-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D8DtJ8KMotlp6gNsPE++kscvgJWspmi/8tqOvGH287E16jRrCOpD0GhQNncdHpQX P/GiI5u2xhkfe+nmPWKuhg== 0000099250-96-000007.txt : 19961118 0000099250-96-000007.hdr.sgml : 19961118 ACCESSION NUMBER: 0000099250-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSCONTINENTAL GAS PIPE LINE CORP CENTRAL INDEX KEY: 0000099250 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [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: 96665099 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 TGPL 3RD QTR 1996 10-Q 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 September 30, 1996. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ......... to .......... Commission File Number 1-7584 TRANSCONTINENTAL GAS PIPE LINE CORPORATION (Exact name of registrant as specified in its charter) Delaware 74-1079400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2800 Post Oak Boulevard P. O. Box 1396 Houston, Texas 77251 (Address of principal executive offices) (Zip Code) (713) 215-2000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares of Common Stock, par value $1.00 per share, outstanding as of September 30, 1996 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 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements. Company or Group of Companies for Which Report Is Filed: Transcontinental Gas Pipe Line Corporation and Subsidiaries (Transco) The accompanying interim condensed consolidated financial statements of Transco do not include all notes in annual financial statements and therefore should be read in conjunction with the financial statements and notes thereto in Transco's 1995 Annual Report on Form 10-K and 1996 First and Second Quarter Reports 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 September 30, 1996, and results of operations for the three months and nine months ended September 30, 1996 and 1995, and cash flows for the nine months ended September 30, 1996 and 1995. 2 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Thousands of Dollars) (Unaudited)
September 30, December 31, 1996 1995 -------------- ------------- ASSETS Current Assets: Cash $ 1,973 $ 2,557 Deposits 2,443 6,426 Receivables: Affiliates 1,805 2,848 Others 32,461 49,481 Advances to affiliates 80,618 104,499 Transportation and exchange gas receivables: Affiliates 44,410 28,309 Others 62,498 113,310 Inventories 67,508 56,827 Deferred income tax benefits 85,241 37,640 Other 19,930 22,170 ----------- ----------- Total current assets 398,887 424,067 ----------- ----------- Investments 5,338 11,256 ----------- ----------- Property, Plant and Equipment : Natural gas transmission plant 3,605,057 3,455,154 Less-Accumulated depreciation and amortization 289,083 170,417 ----------- ----------- Property, plant and equipment, net 3,315,974 3,284,737 ----------- ----------- Other Assets 215,766 201,728 ----------- ----------- $ 3,935,965 $ 3,921,788 =========== =========== The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
3 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Thousands of Dollars) (Unaudited)
September 30, December 31, 1996 1995 -------------- ------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Payables: Affiliates $ 34,936 $ 84,590 Others 55,625 128,757 Transportation and exchange gas payables: Affiliates 190 841 Other 30,069 76,459 Accrued liabilities 115,625 154,236 Reserve for rate refunds 154,156 55,123 Other - 91 ----------- ----------- Total current liabilities 390,601 500,097 ----------- ----------- Long-Term Debt 729,814 659,171 ----------- ----------- Other Liabilities: Deferred income taxes 834,609 840,189 Other 191,902 185,500 ----------- ----------- Total other liabilities 1,026,511 1,025,689 ----------- ----------- Commitments and contingencies (Note C) Common Stockholder's Equity: Common stock $1.00 par value: 100 shares authorized, issued and outstanding - - Premium on capital stock and other paid-in capital 1,652,430 1,652,430 Retained earnings 136,609 84,401 ----------- ----------- Total common stockholder's equity 1,789,039 1,736,831 ----------- ----------- $ 3,935,965 $ 3,921,788 =========== =========== The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
4 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars) (Unaudited)
For the Three For the Three Months Ended Months Ended September 30, 1996 September 30, 1995 ------------------ ------------------ Operating Revenues: Natural gas sales $ 140,164 $ 129,821 Natural gas transportation 155,209 171,292 Natural gas storage 35,097 38,091 Other 2,000 1,147 ---------- ---------- Total operating revenues 332,470 340,351 ---------- ---------- Operating Costs and Expenses: Cost of natural gas sales 140,163 129,495 Cost of natural gas transportation 19,574 32,873 Operation and maintenance 53,513 54,090 Administrative and general 29,305 33,277 Depreciation and amortization 37,806 42,161 Taxes - other than income taxes 9,240 9,959 Other 249 91 ---------- ---------- Total operating costs and expenses 289,850 301,946 ---------- ---------- Operating Income 42,620 38,405 ---------- ---------- Other (Income) and Other Deductions: Interest expense - other 17,759 14,303 Interest income - affiliates (1,842) (418) - other (180) (127) Allowance for equity and borrowed funds used during construction (AFUDC) (2,210) (2,318) Miscellaneous other deductions, net 384 1,356 ---------- ---------- Total other (income) and other deductions 13,911 12,796 ---------- ---------- Income Before Income Taxes 28,709 25,609 Provision for Income Taxes 11,163 9,076 ---------- ---------- Net Income 17,546 16,533 Dividends on Preferred Stock - - ---------- ---------- Common Stock Equity in Net Income $ 17,546 $ 16,533 ========== ========== The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
5 The acquisition of Transco Energy Company and subsidiaries, including Transco, by The Williams Companies was accounted for using the purchase method of accounting. Accordingly, the purchase price was "pushed down" and recorded in the accompanying consolidated financial statements which affects the comparability of the post-acquisition and pre-acquisition results of operations and cash flows. TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars) (Unaudited)
Post-Acquisition Pre-Acquisition -------------------------------------- | ---------------- For the Period | For the Period For the Nine January 18, 1995 | January 1, 1995 Months Ended to | to September 30, 1996 September 30, 1995 | January 17, 1995 ------------------ ------------------ | ---------------- | Operating Revenues: | Natural gas sales $ 595,225 $ 390,662 | $ 31,701 Natural gas transportation 494,994 488,652 | 32,775 Natural gas storage 108,017 108,975 | 7,452 Other 5,037 3,963 | 133 ---------- ---------- | --------- Total operating revenues 1,203,273 992,252 | 72,061 ---------- ---------- | --------- | Operating Costs and Expenses: | Cost of natural gas sales 595,223 390,189 | 31,691 Cost of natural gas transportation 63,626 90,145 | 6,279 Operation and maintenance 149,535 141,020 | 8,722 Administrative and general 97,804 98,036 | 7,063 Provision for executive severance benefits - - | 16,048 Depreciation and amortization 124,056 111,816 | 5,560 Taxes - other than income taxes 27,565 25,515 | 1,558 Other 763 785 | 53 ---------- ---------- | --------- Total operating costs and expenses 1,058,572 857,506 | 76,974 ---------- ---------- | --------- | Operating Income (Loss) 144,701 134,746 | (4,913) ---------- ---------- | --------- | | Other (Income) and Other Deductions: | Interest expense - affiliates - 305 | 2 - other 47,415 41,094 | 2,678 Interest income - affiliates (4,042) (1,081) | (207) - other (436) (656) | (12) Allowance for equity and borrowed funds used during | construction (AFUDC) (4,768) (4,930) | (234) Miscellaneous other deductions, net 2,322 2,094 | 213 ----------- ---------- | --------- Total other (income) and other deductions 40,491 36,826 | 2,440 ----------- ---------- | --------- | Income (Loss) before Income Taxes 104,210 97,920 | (7,353) | Provision for Income Taxes 40,492 36,483 | 2,309 ----------- ---------- | --------- | Net Income (Loss) 63,718 61,437 | (9,662) | Dividends on Preferred Stock - 722 | 194 ----------- ---------- | --------- | Common Stock Equity in Net Income (Loss) $ 63,718 $ 60,715 | $ (9,856) =========== ========== | ========= The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
6 The acquisition of Transco Energy Company and subsidiaries, including Transco, by The Williams Companies was accounted for using the purchase method of accounting. Accordingly, the purchase price was "pushed down" and recorded in the accompanying consolidated financial statements which affects the comparability of the post-acquisition and pre-acquisition results of operations and cash flows. TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars) (Unaudited)
Post-Acquisition Pre-Acquisition ---------------------------------------- | ---------------- For the Period | For the Period For the Nine January 18, 1995 | January 1, 1995 Months Ended to | to September 30, 1996 September 30, 1995 | January 17, 1995 | ------------------ ------------------ | ---------------- | Cash flows from operating activities: | Net income (loss) $ 63,718 $ 61,437 | $ (9,662) Adjustments to reconcile net income to net cash provided | by (used in) operating activities: | Depreciation and amortization 133,836 121,998 | 6,083 Deferred income taxes (52,582) (15,878) | 5,348 Provision for (payment of) executive severance benefits (409) (13,980) | 16,048 Allowance for equity funds used during construction (AFUDC) (3,259) (4,133) | (190) Changes in operating assets and liabilities: | Receivables 18,063 (18,411) | (7,114) Transportation and exchange gas receivables 34,711 (36,136) | (5,701) Inventories (10,681) 2,847 | (2,647) Payables (119,550) 22,464 | (8,059) Transportation and exchange gas payables (47,041) 35,901 | 4,934 Accrued liabilities (41,178) 26,266 | (4,755) Reserve for rate refunds 75,317 (21,551) | (26,846) Other, net 21,176 (8,925) | 153 ----------- ----------- | ----------- Net cash provided by (used in) operating activities 72,121 151,899 | (32,408) ----------- ----------- | ----------- | Cash flows from financing activities: | Capital contribution by parent - 5,539 | - Additions to long-term debt 298,800 50,000 | - Retirement of long-term debt (225,000) (50,000) | - Additions to notes payable - 40,000 | - Retirement of notes payable - (40,000) | - Retirement of preferred stock - (49,744) | - Advances from affiliates, net - (8,195) | 8,195 Dividends on preferred stock - (1,647) | - Dividends on common stock (3,164) - | - ----------- ----------- | ----------- Net cash provided by (used in) financing activities 70,636 (54,047) | 8,195 ----------- ----------- | ----------- | Cash flows from investing activities: | Property, plant and equipment (PP&E), net of equity AFUDC (162,973) (186,465) | (3,797) Changes in accounts payable and accrued liabilities - PP&E (3,235) (1,598) | (1,099) Sale of assets - 11,874 | - Advances to affiliates, net 23,881 46,121 | 63,599 Other, net (1,014) (93) | (24) ----------- ----------- | ----------- Net cash provided by (used in) investing activities (143,341) (130,161) | 58,679 ----------- ----------- | ----------- | Net increase (decrease) in cash and cash equivalents (584) (32,309) | 34,466 Cash and cash equivalents at beginning of period 2,557 36,094 | 1,628 ----------- ----------- | ----------- Cash and cash equivalents at end of period $ 1,973 $ 3,785 | $ 36,094 =========== =========== | =========== | | | Supplemental disclosures of cash flow information: | Cash paid (refunded) during the year for : | Interest (net of amount capitalized) $ 44,219 $ 40,387 | $ 5,552 Income taxes paid 161,091 26,905 | 19,427 Income tax refunds received (1,043) (1,503) | - The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7 TRANSCONTINENTAL GAS PIPE LINE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. CORPORATE STRUCTURE AND CONTROL Prior to May 1, 1995, Transcontinental Gas Pipe Line Corporation (Transco) was a wholly-owned subsidiary of Transco Gas Company (TGC). TGC is a wholly-owned subsidiary of Transco Energy Company (TEC). As discussed in Transco's 1995 Annual Report on Form 10-K, TEC and The Williams Companies, Inc. (Williams) entered into a merger agreement (Merger) pursuant to which Williams acquired TEC and its wholly-owned subsidiaries. On the May 1, 1995 effective date of the Merger, TEC declared and paid as dividends to Williams all of TEC's interests in Transco. B. BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of Transco and its majority-owned subsidiaries. Companies in which Transco and its subsidiaries own 20 percent to 50 percent of the voting common stock are accounted for under the equity method. The condensed consolidated financial statements have been prepared from the books and records of Transco without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in Transco's 1995 Annual Report on Form 10-K and included in Transco's 1996 First and Second Quarter Reports on Form 10-Q. The acquisition of TEC and its subsidiaries, including Transco, by Williams has been accounted for using the purchase method of accounting. Accordingly, an allocation of the purchase price was assigned to the assets and liabilities of Transco based on their estimated fair values. The accompanying post-acquisition condensed consolidated financial statements reflect Transco's share of the purchase price. The purchase price allocation to Transco primarily consisted of a $1.5 billion allocation to property, plant and equipment, which is being amortized on a straight-line basis, and adjustments to deferred taxes based upon the book basis of the net assets recorded as a result of the acquisition. Current Federal Energy Regulatory Commission (FERC) policy does not permit Transco to recover through rates amounts in excess of original cost. Further, as a result of the change in control of Transco on January 18, 1995 and the effects of the allocation of the purchase price, Transco's Condensed Consolidated 8 Statement of Income and Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1995 have been segregated into a pre-acquisition period ending January 17, 1995 and a post-acquisition period beginning January 18, 1995. Through an agency agreement, Williams Energy Services Company (WESCO), an affiliate of Transco, manages all jurisdictional merchant gas sales of Transco, receives all margins associated with such business and, as Transco's agent, assumes all market and credit risk associated with Transco's jurisdictional merchant gas sales. Consequently, Transco's merchant gas sales service has no impact on its operating income or results of operations. Certain reclassifications have been made in the 1995 financial statements to conform to the 1996 presentation. C. CONTINGENT LIABILITIES AND COMMITMENTS There have been no new developments from those described in Transco's 1995 Annual Report on Form 10-K or 1996 First and Second Quarter Reports on Form 10-Q other than as described below. Rate and Regulatory Matters General rate case (Docket No. RP97-71) On November 1, 1996, Transco submitted to the 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 general rate filing proposes an annual cost of service increase of approximately $67 million over the cost of service underlying the rates contained in the pending settlement of Transco's last general rate filing. The rates, which are expected to become effective, subject to refund, on May 1, 1997 (assuming a five-month suspension), are designed using the straight fixed-variable rate design method. The filing also includes (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 IT backhaul rates equal to the forward haul rates. The pro-forma proposals would be made effective prospectively only after final FERC approval. General rate case (Docket No. RP95-197) Transco, FERC's staff and all active parties have agreed to settle many of the issues originally scheduled for hearing in Phase II of this proceeding. On June 19, 1996, an offer of settlement encompassing all issues regarding cost of service and throughput (except rate of return and capital structure which were litigated in Phase I of this 9 proceeding), as well as several cost allocation issues, was submitted to the Administrative Law Judge (ALJ) for certification to the FERC. 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 FERC's staff either supported the settlement or did not oppose it. On July 31, 1996 the ALJ certified the settlement to the FERC for its consideration, and on November 1, 1996, the FERC issued an order approving the settlement. The settlement will not become effective until thirty days following the date the FERC's order becomes final. On July 15, 1996, Transco submitted a filing with the FERC in which Transco proposed to implement, for non-contesting parties, the settlement rates set forth in the settlement. The July 15 filing was accepted effective August 1, 1996 and Transco began billing the settlement rates to non-contesting parties effective August 1, 1996. On October 9, 1996, Transco filed a Stipulation and Agreement with the ALJ, which, subject to the outcome of the litigation of the reserved issues in Phase I and Phase II in this proceeding, settles the issues of cost of service and throughput with the one party that opposed the resolution of those issues in the June 19, 1996 settlement. That party continues to oppose other aspects of the June 19, 1996 settlement. The hearing addressing unsettled issues in Phase II of this proceeding began on October 23, 1996 and is expected to conclude about the middle of November 1996. General rate case (Docket No. RP92-137) On April 10, 1996, the FERC issued its order on remand and adopted Transco's capital structure as the appropriate capital structure for ratemaking purposes, reversing its previous orders adopting a hypothetical capital structure. The FERC made no adjustment to Transco's rate of return on equity, adopting a 14.45% rate of return on equity. The FERC directed Transco to make refunds in accordance with the April 10, 1996 order. Certain parties filed for rehearing of the April 10 order and, on July 23, 1996, the FERC denied the rehearing requests. On September 17, 1996, Transco made refunds required under the FERC order, for which Transco had previously provided a reserve. On September 20, 1996, certain parties filed a petition for review in the United States Court of Appeals for the District of Columbia Circuit (D. C. Circuit). Those parties seek review of the FERC's April 10 and July 23, 1996 orders. Order 636 On July 3, 1996, the FERC issued an order on review of an ALJ's initial decision concerning, among other things, Transco's production area rate design. The FERC rejected the ALJ's recommendations that Transco divide its costs between its production area and market area, and permit its customers to renominate their firm entitlements. The FERC also concluded that Transco may offer firm service on its supply laterals through an open season and eliminate its IT feeder service in favor of an interruptible service option that does not afford shippers feeding firm transportation on Transco's production 10 area mainline a priority over other interruptible transportation. Certain parties have sought rehearing of the FERC's July 3, 1996 Order. On July 16, 1996, the D.C. Circuit issued a decision which in part affirmed and in part remanded Order 636. However, the court stated that Order 636 would remain in effect until the FERC issued a final order on remand after considering the remanded issues. With the issuance of this decision, the stay on the appeals of individual pipeline's restructuring cases has been lifted. Gathering facilities spin-down order (Docket Nos. CP96-206-000 and CP96- 207-000) On September 25, 1996, the FERC issued an order dismissing Transco's application and Williams Gas Processing - Gulf Coast Company's (WGP) petition for declaratory order filed by Transco and WGP to spin down certain of Transco's production area facilities. On October 25, 1996, Transco and WGP filed a joint request for rehearing of the FERC's September 25 order. Order No. 94-A costs (Docket No. RP92-149) Transco billed to and recovered from Columbia Gas Transmission Corporation (Columbia) approximately $7 million of Order 94-A costs. In October 1993, Transco and Columbia filed with the FERC for approval of a settlement agreement in which Transco agreed to refund $1.4 million to Columbia. On February 13, 1995, the FERC issued an order rejecting the October 1993 settlement and requiring Transco to refund to Columbia the $7 million of Order 94-A costs collected from Columbia. On May 31, 1995, Transco made the required refund for which Transco had previously provided a reserve. On June 30, 1995, Transco and Columbia each filed with the D. C. Circuit a petition for review of the FERC's order. On September 10, 1996, the D.C. Circuit issued an opinion, which vacated the FERC's February 13 order and directed the FERC to issue an order approving the October 1993 Transco-Columbia settlement. The effects of the D. C. Circuit's opinion have not been included in the accompanying financial statements pending further review of the issue and the opinion. Legal Proceedings Dakota Gasification litigation Pursuant to the FERC's order of July 17, 1996, oral argument before the FERC occurred on September 25, 1996. Royalty claims and litigation The Marathon litigation has been settled by cash payments. Transco had previously established a reserve that covered, among other things, potential liability for this litigation. 11 The trial of the Texaco lawsuit has been rescheduled for July, 1997. Some producers that have indemnification arrangements with Transco covering certain types of royalty claims have received additional claims for royalties. Some of these claims may be covered by such indemnification. Other litigation On July 18, 1996, an individual filed a lawsuit in the United States District Court for the District of Columbia against 70 natural gas pipelines and other gas purchasers or former gas purchasers. Transco is named as a defendant in the lawsuit. The plaintiff claims, on behalf of the United States under the False Claims Act, that the pipelines have incorrectly measured the heating value or volume of gas purchased by the defendants. The plaintiff claims that the United States has lost royalty payments as a result of these practices. Transco intends to vigorously defend against these claims. Summary While no assurances may be given, Transco does not believe that the ultimate resolution of the foregoing matters, taken as a whole and after consideration of amounts accrued, recovery from customers, insurance coverage or other indemnification arrangements, will have a materially adverse effect upon Transco's future financial position, results of operations and cash flow requirements. D. DEBT AND FINANCING ARRANGEMENTS Long-term Debt Williams and certain of its subsidiaries, including Transco, are parties to an $800 million credit agreement (Credit Agreement), under which Transco can borrow up to $400 million. Interest rates vary with current market conditions. As of September 30, 1996, Transco had no outstanding borrowings under this agreement. On July 15, 1996, Transco issued $200 million of debentures (the "Debentures"), which pay interest at 7.08% per annum on January 15 and July 15 of each year, beginning January 15, 1997. The Debentures mature on July 15, 2026, but are subject to redemption, at any time after July 15, 2001, at Transco's option, in whole or part, at a specified redemption price. The holder of each Debenture may elect between May 15, 2001 and June 15, 2001 to have such Debenture repaid on July 15, 2001 at 100% of the principal amount. The Debentures have no sinking fund provisions. For financial statement reporting purposes, $249 million of current debt obligations have been classified as non-current obligations based on Transco's intent and ability to refinance on a long-term basis. The amount available on the Credit Agreement of $400 million is sufficient to complete these refinancings. 12 Short-term Debt In October 1996, Transco reinstated one of its short-term money market facilities, which increased the amount Transco can borrow under such facilities to an aggregate of $135 million from $95 million. Interest rates under the reinstated facility vary with current market conditions. As of September 30, 1996, Transco had no outstanding borrowings under these facilities. Sale of Receivables In May 1996, Transco extended its one year agreement pursuant to which Transco can sell to an investor up to $100 million of undivided interests in certain of its trade receivables. During the third quarter of 1996, Transco reduced the capital level for its sale of trade receivables program to $79 million due to a seasonal reduction in commodity revenues. 13 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the financial statements, notes and management's discussion contained in Items 7 and 8 of Transco's 1995 Annual Report on Form 10-K and in Transco's 1996 First and Second Quarter Reports on Form 10-Q and with the condensed financial statements and notes contained in this report. CAPITAL RESOURCES AND LIQUIDITY Method of Financing Transco funds its capital requirements with cash flows from operating activities, including the sale of trade receivables, repayments of funds advanced to Williams, borrowings under the Credit Agreement and short-term money market facilities and, if required, advances from Williams. In late 1996 or early 1997, Transco also expects to access capital markets to refinance current maturities of existing long-term debt. As discussed in Note D of the Notes to the Condensed Consolidated Financial Statements, during July 1996, Transco issued $200 million of Debentures and, in October 1996, increased the amount Transco can borrow under its short-term money market facilities. Proceeds from the Debentures were used for general corporate purposes, including repayment of amounts outstanding under the Credit Agreement that were borrowed in May 1996 to redeem $125 million of Transco's adjustable rate notes. At September 30, 1996 there were no outstanding borrowings under the Credit Agreement or the short-term money market facilities. Advances due Transco by Williams totaled $81 million. For financial statement reporting purposes, $249 million of current debt obligations have been classified as non-current obligations based on Transco's intent and ability to refinance on a long-term basis. The amount available on the Credit Agreement of $400 million is sufficient to complete these refinancings. Due to a seasonal reduction in commodity revenues, Transco reduced the capital level for its sale of trade receivables program from $100 million to $79 million during the third quarter of 1996. Transco expects the capital level to increase during the fourth quarter of 1996 with the increase in seasonal commodity revenues. Capital Expenditures As shown in the table below, Transco's capital expenditures, for the nine months ended September 30, 1996 were $166.2 million, compared to $193 million for the nine months ended September 30, 1995. The lower expenditures were primarily due to a decrease in expenditures for the 1995/96 Southeast Expansion Project. Phase I of the 14 project was placed in service in late 1995 and Phase II is expected to be placed in service in November 1996.
Nine Months Ended September 30, ---------------------- Capital Expenditures 1996 1995 - -------------------- -------- -------- (In Millions) Market-Area Projects $ 26.2 $ 54.6 Maintenance of Existing Facilities and Other Projects 140.0 138.4 -------- -------- Total Capital Expenditures $ 166.2 $ 193.0 ======== ========
Mobile Bay Lateral Expansion Project On November 12, 1996, Transco filed an application with the FERC for approval to extend and expand its Mobile Bay lateral, increasing capacity as much as 600 million cubic feet per day (MMcf/d). The project will include expansion of Transco's existing 123-mile Mobile Bay lateral and construction of a new 77-mile offshore pipeline extension to an area near the outer continental shelf where substantial reserves have been discovered by several producers. The project, which has an estimated cost of $171.5 million, is targeted to be in service during the 1998-99 winter heating season. Southeast Louisiana Gathering System Project On August 30, 1996, Transco filed an application with the FERC for authority to expand the offshore portion of its existing Southeast Louisiana Gathering System in two phases to provide a total of 660 MMcf/d of additional firm transportation capacity. The estimated cost of the project is $129 million. Other Capital Requirements and Contingencies Transco's capital requirements and contingencies are discussed in its 1995 Annual Report on Form 10-K. Other than described in Note C of the Notes to Condensed Consolidated Financial Statements in Transco's 1996 First and Second Quarter Reports on Form 10-Q and in this report, there have been no new developments from those described in Transco's 1995 Annual Report on Form 10-K with regard to other capital requirements and contingencies. Conclusion Although no assurances can be given, Transco currently believes that the aggregate of cash flows from operating activities, supplemented, when necessary, by repayments of funds advanced to Williams, advances or capital contributions from Williams and borrowings under the Credit Agreement or short-term money market facilities, will provide Transco with sufficient liquidity to meet its capital requirements. When necessary, Transco also expects to be able to access public and private markets to finance its capital requirements. 15 RESULTS OF OPERATIONS As a result of the change in control of Transco on January 18, 1995 and the effects of the allocation of the purchase price, Transco's Condensed Consolidated Statement of Income for the nine months ended September 30, 1995 has been segregated into a pre-acquisition period ending January 17, 1995 and a post-acquisition period beginning January 18, 1995. For purposes of the discussion of variances between the nine months ended September 30, 1996 and the nine months ended September 30, 1995, the pre-acquisition and post-acquisition periods for the nine months ended September 30, 1995 have been combined for a pro forma presentation of results of operations for the first nine months of 1995. Common Stock Equity in Net Income and Operating Income Transco's common stock equity in net income for the nine months ended September 30, 1996 was $63.7 million, compared with common stock equity in net income of $50.9 million for the nine months ended September 30, 1995. The results for the nine months ended September 30, 1995 include an after-tax charge of $15.3 million, to provide for executive severance and termination benefits, substantially all of which were not deductible for federal income tax purposes. Excluding this charge, Transco's common stock equity in net income for the nine months ended September 30, 1995 would have been $66.2 million. Excluding the 1995 charge for executive severance and termination benefits, the lower common stock equity in net income of $2.5 million for the nine months ended September 30, 1996 was primarily due to slightly lower revenues, net of the related cost of sales and transportation, and higher net interest expense, partly offset by lower dividends on preferred stock. Operating income of $144.7 million for the nine months ended September 30, 1996 was comparable to operating income of $145.9 million (excluding the pre-tax charge of $16.0 million for executive severance and termination benefits) for the nine months ended September 30, 1995. Because of its rate structure and historical maintenance schedule, Transco typically experiences lower operating profit in the second and third quarters as compared to the first and fourth quarters of the year. Operating Expenses Excluding the pre-tax effects of the charge for executive severance and termination benefits in 1995 and the cost of sales and transportation of $658.8 million for the nine months ended September 30, 1996 and $518.3 million for the comparable period in 1995, Transco's operating expenses for the nine months ended September 30, 1996, were comparable to operating expenses for 1995. An increase in depreciation and amortization was offset by lower administrative and general expenses. The increase in depreciation and amortization of $6.7 million was primarily due to an increase of $3.8 million in the amortization of amounts allocated to Transco's property, plant and equipment from the 16 Williams purchase price and an increase of $2.9 million in the regulated depreciation expense resulting from an increase in property, plant and equipment. Administrative and general expenses decreased $7.3 million, primarily due to a decrease in office building rent, reflecting the effects of the Williams acquisition, and lower information services and processing costs. Transportation Services Transco's operating revenues related to its transportation services for the nine months ended September 30, 1996 were $495 million, compared to $521 million for the nine months ended September 30, 1995. The lower revenues were primarily due to lower gas transportation costs charged to Transco by others that are recovered in Transco's rates, slightly offset by the benefits of phase one of the 1995/1996 Southeast Expansion Project placed in service in late 1995. As shown in the table below, Transco's total market-area deliveries for the nine months ended September 30, 1996 increased 47.5 TBtu, or 5%, when compared to the same period in 1995. The increased deliveries were mainly due to phase one of the 1995/1996 Southeast Expansion Project being placed into service in late 1995 and prolonged cold weather in the market area during the first quarter of 1996. The production-area deliveries for the nine months ended September 30, 1996, increased 37.6 TBtu, or 30%, when compared to the same period in 1995. The increased deliveries were due primarily to gas being transported for injection into storage and prolonged cold weather during the first quarter of 1996. As a result of a straight fixed-variable (SFV) rate design, the increase in total system deliveries had no significant impact on operating income.
Nine Months Ended September 30, --------------------- Transco System Deliveries (TBtu) 1996 1995 ---- ---- Market-area deliveries: Long-haul transportation 699.9 618.8 Market-area transportation 304.9 338.5 ------- ------- Total market-area deliveries 1,004.8 957.3 Production-area transportation 163.0 125.4 ------- ------- Total system deliveries 1,167.8 1,082.7 ======= ======= Average Daily Transportation Volumes (TBtu) 4.3 4.0 Average Daily Firm Reserved Capacity (TBtu) 5.1 5.2
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. 17 Market-area transportation is gas that is both received and delivered within market-area zones. Production-area transportation is gas that is both received and delivered within production-area zones. See Note C of the Notes to Condensed Consolidated Financial Statements for a discussion of Transco's rate and regulatory matters. Sales Services Transco makes jurisdictional merchant gas sales to customers pursuant to a blanket sales certificate issued by the FERC, with most of those sales being made through a Firm Sales (FS) program which gives customers the option to purchase daily quantities of gas from Transco at market-responsive prices in exchange for a demand charge payment. Through an agency agreement, WESCO manages all jurisdictional merchant gas sales of Transco, receives all margins associated with such business and, as Transco's agent, assumes all market and credit risk associated with Transco's jurisdictional merchant gas sales. Consequently, Transco's merchant gas sales service has no impact on its operating income or results of operations. Transco's operating revenues for the nine months ended September 30, 1996 related to its sales services increased $173 million to $595 million, when compared to the same period in 1995. The increase was primarily due to higher gas prices in Transco's jurisdictional merchant sales services partly offset by lower volumes of gas sales. However, this increase in revenues had no effect on Transco's operating or net income variances when compared to the prior year since the increase in revenues was offset by a corresponding increase in the cost of sales.
Nine Months Ended September 30, ------------------- Gas Sales Volumes (TBtu) 1996 1995 - ------------------------ ---- ---- Long-term sales 167.5 154.1 Short-term sales 33.6 70.4 ----- ----- Total gas sales 201.1 224.5 ===== =====
Storage Services Transco's operating revenues for the nine months ended September 30, 1996 related to its storage services decreased $8.4 million, when compared to the nine months ended September 30, 1995. The decrease in revenues were substantially offset by a corresponding decrease in underground storage costs included in operation and maintenance expenses. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See discussion of legal proceedings in Note C of the Notes to Condensed Consolidated Financial Statements included herein. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None 19 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: November 13, 1996 By /s/ Nick A. Bacile ---------------------------------- Nick A. Bacile Vice President and Controller (Principal Financial Officer) 20 EX-27 2 TGPL 3RD QTR 1996 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, CONTAINED IN TRANSCONTINENTAL GAS PIPE LINE CORPORATION'S 1996 THIRD QUARTER REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1996 SEP-30-1996 1,973 0 27,256 0 67,508 398,887 3,605,057 289,083 3,935,965 390,601 729,814 0 0 0 1,789,039 3,935,965 595,225 1,203,273 595,223 960,005 0 0 47,415 104,210 40,492 63,718 0 0 0 63,718 0 0
-----END PRIVACY-ENHANCED MESSAGE-----