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, 1998
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 MARCH 31, 1998 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.
<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 1997 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, 1998, and results of operations and cash flows for the three months
ended March 31, 1998 and 1997.
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Transco believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be achieved. Such statements are made in
reliance on the "safe harbor" protections provided under the Private Securities
Reform Act of 1995. Additional information about issues that could lead to
material changes in performance is contained in Transco's 1997 Annual Report on
Form 10-K.
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,429 $ 1,321
Receivables:
Affiliates 1,035 868
Others 25,880 27,493
Advances to affiliates 432,485 281,454
Transportation and exchange gas receivables:
Affiliates 25,787 23,567
Others 64,789 66,825
Inventories 67,593 84,240
Deferred income tax asset 71,261 90,672
Other 21,052 17,570
----------------- -----------------
Total current assets 711,311 594,010
----------------- -----------------
Investments 6,896 7,072
----------------- -----------------
Property, Plant and Equipment:
Natural gas transmission plant 4,014,777 3,977,620
Less-Accumulated depreciation and amortization 514,346 477,667
----------------- -----------------
Total property, plant and equipment, net 3,500,431 3,499,953
----------------- -----------------
Other Assets 180,587 166,628
----------------- -----------------
$ 4,399,225 $ 4,267,663
================= =================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Payables:
Affiliates $ 44,180 $ 44,749
Others 58,256 90,486
Transportation and exchange gas payables:
Affiliates 381 374
Others 16,000 18,033
Accrued liabilities 98,650 130,594
Reserve for rate refunds 237,229 204,554
---------------- ----------------
Total current liabilities 454,696 488,790
---------------- ----------------
Long-Term Debt 976,071 837,832
---------------- ----------------
Other Long-Term Liabilities:
Deferred income taxes 842,427 843,108
Other 164,094 171,586
---------------- ----------------
Total other long-term liabilities 1,006,521 1,014,694
---------------- ----------------
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 309,507 273,917
---------------- ----------------
Total common stockholder's equity 1,961,937 1,926,347
---------------- ----------------
$ 4,399,225 $ 4,267,663
================ ================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<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
March 31, 1998 March 31, 1997
-------------------- --------------------
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 132,720 $ 159,509
Natural gas transportation 164,869 157,517
Natural gas storage 38,132 36,591
Other 3,650 897
-------------------- --------------------
Total operating revenues 339,371 354,514
-------------------- --------------------
Operating Costs and Expenses:
Cost of natural gas sales 132,720 159,508
Cost of natural gas transportation 10,194 10,813
Operation and maintenance 44,394 43,640
Administrative and general 29,993 31,739
Depreciation and amortization 40,627 38,794
Taxes - other than income taxes 9,073 9,264
Other 415 592
-------------------- --------------------
Total operating costs and expenses 267,416 294,350
-------------------- --------------------
Operating Income 71,955 60,164
-------------------- --------------------
Other (Income) and Other Deductions:
Interest expense 22,605 17,190
Interest income - affiliates (6,598) (1,130)
- other (53) -
Allowance for equity and borrowed funds used during
construction (AFUDC) (2,019) (1,800)
Miscellaneous other deductions, net 639 568
-------------------- --------------------
Total other deductions 14,574 14,828
-------------------- --------------------
Income before Income Taxes 57,381 45,336
Provision for Income Taxes 21,791 17,665
-------------------- --------------------
Net Income $ 35,590 $ 27,671
==================== ====================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 35,590 $ 27,671
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 42,147 40,627
Deferred income taxes 18,729 (115)
Allowance for equity funds used during construction (AFUDC) (1,460) (1,243)
Changes in operating assets and liabilities:
Receivables 8,445 48,953
Receivables sold (7,000) (16,000)
Transportation and exchange gas receivables (184) 7,685
Inventories 16,647 (41,261)
Payables (25,974) (63,458)
Transportation and exchange gas payables (2,026) (978)
Accrued liabilities (31,944) 9,740
Reserve for rate refunds 32,675 13,058
Other, net (22,971) 14,848
------------- -------------
Net cash provided by operating activities 62,674 39,527
------------- -------------
Cash flows from financing activities:
Additions to long-term debt 298,343 -
Retirement of long-term debt (160,000) (99,000)
Debt issue costs (2,060) (39)
Dividends on common stock - (841)
------------- -------------
Net cash provided by (used in) financing activities 136,283 (99,880)
------------- -------------
Cash flows from investing activities: Property, plant and equipment:
Additions, net of equity AFUDC (42,928) (26,141)
Changes in accounts payable and accrued liabilities (6,825) (7,479)
Advances to affiliates, net (151,031) 95,411
Other, net 1,935 (1,805)
------------- -------------
Net cash provided by (used in) investing activities (198,849) 59,986
------------- -------------
Net increase (decrease) in cash 108 (367)
Cash at beginning of period 1,321 1,774
------------- -------------
Cash at end of period $ 1,429 $ 1,407
============= =============
Supplemental disclosures of cash flow information: Cash paid (refunded)
during the year for:
Interest (exclusive of amount capitalized) $ 15,999 $ 22,957
Income taxes paid 18,859 448
Income tax refunds received - (11,759)
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
1. CORPORATE STRUCTURE AND CONTROL
Transcontinental Gas Pipe Line Corporation (Transco) is a wholly-owned
subsidiary of Williams Gas Pipeline Company (WGP) (formerly Williams Interstate
Natural Gas Systems, Inc). WGP 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 1997 Annual Report on Form 10-K.
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 1997 financial statements
to conform to the 1998 presentation.
3. CONTINGENT LIABILITIES AND COMMITMENTS
There have been no new developments from those described in Transco's 1997
Annual Report on Form 10-K other than as described below.
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.
The filing also included (1) a pro-forma proposal to roll-in the costs of
Transco's Leidy Line and Southern expansion incremental projects and (2) a
pro-forma proposal to make interruptible transportation (IT) backhaul rates
equal to the IT forward haul rates. The pro-forma proposals would be made
effective prospectively only after final FERC approval.
On November 29, 1996, the FERC issued an order accepting Transco's filing,
suspending its effectiveness until May 2, 1997 and establishing a hearing to
examine the reasonableness of Transco's proposed rates. In addition, the order
consolidated Transco's pro-forma roll-in proposal with the Phase II hearing in
Docket No. RP95-197, and directed that the record in that proceeding be
supplemented to the extent necessary. On February 3, 1997, the FERC issued an
order on rehearing of its November 29, 1996 order which, among other things,
revised the effective date for the proposed rates to May 1, 1997.
On January 20, 1998, Transco filed a Stipulation and Agreement for
approval by the FERC, documenting a settlement with all of the active parties in
this proceeding. The settlement resolves all cost of service, throughput and
other issues in this proceeding, except rate of return, capital structure and
certain minor cost allocation and rate design issues. The issues not resolved by
the settlement are being litigated by the parties before a FERC Administrative
Law Judge (ALJ).
GENERAL RATE CASE (DOCKET NO. RP95-197) On March 24, 1998, the ALJ issued
an initial decision on the RP95-197 Phase II issues not resolved by the June 19,
1996, and October 9, 1996, settlements and on Transco's rolled-in pricing
proposal filed in Docket No. RP97-71 and consolidated with the RP95-197 Phase II
hearing issues. As to the main issue addressed in the decision, rolled-in
pricing, the ALJ determined that the proponents of roll-in, including Transco,
must satisfy the burden under Section 5 of the Natural Gas Act and demonstrate
that Transco's existing incremental rate treatment is unjust and unreasonable
and that the proposed rolled-in rate treatment is just and reasonable. The ALJ
ruled that neither Transco nor any of the other roll-in proponents had satisfied
that burden and, therefore, that Transco's existing incremental rate treatment
must remain in effect. The ALJ's initial decision is subject to review by the
FERC.
RATE OF RETURN CALCULATION On August 1, 1997, the FERC issued an order
addressing, among other things, the authorized rate of return for Transco's 1995
rate case (Docket No. RP95-197). 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 has sought rehearing of 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. On January 30, 1998, the FERC convened a public conference to
explore, among other things, possible modifications to the FERC's rate of return
methodology.
ORDER 636 On November 1, 1993, Transco implemented Order 636. Prior to its
implementation of Order 636, Transco received orders from the FERC which, among
other things, (i) required Transco to revise its throughput projection for rate
purposes to reflect a mix of throughput that includes a higher level of
interruptible transportation, (ii) accepted Transco's proposal for rolled-in
rate treatment of its Mobile Bay facilities and exempted Transco from having to
reflect Mobile Bay transportation volumes and related revenues in a separate
interruptible revenue crediting mechanism, (iii) approved a Stipulation and
Agreement filed with the FERC by Transco and its sales customers resolving
certain sales service issues and mooting potential issues regarding Transco's
recovery of gas supply realignment (GSR) costs associated with Transco's firm
sales service, and (iv) referred certain matters to the hearing in Docket No.
RP92-137.
Transco and certain other parties filed appeals of certain of the FERC's
orders to the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit). On
April 14, 1998, the D.C. Circuit denied all of the appeals.
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
1997 Annual Report on Form 10-K, 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 March 31, 1998, Transco had no outstanding
borrowings under this agreement.
On January 16, 1998, Transco issued $200 million of notes that mature on
January 15, 2005, and $100 million of notes that mature on January 15, 2008,
which pay interest at 6-1/8% and 6-1/4%, respectively, per annum on January 15
and July 15 of each year, beginning July 15, 1998. The notes are not subject to
redemption and have no sinking fund provisions. Proceeds from the notes were
used for general corporate purposes, including the repayment of $160 million
borrowed under the Credit Agreement.
SHORT-TERM DEBT
Transco is a party to two short-term money market facilities under which
it can borrow up to an aggregate of $90 million. Interest rates vary with
current market conditions based on the applicable bank's rate at the time of the
borrowings. As of March 31, 1998, Transco had no outstanding borrowings under
these facilities.
SALE OF RECEIVABLES
Transco is a party to an agreement that expires on January 29, 1999
pursuant to which Transco can sell to an investor up to $100 million of
undivided interests in certain of its trade receivables. At March 31, 1998 and
December 31, 1997, interests in $93 million and $100 million, respectively, of
these receivables were held by the investor.
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements, notes and management's narrative analysis
contained in Items 7 and 8 of Transco's 1997 Annual Report on Form 10-K and with
the condensed consolidated financial statements and notes contained in this
report.
RESULTS OF OPERATIONS
NET INCOME AND OPERATING INCOME
Transco's net income for the three months ended March 31, 1998 was $35.6
million compared to net income of $27.7 million for the three months ended March
31, 1997. Operating income for the three months ended March 31, 1998 was $72.0
million compared to $60.2 million for the three months ended March 31, 1997. The
higher operating income of $11.8 million was primarily attributable to revenues
from new rates placed into effect in May 1997 to recover costs associated with
increased capital expenditures and new services begun in the last half of 1997.
The increase in net income was attributable to the increased operating income.
Net interest expense was equal to the net interest expense for the three months
ended March 31, 1997.
OPERATING EXPENSES
Excluding the cost of sales and transportation of $143 million for the
three months ended March 31, 1998 and $170 million for the comparable period in
1997, Transco's operating expenses for the three months ended March 31, 1998,
were approximately $0.5 million higher than the comparable period in 1997. This
nominal increase was due to higher depreciation and amortization of $1.8 million
and slightly higher operation and maintenance expenses of $0.8 million, partly
offset by lower administrative and general expenses of $1.7 million. The higher
depreciation and amortization was due to recent capital expenditures included in
the general rate case in Docket No. RP97-71 and the expansion projects placed
into service in the last quarter of 1997. However, the effects on operating
income of the higher depreciation expense were substantially offset by a
corresponding increase in revenues. The higher operation and maintenance expense
was primarily due to a $1.4 million increase in underground storage expense, a
$0.6 million increase in lube oil and odorants expense and a $0.6 million
increase in charges from others for the operation of certain Transco facilities,
partly offset by an $0.8 million decrease in labor costs, a $0.5 million
decrease in miscellaneous contractual services, and a $0.5 million decrease in
other storage expense. As described below, the increase in underground storage
expense was largely offset by an increase in underground storage revenues. The
lower administrative and general expense was primarily due to a decrease in Gas
Research Institute charges that were offset by a corresponding revenue reduction
reflecting the pass through of such costs to customers.
<PAGE>
TRANSPORTATION REVENUES
Transco's operating revenues related to its transportation services for
the three months ended March 31, 1998 were $165 million, compared to $158
million for the three months ended March 31, 1997. The higher transportation
revenues were primarily due to new rates contained in the general rate case in
Docket No. RP97-71 placed into effect in May 1997 and the benefits of the
expansion projects placed into service in November 1997.
As shown in the table below, Transco's total market-area deliveries for
the three months ended March 31, 1998 increased 13.8 trillion British Thermal
Units (TBtu) (4%) when compared to the same period in 1997. The increased
deliveries were mainly due to 14.5 TBtu delivered under the Sunbelt Expansion
Project in the first quarter of 1998. Transco's production area deliveries for
the three months ended March 31, 1998 decreased 10.8 TBtu (18%) when compared to
the same period in 1997 as a result of milder weather conditions.
As a result of a straight fixed-variable (SFV) rate design, increases or
decreases in firm transportation volumes in comparable facilities have no
significant impact on operating income; however, because interruptible
transportation rates have components of fixed and variable cost recovery,
increases or decreases in interruptible transportation volumes do have an impact
on operating income.
Three Months
Ended March 31,
------------------------
Transco System Deliveries (TBtu) 1998 1997
- --------------------------------
--------- --------
Market-area deliveries:
Long-haul transportation 233.0 234.6
Market-area transportation 153.9 138.5
--------- --------
Total market-area deliveries 386.9 373.1
Production-area transportation 48.4 59.2
--------- --------
Total system deliveries 435.3 432.3
========= ========
Average Daily Transportation Volumes (TBtu) 4.8 4.8
Average Daily Firm Reserved Capacity (TBtu) 5.9 5.3
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 REVENUES
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 for the three months ended March 31, 1998
related to its sales services, including cash out sales in settlement of gas
imbalances, decreased $27 million to $133 million, when compared to the same
period in 1997. The decrease was primarily due to a lower average gas sales
price of $2.18 per dekatherm (Dt) in the first quarter of 1998 versus $2.85 per
Dt in 1997. However, this decrease in revenues had no effect on Transco's
operating income 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.
Three Months
Ended March 31,
-------------------------
Gas Sales Volumes (TBtu) 1998 1997
- ------------------------
-------- --------
Long-term sales 40.5 42.4
Short-term sales 9.0 2.8
-------- --------
Total gas sales 49.5 45.2
======== ========
STORAGE REVENUES
Transco's operating revenues related to storage services increased $1.5
million to $38.1 million for the three months ended March 31, 1998 when compared
to the same period in 1997. However, this increase in revenues was substantially
offset by a $1.4 million increase in underground storage costs included in
operation and maintenance expenses.
OTHER REVENUES
Other operating revenues increased $2.8 million to $3.7 million for the
three months ended March 31, 1998 when compared to the same period in 1997, due
to new services that began in July 1997 and increased liquids transportation.
<PAGE>
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 March 31, 1998, there were no outstanding borrowings
under the Credit Agreement or short-term money market facilities. Advances due
Transco by Williams totaled $432 million.
On January 16, 1998, Transco issued $200 million of notes that mature in
2005 and $100 million of notes that mature in 2008. Proceeds from these notes
were used for general corporate purposes, including the repayment of $160
million borrowed under the Credit Agreement.
CAPITAL EXPENDITURES
As shown in the table below, Transco's capital expenditures for the three
months ended March 31, 1998 were $49.8 million, compared to $33.6 million for
the three months ended March 31, 1997.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
Capital Expenditures 1998 1997
- --------------------
-------- --------
(In Millions)
<S> <C> <C>
Market-area projects $ 9.6 $ 6.4
Supply-area projects 25.5 3.3
Maintenance of existing facilities and other projects 14.7 23.9
------- --------
Total capital expenditures $ 49.8 $ 33.6
======= ========
</TABLE>
Transco's capital expenditure budget for 1998 and future capital projects
are discussed in its 1997 Annual Report on Form 10-K. The following describes
significant developments related to those projects and any new projects proposed
by Transco.
INDEPENDENCE PIPELINE PROJECT In April 1998, Independence Pipeline Company
(Independence) notified the FERC that it is revising its expected in-service
date from November 1999 to November 2000, reflecting the status of its
certificate application and the anticipated time required to construct the
pipeline project once it is authorized. Independence also recently executed and
filed with the FERC a precedent agreement with a new shipper for firm
transportation service of up to 99,000 Dts of natural gas per day. This brings
the level of capacity subscribed on the Independence Pipeline to just over 68
percent.
MARKETLINK EXPANSION PROJECT In May 1998, Transco plans to file an
application with the FERC for approval of its MarketLink Expansion Project with
a targeted in-service date of November 1, 2000.
CUMBERLAND PIPELINE PROJECT Cumberland Gas Pipeline Company (Cumberland)
announced that it is holding an open season from March 30 to May 29, 1998, for
parties interested in subscribing to firm transportation capacity. Cumberland
plans to file for FERC approval of the project during the third quarter of 1998.
The project is expected to be in service by the 2000-2001 winter heating season.
LIGHTHOUSE PIPELINE PROJECT In April 1998, Transco, Duke Energy
Corporation and Iroquois Gas Transmission System announced plans to form a joint
venture to develop a natural gas pipeline to serve markets in New York and
Connecticut. The pipeline, called the Lighthouse Pipeline, is designed to extend
under the Long Island Sound to transport U.S. and Canadian natural gas to
southern Connecticut. The new pipeline system, proposed to have an initial
capacity of 350,000 Dts per day, will primarily supply natural gas to electric
generating facilities built along its route in southern Connecticut and
facilitate the development of low-cost power generation on Long Island.
Lighthouse Pipeline is targeted to be in service by 2000 to 2001.
OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES
Transco's capital requirements and contingencies are discussed in its 1997
Annual Report on Form 10-K. Other than as described in Note 3 of the Notes to
Condensed Consolidated Financial Statements, there have been no new developments
from those described in Transco's 1997 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. Transco also expects to access public and private markets
on reasonable terms to finance its capital requirements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion 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
<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 15, 1998 By /s/ James C. Bourne
----------------------
James C. Bourne
Controller
(Principal Accounting Officer)
<PAGE>
<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, 1998, CONTAINED IN TRANSCONTINENTAL
GAS PIPE LINE CORPORATION'S 1998 FIRST 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,429
<SECURITIES> 0
<RECEIVABLES> 19,645
<ALLOWANCES> 0
<INVENTORY> 67,593
<CURRENT-ASSETS> 711,311
<PP&E> 4,014,777
<DEPRECIATION> 514,346
<TOTAL-ASSETS> 4,399,225
<CURRENT-LIABILITIES> 454,696
<BONDS> 976,071
0
0
<COMMON> 0
<OTHER-SE> 1,961,937
<TOTAL-LIABILITY-AND-EQUITY> 4,399,225
<SALES> 132,720
<TOTAL-REVENUES> 339,371
<CGS> 132,720
<TOTAL-COSTS> 237,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,605
<INCOME-PRETAX> 57,381
<INCOME-TAX> 21,791
<INCOME-CONTINUING> 35,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,590
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
