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 March 31, 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 March 31, 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.
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
_____________ _____________
ASSETS
<S>
Current Assets: <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 1,505 $ 1,094
Deposits . . . . . . . . . . . . . . . . . . . . . . 7,512 7,348
Receivables. . . . . . . . . . . . . . . . . . . . . 67,538 93,181
Advances to Transco . . . . . . . . . . . . . . . . 107,211 133,304
Transportation and exchange gas receivable - others. 22,000 22,000
Inventories. . . . . . . . . . . . . . . . . . . . . 62,470 79,547
Deferred income tax benefits . . . . . . . . . . . . 7,494 -
Other. . . . . . . . . . . . . . . . . . . . . . . . 20,510 23,739
_____________ _____________
Total current assets . . . . . . . . . . . . . . 296,240 360,213
_____________ _____________
Property, Plant and Equipment, at cost:
Natural gas transmission plant . . . . . . . . . . . 4,231,891 4,223,501
Less - Accumulated depreciation and amortization . . 2,512,842 2,480,332
_____________ _____________
Property, plant and equipment, net . . . . . . . 1,719,049 1,743,169
_____________ _____________
Other Assets:
Transportation and exchange gas receivable:
Affiliates . . . . . . . . . . . . . . . . . . . 45,660 28,986
Others . . . . . . . . . . . . . . . . . . . . . 112,693 109,564
Other. . . . . . . . . . . . . . . . . . . . . . . . 80,368 75,728
_____________ _____________
Total other assets . . . . . . . . . . . . . . . 238,721 214,278
_____________ _____________
$ 2,254,010 $ 2,317,660
_____________ _____________
_____________ _____________
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>
March 31, December 31,
1994 1993
_____________ _____________
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Payables . . . . . . . . . . . . . . . . . . . . . . $ 152,834 $ 199,635
Transportation and exchange gas payable - others . . 12,000 12,000
Accrued liabilities. . . . . . . . . . . . . . . . . 73,121 73,145
Reserve for producer settlements, legal and
regulatory issues. . . . . . . . . . . . . . . . 2,299 5,240
Reserve for rate refunds . . . . . . . . . . . . . . 79,322 141,270
Deferred income taxes. . . . . . . . . . . . . . . . - 1,452
Other. . . . . . . . . . . . . . . . . . . . . . . . 14,188 16,162
_____________ _____________
Total current liabilities. . . . . . . . . . . . 333,764 448,904
_____________ _____________
Long-Term Debt, less current maturities . . . . . . . . . 643,913 643,799
_____________ _____________
Other Liabilities and Deferred Credits:
Income taxes . . . . . . . . . . . . . . . . . . . . 281,634 279,303
Income taxes refundable to customers . . . . . . . . 16,556 19,148
Transportation and exchange gas payable:
Affiliates . . . . . . . . . . . . . . . . . . . 1,055 3,607
Others . . . . . . . . . . . . . . . . . . . . . 100,496 75,530
Other. . . . . . . . . . . . . . . . . . . . . . . . 65,562 64,888
_____________ _____________
Total other liabilities and deferred credits . . 465,303 442,476
_____________ _____________
Commitments and contingencies . . . . . . . . . . . . . . - -
Cumulative Redeemable Preferred Stock, without par value:
Authorized 10,000,000 shares:
Stated value $100 per share, issued and outstanding
757,427 shares in 1994 and 1993. . . . . . . . . 75,743 75,743
Less - Issue expense . . . . . . . . . . . . . . 552 552
_____________ _____________
Total preferred stock. . . . . . . . . . . . . . . 75,191 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 . . 283,937 283,037
Retained earnings. . . . . . . . . . . . . . . . . . . 451,902 424,253
_____________ _____________
Total common stockholder's equity. . . . . . . . . 735,839 707,290
_____________ _____________
$ 2,254,010 $ 2,317,660
_____________ _____________
_____________ _____________
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>
Three Months Ended
March 31,
_____________________________
1994 1993
_____________ _____________
<S> <C> <C>
Operating Revenues:
Natural gas sales . . . . . . . . . . . . . . . . . . . $ 226,412 $ 156,112
Natural gas transportation . . . . . . . . . . . . . . 166,123 189,284
Natural gas storage . . . . . . . . . . . . . . . . . . 37,728 38,125
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,652 1,402
_____________ _____________
Total operating revenues . . . . . . . . . . . . . . 431,915 384,923
_____________ _____________
Operating Costs and Expenses:
Cost of natural gas sales . . . . . . . . . . . . . . . 226,561 154,484
Cost of natural gas transportation. . . . . . . . . . . 28,286 54,443
Operation and maintenance . . . . . . . . . . . . . . . 40,712 38,628
Administrative and general. . . . . . . . . . . . . . . 37,057 38,246
Depreciation and amortization . . . . . . . . . . . . . 30,143 29,614
Taxes - other than income taxes . . . . . . . . . . . . 8,716 8,401
_____________ _____________
Total operating costs and expenses . . . . . . . . . . 371,475 323,816
_____________ _____________
Operating Income. . . . . . . . . . . . . . . . . . . . . . 60,440 61,107
_____________ _____________
Other (Income) and Other Deductions:
Interest expense - affiliates . . . . . . . . . . . . . - 207
- other. . . . . . . . . . . . . . . . 15,805 15,917
Interest income - affiliates . . . . . . . . . . . . . ( 1,790) ( 126)
- other. . . . . . . . . . . . . . . . ( 125) ( 1,412)
Allowance for equity and borrowed funds used during
construction (AFUDC) . . . . . . . . . . . . . . . . . ( 835) ( 113)
Miscellaneous other (income) and deductions, net. . . . 2,114 1,507
_____________ _____________
Total other (income) and other deductions . . . . . . 15,169 15,980
_____________ _____________
Income Before Income Taxes. . . . . . . . . . . . . . . . . 45,271 45,127
Provision for Income Taxes. . . . . . . . . . . . . . . . . 16,023 15,658
_____________ _____________
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 29,248 29,469
Dividends on Preferred Stock. . . . . . . . . . . . . . . . 1,599 2,140
_____________ _____________
Common Stock Equity in Net Income . . . . . . . . . . . . . $ 27,649 $ 27,329
_____________ _____________
_____________ _____________
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>
Three Months Ended
March 31,
_____________________________
1994 1993
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 29,248 $ 29,469
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . 34,201 33,151
Deferred income taxes. . . . . . . . . . . . . . . . ( 9,472) ( 16,210)
Tran$tock compensation expense . . . . . . . . . . . 900 727
Allowance for equity funds used during
construction (AFUDC). . . . . . . . . . . . . . . ( 608) 1,031
_____________ ______________
54,269 48,168
Nonrecoverable producer settlements. . . . . . . . . - ( 26,300)
Changes in operating assets and liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . ( 164) ( 217)
Receivables. . . . . . . . . . . . . . . . . . . . . 25,643 957
Transportation and exchange gas receivable . . . . . ( 19,803) ( 5,675)
Inventories. . . . . . . . . . . . . . . . . . . . . 17,077 10,730
Payables . . . . . . . . . . . . . . . . . . . . . . ( 44,889) ( 16,863)
Transportation and exchange gas payable. . . . . . . 22,414 ( 10,081)
Accrued liabilities. . . . . . . . . . . . . . . . . ( 1,367) ( 2,771)
Reserve for rate refunds . . . . . . . . . . . . . . ( 61,948) 28,538
Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 4,384) 4,809
_____________ ______________
Net cash provided by (used in) operating activities ( 13,152) 31,295
_____________ ______________
Cash flows from financing activities:
Retirement of long-term debt. . . . . . . . . . . . . . - ( 15,200)
Advances from Transco . . . . . . . . . . . . . . . . . - 534,341
Retirement of advances from Transco . . . . . . . . . . - ( 534,341)
Dividends on preferred stock. . . . . . . . . . . . . . ( 1,599) ( 2,140)
Other, net. . . . . . . . . . . . . . . . . . . . . . . - ( 149)
_____________ ______________
Net cash used in financing activities . . . . . . ( 1,599) ( 17,489)
_____________ ______________
Cash flows from investing activities:
Property, plant and equipment, net of equity AFUDC. . . ( 11,375) ( 12,583)
Recovery of producer settlements. . . . . . . . . . . . - 21,720
Advances to Transco . . . . . . . . . . . . . . . . . . ( 439,106) ( 196,376)
Retirement of advances to Transco . . . . . . . . . . . 465,199 172,225
Other, net. . . . . . . . . . . . . . . . . . . . . . . 444 1,333
_____________ ______________
Net cash provided by (used in) investing activities 15,162 ( 13,681)
_____________ ______________
Net increase in cash and cash equivalents . . . . . . . . 411 125
Cash and cash equivalents at beginning of period. . . . . 1,094 1,259
_____________ ______________
Cash and cash equivalents at end of period. . . . . . . . $ 1,505 $ 1,384
_____________ ______________
_____________ ______________
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest (net of amount capitalized). . . . . . . . . $ 21,296 $ 16,095
Income taxes, net . . . . . . . . . . . . . . . . . . ( 28,453) 21,883
The accompanying condensed notes are an integral part of these condensed financial statements.
/TABLE
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
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.
Certain reclassifications have been made in the 1993 financial statements
to conform with the 1994 presentation.
As a subsidiary of Transco, TGPL engages in transactions with Transco and
other Transco subsidiaries, characteristic of group operations. For
consolidated cash management purposes, TGPL has made interest bearing
advances to Transco and received interest bearing advances and capital
contributions from Transco. These advances are represented by demand
notes. TGPL currently expects to receive payment of these advances within
the next twelve months and has recorded such advances as current in the
accompanying Condensed Balance Sheet. As general corporate policy, the
interest rate on intercompany demand notes is 1-1/2 percent below the
prime rate of Citibank, N.A.
Certain of Transco's credit facilities and indentures prohibit TGPL from,
among other things, 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.
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 the 1993
Annual Report on Form 10-K 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 March and April
1994, TGPL made partial refunds of approximately $105 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 April 30, 1994, these additional refunds,
the majority of which are currently expected to be made during the second
quarter of 1994, are estimated to be approximately $58 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 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.
No procedural schedule has been established by the D.C. Circuit Court and,
therefore, the issues that will be addressed on appeal have not been
identified.
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. Although
no assurances can be given, TGPL does not believe that the implementation
of Order 636 will have a material adverse effect on its financial position
or results of operations.
C. LEGAL PROCEEDINGS
There have been no new developments from those described in the 1993
Annual Report on Form 10-K other than as described below.
Dakota Gasification Litigation
______________________________
As discussed in TGPL's 1993 Annual Report on Form 10-K, 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. 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, 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.
On January 14, 1994, a lawsuit was filed in the 4th Judicial District
Court of Rusk County, Texas (Marathon Oil Company vs. Transcontinental Gas
Pipe Line Corporation and Transco Energy Company (Marathon)) and, on
March 15, 1994, a new lawsuit, which was previously disclosed in TGPL's
1993 Annual Report on Form 10-K as a claim, was filed in the 189th
Judicial District Court of Harris County, Texas (Texaco, Inc. vs.
Transcontinental Gas Pipe Line Corporation (Texaco)). In the Marathon and
Texaco lawsuits, the respective plaintiffs each have made claims against
TGPL for reimbursements of settlement amounts paid to royalty owners
pursuant to the excess royalty provision in their respective Omnibus
Contract Amendment and Settlement Agreements. In the Marathon and Texaco
lawsuits, the respective plaintiffs seek to recover approximately $3.6
million and approximately $14.7 million, respectively.
As discussed in TGPL's Annual Report on Form 10-K, TGPL has been named as
a defendant in three other lawsuits involving claims by producers and/or
royalty owners.
In December 1992, a lawsuit was filed which is currently pending in the
United States District Court for the Southern District of Texas (Vaquillas
Ranch Company, Ltd., et al vs. Texaco Exploration and Production, Inc.
(Vaquillas Ranch)) in which royalty owners have made allegations against
the producer for breach of express obligations under the leases; breach of
the covenant to reasonably market gas; breach of the covenant to
reasonably develop; breach of the covenant to protect against drainage;
and failure to deal in good faith. In August 1993, a lawsuit was filed,
which is currently pending in the United States District Court for the
Southern District of Texas (Floyd C. Billings, et al vs. Texaco
Exploration and Production Inc., et al (Billings)), in which royalty
owners did not claim that the producer breached any covenant to develop or
protect against drainage. However, except for this omission, the royalty
owners' claims in the Billings lawsuit are virtually identical to the ones
made in the Vaquillas Ranch lawsuit. In addition, in the Billings
lawsuit the royalty owners have sued the parent and an affiliate of the
producer and TGPL for allegedly conspiring to tortiously interfere with
their lease. The producer defendants in each of the Billings and
Vaquillas Ranch lawsuits have cross-claimed against TGPL pursuant to the
excess royalty provision in the Omnibus Contract Amendment and Settlement
Agreement between TGPL and the producer. While the two complaints have
not specified monetary damages, the royalty owners have verbally alleged
that their claims against the producers could approximate $100 million.
The Vaquillas Ranch lawsuit is set for trial on December 2, 1994.
In October 1991, a lawsuit was filed in 32nd Judicial District Court for
the Parish of Terrebonne State of Louisiana (Betty Duplantis Brown, et al
vs. Mobil Oil Exploration and Producing U.S. Inc., et al (Duplantis)), in
which royalty owners have alleged that they were third party beneficiaries
to the original gas purchase contract between TGPL and the producers and
that the settlement agreement entered into between TGPL and such producers
is not valid without the royalty owners' consent. Additionally, in a
separate lawsuit consolidated with the Duplantis lawsuit, allegations have
been made that Transco Exploration Company (TXC) and TXP Operating Company
(TXPO) and other defendant-producers were entitled to make claims for
breach of gas purchase contracts but failed to either make claim or
receive compensation for such breaches. The royalty owners make a number
of allegations with respect to breach of the leases and breach of implied
covenants similar to those alleged in the Vaquillas Ranch and Billings
lawsuits. The royalty owners have not specified an amount of monetary
damages in their complaints. Trial is set for September 1994.
Each of the lawsuits is in the discovery process. TGPL, TXC and TXPO have
each denied liability in the litigation and each believes that it has
meritorious defenses to the claims which it intends to pursue vigorously.
TGPL believes at this time that its exposure, if any, under the excess
royalty provisions of its settlements with the producers is substantially
less than the amounts claimed by the royalty owners.
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 the 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, 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 March 31, 1994, approximately $315 million
of TGPL's retained earnings of $452 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 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.
In October 1991, Transco's Board of Directors approved a comprehensive
strategic and financial plan (Plan) designed to stabilize Transco's
financial position, improve its financial flexibility and restore its
earnings. Since the Plan's adoption, Transco has made significant
progress in the implementation of the Plan, including the sale of certain
non-core and non-strategic businesses, reduction in capital expenditures,
resolution of certain material litigation and improvement in 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 improving
financial results.
CAPITAL RESOURCES AND LIQUIDITY
Method of Financing
___________________
As a subsidiary of Transco, TGPL engages in transactions with Transco and
other Transco subsidiaries, characteristic of group operations. TGPL
meets its working capital requirements by participation in the Transco
consolidated cash management program, pursuant to which TGPL both makes
advances to and receives advances and capital contributions from Transco,
and by accessing capital markets to refinance its long-term debt
maturities. As general corporate policy, the interest rate on
intercompany demand notes is 1-1/2% below the prime rate of Citibank, N.A.
At March 31, 1994, there were outstanding advances totaling approximately
$107 million from TGPL to Transco. TGPL currently expects to receive
payment of these advances within the next twelve months and has classified
such advances as current assets.
In addition, TGPL and Transco's other subsidiaries pay dividends, based on
the level of their earnings and net cash flow, to assist Transco in
providing the funds necessary for Transco to service its debt and pay
dividends on its common and preferred stock.
To meet the working capital requirements of Transco and its subsidiaries,
Transco has in place a $450 million working capital line with a group of
fifteen banks. TGPL is guarantor of $270 million of this working capital
line. At March 31, 1994, Transco had no outstanding borrowings under this
facility.
Transco has in place a $50 million reimbursement facility, dated as of
December 31, 1993, between Transco and a group of banks. This facility
provides Transco the opportunity to obtain standby letters of credit under
certain circumstances from the banks. TGPL is guarantor of $30 million of
the obligations that arise under this facility. At March 31, 1994,
Transco had utilized $21 million of standby letters of credit under this
facility.
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 March 31, 1994, approximately $315 million
of TGPL's retained earnings of $452 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
March 31, 1994, $100 million in trade receivables were held by the
investor.
Capitalization and Cash Flows
_____________________________
As shown in the following table, at March 31, 1994, total debt as a
percentage of total invested capital was 44.3%, compared to 45.1% at
December 31, 1993. Although total debt at March 31, 1994, remained
approximately the same as at December 31, 1993, net income during the
first quarter had the effect of reducing the percentage of total debt to
total invested capital.
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
______________ _______________
(In millions)
<S> <C> <C>
Common Stockholder's Equity . . . . . . . . . . . . . . . . $ 735.8 $ 707.3
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 75.2 75.2
Long-term Debt, less Current Maturities . . . . . . . . . . 643.9 643.8
______________________________
Total Capitalization. . . . . . . . . . . . . . . . . . 1,454.9 1,426.3
Current Maturities of Long-term Debt. . . . . . . . . . . . - -
______________________________
Total Invested Capital. . . . . . . . . . . . . . . . . $ 1,454.9 $ 1,426.3
______________________________
______________________________
Long-term Debt, less Current Maturities as a Percentage of Total
Capitalization. . . . . . . . . . . . . . . . . . . . . 44.3% 45.1%
Common Stockholder's Equity as a Percentage of Total
Capitalization. . . . . . . . . . . . . . . . . . . . . 50.6% 49.6%
Total Debt as a Percentage of Total Invested Capital. . . . 44.3% 45.1%
</TABLE>
At March 31, 1994, TGPL had a working capital deficit of $38 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 quarter of 1994 for TGPL's
initial refunds under Docket No. RP92-137, as discussed in Note B of the
Notes to Condensed Financial Statements.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1994 1993
_________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided by (Used in) Operating Activities . . . $( 13.2) $ 31.3
_________ __________
_________ __________
</TABLE>
For the three months ended March 31, 1994, cash flows from operating
activities were $45 million lower than the three months ended March 31,
1993. The lower cash flows for 1994 are primarily the result of cash
refunds made in the first quarter 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>
Three Months
Ended March 31,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Used in Financing Activities . . . . . . . . . . $( 1.6) $( 17.5)
__________ __________
__________ __________
</TABLE>
The cash flows used in financing activities for the three months ended
March 31, 1994, were attributable to dividend payments of $2 million on
preferred stock.
For the three months ended March 31, 1993, cash flows used in financing
activities were primarily attributable to the retirement of $15 million of
other long-term debt and dividend payments of $2 million on preferred
stock.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
1994 1993
__________ __________
(In millions)
<S> <C> <C>
Cash Flows Provided by (Used in) Investing Activities . . . $ 15.2 $( 13.7)
__________ __________
__________ __________
</TABLE>
For the three months ended March 31, 1994, cash flows from investing
activities, primarily from Transco's net repayment of advances from TGPL,
exceeded the cash outflows for capital expenditures for property, plant
and equipment.
For the three months ended March 31, 1993, cash flows used in investing
activities, including capital expenditures and net advances to Transco,
exceeded the recovery of producer settlement costs. The remaining portion
of TGPL's recoverable producer settlement costs were fully collected as of
May 31, 1993.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
__________________________
Capital Expenditures 1994 1993
____________________ __________ __________
(In millions)
<S> <C> <C>
Market-Area Projects . . . . . . . . . . . . . . . . . . . $ 2.7 $ 1.2
Supply-Area Projects. . . . . . . . . . . . . . . . . . . . 2.5 7.0
Maintenance of Existing Facilities and Other Projects . . . 6.2 4.4
__________ __________
Total Capital Expenditures. . . . . . . . . . . . . . . $ 11.4 $ 12.6
__________ __________
__________ __________
</TABLE>
Other Capital Requirements and Contingencies
____________________________________________
TGPL's capital requirements and contingencies are discussed in TGPL's 1993
Annual Report on Form 10-K. Other than described in Notes B and C to the
Condensed Financial Statements, there have been no new developments from
those described in TGPL's 1993 Annual Report on Form 10-K with regard to
other capital requirements and contingencies.
Rate Refunds
____________
As discussed in Note B of the Notes to Condensed Financial Statements,
TGPL received a FERC order accepting the Settlement in connection with its
general rate case (Docket No. RP92-137) on November 4, 1993. In March and
April 1994, TGPL made partial refunds of approximately $105 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 April 30, 1994, these refunds, the
majority of which are currently expected to be made during the second
quarter of 1994, are estimated to be approximately $58 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, if
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, 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 ended March 31, 1994 was $0.3
million higher than net income for the three months ended March 31, 1993,
due primarily to lower net interest expense, higher allowance for funds
used during construction and lower dividends on preferred stock, partly
offset by higher operating expenses. Operating income for the first
quarter of 1994 when compared to the 1993 quarter was $0.7 million lower
reflecting higher operating expenses, partly offset by slightly higher net
transportation revenues (net of the related cost of transportation and
surcharges) as a result of increased production-area transportation.
Transportation Services
_______________________
TGPL's operating revenues, excluding sales and storage services, decreased
$23 million to $168 million for the quarter ended March 31, 1994, when
compared to the same period 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 quarter. Effective September 1, 1992, TGPL placed new rates
into effect, subject to refund, under its general rate case, Docket No.
RP92-137. The rates for firm transportation service are based on a
straight-fixed-variable (SFV) rate design, under which all fixed costs
allocated to firm transportation service, including return on equity and
taxes, are included in a demand charge to customers. All variable costs
are recovered through commodity rates. On March 8, 1994, TGPL made the
initial refunds (approximately $100 million, including interest) under
Docket No. RP92-137. On April 8, 1994, TGPL made additional refunds
(approximately $5 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 April 30,
1994, these additional refunds, the majority of which are currently
expected to be made during the second quarter of 1994, are estimated to be
approximately $58 million, including interest. Such refund obligations
increase with the passage of time until the refunds are made.
Excluding the cost of sales and transportation of $255 million in the
first quarter of 1994 and $209 million in the first quarter of 1993,
TGPL's operating expenses for the 1994 quarter were approximately $2
million higher than the same period in 1993. This increase in operating
expenses for the quarter was primarily the result of increased costs for
main engine repairs and miscellaneous contractual services and higher
depreciation and taxes other than income taxes, offset in part by lower
group insurance expense.
As shown in the table below, TGPL's total market-area deliveries for the
three months ended March 31, 1994 were 8.7 billion cubic feet (Bcf), or 2
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 colder-than-normal weather during January and
February 1994. The production-area deliveries for the three months ended
March 31, 1994, when compared to the same period in 1993, increased 8.8
Bcf, or 32 percent, 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 SFV rate design, these increased
deliveries had no significant impact on operating income.
<TABLE>
<CAPTION>
Three Months
TGPL System Deliveries (Bcf) Ended March 31,
____________________________ ____________________
1994 1993
_______ _______
<S> <C> <C>
Market-area deliveries:
Long-haul transportation. . . . . . . . . . . . . . . 230.8 235.0
Market-area transportation. . . . . . . . . . . . . . 134.2 121.3
_______ _______
Total market-area deliveries . . . . . . . . . . . . 365.0 356.3
Production-area transportation. . . . . . . . . . . . . 36.3 27.5
_______ _______
Total system deliveries . . . . . . . . . . . . . . . . 401.3 383.8
_______ _______
_______ _______
</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 began on April 25, 1994. 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.
Sales Services
______________
TGPL makes sales to customers through a Firm Sales (FS) program, an
Optional Firm Sales (OFS) program and an Interruptible Sales (IS) 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 $70
million to $226 million for the quarter ended March 31, 1994 when compared
to the quarter ended March 31, 1993, due primarily to higher sales volumes
and average prices. However, TGPL's sales service did not have an impact
on TGPL's operating income or results of operations during the first
quarter 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
Gas Sales Volumes (Bcf)(1) Ended March 31,
____________________________ _____________________
1994 1993
_______ _______
<S> <C> <C>
Long-term sales . . . . . . . . . . . . . . . . . . . . . . . . . . 67.2 57.1
Short-term sales. . . . . . . . . . . . . . . . . . . . . . . . . . 18.0 8.6
_______ _______
Total gas sales . . . . . . . . . . . . . . . . . . . . . . . . . 85.2 65.7
_______ _______
_______ _______
(1) Effective January 1993, TGMC, through an agency management agreement with TGPL, assumed
management of TGPL's sales service.
</TABLE>
Storage Services
______________
TGPL's operating revenues of $38 million related to its storage services
for the quarter ended March 31, 1994 were comparable to the storage
revenues for the same period 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.
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: May 16, 1994 By /S/ N. A. Bacile
_____________________________
(Signature)
N. A. Bacile
Vice President and Controller
