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, 1996
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 1-7584
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1079400
(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)
(713) 215-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 $1.00 PER SHARE, OUTSTANDING AS
OF MARCH 31, 1996 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 AND SUBSIDIARIES (TRANSCO)
The accompanying interim condensed consolidated financial statements of
Transco do not include all notes in annual financial statements and therefore
should be read in conjunction with the financial statements and notes thereto in
Transco's 1995 Annual Report on Form 10-K. The accompanying unaudited financial
statements have not been audited by independent auditors but include all
adjustments both normal recurring and others which, in the opinion of Transco's
management, are necessary to present fairly its financial position at March 31,
1996, and results of operations for the three months ended March 31, 1996 and
1995, and cash flows for the three months ended March 31, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,711 $ 2,557
Deposits 3,816 6,426
Receivables:
Affiliates 3,456 2,848
Others 67,678 49,481
Advances to affiliates 82,343 104,499
Transportation and exchange gas receivables:
Affiliates 30,917 28,309
Others 98,324 113,310
Inventories 68,573 56,827
Deferred income tax benefits 51,263 37,640
Other 20,170 22,170
----------- ------------
Total current assets 428,251 424,067
----------- ------------
Investments, at cost 4,274 11,256
----------- ------------
Property, Plant and Equipment:
Natural gas transmission plant 3,477,805 3,455,154
Less-Accumulated depreciation and amortization 215,021 170,417
----------- ------------
Property, plant and equipment, net 3,262,784 3,284,737
----------- ------------
Other Assets 202,802 201,728
----------- ------------
$ 3,898,111 $ 3,921,788
=========== ============
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 250,686 $ 277,126
Payables:
Affiliates 54,408 84,590
Others 102,784 128,757
Transportation and exchange gas payables:
Affiliates - 841
Other 61,445 76,459
Accrued liabilities 137,860 154,236
Reserve for rate refunds 96,057 55,123
Other - 91
------------ ------------
Total current liabilities 703,240 777,223
------------ ------------
Long-Term Debt, less current maturities 406,778 382,045
------------ ------------
Other Liabilities:
Deferred income taxes 833,976 840,189
Other 197,503 185,500
------------ ------------
Total other liabilities 1,031,479 1,025,689
------------ ------------
Commitments and contingencies (Note C)
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 1,652,430 1,652,430
Retained earnings 104,184 84,401
----------- ------------
Total common stockholder's equity 1,756,614 1,736,831
----------- ------------
$ 3,898,111 $ 3,921,788
=========== ============
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The acquisition of Transco Energy Company and subsidiaries, including Transco,
by The Williams Companies was accounted for using the purchase method of
accounting. Accordingly, the purchase price was "pushed down" and recorded in
the accompanying consolidated financial statements which affects the
comparability of the post-acquisition and pre-acquisition results of operations
and cash flows.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
Post-Acquisition Pre-Acquisition
----------------------------------- | ----------------
For the Period | For the Period
For the Three January 18, 1995 | January 1, 1995
Months Ended to | to
March 31, 1996 March 31, 1995 | January 17, 1995
-------------- -------------- | ----------------
<S> <C> <C> <C>
Operating Revenues:
Natural gas sales $ 264,077 $ 118,960 | $ 31,701
Natural gas transportation 176,688 142,827 | 32,775
Natural gas storage 36,772 32,851 | 7,452
Other 1,690 1,021 | 133
-------------- -------------- | ----------------
Total operating revenues 479,227 295,659 | 72,061
-------------- -------------- | ----------------
|
Operating Costs and Expenses: |
Cost of natural gas sales 264,010 118,952 | 31,691
Cost of natural gas transportation 24,191 26,072 | 6,279
Operation and maintenance 45,520 36,302 | 8,722
Administrative and general 34,662 30,164 | 7,063
Provision for executive severance benefits - - | 16,048
Depreciation and amortization 43,532 30,649 | 5,560
Taxes - other than income taxes 9,249 6,978 | 1,558
Other 216 538 | 53
-------------- -------------- | ----------------
Total operating costs and expenses 421,380 249,655 | 76,974
-------------- -------------- | ----------------
|
Operating Income (Loss) 57,847 46,004 | (4,913)
-------------- -------------- | ----------------
|
Other (Income) and Other Deductions: |
Interest expense - affiliates - 128 | 2
- other 13,146 12,720 | 2,678
Interest income - affiliates (1,131) (304) | (207)
- other (54) (79) | (12)
Allowance for equity and borrowed funds |
used during construction (AFUDC) (1,039) (946) | (234)
Miscellaneous other deductions, net 977 242 | 213
-------------- -------------- | ----------------
Total other (income) and other deductions 11,899 11,761 | 2,440
-------------- -------------- | ----------------
|
Income (Loss) before Income Taxes 45,948 34,243 | (7,353)
|
Provision for Income Taxes 17,819 13,236 | 2,309
-------------- -------------- | ----------------
|
Net Income (Loss) 28,129 21,007 | (9,662)
|
Dividends on Preferred Stock - 722 | 194
-------------- -------------- | ----------------
|
Common Stock Equity in Net Income (Loss) $ 28,129 $ 20,285 | $ (9,856)
============== ============== | ================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The acquisition of Transco Energy Company and subsidiaries, including Transco,
by The Williams Companies was accounted for using the purchase method of
accounting. Accordingly, the purchase price was "pushed down" and recorded in
the accompanying consolidated financial statements which affects the
comparability of the post-acquisition and pre-acquisition results of operations
and cash flows.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Post-Acquisition Pre-Acquisition
---------------------------------- | ----------------
For the Period | For the Period
For the Three January 18, 1995 | January 1, 1995
Months Ended to | to
March 31, 1996 March 31, 1995 | January 17, 1995
-------------- -------------- | ----------------
<S> <C> <C> <C>
Cash flows from operating activities: |
Net income (loss) $ 28,129 $ 21,007 | $ (9,662)
Adjustments to reconcile net income to net cash provided |
by (used in) operating activities: |
Depreciation and amortization 45,809 33,579 | 6,165
Deferred income taxes (19,223) (9,116) | 5,348
Provision for (payment of) executive severance benefits (77) (2,943) | 16,048
Allowance for equity funds used during construction (AFUDC) (880) (787) | (190)
Changes in operating assets and liabilities: |
Receivables (18,805) (63,575) | (7,114)
Transportation and exchange gas receivable 12,378 2,352 | (5,701)
Inventories (11,746) (8,595) | (2,647)
Payables (52,002) 8,340 | (8,059)
Transportation and exchange gas payable (15,855) (2,299) | 4,934
Accrued liabilities (16,120) 2,742 | (4,755)
Reserve for rate refunds 30,773 (17,935) | (26,846)
Other, net 24,444 (7,409) | 71
-------------- -------------- | ---------------
Net cash provided by (used in) operating activities 6,825 (44,639) | (32,408)
-------------- -------------- | ---------------
|
Cash flows from financing activities: |
Additions to long-term debt - 20,000 | -
Retirement of preferred stock - (49,744) | -
Advances from affiliates, net - 8,636 | 8,195
Dividends on preferred stock - (1,647) | -
-------------- -------------- | --------------
Net cash provided by (used in) financing activities - (22,755) | 8,195
-------------- -------------- | --------------
|
Cash flows from investing activities: |
Property, plant and equipment, net of equity AFUDC (28,519) (28,438) | (4,896)
Sale of assets - 11,755 | -
Advances to affiliates, net 22,156 52,375 | 63,599
Other, net (1,308) (50) | (24)
-------------- -------------- | --------------
Net cash provided by (used in) investing activities (7,671) 35,642 | 58,679
-------------- --------------- | --------------
|
Net increase (decrease) in cash and cash equivalents (846) (31,752) | 34,466
Cash and cash equivalents at beginning of period 2,557 36,094 | 1,628
-------------- -------------- | --------------
Cash and cash equivalents at end of period $ 1,711 $ 4,342 | $ 36,094
============== ============== | ==============
|
|
Supplemental disclosures of cash flow information: |
Cash paid (refunded) during the year for: | |
Interest (net of amount capitalized) $ 17,324 $ 13,076 | $ 5,552
Income taxes paid 60,821 446 | 19,427
Income tax refunds received - (119) | -
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. CORPORATE STRUCTURE AND CONTROL
Prior to May 1, 1995, Transcontinental Gas Pipe Line Corporation (Transco)
was a wholly-owned subsidiary of Transco Gas Company (TGC). TGC is a
wholly-owned subsidiary of Transco Energy Company (TEC).
As discussed in Transco's 1995 Annual Report on Form 10-K, TEC and The
Williams Companies, Inc. (Williams) entered into a merger agreement (Merger)
pursuant to which Williams acquired TEC and its wholly-owned subsidiaries. On
the May 1, 1995 effective date of the Merger, TEC declared and paid as dividends
to Williams all of TEC's interests in Transco.
B. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Transco and its majority-owned subsidiaries. Companies in which Transco and its
subsidiaries own 20 percent to 50 percent of the voting common stock are
accounted for under the equity method.
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 financial statements and the notes thereto included in Transco's 1995
Annual Report on Form 10-K.
The acquisition of TEC and its subsidiaries, including Transco, by Williams
has been accounted for using the purchase method of accounting. Accordingly, an
allocation of the purchase price was assigned to the assets and liabilities of
Transco based on their estimated fair values. The accompanying post-acquisition
consolidated financial statements reflect Transco's share of the purchase price.
The purchase price allocation to Transco primarily consisted of a $1.5 billion
allocation to property, plant and equipment, which is being amortized on a
straight-line basis, and adjustments to deferred taxes based upon the book basis
of the net assets recorded as a result of the acquisition. Current Federal
Energy Regulatory Commission (FERC) policy does not permit Transco to recover
through rates amounts in excess of original cost.
Further, as a result of the change in control of Transco on January 18,
1995 and the effects of the allocation of the purchase price, Transco's
Condensed Consolidated Statement of Income and Condensed Consolidated Statement
of Cash Flows for the three
<PAGE>
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.
Through an agency agreement, Williams Energy Services Company (WESCO), an
affiliate of Transco, manages all jurisdictional merchant gas sales of Transco,
receives all margins associated with such business and, as Transco's agent,
assumes all market and credit risk associated with Transco's jurisdictional
merchant gas sales. Consequently, Transco's merchant gas sales service has no
impact on its operating income or results of operations.
Certain reclassifications have been made in the 1995 financial statements
to conform to the 1996 presentation.
Effective January 1, 1996, Transco adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Adoption of the standard had no
effect on Transco's financial position or results of operations.
C. CONTINGENT LIABILITIES AND COMMITMENTS
There have been no new developments from those described in Transco's 1995
Annual Report on Form 10-K other than as described below.
RATE AND REGULATORY MATTERS
GENERAL RATE CASE (DOCKET NO. RP95-197)
Transco, FERC's staff, and other interested parties have undertaken
settlement negotiations which have produced an agreement in principle among
nearly all active parties addressing many of the issues scheduled for the Phase
II hearing. More specifically, the agreement in principle encompasses all issues
regarding cost of service and throughput, except rate of return and capital
structure, as well as several cost allocation issues. Certain issues in Phase II
will be reserved for the hearing which has been postponed by the Administrative
Law Judge (ALJ) until September 1996. An offer of settlement based on the
settlement in principle will be submitted to the ALJ for certification to the
FERC.
GENERAL RATE CASE (DOCKET NO. RP92-137)
On April 10, 1996, the FERC issued its order on remand and adopted
Transco's capital structure as the appropriate capital structure for ratemaking
purposes, reversing its previous orders adopting a hypothetical capital
structure. The FERC made no adjustment to Transco's rate of return on equity,
adopting a 14.45% rate of return on equity. The FERC directed Transco to make
refunds in accordance with the April 10, 1996 order. Transco previously provided
a reserve which it believes is sufficient for refunds required under the order.
<PAGE>
GATHERING FACILITIES
In February 1996, Transco filed an application with the FERC for an order
authorizing the abandonment of certain facilities located onshore and offshore
in Texas, Louisiana and Mississippi by conveyance to a subsidiary of Williams
Field Services Company (WFS), an affiliate of Transco. The net book value at
December 31, 1995 of the original cost of the facilities proposed to be
abandoned is approximately $230 million. The net book value at December 31, 1995
of the facilities including the purchase price allocation to Transco is
approximately $600 million. Concurrently, the WFS subsidiary filed a petition
for declaratory order requesting a determination that its gathering services and
rates be exempt from FERC regulation under the Natural Gas Act. The filings are
part of an ongoing comprehensive restructuring plan by Williams to separate all
gathering facilities from Williams' jurisdictional interstate natural gas
pipeline transmission companies.
LEGAL PROCEEDINGS
DAKOTA GASIFICATION LITIGATION
On February 20, 1996, certain parties filed with the FERC a motion
requesting that the FERC establish an additional proceeding to consider claims
for additional refunds. The claimed additional refunds, which approximate $90
million net to Transco, pertain to amounts paid Dakota Gasification Company from
November 1, 1988, to May 1, 1993. Transco and the other pipelines have filed
with the FERC an answer opposing the motion.
ROYALTY CLAIMS
The Vaquillas Ranch and Billings litigation has been settled by cash
payments. Transco had previously established a reserve that covered, among other
things, potential liability for this litigation.
Some producers that have indemnification arrangements with Transco covering
certain types of royalty claims have received additional claims for royalties.
Some of these claims may be covered by such indemnification.
ENVIRONMENTAL MATTERS
As of March 31, 1996, Transco's reserve for estimated environmental
assessment and remediation and related costs was approximately $40 million.
In February 1995, three citizens filed suit against Transco in federal
district court in Virginia for alleged violations of several provisions of both
federal and state law. In March 1995, Transco filed a motion to dismiss based on
lack of subject matter jurisdiction and failure to state a claim. In October
1995, the court dismissed all counts of plaintiffs' complaint provided that
plaintiffs could amend their complaint to salvage the state law
<PAGE>
nuisance claim by inclusion of appropriate allegations establishing diversity of
citizenship jurisdiction. Plaintiffs did so amend their complaint. In March
1996, Transco reached an agreement in principle with plaintiffs to settle and
resolve this lawsuit. In April 1996, the definitive settlement agreement was
fully executed by all plaintiffs and Transco.
SUMMARY
While no assurances may be given, Transco does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, recovery from customers, insurance coverage or
other indemnification arrangements, will have a materially adverse effect upon
Transco's future financial position, results of operations and cash flow
requirements.
D. DEBT AND FINANCING ARRANGEMENTS
LONG-TERM DEBT
Williams and certain of its subsidiaries, including Transco, are parties to
an $800 million credit agreement (Credit Agreement), under which Transco can
borrow up to $400 million. Interest rates vary with current market conditions.
As of March 31, 1996, Transco had no outstanding borrowings under this
agreement.
On May 15, 1996, Transco will redeem $125 million of its adjustable rate
notes primarily through the use of the Credit Agreement and has classified the
notes as long-term at March 31, 1996.
SHORT-TERM DEBT
In April 1996, Transco replaced one of its short-term money market
facilities, which increased the amount Transco can borrow under such facilities
to an aggregate of $135 million from $115 million. Interest rates under the new
facility vary with current market conditions. As of March 31, 1996, Transco had
no outstanding borrowings under these facilities.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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
Transco's 1995 Annual Report on Form 10-K and with the condensed financial
statements and notes contained in this report.
CAPITAL RESOURCES AND LIQUIDITY
METHOD OF FINANCING
Transco funds its capital requirements with cash flows from operating
activities, including the sale of trade receivables, repayments of funds
advanced to Williams, borrowings under the Credit Agreement and short-term money
market facilities and, if required, advances from Williams. In 1996, Transco
also plans to access capital markets to refinance current maturities of existing
long-term debt. At March 31, 1996 there were no outstanding borrowings under the
Credit Agreement or the short-term money market facilities and advances due
Transco by Williams totaled $82 million.
CAPITALIZATION AND CASH FLOWS
As shown in the following table, at March 31, 1996, the percentage of total
debt to total invested capital was 27.2%, compared to 27.5% at December 31,
1995.
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(In Millions)
<S> <C> <C>
Common Stockholder's Equity $ 1,756.6 $ 1,736.8
Preferred Stock - -
Long-term Debt, Less Current Maturities 406.8 382.0
----------- -----------
Total Capitalization 2,163.4 2,118.8
Current Maturities of Long-term Debt 250.7 277.1
----------- -----------
Total Invested Capital $ 2,414.1 $ 2,395.9
=========== ===========
Long-term Debt, Less Current Maturities, as a Percentage
of Total Capitalization 18.8% 18.0%
Common Stockholder's Equity as a Percentage of Total Capitalization 81.2% 82.0%
Total Debt as a Percentage of Total Invested Capital 27.2% 27.5%
</TABLE>
For purposes of the discussion of variances between the three months ended
March 31, 1996 and the three months ended March 31, 1995, the pre-acquisition
and post-acquisition periods presented in the accompanying consolidated
financial statements for the three months ended March 31, 1995 have been
combined for a pro forma presentation of cash flows for the first three months
of 1995.
<PAGE>
Three Months
Ended March 31,
-----------------
1996 1995
---- ------
(In Millions)
Cash Flows Provided by (Used in) Operating Activities $6.8 $(77.0)
==== ======
Net cash flows provided by operating activities for the three months ended
March 31, 1996 were $83.8 million higher than for the three months ended March
31, 1995, primarily due to the collection of revenues in 1996 subject to refund
under the RP95-197 general rate case and amounts refunded to customers in 1995
under the RP92-137 general rate case.
Three Months
Ended March 31,
-----------------
1996 1995
---- ----
(In Millions)
Cash Flows Used in Financing Activities $ - $14.6
==== =====
Net cash flows used in financing activities for the three months ended
March 31, 1995 included cash outflows for the retirement of $50 million of
preferred stock by Transco, partly offset by borrowings of $20 million by
Transco under the Credit Agreement and net advances from TEC of $17 million.
Three Months
Ended March 31,
-----------------
1996 1995
----- -----
(In Millions)
Cash Flows Provided by (Used in) Investing Activities $(7.7) $94.3
===== =====
For the three months ended March 31, 1996, net cash flows used in investing
activities primarily consisted of $29 million for capital expenditures for
property, plant and equipment as shown in the following table. This amount was
partly offset by the repayment by Williams of advances by Transco of $22
million.
For the three months ended March 31, 1995, net cash flows provided by
investing activities primarily included the net repayment of advances to TEC of
$116 million and proceeds of $12 million from the sale of an interest in the
Mobile Bay lateral, partly offset by capital expenditures of $33 million for
property, plant and equipment as shown in the following table.
<PAGE>
Three Months
Ended March 31,
-------------------
Capital Expenditures 1996 1995
- -------------------- ------ ------
(In Millions)
Market-Area Projects $ 6.5 $ 11.2
Maintenance of Existing Facilities and Other Projects 22.0 22.1
------ ------
Total Capital Expenditures $ 28.5 $ 33.3
====== ======
OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES
Transco's capital requirements and contingencies are discussed in its 1995
Annual Report on Form 10-K. Other than described in Note C of the Notes to
Condensed Consolidated Financial Statements, there have been no new developments
from those described in Transco's 1995 Annual Report on Form 10-K with regard to
other capital requirements and contingencies.
CONCLUSION
Although no assurances can be given, Transco currently believes that the
aggregate of cash flows from operating activities, supplemented, when necessary,
by repayments of funds advanced to Williams, advances or capital contributions
from Williams and borrowings under the Credit Agreement or short-term money
market facilities, will provide Transco with sufficient liquidity to meet its
capital requirements. When necessary, Transco also expects to be able to access
public and private markets to finance its capital requirements.
<PAGE>
RESULTS OF OPERATIONS
As a result of the change in control of Transco on January 18, 1995 and the
effects of the allocation of the purchase price, Transco's Condensed
Consolidated Statement of Income for the three months ended March 31, 1995 has
been segregated into a pre-acquisition period ending January 17, 1995 and a
post-acquisition period beginning January 18, 1995. For purposes of the
discussion of variances between the three months ended March 31, 1996 and the
three months ended March 31, 1995, the pre-acquisition and post-acquisition
periods for the three months ended March 31, 1995 have been combined for a pro
forma presentation of results of operations for the first three months of 1995.
COMMON STOCK EQUITY IN NET INCOME AND OPERATING INCOME
Transco's common stock equity in net income for the three months ended
March 31, 1996 was $28.1 million, compared with common stock equity in net
income of $10.4 million for the three months ended March 31, 1995. The results
for the three months ended March 31, 1995 include an after-tax charge of $15.3
million, to provide for executive severance and termination benefits,
substantially all of which were not deductible for federal income tax purposes.
Excluding this charge, Transco's common stock equity in net income for the three
months ended March 31, 1995 would have been $25.7 million.
Excluding the 1995 charge for executive severance and termination benefits,
the higher common stock equity in net income of $2.4 million for the three
months ended March 31, 1996 was primarily due to lower net interest expense of
$2.9 million and preferred stock dividends savings of $0.9 million. Operating
income for the three months ended March 31, 1996 of $57.8 million was comparable
to operating income of $57.1 million (excluding the pre-tax charge of $16.0
million for executive severance and termination benefits) for the three months
ended March 31, 1995.
Because of its rate structure and historical maintenance schedule, Transco
typically experiences its greatest profitability in the first and fourth
quarters of the year.
OPERATING EXPENSES
Excluding the pre-tax effects of the charge for executive severance and
termination benefits in 1995 and the cost of sales and transportation of $288
million for the three months ended March 31, 1996, and $183 million for the
three months ended March 31, 1995, Transco's operating expenses for the three
months ended March 31, 1996, were approximately $5.6 million higher than the
first quarter of 1995. The increase was mainly due to higher depreciation and
amortization of $7.3 million, primarily greater amortization of amounts
allocated to Transco's property, plant and equipment from the Williams purchase
price of $4.9 million; increased operation and maintenance expenses of $0.5
million; and increased taxes - other than income of $0.7 million; partly offset
by
<PAGE>
lower administrative and general expenses of $2.6 million, primarily a $1.2
million decrease in office building rent.
TRANSPORTATION SERVICES
Transco's operating revenues related to its transportation services were
$177 million for the quarter ended March 31, 1996, compared to $176 million for
the first quarter of 1995. The slight improvement includes the benefits of phase
one of the 1995/1996 Southeast Expansion Project placed into service in late
1995.
As shown in the table below, Transco's total market-area deliveries for the
first three months of 1996 increased 33.0 TBtu, or 9%, when compared to the 1995
first quarter. The increased deliveries were mainly due to prolonged cold
weather in the market area in the first quarter of 1996.
The production-area deliveries for the first three months of 1996,
increased 18.7 TBtu, or 48%, when compared to the 1995 first quarter, due
primarily to prolonged cold weather in the market area in the first quarter of
1996.
As a result of a straight fixed-variable (SFV) rate design, the increase in
total system deliveries had no significant impact on operating income.
Three Months
Ended March 31,
------------------
Transco System Deliveries (TBtu) 1996 1995
- -------------------------------- ---- -----
Market-area deliveries:
Long-haul transportation 261.8 224.3
Market-area transportation 139.5 144.0
----- -----
Total market-area deliveries 401.3 368.3
Production-area transportation 57.8 39.1
----- -----
Total system deliveries 459.1 407.4
===== =====
Average Daily Transportation Volumes (TBtu) 5.0 4.5
Average Daily Firm Reserved Capacity (TBtu) 4.9 5.1
Transco's facilities are divided into seven rate zones. Four are located in
the production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production-area transportation
is gas that is both received and delivered within production-area zones.
See Note C of the Notes to Condensed Consolidated Financial Statements for a
discussion of Transco's rate and regulatory matters.
<PAGE>
SALES SERVICES
Transco makes jurisdictional merchant gas sales to customers pursuant to a
blanket sales certificate issued by the FERC, with most of those sales being
made through a Firm Sales (FS) program which gives customers the option to
purchase daily quantities of gas from Transco at market-responsive prices in
exchange for a demand charge payment.
Through an agency agreement, WESCO manages all jurisdictional merchant gas
sales of Transco, receives all margins associated with such business and, as
Transco's agent, assumes all market and credit risk associated with Transco's
jurisdictional merchant gas sales. Consequently, Transco's merchant gas sales
service has no impact on its operating income or results of operations.
Transco's operating revenues related to its sales services increased $113
million to $264 million for the first quarter of 1996, when compared to the same
period in 1995. This increase was primarily due to sharply higher gas prices in
Transco's jurisdictional merchant sales services. However, this increase in
revenues had no effect on Transco's operating or net income variances when
compared to the prior year since the increase in revenues was offset by a
corresponding increase in the cost of sales.
Three Months
Ended March 31,
-----------------
Gas Sales Volumes (TBtu) 1996 1995
- ------------------------ ---- ----
Long-term sales 64.4 55.6
Short-term sales 16.6 28.6
---- ----
Total gas sales 81.0 84.2
==== ====
STORAGE SERVICES
Transco's operating revenues for the first quarter of 1996 related to its
storage services decreased $3.5 million when compared to the first quarter of
1995. This decrease in revenues was offset by a corresponding decrease in
underground storage costs included in operation and maintenance expenses.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion of legal proceedings in Note C of the Notes to
Condensed Consolidated Financial Statements included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant)
Dated: May 13, 1996 By /s/ Nick A. Bacile
----------------------------------
Nick A. Bacile
Vice President and Controller
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996, CONTAINED IN TRANSCONTINENTAL
GAS PIPE LINE CORPORATION'S 1996 FIRST QUARTER REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,711
<SECURITIES> 0
<RECEIVABLES> 62,598
<ALLOWANCES> 0
<INVENTORY> 68,573
<CURRENT-ASSETS> 428,251
<PP&E> 3,477,805
<DEPRECIATION> 215,021
<TOTAL-ASSETS> 3,898,111
<CURRENT-LIABILITIES> 703,240
<BONDS> 406,778
<COMMON> 0
0
0
<OTHER-SE> 1,756,614
<TOTAL-LIABILITY-AND-EQUITY> 3,898,111
<SALES> 264,077
<TOTAL-REVENUES> 479,227
<CGS> 264,010
<TOTAL-COSTS> 386,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,146
<INCOME-PRETAX> 45,948
<INCOME-TAX> 17,819
<INCOME-CONTINUING> 28,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,129
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
