-----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, AcFm+t96tT/OSuAQ2mroEblhDL0DOZVYs6kwCQiu6QM4t/fv9VK0odFNjrGV3JmK x9YfyDd/Re1HEZJtPE3njA== 0000099250-97-000004.txt : 19970815 0000099250-97-000004.hdr.sgml : 19970815 ACCESSION NUMBER: 0000099250-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660785 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 TRANSCO 2ND QTR 1997 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 JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ......... TO .......... COMMISSION FILE NUMBER 1-7584 TRANSCONTINENTAL GAS PIPE LINE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1079400 STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2800 POST OAK BOULEVARD P. O. BOX 1396 HOUSTON, TEXAS 77251 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 215-2000 NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE, OUTSTANDING AS OF JUNE 30, 1997 WAS 100. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT. 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. COMPANY OR GROUP OF COMPANIES FOR WHICH REPORT IS FILED: TRANSCONTINENTAL GAS PIPE LINE CORPORATION AND SUBSIDIARIES (TRANSCO) The accompanying interim condensed consolidated financial statements of Transco do not include all notes in annual financial statements and therefore should be read in conjunction with the consolidated financial statements and notes thereto in Transco's 1996 Annual Report on Form 10-K and 1997 First Quarter Report on Form 10-Q. The accompanying unaudited financial statements have not been audited by independent auditors but include all adjustments both normal recurring and others which, in the opinion of Transco's management, are necessary to present fairly its financial position at June 30, 1997, and results of operations for the three months and six months ended June 30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996. 2 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Thousands of Dollars) (Unaudited)
June 30, December 31, 1997 1996 --------------- ---------------- ASSETS Current Assets: Cash $ 1,221 $ 1,774 Receivables: Affiliates 11,865 4,837 Others 12,890 51,011 Advances to affiliates 35,987 148,496 Transportation and exchange gas receivables: Affiliates 22,019 22,111 Others 66,596 72,900 Inventories 99,707 69,461 Deferred income tax asset 77,185 76,192 Other 20,043 19,807 --------------- ---------------- Total current assets 347,513 466,589 --------------- ---------------- Investments 11,417 5,865 --------------- ---------------- Property, Plant and Equipment : Natural gas transmission plant 3,824,498 3,738,550 Less-Accumulated depreciation and amortization 399,601 318,234 -------------- ---------------- Total property, plant and equipment, net 3,424,897 3,420,316 -------------- ---------------- Other Assets 157,198 166,757 -------------- ---------------- $ 3,941,025 $ 4,059,527 =============== ================
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)
June 30, December 31, 1997 1996 ---------------- -------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Current maturities of long-term debt $ 7,630 $ 99,000 Payables: Affiliates 45,463 70,283 Others 54,939 84,026 Transportation and exchange gas payables: Affiliates 197 190 Other 25,179 27,050 Accrued liabilities 123,196 104,289 Reserve for rate refunds 131,183 172,823 ---------------- -------------- Total current liabilities 387,787 557,661 ---------------- -------------- Long-Term Debt 673,074 681,076 ---------------- -------------- Other Long-Term Liabilities: Deferred income taxes 834,040 833,928 Other 177,803 167,648 ---------------- -------------- Total other long-term liabilities 1,011,843 1,001,576 ---------------- -------------- Commitments and contingencies (Note 3) Common Stockholder's Equity: Common stock $1.00 par value: 100 shares authorized, issued and outstanding - - Premium on capital stock and other paid-in capital 1,652,430 1,652,430 Retained earnings 215,891 166,784 ---------------- -------------- Total common stockholder's equity 1,868,321 1,819,214 ---------------- -------------- $ 3,941,025 $ 4,059,527 ================ ==============
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 June 30, 1997 June 30, 1996 ------------- ------------- Operating Revenues: Natural gas sales $ 151,952 $ 190,984 Natural gas transportation 151,671 163,097 Natural gas storage 34,561 36,148 Other 1,914 1,347 ------------------ ------------------ Total operating revenues 340,098 391,576 ------------------ ------------------ Operating Costs and Expenses: Cost of natural gas sales 151,952 191,050 Cost of natural gas transportation 8,168 19,861 Operation and maintenance 48,258 50,502 Administrative and general 30,084 31,838 Depreciation and amortization 39,275 44,717 Taxes - other than income taxes 9,396 9,076 Other 212 298 ------------------ ------------------ Total operating costs and expenses 287,345 347,342 ------------------ ------------------ Operating Income 52,753 44,234 ------------------ ------------------ Other (Income) and Other Deductions: Interest expense 16,125 16,510 Interest income - affiliates (1,168) (1,069) - other (8) (202) Allowance for equity and borrowed funds used during construction (AFUDC) (1,543) (1,519) Miscellaneous other deductions, net 675 961 ------------------ ------------------ Total other deductions 14,081 14,681 ------------------ ------------------ Income before Income Taxes 38,672 29,553 Provision for Income Taxes 14,917 11,510 ------------------ ------------------ Net Income $ 23,755 $ 18,043 ================== ==================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 5 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Thousands of Dollars) (Unaudited)
For the Six For the Six Months Ended Months Ended June 30, 1997 June 30, 1996 ------------- ------------- Operating Revenues: Natural gas sales $ 311,461 $ 455,061 Natural gas transportation 307,878 339,785 Natural gas storage 71,152 72,920 Other 4,121 3,037 ------------------ -------------------- Total operating revenues 694,612 870,803 ------------------ -------------------- Operating Costs and Expenses: Cost of natural gas sales 311,461 455,060 Cost of natural gas transportation 18,980 44,052 Operation and maintenance 91,898 96,022 Administrative and general 61,823 64,584 Depreciation and amortization 78,069 90,165 Taxes - other than income taxes 18,660 18,325 Other 804 514 ------------------ ------------------- Total operating costs and expenses 581,695 768,722 ------------------ ------------------- Operating Income 112,917 102,081 ------------------ ------------------- Other (Income) and Other Deductions: Interest expense 33,315 29,656 Interest income - affiliates (2,298) (2,200) - other (8) (256) Allowance for equity and borrowed funds used during construction (AFUDC) (3,343) (2,558) Miscellaneous other deductions, net 1,243 1,938 ------------------ ------------------- Total other deductions 28,909 26,580 ------------------ ------------------- Income before Income Taxes 84,008 75,501 Provision for Income Taxes 32,582 29,329 ------------------ ------------------- Net Income $ 51,426 $ 46,172 ================== ====================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements. 6 TRANSCONTINENTAL GAS PIPE LINE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars) (Unaudited)
Six Months Ended June 30, -------------------------------------- 1997 1996 ---------------- --------------- Cash flows from operating activities: Net income $ 51,426 $ 46,172 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 81,744 92,726 Deferred income taxes (881) (40,673) Allowance for equity funds used during construction (AFUDC) (2,310) (1,739) Changes in operating assets and liabilities: Receivables 31,093 8,917 Transportation and exchange gas receivables 6,396 24,153 Inventories (30,247) (13,541) Payables (45,518) (84,400) Transportation and exchange gas payables (1,864) (32,727) Accrued liabilities 18,885 (37,797) Reserve for rate refunds (41,640) 60,462 Other, net 18,922 21,421 ---------------- --------------- Net cash provided by operating activities 86,006 42,974 ---------------- --------------- Cash flows from financing activities: Additions to long-term debt - 100,000 Retirement of long-term debt (99,000) (125,000) Debt issue costs (146) (157) Dividends on common stock (2,319) - ---------------- --------------- Net cash used in financing activities (101,465) (25,157) ---------------- --------------- Cash flows from investing activities: Property, plant and equipment: Additions, net of equity AFUDC (84,269) (89,717) Changes in accounts payable and accrued liabilities (8,389) (3,235) Advances to affiliates, net 112,509 76,536 Other, net (4,945) (1,759) ---------------- --------------- Net cash provided by (used in) investing activities 14,906 (18,175) ---------------- --------------- Net decrease in cash (553) (358) Cash at beginning of period 1,774 2,557 ---------------- --------------- Cash at end of period $ 1,221 $ 2,199 ================ =============== Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for : Interest (exclusive of amount capitalized) $ 37,341 $ 27,842 Income taxes paid 19,986 8,616 Income tax refunds received (11,759) (417)
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 1. CORPORATE STRUCTURE AND CONTROL Effective May 1, 1997, Transcontinental Gas Pipe Line Corporation (Transco) became a wholly-owned subsidiary of Williams Interstate Natural Gas Systems, Inc., which is a wholly-owned subsidiary of The Williams Companies, Inc. (Williams). Prior to May 1, 1997, Transco was a wholly-owned subsidiary of Williams. 2. BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of Transco and its majority-owned subsidiaries. Companies in which Transco and its subsidiaries own 20 percent to 50 percent of the voting common stock are accounted for under the equity method. The condensed consolidated financial statements have been prepared from the books and records of Transco without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Transco's 1996 Annual Report on Form 10-K and included in Transco's 1997 First Quarter Report on Form 10-Q. Through an agency agreement, Williams Energy Services Company (WESCO), an affiliate of Transco, manages all jurisdictional merchant gas sales of Transco, receives all margins associated with such business and, as Transco's agent, assumes all market and credit risk associated with Transco's jurisdictional merchant gas sales. Consequently, Transco's merchant gas sales service has no impact on its operating income or results of operations. Certain reclassifications have been made in the 1996 financial statements to conform to the 1997 presentation. 3. CONTINGENT LIABILITIES AND COMMITMENTS There have been no new developments from those described in Transco's 1996 Annual Report on Form 10-K or 1997 First Quarter Report on Form 10-Q other than as described below. 8 RATE AND REGULATORY MATTERS GENERAL RATE CASE (DOCKET NO. RP97-71) On November 1, 1996, Transco submitted to the Federal Energy Regulatory Commission (FERC) a general rate case filing principally designed to recover costs associated with increased capital expenditures. These increased capital expenditures primarily relate to system reliability, integrity and Clean Air Act compliance. When stated on a comparable basis, the rates Transco placed into effect on May 1, 1997, represent an annual cost of service increase of approximately $47 million over the cost of service underlying the rates contained in the settlement of Transco's last general rate filing (Docket No. RP95-197). The rates, which are subject to refund, are designed using the straight fixed-variable rate design method. GENERAL RATE CASE (DOCKET NO. RP95-197) On June 19, 1996, Transco filed a Stipulation and Agreement and settlement rates. The agreement resolves cost of service (subject to the outcome of capital structure and rate of return in the Phase I proceeding), throughput level and mix, and certain cost allocation and rate design issues. The agreement also reserves certain other issues for hearing in Phase II, including the issue of rolled-in pricing for incremental Leidy Line services. With the exception of one party that filed comments opposing the settlement and one party that took no position on the merits of the settlement, all active parties and the FERC's staff either supported the settlement or did not oppose it. On November 1, 1996, the FERC issued an order approving the June 19 agreement, and on February 3, 1997 approved an order denying rehearing of its November 1, 1996 order. As a result, Transco made refunds on May 30, 1997 of approximately $79.0 million, including interest, under Docket No. RP95-197 for which Transco had previously provided a reserve. On August 1, 1997, the FERC issued an order modifying the initial decision issued on December 18, 1996 by the Administrative Law Judge (ALJ) in the Phase I proceeding determining the capital structure and rate of return for Transco. As to capital structure, the FERC reversed the ALJ's use of the Williams capital structure, and applied a new modified capital structure policy to find that Transco's own capital structure, consisting of 57.58 percent equity, should be used for developing the rate of return in this proceeding. As to rate of return on equity, the FERC affirmed the overall methodology used by the ALJ in his initial decision, but reversed the ALJ's decision in order to revise the manner in which the long-range growth component of that methodology is determined to be consistent with the FERC's recent decisions on that issue. The order requires that Transco make a compliance filing consistent with the revised methodology, and states that refunds will be determined once the FERC rules on that compliance filing. Transco has provided a reserve which it believes is adequate for any required refunds. 9 RATE OF RETURN CALCULATION As discussed above, the FERC recently issued an order addressing, among other things, the authorized rate of return for Transco's 1995 rate case (Docket No. 95-197). In the order, the FERC continued its practice of utilizing a methodology for calculating rates of return that incorporates a long-term growth rate component. The long-term growth rate component used by the FERC is now a projection of U.S. gross domestic product growth rates. Generally, calculating rates of return utilizing a methodology which includes a long-term growth rate component results in rates of return that are lower than they would be if the long-term growth rate component were not included in the methodology. Transco intends to challenge the FERC order in an effort to have the FERC change its rate of return methodology with respect to both pending and future rate cases. SUMMARY While no assurances may be given, Transco does not believe that the ultimate resolution of the foregoing matters and those described in Transco's 1996 Annual Report on Form 10-K and 1997 First Quarter Report on Form 10-Q, taken as a whole and after consideration of amounts accrued, recovery from customers, insurance coverage or other indemnification arrangements, will have a materially adverse effect upon Transco's future financial position, results of operations and cash flow requirements. 4. DEBT AND FINANCING ARRANGEMENTS LONG-TERM DEBT Williams and certain of its subsidiaries, including Transco, are parties to a $1 billion credit agreement (Credit Agreement), under which Transco can borrow up to $400 million. Interest rates vary with current market conditions based on the base rate of Citibank N.A., three-month certificates of deposit of major United States money market banks, federal funds rate or the London Interbank Offered Rate. As of June 30, 1997, Transco had no outstanding borrowings under this agreement. On January 15, 1997, Transco redeemed $99 million of its 8-1/8% Notes. On July 31, 1997, Transco entered into a $150 million, five-year bank agreement, with variable interest rates based on the London Interbank Offered Rate. SHORT-TERM DEBT Transco is a party to three short-term money market facilities under which it can borrow up to an aggregate of $135 million. Interest rates vary with current market conditions based on the applicable bank's rate at the time of the borrowings. As of June 30, 1997, Transco had no outstanding borrowings under these facilities. 10 SALE OF RECEIVABLES Transco is a party to an agreement that expires in February 1998 pursuant to which Transco can sell to an investor up to $100 million of undivided interests in certain of its trade receivables. At both June 30, 1997 and December 31, 1996, interests in $100 million of these receivables were held by the investor. On July 31, 1997, Transco reduced the level of trade receivables sold to $88 million. The Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for transactions occurring after December 31, 1996. The adoption of this standard had no significant impact on Transco's consolidated results of operations, financial position or cash flows. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements, notes and management's discussion contained in Items 7 and 8 of Transco's 1996 Annual Report on Form 10-K and in Transco's 1997 First Quarter Report on Form 10-Q and with the condensed consolidated financial statements and notes contained in this report. CAPITAL RESOURCES AND LIQUIDITY METHOD OF FINANCING Transco funds its capital requirements with cash flows from operating activities, including the sale of trade receivables, by accessing capital markets, by repayments of funds advanced to Williams, by borrowings under the Credit Agreement and short-term money market facilities and, if required, advances from Williams. At June 30, 1997 there were no outstanding borrowings under the Credit Agreement or the short-term money market facilities. Advances due Transco by Williams totaled $36 million. On July 31, 1997, Transco entered into a $150 million, five-year bank agreement, with variable interest rates based on the London Interbank Offered Rate. Proceeds will be used for general corporate purposes. In the second half of 1997, Transco also plans to access capital markets to fund its expansion projects and other general corporate requirements. Transco believes any additional financing can be obtained on reasonable terms. CAPITAL EXPENDITURES As shown in the table below, Transco's capital expenditures, for the six months ended June 30, 1997 were $92.7 million, compared to $93.0 million for the six months ended June 30, 1996. Six Months Ended June 30, -------------------- Capital Expenditures 1997 1996 - -------------------- ----------- ------- (In Millions) Market-Area Projects $ 31.9 $ 14.7 Supply-Area Projects 7.3 - Maintenance of Existing Facilities and Other Projects 53.5 78.3 ----------- ------- Total Capital Expenditures $ 92.7 $ 93.0 =========== ======= Transco's capital expenditure budget for 1997 and future capital projects are discussed in its 1996 Annual Report on Form 10-K and 1997 First Quarter Report on Form 10-Q. 12 The following describes any developments related to those projects and any new projects proposed by Transco. INDEPENDENCE PIPELINE PROJECT In March 1997, Independence Pipeline Company filed for FERC approval to construct and operate a pipeline consisting of approximately 370 miles of 36-inch diameter pipe with an anticipated annual gas transportation capacity of 838.5 million cubic feet per day (MMcf/d). The pipeline will extend from ANR Pipeline Company's (ANR) existing compressor station at Defiance, Ohio to Transco's facilities at Leidy, Pennsylvania. A non-binding open season, which began April 2, 1997 and ended on May 30, 1997, drew annual capacity requests for more than 750 MMcf/d from eleven potential shippers. Negotiations for precedent agreements are ongoing with these and other interested parties. A wholly-owned subsidiary of Transco currently holds a 50% interest in the project, which is expected to be in service for the 1999-2000 winter heating season. MARKETLINK EXPANSION PROJECT In March 1997, Transco announced its MarketLink Expansion Project. MarketLink will expand Transco's Leidy Line and market-area mainline facilities, providing the final transportation link for several recently announced pipeline projects designed to transport Canadian and Rocky Mountain gas supplies to eastern markets. The level of market commitment indicated during a 60-day open season that ended May 30, 1997 will determine the facilities, capacity and capital cost of the project. MarketLink received non-binding nominations during the open season in excess of one billion cubic feet of gas per day. Transco plans to file for FERC approval of the project during the first quarter of 1998. It is targeted to be in service by November 1, 1999. OTHER CAPITAL REQUIREMENTS AND CONTINGENCIES Transco's capital requirements and contingencies are discussed in its 1996 Annual Report on Form 10-K. Other than described below, in Note 3 of the Notes to Condensed Consolidated Financial Statements and in Transco's 1997 First Quarter Report on Form 10- Q, there have been no new developments from those described in Transco's 1996 Annual Report on Form 10-K with regard to other capital requirements and contingencies. RATE AND REGULATORY REFUNDS As discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, on May 1, 1997, Transco placed into effect new rates, subject to refund, under Docket No. RP97-71. Transco has provided reserves which it believes is adequate for any refunds that may be required under Docket Nos. RP95-197 and RP97-71. CONCLUSION Although no assurances can be given, Transco currently believes that the aggregate of cash flows from operating activities, supplemented, when necessary, by repayments of funds advanced to Williams, advances or capital contributions from Williams and borrowings under the Credit Agreement or short-term money market facilities, will provide Transco with sufficient liquidity to meet its capital requirements. Transco also expects to access public and private markets on reasonable terms to finance its capital requirements. 13 RESULTS OF OPERATIONS NET INCOME AND OPERATING INCOME Transco's net income for the six months ended June 30, 1997 was $51.4 million compared to net income of $46.2 million for the six months ended June 30, 1996. Operating income for the six months ended June 30, 1997 was $112.9 million compared to $102.1 million for the six months ended June 30, 1996. The higher operating income of $10.8 million was primarily attributable to lower administrative and general expenses and operation and maintenance expenses and higher revenues due to the benefits of the final phase of the Southeast Expansion Projects placed in service in late 1996 and other capital projects included in Docket No. RP97-71 placed into effect on May 1, 1997. The positive operating income variance was partially offset at the net income level by higher interest expense of $3.7 million due primarily to funding of capital projects during the last half of 1996 and the first half of 1997, partially offset by a greater allowance for funds used during construction of $0.8 million. OPERATING EXPENSES Excluding the cost of sales and transportation of $330 million for the six months ended June 30, 1997 and $499 million for the comparable period in 1996, Transco's operating expenses for the six months ended June 30, 1997, were approximately $18.4 million lower than the comparable period in 1996. The decrease was due to lower depreciation and amortization of $12.1 million, lower operation and maintenance expenses of $4.1 million and lower administrative and general expense of $2.8 million. The lower depreciation and amortization was due to a reduction in depreciation rates that were established in Transco's June 1996 Stipulation and Agreement in Docket No. RP95-197 and that continued to be reflected in rates in Docket No. RP97-71. However, the effects of the lower depreciation rates on depreciation and amortization were offset by a corresponding decrease in revenues. The lower operation and maintenance expense was primarily due to a $3.0 million decrease in miscellaneous contractual services, a $1.7 million decrease in lube oil and odorants expense and a $1.3 million decrease in other supplies and expenditures, partly offset by a $1.4 million increase in charges from others for the operation of certain Transco facilities. The lower administrative and general expense was primarily due to a $3.8 million decrease in the cost of employee benefits, a $0.7 million decrease in property and liability insurance and a $0.6 million decrease in office building rent, partly offset by a $2.6 million increase in labor costs. TRANSPORTATION SERVICES Transco's operating revenues related to its transportation services for the six months ended June 30, 1997 were $308 million, compared to $340 million for the six months ended June 30, 1996. The lower transportation revenues were primarily due to lower gas transportation costs charged to Transco by others and lower depreciation costs that are recovered in Transco's rates, partly offset by the benefits of the final phase of the Southeast Expansion Projects placed in service in late 1996 and other capital projects included in Docket No. RP97-71 placed into effect on May 1, 1997. 14 As shown in the table below, Transco's total market-area deliveries and production-area deliveries for the six months ended June 30, 1997 decreased 20.1 TBtu (3%) and 8.8 TBtu (8%), respectively, when compared to the same period in 1996. The decreased deliveries were mainly due to milder weather conditions in the first quarter of 1997 as compared to the same period in 1996. As a result of a straight fixed-variable (SFV) rate design, increases or decreases in system deliveries have no significant impact on operating income. Six Months Ended June 30, --------------------- Transco System Deliveries (TBtu) 1997 1996 - -------------------------------- ---- ---- Market-area deliveries: Long-haul transportation 472.2 488.8 Market-area transportation 220.9 224.4 ------ ------ Total market-area deliveries 693.1 713.2 Production-area transportation 98.2 107.0 ------ ------ Total system deliveries 791.3 820.2 ====== ====== Average Daily Transportation Volumes (TBtu) 4.4 4.5 Average Daily Firm Reserved Capacity (TBtu) 5.4 5.0 Transco's facilities are divided into seven rate zones. Four are located in the production area and three are located in the market area. Long-haul transportation is gas that is received in one of the production-area zones and delivered in a market-area zone. Market-area transportation is gas that is both received and delivered within market-area zones. Production-area transportation is gas that is both received and delivered within production-area zones. See Note 3 of the Notes to Condensed Consolidated Financial Statements for a discussion of recent developments in Transco's rate and regulatory matters. SALES SERVICES Transco makes jurisdictional merchant gas sales to customers pursuant to a blanket sales certificate issued by the FERC, with most of those sales being made through a Firm Sales (FS) program which gives customers the option to purchase daily quantities of gas from Transco at market-responsive prices in exchange for a demand charge payment. Through an agency agreement, WESCO manages all jurisdictional merchant gas sales of Transco, receives all margins associated with such business and, as Transco's agent, assumes all market and credit risk associated with Transco's jurisdictional merchant gas sales. Consequently, Transco's merchant gas sales service has no impact on its operating income or results of operations. 15 Transco's operating revenues for the six months ended June 30, 1997 related to its sales services decreased $144 million to $311 million, when compared to the same period in 1996. The decrease was primarily due to a significantly lower volume of gas sales in Transco's jurisdictional merchant sales services as shown in the table below. However, this decrease in revenues had no effect on Transco's operating or net income variances when compared to the prior year since the decrease in revenues was offset by a corresponding decrease in the cost of sales. Six Months Ended June 30, ------------------- Gas Sales Volumes (TBtu) 1997 1996 - ------------------------ ---- ---- Long-term sales 97.4 120.8 Short-term sales 5.0 28.6 ----- ------ Total gas sales 102.4 149.4 ===== ====== STORAGE SERVICES Transco's operating revenues related to storage services of $71.2 million for the six months ended June 30, 1997 were comparable to storage revenues of $72.9 million in the same period in 1996. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See discussion of legal proceedings in Note 3 of the Notes to Condensed Consolidated Financial Statements included herein. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None 17 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSCONTINENTAL GAS PIPE LINE CORPORATION (Registrant) Dated: August 14, 1997 By /s/ Nick A. Bacile ---------------------------------- Nick A. Bacile Vice President and Controller (Principal Financial Officer) 18 EX-27 2 TRANSCO 2ND QTR 1997 FDS
5 THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997, CONTAINED IN TRANSCONTINENTAL GAS PIPE LINE CORPORATION'S 1997 SECOND QUARTER REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 1,221 0 10,778 0 99,707 347,513 3,824,498 399,601 3,941,025 387,787 673,074 0 0 0 1,868,321 3,941,025 311,461 694,612 311,461 519,068 0 0 33,315 84,008 32,582 51,426 0 0 0 51,426 0 0
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