-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, px6v4DPAwiAPcJGj/f8WwojX0gaBCTxrZkr2dj0PhPu3EYf8nluEynmxVrkQLa0W uhTd1NkPpP0FYyq8UYGETQ== 0000099250-94-000002.txt : 19940523 0000099250-94-000002.hdr.sgml : 19940523 ACCESSION NUMBER: 0000099250-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSCONTINENTAL GAS PIPE LINE CORP CENTRAL INDEX KEY: 0000099250 STANDARD INDUSTRIAL CLASSIFICATION: 4922 IRS NUMBER: 741079400 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07584 FILM NUMBER: 94528721 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: P O BOX 1396 CITY: HOUSTON STATE: TX ZIP: 77251 BUSINESS PHONE: 7134392000 MAIL ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: P O BOX 1396 CITY: HOUSTON STATE: TX ZIP: 77251 10-Q 1 TRANSCONTINENTAL GAS PIPE LINE CO 03/31/94 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 1-7584 TRANSCONTINENTAL GAS PIPE LINE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 74-1079400 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2800 Post Oak Boulevard P. O. Box 1396 Houston, Texas 77251 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 439-2000) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No/ / The number of shares of Common Stock, par value $1.00 per share, outstanding as of March 31, 1994 was 100. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Company or Group of Companies for Which Report is Filed: Transcontinental Gas Pipe Line Corporation (TGPL) The condensed financial statements included herein have been prepared by TGPL, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of TGPL's management, however, all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial position as of the date and results of operations for the periods included herein have been made and the disclosures contained herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements, notes thereto and management's discussion contained in Items 7 and 8 of TGPL's 1993 Annual Report on Form 10-K. TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED BALANCE SHEET (Thousands of Dollars)
March 31, December 31, 1994 1993 _____________ _____________ ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 1,505 $ 1,094 Deposits . . . . . . . . . . . . . . . . . . . . . . 7,512 7,348 Receivables. . . . . . . . . . . . . . . . . . . . . 67,538 93,181 Advances to Transco . . . . . . . . . . . . . . . . 107,211 133,304 Transportation and exchange gas receivable - others. 22,000 22,000 Inventories. . . . . . . . . . . . . . . . . . . . . 62,470 79,547 Deferred income tax benefits . . . . . . . . . . . . 7,494 - Other. . . . . . . . . . . . . . . . . . . . . . . . 20,510 23,739 _____________ _____________ Total current assets . . . . . . . . . . . . . . 296,240 360,213 _____________ _____________ Property, Plant and Equipment, at cost: Natural gas transmission plant . . . . . . . . . . . 4,231,891 4,223,501 Less - Accumulated depreciation and amortization . . 2,512,842 2,480,332 _____________ _____________ Property, plant and equipment, net . . . . . . . 1,719,049 1,743,169 _____________ _____________ Other Assets: Transportation and exchange gas receivable: Affiliates . . . . . . . . . . . . . . . . . . . 45,660 28,986 Others . . . . . . . . . . . . . . . . . . . . . 112,693 109,564 Other. . . . . . . . . . . . . . . . . . . . . . . . 80,368 75,728 _____________ _____________ Total other assets . . . . . . . . . . . . . . . 238,721 214,278 _____________ _____________ $ 2,254,010 $ 2,317,660 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements. /TABLE TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED BALANCE SHEET (Thousands of Dollars)
March 31, December 31, 1994 1993 _____________ _____________ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Payables . . . . . . . . . . . . . . . . . . . . . . $ 152,834 $ 199,635 Transportation and exchange gas payable - others . . 12,000 12,000 Accrued liabilities. . . . . . . . . . . . . . . . . 73,121 73,145 Reserve for producer settlements, legal and regulatory issues. . . . . . . . . . . . . . . . 2,299 5,240 Reserve for rate refunds . . . . . . . . . . . . . . 79,322 141,270 Deferred income taxes. . . . . . . . . . . . . . . . - 1,452 Other. . . . . . . . . . . . . . . . . . . . . . . . 14,188 16,162 _____________ _____________ Total current liabilities. . . . . . . . . . . . 333,764 448,904 _____________ _____________ Long-Term Debt, less current maturities . . . . . . . . . 643,913 643,799 _____________ _____________ Other Liabilities and Deferred Credits: Income taxes . . . . . . . . . . . . . . . . . . . . 281,634 279,303 Income taxes refundable to customers . . . . . . . . 16,556 19,148 Transportation and exchange gas payable: Affiliates . . . . . . . . . . . . . . . . . . . 1,055 3,607 Others . . . . . . . . . . . . . . . . . . . . . 100,496 75,530 Other. . . . . . . . . . . . . . . . . . . . . . . . 65,562 64,888 _____________ _____________ Total other liabilities and deferred credits . . 465,303 442,476 _____________ _____________ Commitments and contingencies . . . . . . . . . . . . . . - - Cumulative Redeemable Preferred Stock, without par value: Authorized 10,000,000 shares: Stated value $100 per share, issued and outstanding 757,427 shares in 1994 and 1993. . . . . . . . . 75,743 75,743 Less - Issue expense . . . . . . . . . . . . . . 552 552 _____________ _____________ Total preferred stock. . . . . . . . . . . . . . . 75,191 75,191 _____________ _____________ Cumulative Redeemable Second Preferred Stock, without par value: Authorized 2,000,000 shares: none issued or outstanding. . . . . . . . . . . . . . . . . . . . - - _____________ _____________ Common Stockholder's Equity: Common Stock $1.00 par value: 100 shares authorized, issued and outstanding. . . - - Premium on capital stock and other paid-in capital . . 283,937 283,037 Retained earnings. . . . . . . . . . . . . . . . . . . 451,902 424,253 _____________ _____________ Total common stockholder's equity. . . . . . . . . 735,839 707,290 _____________ _____________ $ 2,254,010 $ 2,317,660 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements. /TABLE TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED STATEMENT OF INCOME (Thousands of Dollars)
Three Months Ended March 31, _____________________________ 1994 1993 _____________ _____________ Operating Revenues: Natural gas sales . . . . . . . . . . . . . . . . . . . $ 226,412 $ 156,112 Natural gas transportation . . . . . . . . . . . . . . 166,123 189,284 Natural gas storage . . . . . . . . . . . . . . . . . . 37,728 38,125 Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,652 1,402 _____________ _____________ Total operating revenues . . . . . . . . . . . . . . 431,915 384,923 _____________ _____________ Operating Costs and Expenses: Cost of natural gas sales . . . . . . . . . . . . . . . 226,561 154,484 Cost of natural gas transportation. . . . . . . . . . . 28,286 54,443 Operation and maintenance . . . . . . . . . . . . . . . 40,712 38,628 Administrative and general. . . . . . . . . . . . . . . 37,057 38,246 Depreciation and amortization . . . . . . . . . . . . . 30,143 29,614 Taxes - other than income taxes . . . . . . . . . . . . 8,716 8,401 _____________ _____________ Total operating costs and expenses . . . . . . . . . . 371,475 323,816 _____________ _____________ Operating Income. . . . . . . . . . . . . . . . . . . . . . 60,440 61,107 _____________ _____________ Other (Income) and Other Deductions: Interest expense - affiliates . . . . . . . . . . . . . - 207 - other. . . . . . . . . . . . . . . . 15,805 15,917 Interest income - affiliates . . . . . . . . . . . . . ( 1,790) ( 126) - other. . . . . . . . . . . . . . . . ( 125) ( 1,412) Allowance for equity and borrowed funds used during construction (AFUDC) . . . . . . . . . . . . . . . . . ( 835) ( 113) Miscellaneous other (income) and deductions, net. . . . 2,114 1,507 _____________ _____________ Total other (income) and other deductions . . . . . . 15,169 15,980 _____________ _____________ Income Before Income Taxes. . . . . . . . . . . . . . . . . 45,271 45,127 Provision for Income Taxes. . . . . . . . . . . . . . . . . 16,023 15,658 _____________ _____________ Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 29,248 29,469 Dividends on Preferred Stock. . . . . . . . . . . . . . . . 1,599 2,140 _____________ _____________ Common Stock Equity in Net Income . . . . . . . . . . . . . $ 27,649 $ 27,329 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements. /TABLE TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Thousands of Dollars)
Three Months Ended March 31, _____________________________ 1994 1993 _____________ _____________ Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . $ 29,248 $ 29,469 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . 34,201 33,151 Deferred income taxes. . . . . . . . . . . . . . . . ( 9,472) ( 16,210) Tran$tock compensation expense . . . . . . . . . . . 900 727 Allowance for equity funds used during construction (AFUDC). . . . . . . . . . . . . . . ( 608) 1,031 _____________ ______________ 54,269 48,168 Nonrecoverable producer settlements. . . . . . . . . - ( 26,300) Changes in operating assets and liabilities: Deposits . . . . . . . . . . . . . . . . . . . . . . ( 164) ( 217) Receivables. . . . . . . . . . . . . . . . . . . . . 25,643 957 Transportation and exchange gas receivable . . . . . ( 19,803) ( 5,675) Inventories. . . . . . . . . . . . . . . . . . . . . 17,077 10,730 Payables . . . . . . . . . . . . . . . . . . . . . . ( 44,889) ( 16,863) Transportation and exchange gas payable. . . . . . . 22,414 ( 10,081) Accrued liabilities. . . . . . . . . . . . . . . . . ( 1,367) ( 2,771) Reserve for rate refunds . . . . . . . . . . . . . . ( 61,948) 28,538 Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 4,384) 4,809 _____________ ______________ Net cash provided by (used in) operating activities ( 13,152) 31,295 _____________ ______________ Cash flows from financing activities: Retirement of long-term debt. . . . . . . . . . . . . . - ( 15,200) Advances from Transco . . . . . . . . . . . . . . . . . - 534,341 Retirement of advances from Transco . . . . . . . . . . - ( 534,341) Dividends on preferred stock. . . . . . . . . . . . . . ( 1,599) ( 2,140) Other, net. . . . . . . . . . . . . . . . . . . . . . . - ( 149) _____________ ______________ Net cash used in financing activities . . . . . . ( 1,599) ( 17,489) _____________ ______________ Cash flows from investing activities: Property, plant and equipment, net of equity AFUDC. . . ( 11,375) ( 12,583) Recovery of producer settlements. . . . . . . . . . . . - 21,720 Advances to Transco . . . . . . . . . . . . . . . . . . ( 439,106) ( 196,376) Retirement of advances to Transco . . . . . . . . . . . 465,199 172,225 Other, net. . . . . . . . . . . . . . . . . . . . . . . 444 1,333 _____________ ______________ Net cash provided by (used in) investing activities 15,162 ( 13,681) _____________ ______________ Net increase in cash and cash equivalents . . . . . . . . 411 125 Cash and cash equivalents at beginning of period. . . . . 1,094 1,259 _____________ ______________ Cash and cash equivalents at end of period. . . . . . . . $ 1,505 $ 1,384 _____________ ______________ _____________ ______________ Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest (net of amount capitalized). . . . . . . . . $ 21,296 $ 16,095 Income taxes, net . . . . . . . . . . . . . . . . . . ( 28,453) 21,883 The accompanying condensed notes are an integral part of these condensed financial statements. /TABLE TRANSCONTINENTAL GAS PIPE LINE CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS A. CORPORATE STRUCTURE AND CONTROL Transcontinental Gas Pipe Line Corporation (TGPL) is a wholly-owned subsidiary of Transco Gas Company (TGC). TGC is a wholly-owned subsidiary of Transco Energy Company and, as used herein, the term Transco refers to Transco Energy Company and its wholly-owned subsidiaries unless the context otherwise requires. The condensed financial statements have been prepared from the books and records of TGPL without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in TGPL's 1993 Annual Report on Form 10-K. Certain reclassifications have been made in the 1993 financial statements to conform with the 1994 presentation. As a subsidiary of Transco, TGPL engages in transactions with Transco and other Transco subsidiaries, characteristic of group operations. For consolidated cash management purposes, TGPL has made interest bearing advances to Transco and received interest bearing advances and capital contributions from Transco. These advances are represented by demand notes. TGPL currently expects to receive payment of these advances within the next twelve months and has recorded such advances as current in the accompanying Condensed Balance Sheet. As general corporate policy, the interest rate on intercompany demand notes is 1-1/2 percent below the prime rate of Citibank, N.A. Certain of Transco's credit facilities and indentures prohibit TGPL from, among other things, incurring or guaranteeing any additional indebtedness, except for indebtedness incurred to refinance existing indebtedness, issuing preferred stock or advancing cash to affiliates other than Transco. Further, certain of Transco's credit facilities and indentures contain restrictive covenants which could limit Transco's ability to make additional borrowings and, therefore, under certain circumstances, its ability to make or repay advances to TGPL or make capital contributions to TGPL. Prior to 1993, TGPL was responsible for all jurisdictional gas sales to its pipeline customers. After Federal Energy Regulatory Commission (FERC) approval in January 1993, Transco implemented a plan to consolidate its gas marketing businesses under the common management of Transco Gas Marketing Company (TGMC) to more closely coordinate gas marketing operations to improve efficiencies, reduce costs and improve profitability. In January 1993, TGMC, through an agency agreement, began to manage all jurisdictional sales of TGPL. Under this agency agreement, TGMC bills TGPL for the cost of managing TGPL's gas sales service and receives all margins associated with such business. Consequently, TGPL's gas sales service had no impact on its results of operations. Pursuant to a settlement that TGPL has with its customers, TGPL has in place a gas inventory charge (GIC) designed to allow TGPL to recover its above-spot-market gas cost through March 31, 2001. Pursuant to this settlement, in 1993 and early 1994, TGPL's agreements with its customers were renegotiated by TGMC, as agent for TGPL. TGMC and TGPL believe that the GIC agreed to with TGPL's customers will be adequate to enable recovery of its above-spot-market gas costs. B. REGULATORY MATTERS There have been no new developments from those described in the 1993 Annual Report on Form 10-K other than described below. Rate Matters ____________ On November 4, 1993, the FERC issued an order accepting the Offer of Settlement (the Settlement) filed by TGPL on May 3, 1993 in connection with TGPL's general rate case (Docket No. RP92-137). On December 6, 1993, certain parties, including TGPL, filed requests for rehearing and clarification of the November 4 order. On December 16, 1993, TGPL filed a request to accelerate partial refunds under the Settlement on the ground that those refunds could be made without prejudice to the pending requests for rehearing or clarification. TGPL's request was granted by order of the FERC dated February 14, 1994, which order also acted on the pending requests for rehearing or clarification of the November 4 order. The Settlement became effective on April 1, 1994. One party has appealed the FERC's November 4 and February 14 orders to the United States Court of Appeals for the D.C. Circuit (D.C. Circuit Court). In March and April 1994, TGPL made partial refunds of approximately $105 million, including interest, under Docket No. RP92-137. TGPL had previously provided a reserve for these refunds. TGPL has also provided a reserve which it believes is sufficient for any additional refunds that may be required under Docket No. RP92-137. At April 30, 1994, these additional refunds, the majority of which are currently expected to be made during the second quarter of 1994, are estimated to be approximately $58 million, including interest. Such refund obligations increase with the passage of time until the refunds are made. Order 636 _________ TGPL and certain other parties have filed appeals of certain of the FERC's orders to the D.C. Circuit Court. These appeals had been held in abeyance pending completion of the FERC's rehearing process and the expiration of the time to seek judicial review. On March 17, 1994, the FERC issued an order denying all requests for rehearing relating to TGPL's Order 636 restructuring proceedings, which ends the rehearing process at the FERC. No procedural schedule has been established by the D.C. Circuit Court and, therefore, the issues that will be addressed on appeal have not been identified. TGPL expects that any Order 636 transition costs incurred should be recovered from its customers, subject only to the costs and other risks associated with the difference between the time such costs are incurred and the time when those costs may be recovered from customers. Although no assurances can be given, TGPL does not believe that the implementation of Order 636 will have a material adverse effect on its financial position or results of operations. C. LEGAL PROCEEDINGS There have been no new developments from those described in the 1993 Annual Report on Form 10-K other than as described below. Dakota Gasification Litigation ______________________________ As discussed in TGPL's 1993 Annual Report on Form 10-K, in October 1990, Dakota Gasification Company (Dakota), the owner of the Great Plains Coal Gasification Plant, filed suit in the United States District Court in North Dakota against TGPL and three other pipeline companies alleging that TGPL and the other pipelines had not complied with their respective obligations under certain gas purchase and gas transportation contracts. On March 30, 1994, the parties executed a definitive agreement which would settle the litigation subject to final nonappealable regulatory approvals. The settlement is also subject to a FERC ruling that TGPL's existing authority to recover in rates certain costs related to the purchase and transportation of gas produced by Dakota will pertain to gas purchase and transportation costs TGPL will pay Dakota under the terms of the settlement. In the event that the necessary regulatory approvals are not obtained, TGPL, Transco and Transco Coal Gas Company intend to vigorously defend the suit. Although no assurances can be given, TGPL does not believe that the ultimate resolution of this litigation will have a material adverse effect on its financial position or results of operations. Royalty Claims ______________ As discussed in TGPL's 1993 Annual Report on Form 10-K, in connection with TGPL's renegotiations with producers to resolve take-or-pay and other contract claims and to amend gas purchase contracts, TGPL has entered into certain settlements which may require the indemnification by TGPL of certain claims for "excess royalties" which producers may be required to pay as a result of such settlements. On January 14, 1994, a lawsuit was filed in the 4th Judicial District Court of Rusk County, Texas (Marathon Oil Company vs. Transcontinental Gas Pipe Line Corporation and Transco Energy Company (Marathon)) and, on March 15, 1994, a new lawsuit, which was previously disclosed in TGPL's 1993 Annual Report on Form 10-K as a claim, was filed in the 189th Judicial District Court of Harris County, Texas (Texaco, Inc. vs. Transcontinental Gas Pipe Line Corporation (Texaco)). In the Marathon and Texaco lawsuits, the respective plaintiffs each have made claims against TGPL for reimbursements of settlement amounts paid to royalty owners pursuant to the excess royalty provision in their respective Omnibus Contract Amendment and Settlement Agreements. In the Marathon and Texaco lawsuits, the respective plaintiffs seek to recover approximately $3.6 million and approximately $14.7 million, respectively. As discussed in TGPL's Annual Report on Form 10-K, TGPL has been named as a defendant in three other lawsuits involving claims by producers and/or royalty owners. In December 1992, a lawsuit was filed which is currently pending in the United States District Court for the Southern District of Texas (Vaquillas Ranch Company, Ltd., et al vs. Texaco Exploration and Production, Inc. (Vaquillas Ranch)) in which royalty owners have made allegations against the producer for breach of express obligations under the leases; breach of the covenant to reasonably market gas; breach of the covenant to reasonably develop; breach of the covenant to protect against drainage; and failure to deal in good faith. In August 1993, a lawsuit was filed, which is currently pending in the United States District Court for the Southern District of Texas (Floyd C. Billings, et al vs. Texaco Exploration and Production Inc., et al (Billings)), in which royalty owners did not claim that the producer breached any covenant to develop or protect against drainage. However, except for this omission, the royalty owners' claims in the Billings lawsuit are virtually identical to the ones made in the Vaquillas Ranch lawsuit. In addition, in the Billings lawsuit the royalty owners have sued the parent and an affiliate of the producer and TGPL for allegedly conspiring to tortiously interfere with their lease. The producer defendants in each of the Billings and Vaquillas Ranch lawsuits have cross-claimed against TGPL pursuant to the excess royalty provision in the Omnibus Contract Amendment and Settlement Agreement between TGPL and the producer. While the two complaints have not specified monetary damages, the royalty owners have verbally alleged that their claims against the producers could approximate $100 million. The Vaquillas Ranch lawsuit is set for trial on December 2, 1994. In October 1991, a lawsuit was filed in 32nd Judicial District Court for the Parish of Terrebonne State of Louisiana (Betty Duplantis Brown, et al vs. Mobil Oil Exploration and Producing U.S. Inc., et al (Duplantis)), in which royalty owners have alleged that they were third party beneficiaries to the original gas purchase contract between TGPL and the producers and that the settlement agreement entered into between TGPL and such producers is not valid without the royalty owners' consent. Additionally, in a separate lawsuit consolidated with the Duplantis lawsuit, allegations have been made that Transco Exploration Company (TXC) and TXP Operating Company (TXPO) and other defendant-producers were entitled to make claims for breach of gas purchase contracts but failed to either make claim or receive compensation for such breaches. The royalty owners make a number of allegations with respect to breach of the leases and breach of implied covenants similar to those alleged in the Vaquillas Ranch and Billings lawsuits. The royalty owners have not specified an amount of monetary damages in their complaints. Trial is set for September 1994. Each of the lawsuits is in the discovery process. TGPL, TXC and TXPO have each denied liability in the litigation and each believes that it has meritorious defenses to the claims which it intends to pursue vigorously. TGPL believes at this time that its exposure, if any, under the excess royalty provisions of its settlements with the producers is substantially less than the amounts claimed by the royalty owners. Although no assurances can be given, TGPL believes that the ultimate resolution of these royalty claims and litigation will not have a material adverse effect on TGPL's financial position or results of operations. D. ENVIRONMENTAL MATTERS There have been no new developments from those described in the 1993 Annual Report on Form 10-K with regard to environmental matters. E. FINANCING Restrictive Covenants _____________________ As described in TGPL's 1993 Annual Report on Form 10-K, certain of Transco's credit facilities and indentures prohibit TGPL from, among other things, placing a lien on any of the property or assets owned by TGPL, incurring or guaranteeing any additional indebtedness, except for indebtedness incurred to refinance existing indebtedness, issuing preferred stock or advancing cash to affiliates other than Transco. Further, certain of Transco's credit facilities and indentures contain restrictive covenants which could limit Transco's ability to make additional borrowings and, therefore, under certain circumstances, its ability to make or repay advances to TGPL or make capital contributions to TGPL. Additionally, certain of TGPL's debt instruments restrict the amount of dividends distributable. As of March 31, 1994, approximately $315 million of TGPL's retained earnings of $452 million was available for distribution. Item 2. Management's Discussion and Analysis of Transcontinental Gas Pipe Line Corporation's (TGPL) Financial Condition and Results of Operations. The following discussion should be read in conjunction with the financial statements, notes and management's discussion contained in Items 7 and 8 of TGPL's 1993 Annual Report on Form 10-K and with the condensed financial statements and notes contained in this report. INTRODUCTION TGPL is an indirect wholly-owned subsidiary of Transco and as such may be affected by the financial position and performance of Transco and its subsidiaries other than TGPL. In October 1991, Transco's Board of Directors approved a comprehensive strategic and financial plan (Plan) designed to stabilize Transco's financial position, improve its financial flexibility and restore its earnings. Since the Plan's adoption, Transco has made significant progress in the implementation of the Plan, including the sale of certain non-core and non-strategic businesses, reduction in capital expenditures, resolution of certain material litigation and improvement in its results of operations and financial flexibility. Transco remains committed to deleveraging its balance sheet, further eliminating or mitigating the potentially adverse impact from the resolution of remaining litigation and contingencies and improving financial results. CAPITAL RESOURCES AND LIQUIDITY Method of Financing ___________________ As a subsidiary of Transco, TGPL engages in transactions with Transco and other Transco subsidiaries, characteristic of group operations. TGPL meets its working capital requirements by participation in the Transco consolidated cash management program, pursuant to which TGPL both makes advances to and receives advances and capital contributions from Transco, and by accessing capital markets to refinance its long-term debt maturities. As general corporate policy, the interest rate on intercompany demand notes is 1-1/2% below the prime rate of Citibank, N.A. At March 31, 1994, there were outstanding advances totaling approximately $107 million from TGPL to Transco. TGPL currently expects to receive payment of these advances within the next twelve months and has classified such advances as current assets. In addition, TGPL and Transco's other subsidiaries pay dividends, based on the level of their earnings and net cash flow, to assist Transco in providing the funds necessary for Transco to service its debt and pay dividends on its common and preferred stock. To meet the working capital requirements of Transco and its subsidiaries, Transco has in place a $450 million working capital line with a group of fifteen banks. TGPL is guarantor of $270 million of this working capital line. At March 31, 1994, Transco had no outstanding borrowings under this facility. Transco has in place a $50 million reimbursement facility, dated as of December 31, 1993, between Transco and a group of banks. This facility provides Transco the opportunity to obtain standby letters of credit under certain circumstances from the banks. TGPL is guarantor of $30 million of the obligations that arise under this facility. At March 31, 1994, Transco had utilized $21 million of standby letters of credit under this facility. Certain of Transco's credit facilities and indentures prohibit TGPL from, among other things, placing a lien on any property or assets owned by TGPL, incurring or guaranteeing any additional indebtedness (except for indebtedness incurred to refinance existing indebtedness), issuing preferred stock or advancing cash to affiliates other than Transco. Further, certain of Transco's credit facilities and indentures contain restrictive covenants which could limit Transco's ability to make additional borrowings and, therefore, under certain circumstances, Transco's ability to repay advances or make capital contributions to TGPL. Additionally, certain of TGPL's debt instruments restrict the amount of dividends distributable. As of March 31, 1994, approximately $315 million of TGPL's retained earnings of $452 million was available for distribution. In September 1993, TGPL entered into a new program to sell monthly trade receivables to replace a similar program which expired. The new trade receivables program, which expires in September 1995, provides for the sale of up to $100 million of trade receivables without recourse. As of March 31, 1994, $100 million in trade receivables were held by the investor. Capitalization and Cash Flows _____________________________ As shown in the following table, at March 31, 1994, total debt as a percentage of total invested capital was 44.3%, compared to 45.1% at December 31, 1993. Although total debt at March 31, 1994, remained approximately the same as at December 31, 1993, net income during the first quarter had the effect of reducing the percentage of total debt to total invested capital.
March 31, December 31, 1994 1993 ______________ _______________ (In millions) Common Stockholder's Equity . . . . . . . . . . . . . . . . $ 735.8 $ 707.3 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 75.2 75.2 Long-term Debt, less Current Maturities . . . . . . . . . . 643.9 643.8 ______________________________ Total Capitalization. . . . . . . . . . . . . . . . . . 1,454.9 1,426.3 Current Maturities of Long-term Debt. . . . . . . . . . . . - - ______________________________ Total Invested Capital. . . . . . . . . . . . . . . . . $ 1,454.9 $ 1,426.3 ______________________________ ______________________________ Long-term Debt, less Current Maturities as a Percentage of Total Capitalization. . . . . . . . . . . . . . . . . . . . . 44.3% 45.1% Common Stockholder's Equity as a Percentage of Total Capitalization. . . . . . . . . . . . . . . . . . . . . 50.6% 49.6% Total Debt as a Percentage of Total Invested Capital. . . . 44.3% 45.1%
At March 31, 1994, TGPL had a working capital deficit of $38 million, compared to a deficit of $89 million at December 31, 1993. The most significant factor influencing the reduction in the working capital deficit was payments made during the first quarter of 1994 for TGPL's initial refunds under Docket No. RP92-137, as discussed in Note B of the Notes to Condensed Financial Statements.
Three Months Ended March 31, __________________________ 1994 1993 _________ __________ (In millions) Cash Flows Provided by (Used in) Operating Activities . . . $( 13.2) $ 31.3 _________ __________ _________ __________
For the three months ended March 31, 1994, cash flows from operating activities were $45 million lower than the three months ended March 31, 1993. The lower cash flows for 1994 are primarily the result of cash refunds made in the first quarter of 1994 in connection with the settlement of TGPL's general rate case (Docket No. RP92-137), partly offset by payments made in 1993 for nonrecoverable producer settlements.
Three Months Ended March 31, __________________________ 1994 1993 __________ __________ (In millions) Cash Flows Used in Financing Activities . . . . . . . . . . $( 1.6) $( 17.5) __________ __________ __________ __________
The cash flows used in financing activities for the three months ended March 31, 1994, were attributable to dividend payments of $2 million on preferred stock. For the three months ended March 31, 1993, cash flows used in financing activities were primarily attributable to the retirement of $15 million of other long-term debt and dividend payments of $2 million on preferred stock.
Three Months Ended March 31, __________________________ 1994 1993 __________ __________ (In millions) Cash Flows Provided by (Used in) Investing Activities . . . $ 15.2 $( 13.7) __________ __________ __________ __________
For the three months ended March 31, 1994, cash flows from investing activities, primarily from Transco's net repayment of advances from TGPL, exceeded the cash outflows for capital expenditures for property, plant and equipment. For the three months ended March 31, 1993, cash flows used in investing activities, including capital expenditures and net advances to Transco, exceeded the recovery of producer settlement costs. The remaining portion of TGPL's recoverable producer settlement costs were fully collected as of May 31, 1993.
Three Months Ended March 31, __________________________ Capital Expenditures 1994 1993 ____________________ __________ __________ (In millions) Market-Area Projects . . . . . . . . . . . . . . . . . . . $ 2.7 $ 1.2 Supply-Area Projects. . . . . . . . . . . . . . . . . . . . 2.5 7.0 Maintenance of Existing Facilities and Other Projects . . . 6.2 4.4 __________ __________ Total Capital Expenditures. . . . . . . . . . . . . . . $ 11.4 $ 12.6 __________ __________ __________ __________
Other Capital Requirements and Contingencies ____________________________________________ TGPL's capital requirements and contingencies are discussed in TGPL's 1993 Annual Report on Form 10-K. Other than described in Notes B and C to the Condensed Financial Statements, there have been no new developments from those described in TGPL's 1993 Annual Report on Form 10-K with regard to other capital requirements and contingencies. Rate Refunds ____________ As discussed in Note B of the Notes to Condensed Financial Statements, TGPL received a FERC order accepting the Settlement in connection with its general rate case (Docket No. RP92-137) on November 4, 1993. In March and April 1994, TGPL made partial refunds of approximately $105 million, including interest, under Docket No. RP92-137. TGPL had previously provided a reserve for these refunds. TGPL has also provided a reserve which it believes is sufficient for any additional refunds that may be required under Docket No. RP92-137. At April 30, 1994, these refunds, the majority of which are currently expected to be made during the second quarter of 1994, are estimated to be approximately $58 million, including interest. Such refund obligations increase with the passage of time until the refunds are made. Conclusion __________ Although no assurances can be given, TGPL currently believes that the aggregate of cash flows from operating activities, supplemented, if necessary, by repayments of funds advanced to Transco or advances by Transco, will provide TGPL with sufficient liquidity to meet its capital requirements. RESULTS OF OPERATIONS As discussed in TGPL's 1993 Annual Report on Form 10-K, effective January 1, 1993, TGMC, through an agency management agreement with TGPL, manages all gas sales made by TGPL. The financial performance of TGPL's sales service is discussed separately in the following discussion. Net and Operating Income ________________________ TGPL's net income for the three months ended March 31, 1994 was $0.3 million higher than net income for the three months ended March 31, 1993, due primarily to lower net interest expense, higher allowance for funds used during construction and lower dividends on preferred stock, partly offset by higher operating expenses. Operating income for the first quarter of 1994 when compared to the 1993 quarter was $0.7 million lower reflecting higher operating expenses, partly offset by slightly higher net transportation revenues (net of the related cost of transportation and surcharges) as a result of increased production-area transportation. Transportation Services _______________________ TGPL's operating revenues, excluding sales and storage services, decreased $23 million to $168 million for the quarter ended March 31, 1994, when compared to the same period in 1993, due primarily to lower transportation rates resulting from the elimination of the producer settlement surcharge which expired on May 31, 1993. However, the decrease in transportation rates related to this surcharge did not affect TGPL's operating or net income since the expiration of the producer settlement surcharge also resulted in lower cost of sales and transportation when compared with the prior year quarter. Effective September 1, 1992, TGPL placed new rates into effect, subject to refund, under its general rate case, Docket No. RP92-137. The rates for firm transportation service are based on a straight-fixed-variable (SFV) rate design, under which all fixed costs allocated to firm transportation service, including return on equity and taxes, are included in a demand charge to customers. All variable costs are recovered through commodity rates. On March 8, 1994, TGPL made the initial refunds (approximately $100 million, including interest) under Docket No. RP92-137. On April 8, 1994, TGPL made additional refunds (approximately $5 million, including interest) under Docket No. RP92-137. TGPL had previously provided a reserve for these refunds. TGPL has also provided a reserve which it believes is sufficient for any additional refunds that may be required under Docket No. RP92-137. At April 30, 1994, these additional refunds, the majority of which are currently expected to be made during the second quarter of 1994, are estimated to be approximately $58 million, including interest. Such refund obligations increase with the passage of time until the refunds are made. Excluding the cost of sales and transportation of $255 million in the first quarter of 1994 and $209 million in the first quarter of 1993, TGPL's operating expenses for the 1994 quarter were approximately $2 million higher than the same period in 1993. This increase in operating expenses for the quarter was primarily the result of increased costs for main engine repairs and miscellaneous contractual services and higher depreciation and taxes other than income taxes, offset in part by lower group insurance expense. As shown in the table below, TGPL's total market-area deliveries for the three months ended March 31, 1994 were 8.7 billion cubic feet (Bcf), or 2 percent, higher than the same period in 1993. The increased deliveries, primarily firm transportation volumes, are higher than the same period in 1993 primarily due to the colder-than-normal weather during January and February 1994. The production-area deliveries for the three months ended March 31, 1994, when compared to the same period in 1993, increased 8.8 Bcf, or 32 percent, due to TGPL's decreased rates resulting from the elimination of the producer settlement surcharge which expired on May 31, 1993. However, as a result of a SFV rate design, these increased deliveries had no significant impact on operating income.
Three Months TGPL System Deliveries (Bcf) Ended March 31, ____________________________ ____________________ 1994 1993 _______ _______ Market-area deliveries: Long-haul transportation. . . . . . . . . . . . . . . 230.8 235.0 Market-area transportation. . . . . . . . . . . . . . 134.2 121.3 _______ _______ Total market-area deliveries . . . . . . . . . . . . 365.0 356.3 Production-area transportation. . . . . . . . . . . . . 36.3 27.5 _______ _______ Total system deliveries . . . . . . . . . . . . . . . . 401.3 383.8 _______ _______ _______ _______
TGPL's facilities are divided into six rate zones. Three are located in the production area and three are located in the market area. Long-haul transportation is gas that is received in one of the production-area zones and delivered in a market-area zone. Market-area transportation is gas that is both received and delivered within market-area zones. Production- area transportation is gas that is both received and delivered within production-area zones. TGPL has expressed to the FERC concerns that inconsistent treatment under Order 636 of TGPL and its competitor pipelines with regard to rate design and cost allocation issues in the production area may result in rates which could make TGPL less competitive, both in terms of production-area and long-haul transportation. A hearing before a FERC Administrative Law Judge (ALJ) dealing with, among other things, TGPL's production-area rate design began on April 25, 1994. TGPL is unable at this time to fully assess the competitive effect and resulting financial impact on TGPL of having to maintain its current production-area rate design which is different than that of its competitors. For a discussion of TGPL's Order 636 compliance filing, see Note B of the Notes to Condensed Financial Statements. Sales Services ______________ TGPL makes sales to customers through a Firm Sales (FS) program, an Optional Firm Sales (OFS) program and an Interruptible Sales (IS) program coupled with a firm transportation program as replacement for a contract sales quantity. These programs give customers the option to purchase daily quantities of gas from TGPL at market-responsive prices in exchange for a demand charge payment to TGPL designed to recover the costs of gas in excess of current month spot prices that TGPL is obligated to pay under its producer contracts. TGPL's operating revenues related to its sales services increased $70 million to $226 million for the quarter ended March 31, 1994 when compared to the quarter ended March 31, 1993, due primarily to higher sales volumes and average prices. However, TGPL's sales service did not have an impact on TGPL's operating income or results of operations during the first quarter of 1994 or the same period in 1993. In January 1993, TGMC, through an agency agreement, began to manage all jurisdictional sales of TGPL. Under this agency agreement, TGMC bills TGPL for the cost of managing TGPL's gas sales service and receives all margins associated with such business. Consequently, TGPL believes its gas sales service will have no impact on its operating income or results of operations.
Three Months Gas Sales Volumes (Bcf)(1) Ended March 31, ____________________________ _____________________ 1994 1993 _______ _______ Long-term sales . . . . . . . . . . . . . . . . . . . . . . . . . . 67.2 57.1 Short-term sales. . . . . . . . . . . . . . . . . . . . . . . . . . 18.0 8.6 _______ _______ Total gas sales . . . . . . . . . . . . . . . . . . . . . . . . . 85.2 65.7 _______ _______ _______ _______ (1) Effective January 1993, TGMC, through an agency management agreement with TGPL, assumed management of TGPL's sales service.
Storage Services ______________ TGPL's operating revenues of $38 million related to its storage services for the quarter ended March 31, 1994 were comparable to the storage revenues for the same period in 1993. PART II - OTHER INFORMATION Item 1. Legal Proceedings. See discussion of legal proceedings in Note C of the Notes to Condensed Financial Statements included herein. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. TGPL filed a Form 8-K, Current Report dated April 7, 1994, to report that Transco and TGPL, along with pipeline units of The Coastal Corporation, MidCon Corp. and Tenneco Inc., announced that each have signed settlement agreements to resolve litigation with Dakota Gasification Company and the Department of Energy related to their respective contracts, signed in 1982, to purchase gas from the Great Plains Gasification Plant. The settlements are subject to the approval of the Federal Energy Regulatory Commission. See Note C of the Notes to Condensed Financial Statements. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Transcontinental Gas Pipe Line Corporation Dated: May 16, 1994 By /S/ N. A. Bacile _____________________________ (Signature) N. A. Bacile Vice President and Controller -----END PRIVACY-ENHANCED MESSAGE-----