quarter of 1995, Texas Gas has made five quarterly
filings to recover $45.8 million, plus interest, of GSR costs pursuant to
the transition cost recovery provisions of Order 636 and Texas Gas' FERC-
approved Gas Tariff. Ninety percent of Texas Gas' GSR costs are expected
to be recovered via demand surcharges on its firm transportation rates.
The remaining 10% of GSR costs is expected to be recovered from
interruptible transportation service. Texas Gas makes quarterly filings
to allow recovery of these amounts as such costs are paid.
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 94-A
TGPL's Rate Settlement and Gas Inventory Charge (GIC) Docket No. RP90-8
Settlement contains a provision pursuant to which TGPL's customers, with
the exception of Columbia Gas Transmission Corporation (Columbia), have
agreed not to contest the Order 94-A payments previously made to TGPL by
them. TGPL had billed to and recovered from Columbia approximately $7
million of Order 94-A costs. In October 1993, TGPL and Columbia filed
with the FERC for approval a letter agreement in which TGPL agreed to
refund $1.4 million to Columbia, which amount is inclusive of principal
and interest, in full and final settlement of all issues in this
proceeding. On January 26, 1994, Columbia filed a letter with the FERC
stating that, due to developments in other pipeline company proceedings
involving settlements of the issue of recovery of Order 94-A costs from
Columbia, Columbia could no longer support the settlement between TGPL and
Columbia. On February 13, 1995, the FERC issued an order rejecting the
October 26 settlement and requiring TGPL to refund to Columbia within 30
days the principal amount of the Order 94-A costs collected from Columbia.
The FERC granted an extension of time for making the refund, to and
including 30 days after FERC action on requests for rehearing. Both TGPL
and Columbia requested rehearing of the February 13 order. On May 1,
1995, the FERC issued an order denying both TGPL's and Columbia's requests
for rehearing of that order, and directing TGPL to refund to Columbia
within 30 days the principal amount of the Order 94-A costs collected from
Columbia, plus interest from March 15, 1995. TGPL has provided a reserve
of approximately $7 million which it believes is adequate to provide for
any amounts which it may ultimately be required to refund.
<PAGE>
D. LEGAL PROCEEDINGS
There have been no new developments from those described in the 1994
Annual Report on Form 10-K other than as described below.
TGPL
As discussed in Transco's 1994 Annual Report on Form 10-K, in connection
with TGPL's renegotiations with producers to resolve take-or-pay and other
contract claims and to amend gas purchase contracts, TGPL has entered into
certain settlements which may require the indemnification by TGPL of
certain claims for "excess royalties" which producers may be required to
pay as a result of such settlements. As also discussed in Transco's 1994
Annual Report on Form 10-K, TGPL has been advised by Freeport-McMoRan,
Inc. (FMP) that the Minerals Management Service has made claims due under
certain gas contracts. FMP has asserted that TGPL's royalty reimbursement
obligation to FMP is approximately $5.7 million, including interest. TGPL
has denied any liability to FMP. On or about March 3, 1995, TGPL filed
suit against FMP, FM Properties Operating Co. and FMP Operating Company in
the 53rd Judicial District Court of Travis County, Texas, under the Texas
Uniform Declaratory Judgements Act seeking a determination that TGPL is
not liable to defendants under the terms of the gas contracts. On April
3, 1995, the defendants filed their answer and a plea in abatement. On or
about March 30, 1995, FMP and FM Properties Operating Co., filed a
petition for specific performance seeking recovery against TGPL and
Transco, for the sums claimed under the gas contracts. On May 4, 1995,
TGPL and Transco filed an answer denying any liability to plaintiffs.
Texas Gas
In March 1995, Ergon, Inc. and Ergon Exploration, Inc. (Ergon) filed a
lawsuit against Texas Gas in the U. S. District Court, West District
Louisiana, seeking approximately $45,000 in damages for gas purchased in
calendar year 1994, a declaratory judgment concerning proper construction
of the pricing provisions of a gas purchase contract, unspecified future
damages and, alternatively, a reformation of or rescission of an agreement
amending the gas purchase contract. Texas Gas is currently recovering
costs incurred under subject contract as GSR costs pursuant to Order 636
and anticipates continued recovery of any future amounts. Although no
assurances can be given, Texas Gas believes that the resolution of this
issue will not have a material adverse effect on its financial position,
results of operations or net cash flows.
E. ENVIRONMENTAL MATTERS
There have been no new developments from those described in the 1994
Annual Report on Form 10-K other than as described below.
Transco and certain of its subsidiaries are subject to the federal Clean
Air Act and to the federal Clean Air Act Amendments of 1990 (1990
Amendments), which added significantly to the existing requirements
established by the federal Clean Air Act. In addition, pursuant to the
1990 Amendments, the Environmental Protection Agency (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.
In February 1995, three citizens filed suit against TGPL in federal
district court in Virginia for alleged violations of several provisions of
both federal and state air regulations. Since 1991, TGPL has worked with
the appropriate Virginia agencies pursuant to an agreement to resolve the
emissions issues raised by the citizens. TGPL believes the state agencies
are in agreement with the actions proposed by TGPL which will resolve
emission issues at its Virginia facilities. TGPL believes the citizens'
claims are without merit and is prepared to vigorously defend any suit
brought by the citizens. In March 1995, TGPL filed a motion to dismiss
based on lack of subject matter jurisdiction and failure to state a claim.
Although no assurances can be given, Transco does not believe that this
issue will have a material adverse effect on its financial condition,
results of operations or net cash flows.
<PAGE>
F. FINANCING
Recapitalization
________________
In connection with the Merger, in January 1995, the Boards of Directors of
Transco and Williams approved a recapitalization plan for Transco under
which Williams agreed to advance or contribute to Transco up to an
estimated $950 million. The following actions were completed in the first
quarter of 1995 in connection with the recapitalization plan:
- - Termination of Transco's Amended Bank Credit Facility dated December
31, 1993, and the repayment of the outstanding balance of $36 million,
replacing it with new credit agreements described below;
- - Termination of the program to sell monthly trade receivables of TGPL
and Texas Gas, replacing it with the new credit agreements with the
expectation that at some future time Williams will enter into a new
receivables program;
- - Termination of Transco's interest rate swaps that had effectively
converted $450 million of fixed-rate debt into floating-rate debt; and
- - Termination of Transco's Reimbursement Facility dated December 31,
1993, replacing it with letters of credit obtained pursuant to a
Standby Letter of Credit Facility between First Interstate Bank of
California and Williams.
Transco's Amended Bank Credit Facility was replaced with a Credit
Agreement among Williams, Transco, and TCC (Credit Agreement) and a Credit
Agreement among Williams and certain of its subsidiaries, TGPL and Texas
Gas (Williams Credit Agreement).
Under the Credit Agreement, Williams may advance to Transco and TCC up to
an aggregate of $950 million, not exceeding $50 million to TCC. Interest
on advances under the Credit Agreement is paid at the London Interbank
Offered Rate, plus an applicable margin.
The Williams Credit Agreement, with a group of 22 banks, provides for an
$800 million working capital line of credit, under which TGPL can borrow
up to $400 million and Texas Gas can borrow up to $200 million. Interest
on advances is paid at a rate based on the base rate of Citibank N.A.; the
latest three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of deposit of
major United States money market banks, plus 1/2%; or the Federal Funds
Rate in effect, plus 1/2%.
The recapitalization plan also included a tender offer initiated by
Transco on February 10, 1995, to acquire any and all of its outstanding
11-1/4% Notes due July 1, 1999. The offer expired on February 17, 1995.
In February 1995, Transco acquired approximately $284 million, or 94%, of
the 11-1/4% Notes. The price paid for the 11-1/4% Notes tendered was
computed using a yield to call equal to a fixed spread of 30 basis points
over the yield to maturity of the U. S. Treasury Note due August 15, 1997,
at the time the 11-1/4% Notes were tendered. The remaining outstanding
11-1/4% Notes were defeased in April 1995.
In addition, the balance of Transco's (parent) long-term debt of $750
million was assumed by Williams effective May 1, 1995.
<PAGE>
Restrictive Covenants
_____________________
As a result of the termination of the Amended Bank Credit Facility and the
Reimbursement Facility, as discussed above, the restrictive covenants
contained in those agreements were terminated. Prior to the initiation of
the tender offer for the 11-1/4% Notes discussed above, holders of a
majority in principal amount of the 11-1/4% Notes agreed to waive certain
provisions of the Indenture dated as of July 1, 1992 (Indenture), under
which the 11-1/4% Notes were issued, that restricted the disposition of
certain Transco assets. The holders of a majority in principal amount of
the 11-1/4% Notes also agreed to certain amendments to the Indenture that
eliminated certain restrictive covenants in the Indenture. The amendments
eliminated the restrictive covenants which limit, among other things, the
incurrence of new debt by the Company or its material subsidiaries (as
defined) and the Company's ability to make restricted payments, including
dividends.
<PAGE>
G. PREFERRED STOCK
Convertible Preferred Stock of Transco
______________________________________
Transco redeemed all outstanding shares of its $4.75 Series Cumulative
Convertible Preferred Stock in March 1995 for $150.4 million, or $50.475
per share, plus accrued dividends of $1.8 million.
Effective May 1, 1995, each issued and outstanding share of Transco's
$3.50 Series Cumulative Convertible Preferred Stock was converted into the
right to receive one share of Williams' preferred stock which is
designated the Williams' $3.50 Series Cumulative Convertible Preferred
Stock. Each share of Williams' $3.50 Series is initially convertible into
1.5625 shares of Williams' common stock and has the designation,
preferences and rights set forth in the Merger Agreement. The conversion
ratio of Williams' $3.50 Series into Williams' common shares represents
the conversion ratio of Transco $3.50 Series into Transco common shares
multiplied by 0.625, the conversion ratio of Transco common shares into
Williams' common shares.
Preferred Stock of Subsidiary
_____________________________
TGPL redeemed all outstanding shares of its three cumulative preferred
stock series in March 1995 for $49.7 million, or $100.00 per share, plus
accrued dividends of $0.6 million.
<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 1994 Annual Report on Form 10-K
and with the condensed consolidated financial statements and notes
contained in this report.
INTRODUCTION
As discussed in Note A, Organization and Control and Basis of
Presentation, of the Notes to Condensed Consolidated Financial Statements,
Transco and Williams announced that they had entered into a Merger
Agreement pursuant to which Williams acquired on January 18, 1995 through
a cash tender offer, 24.6 million shares, or approximately 60%, of the
outstanding shares of Transco's common stock for $430.5 million. The cash
offer was then followed by a Merger in which shares of Transco's common
stock not purchased in the tender offer were exchanged for approximately
10.2 million shares of Williams' common stock at a value of $319 million.
The Merger was effective on May 1, 1995.
CAPITAL RESOURCES AND LIQUIDITY
Financing
_________
Prior to the completion of the Offer, Transco funded its capital
requirements, including its working capital requirements, with cash flows
from operating activities, including the sale of trade receivables, and
the utilization of funds previously invested in short-term investments at
December 31, 1993, supplemented, when required, with borrowings under the
$450 million working capital line of Transco's Amended Bank Credit
Facility.
After the completion of the Offer, Transco began funding its capital
requirements through advances from Williams. In that regard, in January
1995, short-term debt of $36 million was repaid with funds advanced to
Transco by Williams. At March 31, 1995, the Company had advances from
Williams of $662 million.
In connection with the Merger, in January 1995, the Boards of Directors of
Transco and Williams approved a recapitalization plan for Transco under
which Williams agreed to advance or contribute to Transco up to an
estimated $950 million.
The following actions were completed in the first quarter of 1995 in
connection with the recapitalization plan:
- - Termination of Transco's Amended Bank Credit Facility dated December
31, 1993, replacing it with the Credit Agreement and the Williams
Credit Agreement;
- - Termination of the program to sell monthly trade receivables of TGPL
and Texas Gas, replacing it with the Williams Credit Agreement with the
expectation that at some future time Williams will enter into a new
receivables program;
- - Termination of Transco's interest rate swaps that had effectively
converted $450 million of fixed-rate debt into floating-rate debt;
- - Termination of Transco's Reimbursement Facility dated December 31,
1993, replacing it with letters of credit obtained pursuant to a
Standby Letter of Credit Facility between First Interstate Bank of
California and Williams;
<PAGE>
- - Tender offer by Transco to acquire any or all of its $300 million of
outstanding 11-1/4% Notes due 1999, pursuant to which Transco acquired
approximately $284 million, or 94.7%, of such Notes. The remaining
outstanding 11-1/4% Notes were defeased in April 1995. Prior to the
initiation of the tender offer, holders of a majority in principal
amount of such Notes agreed (i) to waive certain provisions of the
Indenture under which the Notes were issued that restricted the
disposition of certain of Transco's assets, and (ii) to amend the
Indenture to eliminate certain restrictive covenants in the Indenture
with regard to the incurrence of new debt and Transco's ability to make
restricted payments, including dividends;
- - Redemption by Transco of all of its existing $4.75 Series Cumulative
Convertible Preferred Stock at $50.475 per share plus accrued
dividends; and
- - Redemption by TGPL of all of its outstanding preferred stock at $100.00
per share plus accrued dividends.
In addition, the balance of Transco's (parent) long-term debt of $750
million was assumed by Williams effective May 1, 1995.
In February 1995, Standard & Poor's Corporation and Moody's Investors
Service upgraded Transco's debt securities from B+ and Ba3 to BBB- and
Baa2, respectively, Transco's preferred stock from B- and B2 to BB+ and
Baa3, respectively, TGPL's debt securities from BB and Ba2 to BBB and
Baal, respectively, TGPL's preferred stock from BB- and B1 to BBB- and
Baa2, respectively, and Texas Gas' debt securities from BB and Ba2 to BBB
and Baal, respectively. These upgrades should provide Transco, TGPL and
Texas Gas with greater access to capital markets. A security rating is
not a recommendation to buy, sell or hold securities; it may be subject to
revision or withdrawal at any time by the assigning rating organization.
Each rating should be evaluated independently of any other rating.
<PAGE>
Capitalization and Cash Flows
_____________________________
As shown in the following table, at March 31, 1995, the percentage of
total debt to total invested capital was 72.7%, compared to 74.4% at
December 31, 1994. The increase in common stockholders' equity due to the
preliminary allocation of the Williams purchase price, partially offset by
advances from Williams, was the primary reason for the reduction of the
percentage of total debt to total invested capital. (Dollar amounts in
the table below are expressed in millions.)
<TABLE>
<CAPTION>
Post-Acquisition | Pre-Acquisition
________________ | _______________
March 31, | December 31,
1995 | 1994
_____________ | _____________
|
<S> <C> | <C>
Common Stockholders' Equity $ 767.8 | $ 361.5
Preferred Stock 121.3 | 314.7
Long-term Debt, less Current Maturities 1,540.4 | 1,785.6
Advances from Williams 661.6 | -
___________ | ___________
Total Capitalization 3,091.1 | 2,461.8
Short-term Debt and Current Maturities of Long-term Debt 166.3 | 177.1
___________ | ___________
Total Invested Capital $ 3,257.4 | $ 2,638.9
___________ | ___________
___________ | ___________
|
Long-term Debt, less Current Maturities, as a Percentage |
of Total Capitalization 49.8% | 72.5%
Advances from Williams as a Percentage of Total |
Capitalization 21.4% | -
Common Stockholders' Equity as a Percentage |
of Total Capitalization 24.8% | 14.7%
Total Debt as a Percentage of Total Invested Capital 72.7% | 74.4%
</TABLE>
For purposes of the discussion of variances between the first quarter of
1995 and the first quarter of 1994, the pre-acquisition and post-
acquisition periods presented in the accompanying financial statements for
the first quarter of 1995 have been combined for a pro forma presentation
of cash flows for the first quarter of 1995.
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1995 1994
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided By (Used In) Operating Activities $ (57.8) $ 53.6
__________ __________
__________ __________
</TABLE>
Consolidated net cash flows used in operating activities for the three
months ended March 31, 1995 were $111 million higher than for the three
months ended March 31, 1994. This increase in cash outflows was primarily
the result of the termination of the program to sell monthly trade
receivables of TGPL and Texas Gas in the first quarter of 1995.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1995 1994
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided By (Used In) Financing Activities $ 77.8 $( 19.4)
__________ __________
__________ __________
</TABLE>
Consolidated net cash flows provided by financing activities for the three
months ended March 31, 1995 included cash inflows from advances by
Williams of $662 million and borrowings of $20 million by TGPL under the
Williams Credit Agreement, partially offset by cash outflows for dividends
of $15 million on common and preferred stock, the retirement of $200
million of preferred stock by Transco and TGPL, the retirement of $286
million of Transco's 11-1/4% Notes and fees of $75 million paid in
connection with the Merger, primarily related to the termination of
Transco's interest rate swaps and acquisition of Transco's outstanding
11-1/4% Notes.
Consolidated net cash flows used in financing activities for the three
months ended March 31, 1994 included cash outflows for dividends of $13
million on common and preferred stock, along with the retirement of $2
million of long-term debt by Transco.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1995 1994
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Investing Activities $ 36.5 $ 15.0
__________ __________
__________ __________
</TABLE>
For the three months ended March 31, 1995, 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 of $48 million, as shown on the following table,
partially offset by proceeds of $12 million from the sale of an interest
in the Mobile Bay lateral.
For the three months ended March 31, 1994, consolidated net cash flows
used in investing activities included cash outflows for expenditures for
property, plant and equipment and investments in unconsolidated affiliates
of $18 million, as shown on the following table.
<PAGE>
<TABLE>
<CAPTION>
Three Months
Capital Expenditures and Investment in Ended March 31,
__________________________
Unconsolidated Affiliates 1995 1994
_______________________________________ __________ __________
(In millions)
<S> <C> <C>
Pipelines
TGPL
Market-Area Projects $ 11.2 $ 2.7
Supply-Area Projects 0.6 2.5
Existing Facilities and Other Projects 21.5 6.2
Texas Gas
Market-Area Projects 1.2 2.8
Existing Facilities and Other Projects 12.6 2.7
Other - 0.2
__________ _________
Total Pipelines 47.1 17.1
Other 1.0 1.1
__________ __________
Total Capital Expenditures and Investment in
Unconsolidated Affiliates $ 48.1 $ 18.2
__________ __________
__________ __________
</TABLE>
<PAGE>
Other Capital Requirements and Contingencies
____________________________________________
Transco's capital requirements and contingencies are discussed in the
Company's 1994 Annual Report on Form 10-K. Other than described in Notes
C, D and E of the Notes to Condensed Consolidated Financial Statements,
there have been no new developments from those described in the Company's
1994 Annual Report on Form 10-K with regard to other capital requirements
and contingencies.
CONCLUSION
__________
Although no assurances can be given, the Company currently believes that
the aggregate of cash flows from operating activities, supplemented, when
necessary, by advances or capital contributions from Williams, will
provide sufficient liquidity to meet its capital requirements.
<PAGE>
RESULTS OF OPERATIONS
For purposes of the discussion of variances between the first quarter of
1995 and the first quarter of 1994, the pre-acquisition and post-
acquisition periods presented in the accompanying financial statements for
the first quarter of 1995 have been combined for a pro forma presentation
of results of operations for the first quarter of 1995.
Transco's consolidated net income for the three months ended March 31,
1995 was $0.6 million, or $0.01 per share, compared with net income of
$23.8 million, or $0.58 per share, for the three months ended March 31,
1994. The 1995 results include net after-tax charges related to the
Merger totaling $27.0 million, or $0.66 per share, primarily to provide
for executive severance and termination benefits, substantially all of
which were not deductible for federal income tax purposes, and the
amortization of the amount of the Williams purchase price allocated to
property, plant and equipment. Excluding the after-tax charges, Transco
reported net income for the first quarter of 1995 of $27.6 million, or
$0.67 per share.
Excluding the charges related to the Merger, the higher net income was
primarily due to improved financial results of $3.1 million and $0.7
million from Gas Marketing and Pipelines, respectively, lower preferred
dividends of $1.7 million on Transco's convertible preferred stock and no
cash contributions to the Tran$tock plan in 1995 compared to contributions
in 1994 of $1.2 million (after-tax). These positive variances were
partially offset by higher net interest expense of $2.4 million (after-
tax) incurred by Transco (parent), lower net income of $0.5 million from
Coal and a greater net loss of $0.5 million from Gas Gathering.
The improved results for Gas Marketing were primarily attributable to
higher gas sales margins and volumes, lower operating expenses and higher
equity in earnings from investments in natural gas liquids processing
operations. The improved results for Pipelines were primarily
attributable to TGPL's higher net transportation revenues and lower
dividends on preferred stock. Coal's lower net income was primarily due
to a higher average operating cost that resulted in a lower operating
margin. Gas Gathering's greater net loss was primarily due to higher
intercompany interest expense resulting from higher interest rates.
Excluding the pretax effects of the charges related to the Merger,
consolidated operating income for the first quarter of 1995 was $6.0
million higher than the first quarter of 1994. The higher operating
income was primarily due to improvements of $2.9 million from Gas
Marketing and $1.7 million from Pipelines for the same reasons as the
improved net income, excluding equity in earnings and dividends on
preferred stock.
Consolidating operating revenues for the first quarter of 1995 decreased
$148 million from the first quarter of 1994, primarily due to lower
revenues from Gas Marketing which resulted from lower gas sales prices.
Excluding the $25 million provision for executive severance benefits,
consolidated operating costs and expenses decreased $149 million,
primarily due to the lower cost of natural gas sold by Gas Marketing which
resulted from lower gas purchase prices. Depreciation, depletion and
amortization are $7 million higher, primarily due to amortization of the
amount of the Williams purchase price allocated to property, plant and
equipment.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion of legal proceedings in Note D 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
As reported elsewhere herein, on December 12, 1994, Transco
entered into a merger agreement with Williams (the "Agreement").
Under the terms of the Agreement, on December 16, 1994, Williams
filed a Tender Offer Statement pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934 with the Securities and Exchange
Commission on Schedule 14D-1 relating to Williams' offer to
purchase up to 24.6 million shares, or 60 percent, of Transco
Common Stock, par value $.50 per share (the "Transco Common
Stock"), (including attached common stock purchase rights) for
$17.50 per share (and attached right). On January 18, 1995,
Williams accepted for payment, pursuant to the terms of the tender
offer, 24.6 million shares of Transco Common Stock.
On April 28, 1995, a Special Meeting of Transco stockholders was
held. At such meeting, the Transco stockholders approved the
Agreement and associated merger, pursuant to which (i) each issued
and outstanding share of Transco Common Stock (other than shares
held by Transco, Williams and any subsidiary of Williams) were
converted into the right to receive (x) 0.625 of a share of common
stock, par value $1.00 per share, of Williams and (y) 0.3125
attached preferred stock purchase rights of Williams and (ii) each
issued and outstanding share of Transco $3.50 Series Cumulative
Convertible Preferred Stock ("Transco $3.50 Preferred Stock")
(other than shares held by Transco, Williams or any subsidiary of
Williams and by holders of Transco $3.50 Preferred Stock who
demand and perfect appraisal rights) were converted into the right
to receive one share of Williams $3.50 Series Cumulative
Convertible Preferred Stock. Transco Common Stock ceased trading
on the New York Stock Exchange as of the close of business on
April 28, 1995, and application will be made for delisting.
Also as reported elsewhere herein, as a part of the
recapitalization plan, all outstanding shares of Transco $4.75
Series Cumulative Convertible Preferred Stock were redeemed.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
1 - Transco filed a Form 8-K, Current Report dated
January 18, 1995, to report on December 12, 1994 Transco
entered into an Agreement and Plan of Merger with The
Williams Companies, Inc.
2 - Transco filed a Form 8-K, Current Report dated February
9, 1995, to report that Transco had issued a press
release in which it published certain quarterly and
year-end financial information for the fiscal quarter
and year ended December 31, 1994.
3 - Transco filed a Form 8-K, Current Report dated April 18,
1995, to report that Transco notified Arthur Andersen
LLP that it was replacing Arthur Andersen LLP with
Ernst & Young LLP, the independent public accountants of
The Williams Companies, Inc.
4 - Transco filed a Form 8-K, Current Report dated April 25,
1995, to report that Transco had issued a press release
in which it published certain quarterly financial
information for the fiscal quarter ended March 31, 1995.
<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: May 12, 1995 By /s/ Nick A. Bacile
__________________________________
(Signature)
Nick A. Bacile
Vice President, Finance and Controller
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS INCLUDED
IN THE FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 24,114
<SECURITIES> 0
<RECEIVABLES> 236,975
<ALLOWANCES> 0
<INVENTORY> 97,601
<CURRENT-ASSETS> 857,242
<PP&E> 3,901,098
<DEPRECIATION> 39,999
<TOTAL-ASSETS> 5,110,708
<CURRENT-LIABILITIES> 838,792
<BONDS> 1,540,446<F1>
<COMMON> 20,536
0
121,328<F2>
<OTHER-SE> 747,308
<TOTAL-LIABILITY-AND-EQUITY> 5,110,708
<SALES> 351,113
<TOTAL-REVENUES> 631,683
<CGS> 304,838
<TOTAL-COSTS> 475,545
<OTHER-EXPENSES> 24,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,704
<INCOME-PRETAX> 23,685
<INCOME-TAX> 18,739
<INCOME-CONTINUING> 4,946
<DISCONTINUED> (346)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,600<F3>
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
<FN>
<F1>NET OF UNAMORTIZED DEBT PREMIUM AND DISCOUNT
<F2>NET OF ISSUE EXPENSE
<F3>BEFORE PREFERRED DIVIDENDS OF 4,035
</FN>
</TABLE>
