-----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, cAef2mROmkYuhIPKdIjPN0032c6SghJUVGwMKTTDkf2wnXOEKgJ9JAJOZBZ7R3NI +wzK/EYPid8ZN010u8a4+w== 0000099250-94-000004.txt : 19940816 0000099250-94-000004.hdr.sgml : 19940816 ACCESSION NUMBER: 0000099250-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 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: 94544044 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 2ND QTR 1994 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 June 30, 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 June 30, 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 and included in TGPL's 1994 First Quarter Report on Form 10-Q (First Quarter Form 10-Q). TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED BALANCE SHEET (Thousands of Dollars)
June 30, December 31, 1994 1993 _____________ _____________ ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 1,621 $ 1,094 Deposits . . . . . . . . . . . . . . . . . . . . . . 7,568 7,348 Receivables. . . . . . . . . . . . . . . . . . . . . 74,657 93,181 Advances to Transco . . . . . . . . . . . . . . . . 125,061 133,304 Transportation and exchange gas receivable - others. 22,000 22,000 Inventories. . . . . . . . . . . . . . . . . . . . . 58,980 79,547 Deferred income tax benefits . . . . . . . . . . . . 7,851 - Other. . . . . . . . . . . . . . . . . . . . . . . . 19,776 23,739 _____________ _____________ Total current assets . . . . . . . . . . . . . . 317,514 360,213 _____________ _____________ Property, Plant and Equipment, at cost: Natural gas transmission plant . . . . . . . . . . . 4,251,151 4,223,501 Less - Accumulated depreciation and amortization . . 2,543,369 2,480,332 _____________ _____________ Property, plant and equipment, net . . . . . . . 1,707,782 1,743,169 _____________ _____________ Other Assets: Transportation and exchange gas receivable: Affiliates . . . . . . . . . . . . . . . . . . . 23,011 32,155 Others . . . . . . . . . . . . . . . . . . . . . 88,360 92,960 Other. . . . . . . . . . . . . . . . . . . . . . . . 86,167 75,728 _____________ _____________ Total other assets . . . . . . . . . . . . . . . 197,538 200,843 _____________ _____________ $ 2,222,834 $ 2,304,225 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED BALANCE SHEET (Thousands of Dollars)
June 30, December 31, 1994 1993 _____________ _____________ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Payables . . . . . . . . . . . . . . . . . . . . . . $ 154,324 $ 199,635 Transportation and exchange gas payable - others . . 12,000 12,000 Accrued liabilities. . . . . . . . . . . . . . . . . 82,453 73,145 Reserve for producer settlements, legal and regulatory issues. . . . . . . . . . . . . . . . 1,745 5,240 Reserve for rate refunds . . . . . . . . . . . . . . 63,988 141,270 Deferred income taxes. . . . . . . . . . . . . . . . - 1,452 Other. . . . . . . . . . . . . . . . . . . . . . . . 13,171 16,162 _____________ _____________ Total current liabilities. . . . . . . . . . . . 327,681 448,904 _____________ _____________ Long-Term Debt, less current maturities . . . . . . . . . 644,021 643,799 _____________ _____________ Other Liabilities and Deferred Credits: Income taxes . . . . . . . . . . . . . . . . . . . . 281,460 279,303 Income taxes refundable to customers . . . . . . . . 13,965 19,148 Transportation and exchange gas payable: Affiliates . . . . . . . . . . . . . . . . . . . 1,260 726 Others . . . . . . . . . . . . . . . . . . . . . 53,000 64,976 Other. . . . . . . . . . . . . . . . . . . . . . . . 67,700 64,888 _____________ _____________ Total other liabilities and deferred credits . . 417,385 429,041 _____________ _____________ Commitments and contingencies . . . . . . . . . . . . . . - - Cumulative Redeemable Preferred Stock, without par value: Authorized 10,000,000 shares: Stated value $100 per share, issued and outstanding 734,927 shares and 757,427 shares in 1994 and 1993, respectively . . . . . . . . . . . . . . . . . . 73,493 75,743 Less - Issue expense . . . . . . . . . . . . . . 535 552 _____________ _____________ Total preferred stock. . . . . . . . . . . . . . 72,958 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 . 284,610 283,037 Retained earnings. . . . . . . . . . . . . . . . . . 476,179 424,253 _____________ _____________ Total common stockholder's equity. . . . . . . . 760,789 707,290 _____________ _____________ $ 2,222,834 $ 2,304,225 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED STATEMENT OF INCOME (Thousands of Dollars)
Three Months Ended June 30, _____________________________ 1994 1993 _____________ _____________ Operating Revenues: Natural gas sales . . . . . . . . . . . . . . . . . . . $ 195,374 $ 152,568 Natural gas transportation . . . . . . . . . . . . . . 166,399 168,730 Natural gas storage . . . . . . . . . . . . . . . . . . 35,278 35,610 Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,610 1,415 _____________ _____________ Total operating revenues . . . . . . . . . . . . . . . 398,661 358,323 _____________ _____________ Operating Costs and Expenses: Cost of natural gas sales . . . . . . . . . . . . . . . 195,375 152,746 Cost of natural gas transportation. . . . . . . . . . . 30,970 31,145 Operation and maintenance . . . . . . . . . . . . . . . 42,901 46,181 Administrative and general. . . . . . . . . . . . . . . 36,900 38,311 Depreciation and amortization . . . . . . . . . . . . . 30,144 29,950 Taxes - other than income taxes . . . . . . . . . . . . 8,587 8,520 _____________ _____________ Total operating costs and expenses . . . . . . . . . . 344,877 306,853 _____________ _____________ Operating Income. . . . . . . . . . . . . . . . . . . . . . 53,784 51,470 _____________ _____________ Other (Income) and Other Deductions: Interest expense - affiliates . . . . . . . . . . . . . - 14 - other. . . . . . . . . . . . . . . . 14,524 15,512 Interest income - affiliates . . . . . . . . . . . . . ( 881) ( 626) - other. . . . . . . . . . . . . . . . ( 206) ( 476) Allowance for equity and borrowed funds used during construction (AFUDC) . . . . . . . . . . . . . . . . . ( 800) ( 657) Miscellaneous other (income) and deductions, net. . . . 1,424 1,965 _____________ _____________ Total other (income) and other deductions . . . . . . 14,061 15,732 _____________ _____________ Income Before Income Taxes. . . . . . . . . . . . . . . . . 39,723 35,738 Provision for Income Taxes. . . . . . . . . . . . . . . . . 13,874 12,139 _____________ _____________ Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 25,849 23,599 Dividends on Preferred Stock. . . . . . . . . . . . . . . . 1,572 2,112 _____________ _____________ Common Stock Equity in Net Income . . . . . . . . . . . . . $ 24,277 $ 21,487 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED STATEMENT OF INCOME (Thousands of Dollars)
Six Months Ended June 30, _____________________________ 1994 1993 _____________ _____________ Operating Revenues: Natural gas sales . . . . . . . . . . . . . . . . . . . $ 421,786 $ 308,680 Natural gas transportation . . . . . . . . . . . . . . 332,522 358,014 Natural gas storage . . . . . . . . . . . . . . . . . . 73,006 73,735 Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,262 2,817 _____________ _____________ Total operating revenues . . . . . . . . . . . . . . . 830,576 743,246 _____________ _____________ Operating Costs and Expenses: Cost of natural gas sales . . . . . . . . . . . . . . . 421,936 307,230 Cost of natural gas transportation. . . . . . . . . . . 59,154 85,747 Operation and maintenance . . . . . . . . . . . . . . . 83,715 84,650 Administrative and general. . . . . . . . . . . . . . . 73,957 76,557 Depreciation and amortization . . . . . . . . . . . . . 60,287 59,564 Taxes - other than income taxes . . . . . . . . . . . . 17,303 16,921 _____________ _____________ Total operating costs and expenses . . . . . . . . . . 716,352 630,669 _____________ _____________ Operating Income. . . . . . . . . . . . . . . . . . . . . . 114,224 112,577 _____________ _____________ Other (Income) and Other Deductions: Interest expense - affiliates . . . . . . . . . . . . . - 221 - other. . . . . . . . . . . . . . . . 30,329 31,429 Interest income - affiliates . . . . . . . . . . . . . ( 2,671) ( 752) - other. . . . . . . . . . . . . . . . ( 331) ( 1,888) Allowance for equity and borrowed funds used during construction (AFUDC) . . . . . . . . . . . . . . . . . ( 1,635) ( 770) Miscellaneous other (income) and deductions, net. . . . 3,538 3,472 _____________ _____________ Total other (income) and other deductions . . . . . . 29,230 31,712 _____________ _____________ Income Before Income Taxes. . . . . . . . . . . . . . . . . 84,994 80,865 Provision for Income Taxes. . . . . . . . . . . . . . . . . 29,897 27,797 _____________ _____________ Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 55,097 53,068 Dividends on Preferred Stock. . . . . . . . . . . . . . . . 3,171 4,252 _____________ _____________ Common Stock Equity in Net Income . . . . . . . . . . . . . $ 51,926 $ 48,816 _____________ _____________ _____________ _____________ The accompanying condensed notes are an integral part of these condensed financial statements.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED STATEMENT OF CASH FLOWS (Thousands of Dollars)
Six Months Ended June 30, _____________________________ 1994 1993 _____________ _____________ Cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . $ 55,097 $ 53,068 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . 67,789 66,684 Deferred income taxes. . . . . . . . . . . . . . . . ( 12,884) ( 26,300) Tran$tock compensation expense . . . . . . . . . . . 1,590 1,334 Allowance for equity funds used during construction (AFUDC). . . . . . . . . . . . . . . ( 1,257) 1,035 _____________ ______________ 110,335 95,821 Nonrecoverable producer settlements. . . . . . . . . - ( 26,300) Changes in operating assets and liabilities: Deposits . . . . . . . . . . . . . . . . . . . . . . ( 220) ( 847) Receivables. . . . . . . . . . . . . . . . . . . . . 18,524 21,745 Transportation and exchange gas receivable . . . . . 13,744 ( 18,371) Inventories. . . . . . . . . . . . . . . . . . . . . 20,567 ( 2,001) Payables . . . . . . . . . . . . . . . . . . . . . . ( 41,578) ( 33,888) Transportation and exchange gas payable. . . . . . . ( 11,442) 9,081 Accrued liabilities. . . . . . . . . . . . . . . . . 7,966 2,981 Reserve for rate refunds . . . . . . . . . . . . . . ( 77,282) 51,547 Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 8,934) 1,425 _____________ ______________ Net cash provided by operating activities . . . . 31,680 101,193 _____________ ______________ Cash flows from financing activities: Retirement of long-term debt. . . . . . . . . . . . . . - ( 29,856) Retirement of preferred stock . . . . . . . . . . . . . ( 2,250) ( 2,250) Advances from Transco . . . . . . . . . . . . . . . . . - 987,915 Retirement of advances from Transco . . . . . . . . . . - ( 987,915) Dividends on preferred stock. . . . . . . . . . . . . . ( 3,198) ( 4,280) Other, net. . . . . . . . . . . . . . . . . . . . . . . - ( 2,037) _____________ ______________ Net cash used in financing activities . . . . . . ( 5,448) ( 38,423) _____________ ______________ Cash flows from investing activities: Property, plant and equipment, net of equity AFUDC. . . ( 33,599) ( 40,405) Recovery of producer settlements. . . . . . . . . . . . - 30,411 Advances to Transco . . . . . . . . . . . . . . . . . . ( 867,984) ( 551,892) Retirement of advances to Transco . . . . . . . . . . . 876,227 495,691 Other, net. . . . . . . . . . . . . . . . . . . . . . . ( 349) 4,266 _____________ ______________ Net cash used in investing activities . . . . . . ( 25,705) ( 61,929) _____________ ______________ Net increase in cash and cash equivalents . . . . . . . . 527 841 Cash and cash equivalents at beginning of period. . . . . 1,094 1,259 _____________ ______________ Cash and cash equivalents at end of period. . . . . . . . $ 1,621 $ 2,100 _____________ ______________ _____________ ______________ Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest (net of amount capitalized). . . . . . . . . $ 32,837 $ 28,524 Income taxes, net . . . . . . . . . . . . . . . . . . ( 2,170) 52,941 The accompanying condensed notes are an integral part of these condensed financial statements. TRANSCONTINE
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 and included in the Form 10-Q for the quarter ended March 31, 1994 (First Quarter Form 10-Q). Certain reclassifications have been made in the 1993 financial statements to conform with the 1994 presentation. 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 TGPL's 1993 Annual Report on Form 10-K and in its First Quarter Form 10-Q 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 the first six months of 1994, TGPL made partial refunds of approximately $123 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 June 30, 1994, these additional refunds, which are currently expected to be made during the fourth quarter of 1994, are estimated to be approximately $46 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 on TGPL's Order 636 compliance filings 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. On May 27, 1994, the D.C. Circuit Court issued an order directing parties to file statements of issues and continuing to hold these appeals in abeyance until the court establishes a briefing schedule for the review of Order 636. Among the issues raised by the parties are whether the separately stated gathering rates charged by TGPL should be subject to refund and issues related to TGPL's storage tracker authority. 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. C. LEGAL PROCEEDINGS There have been no new developments from those described in TGPL's 1993 Annual Report on Form 10-K or in its First Quarter Form 10-Q other than as described below. Producer Contract Litigation ____________________________ As discussed in TGPL's 1993 Annual Report on Form 10-K, in TGPL's remaining proceeding involving take-or-pay and other producer contract claims, a producer filed in United States District Court for the Southern District of Texas (Federal District Court) claiming that it should have received more favorable terms for settlement of its contract claims and asserting federal antitrust claims. The Federal District Court issued an order granting TGPL's motion for summary judgement, which was appealed by the producer to the United States Court of Appeals for the Fifth Circuit (Fifth Circuit Court). On July 1, 1994, the Fifth Circuit Court affirmed the judgment of the Federal District Court dismissing the producer's claims in all respects and on July 27, 1994, denied the producer's petition for rehearing. Dakota Gasification Litigation ______________________________ As discussed in TGPL's 1993 Annual Report on Form 10-K and in its First Quarter Form 10-Q, 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. On June 23, 1994, TGPL filed a petition with the FERC seeking approval of the settlement provisions and the contract amendment including pass-through of all costs to TGPL's customers. 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 and in its First Quarter Form 10-Q, 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. In the Duplantis excess royalties litigation, with respect to the claims against Transco Exploration Company (TXC) and TXP Operating Company (TXPO), the plaintiffs have alleged claims against TXC and TXPO of approximately $8.5 million. In the same litigation, TGPL, based on information supplied by the plaintiffs, believes the plaintiffs are asserting claims against it of approximately $14 million, inclusive of certain claims made against TXC and TXPO. 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 TGPL's 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 and in its First Quarter Form 10-Q, 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 June 30, 1994, approximately $337 million of TGPL's retained earnings of $476 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 in its First Quarter Form 10-Q 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. Over the past two years, Transco has made significant progress in improving 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 further improving financial results. CAPITAL RESOURCES AND LIQUIDITY Financing _________ 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 June 30, 1994, approximately $337 million of TGPL's retained earnings of $476 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 December 31, 1993 and June 30, 1994, $100 million and $91 million, respectively, in trade receivables were held by the investor. Capitalization and Cash Flows _____________________________ As shown in the following table, at June 30, 1994, the percentage of total debt to total invested capital was 43.6%, compared to 45.1% at December 31, 1993. Although total debt at June 30, 1994, remained approximately the same as at December 31, 1993, net income during the first six months of 1994 had the effect of reducing the percentage of total debt to total invested capital.
June 30, December 31, 1994 1993 ______________ _______________ (In millions) Common Stockholder's Equity . . . . . . . . . . . . . . . . $ 760.8 $ 707.3 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 73.0 75.2 Long-term Debt, less Current Maturities . . . . . . . . . . 644.0 643.8 ______________ _______________ Total Capitalization. . . . . . . . . . . . . . . . . . 1,477.8 1,426.3 Current Maturities of Long-term Debt. . . . . . . . . . . . - - ______________ _______________ Total Invested Capital. . . . . . . . . . . . . . . . . $ 1,477.8 $ 1,426.3 ______________ _______________ ______________ _______________ Long-term Debt, less Current Maturities as a Percentage of Total Capitalization. . . . . . . . . . . . . . . . . . . . . 43.6% 45.1% Common Stockholder's Equity as a Percentage of Total Capitalization. . . . . . . . . . . . . . . . . . . . . 51.5% 49.6% Total Debt as a Percentage of Total Invested Capital. . . . 43.6% 45.1%
At June 30, 1994, TGPL had a working capital deficit of $10 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 six months of 1994 for TGPL's initial refunds under Docket No. RP92-137, as discussed in Note B of the Notes to Condensed Financial Statements. The refunds were made from funds generated by operating activities during the first six months of 1994.
Six Months Ended June 30, __________________________ 1994 1993 _________ __________ (In millions) Cash Flows Provided by Operating Activities . . . . . . . . $ 31.7 $ 101.2 _________ __________ _________ __________
For the six months ended June 30, 1994, cash flows from operating activities were $70 million lower than the six months ended June 30, 1993. The lower cash flows for 1994 are primarily the result of cash refunds made in the first six months 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.
Six Months Ended June 30, __________________________ 1994 1993 __________ __________ (In millions) Cash Flows Used in Financing Activities . . . . . . . . . . $ 5.4 $ 38.4 __________ __________ __________ __________
The cash flows used in financing activities for the six months ended June 30, 1994, were attributable to dividend payments of $3 million on preferred stock and $2 million for the retirement of preferred stock. For the six months ended June 30, 1993, cash flows used in financing activities were primarily attributable to the retirement of $32 million of other long-term debt and preferred stock and dividend payments of $4 million on preferred stock.
Six Months Ended June 30, __________________________ 1994 1993 __________ __________ (In millions) Cash Flows Used in Investing Activities . . . . . . . . . . $ 25.7 $ 61.9 __________ __________ __________ __________
For the six months ended June 30, 1994, cash flows used in investing activities were primarily for capital expenditures for property, plant and equipment, slightly offset by Transco's net repayment of advances from TGPL. For the six months ended June 30, 1993, cash flows used in investing activities were primarily for capital expenditures for property, plant and equipment and net advances to Transco, partly offset by the recovery of producer settlement costs.
Six Months Ended June 30, __________________________ Capital Expenditures 1994 1993 ____________________ __________ __________ (In millions) Market-Area Projects . . . . . . . . . . . . . . . . . . . $ 3.7 $ 1.1 Supply-Area Projects. . . . . . . . . . . . . . . . . . . . 7.3 15.1 Maintenance of Existing Facilities and Other Projects . . . 22.6 24.2 __________ __________ Total Capital Expenditures. . . . . . . . . . . . . . . $ 33.6 $ 40.4 __________ __________ __________ __________
Other Capital Requirements and Contingencies ____________________________________________ TGPL's capital requirements and contingencies are discussed in TGPL's 1993 Annual Report on Form 10-K and in its First Quarter Form 10-Q. Other than described in Notes B and C of the Notes to the Condensed Financial Statements and below, there have been no new developments from those described in TGPL's 1993 Annual Report on Form 10-K and in its First Quarter Form 10-Q with regard to other capital requirements and contingencies. Liberty Pipeline Company In 1992, Liberty Pipeline Company, a partnership of interstate pipelines and local distribution companies, filed for FERC approval to construct and operate a natural gas pipeline to provide 500 million cubic feet per day in firm transportation service to the greater New York City area. The partnership was comprised of subsidiaries of Transco and two other interstate pipelines and subsidiaries of three TGPL customers in New York. On August 1, 1994, the partners of Liberty Pipeline Company sent a letter to the FERC, asking it to postpone indefinitely its review of the Liberty Pipeline project. The decision follows the withdrawal, in early June, of one key shipper and project partner and the recent withdrawal of another shipper. The partners also reaffirmed their belief that an additional delivery point to the New York facilities system, as proposed by Liberty Pipeline Company, will be necessary in the future and advised the FERC that the Liberty Pipeline Company partners will continue to pursue that goal. 1994 Southeast Expansion Project On June 6, 1994, TGPL accepted a final certificate from the FERC authorizing its 1994 Southeast Expansion Project. The FERC issued the certificate on May 27, 1994. Rate Refunds As discussed in Note B of the Notes to Condensed Financial Statements, TGPL received a FERC order accepting its Settlement in connection with its general rate case (Docket No. RP92-137) on November 4, 1993. In the first six months of 1994, TGPL made partial refunds of approximately $123 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 June 30, 1994, these additional refunds, which are currently expected to be made during the fourth quarter of 1994, are estimated to be approximately $46 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, when 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 and in its First Quarter Form 10-Q, 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 and six months ended June 30, 1994 was $2.8 million and $3.1 million, respectively, higher than net income for the three months and six months ended June 30, 1993, due primarily to lower operating expenses excluding cost of sales and transportation, lower net interest expense, higher allowance for equity funds used during construction and lower dividends on preferred stock. Operating income for the three months and six months ended June 30, 1994 was $2.3 million and $1.6 million, respectively, higher than operating income for the same periods in 1993, reflecting lower operating expenses, partially offset by slightly lower net revenues (net of the related cost of sales and transportation and surcharges). Transportation Services _______________________ TGPL's operating revenues, excluding sales and storage services, decreased slightly by $2 million to $168 million for the three months ended June 30, 1994, and decreased by $25 million to $336 million for the six months ended June 30, 1994, when compared to the same periods 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 periods. Excluding the cost of sales and transportation of $226 million and $481 million for the three months and six months ended June 30, 1994, respectively, and $184 million and $393 million, respectively, for the comparable periods in 1993, TGPL's operating expenses for the three months and six months ended June 30, 1994, were approximately $4 million and $2 million, respectively, lower than the comparable periods in 1993. The decrease in operating expenses for the three-month and six-month periods was primarily due to lower costs for miscellaneous contractual services, other supplies and expenses and postretirement benefits other than pensions, somewhat offset by higher costs for main engine repairs. As shown in the table below, TGPL's total market-area deliveries for the three months ended June 30, 1994 were 8.1 billion cubic feet (Bcf), or 3 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 extremely warm weather experienced on the East Coast during June 1994. TGPL's total market-area deliveries for the six months ended June 30, 1994 were 16.8 Bcf, or 3 percent, higher than the six months ended June 30, 1993. The increased deliveries, primarily firm transportation volumes, are higher than the same period in 1993 mainly due to the colder-than-normal weather in the market area during January and February 1994 coupled with the extremely warm weather during June 1994. The production-area deliveries for the three months and six months ended June 30, 1994, increased 3.0 Bcf, or 6 percent, and 11.8 Bcf, or 15 percent, respectively, when compared to the same periods in 1993, 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 straight fixed-variable (SFV) rate design, these increased deliveries had no significant impact on operating income.
Three Months Six Months TGPL System Deliveries (Bcf) Ended June 30, Ended June 30, ____________________________ _____________________ ____________________ 1994 1993 1994 1993 _______ ________ _______ _______ Market-area deliveries: Long-haul transportation. . . . . . . . . 186.2 194.4 417.0 429.5 Market-area transportation. . . . . . . . 90.3 74.0 224.5 195.2 _______ ______ _______ _______ Total market-area deliveries . . . . . 276.5 268.4 641.5 624.7 Production-area transportation. . . . . . 52.0 49.0 88.3 76.5 _______ ______ _______ _______ Total system deliveries 328.5 317.4 729.8 701.2 _______ ______ _______ _______ _______ ______ _______ _______
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 concluded in June 1994 and the parties will submit briefs to the ALJ in August and September 1994. The decision of the ALJ, when issued, will be subject to review by the FERC. 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 included in Item 1 herein. Sales Services ______________ TGPL makes sales to customers through a Firm Sales (FS) program, an Optional Firm Sales (OFS) program, an Interruptible Sales (IS) program and a Negotiated Sales (NS) 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 $43 million to $195 million for the quarter ended June 30, 1994, when compared to the quarter ended June 30, 1993, and increased $113 million to $422 million for the six months ended June 30, 1994, when compared to the same period in 1993, due primarily to higher sales volumes. However, TGPL's sales service did not have an impact on TGPL's operating income or results of operations during the first six months 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 Six Months Gas Sales Volumes (Bcf)(1) Ended June 30, Ended June 30, ____________________________ _____________________ ____________________ 1994 1993 1994 1993 _______ ________ _______ _______ Long-term sales . . . . . . . . . . . . . . 52.7 43.7 119.9 100.8 Short-term sales. . . . . . . . . . . . . . 31.1 10.0 49.1 18.6 _______ _______ _______ _______ Total gas sales . . . . . . . . . . . . 83.8 53.7 169.0 119.4 _______ _______ _______ _______ _______ _______ _______ _______ (1) Effective January 1993, TGMC, through an agency management agreement with TGPL, assumed operation of TGPL's sales service.
Storage Services ________________ TGPL's operating revenues of $35 million and $73 million, respectively, related to its storage services for the quarter and six months ended June 30, 1994 were comparable to the storage revenues for the same periods 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: August 12, 1994 By /S/ N. A. Bacile ______________________________________ (Signature) N. A. Bacile Vice President and Controller 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. -----END PRIVACY-ENHANCED MESSAGE-----