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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 215-2000
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE,
OUTSTANDING AS OF JUNE 30, 1997 WAS 100.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
1
<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 consolidated financial statements and
notes thereto in Transco's 1996 Annual Report on Form 10-K and 1997 First
Quarter Report on Form 10-Q. 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 June 30, 1997, and results
of operations for the three months and six months ended June 30, 1997 and 1996,
and cash flows for the six months ended June 30, 1997 and 1996.
2
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- ----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,221 $ 1,774
Receivables:
Affiliates 11,865 4,837
Others 12,890 51,011
Advances to affiliates 35,987 148,496
Transportation and exchange gas receivables:
Affiliates 22,019 22,111
Others 66,596 72,900
Inventories 99,707 69,461
Deferred income tax asset 77,185 76,192
Other 20,043 19,807
--------------- ----------------
Total current assets 347,513 466,589
--------------- ----------------
Investments 11,417 5,865
--------------- ----------------
Property, Plant and Equipment :
Natural gas transmission plant 3,824,498 3,738,550
Less-Accumulated depreciation and amortization 399,601 318,234
-------------- ----------------
Total property, plant and equipment, net 3,424,897 3,420,316
-------------- ----------------
Other Assets 157,198 166,757
-------------- ----------------
$ 3,941,025 $ 4,059,527
=============== ================
</TABLE>
The accompanying condensed notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- --------------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 7,630 $ 99,000
Payables:
Affiliates 45,463 70,283
Others 54,939 84,026
Transportation and exchange gas payables:
Affiliates 197 190
Other 25,179 27,050
Accrued liabilities 123,196 104,289
Reserve for rate refunds 131,183 172,823
---------------- --------------
Total current liabilities 387,787 557,661
---------------- --------------
Long-Term Debt 673,074 681,076
---------------- --------------
Other Long-Term Liabilities:
Deferred income taxes 834,040 833,928
Other 177,803 167,648
---------------- --------------
Total other long-term liabilities 1,011,843 1,001,576
---------------- --------------
Commitments and contingencies (Note 3)
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 215,891 166,784
---------------- --------------
Total common stockholder's equity 1,868,321 1,819,214
---------------- --------------
$ 3,941,025 $ 4,059,527
================ ==============
</TABLE>
The accompanying condensed notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 151,952 $ 190,984
Natural gas transportation 151,671 163,097
Natural gas storage 34,561 36,148
Other 1,914 1,347
------------------ ------------------
Total operating revenues 340,098 391,576
------------------ ------------------
Operating Costs and Expenses:
Cost of natural gas sales 151,952 191,050
Cost of natural gas transportation 8,168 19,861
Operation and maintenance 48,258 50,502
Administrative and general 30,084 31,838
Depreciation and amortization 39,275 44,717
Taxes - other than income taxes 9,396 9,076
Other 212 298
------------------ ------------------
Total operating costs and expenses 287,345 347,342
------------------ ------------------
Operating Income 52,753 44,234
------------------ ------------------
Other (Income) and Other Deductions:
Interest expense 16,125 16,510
Interest income - affiliates (1,168) (1,069)
- other (8) (202)
Allowance for equity and borrowed funds used during
construction (AFUDC) (1,543) (1,519)
Miscellaneous other deductions, net 675 961
------------------ ------------------
Total other deductions 14,081 14,681
------------------ ------------------
Income before Income Taxes 38,672 29,553
Provision for Income Taxes 14,917 11,510
------------------ ------------------
Net Income $ 23,755 $ 18,043
================== ==================
</TABLE>
The accompanying condensed notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 311,461 $ 455,061
Natural gas transportation 307,878 339,785
Natural gas storage 71,152 72,920
Other 4,121 3,037
------------------ --------------------
Total operating revenues 694,612 870,803
------------------ --------------------
Operating Costs and Expenses:
Cost of natural gas sales 311,461 455,060
Cost of natural gas transportation 18,980 44,052
Operation and maintenance 91,898 96,022
Administrative and general 61,823 64,584
Depreciation and amortization 78,069 90,165
Taxes - other than income taxes 18,660 18,325
Other 804 514
------------------ -------------------
Total operating costs and expenses 581,695 768,722
------------------ -------------------
Operating Income 112,917 102,081
------------------ -------------------
Other (Income) and Other Deductions:
Interest expense 33,315 29,656
Interest income - affiliates (2,298) (2,200)
- other (8) (256)
Allowance for equity and borrowed funds used during
construction (AFUDC) (3,343) (2,558)
Miscellaneous other deductions, net 1,243 1,938
------------------ -------------------
Total other deductions 28,909 26,580
------------------ -------------------
Income before Income Taxes 84,008 75,501
Provision for Income Taxes 32,582 29,329
------------------ -------------------
Net Income $ 51,426 $ 46,172
================== ====================
</TABLE>
The accompanying condensed notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 51,426 $ 46,172
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 81,744 92,726
Deferred income taxes (881) (40,673)
Allowance for equity funds used during construction (AFUDC) (2,310) (1,739)
Changes in operating assets and liabilities:
Receivables 31,093 8,917
Transportation and exchange gas receivables 6,396 24,153
Inventories (30,247) (13,541)
Payables (45,518) (84,400)
Transportation and exchange gas payables (1,864) (32,727)
Accrued liabilities 18,885 (37,797)
Reserve for rate refunds (41,640) 60,462
Other, net 18,922 21,421
---------------- ---------------
Net cash provided by operating activities 86,006 42,974
---------------- ---------------
Cash flows from financing activities:
Additions to long-term debt - 100,000
Retirement of long-term debt (99,000) (125,000)
Debt issue costs (146) (157)
Dividends on common stock (2,319) -
---------------- ---------------
Net cash used in financing activities (101,465) (25,157)
---------------- ---------------
Cash flows from investing activities:
Property, plant and equipment:
Additions, net of equity AFUDC (84,269) (89,717)
Changes in accounts payable and accrued liabilities (8,389) (3,235)
Advances to affiliates, net 112,509 76,536
Other, net (4,945) (1,759)
---------------- ---------------
Net cash provided by (used in) investing activities 14,906 (18,175)
---------------- ---------------
Net decrease in cash (553) (358)
Cash at beginning of period 1,774 2,557
---------------- ---------------
Cash at end of period $ 1,221 $ 2,199
================ ===============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for :
Interest (exclusive of amount capitalized) $ 37,341 $ 27,842
Income taxes paid 19,986 8,616
Income tax refunds received (11,759) (417)
</TABLE>
The accompanying condensed notes are an
integral part of these condensed consolidated financial statements.
7
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE STRUCTURE AND CONTROL
Effective May 1, 1997, Transcontinental Gas Pipe Line Corporation (Transco)
became a wholly-owned subsidiary of Williams Interstate Natural Gas Systems,
Inc., which is a wholly-owned subsidiary of The Williams Companies, Inc.
(Williams). Prior to May 1, 1997, Transco was a wholly-owned subsidiary of
Williams.
2. 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 consolidated financial statements and the notes thereto included in
Transco's 1996 Annual Report on Form 10-K and included in Transco's 1997 First
Quarter Report on Form 10-Q.
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 1996 financial statements
to conform to the 1997 presentation.
3. CONTINGENT LIABILITIES AND COMMITMENTS
There have been no new developments from those described in Transco's 1996
Annual Report on Form 10-K or 1997 First Quarter Report on Form 10-Q other than
as described below.
8
<PAGE>
RATE AND REGULATORY MATTERS
GENERAL RATE CASE (DOCKET NO. RP97-71)
On November 1, 1996, Transco submitted to the Federal Energy Regulatory
Commission (FERC) a general rate case filing principally designed to recover
costs associated with increased capital expenditures. These increased capital
expenditures primarily relate to system reliability, integrity and Clean Air Act
compliance.
When stated on a comparable basis, the rates Transco placed into effect on
May 1, 1997, represent an annual cost of service increase of approximately $47
million over the cost of service underlying the rates contained in the
settlement of Transco's last general rate filing (Docket No. RP95-197). The
rates, which are subject to refund, are designed using the straight
fixed-variable rate design method.
GENERAL RATE CASE (DOCKET NO. RP95-197)
On June 19, 1996, Transco filed a Stipulation and Agreement and settlement
rates. The agreement resolves cost of service (subject to the outcome of capital
structure and rate of return in the Phase I proceeding), throughput level and
mix, and certain cost allocation and rate design issues. The agreement also
reserves certain other issues for hearing in Phase II, including the issue of
rolled-in pricing for incremental Leidy Line services. With the exception of one
party that filed comments opposing the settlement and one party that took no
position on the merits of the settlement, all active parties and the FERC's
staff either supported the settlement or did not oppose it. On November 1, 1996,
the FERC issued an order approving the June 19 agreement, and on February 3,
1997 approved an order denying rehearing of its November 1, 1996 order. As a
result, Transco made refunds on May 30, 1997 of approximately $79.0 million,
including interest, under Docket No. RP95-197 for which Transco had previously
provided a reserve.
On August 1, 1997, the FERC issued an order modifying the initial decision
issued on December 18, 1996 by the Administrative Law Judge (ALJ) in the Phase I
proceeding determining the capital structure and rate of return for Transco. As
to capital structure, the FERC reversed the ALJ's use of the Williams capital
structure, and applied a new modified capital structure policy to find that
Transco's own capital structure, consisting of 57.58 percent equity, should be
used for developing the rate of return in this proceeding. As to rate of return
on equity, the FERC affirmed the overall methodology used by the ALJ in his
initial decision, but reversed the ALJ's decision in order to revise the manner
in which the long-range growth component of that methodology is determined to be
consistent with the FERC's recent decisions on that issue. The order requires
that Transco make a compliance filing consistent with the revised methodology,
and states that refunds will be determined once the FERC rules on that
compliance filing. Transco has provided a reserve which it believes is adequate
for any required refunds.
9
<PAGE>
RATE OF RETURN CALCULATION
As discussed above, the FERC recently issued an order addressing, among
other things, the authorized rate of return for Transco's 1995 rate case (Docket
No. 95-197). In the order, the FERC continued its practice of utilizing a
methodology for calculating rates of return that incorporates a long-term growth
rate component. The long-term growth rate component used by the FERC is now a
projection of U.S. gross domestic product growth rates. Generally, calculating
rates of return utilizing a methodology which includes a long-term growth rate
component results in rates of return that are lower than they would be if the
long-term growth rate component were not included in the methodology. Transco
intends to challenge the FERC order in an effort to have the FERC change its
rate of return methodology with respect to both pending and future rate cases.
SUMMARY
While no assurances may be given, Transco does not believe that the
ultimate resolution of the foregoing matters and those described in Transco's
1996 Annual Report on Form 10-K and 1997 First Quarter Report on Form 10-Q,
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.
4. DEBT AND FINANCING ARRANGEMENTS
LONG-TERM DEBT
Williams and certain of its subsidiaries, including Transco, are parties to
a $1 billion credit agreement (Credit Agreement), under which Transco can borrow
up to $400 million. Interest rates vary with current market conditions based on
the base rate of Citibank N.A., three-month certificates of deposit of major
United States money market banks, federal funds rate or the London Interbank
Offered Rate. As of June 30, 1997, Transco had no outstanding borrowings under
this agreement.
On January 15, 1997, Transco redeemed $99 million of its 8-1/8% Notes.
On July 31, 1997, Transco entered into a $150 million, five-year bank
agreement, with variable interest rates based on the London Interbank Offered
Rate.
SHORT-TERM DEBT
Transco is a party to three short-term money market facilities under which
it can borrow up to an aggregate of $135 million. Interest rates vary with
current market conditions based on the applicable bank's rate at the time of the
borrowings. As of June 30, 1997, Transco had no outstanding borrowings under
these facilities.
10
<PAGE>
SALE OF RECEIVABLES
Transco is a party to an agreement that expires in February 1998 pursuant
to which Transco can sell to an investor up to $100 million of undivided
interests in certain of its trade receivables. At both June 30, 1997 and
December 31, 1996, interests in $100 million of these receivables were held by
the investor. On July 31, 1997, Transco reduced the level of trade receivables
sold to $88 million.
The Financial Accounting Standards Board issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," effective for transactions occurring after December 31, 1996. The
adoption of this standard had no significant impact on Transco's consolidated
results of operations, financial position or cash flows.
11
<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
consolidated financial statements, notes and management's discussion contained
in Items 7 and 8 of Transco's 1996 Annual Report on Form 10-K and in Transco's
1997 First Quarter Report on Form 10-Q and with the condensed consolidated
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, by accessing capital
markets, by repayments of funds advanced to Williams, by borrowings under the
Credit Agreement and short-term money market facilities and, if required,
advances from Williams. At June 30, 1997 there were no outstanding borrowings
under the Credit Agreement or the short-term money market facilities. Advances
due Transco by Williams totaled $36 million.
On July 31, 1997, Transco entered into a $150 million, five-year bank
agreement, with variable interest rates based on the London Interbank Offered
Rate. Proceeds will be used for general corporate purposes.
In the second half of 1997, Transco also plans to access capital markets to
fund its expansion projects and other general corporate requirements. Transco
believes any additional financing can be obtained on reasonable terms.
CAPITAL EXPENDITURES
As shown in the table below, Transco's capital expenditures, for the six
months ended June 30, 1997 were $92.7 million, compared to $93.0 million for the
six months ended June 30, 1996.
Six Months
Ended June 30,
--------------------
Capital Expenditures 1997 1996
- -------------------- ----------- -------
(In Millions)
Market-Area Projects $ 31.9 $ 14.7
Supply-Area Projects 7.3 -
Maintenance of Existing Facilities and Other Projects 53.5 78.3
----------- -------
Total Capital Expenditures $ 92.7 $ 93.0
=========== =======
Transco's capital expenditure budget for 1997 and future capital projects
are discussed in its 1996 Annual Report on Form 10-K and 1997 First Quarter
Report on Form 10-Q.
12
<PAGE>
The following describes any developments related to those projects and any
new projects proposed by Transco.
INDEPENDENCE PIPELINE PROJECT In March 1997, Independence Pipeline Company
filed for FERC approval to construct and operate a pipeline consisting of
approximately 370 miles of 36-inch diameter pipe with an anticipated annual gas
transportation capacity of 838.5 million cubic feet per day (MMcf/d). The
pipeline will extend from ANR Pipeline Company's (ANR) existing compressor
station at Defiance, Ohio to Transco's facilities at Leidy, Pennsylvania. A
non-binding open season, which began April 2, 1997 and ended on May 30, 1997,
drew annual capacity requests for more than 750 MMcf/d from eleven potential
shippers. Negotiations for precedent agreements are ongoing with these and other
interested parties. A wholly-owned subsidiary of Transco currently holds a 50%
interest in the project, which is expected to be in service for the 1999-2000
winter heating season.
MARKETLINK EXPANSION PROJECT In March 1997, Transco announced its
MarketLink Expansion Project. MarketLink will expand Transco's Leidy Line and
market-area mainline facilities, providing the final transportation link for
several recently announced pipeline projects designed to transport Canadian and
Rocky Mountain gas supplies to eastern markets. The level of market commitment
indicated during a 60-day open season that ended May 30, 1997 will determine the
facilities, capacity and capital cost of the project. MarketLink received
non-binding nominations during the open season in excess of one billion cubic
feet of gas per day. Transco plans to file for FERC approval of the project
during the first quarter of 1998. It is targeted to be in service by November 1,
1999.
OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES
Transco's capital requirements and contingencies are discussed in its 1996
Annual Report on Form 10-K. Other than described below, in Note 3 of the Notes
to Condensed Consolidated Financial Statements and in Transco's 1997 First
Quarter Report on Form 10- Q, there have been no new developments from those
described in Transco's 1996 Annual Report on Form 10-K with regard to other
capital requirements and contingencies.
RATE AND REGULATORY REFUNDS As discussed in Note 3 of the Notes to
Condensed Consolidated Financial Statements, on May 1, 1997, Transco placed into
effect new rates, subject to refund, under Docket No. RP97-71. Transco has
provided reserves which it believes is adequate for any refunds that may be
required under Docket Nos. RP95-197 and RP97-71.
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. Transco also expects to access public and private markets
on reasonable terms to finance its capital requirements.
13
<PAGE>
RESULTS OF OPERATIONS
NET INCOME AND OPERATING INCOME
Transco's net income for the six months ended June 30, 1997 was $51.4
million compared to net income of $46.2 million for the six months ended June
30, 1996. Operating income for the six months ended June 30, 1997 was $112.9
million compared to $102.1 million for the six months ended June 30, 1996. The
higher operating income of $10.8 million was primarily attributable to lower
administrative and general expenses and operation and maintenance expenses and
higher revenues due to the benefits of the final phase of the Southeast
Expansion Projects placed in service in late 1996 and other capital projects
included in Docket No. RP97-71 placed into effect on May 1, 1997. The positive
operating income variance was partially offset at the net income level by higher
interest expense of $3.7 million due primarily to funding of capital projects
during the last half of 1996 and the first half of 1997, partially offset by a
greater allowance for funds used during construction of $0.8 million.
OPERATING EXPENSES
Excluding the cost of sales and transportation of $330 million for the six
months ended June 30, 1997 and $499 million for the comparable period in 1996,
Transco's operating expenses for the six months ended June 30, 1997, were
approximately $18.4 million lower than the comparable period in 1996. The
decrease was due to lower depreciation and amortization of $12.1 million, lower
operation and maintenance expenses of $4.1 million and lower administrative and
general expense of $2.8 million. The lower depreciation and amortization was due
to a reduction in depreciation rates that were established in Transco's June
1996 Stipulation and Agreement in Docket No. RP95-197 and that continued to be
reflected in rates in Docket No. RP97-71. However, the effects of the lower
depreciation rates on depreciation and amortization were offset by a
corresponding decrease in revenues. The lower operation and maintenance expense
was primarily due to a $3.0 million decrease in miscellaneous contractual
services, a $1.7 million decrease in lube oil and odorants expense and a $1.3
million decrease in other supplies and expenditures, partly offset by a $1.4
million increase in charges from others for the operation of certain Transco
facilities. The lower administrative and general expense was primarily due to a
$3.8 million decrease in the cost of employee benefits, a $0.7 million decrease
in property and liability insurance and a $0.6 million decrease in office
building rent, partly offset by a $2.6 million increase in labor costs.
TRANSPORTATION SERVICES
Transco's operating revenues related to its transportation services for the
six months ended June 30, 1997 were $308 million, compared to $340 million for
the six months ended June 30, 1996. The lower transportation revenues were
primarily due to lower gas transportation costs charged to Transco by others and
lower depreciation costs that are recovered in Transco's rates, partly offset by
the benefits of the final phase of the Southeast Expansion Projects placed in
service in late 1996 and other capital projects included in Docket No. RP97-71
placed into effect on May 1, 1997.
14
<PAGE>
As shown in the table below, Transco's total market-area deliveries and
production-area deliveries for the six months ended June 30, 1997 decreased 20.1
TBtu (3%) and 8.8 TBtu (8%), respectively, when compared to the same period in
1996. The decreased deliveries were mainly due to milder weather conditions in
the first quarter of 1997 as compared to the same period in 1996.
As a result of a straight fixed-variable (SFV) rate design, increases or
decreases in system deliveries have no significant impact on operating income.
Six Months
Ended June 30,
---------------------
Transco System Deliveries (TBtu) 1997 1996
- -------------------------------- ---- ----
Market-area deliveries:
Long-haul transportation 472.2 488.8
Market-area transportation 220.9 224.4
------ ------
Total market-area deliveries 693.1 713.2
Production-area transportation 98.2 107.0
------ ------
Total system deliveries 791.3 820.2
====== ======
Average Daily Transportation Volumes (TBtu) 4.4 4.5
Average Daily Firm Reserved Capacity (TBtu) 5.4 5.0
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 3 of the Notes to Condensed Consolidated Financial Statements for a
discussion of recent developments in Transco's rate and regulatory matters.
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.
15
<PAGE>
Transco's operating revenues for the six months ended June 30, 1997 related
to its sales services decreased $144 million to $311 million, when compared to
the same period in 1996. The decrease was primarily due to a significantly lower
volume of gas sales in Transco's jurisdictional merchant sales services as shown
in the table below. However, this decrease in revenues had no effect on
Transco's operating or net income variances when compared to the prior year
since the decrease in revenues was offset by a corresponding decrease in the
cost of sales.
Six Months
Ended June 30,
-------------------
Gas Sales Volumes (TBtu) 1997 1996
- ------------------------ ---- ----
Long-term sales 97.4 120.8
Short-term sales 5.0 28.6
----- ------
Total gas sales 102.4 149.4
===== ======
STORAGE SERVICES
Transco's operating revenues related to storage services of $71.2 million
for the six months ended June 30, 1997 were comparable to storage revenues of
$72.9 million in the same period in 1996.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion of legal proceedings in Note 3 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
17
<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: August 14, 1997 By /s/ Nick A. Bacile
----------------------------------
Nick A. Bacile
Vice President and Controller
(Principal Financial Officer)
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997, CONTAINED IN TRANSCONTINENTAL GAS PIPE
LINE CORPORATION'S 1997 SECOND QUARTER REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,221
<SECURITIES> 0
<RECEIVABLES> 10,778
<ALLOWANCES> 0
<INVENTORY> 99,707
<CURRENT-ASSETS> 347,513
<PP&E> 3,824,498
<DEPRECIATION> 399,601
<TOTAL-ASSETS> 3,941,025
<CURRENT-LIABILITIES> 387,787
<BONDS> 673,074
0
0
<COMMON> 0
<OTHER-SE> 1,868,321
<TOTAL-LIABILITY-AND-EQUITY> 3,941,025
<SALES> 311,461
<TOTAL-REVENUES> 694,612
<CGS> 311,461
<TOTAL-COSTS> 519,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,315
<INCOME-PRETAX> 84,008
<INCOME-TAX> 32,582
<INCOME-CONTINUING> 51,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,426
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
