UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/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
/ / 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 1-7584
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1079400
(State or other jurisdiction (I.R.S. Employer
of 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 report), 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 $1.00 per share,
outstanding as of June 30, 1994 was 100.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Company or Group of Companies for Which Report is Filed:
Transcontinental Gas Pipe Line Corporation (TGPL)
The condensed financial statements included herein have been prepared
by TGPL, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. 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 TGPL's management, however, all adjustments, consisting only of
normal and recurring adjustments, necessary for a fair presentation of the
financial position as of the date 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 financial statements should be read in conjunction with
the financial statements, notes thereto and management's discussion
contained in Items 7 and 8 of TGPL's 1993 Annual Report on Form 10-K and
included in TGPL's 1994 First Quarter Report on Form 10-Q (First Quarter
Form 10-Q).
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
_____________ _____________
ASSETS
<S> <C> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 1,621 $ 1,094
Deposits . . . . . . . . . . . . . . . . . . . . . . 7,568 7,348
Receivables. . . . . . . . . . . . . . . . . . . . . 74,657 93,181
Advances to Transco . . . . . . . . . . . . . . . . 125,061 133,304
Transportation and exchange gas receivable - others. 22,000 22,000
Inventories. . . . . . . . . . . . . . . . . . . . . 58,980 79,547
Deferred income tax benefits . . . . . . . . . . . . 7,851 -
Other. . . . . . . . . . . . . . . . . . . . . . . . 19,776 23,739
_____________ _____________
Total current assets . . . . . . . . . . . . . . 317,514 360,213
_____________ _____________
Property, Plant and Equipment, at cost:
Natural gas transmission plant . . . . . . . . . . . 4,251,151 4,223,501
Less - Accumulated depreciation and amortization . . 2,543,369 2,480,332
_____________ _____________
Property, plant and equipment, net . . . . . . . 1,707,782 1,743,169
_____________ _____________
Other Assets:
Transportation and exchange gas receivable:
Affiliates . . . . . . . . . . . . . . . . . . . 23,011 32,155
Others . . . . . . . . . . . . . . . . . . . . . 88,360 92,960
Other. . . . . . . . . . . . . . . . . . . . . . . . 86,167 75,728
_____________ _____________
Total other assets . . . . . . . . . . . . . . . 197,538 200,843
_____________ _____________
$ 2,222,834 $ 2,304,225
_____________ _____________
_____________ _____________
The accompanying condensed notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
_____________ _____________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Payables . . . . . . . . . . . . . . . . . . . . . . $ 154,324 $ 199,635
Transportation and exchange gas payable - others . . 12,000 12,000
Accrued liabilities. . . . . . . . . . . . . . . . . 82,453 73,145
Reserve for producer settlements, legal and
regulatory issues. . . . . . . . . . . . . . . . 1,745 5,240
Reserve for rate refunds . . . . . . . . . . . . . . 63,988 141,270
Deferred income taxes. . . . . . . . . . . . . . . . - 1,452
Other. . . . . . . . . . . . . . . . . . . . . . . . 13,171 16,162
_____________ _____________
Total current liabilities. . . . . . . . . . . . 327,681 448,904
_____________ _____________
Long-Term Debt, less current maturities . . . . . . . . . 644,021 643,799
_____________ _____________
Other Liabilities and Deferred Credits:
Income taxes . . . . . . . . . . . . . . . . . . . . 281,460 279,303
Income taxes refundable to customers . . . . . . . . 13,965 19,148
Transportation and exchange gas payable:
Affiliates . . . . . . . . . . . . . . . . . . . 1,260 726
Others . . . . . . . . . . . . . . . . . . . . . 53,000 64,976
Other. . . . . . . . . . . . . . . . . . . . . . . . 67,700 64,888
_____________ _____________
Total other liabilities and deferred credits . . 417,385 429,041
_____________ _____________
Commitments and contingencies . . . . . . . . . . . . . . - -
Cumulative Redeemable Preferred Stock, without par value:
Authorized 10,000,000 shares:
Stated value $100 per share, issued and outstanding
734,927 shares and 757,427 shares in 1994 and 1993,
respectively . . . . . . . . . . . . . . . . . . 73,493 75,743
Less - Issue expense . . . . . . . . . . . . . . 535 552
_____________ _____________
Total preferred stock. . . . . . . . . . . . . . 72,958 75,191
_____________ _____________
Cumulative Redeemable Second Preferred Stock,
without par value:
Authorized 2,000,000 shares: none issued or
outstanding. . . . . . . . . . . . . . . . . . . - -
_____________ _____________
Common Stockholder's Equity:
Common Stock $1.00 par value:
100 shares authorized, issued and outstanding. . - -
Premium on capital stock and other paid-in capital . 284,610 283,037
Retained earnings. . . . . . . . . . . . . . . . . . 476,179 424,253
_____________ _____________
Total common stockholder's equity. . . . . . . . 760,789 707,290
_____________ _____________
$ 2,222,834 $ 2,304,225
_____________ _____________
_____________ _____________
The accompanying condensed notes are an integral part of these condensed financial statements.<PAGE>
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED STATEMENT OF INCOME
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________________
1994 1993
_____________ _____________
<S> <C> <C>
Operating Revenues:
Natural gas sales . . . . . . . . . . . . . . . . . . . $ 195,374 $ 152,568
Natural gas transportation . . . . . . . . . . . . . . 166,399 168,730
Natural gas storage . . . . . . . . . . . . . . . . . . 35,278 35,610
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,610 1,415
_____________ _____________
Total operating revenues . . . . . . . . . . . . . . . 398,661 358,323
_____________ _____________
Operating Costs and Expenses:
Cost of natural gas sales . . . . . . . . . . . . . . . 195,375 152,746
Cost of natural gas transportation. . . . . . . . . . . 30,970 31,145
Operation and maintenance . . . . . . . . . . . . . . . 42,901 46,181
Administrative and general. . . . . . . . . . . . . . . 36,900 38,311
Depreciation and amortization . . . . . . . . . . . . . 30,144 29,950
Taxes - other than income taxes . . . . . . . . . . . . 8,587 8,520
_____________ _____________
Total operating costs and expenses . . . . . . . . . . 344,877 306,853
_____________ _____________
Operating Income. . . . . . . . . . . . . . . . . . . . . . 53,784 51,470
_____________ _____________
Other (Income) and Other Deductions:
Interest expense - affiliates . . . . . . . . . . . . . - 14
- other. . . . . . . . . . . . . . . . 14,524 15,512
Interest income - affiliates . . . . . . . . . . . . . ( 881) ( 626)
- other. . . . . . . . . . . . . . . . ( 206) ( 476)
Allowance for equity and borrowed funds used during
construction (AFUDC) . . . . . . . . . . . . . . . . . ( 800) ( 657)
Miscellaneous other (income) and deductions, net. . . . 1,424 1,965
_____________ _____________
Total other (income) and other deductions . . . . . . 14,061 15,732
_____________ _____________
Income Before Income Taxes. . . . . . . . . . . . . . . . . 39,723 35,738
Provision for Income Taxes. . . . . . . . . . . . . . . . . 13,874 12,139
_____________ _____________
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 25,849 23,599
Dividends on Preferred Stock. . . . . . . . . . . . . . . . 1,572 2,112
_____________ _____________
Common Stock Equity in Net Income . . . . . . . . . . . . . $ 24,277 $ 21,487
_____________ _____________
_____________ _____________
The accompanying condensed notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED STATEMENT OF INCOME
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________________
1994 1993
_____________ _____________
<S> <C> <C>
Operating Revenues:
Natural gas sales . . . . . . . . . . . . . . . . . . . $ 421,786 $ 308,680
Natural gas transportation . . . . . . . . . . . . . . 332,522 358,014
Natural gas storage . . . . . . . . . . . . . . . . . . 73,006 73,735
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,262 2,817
_____________ _____________
Total operating revenues . . . . . . . . . . . . . . . 830,576 743,246
_____________ _____________
Operating Costs and Expenses:
Cost of natural gas sales . . . . . . . . . . . . . . . 421,936 307,230
Cost of natural gas transportation. . . . . . . . . . . 59,154 85,747
Operation and maintenance . . . . . . . . . . . . . . . 83,715 84,650
Administrative and general. . . . . . . . . . . . . . . 73,957 76,557
Depreciation and amortization . . . . . . . . . . . . . 60,287 59,564
Taxes - other than income taxes . . . . . . . . . . . . 17,303 16,921
_____________ _____________
Total operating costs and expenses . . . . . . . . . . 716,352 630,669
_____________ _____________
Operating Income. . . . . . . . . . . . . . . . . . . . . . 114,224 112,577
_____________ _____________
Other (Income) and Other Deductions:
Interest expense - affiliates . . . . . . . . . . . . . - 221
- other. . . . . . . . . . . . . . . . 30,329 31,429
Interest income - affiliates . . . . . . . . . . . . . ( 2,671) ( 752)
- other. . . . . . . . . . . . . . . . ( 331) ( 1,888)
Allowance for equity and borrowed funds used during
construction (AFUDC) . . . . . . . . . . . . . . . . . ( 1,635) ( 770)
Miscellaneous other (income) and deductions, net. . . . 3,538 3,472
_____________ _____________
Total other (income) and other deductions . . . . . . 29,230 31,712
_____________ _____________
Income Before Income Taxes. . . . . . . . . . . . . . . . . 84,994 80,865
Provision for Income Taxes. . . . . . . . . . . . . . . . . 29,897 27,797
_____________ _____________
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 55,097 53,068
Dividends on Preferred Stock. . . . . . . . . . . . . . . . 3,171 4,252
_____________ _____________
Common Stock Equity in Net Income . . . . . . . . . . . . . $ 51,926 $ 48,816
_____________ _____________
_____________ _____________
The accompanying condensed notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________________
1994 1993
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 55,097 $ 53,068
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . 67,789 66,684
Deferred income taxes. . . . . . . . . . . . . . . . ( 12,884) ( 26,300)
Tran$tock compensation expense . . . . . . . . . . . 1,590 1,334
Allowance for equity funds used during
construction (AFUDC). . . . . . . . . . . . . . . ( 1,257) 1,035
_____________ ______________
110,335 95,821
Nonrecoverable producer settlements. . . . . . . . . - ( 26,300)
Changes in operating assets and liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . ( 220) ( 847)
Receivables. . . . . . . . . . . . . . . . . . . . . 18,524 21,745
Transportation and exchange gas receivable . . . . . 13,744 ( 18,371)
Inventories. . . . . . . . . . . . . . . . . . . . . 20,567 ( 2,001)
Payables . . . . . . . . . . . . . . . . . . . . . . ( 41,578) ( 33,888)
Transportation and exchange gas payable. . . . . . . ( 11,442) 9,081
Accrued liabilities. . . . . . . . . . . . . . . . . 7,966 2,981
Reserve for rate refunds . . . . . . . . . . . . . . ( 77,282) 51,547
Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 8,934) 1,425
_____________ ______________
Net cash provided by operating activities . . . . 31,680 101,193
_____________ ______________
Cash flows from financing activities:
Retirement of long-term debt. . . . . . . . . . . . . . - ( 29,856)
Retirement of preferred stock . . . . . . . . . . . . . ( 2,250) ( 2,250)
Advances from Transco . . . . . . . . . . . . . . . . . - 987,915
Retirement of advances from Transco . . . . . . . . . . - ( 987,915)
Dividends on preferred stock. . . . . . . . . . . . . . ( 3,198) ( 4,280)
Other, net. . . . . . . . . . . . . . . . . . . . . . . - ( 2,037)
_____________ ______________
Net cash used in financing activities . . . . . . ( 5,448) ( 38,423)
_____________ ______________
Cash flows from investing activities:
Property, plant and equipment, net of equity AFUDC. . . ( 33,599) ( 40,405)
Recovery of producer settlements. . . . . . . . . . . . - 30,411
Advances to Transco . . . . . . . . . . . . . . . . . . ( 867,984) ( 551,892)
Retirement of advances to Transco . . . . . . . . . . . 876,227 495,691
Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 349) 4,266
_____________ ______________
Net cash used in investing activities . . . . . . ( 25,705) ( 61,929)
_____________ ______________
Net increase in cash and cash equivalents . . . . . . . . 527 841
Cash and cash equivalents at beginning of period. . . . . 1,094 1,259
_____________ ______________
Cash and cash equivalents at end of period. . . . . . . . $ 1,621 $ 2,100
_____________ ______________
_____________ ______________
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest (net of amount capitalized). . . . . . . . . $ 32,837 $ 28,524
Income taxes, net . . . . . . . . . . . . . . . . . . ( 2,170) 52,941
The accompanying condensed notes are an integral part of these condensed financial statements.<PAGE>
TRANSCONTINE
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. CORPORATE STRUCTURE AND CONTROL
Transcontinental Gas Pipe Line Corporation (TGPL) is a wholly-owned
subsidiary of Transco Gas Company (TGC). TGC is a wholly-owned subsidiary
of Transco Energy Company and, as used herein, the term Transco refers to
Transco Energy Company and its wholly-owned subsidiaries unless the
context otherwise requires.
The condensed financial statements have been prepared from the books and
records of TGPL 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 financial statements should be read
in conjunction with the financial statements and the notes thereto
included in TGPL's 1993 Annual Report on Form 10-K and included in the
Form 10-Q for the quarter ended March 31, 1994 (First Quarter Form 10-Q).
Certain reclassifications have been made in the 1993 financial statements
to conform with the 1994 presentation.
Prior to 1993, TGPL was responsible for all jurisdictional gas sales to
its pipeline customers. After Federal Energy Regulatory Commission (FERC)
approval in January 1993, Transco implemented a plan to consolidate its
gas marketing businesses under the common management of Transco Gas
Marketing Company (TGMC) to more closely coordinate gas marketing
operations to improve efficiencies, reduce costs and improve
profitability. In January 1993, TGMC, through an agency agreement, began
to manage all jurisdictional sales of TGPL. Under this agency agreement,
TGMC bills TGPL for the cost of managing TGPL's gas sales service and
receives all margins associated with such business. Consequently, TGPL's
gas sales service had no impact on its results of operations.
Pursuant to a settlement that TGPL has with its customers, TGPL has in
place a gas inventory charge (GIC) designed to allow TGPL to recover its
above-spot-market gas cost through March 31, 2001. Pursuant to this
settlement, in 1993 and early 1994, TGPL's agreements with its customers
were renegotiated by TGMC, as agent for TGPL. TGMC and TGPL believe that
the GIC agreed to with TGPL's customers will be adequate to enable
recovery of its above-spot-market gas costs.
B. REGULATORY MATTERS
There have been no new developments from those described in TGPL's 1993
Annual Report on Form 10-K and in its First Quarter Form 10-Q other than
described below.
Rate Matters
____________
On November 4, 1993, the 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.
ORDER 636
_________
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.
TGPL expects that any Order 636 transition costs incurred should be
recovered from its 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.
C. LEGAL PROCEEDINGS
There have been no new developments from those described in TGPL's 1993
Annual Report on Form 10-K or in its First Quarter Form 10-Q other than as
described below.
Producer Contract Litigation
____________________________
As discussed in TGPL'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.
Dakota Gasification Litigation
______________________________
As discussed in TGPL's 1993 Annual Report on Form 10-K and in its First
Quarter 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, TGPL 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 TGPL's 1993 Annual Report on Form 10-K and in its First
Quarter Form 10-Q, 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.
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, TGPL believes that the ultimate
resolution of these royalty claims and litigation will not have a material
adverse effect on TGPL's financial position or results of operations.
D. ENVIRONMENTAL MATTERS
There have been no new developments from those described in TGPL's 1993
Annual Report on Form 10-K with regard to environmental matters.
E. FINANCING
Restrictive Covenants
_____________________
As described in TGPL's 1993 Annual Report on Form 10-K and in its First
Quarter Form 10-Q, certain of Transco's credit facilities and indentures
prohibit TGPL from, among other things, placing a lien on any of the
property or assets owned by TGPL, incurring or guaranteeing any additional
indebtedness, except for indebtedness incurred to refinance existing
indebtedness, issuing preferred stock or advancing cash to affiliates
other than Transco. Further, certain of Transco's credit facilities and
indentures contain restrictive covenants which could limit Transco's
ability to make additional borrowings and, therefore, under certain
circumstances, its ability to make or repay advances to TGPL or make
capital contributions to TGPL.
Additionally, certain of TGPL's debt instruments restrict the amount of
dividends distributable. As of June 30, 1994, approximately $337 million
of TGPL's retained earnings of $476 million was available for
distribution.
<PAGE>
Item 2. Management's Discussion and Analysis of Transcontinental Gas Pipe
Line Corporation's (TGPL) Financial Condition and Results of
Operations.
The following discussion should be read in conjunction with the financial
statements, notes and management's discussion contained in Items 7 and 8
of TGPL's 1993 Annual Report on Form 10-K and in its First Quarter Form
10-Q and with the condensed financial statements and notes contained in
this report.
INTRODUCTION
TGPL is an indirect wholly-owned subsidiary of Transco and as such may be
affected by the financial position and performance of Transco and its
subsidiaries other than TGPL.
Over the past two years, Transco has made significant progress in
improving its results of operations and financial flexibility. Transco
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
_________
Certain of Transco's credit facilities and indentures prohibit TGPL from,
among other things, placing a lien on any property or assets owned by
TGPL, incurring or guaranteeing any additional indebtedness (except for
indebtedness incurred to refinance existing indebtedness), issuing
preferred stock or advancing cash to affiliates other than Transco.
Further, certain of Transco's credit facilities and indentures contain
restrictive covenants which could limit Transco's ability to make
additional borrowings and, therefore, under certain circumstances,
Transco's ability to repay advances or make capital contributions to TGPL.
Additionally, certain of TGPL's debt instruments restrict the amount of
dividends distributable. As of June 30, 1994, approximately $337 million
of TGPL's retained earnings of $476 million was available for
distribution.
In September 1993, TGPL entered into a new program to sell monthly trade
receivables to replace a similar program which expired. The new trade
receivables program, which expires in September 1995, provides for the
sale of up to $100 million of trade receivables without recourse. As of
December 31, 1993 and June 30, 1994, $100 million and $91 million,
respectively, in trade receivables were held by the investor.
Capitalization and Cash Flows
_____________________________
As shown in the following table, at June 30, 1994, the percentage of total
debt to total invested capital was 43.6%, compared to 45.1% at December
31, 1993. Although total debt at June 30, 1994, remained approximately
the same as at December 31, 1993, net income during the first six months
of 1994 had the effect of reducing the percentage of total debt to total
invested capital.<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
______________ _______________
(In millions)
<S> <C> <C>
Common Stockholder's Equity . . . . . . . . . . . . . . . . $ 760.8 $ 707.3
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 73.0 75.2
Long-term Debt, less Current Maturities . . . . . . . . . . 644.0 643.8
______________ _______________
Total Capitalization. . . . . . . . . . . . . . . . . . 1,477.8 1,426.3
Current Maturities of Long-term Debt. . . . . . . . . . . . - -
______________ _______________
Total Invested Capital. . . . . . . . . . . . . . . . . $ 1,477.8 $ 1,426.3
______________ _______________
______________ _______________
Long-term Debt, less Current Maturities as a Percentage of Total
Capitalization. . . . . . . . . . . . . . . . . . . . . 43.6% 45.1%
Common Stockholder's Equity as a Percentage of Total
Capitalization. . . . . . . . . . . . . . . . . . . . . 51.5% 49.6%
Total Debt as a Percentage of Total Invested Capital. . . . 43.6% 45.1%
</TABLE>
At June 30, 1994, TGPL had a working capital deficit of $10 million,
compared to a deficit of $89 million at December 31, 1993. The most
significant factor influencing the reduction in the working capital
deficit was payments made during the first six months of 1994 for TGPL's
initial refunds under Docket No. RP92-137, as discussed in Note B of the
Notes to Condensed Financial Statements. The refunds were made from funds
generated by operating activities during the first six months of 1994.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
1994 1993
_________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided by Operating Activities . . . . . . . . $ 31.7 $ 101.2
_________ __________
_________ __________
</TABLE>
For the six months ended June 30, 1994, cash flows from operating
activities were $70 million lower than the six months ended June 30, 1993.
The lower cash flows for 1994 are primarily the result of cash refunds
made in the first six months of 1994 in connection with the settlement of
TGPL's general rate case (Docket No. RP92-137), partly offset by payments
made in 1993 for nonrecoverable producer settlements.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Financing Activities . . . . . . . . . . $ 5.4 $ 38.4
__________ __________
__________ __________
</TABLE>
The cash flows used in financing activities for the six months ended June
30, 1994, were attributable to dividend payments of $3 million on
preferred stock and $2 million for the retirement of preferred stock.
For the six months ended June 30, 1993, cash flows used in financing
activities were primarily attributable to the retirement of $32 million of
other long-term debt and preferred stock and dividend payments of $4
million on preferred stock.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Investing Activities . . . . . . . . . . $ 25.7 $ 61.9
__________ __________
__________ __________
</TABLE>
For the six months ended June 30, 1994, cash flows used in investing
activities were primarily for capital expenditures for property, plant and
equipment, slightly offset by Transco's net repayment of advances from
TGPL.
For the six months ended June 30, 1993, cash flows used in investing
activities were primarily for capital expenditures for property, plant and
equipment and net advances to Transco, partly offset by the recovery of
producer settlement costs.
<TABLE>
<CAPTION>
Six Months
Ended June 30,
__________________________
Capital Expenditures 1994 1993
____________________ __________ __________
(In millions)
<S> <C> <C>
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
__________ __________
Total Capital Expenditures. . . . . . . . . . . . . . . $ 33.6 $ 40.4
__________ __________
__________ __________
</TABLE>
Other Capital Requirements and Contingencies
____________________________________________
TGPL's capital requirements and contingencies are discussed in TGPL's 1993
Annual Report on Form 10-K and in its First Quarter Form 10-Q. Other than
described in Notes B and C of the Notes to the Condensed Financial
Statements and below, there have been no new developments from those
described in TGPL's 1993 Annual Report on Form 10-K and in its First
Quarter 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 TGPL 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
Pipeline Company, will be necessary in the future and advised the FERC
that the Liberty Pipeline Company 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.
Rate Refunds
As discussed in Note B of the Notes to Condensed 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.
Conclusion
__________
Although no assurances can be given, TGPL currently believes that the
aggregate of cash flows from operating activities, supplemented, when
necessary, by repayments of funds advanced to Transco or advances by
Transco, will provide TGPL with sufficient liquidity to meet its capital
requirements.
RESULTS OF OPERATIONS
As discussed in TGPL's 1993 Annual Report on Form 10-K and in its First
Quarter Form 10-Q, effective January 1, 1993, TGMC, through an agency
management agreement with TGPL, manages all gas sales made by TGPL. The
financial performance of TGPL's sales service is discussed separately in
the following discussion.
Net and Operating Income
________________________
TGPL's net income for the three months and six months ended June 30, 1994
was $2.8 million and $3.1 million, respectively, higher than net income
for the three months and six months ended June 30, 1993, due primarily to
lower operating expenses excluding cost of sales and transportation, 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 $2.3 million and
$1.6 million, respectively, higher than operating income for the same
periods in 1993, reflecting lower operating expenses, partially offset by
slightly lower net revenues (net of the related cost of sales and
transportation and surcharges).
Transportation Services
_______________________
TGPL's operating revenues, excluding sales and storage services, decreased
slightly by $2 million to $168 million for the three months ended June 30,
1994, and decreased by $25 million to $336 million for the six months
ended June 30, 1994, when compared to the same periods in 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 periods.
Excluding the cost of sales and transportation of $226 million and $481
million for the three months and six months ended June 30, 1994,
respectively, and $184 million and $393 million, respectively, for the
comparable periods in 1993, TGPL's operating expenses for the three months
and six months ended June 30, 1994, were approximately $4 million and $2
million, respectively, lower than the comparable periods in 1993. The
decrease in operating expenses for the three-month and six-month periods
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.
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 percent, 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 percent, and 11.8 Bcf, or 15
percent, 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.
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 Administrative Law
Judge (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 Financial
Statements included in Item 1 herein.
Sales Services
______________
TGPL makes sales to customers through a Firm Sales (FS) program, an
Optional Firm Sales (OFS) program, an Interruptible Sales (IS) program
and a Negotiated Sales (NS) program coupled with a firm transportation
program as replacement for a contract sales quantity. These programs give
customers the option to purchase daily quantities of gas from TGPL at
market-responsive prices in exchange for a demand charge payment to TGPL
designed to recover the costs of gas in excess of current month spot
prices that TGPL is obligated to pay under its producer contracts.
TGPL's operating revenues related to its sales services increased $43
million to $195 million for the quarter ended June 30, 1994, when compared
to the quarter ended June 30, 1993, and increased $113 million to $422
million for the six months ended June 30, 1994, when compared to the same
period in 1993, due primarily to higher sales volumes. However, TGPL's
sales service did not have an impact on TGPL's operating income or results
of operations during the first six months of 1994 or the same period in
1993. In January 1993, TGMC, through an agency agreement, began to manage
all jurisdictional sales of TGPL. Under this agency agreement, TGMC bills
TGPL for the cost of managing TGPL's gas sales service and receives all
margins associated with such business. Consequently, TGPL believes its
gas sales service will have no impact on its operating income or results
of operations.
<TABLE>
<CAPTION>
Three Months Six Months
Gas Sales Volumes (Bcf)(1) Ended June 30, Ended June 30,
____________________________ _____________________ ____________________
1994 1993 1994 1993
_______ ________ _______ _______
<S> <C> <C> <C> <C>
Long-term sales . . . . . . . . . . . . . . 52.7 43.7 119.9 100.8
Short-term sales. . . . . . . . . . . . . . 31.1 10.0 49.1 18.6
_______ _______ _______ _______
Total gas sales . . . . . . . . . . . . 83.8 53.7 169.0 119.4
_______ _______ _______ _______
_______ _______ _______ _______
(1) Effective January 1993, TGMC, through an agency management agreement with TGPL, assumed operation
of TGPL's sales service.
</TABLE>
Storage Services
________________
TGPL's operating revenues of $35 million and $73 million, respectively,
related to its storage services for the quarter and six months ended June
30, 1994 were comparable to the storage revenues for the same periods in
1993.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See discussion of legal proceedings in Note C of the Notes to
Condensed Financial Statements included herein.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
TGPL 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 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.
Transcontinental Gas Pipe Line Corporation
Dated: August 12, 1994 By /S/ N. A. Bacile
______________________________________
(Signature)
N. A. Bacile
Vice President and Controller
<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.
