COLORADO INTERSTATE GAS CO - 10-Q Quarterly Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------------

FORM 10-Q
(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 1-4874
---------------

COLORADO INTERSTATE GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 84-0173305
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)

Telephone Number: (713) 420-2600

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.

Common stock, par value $1 per share. Shares outstanding on August 13,
2002: 1,000

COLORADO INTERSTATE GAS COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COLORADO INTERSTATE GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

1

COLORADO INTERSTATE GAS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes.

2

COLORADO INTERSTATE GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

3

COLORADO INTERSTATE GAS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

We prepared this Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission. Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by generally accepted accounting
principles. You should read it along with our 2001 Annual Report on Form 10-K
which includes a summary of our significant accounting policies and other
disclosures. The financial statements as of June 30, 2002, and for the quarters
and six months ended June 30, 2002 and 2001, are unaudited. We derived the
balance sheet as of December 31, 2001, from the audited balance sheet filed in
our Form 10-K. In our opinion, we have made all adjustments, all of which are of
a normal, recurring nature (except for the items discussed in Notes 3 and 4
below), to fairly present our interim period results. Due to the seasonal nature
of our businesses, information for interim periods may not indicate the results
of operations for the entire year. In addition, prior period information
presented in these financial statements includes reclassifications which were
made to conform to the current period presentation. These reclassifications have
no effect on our previously reported net income or stockholder's equity.

Our accounting policies are consistent with those discussed in our Form
10-K, except as discussed below:

Asset Impairments

On January 1, 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 changed the accounting requirements related to when an asset
qualifies as held for sale or as a discontinued operation and the way in which
we evaluate impairments of assets. It also changes accounting for discontinued
operations such that we can no longer accrue future operating losses in these
operations. We applied SFAS No. 144 in accounting for our Panhandle Field of
Texas, southeast Kansas and the Oklahoma Panhandle natural gas and oil
operations and a related gas gathering system, which met all of the requirements
to be treated as discontinued operations in the second quarter of 2002. See Note
4 for further information.

2. DIVESTITURES

In April 2002, we executed an agreement to sell to Pioneer Natural
Resources USA, Inc. (Pioneer) all of our interests in natural gas and oil
production properties and related contracts located in Texas, Kansas, and
Oklahoma that we closed on July 1, 2002. Net proceeds from the sale were
approximately $112 million, and we will recognize a gain in the third quarter of
2002 of approximately $23 million, net of $8 million of reserve for
contingencies and $14 million of income tax. We also executed an agreement to
sell to Pioneer a federally regulated natural gas gathering system located in
the Panhandle Field of Texas for its approximate net book value of $20 million.
The closing of this transaction is subject to the receipt of a certificate to
abandon the facilities from the Federal Energy Regulatory Commission (FERC). We
anticipate closing this transaction late in 2002 or early 2003.

In addition, during March 2002, we sold natural gas and oil properties
located in south Texas, all of which were previously reported as part of the
Other segment, to El Paso CGP Company, our parent. Proceeds from this sale were
approximately $2 million. We did not recognize a gain or loss on the properties
sold.

Following the completion of the above transactions, our oil and gas
properties consist entirely of properties that have a book value of $149
million, accumulated depletion of $148 million and a net book value of $1
million and are reported as part of the Other segment.

3. MERGER-RELATED COSTS

During the quarter and six months ended June 30, 2001, we incurred
merger-related costs of $19 million and $31 million associated with El Paso
Corporation's (El Paso) merger with The Coastal Corporation in

4

January 2001. These charges consist of employee severance, retention and
transition costs for severed employees and early retirees that occurred as a
result of El Paso's merger-related workforce reduction and consolidation, costs
for pension and post-retirement benefits settled and curtailed under existing
benefit plans. The pension and post-retirement benefits were accrued on the
merger date and will be paid over the applicable benefit periods of the
terminated and retired employees. All other employee costs were expensed as
incurred and were paid in the first and second quarters of 2001. Following the
merger, approximately 180 full-time positions were eliminated through a
combination of early retirement and terminations. Our merger-related costs also
included charges relating to the valuation of natural gas imbalances to conform
our imbalance valuation methods to El Paso's, the write-off of a software system
that was in development and charges related to a disputed gas pricing claim. All
charges were accrued as of the merger date with the exception of the gas pricing
claim which was expensed when incurred.

4. DISCONTINUED OPERATIONS

In July 2002, we sold Texas, Kansas and Oklahoma oil and gas properties.
These assets and the related gas gathering system have been classified as
discontinued operations in our financial statements for all periods presented.
See Note 2 for further discussion of this sale. These assets were historically
reported in our Pipeline segment.

As of June 30, 2002, we classified all of these assets and liabilities as
current since we are selling them in the next twelve months. The summarized
results of discontinued operations are as follows:

5. FINANCIAL INSTRUMENTS

Included in other comprehensive loss is a $2 million reclassification
adjustment we recognized in connection with the sale of our natural gas and oil
properties in the first half of 2002. We recognized this reclassification
adjustment on derivative positions that no longer qualify as cash flow hedges
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, because they were designated as hedges of anticipated future
production on the properties sold.

5

6. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In 1997, we and a number of our affiliates were named defendants in actions
brought by Jack Grynberg on behalf of the U.S. Government under the False Claims
Act. Generally, these complaints allege an industry-wide conspiracy to
underreport the heating value as well as the volumes of the natural gas produced
from federal and Native American lands, which deprived the U.S. Government of
royalties. These matters have been consolidated for pretrial purposes (In re:
Natural Gas Royalties Qui Tam Litigation, U.S. District Court for the District
of Wyoming, filed June 1997). In May 2001, the court denied the defendants'
motion to dismiss.

We and a number of our affiliates were named defendants in Quinque
Operating Company, et al v. Gas Pipelines and Their Predecessors, et al, filed
in 1999 in the District Court of Stevens County, Kansas. This class action
complaint alleges that the defendants mismeasured natural gas volumes and
heating content of natural gas on non-federal and non-Native American lands. The
Quinque complaint was transferred to the same court handling the Grynberg
complaint and has now been sent back to Kansas State Court for further
proceedings. A motion to dismiss this case is pending.

In addition to the above matters, we and our subsidiaries and affiliates
are named defendants in numerous lawsuits and governmental proceedings that
arise in the ordinary course of our business.

For each of our outstanding legal matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.
As of June 30, 2002, we had reserves totaling $18 million for all outstanding
legal matters.

While the outcome of our outstanding legal matters cannot be predicted with
certainty, based on the information known to date and our existing accruals, we
do not expect the ultimate resolution of these matters to have a material
adverse effect on our financial position, operating results or cash flows. As
new information becomes available or relevant developments occur, we will review
our accruals and make any appropriate adjustments. The impact of these changes
may have a material effect on our results of operations.

Environmental Matters

We are subject to extensive federal, state and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the environment of the
disposal or release of specified substances at current and former operating
sites. As of June 30, 2002, we had a reserve of approximately $6 million for
expected remediation costs. In addition, we expect to make capital expenditures
for environmental matters of approximately $1 million in the aggregate for the
years 2002 through 2007. These expenditures primarily relate to compliance with
clean air regulations.

While the outcome of our outstanding environmental matters cannot be
predicted with certainty, based on the information known to date and our
existing accruals, we do not expect the ultimate resolution of these matters to
have a material adverse effect on our financial position, operating results or
cash flows. It is possible that new information or future developments could
require us to reassess our potential exposure related to environmental matters.
It is also possible that other developments, such as increasingly strict
environmental laws and regulations and claims for damages to property,
employees, other persons and the environment resulting from our current or past
operations, could result in substantial costs and liabilities in the future. As
new information becomes available, or relevant developments occur, we will
review our accruals and make any appropriate adjustments. The impact of these
changes may have a material effect on our results of operations.

6

Rates and Regulatory Matters

In March 2001, we filed a rate case with the FERC proposing increased rates
of $9 million annually and new and enhanced services for our customers. This
filing was required under the settlement of our 1996 general rate case. We
received an order from the FERC in late April 2001, which suspended the rates
until October 1, 2001, subject to refund, and subject to the outcome of an
evidentiary hearing. On September 26, 2001, the FERC issued an order rejecting
two firm services we had proposed in our rate filing and required us to
reallocate the costs allocated to those two services to existing services. We
have complied with this order and have arranged with the affected customers to
provide service under existing rate schedules. We and our customers entered into
a unanimous settlement agreement in May 2002 settling all issues in the case.
The settlement, which contained a modest rate increase, was approved by the FERC
in July 2002. Provided that no parties seek rehearing within 30 days, this will
become a final order. We will pay refunds plus accrued interest within 60 days
from the final order date. We have made provisions for these refunds and as a
result, the refunds will not have an adverse effect on our financial position or
results of operations.

In September 2001, the FERC issued a Notice of Proposed Rulemaking (NOPR).
The NOPR proposes to apply the standards of conduct governing the relationship
between interstate pipelines and marketing affiliates to all energy affiliates.
The proposed regulations, if adopted by the FERC, would dictate how we conduct
business and interact with our energy affiliates. In December 2001, we filed
comments with the FERC addressing our concerns with the proposed rules. A public
hearing was held on May 21, 2002, at which interested parties were given an
opportunity to comment further on the NOPR. Following the conference, additional
comments were filed by El Paso's pipelines and others. We cannot predict the
outcome of the NOPR, but adoption of the regulations in substantially the form
proposed would, at a minimum, place additional administrative and operational
burdens on us.

On July 17, 2002, the FERC issued a Notice of Inquiry (NOI) that seeks
comments regarding its policy, established in 1996, of permitting pipelines to
enter into negotiated rates transactions. Our pipeline has entered into such
transactions over the years. Specifically, the FERC is now undertaking a review
of whether negotiated rates should be capped, whether or not a pipeline's
"recourse rate" (its cost of service based rate) continues to serve as a viable
alternative and safeguard against the exercise of alleged pipeline market power,
as well as other issues related to its negotiated rate program. Comments are due
on September 25, 2002, with reply comments due on October 25, 2002. We cannot
predict the outcome of this NOI.

On August 1, 2002, the FERC issued a NOPR requiring that all arrangements
concerning the cash management or money pool arrangements between a FERC
regulated subsidiary and a non-FERC regulated parent must be in writing, and set
forth: the duties and responsibilities of cash management participants and
administrators; the methods of calculating interest and for allocating interest
income and expenses; and the restrictions on deposits or borrowings by money
pool members. The NOPR also requires specified documentation for all deposits
into, borrowings from, interest income from, and interest expenses related to,
these arrangements. Finally, the NOPR proposed that as a condition of
participating in a cash management or money pool arrangement, the FERC regulated
entity must maintain a minimum proprietary capital balance of 30 percent, and
the FERC regulated entity and its parent must maintain investment grade credit
ratings. Comments on the NOPR are due on August 22, 2002. We cannot predict the
outcome of this NOPR.

Also on August 1, 2002, the FERC's Chief Accountant issued, to be effective
immediately, an Accounting Release providing guidance on how jurisdictional
entities should account for money pool arrangements and the types of
documentation that should be maintained for these arrangements. The Accounting
Release sets forth the documentation requirements set forth in the NOPR for
money pool arrangements, but does not address the requirements in the NOPR that
as a condition for participating in money pool arrangements the FERC regulated
entity must maintain a minimum proprietary capital balance of 30 percent and
that the entity and its parent must have investment grade credit ratings.
Requests for rehearing are due on September 3, 2002.

While the outcome of our rates and regulatory matters cannot be predicted
with certainty, based on the information known to date and our existing
accruals, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, operating results or cash
flows. As new information
7

becomes available or relevant developments occur, we will review our accruals
and make any appropriate adjustments. The impact of these changes may have a
material effect on our results of operations.

Other Matters

In accordance with an agreement executed in April 2002, we sold our
interests in production properties to Pioneer on July 1, 2002. We assigned all
our rights and obligations under the Amarillo "B" contract to Pioneer, effective
July 1, 2002.

As a result of current circumstances surrounding the energy sector, the
creditworthiness of several industry participants has been called into question.
We have taken actions to mitigate our exposure to these participants; however,
should several of these participants file for Chapter 11 bankruptcy protection
and our contracts are not assumed by other counterparties, it could have a
material adverse effect on our financial position, operating results or cash
flows.

7. SEGMENT INFORMATION

We segregate our business activities into two distinct operating segments:
Pipeline and Field Services. These segments are strategic business units that
provide a variety of energy products and services. They are managed separately
as each business unit requires different technology and marketing strategies.
During the quarter, we reclassified our historical natural gas and oil
production activities from our Pipeline segment to discontinued operations in
our financial statements. All periods were restated to reflect this change. We
measure segment performance using earnings before interest and income taxes
(EBIT). The following are our segment results as of and for the periods ended
June 30:

- ---------------

(1) Includes consolidating eliminations and remaining natural gas and oil
developing and producing activities. See Note 2.

8

The reconciliations of EBIT to income from continuing operations and
segment assets to total assets are presented below:

8. RELATED PARTY TRANSACTIONS

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of its participating affiliates, thus
minimizing total borrowing from outside sources. We had advanced at June 30,
2002 and December 31, 2001, $289 million and $232 million. The market rate of
interest at June 30, 2002 and December 31, 2001 was 1.9% and 2.1%.

At June 30, 2002 and December 31, 2001, we had accounts receivable from
affiliates of $13 million and $48 million. In addition, we had accounts payable
to affiliates of $52 million and $51 million at June 30, 2002 and December 31,
2001. These balances arose in the normal course of our business.

In addition, during March 2002, we sold natural gas and oil properties
located in south Texas, all of which were previously reported as part of the
Other segment to El Paso CGP Company, our parent. Proceeds from this sale were
approximately $2 million. We did not recognize a gain or loss on the properties
sold.

9. COMMON STOCK

On March 7, 2002, our Board of Directors approved and we filed an amended
and restated certificate of incorporation, changing the total number of
authorized shares of stock to 1,000 shares of common stock, with a par value of
$1.00 per share. As a result, $28 million of common stock was reclassified to
additional paid-in capital on our balance sheet as of March 31, 2002. This
action and the reclassification did not impact our total equity. As of December
31, 2001, we had 10,000 authorized shares and 10 issued and outstanding shares
at stated value.

10. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Accounting for Asset Retirement Obligations

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. This statement requires
companies to record a liability for the estimated retirement and removal costs
of assets used in their business. The liability is recorded at its present
value, and the same amount is added to the recorded value of the asset and is
amortized over the asset's remaining useful

9

life. The provisions of SFAS No. 143 are effective for fiscal years beginning
after June 15, 2002. We are currently evaluating the effects of this statement.

Reporting Gains and Losses from the Early Extinguishment of Debt

In April 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. This statement addresses how to report gains or losses resulting
from the early extinguishment of debt. Under current accounting rules, we report
any gains or losses on early extinguishment of debt as extraordinary items. When
we adopt SFAS No. 145, we will be required to evaluate whether the debt
extinguishment is truly extraordinary in nature. If we routinely extinguish debt
early, the gain or loss will be included in income from continuing operations.
This statement will be effective for our 2003 year-end reporting.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs that are
associated with a restructuring, discontinued operations, plant closings or
other exit or disposal activities. The provisions of this statement are
effective for fiscal years beginning after December 31, 2002 and will impact any
exit or disposal activities initiated after January 1, 2003.

10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)

The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in our Annual Report on Form 10-K filed
March 28, 2002, in addition to the financial statements and notes presented in
Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

RECENT DEVELOPMENTS

As a result of current circumstances surrounding the energy sector, the
creditworthiness of several industry participants has been called into question.
We have taken actions to mitigate our exposure to these participants; however,
should several of these participants file for Chapter 11 bankruptcy protection
and our contracts are not assumed by other counterparties, it could have a
material adverse effect on our financial position, operating results or cash
flows.

RESULTS OF OPERATIONS

Our segments: Pipeline and Field Services are strategic business units that
offer a variety of different energy products and services; each requires
different technology and marketing strategies. We evaluate our segment
performance based on EBIT. Operating revenues and expenses by segment include
intersegment revenues and expenses which are eliminated in consolidation.
Because changes in energy commodity prices have a similar impact on both our
operating revenues and cost of products sold from period to period, we believe
that gross margin (revenue less cost of sales) provides a more accurate and
meaningful basis for analyzing operating results for our Field Services segment.
We have reclassified our historical natural gas and oil operations from our
Pipeline segment to discontinued operations in our financial statements. All
periods have been adjusted to reflect these changes. For a further discussion of
our individual segments, see Item 1, Financial Statements, Note 7, as well as
our Annual Report on Form 10-K for the year ended December 31, 2001. The
following table presents EBIT by segment and in total for the periods ended June
30:

PIPELINE

Our Pipeline segment holds our interstate transmission business. Pipeline
results are relatively stable, but can be subject to variability from a number
of factors, such as weather conditions, including those conditions that may
impact the amount of power produced by natural gas fired turbines compared to
power generated by less costly coal fired generators, as well as gas supply to
market price differentials which can impact our deliveries to off-system
markets. Results can also be impacted by a pipeline's fuel recovery level and
the ability to operate the pipeline system efficiently. Future revenues may also
be impacted by expansion projects in our

- ---------------

(1) Below is a list of terms that are common to our industry and used throughout
our Management's Discussion and Analysis:

/d = per day MMBtu = million British thermal units
BBtu = billion British thermal units

11

service areas, competition by other pipelines for those expansion needs and
regulatory impacts on rates. Results of our Pipeline segment were as follows for
the periods ended June 30:

Included in our results of operations for the quarter and six months ended
June 30, 2001, are merger-related costs of $19 million and $31 million
associated with El Paso Corporation's merger with The Coastal Corporation in
January 2001. These costs include employee severance, retention and transition
costs, costs for pension and post-retirement benefits settled and curtailed
under existing benefit plans and costs related to a disputed gas pricing claim.

Second Quarter 2002 Compared to Second Quarter 2001

Operating revenues for the quarter ended June 30, 2002, were $1 million
higher than the same period in 2001. The increase was primarily due to higher
reservation revenues from our completed system expansion projects which were
placed in service in 2001 and changes in the seasonality of rates. The increase
was partially offset by lower prices on liquids sales in 2002 and decreased
on-system transportation rates.

Operating expenses for the quarter ended June 30, 2002, were $29 million
lower than the same period in 2001. The decrease was primarily due to
merger-related costs of $19 million incurred as part of El Paso's merger with
Coastal, including employee retention and transition costs, and costs related to
a disputed gas pricing claim. Also contributing to the decrease were lower fuel
and liquids feedstock costs resulting from lower natural gas prices in 2002 and
lower corporate overhead allocations in the second quarter of 2002.

Six Months Ended 2002 Compared to Six Months Ended 2001

Operating revenues for the six months ended June 30, 2002, were $11 million
lower than the same period in 2001. The decrease was primarily due to lower
prices on liquids sales in 2002 and changes in the seasonality of reservation
rates. The decrease was partially offset by higher reservation revenues from our
completed system expansion projects which were placed in service in 2001.

Operating expenses for the six months ended June 30, 2002, were $62 million
lower than the same period in 2001. The decrease was primarily due to
merger-related costs of $31 million incurred as part of El Paso's merger with
Coastal, including employee severance, retention and transition costs, costs for
post-retirement benefits settled and curtailed under existing benefit plans, and
costs related to a disputed gas pricing claim. Also contributing to the decrease
were lower fuel and liquids feedstock costs resulting from lower natural gas
prices in 2002 and lower corporate overhead allocations in the second quarter of
2002.

12

FIELD SERVICES

Results of our Field Services segment operations were as follows for the
periods ended June 30:

Second Quarter 2002 Compared to Second Quarter 2001

Total gross margins for the quarter ended June 30, 2002, were $1 million
lower than the same period in 2001 primarily due to lower volumes in 2002
attributable to natural declines in production in our operating regions.

Six Months Ended 2002 Compared to Six Months Ended 2001

Total gross margins for the six months ended June 30, 2002, were $4 million
lower than the same period in 2001. The decrease was primarily due to lower
volumes and natural gas liquids prices in 2002. Volumes are lower due to natural
declines in production in our operating regions.

AFFILIATED INTEREST INCOME, NET

Affiliated interest income, net for the quarter and six months ended June
30, 2002, was $2 million and $8 million lower than the same periods in 2001
primarily due to lower short-term interest rates and a decrease in average
advances in 2002 to El Paso under our cash management program.

INCOME TAXES

Income tax expense for the quarters ended June 30, 2002 and 2001, was $10
million and $1 million, resulting in effective tax rates of 36 percent and 33
percent. Income tax expense for the six months ended June 30, 2002 and 2001, was
$23 million and $10 million, resulting in effective tax rates of 37 percent in
both periods. Our effective tax rates were different than the statutory rate of
35 percent in all periods primarily due to state income taxes.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 6, which is incorporated herein by
reference.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

See Item 1, Financial Statements, Note 10, which is incorporated herein by
reference.

13

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 2001, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.

There are no material changes in our quantitative and qualitative
disclosures about market risks from those reported in our Annual Report on Form
10-K for the year ended December 31, 2001.

14

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 6, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

*99.A -- Certification of Chief Executive Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.

*99.B -- Certification of Chief Financial Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.

Undertaking

We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph
(4)(iii), to furnish to the Securities and Exchange Commission, upon request,
all constituent instruments defining the rights of holders of our long-term debt
not filed herewith for the reason that the total amount of securities authorized
under any of such instruments does not exceed 10 percent of our total
consolidated assets.

b. Reports on Form 8-K

None.

15

SIGNATURES

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.

COLORADO INTERSTATE GAS COMPANY

Date: August 13, 2002 /s/ JOHN W. SOMERHALDER II
------------------------------------
John W. Somerhalder II
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)

Date: August 13, 2002 /s/ GREG G. GRUBER
------------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial and Accounting
Officer)

16

EXHIBIT INDEX

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

*99.A -- Certification of Chief Executive Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.

*99.B -- Certification of Chief Financial Officer pursuant to 18
U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
Sarbanes-Oxley Act of 2002.