UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
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 1-4169
TEXAS GAS TRANSMISSION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-0405152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3800 FREDERICA STREET, OWENSBORO, KENTUCKY 42301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (270) 926-8686
--------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 1,000 SHARES AS OF OCTOBER 31,
2002
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
TEXAS GAS TRANSMISSION CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income ........................... 3
Consolidated Balance Sheets - Assets .......................... 4
Consolidated Balance Sheets - Liabilities and Stockholder's Equity 5
Consolidated Statements of Cash Flows ..................... 6
Condensed Notes to Financial Statements ...................... 7
Item 2. Management's Narrative Analysis of the Results of Operations .. 14
Item 4. Controls and Procedures ................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 19
Item 6. Exhibits and Reports on Form 8-K ........................... 19
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Texas Gas Transmission Corporation
believes such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be achieved. Such statements
are made in reliance on the "safe harbor" protections provided under the Private
Securities Reform Act of 1995. Additional information about issues that could
lead to material changes in performance is contained in Texas Gas Transmission
Corporation's 2001 Annual Report on Form 10-K and 2002 First and Second Quarter
Reports on Form 10-Q.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Operating Revenues:
Gas transportation $ 57,102 $ 41,086 $ 185,844 $ 171,621
Gas storage 513 590 1,781 1,762
Other 882 1,077 2,904 3,780
----------- ----------- ----------- -----------
Total operating revenues 58,497 42,753 190,529 177,163
----------- ----------- ----------- -----------
Operating Costs and Expenses:
Cost of gas transportation 1,173 1,011 3,512 3,405
Operation and maintenance 13,140 11,788 34,102 35,354
Administrative and general 12,516 12,901 37,222 36,200
Depreciation and amortization 4,430 11,505 27,386 34,342
Taxes other than income taxes 3,847 3,593 12,146 10,990
----------- ----------- ----------- -----------
Total operating costs and expenses 35,106 40,798 114,368 120,291
----------- ----------- ----------- -----------
Operating Income 23,391 1,955 76,161 56,872
----------- ----------- ----------- -----------
Other (Income) Deductions:
Interest expense 5,046 5,476 15,542 16,159
Interest income from affiliates (527) (786) (1,074) (3,003)
Gain on sale of equipment (444) - (1,767) -
Miscellaneous other income, net (509) (303) (1,545) (67)
----------- ----------- ----------- -----------
Total other deductions 3,566 4,387 11,156 13,089
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 19,825 (2,432) 65,005 43,783
Provision (Benefit) for Income Taxes 7,690 (604) 25,682 17,811
----------- ----------- ----------- -----------
Net Income (Loss) $ 12,135 $ (1,828) $ 39,323 $ 25,972
=========== ============ =========== ===========
The accompanying condensed notes are an integral part of these
consolidated financial statements.
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2002 2001
-------------------- -------------------
Current Assets:
Cash and cash equivalents $ 109 $ 86
Receivables:
Accounts receivable - TGT Enterprises, Inc. - 7,003
Trade 12,079 4
Other affiliates 3,059 278
Other 3,701 1,466
Gas Receivables:
Transportation and exchange 1,567 1,627
Storage 1,629 -
Advances to affiliates 22,310 66,299
Inventories 14,334 13,950
Deferred income taxes 11,274 20,492
Costs recoverable from customers 12,679 17,261
Gas stored underground 3,922 3,486
Prepaid and other expenses 3,103 1,551
-------------- ---------------
Total current assets 89,766 133,503
-------------- ---------------
Property, Plant and Equipment, at cost:
Natural gas transmission plant 1,111,889 1,096,620
Other natural gas plant 166,050 167,137
-------------- ---------------
1,277,939 1,263,757
Less -- Accumulated depreciation and amortization 204,372 202,479
-------------- ---------------
Property, plant and equipment, net 1,073,567 1,061,278
-------------- ---------------
Other Assets:
Gas stored underground 120,692 118,883
Costs recoverable from customers 36,594 37,641
Prepaid pension 33,175 35,612
Other 8,817 9,602
-------------- ---------------
Total other assets 199,278 201,738
-------------- ---------------
Total Assets $ 1,362,611 $ 1,396,519
============== ===============
The accompanying condensed notes are an integral part of
these consolidated financial statements.
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS,
EXCEPT FOR SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2002 2001
--------------------- ------------------
Current Liabilities:
Payables:
Trade $ 2,129 $ 5,685
Affiliates 5,654 32,822
Other 7,147 10,139
Gas Payables:
Transportation and exchange 1,618 3,618
Storage 31,681 27,824
Accrued income taxes due affiliate - 18,915
Accrued taxes other 16,504 11,708
Accrued interest 7,979 6,557
Accrued payroll and employee benefits 32,208 34,732
Other accrued liabilities 11,242 9,105
Reserve for regulatory and rate matters - 31,107
-------------- ---------------
Total current liabilities 116,162 192,212
-------------- ---------------
Long-Term Debt 249,882 250,174
-------------- ---------------
Other Liabilities and Deferred Credits:
Deferred income taxes 201,986 172,892
Postretirement benefits other than pensions 25,438 30,101
Pension plan costs 33,175 35,612
Other 21,065 29,948
-------------- ---------------
Total other liabilities and deferred credits 281,664 268,553
-------------- ---------------
Commitments and Contingencies (Note 3)
Stockholder's Equity:
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding 1 1
Premium on capital stock and other paid-in capital 630,608 630,608
Retained earnings 84,294 54,971
-------------- ---------------
Total stockholder's equity 714,903 685,580
-------------- ---------------
Total Liabilities and Stockholder's Equity $ 1,362,611 $ 1,396,519
============== ===============
The accompanying condensed notes are an integral part of
these consolidated financial statements.
TEXAS GAS TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
------------- ---------------
OPERATING ACTIVITIES:
Net income $ 39,323 $ 25,972
Adjustments to reconcile to cash (used in) provided from operations:
Depreciation and amortization 27,386 34,342
Provision for deferred income taxes 40,269 2,521
Gain on sale of equipment (1,767) -
Changes in operating assets and liabilities:
Receivables (15,879) 8,072
Receivable - TGT Enterprises, Inc. 7,003 -
Inventories (384) 1,243
Affiliates (29,575) (2,101)
Other current assets 1,042 (5,250)
Accrued income taxes due affiliate (18,915) (14,226)
Payables and accrued liabilities (4,058) 11,622
Reserve for regulatory and rate matters (31,107) 17,152
Other, including changes in noncurrent assets and liabilities (15,258) (7,780)
-------------- -------------
Net cash (used in) provided by operating activities (1,920) 71,567
-------------- -------------
FINANCING ACTIVITIES:
Dividends (10,000) (25,000)
-------------- -------------
Net cash used in financing activities (10,000) (25,000)
-------------- -------------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures, net of allowance for funds used
during construction (36,864) (44,083)
Proceeds from sales and salvage values,
net of costs of removal 4,818 (462)
Advances to affiliates, net 43,989 (2,283)
-------------- -------------
Net cash provided (used in) investing activities 11,943 (46,828)
-------------- -------------
Increase (decrease) in cash and cash equivalents 23 (261)
Cash and cash equivalents at beginning of period 86 261
-------------- -------------
Cash and cash equivalents at end of period $ 109 $ -
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (exclusive of amount capitalized) $ 15,949 $ 19,714
Income taxes paid $ 841 $ 1,290
Income taxes (refund) $ 0 $ 0
The accompanying condensed notes are an integral part of
these consolidated financial statements.
TEXAS GAS TRANSMISSION CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. CORPORATE STRUCTURE AND CONTROL
Texas Gas Transmission Corporation (Texas Gas) is wholly owned by
Williams Gas Pipeline Company, LLC (WGP), which is a wholly owned subsidiary of
The Williams Companies, Inc. (Williams).
2. BASIS OF PRESENTATION
The condensed financial statements have been prepared from the books and
records of Texas Gas. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted. The condensed unaudited consolidated financial statements include all
adjustments both normal recurring and others which, in the opinion of Texas Gas'
management, are necessary to present fairly its financial position at September
30, 2002, and results of operations for the three and nine months ended
September 30, 2002 and 2001, and cash flows for the nine months ended September
30, 2002 and 2001. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in Texas Gas' 2001 Annual Report on Form 10-K and 2002 First
and Second Quarter Reports on Form 10-Q.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Estimates and assumption which, in the opinion of management,
are significant to the underlying amounts included in the financial statements
and for which it would be reasonably possible that future events or information
could change those estimates include: 1) revenues subject to refund; 2)
litigation-related contingencies; 3) environmental remediation obligations; and
4) impairment assessments of long-lived assets.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards SFAS No. 142, "Goodwill and Other Intangible
Assets." Texas Gas adopted this Statement effective January 1, 2002. This
Statement addresses accounting and reporting standards for goodwill and other
intangible assets. Under the provisions of this Statement, goodwill and
intangible assets with indefinite useful lives are no longer amortized, but will
be tested annually for impairment. Because Texas Gas has no goodwill, and
intangible assets are amortized at rates approved by the Federal Energy
Regulatory Commission (FERC) through regulatory proceedings, there was no
impairment upon adoption.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002. The Statement requires legal obligations associated with the
retirement of long-lived assets to be recognized at their fair value at the time
that the obligations are incurred. Upon initial recognition of a liability, that
cost should be capitalized as part of the related long-lived asset and allocated
to expense over the useful life of the asset. Williams and its subsidiaries,
including Texas Gas, will adopt the new rules on asset retirement obligations on
January 1, 2003. The impact of adoption is to be reported as a cumulative effect
of change in accounting principle. Application of the new rules is expected to
result in estimated retirement obligations related to offshore transmission
platforms. The estimated obligations will consider current factors such as
expected future inflation rates, current costs of borrowing, estimated
retirement dates and estimated expected costs of required retirement activities.
Retirement obligations have not been estimated for assets for which the
remaining life is not currently determinable, including pipeline transmission
assets and gas gathering systems.
In second-quarter 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The rescission of SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements," requires that gains and losses from
extinguishment of debt only be classified as extraordinary items in the event
that they meet the criteria of APB Opinion No. 30. SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers," established accounting requirements for
the effects of transition to the Motor Carriers Act of 1980 and is no longer
required now that the transitions have been completed. Finally, the amendments
to SFAS No. 13 require certain lease modifications that have economic effects
which are similar to sale-leaseback transactions be accounted for as
sale-leaseback transactions. The provisions of this Statement related to the
rescission of SFAS No. 4 are to be applied in fiscal years beginning after May
15, 2002, while the provisions related to SFAS No. 13 are effective for
transactions occurring after May 15, 2002. All other provisions of the Statement
are effective for financial statements issued on or after May 15, 2002. There
was no initial impact of SFAS No. 145 on Texas Gas' results of operations and
financial position. However, in subsequent reporting periods, gains and losses
from debt extinguishments will continue to be accounted for in accordance with
FERC regulations.
Also in second-quarter 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force 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)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The provisions of the Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The effect of
this standard on Texas Gas is being evaluated.
Certain reclassifications have been made in the 2001 financial statements
to conform to the 2002 presentation.
SEASONAL VARIATION
Operating income may vary by quarter. Based on current rate structure,
Texas Gas experiences higher operating income in the first and fourth quarters
as compared to the second and third quarters.
3. CONTINGENT LIABILITIES AND COMMITMENTS
RATE AND REGULATORY MATTERS
FERC ORDER 637
On February 9, 2000, the Federal Energy Regulatory Commission (FERC)
issued a final rule, Order 637, in which FERC adopted certain policies that it
finds are necessary to adjust its current regulatory model to the needs of the
evolving markets, but determined that any fundamental changes to its regulatory
policy will be considered after further study and evaluation of the evolving
marketplace. Order 637 revises the FERC's pricing policy to waive, for a
two-year period, the maximum price ceilings for short-term releases of capacity
of less than one year, and permits pipelines to file proposals to implement
seasonal rates for short-term services and term-differentiated rates, subject to
certain requirements including the requirement that a pipeline be limited to
recovering its annual revenue requirement under those rates. Texas Gas submitted
an Order 637 compliance filing on August 15, 2000, which contained pro forma
tariff sheets designed to comply with certain directives in the order regarding
the conduct of daily business transactions. A technical conference was held on
May 24, 2001, to initiate informal discussions with all parties regarding Order
637 compliance for Texas Gas. A contested offer of settlement was filed on May
14, 2002 by Texas Gas. On August 27, 2002, the FERC issued its "Order on Order
Nos. 637, 587-G, and 587-L" which accepted many of the provisions of the May 14
settlement of required modifications as specified in the body of the August 27,
2002 order. Ordering paragraph A directed Texas Gas to file actual tariff
sheets, including modifications, within thirty days of the issuance of the
order. Ordering paragraph B states that Texas Gas may not place the tariff
sheets into effect before further order of the FERC. Texas Gas made the required
compliance filing on September 30, 2002. Texas Gas and several other parties
have requested rehearing and/or clarification of the August 27, 2002 order.
GENERAL RATE CASE (DOCKET NO. RP00-260)
On April 28, 2000, Texas Gas filed a general rate case (Docket No.
RP00-260) which became effective November 1, 2000, subject to refund. Texas Gas
proposed in this rate case to implement value-based, term-differentiated
seasonal rates for short-term services effective November 1, 2000, as permitted
by FERC Order 637. On May 31, 2000, the FERC issued its "Order Accepting and
Suspending Tariff Sheets Subject to Refund, Rejecting Other Tariff Sheets, and
Establishing Hearing and Settlement Procedures" and established administrative
procedures for the case. Although the case was set for hearing, the hearing was
held in abeyance pending the filing of additional information related to the
value-based rate proposal for short-term firm transportation service. Texas Gas
made that supplemental filing on June 30, 2000. On October 27, 2000, the FERC
issued an order on that supplemental filing referring all issues in the case for
hearing. The participants engaged in informal settlement negotiations to attempt
to resolve all issues without a formal hearing. On August 14, 2001, Texas Gas
submitted an offer of settlement proposing to dispose of all issues outstanding
in the proceedings. Only one group of participants (Indicated Shippers)
protested the settlement. On September 26, 2001, the Administrative Law Judge
severed the Indicated Shippers, and certified the settlement to the FERC as
uncontested for the remaining parties. On March 4, 2002, the FERC issued an
order approving the settlement and severing the Indicated Shippers from the
settlement provisions. On June 17, 2002, the FERC issued an order denying the
Indicated shipper's request for rehearing of the March 4, 2002 order. The
settlement became effective 31 days after that order when no party filed any
further requests for rehearing. Thus, the settlement's prospective rates went
into effect on August 1, 2002 and refunds of approximately $37.5 million were
made on September 16, 2002. Texas Gas had provided an adequate reserve for
amounts, including interest, which were refunded to customers. Additionally, on
July 15, 2002, Texas Gas filed an offer of settlement with the Indicated
Shippers to resolve all remaining issues in the case. The FERC issued an order
on October 10, 2002 approving the settlement. No additional refunds are due as a
result of the settlement with the Indicated Shippers. In the third quarter of
2002, as a result of the settlement, Texas Gas recorded additional revenues of
$0.3 million and reduced its estimated reserve for rate refunds by an equal
amount. Texas Gas also recorded $10.2 million of revenues and reduced
depreciation expense by $5.7 million to implement provisions of the settlement.
NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM01-10-000)
On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking
(NOPR) proposing to adopt uniform standards of conduct for transmission
providers. The proposed rules define transmission providers as interstate
natural gas pipelines and public utilities that own, operate or control electric
transmission facilities. The proposed standards would regulate the conduct of
transmission providers with their energy affiliates. The FERC proposes to define
energy affiliates broadly to include any transmission provider affiliate that
engages in or is involved in transmission (gas or electric) transactions, or
manages or controls transmission capacity, or buys, sells, trades or administers
natural gas or electric energy or engages in financial transactions relating to
the sale or transmission of natural gas or electricity. Current rules regulate
the conduct of Texas Gas and its natural gas marketing affiliates. The FERC
invited interested parties to comment on the NOPR. On April 25, 2002, the FERC
issued its staff analysis of the NOPR and the comments received. The staff
analysis proposes redefining the definition of energy affiliates to exclude
affiliated transmission providers. On May 21, 2002, the FERC held a public
conference concerning the NOPR and the FERC invited the submission of additional
comments. If adopted, these new standards would require the adoption of new
compliance measures by Texas Gas.
NOTICE OF INQUIRY (DOCKET NO. PL02-6-000)
On July 17, 2002, the FERC issued a Notice of Inquiry to seek comments on
its negotiated rate policies and practices. The FERC states that it is
undertaking a review of the recourse rate as a viable alternative and safeguard
against the exercise of market power of interstate gas pipelines, as well as the
entire spectrum of issues related to its negotiated rate program. The FERC has
requested that interested parties respond to various questions related to the
FERC's negotiated rate policies and practices. Texas Gas has negotiated certain
rates under the FERC's existing negotiated rate program, and participated in
comments filed in this proceeding by Williams in support of the FERC's existing
negotiated rate program.
NOTICE OF PROPOSED RULEMAKING (DOCKET NO. RM02-14-000)
On August 1, 2002, the FERC issued a NOPR that proposes restrictions on
the type of cash management program employed by Williams and its subsidiaries,
including Texas Gas. In addition to stricter guidelines regarding the accounting
for and documentation of cash management or cash pooling programs, the FERC
proposal, if made final, would preclude public utilities, natural gas companies
and oil pipeline companies from participating in such programs unless the parent
company and its FERC-regulated affiliate maintain investment-grade credit
ratings and that the FERC-regulated affiliate maintains stockholders equity of
at least 30 percent of total capitalization. Williams' and Texas Gas' current
credit ratings are not investment grade. Texas Gas participated in comments
filed in this proceeding on August 28, 2002 by the Interstate Natural Gas
Association of America. On September 25, 2002, the FERC convened a technical
conference to discuss issues raised in the comments filed by parties in this
proceeding.
LEGAL PROCEEDINGS
ROYALTY CLAIMS AND PRODUCER LITIGATION
In connection with Texas Gas' renegotiations of supply contracts with
producers to resolve take-or-pay and other contract claims, Texas Gas has
entered into certain settlements which may require the indemnification by Texas
Gas of certain claims for royalties which a producer may be required to pay as a
result of such settlements. Texas Gas has been made aware of demands on
producers for additional royalties and may receive other demands that could
result in claims against Texas Gas pursuant to the indemnification provision in
its settlements. Indemnification for royalties will depend on, among other
things, the specific lease provisions between the producer and the lessor and
the terms of the settlement between the producer and Texas Gas. Texas Gas may
file to recover 75 percent of any such amounts it may be required to pay
pursuant to indemnifications for royalties under the provisions of FERC Order
528. Texas Gas has provided reserves for the estimated settlement costs of other
royalty claims and litigation.
OTHER LEGAL ISSUES
In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly owned subsidiaries including Texas Gas. Mr. Grynberg
has also filed claims against approximately 300 other energy companies and
alleges that the defendants violated the False Claims Act in connection with the
measurement, royalty valuation and purchase of hydrocarbons. The relief sought
is an unspecified amount of royalties allegedly not paid to the federal
government, treble damages, a civil penalty, attorneys' fees, and costs. On
April 9, 1999, the United States Department of Justice announced that it was
declining to intervene in any of the Grynberg qui tam cases, including the
action filed against the Williams entities in the United States District Court
for the District of Colorado. On October 21, 1999, the Panel on Multi-District
Litigation transferred all of the Grynberg qui tam cases, including those filed
against Williams, to the United States District Court for the District of
Wyoming for pre-trial purposes. On October 9, 2002, the court granted a motion
to dismiss Grynberg's royalty valuation claims. Grynberg's measurement claims
remain pending against Williams and the other defendants.
On May 2, 2000 a flash fire occurred at Texas Gas' Greenville,
Mississippi compressor station injuring six contract employees and one Texas Gas
employee. One contract employee died while in the hospital. A lawsuit was filed
against Texas Gas on behalf of the deceased contract employee and several other
contract employees that were injured; however, damages were not specified. On
October 4 and 5, 2001 a mediation was held involving Texas Gas, its insurance
carriers (through its contractor Bluewater Construction Inc. (Bluewater)), and
Plaintiffs. Settlement was reached with all named plaintiffs. A final contract
employee alleging injuries from the same accident has filed separately against
Texas Gas. This plaintiff was included in the original litigation, and then
withdrew. Informal settlement negotiations are continuing with this plaintiff.
On June 8, 2001, 14 Williams entities, including Texas Gas, were named as
defendants in a nationwide class action lawsuit which has been pending against
other defendants, generally pipeline and gathering companies, for more than one
year. The plaintiffs allege that the defendants, including the Williams
defendants, have engaged in mismeasurement techniques that distort the heating
content of natural gas, resulting in an alleged underpayment of royalties to the
class of producer plaintiffs. In September 2001, the plaintiffs voluntarily
dismissed two of the 14 Williams entities named as defendants in the lawsuit. In
November 2001, Williams, along with other Coordinating Defendants, filed a
motion to dismiss on non-jurisdictional grounds. In January 2002, most of the
Williams defendants, along with a group of Coordinating Defendants, filed a
motion to dismiss for lack of personal jurisdiction. On August 19, 2002,
defendants' motion to dismiss on non-jurisdictional grounds was dismissed. On
September 17, 2002 the plaintiffs filed a motion for class certification. In the
next several months, the Williams entities will join with other defendants in
contesting certification of the plaintiff class.
ENVIRONMENTAL MATTERS
As of September 30, 2002, Texas Gas had a reserve of approximately $1.3
million for estimated costs associated with environmental assessment and
remediation, including remediation associated with the historical use of
polychlorinated biphenyls and hydrocarbons. This estimate depends upon a number
of assumptions concerning the scope of remediation that will be required at
certain locations and the cost of remedial measures to be undertaken. Texas Gas
is continuing to conduct environmental assessments and is implementing a variety
of remedial measures that may result in increases or decreases in the total
estimated costs.
Texas Gas currently is either named as a potentially responsible party or
has received an information request regarding its potential involvement at
certain Superfund and state waste disposal sites. The anticipated remediation
costs, if any, associated with these sites have been included in the reserve
discussed above.
Texas Gas is also subject to the federal Clean Air Act (CAA) and the CAA
Amendments of 1990 (Amendments) which added significant provisions to the
existing federal CAA. The Amendments require the Environmental Protection Agency
(EPA) to promulgate new regulations pertaining to mobile sources, hazardous air
pollutants, areas of ozone non-attainment, and acid rain. Texas Gas is aware
that during 2002 the EPA may designate additional areas as non-attainment based
on implementation of the revised ozone standard (8 hour standard). Areas
designated as non-attainment under the revised standard may potentially impact
Texas Gas' operations. Emission control modifications of compression equipment
located at facilities required to comply with current federal CAA provisions,
the Amendments, and State Implementation Plans for nitrogen oxide (NOx)
reductions are estimated to cost in the range of $6 million to $14 million by
2005 and will be recorded as additions to property, plant and equipment as the
facilities are added. If the EPA designates additional new non-attainment areas
which impact Texas Gas' operations, the cost of additions to property, plant and
equipment is expected to increase; however, Texas Gas is unable at this time to
estimate with any certainty the cost of additions that may be required.
Moreover, regulations pertaining to Hazardous Air Pollutants (HAPs) are
anticipated to be promulgated in late 2002, which may require emission controls
in addition to the controls mentioned above. Texas Gas cannot predict the costs
with any certainty at this time resulting from the installation of these
controls. The effective compliance date for the HAPs regulations and
installation of associated controls is anticipated to be during 2005; however,
an extension of this date may result due to the delay associated with
promulgating these rules.
Texas Gas considers environmental assessment, remediation costs, and
costs associated with compliance with environmental standards to be recoverable
through rates, as they are prudent costs incurred in the ordinary course of
business. The actual costs incurred will depend on the actual amount and extent
of contamination discovered, the final cleanup standards mandated by the EPA or
other governmental authorities, and other factors.
SUMMARY
While no assurances may be given, Texas Gas does not believe that the
ultimate resolution of the foregoing matters taken as a whole, based on advice
from counsel and after consideration of amounts accrued, insurance coverage,
potential recovery from customers or other indemnification arrangements, will
have a materially adverse effect on Texas Gas' future financial position,
results of operations or cash flow requirements.
4. DEBT AND FINANCING ARRANGEMENTS
LONG-TERM DEBT
Williams and certain of its subsidiaries, including Texas Gas, are
parties to a $700 million credit agreement, under which Texas Gas can borrow up
to $200 million if the funds available under the credit agreement have not been
borrowed by Williams or other subsidiaries. The credit agreement expires in July
2005. 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. The
credit agreement contains restrictions which limit, under certain circumstances,
the issuance of additional debt, the attachment of liens on any assets and any
change of ownership of Texas Gas. As Williams completes certain asset sales, the
$700 million commitment from participating banks in the credit agreement will
ultimately be reduced to $400 million, but Texas Gas will continue to have
borrowing capacity up to $200 million if the funds available under the credit
agreement have not been borrowed by Williams or other participating
subsidiaries. At September 30, 2002, the commitment from participating banks had
been reduced to $660 million. At September 30, 2002, $200 million of borrowing
capacity was available to Texas Gas. At September 30, 2002, Texas Gas had no
outstanding borrowings under this agreement.
SALE OF RECEIVABLES
Texas Gas, through a wholly owned bankruptcy remote subsidiary, sold
certain trade accounts receivable to a special purpose entity (SPE) in a
securitization structure requiring annual renewal. Texas Gas acted as the
servicing agent for sold receivables and received a servicing fee approximating
the fair value of such services. The sale of receivables program expired on July
25, 2002. By the end of August 2002, Texas Gas completed the repurchase of
approximately $10 million of trade accounts receivable previously sold.
5. SEVERANCE
As part of the effort to reduce future operating expenses, certain
employee positions are being eliminated through organizational changes. Texas
Gas recorded $2.0 million of severance costs applicable to 78 employees whose
positions have been eliminated. Additional severance costs are expected in the
fourth quarter of 2002 as additional positions are eliminated within the Texas
Gas organization.
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
(FILED PURSUANT TO GENERAL INSTRUCTION H)
RECENT EVENTS
As a result of credit issues facing Williams and the assumption of
payment obligations and performance on guarantees associated with Williams
Communications Group, Inc. (WCG), a former affiliate of Williams, Williams
announced plans during the first quarter of 2002 to strengthen its balance sheet
and support retention of its investment grade ratings. The plan included
reducing capital expenditures during the balance of 2002, future sales of assets
to generate proceeds to be used to reduce outstanding debt and the lowering of
expenses, in part through an enhanced-benefit early retirement program which
concluded during the second quarter.
During the second quarter, Williams experienced liquidity issues, the
effect of which limited Williams Energy Marketing & Trading's (WEM&T) ability to
manage market risk and exercise hedging strategies as market liquidity
deteriorated. During May 2002, major rating agencies lowered their credit
ratings on Williams' unsecured long-term debt; however, the ratings remained
investment grade for the balance of the quarter.
Williams experienced a substantial net loss for the second quarter. In
addition, the Williams board of directors reduced the Williams common stock
dividend for the third quarter from the prior level of 20 cents per share to 1
cent per share. The major rating agencies downgraded Williams' unsecured
long-term debt credit ratings to below investment grade reflecting the
uncertainty associated with Williams' energy trading business, short-term cash
requirements facing Williams and the increased level of debt Williams had
incurred to meet the WCG payment obligations and guarantees. Concurrent with
these events, Williams was unable to complete a renewal of its unsecured
short-term bank facility, which expired on July 24, 2002. Subsequently, Williams
did obtain two secured facilities totaling $1.3 billion and amended its existing
$700 million credit agreement, which expires July 2005, to make it secured.
These facilities include pledges of certain assets and contain financial ratios
and other covenants that must be maintained. If such provisions of the
agreements are not maintained, then amounts outstanding can become due and
payable immediately. In addition, Williams is pursuing the sale of other assets
to enhance liquidity. The sales are anticipated to close during the remainder of
2002 and the first half of 2003.
As part of the effort to reduce future operating expenses, certain
employee positions are being eliminated through organizational changes. In the
third quarter, Texas Gas recorded $2.0 million of severance costs applicable to
78 employees whose positions have been eliminated. Additional severance costs
are expected in the fourth quarter of 2002 as additional positions are
eliminated within the Texas Gas organization.
The energy trading sector has experienced deteriorating conditions
because of credit and regulatory concerns, and these have significantly reduced
WEM&T's ability to attract new business. On August 1, 2002, Williams' announced
its intention to further reduce its commitment and exposure to its energy
marketing and risk management business. This reduction could be realized by
entering into a joint venture arrangement with a third party or a sale of a
portion or all of the marketing and trading portfolio. WEM&T, as well as several
unaffiliated energy trading companies, are Texas Gas customers. Texas Gas cannot
predict at this time to what extent its business may be impacted by the
deteriorating conditions in the energy trading sector, however, generally such
companies have continued to perform their contractual commitments to Texas Gas.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2001
Operating income was $19.3 million higher for the nine months ended
September 30, 2002, than for the nine months ended September 30, 2001. The
increase in operating income was due primarily to the settlement of regulatory
issues related to Texas Gas' rate case.
Operating revenues increased $13.4 million primarily attributable to a
$10.5 million recognition of revenues ($1.5 million is applicable to the first
six months of 2002) associated with the settlement of the general rate case
(Docket No. RP00-260) in the third quarter of 2002. Total deliveries were 489.8
Tbtu and 517.7 Tbtu for the nine months ended September 30, 2002 and 2001,
respectively. The decrease in throughput was partially offset by an increase in
transportation volumes to processing plants. In 2001, transportation volumes to
processing plants decreased dramatically due to the spike in natural gas prices.
Generally, transportation of this gas is for a relatively short distance;
therefore, the revenue associated with this transportation is minimal.
Operating costs and expenses decreased $5.9 million primarily
attributable to $7.0 million in lower depreciation expense due primarily from
lower depreciation rates ($1.9 million is applicable to the first six months of
2002), retroactive to November 1, 2000, approved in Texas Gas' general rate
case. Operation and maintenance costs decreased $1.3 million due primarily to an
insurance settlement received in 2002 and the timing of the occurrence of these
expenses, partially offset by $1.8 million of severance related costs due to
employee reductions in field operations. General and administrative costs
increased $1.0 million due primarily to higher aviation related costs and $0.2
million of severance related costs due to office employee reductions. Taxes
other than income increased $1.2 million due primarily to favorable resolution
of property tax issues in 2001.
Net income increased $13.4 million primarily due to the reasons discussed
above, $1.8 million for the gain on the sale of equipment, higher miscellaneous
income, and lower interest expense resulting from the settlement of the rate
case. Higher net income was partially offset by lower interest income resulting
from lower advances to WGP due to the payout of refunds to customers.
CAPITAL RESOURCES AND LIQUIDITY
METHOD OF FINANCING
Texas Gas funds its capital requirements with cash flows from operating
activities by accessing capital markets, by repayments of funds advanced to WGP,
by borrowings under a credit agreement (discussed below) and, if required,
advances from WGP. Historically, Texas Gas also funded its capital requirements
through a sale of receivables program. In July 2002, Texas Gas' sale of
receivables program expired and was not renewed.
Texas Gas has an effective registration statement on file with the
Securities and Exchange Commission. At September 30, 2002, $100 million of shelf
availability remains under this registration statement, which may be used to
issue debt securities. Interest rates and market conditions will affect amounts
borrowed, if any, under this arrangement. With the downgrade in Texas Gas'
credit ratings (discussed below), interest rates on future financings will be
higher, but Texas Gas believes any additional financing arrangements, if
required, can be obtained from the capital markets on terms that are
commensurate with its current credit ratings.
Williams and certain of its subsidiaries, including Texas Gas, are
parties to a $700 million credit agreement, under which Texas Gas can borrow up
to $200 million if the funds available under the credit agreement have not been
borrowed by Williams or other subsidiaries. The credit agreement expires in July
2005. 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. The
credit agreement contains restrictions which limit, under certain circumstances,
the issuance of additional debt, the attachment of liens on any assets and any
change of ownership of Texas Gas. As Williams completes certain asset sales, the
$700 million commitment from participating banks in the credit agreement will
ultimately be reduced to $400 million, but Texas Gas will continue to have
borrowing capacity up to $200 million if the funds available under the credit
agreement have not been borrowed by Williams or other participating
subsidiaries. At September 30, 2002, the commitment from participating banks had
been reduced to $660 million. At September 30, 2002, $200 million of borrowing
capacity was available to Texas Gas. At September 30, 2002, Texas Gas had no
outstanding borrowings under this agreement.
As a participant in Williams' cash management program, Texas Gas has
advances to and/or from Williams through Texas Gas' parent company, WGP.
Advances are represented by demand notes. The interest rate on intercompany
demand notes is the London Interbank Offered Rate on the first day of the month
plus an applicable margin based on the current Standard and Poor's Rating of
Texas Gas. At September 30, 2002, the advances due Texas Gas by WGP totaled
$22.3 million. Because of recent asset sales, anticipated asset sales in the
future and recently negotiated secured borrowing facilities, Williams has
indicated that it currently believes that it continues to have the financial
resources and liquidity to repay advances to Texas Gas.
On August 1, 2002, the FERC issued a NOPR that proposes restrictions on
the type of cash management program employed by Williams and its subsidiaries,
including Texas Gas. In addition to stricter guidelines regarding the accounting
for and documentation of cash management or cash pooling programs, the FERC
proposal, if made final, would preclude public utilities, natural gas companies
and oil pipeline companies from participating in such programs unless the parent
company and its FERC-regulated affiliate maintain investment-grade credit
ratings and that the FERC-regulated affiliate maintains stockholders equity of
at least 30 percent of total capitalization. Williams' and Texas Gas' current
credit ratings are not investment grade. Texas Gas participated in comments
filed in this proceeding on August 28, 2002 by the Interstate Natural Gas
Association of America. On September 25, 2002, the FERC convened a technical
conference to discuss issues raised in the comments filed by parties in this
proceeding.
Texas Gas, through a wholly owned bankruptcy remote subsidiary, sold
certain trade accounts receivable to a special purpose entity (SPE) in a
securitization structure requiring annual renewal. Texas Gas acted as the
servicing agent for sold receivables and received a servicing fee approximating
the fair value of such services. The sale of receivables program expired on July
25, 2002. By the end of August 2002, Texas Gas completed the repurchase of
approximately $10 million of trade accounts receivable previously sold.
CREDIT RATINGS
Texas Gas has no guarantees of off-balance sheet debt to third parties
and maintains no debt obligations that contain provisions requiring accelerated
payment of the related obligations in the event of specified levels of declines
in Williams' or Texas Gas' credit ratings given by Moody's Investor's Service,
Standard & Poor's and Fitch Ratings (rating agencies).
In the second quarter and July 2002, the rating agencies reduced Texas
Gas' credit ratings on its senior unsecured long-term debt, as follows:
Moody's Investor's Services...............................Baa1 to Ba2
Standard & Poor's..........................................BBB+ to B+
Fitch Ratings.............................................BBB+ to BB-
The rating agencies have reduced Texas Gas' credit ratings due to
concerns about the sufficiency of Williams' operating cash flow in relation to
its debt as well as the adequacy of Williams' liquidity. The ratings remain
under review pending the execution of Williams' plan to strengthen its financial
position.
CAPITAL EXPENDITURES
As discussed above, Williams has announced plans to strengthen its
balance sheet, which includes reductions in Williams' 2002 estimated capital
spending program. As a Williams subsidiary, Texas Gas will participate in
Williams' plan to reduce capital spending, primarily by managing its 2002
capital spending program at a lower level than anticipated prior to Williams'
announcement.
Texas Gas' capital expenditures for the first nine months of 2002 and
2001 were $36.9 million and $44.1 million, respectively. Capital expenditures
for 2002 are expected to approximate $42 million.
Texas Gas' debt as a percentage of total capitalization at September 30,
2002 and December 31, 2001 was 25.9% and 26.7%, respectively.
GENERAL RATE ISSUES
As discussed in Note 3 of the Notes to Condensed Consolidated Financial
Statements, on April 28, 2000, Texas Gas filed a general rate case (Docket No.
RP00-260) which became effective November 1, 2000, subject to refund. On March
4, 2002, the FERC issued an order approving the settlement and severing the
Indicated Shippers from the settlement provisions. On June 17, 2002, the FERC
issued an order denying the Indicated shipper's request for rehearing of the
March 4, 2002 order. The settlement became effective 31 days after that order
when no party filed any further requests for rehearing. Thus, the settlement's
prospective rates went into effect on August 1, 2002 and refunds of
approximately $37.5 million were made on September 16, 2002. Texas Gas had
provided an adequate reserve for amounts, including interest, which were
refunded to customers.
CONCLUSION
Although no assurances can be given, Texas Gas currently believes that
the aggregate of cash flows from operating activities, supplemented, when
necessary, by repayments of funds advanced to WGP, advances or capital
contributions from Williams and borrowings under the Credit Agreement will
provide Texas Gas with sufficient liquidity to meet its capital requirements.
When necessary, Texas Gas also expects to access public and private markets on
terms commensurate with its current credit ratings to finance its capital
requirements.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of Texas
Gas' disclosure controls and procedures (as defined in Rule 13a-14 and 15d-14 of
the Securities Exchange Act) was performed within the 90 days prior to the
filing date of this report. This evaluation was performed under the supervision
and with the participation of Texas Gas' management, including Texas Gas' Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, Texas
Gas' Chief Executive Officer and Chief Financial Officer concluded that these
disclosure controls and procedures are effective.
There have been no significant changes in Texas Gas' internal controls or
other factors that could significantly affect internal controls since the
certifying officers' most recent evaluation of those controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion in Note 3 of the Notes to Condensed Consolidated
Financial Statements included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following instruments are included as exhibits to this
report. Those exhibits below incorporated by reference herein
are indicated as such by the information supplied in the
parenthetical thereafter. If no parenthetical appears after
an exhibit, copies of the instrument have been included
herewith.
(10) Material contracts
- 1 First Amended and Restated Credit Agreement
dated as of October 31, 2002 among The
Williams Companies, Inc., Northwest Pipeline
Corporation, Transcontinental Gas Pipe Line
Corporation and Texas Gas Transmission
Corporation, as Borrowers, the Banks named
therein, JPMorgan Chase Bank and
Commerzbank AG, as Co-Syndication Agents,
Credit Lyonnais New York Branch, as Documentation
Agent, Citicorp USA, Inc., as Agent, and
Salomon Smith Barney Inc., as Arranger (filed
as Exhibit 10.2 to The Williams Companies, Inc.
Form 10-Q for the quarter ended September 30,
2002 Commission File Number 1-4174).
(99) Additional exhibits
- 1 Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of The Sarbanes-Oxley Act of
2002 by J. Douglas Whisenant, President
and Chief Executive Officer of Texas
Gas Transmission Corporation
- 2 Certification pursuant to 18 U.S.C
Section 1350, as adopted pursuant to
Section 906 of The Sarbanes-Oxley Act of
2002 by Richard Rodekohr, Vice President
and Chief Financial Officer of Texas Gas
Transmission Corporation
(b) Reports on Form 8-K.
None
20
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.
Texas Gas Transmission Corporation (Registrant)
Dated: November 14, 2002 BY /S/ JEFFREY P. HEINRICHS
----------------------------------
Jeffrey P. Heinrichs
Controller
(Principal Accounting Officer)
Certifications
I, J. Douglas Whisenant, President and Chief Executive Officer of Texas Gas
Transmission Corporation ("registrant") certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
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 officers 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 officers 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 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 officers 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.
Dated: November 14, 2002 BY /S/ J. DOUGLAS WHISENANT
-------------------------------------------
J. Douglas Whisenant
President and Chief Executive Officer
Certifications
I, Richard Rodekohr, Vice President and Chief Financial Officer of Texas Gas
Transmission Corporation ("registrant") certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
registrant;
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 officers 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 officers 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 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 officers 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.
Dated: November 14, 2002 BY /S/ RICHARD RODEKOHR
-------------------------------------------
Richard Rodekohr
Vice President and Chief Financial Officer