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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2003
----------
COMMISSION FILE NUMBER 0-30475
TRANSTEXAS GAS CORPORATION
1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 310
HOUSTON, TEXAS 77032-2949
Registrant's telephone number, including area code: (281) 987-8600
DELAWARE 76-0401023
(State of incorporation) (I.R.S. Employer
Identification No.)
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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 [ ]
Indicate by check mark whether the registrant is an accelerated filer.
Yes [ ] No [X]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of Class A Common Stock of the registrant
outstanding on June 16, 2003 was 63,448,830.
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TRANSTEXAS GAS CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements:
Report of Independent Accountants............................................................ 2
Condensed Consolidated Balance Sheet as of April 30, 2003 and January 31, 2003............... 3
Condensed Consolidated Statement of Operations for the Three Months Ended
April 30, 2003 and 2002................................................................... 4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
April 30, 2003 and 2002................................................................... 5
Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................... 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 21
Item 4. Controls and Procedures......................................................................... 22
PART II
OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 23
Item 6. Exhibits and Reports on Form 8-K................................................................ 23
Signature.................................................................................................. 24
Certifications............................................................................................. 25
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of TransTexas Gas Corporation:
We have reviewed the accompanying condensed consolidated balance sheet
of TransTexas Gas Corporation (debtor in possession) (the "Company") as of April
30, 2003 and the related condensed consolidated statement of operations for each
of the three month periods ended April 30, 2003 and 2002 and the condensed
consolidated statement of cash flows for the three months ended April 30, 2003
and 2002. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated interim financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As a result
of the Company's bankruptcy, there is substantial doubt about the Company's
ability to continue as a going concern. Management's plans are described in Note
2. The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of January 31, 2003, and the related consolidated statement of
operations, stockholders' equity (deficit), and cash flows for the year then
ended (not presented herein); and in our report dated April 30, 2003, which
contains an explanatory paragraph regarding the Company's ability to continue as
a going concern, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January 31, 2003, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
As discussed in Note 1, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" as of February 1, 2003.
PricewaterhouseCoopers LLP
Houston, Texas
June 13, 2003
2
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
APRIL 30, JANUARY 31,
2003 2003
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 10,551 $ 7,518
Accounts receivable ........................................................ 9,931 8,741
Inventories ................................................................ 390 435
Other ...................................................................... 2,346 1,218
--------- ---------
Total current assets .................................................. 23,218 17,912
--------- ---------
Property and equipment ........................................................ 506,516 501,980
Less accumulated depreciation, depletion and amortization ..................... 397,113 394,164
--------- ---------
Net property and equipment - based on the full cost method of accounting for
gas and oil properties of which $50,584 and $49,146 was excluded from
amortization at April 30, 2003 and January 31, 2003, respectively ........ 109,403 107,816
--------- ---------
Other assets .................................................................. 1,502 1,934
--------- ---------
$ 134,123 $ 127,662
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ....................................... $ 3,502 $ 3,502
Notes payable .............................................................. 51,881 51,881
Accounts payable ........................................................... 2,746 2,157
Accrued liabilities ........................................................ 12,065 11,550
--------- ---------
Total current liabilities ............................................. 70,194 69,090
--------- ---------
Long-term debt, net of current maturities ..................................... 898 898
Production payments, net of current portion ................................... 15,417 16,373
Other liabilities ............................................................. 3,912 628
Liabilities subject to compromise ............................................. 238,894 238,894
Redeemable preferred stock .................................................... 67,446 60,822
Commitments and contingencies (Note 7) ........................................ -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 200,000,000 shares authorized; 63,448,830
shares issued and outstanding at April 30, 2003
and January 31, 2003, respectively ....................................... 634 634
Additional paid-in capital ................................................. 79,038 79,038
Accumulated deficit ........................................................ (340,816) (336,623)
Accumulated other comprehensive loss ....................................... (1,494) (2,092)
--------- ---------
Total stockholders' deficit ........................................... (262,638) (259,043)
--------- ---------
$ 134,123 $ 127,662
========= =========
See accompanying notes to condensed consolidated financial statements.
3
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
APRIL 30,
------------------------------
2003 2002
------------ ------------
Revenues:
Gas, condensate and natural gas liquids ................................ $ 14,196 $ 21,655
Other .................................................................. 234 318
------------ ------------
Total revenues ....................................................... 14,430 21,973
------------ ------------
Costs and expenses:
Operating .............................................................. 2,339 3,526
Depreciation, depletion and amortization ............................... 4,362 9,496
General and administrative ............................................. 3,003 5,812
Taxes other than income taxes .......................................... 739 958
------------ ------------
Total costs and expenses ............................................. 10,443 19,792
------------ ------------
Operating income ..................................................... 3,987 2,181
------------ ------------
Other income (expense):
Interest income ........................................................ 10 16
Interest expense, net .................................................. (1,214) (9,547)
------------ ------------
Total other expense .................................................. (1,204) (9,531)
------------ ------------
Income (loss) before reorganization items and change in
accounting principle ............................................. 2,783 (7,350)
Reorganization items ...................................................... (830) --
------------ ------------
Income (loss) before cumulative effect of change in
accounting principle ............................................... 1,953 (7,350)
Cumulative effect of change in accounting principle ....................... 478 --
------------ ------------
Net income (loss) .................................................... 2,431 (7,350)
Accretion of preferred stock .............................................. 6,624 15,331
------------ ------------
Net loss available to common stockholders ............................ $ (4,193) $ (22,681)
============ ============
Basic and diluted net loss per share:
Loss before cumulative effect of change in accounting principle ........ $ (0.07) $ (18.14)
Cumulative effect of change in accounting principle .................... -- --
------------ ------------
Net loss available to common stockholders ............................ $ (0.07) $ (18.14)
============ ============
Weighted average number of shares outstanding for basic
and diluted net loss per share ......................................... 63,448,830 1,250,251
============ ============
See accompanying notes to condensed consolidated financial statements.
4
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
APRIL 30,
----------------------
2003 2002
-------- --------
Operating activities:
Net income (loss) ................................................. $ 2,431 $ (7,350)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization ....................... 4,362 9,496
Accretion of discount on long-term debt ........................ -- 45
Amortization of debt issue costs ............................... 211 201
Cumulative effect of change in accounting principle ............ (478) --
Changes in assets and liabilities:
Accounts receivable .......................................... (1,190) 27
Inventories .................................................. 45 241
Other current assets ......................................... (1,128) (320)
Accounts payable ............................................. 589 (1,580)
Accrued liabilities .......................................... 423 (6,699)
Other assets ................................................. 10 50
Other liabilities ............................................ 79 (122)
-------- --------
Net cash provided (used) by operating activities .......... 5,354 (6,011)
-------- --------
Investing activities:
Capital expenditures .............................................. (2,100) (3,261)
Proceeds from the sale of assets .................................. 155 163
-------- --------
Net cash used by investing activities ..................... (1,945) (3,098)
-------- --------
Financing activities:
Issuance of production payments ................................... 5,000 14,000
Principal payments on production payments ......................... (5,266) (10,048)
Issuance of debt .................................................. -- 2,000
Principal payments on debt ........................................ -- (470)
Revolving credit agreement, net ................................... -- (839)
Debt issue costs .................................................. (110) (126)
-------- --------
Net cash provided (used) by financing activities .......... (376) 4,517
-------- --------
Increase (decrease) in cash and cash equivalents .......... 3,033 (4,592)
Beginning cash and cash equivalents .................................. 7,518 6,559
-------- --------
Ending cash and cash equivalents ..................................... $ 10,551 $ 1,967
======== ========
See accompanying notes to condensed consolidated financial statements.
5
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of TransTexas Gas Corporation (debtor in
possession) (together with its subsidiaries, "TransTexas" or the "Company")
contain all adjustments (consisting of normal, recurring accruals) necessary to
fairly state the Company's consolidated financial position, the results of its
operations and cash flows for the periods presented. TransTexas' subsidiaries
are Galveston Bay Pipeline Company ("Pipeline") and Galveston Bay Processing
Corporation ("Processing"). The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes included in TransTexas' annual report on Form 10-K for the
year ended January 31, 2003. The condensed consolidated balance sheet as of
January 31, 2003 was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting principles.
Interim results of operations and cash flows are not necessarily indicative of
the Company's operations for the entire year.
The unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As
discussed in Note 2, TransTexas, Pipeline and Processing filed voluntary
petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on November
14, 2002.
Comprehensive Income (Loss)
A summary of the Company's comprehensive income (loss) for the three
months ended April 30, 2003 and 2002 is as follows (in thousands of dollars):
THREE MONTHS ENDED
APRIL 30,
-------------------
2003 2002
------ --------
Comprehensive income (loss):
Net income (loss) ....................................... $2,431 $ (7,350)
Change in the fair value of hedging agreements .......... 598 (3,202)
------ --------
Comprehensive income (loss) ....................... $3,029 $(10,552)
====== ========
A summary of the Company's accumulated other comprehensive income (loss)
for the period ended April 30, 2003 is as follows (in thousands of dollars):
Accumulated other comprehensive income (loss):
Balance at January 31, 2003 ............................ $(2,092)
Change in the fair value of hedging arrangements ....... 598
-------
$(1,494)
=======
Change in the Accounting for Asset Retirement Obligations
Effective February 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement
Obligations." SFAS 143 provides accounting requirements for costs associated
with legal obligations to retire tangible, long-lived assets. Under SFAS 143, an
asset retirement obligation is recorded at fair value in the period in which it
is incurred by increasing the carrying amount of the related long-lived asset.
In each subsequent period, the liability is accreted to its present value and
the capitalized cost is depreciated over the useful life of the related asset.
Prior to the adoption of SFAS 143, the Company provided for any estimated asset
retirement obligation, net of any salvage value, as part of the calculation of
depreciation, depletion and amortization. This method resulted in the
recognition of the asset retirement obligation, which was recorded in
accumulated depreciation, depletion and amortization, over the life of the
property on a unit-of-production basis.
6
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The Company's asset retirement obligation represents expected future costs
to plug and abandon its wells, dismantle facilities and reclamate sites at the
end of the related assets' useful lives. As of February 1, 2003, the Company
recorded a long-term liability representing its asset retirement obligation of
approximately $3.2 million, an increase in property and equipment of
approximately $2.3 million, a reduction in accumulated depreciation, depletion
and amortization of approximately $1.4 million and a gain on the cumulative
effect of change in accounting principle of approximately $0.5 million. The
following information reflects activity related to the Company's asset
retirement obligation for the three months ended April 30, 2003 (in thousands of
dollars):
Balance, February 1, 2003 .................................. $3,204
Accretion expense .......................................... 79
------
Balance, April 30, 2003 .................................... $3,283
======
Assuming the Company had adopted SFAS 143 as of February 1, 2002, its
asset retirement obligation at that date would have been approximately $2.7
million based on the same assumptions used when calculating the asset retirement
obligation at February 1, 2003. The pro forma effect of adopting SFAS 143 on net
loss available to common stockholders for the three months ended April 30, 2002
is as follows (in thousands of dollars, except share amounts):
AS REPORTED PRO FORMA
----------- ---------
Net loss available to common stockholders .................. $(22,681) $(22,766)
======== ========
Basic and diluted net loss per share ....................... $ (18.14) $ (18.21)
======== ========
Recently Issued Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13 and Technical Corrections." SFAS 145 provides guidance for
income statement classification of gains or losses from extinguishment of debt
and accounting for certain lease modifications that have economic effects
similar to sale-leaseback transactions. Gains or losses from extinguishments
that are part of a company's recurring operations would not be reported as an
extraordinary item. The Company adopted SFAS 145 effective February 1, 2003,
which had no impact on the Company's financial statements.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires
recognition of a liability for costs associated with an exit or disposal
activity when the liability is incurred rather than at the date of a commitment
to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002 and will be used to report
any future exits or disposal activities.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 addresses the disclosures
to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. FIN 45 also
clarifies the requirement that a guarantor recognize a liability at the
inception of the guarantee for the fair value of the obligation that the
guarantor has undertaken in issuing the guarantee. The initial recognition and
measurement provisions of FIN 45 are applicable to guarantees issued or modified
after December 31, 2002. As of April 30, 2003, the Company has not issued any
new guarantees or modified existing guarantees.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. SFAS 150 is generally effective
for all financial instruments entered into or modified after May 31, 2003 and
otherwise is effective for the Company on August 1, 2003. The adoption of SFAS
150 is not expected to have a material impact on the Company's financial
statements.
7
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
2. CHAPTER 11 FILING AND LIQUIDITY
On November 14, 2002 (the "Petition Date"), TransTexas, Pipeline and
Processing filed voluntary petitions for relief under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Texas, Corpus Christi Division (the "Bankruptcy Court"). The bankruptcy cases
are being jointly administered. TransTexas, Pipeline and Processing are
operating their businesses and managing their properties as debtors in
possession. As a result of the Chapter 11 filings, absent approval from the
Bankruptcy Court, the Company is prohibited from paying, and creditors are
prohibited from attempting to collect, claims or debts arising prior to the
Petition Date.
The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. The plan of
reorganization will set forth the means for satisfying claims, including
liabilities subject to compromise, and interests in the Company. A plan of
reorganization may result in, among other things, material dilution or
elimination of the interests of existing security holders as a result of the
issuance of securities to creditors or new investors. The consummation of a plan
of reorganization will require approval of the Bankruptcy Court.
The Company filed its Plan of Reorganization and Disclosure Statement with
the Bankruptcy Court on May 1, 2003. Additional information with respect to the
Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or
on the Company's website at www.transtexasgas.com. At this time, it is not
possible to predict the outcome of the bankruptcy proceedings or the effect on
the business of the Company or on the interests of creditors, royalty owners or
stockholders.
Management's revised business model is centered around the promotion of
working interest partners who carry a significant portion of the capital
expenditures necessary to evaluate the Company's properties, much of which are
unevaluated as of April 30, 2003. The Company intends to finance its share of
the necessary capital expenditures through cash flow from operations, production
payment issuances and any supplemental fundings provided pursuant to its
emergence from bankruptcy proceedings. However, there can be no assurance that
working interest partners can be obtained on terms acceptable to the Company, or
additional working interest financing obtained, to evaluate the Company's
properties in a timely manner.
As a result of the bankruptcy filing, a significant amount of the
Company's liabilities, including secured debt, are subject to compromise. As of
April 30, 2003, liabilities subject to compromise included the following (in
thousands of dollars):
Long-term debt ............... $205,197
Note payable ................. 2,000
Accrued liabilities .......... 26,054
Other liabilities ............ 5,643
--------
$238,894
========
Since the Petition Date, the unaudited condensed consolidated financial
statements have been prepared in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). As of the
Petition Date, in accordance with SOP 90-7, the Company discontinued the accrual
of interest and amortization of deferred debt issue costs related to liabilities
subject to compromise. If such interest had continued to be accrued, based on
contractual terms without increase for default provisions, and related deferred
debt issue costs continued to be amortized, interest expense for the quarter
ended April 30, 2003 would have increased approximately $7.9 million.
The accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. As a result of the bankruptcy filing and related events,
there is no assurance that the carrying amounts of assets will be realized or
that liabilities will be liquidated or settled for the amounts recorded. In
addition, a plan of reorganization, or rejection thereof, could change the
amounts subsequently reported in the Company's financial statements. As a
result, there is substantial doubt about the Company's ability to continue as a
going concern. The ability of TransTexas to continue as a going concern is
dependent upon confirmation of a plan of reorganization, adequate sources of
capital and the ability to sustain positive results of operations and cash flows
sufficient to continue to explore for and develop gas and oil reserves.
8
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Prior Reorganization
On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. On April 20, 1999, the Company's then
parent, TransAmerican Energy Corporation ("TEC"), and its wholly owned
subsidiary, TransAmerican Refining Corporation ("TARC"), also filed voluntary
petitions for relief under Chapter 11. On May 20, 1999, the cases were
transferred to the United States Bankruptcy Court for the Southern District of
Texas, Corpus Christi Division. TransTexas' Chapter 11 filing did not include
its subsidiaries. The Company's Second Amended, Modified and Restated Plan of
Reorganization dated January 25, 2000 (the "Prior Plan") was confirmed by the
Bankruptcy Court on February 7, 2000.
3. CREDIT AGREEMENTS AND PRODUCTION PAYMENTS
Accounts Receivable Facility
In March 2000, the Company and GMAC Commercial Credit LLC ("GMACC")
entered into a Third Amended and Restated Accounts Receivable Management and
Security Agreement (the "Accounts Receivable Facility"). The Accounts
Receivable Facility is a revolving credit facility secured by accounts
receivable and inventory. The maximum loan amount under the facility is $7.5
million, against which the Company may from time to time, subject to the
conditions of the Accounts Receivable Facility, borrow, repay and reborrow.
Advances under the facility bear interest at a rate per annum equal to the
higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2
of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in arrears. As of
April 30, 2003, there were no outstanding advances under the Accounts Receivable
Facility and the Company had availability for advances of approximately $2.8
million. Interim and Final Financing Orders of the Bankruptcy Court modified the
maximum loan amount under the Accounts Receivable Facility and modified certain
other terms of the facility. Pursuant to these Interim and Final Orders, GMACC
waived compliance with certain provisions of the facility. Pursuant to the Final
Financing Order, the Accounts Receivable Facility is due on August 7, 2003.
Production Payments
In March 2000, TransTexas entered into a production payment drilling
program agreement with two unaffiliated third parties in the form of a term
overriding royalty interest carved out of and burdening certain properties
("Subject Interests"). The Company has the right to offer additional interests
to the production payment parties at a negotiated purchase price. The production
payment calls for the repayment of the primary sum plus an amount equivalent to
a 15% annual interest rate on the unpaid portion of such primary sum. In April
2003, the Company closed a Tenth Supplement to the production payment whereby
the Company received $5.0 million. As of April 30, 2003, the outstanding balance
of the production payment was $18.3 million, of which $2.9 million attributable
to produced volumes is included in accrued liabilities. The Oil and Gas Facility
places certain restrictions on the amount that may be outstanding under the
production payment.
In connection with the production payment, the Company entered into
various marketing and processing agreements with one of the third parties.
Pursuant to these agreements, the Company pays a nominal marketing fee with
respect to the Company's production associated with the Subject Interests. In
addition, the third party pays a fee for certain processing services provided by
Processing.
4. PREFERRED STOCK DIVIDENDS
On March 17, 2003, the Company did not make the required cash dividend
payments to the remaining holders of its Series A Senior Preferred Stock
("Senior Preferred Stock"). The Company does not anticipate paying cash
dividends on the Senior Preferred Stock in the future.
9
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. HEDGING AGREEMENTS
As of April 30, 2003, the Company had entered into the following hedging
arrangements (settlement price based on a published industry index of natural
gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a
portion of the Company's natural gas production:
CONTRACT PRICE
--------------------
TOTAL COLLAR
VOLUMES IN --------------------
PERIOD MMBtus FLOOR CEILING
------ ---------- --------- ---------
Natural gas:
February 2003 - March 2003.................. 295,000 $ 3.50 $ 3.95
February 2003 - March 2003.................. 295,000 3.50 3.90
April 2003 - October 2003................... 1,284,000 3.25 4.05
For the three months ended April 30, 2003, the Company recognized hedging
losses of $2.1 million, which are reflected in gas, condensate and natural gas
liquids revenues. For the three months ended April 30, 2002, the Company
recognized hedging gains of $0.8 million. At April 30, 2003, the Company's
estimated net liability of these contracts was $1.5 million.
Because substantially all of its long-term obligations at April 30, 2003
are at fixed rates, the Company considers its interest rate exposure to be
minimal. The Company's borrowings under its credit facility are subject to a
rate of interest that fluctuates based on short-term interest rates. The Company
had no interest rate hedges at April 30, 2003.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following information reflects TransTexas' noncash activities (in
thousands of dollars):
THREE MONTHS ENDED
APRIL 30,
-------------------
2003 2002
------ --------
Accretion of preferred stock ............................... $6,624 $ 15,331
====== ========
Increase (decrease) in fair value of hedging agreements .... $ 598 $ (3,202)
====== ========
Capitalization of amortization of debt issuance costs ...... $ 321 $ 36
====== ========
Accretion of asset retirement obligation ................... $ 79 $ --
====== ========
For the three months ended April 30, 2003, the Company paid approximately
$1.1 million of reorganization items consisting primarily of legal and
professional fees directly related to the Company's Chapter 11 bankruptcy
proceeding.
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Chapter 11 Bankruptcy. On November 14, 2002, TransTexas, Pipeline and
Processing filed voluntary petitions for relief under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Texas, Corpus Christi Division. The bankruptcy cases are being jointly
administered under the caption "In re: TransTexas Gas Corporation, et al.,
Debtors," Case No. 02-21926-C-11. TransTexas, Pipeline and Processing are
operating their businesses and managing their properties as debtors in
possession. As a result of the Chapter 11 filings, absent approval from the
Bankruptcy Court, the Company is prohibited from paying, and creditors are
prohibited from attempting to collect, claims or debts arising prior to the
Petition Date.
Prior Plan. TransTexas is a party to various claims and litigation arising
out of the Prior Bankruptcy. Any obligations of the Company in respect of such
claims and litigation arising out of the Prior Bankruptcy will be discharged or
otherwise disposed of pursuant to the Prior Plan. Recovery of these obligations,
if any, will be limited to any collateral held by the claimant and/or such
claimant's pro rata share of amounts available to pay general unsecured claims.
10
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
General. TransTexas is a party to various claims and routine litigation
arising in the normal course of its business. The resolution of any reporting
period of one or more of the such claims or litigation could have a material
effect on TransTexas' results of operations and cash flows for that period.
Although the outcome of claims and litigation cannot be predicted with
certainty, TransTexas does not expect that any of these various claims or
routine litigation matters will have a material adverse effect on its financial
position.
Environmental Matters
TransTexas' operations and properties are subject to extensive federal,
state, and local laws and regulations relating to the generation, storage,
handling, emission, transportation, and discharge of materials into the
environment. Permits are required for various of TransTexas' operations, and
these permits are subject to revocation, modification, and renewal by issuing
authorities. TransTexas also is subject to federal, state, and local laws and
regulations that impose liability for the cleanup or remediation of property
which has been contaminated by the discharge or release of hazardous materials
or wastes into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines
or injunctions, or both. TransTexas believes that it is in material compliance
with applicable environmental laws and regulations. Noncompliance with such laws
and regulations could give rise to compliance costs and administrative
penalties. It is not anticipated that TransTexas will be required in the near
future to expend amounts that are material to the financial condition or
operations of TransTexas by reason of environmental laws and regulations, but
because such laws and regulations are frequently changed and, as a result, may
impose increasingly strict requirements, TransTexas is unable to predict the
ultimate cost of complying with such laws and regulations.
Potential Tax Liabilities
TransTexas expects that a significant portion of its net operating loss
carryovers ("NOLs") will be eliminated and the use of those NOLs that are not
eliminated will be severely restricted as a consequence of TransTexas'
reorganization. In addition, certain other tax attributes of TransTexas may
under certain circumstances be eliminated or reduced as a consequence of
TransTexas' reorganization. The potential elimination or reduction of NOLs and
such other tax attributes may substantially increase the amount of tax payable
by TransTexas in the future.
Since the Effective Date, TransTexas had NOLs for federal income tax
purposes of approximately $84.6 million that may be used in future years to
offset taxable income. The NOLs will begin to expire during the years 2021
through 2024.
Drilling Rig Commitment
During February 2001, TransTexas entered into a one-year contract with an
independent contractor for utilization of a drilling rig capable of drilling
wells to a depth of approximately 18,500 feet. TransTexas utilized this rig to
drill wells in the Galveston Bay area. In April 2003, the independent contractor
released TransTexas from any claim that it had under the 2001 contract.
Gas Delivery Commitments
TransTexas has entered into contracts with Kinder Morgan Ship Channel
Pipeline, L.P., formerly Tejas Ship Channel, LLC, for transportation of its
production from the Eagle Bay field to the Winnie facilities at a fixed
negotiated rate. Under these contracts, the Company has agreed to deliver the
first 75,000 MMBtu per day of natural gas and associated condensate to Kinder
Morgan Ship Channel Pipeline, L.P.
The Company also entered into a contract with a subsidiary of Duke Energy
Field Services, LLC for transportation of natural gas on a firm and
interruptible basis from the Winnie facility to natural gas liquids recovery
facilities located in the Beaumont/Port Arthur, Texas area, and residue gas from
these facilities to various distribution points. Under the agreement, the
Company has agreed to deliver the first 56,250 Mcf of natural gas and 19,500
MMBtu of residue gas per day to Duke Energy Field Services. Transportation fees
for natural gas and residue gas are based on fixed negotiated rates.
11
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
8. RELATED PARTY TRANSACTIONS
In March 2002, John R. Stanley resigned as Chief Executive Officer and as
Chairman and member of the Board of Directors of the Company. Mr. Stanley's
employment agreement provided that the Company would pay Mr. Stanley $3.0
million in cash upon the termination of his employment. A separation agreement
between Mr. Stanley and the Company provided that the Company would pay Mr.
Stanley $3.0 million in installments, together with interest at a rate of 10%
per annum. At April 30, 2003, the severance remaining to be paid to Mr. Stanley
was $0.8 million and this amount is included in liabilities subject to
compromise.
On March 15, 2002, Credit Suisse First Boston Management Corporation
("CSFB") and the Company, as borrower, and Processing, as guarantor, entered
into an unsecured Term Loan Agreement, wherein CSFB advanced to the Company the
principal sum of $2.0 million which was due and payable, together with interest
at a rate of 15% per annum, on October 15, 2002. The Company has not paid the
principal and accrued interest of this loan and is in default under its terms.
At April 30, 2003, the outstanding balance of this loan is included in
liabilities subject to compromise. CSFB is the beneficial owner of more than 10%
of each of the 15% Notes, Class A Common Stock and Senior Preferred Stock.
9. SUPPLEMENTAL GUARANTOR INFORMATION
Galveston Bay Pipeline Company and Galveston Bay Processing Corporation
are guarantors of the 15% Notes and the Oil and Gas Facility. Separate financial
statements of the Guarantors are not considered to be material to holders of the
15% Notes and GMACC. The following unaudited condensed consolidating financial
statements present supplemental information of the Guarantors as of April 30,
2003 and January 31, 2003 and for the three months ended April 30, 2003 and
2002.
12
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 2003
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 10,260 $ 4 $ 287 $ -- $ 10,551
Accounts receivable, net ......................... 9,704 -- 227 -- 9,931
Receivables from affiliates ...................... 18,166 -- -- (18,166) --
Inventories ...................................... 390 -- -- -- 390
Other current assets ............................. 2,346 -- -- -- 2,346
--------- ------- -------- -------- ---------
Total current assets ....................... 40,866 4 514 (18,166) 23,218
--------- ------- -------- -------- ---------
Property and equipment ........................... 492,538 2,271 11,707 -- 506,516
Less accumulated depreciation, depletion and
amortization ................................... 391,075 897 5,141 -- 397,113
--------- ------- -------- -------- ---------
Net property and equipment ................ 101,463 1,374 6,566 -- 109,403
--------- ------- -------- -------- ---------
Other assets ..................................... 1,504 -- -- (2) 1,502
--------- ------- -------- -------- ---------
$ 143,833 $ 1,378 $ 7,080 $(18,168) $ 134,123
========= ======= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ........... $ 3,411 $ 26 $ 65 $ -- $ 3,502
Notes payable .................................. 51,881 -- -- -- 51,881
Accounts payable ............................... 2,659 2 85 -- 2,746
Accrued liabilities ............................ 11,880 22 163 -- 12,065
--------- ------- -------- -------- ---------
Total current liabilities ................. 69,831 50 313 -- 70,194
--------- ------- -------- -------- ---------
Payable to affiliates ............................ -- 2,482 15,684 (18,166) --
Long-term debt, net of current maturities ........ 528 276 94 -- 898
Production payments, net of current portion ...... 15,417 -- -- -- 15,417
Other liabilities ................................ 3,845 -- 67 -- 3,912
Liabilities subject to compromise ................ 238,894 -- -- -- 238,894
Redeemable preferred stock ....................... 67,446 -- -- -- 67,446
Stockholders' equity (deficit):
Common stock ................................... 634 -- -- -- 634
Additional paid-in capital ..................... 79,038 1 1 (2) 79,038
Accumulated deficit ............................ (330,306) (1,431) (9,079) -- (340,816)
Accumulated other comprehensive loss ........... (1,494) -- -- -- (1,494)
--------- ------- -------- -------- ---------
Total stockholders' deficit ............... (252,128) (1,430) (9,078) (2) (262,638)
--------- ------- -------- -------- ---------
$ 143,833 $ 1,378 $ 7,080 $(18,168) $ 134,123
========= ======= ======== ======== =========
13
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 2003
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 7,188 $ 3 $ 327 $ -- $ 7,518
Accounts receivable .......................... 8,602 -- 139 -- 8,741
Receivables from affiliates .................. 17,639 -- -- (17,639) --
Inventories .................................. 435 -- -- -- 435
Other ........................................ 1,218 -- -- -- 1,218
--------- --------- --------- --------- ---------
Total current assets ..................... 35,082 3 466 (17,639) 17,912
--------- --------- --------- --------- ---------
Property and equipment .......................... 488,066 2,271 11,643 -- 501,980
Less accumulated depreciation,
depletion and amortization ................... 388,329 866 4,969 -- 394,164
--------- --------- --------- --------- ---------
Net property and equipment ............... 99,737 1,405 6,674 -- 107,816
--------- --------- --------- --------- ---------
Other assets .................................... 1,936 -- -- (2) 1,934
--------- --------- --------- --------- ---------
$ 136,755 $ 1,408 $ 7,140 $ (17,641) $ 127,662
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ......... $ 3,411 $ 26 $ 65 $ -- $ 3,502
Notes payable ................................ 51,881 -- -- -- 51,881
Accounts payable ............................. 2,032 4 121 -- 2,157
Accrued liabilities .......................... 11,410 12 128 -- 11,550
--------- --------- --------- --------- ---------
Total current liabilities ................ 68,734 42 314 -- 69,090
--------- --------- --------- --------- ---------
Payable to affiliates ........................... -- 2,423 15,216 (17,639) --
Long-term debt, net of current maturities ....... 528 276 94 -- 898
Production payments, net of current portion ..... 16,373 -- -- -- 16,373
Other liabilities ............................... 628 -- -- -- 628
Liabilities subject to compromise ............... 238,894 -- -- -- 238,894
Redeemable preferred stock ...................... 60,822 -- -- -- 60,822
Stockholders' equity (deficit):
Common stock ................................. 634 -- -- -- 634
Additional paid-in capital ................... 79,038 1 1 (2) 79,038
Accumulated deficit .......................... (326,804) (1,334) (8,485) -- (336,623)
Accumulated other comprehensive loss ......... (2,092) -- -- -- (2,092)
--------- --------- --------- --------- ---------
Total stockholders' deficit .............. (249,224) (1,333) (8,484) (2) (259,043)
--------- --------- --------- --------- ---------
$ 136,755 $ 1,408 $ 7,140 $ (17,641) $ 127,662
========= ========= ========= ========= =========
14
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2003
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
Revenues:
Gas, condensate and natural gas liquids ................. $ 14,196 $ -- $ -- $ -- $ 14,196
Other ................................................... 32 13 713 (524) 234
-------- -------- -------- -------- --------
Total revenues ........................................ 14,228 13 713 (524) 14,430
-------- -------- -------- -------- --------
Costs and expenses:
Operating ............................................... 2,025 16 822 (524) 2,339
Depreciation depletion and amortization ................. 4,160 31 171 -- 4,362
General and administrative .............................. 2,980 5 18 -- 3,003
Taxes other than income taxes ........................... 702 -- 37 -- 739
-------- -------- -------- -------- --------
Total costs and expenses .............................. 9,867 52 1,048 (524) 10,443
-------- -------- -------- -------- --------
Operating income (loss) ............................... 4,361 (39) (335) -- 3,987
-------- -------- -------- -------- --------
Other income (expense):
Interest income ......................................... 9 -- 1 -- 10
Interest expense, net ................................... (912) (60) (242) -- (1,214)
-------- -------- -------- -------- --------
Total other expense ................................... (903) (60) (241) -- (1,204)
-------- -------- -------- -------- --------
Income (loss) before reorganization items
and cumulative effect of change in
accounting principle ................................ 3,458 (99) (576) -- 2,783
Reorganization items ....................................... (830) 2 (2) -- (830)
Cumulative effect of change in accounting
principle ................................................ 494 -- (16) -- 478
-------- -------- -------- -------- --------
Net income (loss) ..................................... $ 3,122 $ (97) $ (594) $ -- $ 2,431
======== ======== ======== ======== ========
15
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
Revenues:
Gas, condensate and natural gas liquids ............ $ 21,655 $ -- $ -- $ -- $ 21,655
Other .............................................. -- 10 1,272 (964) 318
-------- -------- -------- -------- --------
Total revenues ................................... 21,655 10 1,272 (964) 21,973
-------- -------- -------- -------- --------
Costs and expenses:
Operating .......................................... 3,464 2 1,024 (964) 3,526
Depreciation, depletion and amortization ........... 9,016 75 405 -- 9,496
General and administrative ......................... 5,794 1 17 -- 5,812
Taxes other than income taxes ...................... 917 -- 41 -- 958
-------- -------- -------- -------- --------
Total costs and expenses ......................... 19,191 78 1,487 (964) 19,792
-------- -------- -------- -------- --------
Operating income (loss) .......................... 2,464 (68) (215) -- 2,181
-------- -------- -------- -------- --------
Other income (expense):
Interest income .................................... 15 -- 1 -- 16
Interest expense, net .............................. (9,099) (65) (383) -- (9,547)
-------- -------- -------- -------- --------
Total other expense .............................. (9,084) (65) (382) -- (9,531)
-------- -------- -------- -------- --------
Net loss ......................................... $ (6,620) $ (133) $ (597) $ -- $ (7,350)
======== ======== ======== ======== ========
16
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2003
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
Operating activities:
Net income (loss) ........................................ $ 3,122 $ (97) $ (594) $ -- $ 2,431
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation depletion and amortization ................ 4,160 31 171 -- 4,362
Amortization of debt issue costs ....................... 211 -- -- -- 211
Cumulative effect of change in accounting
principle ............................................ (494) -- 16 -- (478)
Changes in assets and liabilities:
Accounts receivable .................................. (1,102) -- (88) -- (1,190)
Receivable from affiliates ........................... (527) -- -- 527 --
Inventories .......................................... 45 -- -- -- 45
Other current assets ................................. (1,128) -- -- -- (1,128)
Accounts payable ..................................... 627 (2) (36) -- 589
Accrued liabilities .................................. 378 10 35 -- 423
Transactions with affiliates, net .................... -- 59 468 (527) --
Other assets ......................................... 10 -- -- -- 10
Other liabilities .................................... 79 -- -- -- 79
-------- -------- -------- -------- --------
Net cash provided (used) by operating
activities ....................................... 5,381 1 (28) -- 5,354
-------- -------- -------- -------- --------
Investing activities:
Capital expenditures ..................................... (2,088) -- (12) -- (2,100)
Proceeds from the sale of assets ......................... 155 -- -- -- 155
-------- -------- -------- -------- --------
Net cash used by investing activities .............. (1,933) -- (12) -- (1,945)
-------- -------- -------- -------- --------
Financing activities:
Issuance of production payments .......................... 5,000 -- -- -- 5,000
Principal payments on production payments ................ (5,266) -- -- -- (5,266)
Debt issue costs ......................................... (110) -- -- -- (110)
-------- -------- -------- -------- --------
Net cash used by financing activities .............. (376) -- -- -- (376)
-------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents ................................. 3,072 1 (40) -- 3,033
Beginning cash and cash equivalents ........................ 7,188 3 327 -- 7,518
-------- -------- -------- -------- --------
Ending cash and cash equivalents ........................... $ 10,260 $ 4 $ 287 $ -- $ 10,551
======== ======== ======== ======== ========
17
TRANSTEXAS GAS CORPORATION
(DEBTOR IN POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
GALVESTON GALVESTON
BAY BAY CONSOLIDATED
TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS
---------- --------- ---------- ------------ ------------
Operating activities:
Net loss .................................................. $ (6,620) $ (133) $ (597) $ -- $ (7,350)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization ................ 9,016 75 405 -- 9,496
Accretion of discount on long-term debt ................. 31 7 7 -- 45
Amortization of debt issue costs ........................ 201 -- -- -- 201
Changes in assets and liabilities:
Accounts receivable ................................... (3) -- 30 -- 27
Receivable from affiliates ............................ (436) -- -- 436 --
Inventories ........................................... 241 -- -- -- 241
Other current assets .................................. (320) -- -- -- (320)
Accounts payable ...................................... (1,450) -- (130) -- (1,580)
Accrued liabilities ................................... (6,727) -- 28 -- (6,699)
Transactions with affiliates, net ..................... -- 173 263 (436) --
Other assets .......................................... 50 -- -- -- 50
Other liabilities ..................................... (122) -- -- -- (122)
-------- -------- -------- -------- --------
Net cash provided (used) by
operating activities ............................... (6,139) 122 6 -- (6,011)
-------- -------- -------- -------- --------
Investing activities:
Capital expenditures ...................................... (3,267) -- 6 -- (3,261)
Proceeds from the sale of assets .......................... 163 -- -- -- 163
-------- -------- -------- -------- --------
Net cash provided (used) by
investing activities .............................. (3,104) -- 6 -- (3,098)
-------- -------- -------- -------- --------
Financing activities:
Issuance of production payments ........................... 14,000 -- -- -- 14,000
Principal payments on production payments ................. (10,048) -- -- -- (10,048)
Issuance of long-term debt ................................ 2,000 -- -- -- 2,000
Principal payments on long-term debt ...................... (296) (149) (25) -- (470)
Revolving credit agreement, net ........................... (839) -- -- -- (839)
Debt issue costs .......................................... (126) -- -- -- (126)
-------- -------- -------- -------- --------
Net cash provided (used) by
financing activities ............................... 4,691 (149) (25) -- 4,517
-------- -------- -------- -------- --------
Decrease in cash and
cash equivalents ................................... (4,552) (27) (13) -- (4,592)
Beginning cash and cash equivalents ........................ 6,058 33 468 -- 6,559
-------- -------- -------- -------- --------
Ending cash and cash equivalents ........................... $ 1,506 $ 6 $ 455 $ -- $ 1,967
======== ======== ======== ======== ========
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of TransTexas included
elsewhere in this report.
The Company filed a voluntary petition for relief under Chapter 11 of the
U.S. Bankruptcy Code on November 14, 2002 (the "Petition Date"), which is more
fully described in the "Liquidity and Capital Resources" section below.
RESULTS OF OPERATIONS
General
TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate and
natural gas liquids ("NGLs"). The profitability of TransTexas also depends on
its ability to minimize finding and lifting costs and maintain its reserve base
while maximizing production.
TransTexas' operating data for the three months ended April 30, 2003 and
2002 are as follows:
THREE MONTHS ENDED
APRIL 30,
-------------------
2003 2002
------- -------
Sales volumes:
Gas (Bcf) ..................................... 1.7 3.6
NGLs (MMgal) .................................. 2.5 11.3
Condensate (MBbls) ............................ 118 323
Average prices:
Gas (dry) (per Mcf) ........................... $ 6.68 $ 2.80
NGLs (per gallon) ............................. 0.52 0.28
Condensate (per Bbl) .......................... 33.23 23.02
Number of gross wells drilled .................... -- --
Percentage of wells completed .................... -- --
A summary of TransTexas' operating expenses is set forth below (in
millions of dollars):
THREE MONTHS ENDED
APRIL 30,
-------------------
2003 2002
------- -------
Operating costs and expenses:
Lease ......................................... $ 1.3 $ 2.0
Pipeline and gathering ........................ 1.0 1.5
------- -------
2.3 3.5
Taxes other than income taxes
(severance, property and other taxes) ........... 0.7 1.0
------- -------
$ 3.0 $ 4.5
======= =======
TransTexas' average depletion rates have been as follows:
THREE MONTHS ENDED
APRIL 30,
-------------------
2003 2002
------- --------
Depletion rates (per Mcfe)........................ $ 1.77 $ 1.61
======= ========
Three Months Ended April 30, 2003 Compared with the Three Months Ended
April 30, 2002
Gas, condensate and NGL revenues for the three months ended April 30, 2003
decreased $7.5 million from the prior period, due primarily to a decrease in
sales volumes for all products. The average monthly prices received per Mcf of
gas ranged from $5.23 to $8.85 in the three months ended April 30, 2003,
compared to a range of $2.16 to $2.71 in the prior period. The decrease in sales
volumes is due primarily to the normal decline in production, reduced production
from the State Tract 331-1 due to mechanical problems and the lack of drilling
new wells. In an attempt to increase production in the Eagle Bay field, the
Company commenced drilling the State Tract 331-9 in April 2003.
19
Lease operating expenses for the three months ended April 30, 2003
decreased $0.7 million from the prior period due primarily to a decrease in
outside transportation and well service costs. Pipeline and gathering expenses
decreased $0.5 million from the prior period due primarily to lower labor costs
and lower rental expense. Depreciation, depletion and amortization expense for
the three months ended April 30, 2003 decreased $5.1 million due to lower sales
volumes for all products that was partially offset by a $0.16 per Mcfe increase
in the depletion rate. General and administrative expenses decreased $2.8
million primarily due to the accrual of $3.0 million related to the separation
agreement with John R. Stanley in March 2002 (see Note 8) and a decrease in the
number of employees at the corporate headquarters offset by an increase in
professional fees and insurance. Taxes other than income taxes decreased by $0.2
million over the prior period due primarily to lower severance and production
taxes. Interest expense for the three months ended April 30, 2003 decreased by
$8.3 million from the prior period primarily because the Company ceased to
expense interest on debt reclassified to liabilities subject to compromise,
effective after the Petition Date.
LIQUIDITY AND CAPITAL RESOURCES
Chapter 11 Bankruptcy Proceeding
On November 14, 2002, TransTexas, Pipeline and Processing filed voluntary
petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of Texas, Corpus Christi
Division. The bankruptcy cases are being jointly administered. TransTexas,
Pipeline and Processing are operating their businesses and managing their
properties as debtors in possession. As a result of the Chapter 11 filings,
absent approval from the Bankruptcy Court, the Company is prohibited from
paying, and creditors are prohibited from attempting to collect, claims or debts
arising prior to the Petition Date.
The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. The plan of
reorganization will set forth the means for satisfying claims, including
liabilities subject to compromise, and interests in the Company. A plan of
reorganization may result in, among other things, material dilution or
elimination of the interests of existing security holders as a result of the
issuance of securities to creditors or new investors. The consummation of a plan
of reorganization will require approval of the Bankruptcy Court.
The Company filed its Plan of Reorganization and Disclosure Statement with
the Bankruptcy Court on May 1, 2003. Additional information with respect to the
Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or
on the Company's website at www.transtexasgas.com. At this time, it is not
possible to predict the outcome of the bankruptcy proceedings or the effect on
the business of the Company or on the interests of creditors, royalty owners or
stockholders.
Notes Payable
In March 2000, the Company and GMAC Commercial Credit LLC ("GMACC")
entered into a Third Amended and Restated Accounts Receivable Management and
Security Agreement (the "Accounts Receivable Facility"). The Accounts Receivable
Facility is a revolving credit facility secured by accounts receivable and
inventory. The maximum loan amount under the facility is $7.5 million, against
which the Company may from time to time, subject to the conditions of the
Accounts Receivable Facility, borrow, repay and reborrow. Advances under the
facility bear interest at a rate per annum equal to the higher of (i) the prime
commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the
Federal Funds Rate plus 1% payable monthly in arrears. As of April 30, 2003,
there were no outstanding advances under the Accounts Receivable Facility and
the Company had availability for advances of approximately $2.8 million. Interim
and Final Financing Orders of the Bankruptcy Court modified the maximum loan
amount under the Accounts Receivable Facility and modified certain other terms
of the facility. Pursuant to these Interim and Final Orders, GMACC waived
compliance with certain provisions of the facility. Pursuant to the Final
Financing Order, the Accounts Receivable Facility is due on August 7, 2003.
Production Payments
In March 2000, TransTexas entered into a production payment drilling
program agreement with two unaffiliated third parties in the form of a term
overriding royalty interest carved out of and burdening certain properties
("Subject Interests"). The Company has the right to offer additional interests
to the production payment parties at a negotiated purchase price. The production
payment calls for the repayment of the primary sum plus an amount equivalent to
a 15% annual interest rate on the unpaid portion of such primary sum. In April
2003, the Company closed a Tenth Supplement to the production payment whereby
the Company received $5.0 million. As of April 30, 2003, the
20
outstanding balance of the production payment was $18.3 million, of which $2.9
million attributable to produced volumes is included in accrued liabilities. The
Oil and Gas Facility places certain restrictions on the amount that may be
outstanding under the production payment.
In connection with the production payment, the Company entered into
various marketing and processing agreements with one of the third parties.
Pursuant to these agreements, the Company pays a nominal marketing fee with
respect to the Company's production associated with the Subject Interests. In
addition, the third party pays a fee for certain processing services provided by
Processing.
Preferred Stock Dividends
On March 17, 2003, the Company did not make the required cash dividend
payments to the remaining holders of the Senior Preferred Stock. The Company
does not anticipate paying cash dividends on the Senior Preferred Stock in the
future.
Potential Tax Liabilities
TransTexas expects that a significant portion of its net operating loss
carryovers ("NOLs") will be eliminated and the use of those NOLs that are not
eliminated will be severely restricted as a consequence of TransTexas'
reorganization. In addition, certain other tax attributes of TransTexas may
under certain circumstances be eliminated or reduced as a consequence of
TransTexas' reorganization. The potential elimination or reduction of NOLs and
such other tax attributes may substantially increase the amount of tax payable
by TransTexas in the future.
Since the Effective Date, TransTexas had NOLs for federal income tax
purposes of approximately $84.6 million that may be used in future years to
offset taxable income. The NOLs will begin to expire during the years 2021
through 2024.
Forward-Looking Statements
Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this report regarding TransTexas' financial
position, business strategy, and plans and objectives of management for future
operations, including, but not limited to words such as "anticipates,"
"expects," "estimates," "believes" and "likely" indicate forward-looking
statements. TransTexas' management believes its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include fluctuations in the commodity prices for
natural gas, crude oil, condensate and natural gas liquids, the extent of
TransTexas' success in discovering, developing and producing reserves,
conditions in the equity and capital markets, competition and the ultimate
resolution of the bankruptcy proceeding and litigation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from adverse changes in prices for
natural gas, condensate and oil and interest rates as discussed below.
The Company's revenues, profitability, access to capital and future rate
of growth are substantially dependent upon the prevailing prices of natural gas,
condensate and oil. These prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand and a variety of additional
factors beyond the Company's control. From time to time, the Company has
utilized hedging transactions with respect to a portion of its gas and oil
production to achieve a more predictable cash flow, as well as to reduce
exposure to price fluctuations. While hedging limits the downside risk of
adverse price movements, it may also limit future revenues from favorable price
movements. Because gains or losses associated with hedging transactions are
included in gas and oil revenues when the hedged volumes are delivered, such
gains and losses are generally offset by similar changes in the realized prices
of commodities.
As of April 30, 2003, the Company had entered into the following hedging
arrangements (settlement price based on a published industry index of natural
gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a
portion of the Company's natural gas production:
21
CONTRACT PRICE
------------------
TOTAL COLLAR
VOLUMES IN ------------------
PERIOD MMBtus FLOOR CEILING
------ ---------- ------ -------
Natural gas:
February 2003 - March 2003.................... 295,000 $ 3.50 $ 3.95
February 2003 - March 2003.................... 295,000 3.50 3.90
April 2003 - October 2003..................... 1,284,000 3.25 4.05
For the three months ended April 30, 2003, the Company recognized hedging
losses of $2.1 million, which are reflected in gas, condensate and natural gas
liquids revenues. For the three months ended April 30, 2002, the Company
recognized hedging gains of $0.8 million. At April 30, 2003, the Company's
estimated net liability of these contracts was $1.5 million.
Because substantially all of its long-term obligations at April 30, 2003
are at fixed rates, the Company considers its interest rate exposure to be
minimal. The Company's borrowings under its credit facility are subject to a
rate of interest that fluctuates based on short-term interest rates. The Company
had no interest rate hedges at April 30, 2003.
New Accounting Principles
For a discussion of new accounting principles, see "Recently Issued
Accounting Pronouncements" under Note 1 of Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to
the date of this quarterly report, the Company evaluated the effectiveness of
the design and operation of its disclosure controls and procedures. This
evaluation was conducted under the supervision and with the participation of the
Company's management, including its Chief Executive Officer and Chief Financial
Officer. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer have each concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
b) Changes in Internal Controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of the Company's most recent evaluation.
22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7 to the unaudited condensed consolidated financial statements
for a discussion of TransTexas' legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On April 2, 2003, the Company filed a Current Report on Form 8-K to report
that on March 27, 2003 Mr. Vincent Intrieri resigned from the Company's Board of
Directors.
On May 2, 2003, the Company filed a Current Report on Form 8-K to report
that it had submitted its disclosure statement and plan for reorganization to
the United States Bankruptcy Court.
23
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.
TRANSTEXAS GAS CORPORATION
By: /s/ Ed Donahue
---------------------------------------
Ed Donahue
Vice President, Chief Financial Officer
and Secretary
June 16, 2003
24
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Arnold H. Brackenridge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or other persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 16, 2003 /s/ ARNOLD H. BRACKENRIDGE
--------------------------------------
Arnold H. Brackenridge
President, Chief Executive Officer and
Chief Operating Officer
25
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Ed Donahue, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or other persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 16, 2003 /s/ ED DONAHUE
---------------------------------------
Ed Donahue
Vice President, Chief Financial Officer
and Secretary
26
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.