TRANSTEXAS GAS CORP - 10-Q Quarterly Report

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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002

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COMMISSION FILE NUMBER 0-30475

TRANSTEXAS GAS CORPORATION

1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 310
HOUSTON, TEXAS 77032-2949

Registrant's telephone number, including area code: (281) 987-8600

DELAWARE 76-0401023
(State of incorporation) (I.R.S. Employer
Identification No.)

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

The number of shares of Class A Common of the registrant outstanding on
September 16, 2002 was 63,448,832.

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TRANSTEXAS GAS CORPORATION

TABLE OF CONTENTS

1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of TransTexas Gas Corporation

We have reviewed the accompanying condensed consolidated balance sheet of
TransTexas Gas Corporation (the "Company") as of July 31, 2002 and the related
condensed consolidated statements of operations for the three and six month
periods ended July 31, 2002 and 2001 and the consolidated statement of cash
flows for the six months ended July 31, 2002 and 2001. These financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated interim financial
statements for them to be in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has not paid the $15 million
interest payment due September 15, 2002 on its 15% Senior Secured Notes due
2005. The Company does not intend to make the $15 million interest payment
within a 30-day cure period and will then be in default under terms of its debt
agreements which could result in acceleration of the maturity of such
obligations. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet as of January 31, 2002, and the related consolidated statements of
operations, of stockholders' equity (deficit), and of cash flows for the year
then ended (not presented herein); and in our report dated April 30, 2002, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of January 31, 2002, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

PricewaterhouseCoopers LLP

Houston, Texas
September 16, 2002

2

TRANSTEXAS GAS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

3

TRANSTEXAS GAS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

TRANSTEXAS GAS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

5

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL

In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made that are necessary to fairly state the
financial position of TransTexas Gas Corporation ("TransTexas" or the "Company")
as of July 31, 2002 and the results of its operations and cash flows for the
interim periods ended July 31, 2002 and 2001. The condensed consolidated balance
sheet as of January 31, 2002 was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. The results of operations for interim periods should not be regarded
as necessarily indicative of results that may be expected for the entire year.
The financial information presented herein should be read in conjunction with
the consolidated financial statements and notes included in TransTexas' annual
report on Form 10-K for the year ended January 31, 2002. Unless otherwise noted,
the terms "TransTexas" and the "Company" refer to TransTexas Gas Corporation and
its subsidiaries, Galveston Bay Processing Corporation and Galveston Bay
Pipeline Company.

Comprehensive Income (Loss)

A summary of the Company's comprehensive loss for the three and six months
ended July 31, 2002 and 2001 is as follows (in thousands of dollars):

A summary of the Company's accumulated other comprehensive income for the
period ended July 31, 2002 is as follows (in thousands of dollars):

Accumulated other comprehensive income:
Balance at January 31, 2002 .................................. $ $2,348
Change in the fair value of hedging agreements ............... (2,139)
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Balance at July 31, 2002 ..................................... $ 209
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Reorganization

On April 19, 1999 (the "Petition Date"), TransTexas filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code. This filing
did not include the Company's subsidiaries, Galveston Bay Processing Corporation
and Galveston Bay Pipeline Company. The United States Bankruptcy Court for the
Southern District of Texas, Corpus Christi Division confirmed the Company's
Second Amended, Modified and Restated Plan of Reorganization dated January 25,
2000 (the "Plan") on February 7, 2000. The Effective Date of the Plan was March
17, 2000.

Recently Issued Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
for Asset Retirement Obligations." SFAS 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred and a corresponding increase in the carrying amount of the
related long-lived asset. Under SFAS 143, salvage value is not considered when
determining the retirement obligation. The Company is evaluating the impact of
SFAS 143, which is effective for the Company in February 2003.

6

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 requires that one accounting model
be used for long-lived assets to be disposed of by sale and broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. SFAS 144 did not affect the ceiling test calculation under the full
cost method of accounting. The adoption of SFAS 144 effective February 1, 2002
had no impact on the Company's financial statements.

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." SFAS 145 provides guidance for income statement classification of
gains or losses from extinguishment of debt and accounting for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
SFAS 145 will be effective for the Company in February 2003 and will be used to
report any debt extinguished or leases modified after that date.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires
recognition of a liability for costs associated with an exit or disposal
activity when the liability is incurred rather than at the date of a commitment
to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002 and will be used to report
any exit or disposal activity after that date.

2. LIQUIDITY

In order to maintain or increase proved oil and gas reserves, TransTexas
is required to make substantial capital expenditures for the exploration and
development of natural gas and oil prospects. TransTexas remains highly
leveraged and a substantial portion of its cash flow will be required for
servicing debt and the production payment obligation. In addition, cash flow
from operations is dependent on the level of gas and oil prices, which are
historically volatile. Management plans to fund TransTexas' 2003 debt service
requirements and capital expenditures with cash flows from operating activities
and borrowings under the production payment drilling program and other
financings. In addition, the Company has commenced negotiations for joint
venture drilling opportunities with several unrelated entities. Should these
drilling prospects not be productive or should oil and gas prices decline for a
prolonged period, absent other sources of capital, the Company would
substantially reduce its capital expenditures, which would limit its ability to
maintain or increase production and in turn meet its debt service requirements.
Asset sales and financings are restricted under the terms of the Company's debt
documents and Series A Senior Preferred Stock of the Company (the "Senior
Preferred Stock"). Liquidity of the Company may be adversely affected by the
occurrence of the events of default and any resulting acceleration of the
maturity of the Company's long-term debt as discussed in Note 3 below.

3. CREDIT AGREEMENTS AND PRODUCTION PAYMENTS

Accounts Receivable Facility

On the Effective Date, the Company and GMAC Commercial Credit LLC
("GMACC") entered into a Third Amended and Restated Accounts Receivable
Management and Security Agreement, dated as of March 15, 2000 (the "Accounts
Receivable Facility"). The Accounts Receivable Facility is a revolving credit
facility secured by accounts receivable and inventory. The maximum loan amount
under the facility is $15 million, against which the Company may from time to
time, subject to the conditions of the Accounts Receivable Facility, borrow,
repay and reborrow. The Accounts Receivable Facility matures on March 14, 2005.
Advances under the facility bear interest monthly in arrears at a rate per annum
equal to the higher of (i) the prime commercial lending rate of The Bank of New
York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1%, payable monthly in
arrears. As of July 31, 2002, the outstanding principal balance under the
Accounts Receivable Facility was $2.1 million with availability for additional
advances of approximately $0.4 million.

7

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

Production Payments

In March 2000, TransTexas entered into a production payment drilling
program agreement with two unaffiliated third parties in the form of a term
overriding royalty interest carved out of and burdening certain properties. The
Company has the right to offer additional interests to the production payment
parties at a negotiated purchase price. The production payment requires the
repayment of the primary sum plus an amount equivalent to a 15% annual interest
rate on the unpaid portion of such primary sum. In March 2002, the Company
closed an Eighth Supplement to the production payment whereby the Company
received $14.0 million. In June 2002, the Company closed a Ninth Supplement to
the production payment whereby the Company received $13.0 million in exchange
for additional properties being made subject to the production payment. As of
July 31, 2002, the outstanding balance of the production payment was $35.0
million, of which $3.3 million attributable to produced volumes is included in
accrued liabilities. The Oil and Gas Revolving Credit and Term Loan Agreement
(the "Oil and Gas Facility") entered into by the Company, as Borrower, Galveston
Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors,
and with GMACC, as Lender and as Agent, places certain restrictions on the
amount that may be outstanding under the production payment.

Preferred Stock Dividends and Conversion to Class A Common Stock

The Certificate of Designation for the Senior Preferred Stock of the
Company provides for the mandatory conversion of one-half of the outstanding
shares of Senior Preferred Stock into fully paid and non-assessable shares of
Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for
each $1.00 of liquidation preference per share, plus an amount equal to accrued
and unpaid dividends, of Senior Preferred Stock if the Company fails to pay
dividends on the Senior Preferred Stock as required by the Certificate of
Designation for the Senior Preferred Stock on any two dividend payment dates.
The Certificate of Designation for the Series A Junior Preferred Stock ("Junior
Preferred Stock" and together with the Senior Preferred Stock, the "Preferred
Stock") provides for the mandatory conversion of all of the outstanding shares
of Junior Preferred Stock into fully paid and non-assessable shares of Class A
Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00
of liquidation preference per share, plus an amount equal to accrued and unpaid
dividends, of Junior Preferred Stock if the Company fails to pay dividends on
the Senior Preferred Stock as required by the Certificate of Designation for the
Senior Preferred Stock on any two dividend payment dates.

The Certificate of Designation for each of the Senior Preferred Stock and
the Junior Preferred Stock required the payment to the holders of a cash
dividend on the Senior Preferred Stock and an in-kind dividend on the Junior
Preferred Stock, respectively, by the Company on June 15, 2002 and on September
15, 2002. The Company did not make the required dividend payments on either
date. Therefore, the liquidation preference of the Senior Preferred Stock was
increased to approximately $1.04 per share and the liquidation preference of the
Junior Preferred Stock was increased to approximately $1.05 per share. As a
result, on September 16, 2002, each two shares of Senior Preferred Stock was
converted into one share of New Senior Preferred and into approximately 0.3596
shares of Class A Common Stock and each share of Junior Preferred Stock was
converted into approximately 0.1227 shares of Class A Common Stock. No
fractional shares will be issued in the conversion. The Board of Directors of
the Company has determined that the fair market value of each share of the
Preferred Stock and Common Stock for purposes of the conversion is less than
$0.01 per share and, therefore, no cash will be paid to holders of Preferred
Stock in lieu of fractional shares.

In the aggregate, 164,333,875 shares of Senior Preferred Stock
representing one-half of all of the outstanding Senior Preferred Stock were
converted into approximately 59,101,243 shares of Class A Common Stock and
25,240,513 shares of Junior Preferred Stock representing all of the outstanding
Junior Preferred stock were converted into 3,097,338 shares of Class A Common
Stock. Since the Company did not pay the required dividend payments, holders of
the Senior Preferred Stock will have the right, voting separately as a class, to
elect all five directors to the Company's Board of Directors.

The effect of the mandatory conversion of one-half of the outstanding
shares of Senior Preferred Stock and all of the outstanding shares of Junior
Preferred Stock into Class A Common Stock as if the conversion had occurred on
July 31, 2002 is as follows (in thousands of dollars):

8

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

Events of Default

In addition, as a result of its current cash position, the Company has not
paid the $15 million interest payment due September 15, 2002 on its 15% Senior
Secured Notes due 2005 ("15% Notes") and has entered the 30-day cure period
described under the terms of the indenture governing the 15% Notes. The Company
does not intend to make the $15 million interest payment within such cure
period. If the Company does not make the $15 million interest payment within
such cure period, (i) the Company will be in default under the terms of the Oil
and Gas Facility, the Accounts Receivable Facility and other long-term debt of
the Company which could result in acceleration of the maturity of the
obligations thereunder and (ii) the Company will be in default under the
indenture allowing the holders of the 15% Notes to make the outstanding debt on
the 15% Notes immediately due and payable. As a consequence of these
uncertainties, at July 31, 2002, the outstanding balance of $200 million of the
15% Notes was classified in current liabilities.

Recapitalization

The Company has entered into discussions with holders owning approximately
90% of the outstanding principal amount of the 15% Notes and the outstanding
shares of Preferred Stock and with the lenders under the Oil and Gas Facility
and the Accounts Receivable Facility with respect to a proposed consensual
recapitalization. The Company has engaged Jefferies & Company, Inc. as a
financial advisor to assist in exploring strategic alternatives in connection
with such consensual recapitalization. The Company believes that any such
recapitalization may significantly reduce overall debt and the Company's
interest and dividend obligations. As with any recapitalization, no assurance
can be given that the Company will be successful in reaching an agreement with
any of its investors or lenders or in reaching agreement with the other parties
to the recapitalization. In the event that negotiations are not successful, the
Company will consider other available alternatives.

4. HEDGING AGREEMENTS

As of July 31, 2002, the Company had entered into the following hedging
arrangements (settlement price based on a published industry index of natural
gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a
portion of the Company's natural gas production:

For the six months ended July 31, 2002, the Company recognized hedging
gains of $0.8 million, which are reflected in gas, condensate and natural gas
liquids revenues. At July 31, 2002, the Company estimated that these contracts
had a fair value of $0.2 million.

Because substantially all of its long-term obligations at July 31, 2002
are at fixed rates, the Company considers its interest rate exposure to be
minimal. The Company's borrowings under its credit facility ($2.1 million
outstanding at July 31, 2002) are subject to a rate of interest that fluctuates
based on short-term interest rates. The Company had no interest rate hedges at
July 31, 2002.

9

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The following information reflects TransTexas' noncash financing
activities (in thousands of dollars):

6. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

TransTexas is a party to various claims and routine litigation arising in
the normal course of its business. Any obligations of the Company in respect of
such claims and litigation arising out of activities prior to the Petition Date
were discharged or otherwise disposed of pursuant to the Plan. Recovery of these
obligations, if any, will be limited to any collateral held by the claimant
and/or such claimant's pro rata share of amounts available to pay general
unsecured claims.

Environmental Matters

TransTexas' operations and properties are subject to extensive federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. Permits are required for various of TransTexas' operations, and
these permits are subject to revocation, modification and renewal by issuing
authorities. TransTexas also is subject to federal, state and local laws and
regulations that impose liability for the cleanup or remediation of property
which has been contaminated by the discharge or release of hazardous materials
or wastes into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines
or injunctions, or both. Certain aspects of TransTexas' operations may not be in
compliance with applicable environmental laws and regulations, and such
noncompliance may give rise to compliance costs and administrative penalties. It
is not anticipated that TransTexas will be required in the near future to expend
amounts that are material to the financial condition or operations of TransTexas
by reason of environmental laws and regulations, but because such laws and
regulations are frequently changed and, as a result, may impose increasingly
strict requirements, TransTexas is unable to predict the ultimate cost of
complying with such laws and regulations.

Potential Tax Liabilities

Part of the debt refinancing of TransAmerican Natural Gas Corporation
("TransAmerican") in 1993 involved the cancellation of approximately $65.9
million of accrued interest and of a contingent liability for interest of $102
million owed by TransAmerican. TransAmerican has taken the federal tax position
that the entire amount of this debt cancellation is excluded from its income
under the cancellation of indebtedness provision (the "COD Exclusion") of the
Internal Revenue Code of 1986, as amended, and has reduced its tax attributes
(including its net operating loss and credit carryforwards) as a consequence of
the COD Exclusion.

10

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)

As a former member of the affiliated group for tax purposes (the "TNGC
Consolidated Group") which included TNGC, the sole stockholder of TransAmerican,
TransAmerican, TransAmerican Energy Corporation, TransTexas and TransAmerican
Refining Corporation, TransTexas will be severally liable for any tax liability
resulting from any transaction of the TNGC Consolidated Group that occurred
during any taxable year of the TNGC Consolidated Group during which TransTexas
was a member, including the above-described transaction. The IRS commenced an
audit of the consolidated federal income tax returns of the TNGC Consolidated
Group for its taxable years ended July 31, 1994 and July 31, 1995. The Company
has been advised by the IRS that its audit has been completed and that no tax
deficiencies were proposed by the IRS.

TransTexas expects that a significant portion of its net operating loss
carryovers ("NOLs") will be eliminated and the use of those NOLs that are not
eliminated will be severely restricted as a consequence of the Plan. In
addition, certain other tax attributes of TransTexas may under certain
circumstances be eliminated or reduced as a consequence of the Plan. The
potential elimination or reduction of NOLs and such other tax attributes may
substantially increase the amount of tax payable by TransTexas.

Drilling Rig Commitment

During February 2001, TransTexas entered into a one-year contract with an
independent contractor for utilization of a drilling rig capable of drilling
wells to a depth of approximately 18,500 feet. TransTexas utilized this rig to
drill wells in the Galveston Bay area. As of July 31, 2002, the balance
remaining to be paid under this contract was approximately $1.0 million.

Gas Delivery Commitments

TransTexas has entered into contracts with Kinder Morgan Ship Channel
Pipeline, L.P., formerly Tejas Ship Channel, LLC, for transportation of its
production from the Eagle Bay field to the Winnie facilities at a fixed
negotiated rate. Under these contracts, the Company has agreed to deliver up to
75,000 MMBtu per day of natural gas and associated condensate.

The Company also entered into a contract with Centana Intrastate Pipeline
Company for transportation of natural gas on a firm and interruptible basis from
the Winnie facility to natural gas liquids recovery facilities located in the
Beaumont/Port Arthur, Texas area, and residue gas from these facilities to
various distribution points. Under the agreement, the Company has agreed to
deliver up to a maximum of 56,250 Mcf of natural gas and 19,500 MMBtu of residue
gas per day. Transportation fees for natural gas and residue gas are based on
fixed negotiated rates.

7. RELATED PARTY TRANSACTIONS

In March 2002, John R. Stanley resigned as Chief Executive Officer and as
Chairman and member of the Board of Directors of the Company. Pursuant to a
separation agreement, the Company is obligated to pay Mr. Stanley $3.0 million
in cash in installments through November 2002, plus interest at the rate of 10%
per annum until paid in full. At July 31, 2002, the severance remaining to be
paid to Mr. Stanley was $1.1 million and this amount is included in accrued
liabilities.

On March 15, 2002, Credit Suisse First Boston Management Corporation
("CSFB") and the Company, as borrower, and Galveston Bay Processing Corporation,
as guarantor, entered into an unsecured Term Loan Agreement, wherein CSFB
advanced to the Company the principal sum of $2.0 million which is due and
payable, together with interest at a rate of 15% per annum, on October 15, 2002.
CSFB is the beneficial owner of more than 10% of the 15% Notes, Class A Common
Stock, Senior Preferred Stock and Junior Preferred Stock.

8. SUPPLEMENTAL GUARANTOR INFORMATION

Galveston Bay Pipeline Company and Galveston Bay Processing Corporation
are guarantors of the 15% Notes and the Oil and Gas Facility. Separate financial
statements of the Guarantors are not considered to be material to holders of the
15% Notes and GMACC. The following condensed consolidating financial statements
present supplemental information of the Guarantors as of and for the three and
six-month periods ended July 31, 2002.

11

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
JULY 31, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

12

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

13

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

14

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2001
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

15

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

16

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2001
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

17

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 2002
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

18

TRANSTEXAS GAS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 2001
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

19

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

The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of TransTexas included
elsewhere in this report.

RESULTS OF OPERATIONS

General

TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate and
natural gas liquids ("NGLs"). The profitability of TransTexas also depends on
its ability to minimize finding and lifting costs and maintain its reserve base
while maximizing production.

TransTexas' operating data for the three and six months ended July 31,
2002 and 2001 are as follows:

A summary of TransTexas' operating expenses is set forth below (in
millions of dollars):

TransTexas' average depletion rates have been as follows:

Three Months Ended July 31, 2002 Compared with the Three Months Ended July 31,
2001

Gas, condensate and NGL revenues for the three months ended July 31, 2002
decreased $10.5 million from the prior period, due primarily to a decrease in
natural gas sales volumes. Approximately 1.0 Bcf of the decrease in natural gas
volumes for the three months ended July 31, 2002 was attributable to the sale of
TransTexas' interest in the Bob West field and approximately 1.2 Bcf of the
decrease is attributable to reduced production rates from wells in the Southwest
Bonus field. The average monthly prices received per Mcf of gas ranged from
$3.40 to $3.56 in the three months ended July 31, 2002, compared to a range of
$3.44 to $5.22 in the prior period.

20

Lease operating expenses for the three months ended July 31, 2002
decreased $2.2 million from the prior period due primarily to a decrease in
workover expenses and fewer number of productive wells due to the sale of the
Bob West field. Pipeline and gathering expenses decreased $0.9 million from the
prior period due primarily to lower labor costs. Depreciation, depletion and
amortization expense for the three months ended July 31, 2002 decreased $13.6
million due to a $1.29 per Mcfe decrease in the depletion rate. General and
administrative expenses decreased $1.8 million primarily as a result of lower
personnel and related costs. Taxes other than income taxes decreased by $0.8
million over the prior period due primarily to lower severance and production
taxes. Interest expense for the three months ended July 31, 2002 increased by
$1.6 million from the prior period due primarily to lower capitalized interest.
The impairment loss for the three months ended July 31, 2001 relates to a
write-down of $56.8 million of TransTexas' net capitalized costs of gas and oil
properties to the cost center ceiling in accordance with the full cost method of
accounting. The cost center ceiling at July 31, 2001 decreased from that at
April 30 and January 31, 2001 primarily due to a decrease in prices for natural
gas and condensate.

Six Months Ended July 31, 2002 Compared With the Six Months Ended July 31,
2001

Gas, condensate and NGL revenues for the six months ended July 31, 2002
decreased $35.9 million from the prior period, due primarily to lower prices for
all products and lower natural gas sales volumes. Approximately 2.0 Bcf of the
decrease in natural gas volumes for the six months ended July 31, 2002 was
attributable to the sale of TransTexas' interest in the Bob West field and
approximately 2.2 Bcf of the decrease is attributable to reduced production
rates from wells in the Southwest Bonus field. The average monthly prices
received per Mcf of gas ranged from $2.16 to $3.62 in the six months ended July
31, 2002, compared to a range of $3.44 to $6.73 in the prior period.

Lease operating expenses for the six months ended July 31, 2002 decreased
$2.5 million from the prior period due primarily to a decrease in workover
expenses and fewer number of productive wells due to the sale of the Bob West
field. Pipeline and gathering expenses decreased $2.0 million from the prior
period due primarily to the lower cost of natural gas used in operations and
lower labor costs. Depreciation, depletion and amortization expense for the six
months ended July 31, 2002 decreased $24.4 million due to a $1.15 per Mcfe
decrease in the depletion rate. General and administrative expenses decreased
$1.4 million primarily as a result of lower professional fees. Interest income
decreased $0.4 million compared to the prior period due to lower cash balances
available for investment. Interest expense for the six months ended July 31,
2002 increased by $2.7 million from the prior period due to lower capitalized
interest. The impairment loss for the six months ended July 31, 2001 relates to
a write-down of $56.8 million of TransTexas' net capitalized costs of gas and
oil properties to the cost center ceiling in accordance with the full cost
method of accounting. The cost center ceiling at July 31, 2001 decreased from
that at April 30 and January 31, 2001 primarily due to a decrease in prices for
natural gas and condensate.

LIQUIDITY AND CAPITAL RESOURCES

On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. This filing did not include the
Company's subsidiaries, Galveston Bay Processing Corporation and Galveston Bay
Pipeline Company. The United States Bankruptcy Court for the Southern District
of Texas, Corpus Christi Division confirmed the Plan on February 7, 2000. The
Effective Date of the Plan was March 17, 2000.

On the Effective Date, the Company and GMAC entered into the Accounts
Receivable Facility. The Accounts Receivable Facility is a revolving credit
facility secured by accounts receivable and inventory. The maximum loan amount
under the facility is $15 million, against which the Company may from time to
time, subject to the conditions of the Accounts Receivable Facility, borrow,
repay and reborrow. The Accounts Receivable Facility matures on March 14, 2005.
Advances under the facility bear interest monthly in arrears at a rate per annum
equal to the higher of (i) the prime commercial lending rate of The Bank of New
York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in
arrears. As of July 31, 2002, the outstanding principal balance under the
Accounts Receivable Facility was $2.1 million, with availability for additional
advances of approximately $0.4 million.

In March 2000, TransTexas entered into a production payment drilling
program agreement with two unaffiliated third parties in the form of a term
overriding royalty interest carved out of and burdening certain properties. The
Company has the right to offer additional interests to the production payment
parties at a negotiated purchase price. The production payment requires the
repayment of the primary sum plus an amount equivalent to a 15% annual interest
rate on the unpaid portion of such primary sum. In March 2002, the Company
closed an Eighth Supplement to the production payment whereby the Company
received $14.0 million. In June 2002, the Company closed a Ninth Supplement to
the production payment whereby the Company received $13.0 million in exchange
for additional properties being made subject to the production payment. As of
July 31, 2002, the outstanding balance of the production payment

21

was $35.0 million, of which $3.3 million attributable to produced volumes is
included in accrued liabilities. The Oil and Gas Facility places certain
restrictions on the amount that may be outstanding under the production payment.

On March 15, 2002, CSFB and the Company, as borrower, and Galveston Bay
Processing Corporation, as guarantor, entered into an unsecured Term Loan
Agreement, wherein CSFB advanced to the Company the principal sum of $2.0
million which is due and payable, together with interest at a rate of 15% per
annum, on October 15, 2002. CSFB is the beneficial owner of more than 10% of the
15% Notes, Class A Common Stock, Senior Preferred Stock and Junior Preferred
Stock.

TransTexas is highly leveraged and has significant cash requirements for
servicing debt and the production payment obligation and significant charges to
net income available for common stockholders for Senior Preferred Stock and
Junior Preferred Stock dividends. In order to maintain or increase proved oil
and gas reserves, TransTexas must continue to make substantial capital
expenditures for the exploration and development of its natural gas and oil
prospects. For the six months ended July 31, 2002, total capital expenditures
incurred were $8 million, including $3 million for capitalized interest, $1
million for nonproducing leases and $4 million for drilling and development.
Capital expenditures for the remainder of fiscal year 2003 are estimated to be
approximately $15 million. Management plans to fund TransTexas' 2003 debt
service requirements and capital expenditures with cash flows from operating
activities and borrowings under the production payment drilling program and
other financings. In addition, the Company has commenced negotiations for joint
venture drilling opportunities with several unrelated entities. Should these
drilling prospects not be productive or should oil and gas prices decline for a
prolonged period, absent other sources of capital, the Company would
substantially reduce its capital expenditures, which would limit its ability to
maintain or increase production and in turn meet its debt service requirements.
Asset sales and financings are restricted under the terms of the Company's debt
documents and Senior Preferred Stock.

Preferred Stock Dividends and Conversion to Class A Common Stock

The Certificate of Designation for the Senior Preferred Stock of the
Company provides for the mandatory conversion of one-half of the outstanding
shares of Senior Preferred Stock into fully paid and non-assessable shares of
Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for
each $1.00 of liquidation preference per share, plus an amount equal to accrued
and unpaid dividends, of Senior Preferred Stock if the Company fails to pay
dividends on the Senior Preferred Stock as required by the Certificate of
Designation for the Senior Preferred Stock on any two dividend payment dates.
The Certificate of Designation for the Junior Preferred Stock provides for the
mandatory conversion of all of the outstanding shares of Junior Preferred Stock
into fully paid and non-assessable shares of Class A Common Stock at the rate of
0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference
per share, plus an amount equal to accrued and unpaid dividends, of Junior
Preferred Stock if the Company fails to pay dividends on the Senior Preferred
Stock as required by the Certificate of Designation for the Senior Preferred
Stock on any two dividend payment dates.

Upon the occurrence of the mandatory conversion specified above, the
outstanding shares of Senior Preferred Stock and Junior Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Class A Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Senior Preferred Stock and Junior Preferred Stock are either delivered to the
Company or its transfer agent as provided below, or the holder thereof notifies
the Company or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.

Upon the occurrence of such mandatory conversion of the Preferred Stock,
the holders of Preferred Stock shall surrender the certificates representing
each share of such Preferred Stock at the office of the Company or any transfer
agent for the Preferred Stock. Thereupon, there shall be issued and delivered to
each such holder of Senior Preferred Stock promptly at such office and in its
name as shown on such surrendered certificate or certificates, (i) a certificate
or certificates for the number of shares of Class A Common Stock into which
one-half of the number of shares of Senior Preferred Stock surrendered by such
holder were convertible on the date on which such automatic conversion occurred,
and (ii) a certificate or certificates for one-half of the number of shares of
Senior Preferred surrendered by such holder. Thereupon, there shall be issued
and delivered to each such holder of Junior Preferred Stock promptly at such
office and in its name as shown on such surrendered certificate or certificates
a certificate or certificates for the number of shares of Class A Common Stock
into which the shares of Junior Preferred Stock surrendered were convertible on
the date on which such automatic conversion occurred.

The Certificate of Designation for each of the Senior Preferred Stock and
the Junior Preferred Stock required the payment to the holders of a cash
dividend on the Senior Preferred Stock and an in-kind dividend on the Junior
Preferred Stock, respectively, by the Company on June 15, 2002 and on September
15, 2002. The Company did not make the required dividend payments on either
date. Therefore, the liquidation preference of the Senior Preferred Stock was
increased to approximately $1.04 per share and the liquidation preference of the
Junior Preferred Stock was increased to approximately $1.05 per share. As a
result, on September 16, 2002, each two shares of Senior Preferred Stock was
converted into one share of New Senior Preferred and into approximately 0.3596
shares of Class A Common Stock and each share of Junior Preferred Stock was
converted into approximately 0.1227 shares of Class A Common Stock. No
fractional shares will be issued in the conversion. The Board of Directors of
the Company has determined that the fair market value of each share of the
Preferred Stock and Common Stock for purposes of the conversion is less than
$0.01 per share and, therefore, no cash will be paid to holders of Preferred
Stock in lieu of fractional shares.

In the aggregate 164,333,875 shares of Senior Preferred Stock representing
one-half of all of the outstanding Senior Preferred Stock were converted into
59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior
Preferred Stock representing all of the outstanding Junior Preferred Stock were
converted into 3,097,338 shares of Class A Common Stock. Since the Company did
not pay the required dividend payments, holders of the Senior Preferred Stock
will have the right, voting separately as a class, to elect all five directors
to the Company's Board of Directors.

Events of Default

In addition, as a result of its current cash position, the Company has not
paid the $15 million interest payment due September 15, 2002 on the 15% Notes
and has entered the 30-day cure period described under the terms of the
indenture governing the 15% Notes. The Company does not intend to make the $15
million interest payment within such cure period. If the Company does not make
the $15 million interest payment within such cure period, (i) the Company will
be in default under the terms of the Oil and Gas Facility, the Accounts
Receivable Facility and other long-term debt of the Company which could result
in acceleration of the maturity of the obligations thereunder and (ii) the
Company will be in default under the indenture allowing the holders of the 15%
Notes to make the outstanding debt on the 15% Notes immediately due and payable.

Recapitalization

The Company has entered into discussions with holders owning approximately
90% of the outstanding principal amount of the 15% Notes and the outstanding
shares of Preferred Stock and with the lenders under the Oil and Gas Facility
and the Accounts Receivable Facility with respect to a proposed consensual
recapitalization. The Company has engaged Jefferies & Company, Inc. as a
financial advisor to assist in exploring strategic alternatives in connection
with such consensual recapitalization. The Company believes that any such
recapitalization may significantly reduce overall debt and the Company's
interest and dividend obligations. As with any recapitalization, no assurance
can be given that the Company will be successful in reaching an agreement with
any of its investors or lenders or in reaching agreement with the other parties
to the recapitalization. In the event that negotiations are not successful, the
Company will consider other available alternatives.

Potential Tax Liabilities

Part of the debt refinancing of TransAmerican in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the COD Exclusion and has
reduced its tax attributes (including its net operating loss and credit
carryforwards) as a consequence of the COD Exclusion.

As a former member of the TNGC Consolidated Group which included TNGC, the
sole stockholder of TransAmerican, TransAmerican, TransAmerican Energy
Corporation, TransTexas and TransAmerican Refining Corporation, TransTexas will
be severally liable for any tax liability resulting from any transaction of the
TNGC Consolidated Group that occurred during any taxable year of the TNGC
Consolidated Group during which TransTexas was a member, including the
above-described transaction. The IRS has commenced an audit of the consolidated
federal income tax returns of the TNGC Consolidated Group for its taxable years
ended July 31, 1994 and July 31, 1995. The Company has been advised by the
IRS that its audit has been completed and that no tax deficiencies were
proposed by the IRS.

22

TransTexas expects that a significant portion of its NOLs will be
eliminated and the use of those NOLs that are not eliminated will be severely
restricted as a consequence of the Plan. In addition, certain other tax
attributes of TransTexas may under certain circumstances be eliminated or
reduced as a consequence of the Plan. The potential elimination or reduction of
NOLs and such other tax attributes may substantially increase the amount of tax
payable by TransTexas.

Forward-Looking Statements

Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this report regarding TransTexas' financial
position, business strategy, and plans and objectives of management for future
operations, including, but not limited to words such as "anticipates,"
"expects," "estimates," "believes" and "likely" indicate forward-looking
statements. TransTexas' management believes its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include fluctuations in the commodity prices for
natural gas, crude oil, condensate and natural gas liquids, the extent of
TransTexas' success in discovering, developing and producing reserves,
conditions in the equity and capital markets, competition and the ultimate
resolution of litigation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from adverse changes in prices for
natural gas, condensate and oil and interest rates as discussed below.

The Company's revenues, profitability, access to capital and future rate
of growth are substantially dependent upon the prevailing prices of natural gas,
condensate and oil. These prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand and a variety of additional
factors beyond the Company's control. From time to time, the Company has
utilized hedging transactions with respect to a portion of its gas and oil
production to achieve a more predictable cash flow, as well as to reduce
exposure to price fluctuations. While hedging limits the downside risk of
adverse price movements, it may also limit future revenues from favorable price
movements. Because gains or losses associated with hedging transactions are
included in gas and oil revenues when the hedged volumes are delivered, such
gains and losses are generally offset by similar changes in the realized prices
of commodities.

As of July 31, 2002, the Company had entered into the following hedging
arrangements (settlement price based on a published industry index of natural
gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a
portion of the Company's natural gas production:

For the six months ended July 31, 2002, the Company recognized hedging
gains of $0.8 million, which are reflected in gas, condensate and natural gas
liquids revenues. At July 31, 2002, the Company estimated that these contracts
had a fair value of $0.2 million.

Because substantially all of its long-term obligations at July 31, 2002
are at fixed rates, the Company considers its interest rate exposure to be
minimal. The Company's borrowings under its credit facility ($2.1 million
outstanding at July 31, 2002) are subject to a rate of interest that fluctuates
based on short-term interest rates. The Company had no interest rate hedges at
July 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Not applicable.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 6 to the condensed consolidated financial statements for a
discussion of TransTexas' legal proceedings.

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

The Company held its annual meeting on June 17, 2002. The matters voted on
included:

The election of two persons to serve as Class II directors of the Company
for a three-year term. Votes representing shares of Senior Preferred Stock
were cast (or shares were not voted) on this proposal as follows:

The election of one person to serve as a Class III director of the Company
for the unexpired portion of a three-year term. Votes representing shares
of all classes of stock were cast (or shares were not voted) on this
proposal as follows:

Approval of the amendments to the Certificate of Designation for the
Senior Preferred Stock. Votes representing shares of Senior Preferred
Stock were cast (or shares were not voted) on this proposal as follows:

Approval of the amendments to the Certificate of Designation for the
Junior Preferred Stock. Votes representing shares of Junior Preferred
Stock were cast (or shares were not voted) on this proposal as follows:

Approval of the amendment to the Certification of Incorporation to change
the name of the Company. Votes representing shares of all classes of stock
were cast (or shares were not voted) on this proposal as follows:

Approval of the amendment to the Certification of Incorporation to
increase the number of authorized shares of Class A Common Stock. Votes
representing shares of all classes of stock were cast (or shares were not
voted) on this proposal as follows:

Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for fiscal year 2003. Votes representing shares of
all classes of stock were cast (or shares were not voted) on this proposal
as follows:

24

ITEM 5. OTHER INFORMATION

See "Preferred Stock Dividends and Conversion to Class A Common Stock",
"Events of Default" and "Recapitalization" under "Liquidity and Capital
Resources" contained in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations" above.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

EXHIBIT
NUMBER DESCRIPTION

10.1 Amendment No. 2 to Oil and Gas Revolving Credit and Term Loan
Agreement dated June 6, 2002 among GMAC Commercial Credit LLC, as
Lender and Agent, TransTexas, as Borrower, and Galveston Bay
Processing Corporation and Galveston Bay Pipeline Company, as
Guarantors.

10.2 Amendment No. 2 to Third Amended and Restated Accounts Receivable
Management and Security Agreement dated June 6, 2002 between
TransTexas and GMAC Commercial Credit LLC.

99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

There were no reports on Form 8-K filed during the three months ended
July 31, 2002.

25

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

TRANSTEXAS GAS CORPORATION

By: /s/ ED DONAHUE
-------------------------------------------
Ed Donahue
Vice President and Chief Financial Officer
September 16, 2002

26

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Arnold H. Brackenridge, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas
Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report.

Date: September 16, 2002 /s/ ARNOLD H. BRACKENRIDGE
----------------------------------------
Arnold H. Brackenridge
President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Ed Donahue, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.

Date: September 16, 2002 /s/ ED DONAHUE
------------------------------------------
Ed Donahue
Vice President and Chief Financial Officer

Note: Pursuant to the Transition Provisions of Exchange Act Release No.
34-46427, paragraphs 4, 5 and 6 of the certifications above have been omitted
because this Form 10-Q covers a period ending before the Effective Date of Rules
13a-14 and 15d-14.

27

EXHIBIT INDEX