-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LXWkTKQ38ahwpjjVRAr/ViLCge5u9Zg+UoKYEn2xW6jn5bvsgs8lqusAeOJiNHqM /jGVX9eZzX8ubOyDrMk7RA== 0000950129-02-002223.txt : 20020501 0000950129-02-002223.hdr.sgml : 20020501 ACCESSION NUMBER: 0000950129-02-002223 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSTEXAS GAS CORP CENTRAL INDEX KEY: 0000904977 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760401023 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12204 FILM NUMBER: 02630512 BUSINESS ADDRESS: STREET 1: 1300 NORTH SAM HOUSTON PARKWAY EAST STREET 2: STE 310 CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 2819878600 MAIL ADDRESS: STREET 1: 1300 NORTH SAM HOUSTON PARKWAY EAST STREET 2: SUITE 310 CITY: HOUSTON STATE: TX ZIP: 77032-2949 10-K 1 h96327e10-k.txt TRANSTEXAS GAS CORPORATION - DATED 01/31/2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2002 --------------- 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.) --------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $0.01 PAR VALUE CLASS B COMMON STOCK, $0.01 PAR VALUE SERIES A SENIOR PREFERRED STOCK, $0.001 PAR VALUE SERIES A JUNIOR PREFERRED STOCK, $0.001 PAR VALUE CLASS A COMMON STOCK PURCHASE WARRANTS 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant has filed all documents 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 aggregate market value of the common stock held by non-affiliates of the registrant on April 19, 2002 was $935,216. The number of shares of Class A Common Stock of the registrant outstanding on April 30, 2002 was 1,250,251. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K in connection with the registrant's 2002 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K. ================================================================================ TABLE OF CONTENTS
Page PART I Item 1. Business.......................................................................... 1 Item 2. Properties........................................................................ 5 Item 3. Legal Proceedings................................................................. 6 Item 4. Submission of Matters to a Vote of Security Holders............................... 6 Executive Officers of the Registrant.............................................. 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............. 7 Item 6. Selected Financial Data........................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 10 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................ 17 Item 8. Financial Statements and Supplementary Data....................................... 18 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................................................................... 48 PART III Item 10. Directors and Executive Officers of the Registrant................................ 48 Item 11. Executive Compensation............................................................ 48 Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 48 Item 13. Certain Relationships and Related Transactions.................................... 48 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 49
PART I ITEM 1. BUSINESS GENERAL TransTexas Gas Corporation (the "Company" or "TransTexas") is engaged in the exploration for and development and production of natural gas and condensate, primarily along the Upper Texas Gulf Coast. TransTexas' business strategy is to utilize its experience in drilling and operating wells to find, develop and produce reserves at a low cost. The Company's long-term goal is to convert unproven acreage to proved reserves by drilling in under-exploited areas. In order to meet its long-term goals, TransTexas' strategy is to drill wells in areas of the Upper Texas Gulf Coast where 3-D seismic data indicates productive potential and to drill development wells in its proven producing areas such as the Eagle Bay field and Wharton County. TransTexas' current drilling program is restricted by reduced capital available from operations. As of February 1, 2002, TransTexas' net proved reserves, as estimated by Netherland, Sewell & Associates, Inc., an independent firm of petroleum engineers, were 66 Bcfe. As of January 31, 2002, TransTexas owned approximately 56,810 gross (48,256 net) acres of mineral interests. TransTexas' average net daily natural gas production for the year ended January 31, 2002 was approximately 62 MMcfd, for a total net production of 22.5 Bcf of natural gas. TransTexas' average net daily condensate and oil production for the year ended January 31, 2002 was approximately 3,524 Bpd, for a total net production of 1,286 MBbls of condensate and oil. TransTexas' average net daily production of natural gas liquids ("NGLs") for the year ended January 31, 2002 was approximately 109,734 gallons per day, for a total net production of 40.1 million gallons of natural gas liquids. REORGANIZATION On April 19, 1999 (the "Petition Date"), TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. TransTexas filed its bankruptcy petition in order to preserve cash and to give the Company the opportunity to restructure its debt. On April 20, 1999, the Company's then parent, TransAmerican Energy Corporation ("TEC"), and its wholly owned subsidiary, TransAmerican Refining Corporation ("TARC"), also filed voluntary petitions for relief under Chapter 11. On May 20, 1999, the cases were transferred to the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"). TransTexas' Chapter 11 filing did not include its subsidiaries, including Galveston Bay Processing and Galveston Bay Pipeline. The Company's Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (the "Plan") was confirmed by the Bankruptcy Court on February 7, 2000. On March 17, 2000, the Effective Date of the Plan, the Company consummated several transactions, most of which were dated as of March 15, 2000. Among other things, the Company: o filed an Amended and Reinstated Certificate of Incorporation; o cancelled all of the Company's old common stock, the $450 million intercompany loan payable to TEC and all of the 13 3/4% Senior Subordinated Notes; o issued 1,002,751 shares of Class A Common Stock, 247,500 shares of Class B Common Stock and 625,000 warrants; o filed a Certificate of Designation relating to 328,667,820 shares of Series A Senior Preferred Stock, and issued 222,455,320 of those shares; o filed a Certificate of Designation relating to 37,469,711 shares of Series A Junior Preferred Stock, and issued 20,716,080 of those shares; o entered into an Indenture relating to, and issued $200 million of, 15% Senior Secured Notes due 2005; o entered into a $52.5 million Oil and Gas Credit Facility; o entered into a $15 million Accounts Receivable Credit Facility; and 1 o sold a Production Payment with a primary sum outstanding as of March 15, 2000 of $35 million. These transactions are more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" under Item 7 of this report. EXPLORATION AND PRODUCTION The exploration and production activities of TransTexas consist of geological and geophysical evaluation of current and prospective properties, the acquisition of mineral interests in prospects and the drilling, development and operation of leased properties for the production and sale of natural gas, condensate and crude oil. TransTexas' technical staff consists of geologists, geophysicists and engineers. TransTexas' technical staff selects drilling locations based on the interpretation of available well data, and 3-D and 2-D seismic data. TransTexas operates substantially all of its producing properties. The Company has commenced negotiations for joint venture drilling opportunities with several unrelated entities. Primary Operating Areas Eagle Bay. In January 1998, TransTexas announced that it had successfully drilled and completed the State Tract 331 #1 discovery well in Eagle Bay, Galveston County, Texas. The well is located approximately one mile off the coast of the City of San Leon, in a water depth of less than 10 feet. This discovery well tested at a rate of 76.4 MMcfd of natural gas and 11,002 Bpd of condensate. TransTexas has successfully drilled, completed and produced eight additional wells and, as of January 31, 2002, was completing one well in the Eagle Bay field. TransTexas intends to drill additional development wells in Eagle Bay as a part of its strategy to further increase reserves and production and has identified additional drilling locations from 3-D seismic data. For the fiscal year ended January 31, 2002, TransTexas produced 5.6 Bcf of natural gas, 0.9 million barrels of condensate and 40.1 million gallons of natural gas liquids from the Eagle Bay field at average net daily rates of 15 MMcfd, 2,388 Bpd and 110,079 gallons per day, respectively. Production from the Eagle Bay field represents a significant percentage of the Company's total production. The pipeline used for transporting the Company's production from the Eagle Bay field was shut-in for modifications from April 29 through May 19, 2001 by the unaffiliated third-party owner. This shut-in period was mandated by regulatory agencies responsible for the Galveston Bay marine area. Difficulties encountered in resuming full production led to lower than expected sales volumes from this field. See "Drilling and Production Data." As of January 31, 2002, TransTexas owned a 75% working interest in approximately 5,189 net acres in the Eagle Bay area. Southwest Bonus. In 1998, TransTexas completed the Obenhaus #2 discovery well in the Southwest Bonus field in Wharton County, Texas. Restrictions on available capital prevented TransTexas from additional drilling until late 1999 when a development drilling program commenced with the drilling and completion of the Schweinle #1. As of January 31, 2002, TransTexas had successfully drilled, completed and produced 22 wells in the Southwest Bonus field. TransTexas has identified additional drilling locations based upon seismic data. As of January 31, 2002, TransTexas held a 97% working interest covering approximately 5,068 net acres in the Southwest Bonus area. For the fiscal year ended January 31, 2002, TransTexas' Southwest Bonus properties produced 12.9 Bcf of natural gas, at an average net daily rate of 35 MMcfd. Production from the Southwest Bonus field represents a significant percentage of the Company's total production. See "Drilling and Production Data." Other Areas. TransTexas also has an inventory of exploration and exploitation prospects along the Upper Texas Gulf Coast which it continues to assemble as part of its strategy to further increase reserves and production. The Company's primary focus is to seek areas that it believes are under-exploited and are along the trend with existing proved fields and where seismic data indicates productive potential. TransTexas has obtained acreage positions in selected prospects that it intends to drill as part of a balanced exploration program. Certain of these areas have been drilled and contain proved reserves and production. The Company intends to drill these additional exploration and exploitation prospects, which are located in the proximity of TransTexas' existing producing fields and infrastructure. Drilling and Production Data During the five years ended January 31, 2002, TransTexas completed approximately 59% of 188 wells. As of January 31, 2002, TransTexas was completing one gross (one net) well. As of January 31, 2002, TransTexas had a total of 2 42 productive wells. TransTexas had a working interest in the following numbers of wells that were drilled during the periods indicated:
YEAR ENDED JANUARY 31, -------------------------------------------------- 2002 2001 2000 -------------- --------------- -------------- GROSS NET GROSS NET GROSS NET ----- --- ----- ---- ----- ---- Exploratory Wells (1): Productive (2)............................... 1 1 -- -- 1 1 Non-Productive............................... 1 1 4 3 6 5 % Productive................................. 50% 50% -- -- 14% 17% Development Wells (1): Productive (2)............................... 12 11 11 11 5 5 Non-Productive............................... 1 1 1 1 2 2 % Productive................................. 92% 92% 92% 92% 71% 71%
- -------------------------- (1) The number of net wells is the sum of the fractional working interests owned in gross wells. (2) Productive wells consist of producing wells and wells capable of production, including gas wells awaiting pipeline connection. Wells that are completed in more than one producing zone are counted as one well. The following table sets forth information with respect to net production and average unit prices and costs for the periods indicated:
YEAR ENDED JANUARY 31, ------------------------------------ 2002 2001 2000 ---------- ----------- ---------- Production: Gas (Bcf) ................................................. 22.5 26.8 27.8 NGLs (MMgals).............................................. 40.1 48.3 44.0 Condensate and oil (MBbls)................................. 1,286 1,559 1,827 Average sales prices: Gas (dry) (per Mcf)........................................ $ 3.89 $ 4.73 $ 2.32 NGLs (per gallon).......................................... .36 .49 .32 Condensate and oil (per Bbl)............................... 23.63 30.04 19.88 Average lifting cost per Mcfe (1)............................ .49 .47 .44
- -------------------------- (1) Condensate and oil are converted to a common unit of measure on the basis of six Mcf of natural gas to one barrel of condensate or oil. The components of production costs may vary substantially among wells depending on the methods of recovery employed and other factors. TRANSPORTATION, PROCESSING AND MARKETING TransTexas believes that there is currently adequate pipeline transportation capacity for its hydrocarbon production in all of its operating areas. TransTexas has entered into various agreements for the gathering, transportation, processing and sale of substantially all of its natural gas and natural gas liquids produced from its Eagle Bay prospects. Unless otherwise stated, these agreements, described below, expire on June 30, 2003. TransTexas monitors its transportation needs closely and is actively in discussions with pipeline companies regarding additional agreements in order to meet potential future production increases. Galveston Bay Processing Corporation, a wholly owned subsidiary of TransTexas, operates onshore facilities to separate produced natural gas and condensate, dehydrate and treat natural gas for the removal of carbon dioxide and stabilize condensate from the Company's Eagle Bay field. These facilities are located approximately 60 miles east of Houston at Winnie, Texas. TransTexas has entered into contracts with 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. 3 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 up to 19,500 MMBtu of residue gas per day. Transportation fees for natural gas and residue gas are based on fixed negotiated rates. TransTexas and Duke Energy Field Services, Inc. entered into a contract to extract natural gas liquids from the high-Btu natural gas stream leaving the Winnie facilities. TransTexas can elect, at its discretion on a monthly basis, whether to process the natural gas to recover natural gas liquids. The Company's decision whether to process the natural gas is based on prevailing market prices. TransTexas entered into gas purchase agreements with Tejas Gas Marketing, LLC and PanEnergy Marketing Company, covering the sale by TransTexas of substantially all of its gas production from the Eagle Bay field. The agreements provide for deliveries in excess of 50,000 MMBtu per day of residue gas at a price based on a published industry index. For the year ended January 31, 2002, two purchasers represented approximately 66% of the consolidated natural gas, condensate and NGL revenues of TransTexas. TransTexas believes that the loss of any single purchaser would not have a material adverse effect on TransTexas due to the availability of other purchasers for TransTexas' production at comparable prices. 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 January 31, 2002, the balance remaining to be paid under this contract, which commenced in May 2001, was approximately $1.7 million. COMPETITION TransTexas encounters significant competition from major oil and gas companies and independent operators in the acquisition of desirable undeveloped natural gas leases and in the sale of natural gas. Many of its competitors are large, well-established companies with substantially greater capital and human resources than TransTexas and which, in many instances, have been engaged in the energy business longer than TransTexas. The primary bases for competition in the natural gas and oil exploration and production businesses are available capital and the costs involved in finding and developing gas and oil resources combined with commodity sales prices and market access. EMPLOYEES As of January 31, 2002, TransTexas had 131 employees, none of which are parties to a collective bargaining agreement. TransTexas regularly engages the services of independent geological, engineering, land and other consultants. GOVERNMENTAL REGULATION TransTexas' gas exploration, production and related operations are subject to extensive rules and regulations promulgated by federal and state agencies. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden on the gas industry increases TransTexas' cost of doing business and affects its profitability. Because such rules and regulations are frequently amended or reinterpreted, TransTexas is unable to predict the future cost or impact of complying with such laws. The State of Texas (through the Texas Railroad Commission) and many other states require permits for drilling operations, drilling bonds and reports concerning operations, and impose other requirements related to the exploration and production of natural gas. Such states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of gas properties, the establishment of maximum rates of production from gas wells and the regulation of spacing, plugging and abandonment of such wells. The statutes and regulations of the State of Texas limit the rate at which natural gas can be produced from TransTexas' properties. Management believes that these statutes and regulations have not materially impacted TransTexas' results of operations; however, there can be no assurance that such statutes and regulations will not affect TransTexas' operating results in the future. 4 Several major regulatory changes have been implemented by the Federal Energy Regulatory Commission ("FERC") since 1985 that affect the economics of natural gas production, transportation and sales. In addition, the FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission companies, that remain subject to the FERC's jurisdiction. These initiatives may also affect the intrastate transportation of gas under certain circumstances. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the gas industry. The ultimate impact on TransTexas of these complex and overlapping rules and regulations, many of which are repeatedly subjected to judicial challenge and interpretation, cannot be predicted. ENVIRONMENTAL MATTERS See Note 13 of Notes to Consolidated Financial Statements for a discussion of environmental matters affecting TransTexas. ITEM 2. PROPERTIES ACREAGE AND PRODUCTIVE WELLS The following table sets forth TransTexas' total developed and undeveloped acreage and productive wells as of January 31, 2002:
DEVELOPED UNDEVELOPED PRODUCTIVE ACREAGE ACREAGE WELLS (1) ----------- ------------ ----------- Gross ......................................... 28,132 28,678 42 Net (2) ....................................... 20,520 27,736 34
- -------------------------- (1) All of the productive wells were natural gas wells. (2) The number of net acres and net wells is the sum of the fractional working interests owned in gross acres and gross wells, respectively. RESERVES As of February 1, 2002, TransTexas had total proved reserves of 55.3 Bcf of natural gas and 1,786 MBbls of condensate and oil. See Note 20 of Notes to Consolidated Financial Statements, which contains supplemental information regarding TransTexas' proved reserves. Proved reserves are the estimated quantities of natural gas, condensate and oil that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The estimation of reserves requires substantial judgment on the part of petroleum engineers, resulting in imprecise determinations, particularly with respect to recent discoveries. The accuracy of any reserve estimate depends on the quality of available data and engineering and geological interpretation and judgment. Results of drilling, testing and production after the date of the estimate may result in revisions of the estimate. Accordingly, estimates of reserves are often materially different from the quantities of natural gas, condensate and oil that are ultimately recovered, and these estimates will change as future production and development information becomes available. The reserve data represent estimates only and should not be construed as being exact. TITLE TO PROPERTIES/LIENS AND CLAIMS As is customary in the oil and gas industry, TransTexas performs only a preliminary title investigation before leasing undeveloped properties. Accordingly, working interest percentages and gross and net acreage amounts for undeveloped properties are preliminary. However, a title opinion is typically obtained before the commencement of drilling operations and any material defects in title are remedied prior to the time actual drilling of a well on the lease is commenced. TransTexas has not obtained title opinions on all of its properties. The Company is uncertain as to the impact that failure to obtain a title opinion has on its title to developed properties. TransTexas' properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes, liens of vendors and lenders and other burdens. 5 ITEM 3. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the three months ended January 31, 2002. In March 2002, John R. Stanley resigned as Chief Executive Officer and as Chairman and member of the Board of Directors of the Company. Executive Officers of the Registrant The following persons were serving as executive officers of the Company as of April 30, 2002:
Name Office Age ---- ------ --- Arnold H. Brackenridge Chief Executive Officer, President and Chief Operating Officer 69 Edwin B. Donahue Vice President, Chief Financial Officer and Secretary 51 Gregory J. Halvatzis Vice President of Exploration 50 David R. Jennings Assistant Secretary and Assistant General Counsel 58 John R. Thompson Vice President of Operations 45 Simon J. Ward Vice President and Treasurer 46 George C. Wright Vice President of Accounting 59
Set forth below is a description of the business experience of each of the executive officers. Arnold H. Brackenridge was elected Chief Executive Officer in March 2002 and prior to that he held the position of President and Chief Operating Officer of the Company since March 2001. Prior to his retirement in 1999, Mr. Brackenridge was President and Chief Operating Officer of the Company since May 1993. From 1984 until June 1992, Mr. Brackenridge was the President and Chief Executive Officer of Wintershall Energy, a business group of BASF Corporation. Edwin B. Donahue has been Vice President, Chief Financial Officer and Secretary of the Company since May 1993. Mr. Donahue has been employed in various positions with the Company and TransAmerican for over 25 years. Gregory J. Halvatzis joined the Company in February 2001 and has been Vice President of Exploration since March 2002. From 1976 until 2001, he held various exploration management positions with Cities Service, First Energy and JN Oil and Gas. David R. Jennings has been Assistant Secretary since May 2000. He has been employed by the Company and its affiliates since November 1995. John R. Thompson has been Vice President of Operations since March 2002. He has been employed by the Company and its affiliates since 1984. Prior to 1984, Mr. Thompson was employed by Texaco USA from 1979 to 1984. Simon J. Ward has been Vice President and Treasurer of the Company since June 1999. He served as Manager of Investor Relations from 1994 until June 1999. From 1976 until 1994, he held various positions with ICO, Inc., Baker Hughes Vetco Services, Inc. and Vetco Services, Inc. George C. Wright has been Vice President of Accounting of the Company since March 1999. He has been employed by the Company and its affiliates since June 1982. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since April 24, 2000, prices for the Class A Common Stock of TransTexas have been quoted on NASDAQ's Over The Counter Bulletin Board ("OTCBB") under the symbol "TTXG." Prior to the Effective Date (from May 4, 1999 through March 21, 2000), prices for the Company's common stock were quoted on OTCBB under the symbol "TTGGQ." The following table sets forth, on a per-share basis for the periods indicated, the high and low sales or bid prices for TransTexas' Class A common stock as reported by the OTCBB. Over-the-counter quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
HIGH LOW ---- ---- Fiscal year ended January 31, 2002: Fourth Quarter............................................. $ 4.00 $ 1.01 Third Quarter.............................................. 6.50 3.45 Second Quarter............................................. 17.00 5.75 First Quarter.............................................. 17.25 12.94 Fiscal year ended January 31, 2001: Fourth Quarter............................................. $ 17.00 $ 11.50 Third Quarter ............................................. 22.00 6.50 Second Quarter............................................. 8.00 4.00 First Quarter.............................................. 3.75 2.75
On January 31, 2002, the Company's equity securities consisted of (i) 313,016,913 shares of Series A Senior Preferred Stock, $0.001 par value, (ii) 24,624,894 shares of Series A Junior Preferred Stock, $0.001 par value (iii) 1,002,751 shares of Class A Common Stock, $0.01 par value, (iv) 247,500 shares of Class B Common Stock, $0.01 par value, and (v) warrants exercisable to purchase 738,004 shares of Class A Common Stock at a price of $120 per share. The Series A Senior Preferred Stock (the "Senior Preferred Stock") has a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Senior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first two years following the Effective Date, the Company was required to pay cash dividends at a rate of $0.10 per share per annum, or, at its option, in-kind dividends of additional shares of Senior Preferred Stock at a rate of $0.20 per share per annum. The Company paid these quarterly dividends with additional shares of Preferred Stock. The Senior Preferred Stock is mandatorily redeemable on March 15, 2006 at a rate of $1.00 per share plus accrued and unpaid dividends. One-half of the then-outstanding shares of Senior Preferred Stock is mandatorily convertible into shares of Class A Common Stock at a rate of 0.3461 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Senior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. Holders of Senior Preferred Stock have the right, voting separately as a class, to elect four (4) of the five (5) directors to the Board of Directors; provided, that if the Company has not paid dividends with respect to any two payments due commencing June 15, 2002, such holders will have the right, voting separately as a class, to elect all five (5) directors to the Board of Directors. Holders of Senior Preferred Stock have one vote per share, voting together with the Class A Common Stock, the Series A Junior Preferred Stock and any other series or classes of stock entitled to vote with the Class A Common Stock, on all matters on which the holders of the Class A Common Stock are entitled to vote generally. Voting rights of the Senior Preferred Stock may not be changed without the consent of the holders of 75% of the shares of Senior Preferred Stock, voting as a class. 7 The Series A Junior Preferred Stock (the "Junior Preferred Stock") has a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Junior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first six years following the Effective Date, the Company is required to pay in-kind dividends of additional shares of Junior Preferred Stock at a rate of $0.10 per share per annum. Thereafter, dividends are payable both in cash at a rate of $0.10 per share per annum and in-kind at a rate of $0.10 per share per annum. The Junior Preferred Stock is mandatorily redeemable on March 15, 2010 at a rate of $1.00 per share plus accrued and unpaid dividends. Each share of Junior Preferred Stock is mandatorily convertible into shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Junior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. Such covenants will become effective when all of the Notes (and any refinancings thereof) have been repaid and all of the Senior Preferred Stock has been redeemed. Holders of Junior Preferred Stock have one vote per share, voting together with holders of the Class A Common Stock, the Senior Preferred Stock and any other series or classes of stock entitled to vote with the Class A Common Stock, on all matters on which holders of the Class A Common Stock are entitled to vote. If no shares of the Senior Preferred Stock are outstanding, holders of the shares of Junior Preferred Stock will have the right, voting separately as a class, to elect two directors to the Board of Directors. Voting rights of the Junior Preferred Stock may not be changed without the consent of the holders of 75% of the shares of the Junior Preferred Stock, voting as a class. Based on the reorganization value of the Company, the fair value of the Junior Preferred Stock, together with the Senior Preferred Stock, (the "Preferred Stock") and the Class A Common Stock, together with the Class B Stock, (the "Common Stock"), was estimated to be zero. The Senior Preferred Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010, respectively. As a result, the Company accretes, in the form of a non-cash dividend deducted to arrive at net income (loss) available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, net income (loss) available to common stockholders reflects dividends earned and accrued on the Preferred Stock. Accrued preferred stock dividends are recorded at fair value. Any difference between the initial fair value and the redemption value will be accreted in the same manner as described above. For the years ended January 31, 2002 and 2001, accretion of Preferred Stock totaled $46.4 million and $25.7 million, respectively. On January 31, May 30, August 29 and November 28, 2001, the Board of Directors of the Company authorized the payment of quarterly dividends to the holders of the Company's Preferred Stock of record on March 1, June 1, September 1, and December 1, 2001, respectively. The quarterly dividends were paid in-kind on March 15, June 15, September 17, and December 17, 2001 in additional shares of Preferred Stock of the same class at an annual rate of $0.20 per share for each share of Series A Senior Preferred Stock and at an annual rate of $0.10 per share for each share of Series A Junior Preferred Stock in accordance with the Certificate of Designation for Series A Senior Preferred Stock and the Certificate of Designation for Series A Junior Preferred Stock, respectively. Fractional shares were not issued, but were settled in cash. Pursuant to the terms of the Certificate of Designation of the Company's Preferred Stock, if either (i) more than 75 million shares of Senior Preferred Stock are outstanding at any time after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates, one-half of the Senior Preferred Stock and all of the Junior Preferred Stock would automatically convert into shares of Class A Common Stock. The Company does not anticipate paying the cash dividends on the Senior or Junior Preferred Stock in the future. The Company has had discussions with certain of its preferred stockholders relating to amendments of the Certificates of Designation of the Senior and Junior Preferred Stock to enable the Company to convert all of the Preferred Stock to shares of Class A Common Stock based on agreed upon rates of conversion. Any such conversions would result in very substantial dilution to the holders of the Class A Common Stock. On April 24, 2000, prices for the Class A Common Stock commenced quotation on the OTCBB under the symbol "TTXG." As of April 19, 2002, there were 132 record holders of the Class A Common Stock. The last sale price of the Class A Common Stock on April 29, 2002 was $0.75. The Company has not paid any cash dividends on its common stock since inception, except a dividend of approximately $33 million to its then parent TransAmerican from the proceeds of its initial public offering in March 1994. The terms of the Company's senior secured notes due 2005, its oil and gas credit facility, its accounts receivable facility and its Preferred Stock prohibit the payment of dividends. Because of these prohibitions, the Company does not anticipate paying any dividends on its common stock in the foreseeable future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 8 For a description of the securities issued by the Company pursuant to the Plan on the Effective Date, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." All of the securities issued pursuant to the Plan were issued pursuant to the exemption from registration provided in Section 1145(a)(1) of the Bankruptcy Reform Act of 1978, as amended, Title 11, United States Code. The Company did not receive any proceeds from the issuance of these securities. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for the Company as of and for each of the periods presented. From April 19, 1999 through March 17, 2000, TransTexas operated under Chapter 11 of the United States Bankruptcy Code. The Company adopted fresh-start reporting as of January 31, 2000; therefore, the Company does not believe that the consolidated balance sheet data as of January 31, 2000, 2001 and 2002 is comparable to that of previous years in certain material respects. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements included elsewhere in this report.
SUCCESSOR PREDECESSOR ----------------------------- -------------------------------------------- YEAR ENDED JANUARY 31, ----------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------- ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Gas, condensate and NGL revenues....... $ 133,138 $ 187,883 | $ 112,898 $ 92,159 $ 167,758 Transportation revenues................ -- -- | -- -- 12,055 Gain (loss) on the sale of assets...... -- -- | (438) 61,247 543,365 Other revenues......................... 1,245 2,208 | 2,770 4,200 3,313 ------------- ------------ | ------------ ------------ ------------ 134,383 190,091 | 115,230 157,606 726,491 Operating costs and expenses........... 23,370 26,283 | 29,935 30,322 65,576 Depreciation, depletion, an | amortization....................... 91,266 81,483 | 75,044 86,137 82,659 General and administrative expenses.... 19,854 20,303 | 19,883 21,938 48,156 Loss on asset impairment............... 195,065 -- | -- 425,966 -- ------------- ------------ | ------------ ------------ ------------ Operating income (loss)............ (195,172) 62,022 | (9,632) (406,757) 530,100 Net interest expense (1)............... 34,723 33,495 | 38,054 78,716 68,187 Reorganization items................... -- -- | (50,511) -- -- Income taxes and other................. (9,984) 9,984 | 10,000 (38,882) 161,669 Extraordinary (gain) loss, net of taxes -- -- | (436,490) 1,142 72,043 ------------- ------------ | ------------ ------------ ------------ Net income (loss).................. $ (219,911) $ 18,543 | $ 429,315 $ (447,733) $ 228,201 ============= ============ | ============ ============ ============ Accretion of preferred stock........... $ 46,403 $ 25,722 | $ -- $ -- $ -- ============= ============ | ============ ============ ============ Net income (loss) available to | common stockholders................ $ (266,314) $ (7,179) | $ 429,315 $ (447,733) $ 228,201 ============= ============ | ============ ============ ============ Net income (loss) per share: | Income (loss) before extraordinary | item............................... $ (213.01) $ (5.74) | $ (0.13) $ (7.76) $ 4.49 Extraordinary item..................... -- -- | 7.59 (0.02) (1.08) ------------- ------------ | ------------ ------------ ------------ Net income (loss).................. $ (213.01) $ (5.74) | $ 7.46 $ (7.78) $ 3.41 ============= ============ | ============ ============ ============ Dividends declared per common | share (2).......................... -- -- | -- -- --
9
SUCCESSOR PREDECESSOR --------------------------------------------- --------------------------- YEAR ENDED JANUARY 31, ---------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------- ------------ ------------ ------------ ------------ BALANCE SHEET DATA: Working capital (deficit)............. $ (8,620) $ 20,589 $ 8,900 | $ 27,072 $ (22,122) Net property and equipment............ 126,947 332,328 327,087 | 292,143 701,598 Total assets.......................... 154,804 402,243 369,254 | 345,367 816,635 Liabilities subject to compromise..... -- -- -- | 718,139 -- Total debt (3)........................ 264,218 285,540 251,570 | 56,260 630,103 Redeemable preferred stock ........... 72,125 25,722 -- | -- -- Stockholders' equity (deficit)........ (246,120) 17,846 -- | (430,015) 24,637 - -------------------------
(1) Interest expense for the year ended January 31, 2000 excludes $55.5 million in interest stayed as a result of the bankruptcy filing. (2) TransTexas' existing debt and equity instruments contain certain restrictions with respect to the payment of dividends on its common stock. (3) Excludes long-term debt included in liabilities subject to compromise of $583.1 million as of January 31, 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with TransTexas' Consolidated Financial Statements and Notes thereto included under Item 8 of this report. RESULTS OF OPERATIONS TransTexas' results of operations are dependent upon natural gas production volumes and unit prices from sales of natural gas, condensate and natural gas liquids. The profitability of TransTexas also depends on its ability to minimize finding and lifting costs and maintain its reserve base while maximizing production. See "Liquidity and Capital Resources." From April 19, 1999 through March 17, 2000, the Company operated as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code. Effective January 31, 2000, the Company adopted fresh-start reporting in accordance with AICPA Statement of Position 90-7. Pursuant to fresh-start reporting, a new reporting entity was created. The new reporting entity's assets were recorded at the reorganization value based on the confirmed Plan of Reorganization, and postpetition liabilities were recorded at the present value of amounts to be paid. The Company's reorganization value was estimated by management to be $369 million based primarily on an analysis of discounted cash flows. The value of postpetition liabilities was estimated to be $369 million. The present value of liabilities was adjusted for imputed interest at a rate of 15% for the period from February 1, 2000 to the Effective Date of the Plan. The imputed interest was charged to interest expense during the first quarter of fiscal 2001. TransTexas' operating data for the years ended January 31, 2002, 2001 and 2000 are as follows:
YEAR ENDED JANUARY 31, ----------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Sales volumes: Gas (Bcf)..................................... 22.5 26.8 27.8 NGLs (MMgals)................................. 40.1 48.3 44.0 Condensate and oil (MBbls).................... 1,286 1,559 1,827 Average prices: Gas (dry) (per Mcf)........................... $ 3.89 $ 4.73 $ 2.32 NGLs (per gallon)............................. .36 .49 .32 Condensate and oil (per Bbl).................. 23.63 30.04 19.88 Number of gross wells drilled.................... 15 16 14 Percentage of wells completed.................... 87% 69% 43%
10 TransTexas uses the full cost method of accounting for exploration and development costs. Under the full cost method, the cost for successful, as well as unsuccessful, exploration and development activities is capitalized and amortized on a unit-of-production basis over the life of the remaining proved reserves. Net capitalized costs of gas and oil properties are limited to the lower of unamortized cost or the cost center ceiling, defined as the sum of the present value (10% discount rate) of estimated unescalated future net revenues from proved reserves; plus the cost of properties not being amortized, if any; plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less related income tax effects. For the year ended January 31, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. A summary of TransTexas' operating expenses is set forth below (in millions of dollars):
SUCCESSOR PREDECESSOR ----------------------------- -------------- YEAR ENDED JANUARY 31, ------------------------------------------------- 2002 2001 2000 ------------- ------------- | ------------- | Operating costs and expenses: | Lease.................................................... $ 10.9 $ 10.7 | $ 10.9 Pipeline and gathering................................... 8.3 8.4 | 9.2 ------------- ------------- | ------------- 19.2 19.1 | 20.1 Taxes other than income taxes (1)........................... 4.2 7.2 | 9.8 ------------- ------------- | ------------- $ 23.4 $ 26.3 | $ 29.9 ============= ============= | ============= - -------------------------
(1) Taxes other than income taxes include severance, property and other taxes. TransTexas' average depletion rates have been as follows:
SUCCESSOR PREDECESSOR ----------------------------- -------------- YEAR ENDED JANUARY 31, ------------------------------------------------- 2002 2001 2000 ------------- ------------- | ------------- | Depletion rates (per Mcfe)................................. $ 2.98 $ 2.22 | $ 1.89 ============= ============= | =============
Effective February 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which was amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These pronouncements establish accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company recorded a cumulative effect charge to comprehensive income of approximately $1.3 million to recognize the fair value of its liability under the Company's derivative instruments upon the adoption of SFAS 133. During the year ended January 31, 2002, decreases in the prevailing commodity prices for oil and natural gas have reduced the fair value of the Company's liability under its derivative instruments, which resulted in an adjustment to comprehensive income. A summary of the Company's comprehensive income and accumulated other comprehensive loss for the period ended January 31, 2002 is as follows (in thousands of dollars):
ACCUMULATED ACCUMULATED OTHER COMPREHENSIVE COMPREHENSIVE LOSS INCOME ----------------- ----------------- Balance at January 31, 2001........................................ $ -- Net loss for the year ended January 31, 2002....................... $ (219,911) Other comprehensive income: Cumulative effect of adopting SFAS 133.......................... (1,282) (1,282) Change in the fair value of hedge agreements.................... 2,486 2,486 Reclassification adjustments for hedge agreement settlements.... 1,144 1,144 ----------------- ----------------- Comprehensive loss........................................ $ (217,563) ================= Balance at January 31, 2002........................................ $ 2,348 =================
11 In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill as well as other intangible assets no longer be amortized to earnings, but instead be reviewed annually for impairment. SFAS 141 and SFAS 142 do not apply to the Company unless it enters into a future business combination. In August 2001, the FASB issued 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. The Company is evaluating the impact of SFAS 143 that will be effective for the Company in February 2003. 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. Year Ended January 31, 2002, Compared with the Year Ended January 31, 2001 Gas, condensate and NGL revenues for the year ended January 31, 2002 decreased by $54.7 million from the prior period, due primarily to lower prices and sales volumes for all products. The average monthly prices received per Mcf of gas ranged from $2.04 to $6.73 in the year ended January 31, 2002, compared to a range of $2.64 to $9.75 in the prior period. Other revenues decreased by $1.0 million for the year ended January 31, 2002 due to lower transportation and gathering revenues. Lease operating expenses for the year ended January 31, 2002 increased $0.2 million from the prior period due primarily to increases in labor, well service and testing and rental expenses, partially offset by lower outside transportation costs. Pipeline and gathering expenses decreased $0.1 million primarily due to lower costs for natural gas used in operations and lower rental expenses, partially offset by higher labor costs. Depreciation, depletion and amortization expense for the year ended January 31, 2002 increased $9.8 million due to an increase in the depletion rate resulting from higher cost properties and unsuccessful drilling results in prior periods. General and administrative expenses decreased by $0.4 million primarily as a result of lower utility costs, rental expenses and insurance costs. Taxes other than income taxes decreased by $3.0 million over the prior period due primarily to decreases in severance and production taxes. Interest expense for the year ended January 31, 2002 increased $1.2 million due primarily to lower capitalized interest, partially offset by a decrease in the amount of interest associated with reorganization debt. The impairment loss relates to a write-down of $195.1 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 January 31, 2002 decreased from that at January 31, 2001 primarily due to a decrease in prices for natural gas and condensate and a decrease in proved reserves due to production and the sale of the Bob West field. See Note 19 of Notes to Consolidated Financial Statements. Based on the reorganization value of the Company, the fair value of the Preferred Stock and Common Stock was estimated to be zero. The Senior Preferred Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010, respectively. As a result, the Company accretes, in the form of a non-cash dividend deducted from net income available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, earnings available to common stockholders will be reduced by dividends paid on the Preferred Stock. For the years ended January 31, 2002 and 2001, accretion of Preferred Stock totaled $46.4 million, and $25.7 million, respectively. Year Ended January 31, 2001, Compared with the Year Ended January 31, 2000 Gas, condensate and NGL revenues for the year ended January 31, 2001 increased by $75.0 million from the prior period, due primarily to higher prices for all products and an increase in NGL sales volumes. The average monthly prices received per Mcf of gas ranged from $2.64 to $9.75 in the year ended January 31, 2001, compared to a range of $1.74 to $2.90 in the prior period. Other revenues decreased by $0.6 million for the year ended January 31, 2001 due to lower transportation and gathering revenues. For the year ended January 31, 2000, TransTexas recognized a pre-tax loss of $0.4 million on the sale of certain vehicles and other equipment. Lease operating expenses for the year ended January 31, 2001 decreased $0.2 million from the prior period due primarily to decreases in maintenance costs. Pipeline and gathering expenses decreased $0.8 million primarily due to the termination of 12 certain natural gas transportation contracts in connection with the Company's bankruptcy proceedings. Depreciation, depletion and amortization expense for the year ended January 31, 2001 increased $6.4 million due to an increase in the depletion rate resulting from higher cost properties and unsuccessful drilling results in prior periods. General and administrative expenses increased by $0.4 million primarily as a result of increased professional fees and higher insurance costs, partially offset by a lower provision for bad debts. Taxes other than income taxes decreased by $2.6 million over the prior period due primarily to decreases in severance taxes since a greater number of TransTexas' wells qualified for exemption from severance taxes. Interest expense for the year ended January 31, 2001 decreased $4.5 million due primarily to the Company's reorganization as of January 31, 2000 which resulted in an overall decrease in the amount of outstanding debt. Reorganization items of $8.3 million for the year ended January 31, 2000 included legal and other professional fees and expenses directly related to TransTexas' Chapter 11 proceedings and an adjustment to record assets at reorganization value. The extraordinary item for the year ended January 31, 2000 represents the discharge of certain liabilities subject to compromise pursuant to the Plan. Based on the reorganization value of the Company, the fair value of the Preferred Stock and Common Stock was estimated to be zero. The Senior Preferred Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010, respectively. As a result, the Company will accrete, in the form of a non-cash dividend deducted from net income available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, earnings available to common stockholders will be reduced by dividends paid on the Preferred Stock. For the year ended January 31, 2001, accretion of Preferred Stock totaled $25.7 million. LIQUIDITY AND CAPITAL RESOURCES On April 19, 1999, TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. As a result of the Chapter 11 filing, the Company was prohibited from paying, and creditors were prohibited from attempting to collect, claims or debts arising prior to the bankruptcy. 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 is March 17, 2000. In connection with the Effective Date of the Plan, the Company: (1) paid approximately $2.6 million in cash to settle certain accounts payable and royalty claims; (2) agreed to pay approximately $28.3 million to settle certain accounts payable, severance, property and franchise taxes. The $28.3 million is payable in quarterly installments generally over a five year period with stated interest ranging from 8% to 10%. The Company paid $6.6 million and $7.6 million of this amount in fiscal 2002 and 2001, respectively. (3) paid approximately $21.9 million in cash, issued $200 million principal amount of 15% Senior Secured Notes due 2005 (the "Notes"), 222,455,320 shares of Series A Senior Preferred Stock, 20,716,080 shares of Series A Junior Preferred Stock, 1,002,751 shares of Class A Common Stock, 247,500 shares of Class B Common Stock and 25,000 warrants to purchase Class A Common Stock to settle the TransTexas Senior Secured Notes Claims. A portion of this distribution was reallocated pursuant to the Plan as follows: (a) $20 million in cash and five million shares of Senior Preferred Stock to settle on a pro rata basis all general prepetition unsecured claims; (b) $1.8 million in cash, 2,455,320 shares of Senior Preferred Stock and all of the Junior Preferred Stock to the holders of TransTexas 13 3/4% Senior Subordinated Notes; (c) 52,500 shares of Class A Common Stock and warrants exercisable to purchase 109,879 shares of Class A Common Stock at a price of $120 per share to the holders of the old TransTexas common stock who were not Affiliates of the Debtor (as defined in the Plan); and (d) all of the Class B Common Stock and warrants exercisable to purchase 515,625 shares of Class A Common Stock at an exercise price of $120 per share to John R. Stanley. (4) issued $6.7 million in secured notes in exchange for old secured notes and related accrued interest; and 13 (5) canceled all of the old TransTexas common stock and 13 3/4% Senior Subordinated Notes On the Effective Date, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors, entered into an Oil and Gas Revolving Credit and Term Loan Agreement, dated as of March 15, 2000 (the "Oil and Gas Facility") with GMAC Commercial Credit LLC ("GMACC"), as a Lender and as Agent. The Oil and Gas Facility consists of a term loan (the "Term Loan") in the amount of $22.5 million and a revolving facility (the "Revolving Loan") in a maximum amount of $30 million (all of which was funded on the Effective Date). The Term Loan bears interest at a rate of 14% per annum and the Revolving Loan bears interest at a rate of 13 1/2% per annum. Interest on the Term Loan and the Revolving Loan is payable monthly in arrears. Principal amortization of the Term Loan is due in 20 quarterly installments of $56,250 each beginning June 14, 2000, with the balance due March 14, 2005; however, the Company may, and in certain circumstances must, make prepayments of such amount. If, subsequent to such prepayments, the Company demonstrates sufficient collateral value meeting the requirements of the Oil and Gas Facility provisions, the Company may be entitled to borrow additional advances under the Revolving Loan. The Oil and Gas Facility is secured by substantially all of the assets of the Company. The security interest in accounts receivable and inventory securing the Oil and Gas Facility is subordinated to the security interest of GMACC under the Accounts Receivable Facility. On the Effective Date, the Company, as Issuer, Galveston Bay Pipeline Company and Galveston Bay Processing Corporation, as Guarantors, and Firstar Bank, N.A., as Trustee, entered into an Indenture dated as of March 15, 2000, pursuant to which the Company issued the Notes. Interest on the Notes is due semi-annually on March 15 and September 15. The Notes are secured by substantially all of the assets of the Company other than accounts receivable and inventory. The Indenture contains certain covenants that restrict the Company's ability to incur indebtedness, engage in related party transactions, dispose of assets or engage in sale/leaseback transactions, issue dividends on common stock, change its line of business, consolidate or merge with or into another entity or convey, transfer or lease all or substantially all of its assets, and suffer a change of control. The security interest in favor of the Trustee is subordinated to the Security Interest in favor of the Agent under the Oil and Gas Facility. On the Effective Date, the Company and 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 $20 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. Advances under the facility bear interest at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in arrears. As of January 31, 2002, the outstanding principal balance under the Accounts Receivable Facility was $1.3 million with availability for additional advances of approximately $1.3 million and will be due on March 14, 2005. As of the Effective Date, the Company had outstanding 222,455,320 shares of Series A Senior Preferred Stock (the "Senior Preferred Stock") with a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Senior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first two years following the Effective Date, the Company was required to pay cash dividends at a rate of $0.10 per share per annum, or, at its option, in-kind dividends of additional shares of Senior Preferred Stock at a rate of $0.20 per share per annum. The Company paid these quarterly dividends with additional shares of Preferred Stock. The Senior Preferred Stock is mandatorily redeemable on March 15, 2006 at a rate of $1.00 per share plus accrued and unpaid dividends. One-half of the then-outstanding shares of Senior Preferred Stock is mandatorily convertible into shares of Class A Common Stock at a rate of 0.3461 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Senior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. As of the Effective Date, the Company had outstanding 20,716,080 shares of Series A Junior Preferred Stock (the "Junior Preferred Stock" and, together with the Senior Preferred Stock, the "Preferred Stock") with a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Junior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first six years following the Effective Date, the Company will be required to pay in-kind dividends of additional shares of Junior Preferred Stock at a rate of $0.10 per share per annum. Thereafter, dividends will be payable both in cash at a rate of $0.10 per share per annum and in-kind at a rate of $0.10 per share per annum. The Junior Preferred Stock is mandatorily redeemable on March 15, 2010 at a rate of $1.00 per share plus accrued and unpaid dividends. Each share of Junior Preferred Stock is mandatorily 14 convertible into shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Junior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. Such covenants will become effective when all of the Notes (and any refinancings thereof) have been repaid and all of the Senior Preferred Stock has been redeemed. On January 31, May 30, August 29, November 28, 2001 and March 12, 2002, the Board of Directors of the Company authorized the payment of quarterly dividends to the holders of the Company's Preferred Stock of record on March 1, June 1, September 1, December 1, 2001 and March 1, 2002, respectively. The quarterly dividends were paid in-kind on March 15, June 15, September 17, December 17, 2001 and March 15, 2002 in additional shares of Preferred Stock of the same class at an annual rate of $0.20 per share for each share of Series A Senior Preferred Stock and at an annual rate of $0.10 per share for each share of Series A Junior Preferred Stock in accordance with the Certificate of Designation for Series A Senior Preferred Stock and the Certificate of Designation for Series A Junior Preferred Stock, respectively. Fractional shares were not issued, but were settled in cash. The Company does not anticipate paying the cash dividends on the Senior or Junior Preferred Stock in the future. The Company has had discussions with certain of its preferred stockholders relating to amendments of the Certificates of Designation of the Senior and Junior Preferred Stock to enable the Company to convert all of the Preferred Stock to shares of Class A Common Stock based on agreed upon rates of conversion. In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties ("Subject Interests"). The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment calls for the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In February 2001, the Company closed a Fourth Supplement to the production payment whereby the Company received $19.8 million in exchange for additional properties being made subject to the production payment. In July 2001, the Company closed a Fifth Supplement to the production payment whereby the Company received $15.0 million. In September 2001, the Company closed a Sixth and Seventh Supplement to the production payment whereby the Company received $15.0 million. As of January 31, 2002, the aggregate purchase price of all interests purchased pursuant to this production payment drilling program was $76.8 million and the outstanding balance of the production payment was $28.5 million, of which $2.5 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Revolving Credit 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 a Lender and as Agent, places certain restrictions on the amount that may be outstanding under the production payment. Certain of these restrictions were waived by the required lenders in connection with the Sixth and Seventh Supplements to the production payment. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In connection with the production payment, the Company entered into various marketing and processing agreements with one of the other parties to the production payment. Pursuant to these agreements, the Company will pay a nominal marketing fee with respect to the Company's production associated with the Subject Interests. In addition, the third party will pay a fee for certain processing services to be provided by Galveston Bay Processing. See Item 7A for information about certain hedging provisions in the new production payment agreements. TransTexas is highly leveraged and has significant cash requirements for debt service and significant charges for Preferred Stock dividends to net income available for common stockholders. In order to maintain or increase its 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 year ended January 31, 2002, total capital expenditures incurred were $135 million, including $11 million for nonproducing leases and seismic, $11 for capitalized interest, $105 million for drilling and development and $8 million for gas gathering and other equipment. Capital expenditures for fiscal 2003 are estimated to be approximately $27 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 TransTexas' 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 15 restricted under the terms of TransTexas' debt documents and Senior Preferred Stock. In October 2001, TransTexas sold its interest in the Bob West field in Zapata County, Texas for a sales price of $56.5 million, exclusive of closing costs. At January 31, 2002, the Company had a working capital deficit of $8.6 million. The long-term borrowing of $14 million under the production payment drilling program in March 2002 was entered into primarily to alleviate the working capital deficit. Potential Tax Liabilities Part of the refinancing of TransAmerican's debt 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 (the "Tax Code"), and has reduced its tax attributes (including its net operating loss and credit carryforwards) as a consequence of the COD Exclusion. No federal tax opinion was rendered with respect to this transaction, however, and TransAmerican has not obtained a ruling from the Internal Revenue Service ("IRS") regarding this transaction. TransTexas believes that there is substantial legal authority to support the position that the COD Exclusion applies to the cancellation of TransAmerican's indebtedness. However, due to factual and legal uncertainties, there can be no assurance that the IRS will not challenge this position, or that any such challenge would not be upheld. Prior to the Effective Date, TransTexas filed a consolidated tax return with TransAmerican. Income taxes were due from or payable to TransAmerican in accordance with a tax allocation agreement, as amended, between TransTexas, TNGC Holdings Corporation, TransAmerican and TransAmerican's other subsidiaries (the "Tax Allocation Agreement"). Under the Tax Allocation Agreement, TransTexas has agreed to pay an amount equal to any federal tax liability (which would be approximately $25.4 million) attributable to the inapplicability of the COD Exclusion. Any such tax would be offset in future years by alternative minimum tax credits and retained loss and credit carryforwards to the extent recoverable from TransAmerican. As a former member of the affiliated group for tax purposes (the "TNGC Consolidated Group") which included TNGC Holdings Corporation, the sole stockholder of TransAmerican ("TNGC"), TransAmerican, TEC, TransTexas and TARC, 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 transactions. 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 not been advised by the IRS as to whether any tax deficiencies will be proposed by the IRS as a result of its review. 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. Inflation and Changes in Prices TransTexas' results of operations and the value of its gas properties are highly dependent upon the prices TransTexas receives for its natural gas, condensate and oil. Substantially all of TransTexas' sales of natural gas, condensate and oil are made pursuant to long-term contracts at market prices. Accordingly, the prices received by TransTexas for its natural gas production are dependent upon numerous factors beyond the control of TransTexas, including the level of consumer product demand, the North American supply of natural gas, government regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas and the overall economic environment. Demand for natural gas is seasonal, with demand typically higher during the summer and winter, and lower during the spring and fall, with concomitant changes in price. As a result of high demand for drilling services, TransTexas experienced increases in the cost of oilfield services and equipment used in exploration and development drilling, and to a lesser extent well completion and production costs. Any significant decline in current prices for natural gas could have a material adverse effect on TransTexas' financial condition, results of operations and quantities of reserves recoverable on an economic basis. Based on an assumed average net daily production level of approximately 43 MMcfd, TransTexas estimates that a $0.10 per MMBtu change in average gas prices received would change annual operating income by approximately $1.3 million. ACCOUNTING POLICIES The following accounting policies are important to an understanding of our operating results and financial condition and should be considered as an integral part of the financial review. We have adopted a number of accounting policies, the most important of which are discussed in Note 1 to the consolidated financial statements, "Summary of Significant Accounting Policies." 16 Gas and Oil Activities We use the full cost method of accounting for our gas and oil activities. Under this method of accounting, the cost of all acquisition, exploration and development activities are capitalized. Such capitalized costs and estimated future development and reclamation costs are amortized on a unit-of-production method. Costs of unevaluated gas and oil properties are excluded from capitalized costs being amortized. We exclude these costs until proved reserves are found or until it is determined that the costs are impaired. All excluded costs are reviewed quarterly to determine if impairment has occurred. Any impairment is transferred to costs to be amortized. Net capitalized costs of gas and oil properties are limited to the lower of unamortized cost or the cost center ceiling, defined as the sum of the present value (10% discount rate) of estimated unescalated future net revenues from proved reserves; plus the cost of properties not being amortized, if any; plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less the effects of related income taxes. This is referred to as a "ceiling test" and we are required to perform this calculation based on prices and costs in effect on the last day of each quarter. If net capitalized costs of our gas and oil properties exceed the cost center ceiling, we must write down our properties (a non-cash charge to income) by the amount of such excess. We occasionally sell certain gas and oil properties. Proceeds from a sale reduce the costs in the cost center unless the sale involves a significant quantity of reserves in relation to the cost center, then we recognize a gain or loss. Hedging Agreements From time to time, we enter into commodity price swap agreements to reduce our exposure to price risk in the spot market for natural gas and condensate. Beginning in February 2001, the estimated fair value of these agreements is reflected in our consolidated balance sheet and represents hedges against the price we will receive for future natural gas and condensate production. Changes in the fair value of the hedging agreements are recorded directly to stockholders' equity until the hedged quantities of natural gas or condensate are produced. We do not use derivative instruments for trading purposes. 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 7A. 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. Pursuant to the terms of the Company's production payment agreement entered into in March 2000, the Company entered into the following hedge arrangements with respect to a portion of the natural gas and condensate production associated therewith and which effectively hedge a portion of the Company's production: 17
TOTAL CONTRACT PRICE --------------------- VOLUMES IN COLLAR --------------------- PERIOD MMBtus/Bbls FLOOR CEILING ------ ----------- -------- ----------- Natural gas: April 2000 - October 2000...................................... 3,745,000 $ 2.10 $ 3.40 November 2000 - March 2001..................................... 1,887,500 2.35 3.95 Condensate: April 2000 - September 2000.................................... 228,750 18.50 32.50 October 2000 - March 2001..................................... 182,000 18.50 29.25
Under these contracts, the counterparty was required to make payment to the Company if the settlement price (based on New York Merchantile Exchange prices) for the period was below the floor, and the Company was required to make payment to the counterparty if the settlement price for any period was above the ceiling price. The Company recognized hedging losses of $1.6 million and $6.7 million under these contracts for the years ended January 31, 2002 and 2001, respectively. In July and September 2001, the Company entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) with respect to a portion of the Company's natural gas production:
TOTAL CONTRACT PRICE --------------------- VOLUMES IN COLLAR --------------------- PERIOD MMBtus FLOOR CEILING ------ ------------- --------- --------- Natural gas: August 2001 - July 2002......................................... 2,555,000 $ 3.30 $ 3.95 November 2001 - March 2002...................................... 1,510,000 2.85 3.30 April 2002 - October 2002....................................... 1,070,000 2.85 3.35
As of January 31, 2002, the Company recognized hedging gains of $1.1 million. At January 31, 2002, the Company estimated that these contracts had a fair value of $2.3 million. In November 2000, the Company entered into the following commodity price hedging arrangement with respect to a portion of the Company's natural gas production:
TOTAL CONTRACT PRICE -------------------- VOLUMES IN COLLAR -------------------- PERIOD MMBtus/Bbls FLOOR CEILING ------ ----------- -------- --------- Natural gas: December 2000 - November 2001.................................. 7,300,000 $ 3.50 $ 6.00
Under terms of this collar transaction, the counterparty is required to make payment to the Company if the settlement price (based on a published industry index of natural gas prices at Houston Ship Channel) for any settlement period is below the floor price for such transaction and the Company is required to make payment to the counterparty if the settlement price for any settlement period is above the ceiling price for such transaction. For the years ended January 31, 2002 and 2001, the Company recognized hedging gains of $2.1 million and hedging losses of $2.4 million, respectively, under this contract. Because substantially all of its long-term obligations at January 31, 2002 are at fixed rates, the Company considers its interest rate exposure to be minimal. The Company's borrowings under its credit facility ($1.3 million outstanding at January 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 January 31, 2002. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ---- Report of Independent Accountants........................................................................... 19 Financial Statements: Consolidated Balance Sheet.............................................................................. 20 Consolidated Statement of Operations.................................................................... 21 Consolidated Statement of Stockholders' Equity (Deficit)................................................ 22 Consolidated Statement of Cash Flows.................................................................... 23 Notes to Consolidated Financial Statements.............................................................. 24
18 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of TransTexas Gas Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of TransTexas Gas Corporation (successor) at January 31, 2002 and 2001, and the results of operations and cash flow for the two years ended January 31, 2002 and 2001, the results of operations and cash flow for TransTexas Gas Corporation (predecessor) for the period ended January 31, 2000 (successor and predecessor are collectively referred to as the "Company"), in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities effective February 1, 2001. As discussed in Note 2 to the consolidated financial statements, on April 19, 1999, the Company filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. The Company's Plan of Reorganization, as amended, became effective on March 17, 2000 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted fresh-start reporting as of January 31, 2000. PricewaterhouseCoopers LLP Houston, Texas April 30, 2002 19 TRANSTEXAS GAS CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
JANUARY 31, ------------------------------- 2002 2001 -------------- ------------- ASSETS Current assets: Cash and cash equivalents.......................................................... $ 6,559 $ 20,715 Accounts receivable................................................................ 15,267 42,533 Receivables from affiliates........................................................ -- 21 Inventories........................................................................ 818 1,476 Other ............................................................................. 3,112 2,521 -------------- ------------- Total current assets............................................................ 25,756 67,266 -------------- ------------- Property and equipment............................................................... 494,748 413,811 Less accumulated depreciation, depletion and amortization............................ 367,801 81,483 -------------- ------------- Net property and equipment -- based on the full cost method of accounting for gas and oil properties of which $45,301 and $81,381 was excluded from amortization at January 31, 2002 and 2001, respectively............................ 126,947 332,328 -------------- ------------- Other assets......................................................................... 2,101 2,649 -------------- ------------- $ 154,804 $ 402,243 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt............................................... $ 2,444 $ 4,269 Accounts payable................................................................... 5,805 9,255 Accrued liabilities................................................................ 26,127 33,153 -------------- ------------- Total current liabilities....................................................... 34,376 46,677 -------------- ------------- Long-term debt, net of current maturities ........................................... 261,774 281,271 Production payments, net of current portion ......................................... 26,005 12,732 Deferred income taxes ............................................................... -- 9,984 Other liabilities ................................................................... 6,644 8,011 Redeemable preferred stock .......................................................... 72,125 25,722 Commitments and contingencies (Note 14).............................................. -- -- Stockholders' equity (deficit) (Note 2): Common stock, $0.01 par value, 100,247,500 shares authorized; 1,250,251 shares issued and outstanding.......................................... 12 12 Additional paid-in capital......................................................... 25,013 25,013 Accumulated deficit ............................................................... (273,493) (7,179) Accumulated other comprehensive income............................................. 2,348 -- -------------- ------------- Total stockholders' equity (deficit)............................................ (246,120) 17,846 -------------- ------------- $ 154,804 $ 402,243 ============== =============
The accompanying notes are an integral part of the financial statements. 20 TRANSTEXAS GAS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SUCCESSOR PREDECESSOR ---------------------------------- -------------- YEAR ENDED JANUARY 31, -------------------------------------------------------- 2002 2001 2000 ------------- ------------- | ------------- | Revenues: | Gas, condensate and natural gas liquids ............. $ 133,138 $ 187,883 | $ 112,898 Loss on the sale of assets........................... -- -- | (438) Other ............................................... 1,245 2,208 | 2,770 ------------- ------------- | ------------- Total revenues.................................... 134,383 190,091 | 115,230 ------------- ------------- | ------------- Costs and expenses: | Operating ........................................... 19,195 19,127 | 20,147 Depreciation, depletion and amortization ............ 91,266 81,483 | 75,044 General and administrative .......................... 19,854 20,303 | 19,883 Taxes other than income taxes........................ 4,175 7,156 | 9,788 Impairment of gas and oil properties................. 195,065 -- | -- ------------- ------------- | ------------- Total costs and expenses ......................... 329,555 128,069 | 124,862 ------------- ------------- | ------------- Operating income (loss)........................... (195,172) 62,022 | (9,632) ------------- ------------- | ------------- Other income (expense): | Interest income...................................... 580 574 | 472 Interest expense, net................................ (35,303) (34,069) | (38,526) ------------- ------------- | ------------- Total other expense............................... (34,723) (33,495) | (38,054) ------------- ------------- | ------------- Income (loss) before reorganization items, | income taxes and extraordinary item .............. (229,895) 28,527 | (47,686) ------------- ------------- | ------------- Reorganization items: | Legal and professional fees.......................... -- -- | (8,325) Revaluation of assets to fair market value........... -- -- | 58,836 ------------- ------------- | ------------- Total reorganization items........................ -- -- | 50,511 ------------- ------------- | ------------- Income tax expense (benefit)............................ (9,984) 9,984 | 10,000 ------------- ------------- | ------------- Income (loss) before extraordinary item........... (219,911) 18,543 | (7,175) Extraordinary item - gain on early | extinguishment of debt, net of tax.................... -- -- | 436,490 ------------- ------------- | ------------- Net income (loss)................................. $ (219,911) $ 18,543 | $ 429,315 ============= ============= | ============= Accretion of preferred stock............................ $ 46,403 $ 25,722 | $ -- ============= ============= | ============= Net income (loss) available to common | stockholders ........................................ $ (266,314) $ (7,179) | $ 429,315 ============= ============= | ============= Basic and diluted net income (loss) per share: | Loss before extraordinary item....................... $ (213.01) $ (5.74) | $ (0.13) Extraordinary item................................... -- -- | 7.59 ------------- ------------- | ------------- $ (213.01) $ (5.74) | $ 7.46 ============= ============= | ============= | Weighted average number of shares outstanding | for basic and diluted net income (loss) per share.... 1,250,251 1,250,251 | 57,515,566 ============= ============= | =============
The accompanying notes are an integral part of the consolidated financial statements. 21 TRANSTEXAS GAS CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ADDITIONAL PAID-IN RETAINED ACCUMULATED TOTAL COMMON STOCK CAPITAL EARNINGS OTHER STOCKHOLDERS' ------------------------ (CAPITAL (ACCUMULATED TREASURY COMPREHENSIVE EQUITY SHARES AMOUNT DEFICIT) DEFICIT) STOCK INCOME (DEFICIT) ----------- --------- ----------- ----------- --------- ------------- ------------- PREDECESSOR: Balance at January 31, 1999 ........ 74,000,000 $ 740 $ 19,915 $ (188,265) $(262,405) $ -- $(430,015) Contribution from TEC ............ -- -- 700 -- -- -- 700 Adoption of fresh-start reporting -- -- (21,355) (241,050) 262,405 -- -- Net income ....................... -- -- -- 429,315 -- -- 429,315 ----------- ---------- ---------- ---------- --------- -------- --------- SUCCESSOR: Balance at January 31, 2000 ........ 74,000,000 740 (740) -- -- -- -- Cancellation of old common stock . (74,000,000) (740) 740 -- -- -- -- Issuance of new common stock ..... 1,250,251 12 (12) -- -- -- -- Proceeds from short-swing sale ... -- -- 25 -- -- -- 25 Accretion of preferred stock ..... -- -- -- (25,722) -- -- (25,722) Adjustment to reorganization value -- -- 25,000 -- -- 25,000 Net income ....................... -- -- -- 18,543 -- -- 18,543 ----------- ---------- ---------- ---------- --------- -------- --------- Balance at January 31, 2001 ........ 1,250,251 12 25,013 (7,179) -- -- 17,846 Cumulative effect of adopting SFAS 133 ........................ -- -- -- -- -- (1,282) (1,282) Change in fair value of hedge agreements ...................... -- -- -- -- -- 2,486 2,486 Reclassification adjustments for hedge agreement settlements ..... -- -- -- -- -- 1,144 1,144 Accretion of preferred stock ..... -- -- -- (46,403) -- -- (46,403) Net loss ......................... -- -- -- (219,911) -- -- (219,911) ----------- --------- ---------- ---------- --------- --------- --------- Balance at January 31, 2002 ........ 1,250,251 $ 12 $ 25,013 $ (273,493) $ -- $ 2,348 $(246,120) =========== ========= ========== ========== ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 22 TRANSTEXAS GAS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
SUCCESSOR PREDECESSOR -------------------------------- ------------- YEAR ENDED JANUARY 31, --------------------------------------------------- 2002 2001 2000 ------------- -------------- | ------------- | Operating activities: | Net income (loss)......................................... $ (219,911) $ 18,543 | $ 429,315 Adjustments to reconcile net income (loss) to net cash | provided by operating activities: | Reorganization adjustments: | Extraordinary item................................. -- -- | (436,490) Revaluation of assets.............................. -- -- | (58,836) Depreciation, depletion and amortization............... 91,266 81,483 | 75,044 Impairment of gas and oil properties................... 195,065 -- | -- Accretion of discount on long-term debt................ 161 3,813 | -- Amortization of debt issue costs....................... 530 343 | 1,641 Loss on the sale of assets............................. -- -- | 438 Deferred income taxes.................................. (9,984) 9,984 | 10,000 Changes in assets and liabilities | Accounts receivable................................ 27,266 (22,941) | (3,501) Receivable from affiliates......................... 21 1,086 | 179 Inventories........................................ 658 265 | 1,469 Other current assets............................... 1,757 (1,595) | 2,767 Accounts payable................................... (3,450) (6,567) | 5,430 Accrued interest payable to affiliates............. -- -- | 14,628 Accrued liabilities................................ (7,422) 23,255 | (3,271) Transactions with affiliates, net.................. -- -- | 700 Other assets....................................... 156 (112) | 378 Other liabilities.................................. (1,367) (26,635) | 6,691 ------------- -------------- | ------------- Net cash provided by operating activities....... 74,746 80,922 | 46,582 ------------- -------------- | ------------- Investing activities: | Capital expenditures...................................... (134,325) (101,189) | (42,342) Proceeds from the sale of assets.......................... 53,627 16,182 | 445 ------------- -------------- | --------------- Net cash used by investing activities........... (80,698) (85,007) | (41,897) ------------- -------------- | ------------- Financing activities: | Issuance of note payable.................................. -- -- | 30,000 Issuance of long-term debt................................ 2,134 32,500 | -- Principal payments on long-term debt...................... (7,059) (16,943) | (1,896) Revolving credit agreement, net........................... (16,639) 13,739 | 3,860 Issuance of production payments........................... 49,800 27,000 | -- Principal payments on production payments................. (36,131) (47,303) | (22,136) Proceeds from short-swing sale............................ -- 25 | -- Debt issue costs.......................................... (309) (2,506) | -- ------------- -------------- | ------------- Net cash provided (used) by financing activities (8,204) 6,512 | 9,828 ------------- -------------- | ------------- Increase (decrease) in cash and cash equivalents (14,156) 2,427 | 14,513 Beginning cash and cash equivalents.......................... 20,715 18,288 | 3,775 ------------- -------------- | ------------- Ending cash and cash equivalents............................. $ 6,559 $ 20,715 | $ 18,288 ============= ============== | =============
The accompanying notes are an integral part of the consolidated financial statements. 23 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization TransTexas Gas Corporation (together with its subsidiaries, the "Company" or "TransTexas") was incorporated in Delaware in May 1993. Prior to March 17, 2000 (the "Effective Date"), TransTexas was a subsidiary of TransAmerican Energy Corporation ("TEC"), which is wholly owned by TEC/TransAmerican LLC, which is wholly owned by TransAmerican Natural Gas Corporation ("TransAmerican"). Unless otherwise noted, the term "TransTexas" refers to TransTexas Gas Corporation and its subsidiaries, including Galveston Bay Processing Corporation and Galveston Bay Pipeline Company. See Note 2 for a discussion of TransTexas' reorganization. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. TransTexas' most significant financial estimates are based on remaining proved gas and oil reserves. Actual results could differ from these estimates. Cash and Cash Equivalents TransTexas considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents at January 31, 2002 and 2001 include $0.2 million and $2.2 million, respectively, restricted for payments of future goods and services provided by certain vendors. Inventories TransTexas' inventories, consisting primarily of tubular goods, are stated at the lower of average cost or market. Gas and Oil Properties TransTexas uses the full cost method of accounting for exploration and development costs. Under this method of accounting, the cost of all exploration and development activities are capitalized. Such capitalized costs and estimated future development and reclamation costs are amortized on a unit-of-production method. Net capitalized costs of gas and oil properties are limited to the lower of unamortized cost or the cost center ceiling, defined as the sum of the present value (10% discount rate) of estimated unescalated future net revenues from proved reserves; plus the cost of properties not being amortized, if any; plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less related income tax effects. For the year ended January 31, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. Proceeds from the sale of gas and oil properties are applied to reduce the costs in the cost center unless the sale involves a significant quantity of reserves in relation to the cost center, in which case a gain or loss is recognized. Unevaluated properties and associated costs not currently being amortized and included in gas and oil properties were $45 million and $81 million at January 31, 2002 and 2001, respectively. The properties represented by these costs were undergoing exploration activities at such date, or are properties on which TransTexas intends to commence such activities in the future. TransTexas believes that the unevaluated properties at January 31, 2002 will be substantially evaluated in 12 to 24 months and it will begin to amortize these costs at such time. Other Property and Equipment Other property and equipment are stated at cost. The cost of repairs and minor replacements is charged to operating expense while the cost of renewals and betterments is capitalized. At the time depreciable assets are retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts. Gains or losses 24 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) on dispositions in the ordinary course of business are included in the consolidated statement of operations. Impairment of other property and equipment is reviewed whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Depreciation of oilfield services equipment and other buildings and equipment is computed by the straight-line method at rates that will amortize the unrecovered cost of depreciable property over their estimated useful lives of 4 to 10 years. Costs of improving leased property are amortized over the estimated useful lives of the assets or the terms of the leases, whichever is shorter. Environmental Remediation Costs Environmental expenditures are expensed or capitalized as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that do not have future economic benefits are expensed. Liabilities for these expenditures are provided when the responsibility to remediate is probable and the amount of associated costs is reasonably estimable. Debt Issue Costs Costs related to the issuance of long-term debt are classified as "Other assets." Capitalized debt costs are amortized to interest expense over the scheduled maturity of the debt utilizing the interest method. In the event of a redemption of long-term debt, the related debt issue costs will be charged to income in the period of presentation. Defined Contribution Plan TransTexas maintains a defined contribution plan, which incorporates a "401(k) feature" as allowed under the Internal Revenue Code. All investment transactions are administered by Massachusetts Mutual Life Insurance Company. Employees who are at least 21 years of age and have completed one year of credited service are eligible to participate on the first day of the month following their eligibility. TransTexas matches employee contributions up to a maximum of 100% of the first 3% and 50% of the next 2% of the participant's compensation. TransTexas' contributions with respect to this plan totaled $0.2 million for each of the years ended January 31, 2002, 2001 and 2000. All Company contributions are currently funded. Fair Value of Financial Instruments TransTexas includes fair value information in the Notes to Consolidated Financial Statements when the fair value of its financial instruments can be determined and is different from the book value. TransTexas generally assumes that the book value of financial instruments classified as current approximates fair value because of the short maturity of these instruments. For noncurrent financial instruments, TransTexas uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments. Due to the adoption of fresh-start reporting, all financial instruments were recorded at estimated fair value, based on the present value of amounts to be paid, at January 31, 2000. Revenue Recognition TransTexas recognizes revenues from the sales of natural gas, condensate and natural gas liquids in the period of delivery. Revenues are recognized from transportation of natural gas in the period the service is provided. The sales method is used for natural gas imbalances that arise from jointly produced properties. Volumetric production is monitored to minimize these natural gas imbalances. A natural gas imbalance liability is recorded in other liabilities if TransTexas' excess sales of natural gas exceed its share of estimated remaining recoverable reserves for such properties. Concentrations Financial instruments that potentially expose TransTexas to credit risk consist principally of cash and trade receivables. TransTexas selects depository banks based upon management's review of the financial stability of the institution. Balances generally exceed the $100,000 level covered by federal deposit insurance. To date, TransTexas has not incurred any losses 25 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) due to excess deposits in any financial institution. Trade accounts receivable are generally from companies with significant natural gas marketing activities, which would be impacted by conditions or occurrences affecting that industry. TransTexas performs ongoing credit evaluations and, generally, requires no collateral from its customers. TransTexas is not aware of any significant credit risk relating to its customers and has not experienced significant credit losses associated with such receivables. Hedging Agreements From time to time, TransTexas enters into commodity price swap agreements (the "Hedge Agreements") to reduce its exposure to price risk in the spot market for natural gas. Effective February 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which was amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These pronouncements establish accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company recorded a cumulative effect charge to comprehensive income of approximately $1.3 million to recognize the fair value of its liability under the Company's derivative instruments upon the adoption of SFAS 133. During the year ended January 31, 2002, decreases in the prevailing commodity prices for oil and natural gas have reduced the fair value of the Company's liability under its derivative instruments, which resulted in an adjustment to comprehensive income. A summary of the Company's comprehensive income and accumulated other comprehensive loss for the period ended January 31, 2002 is as follows (in thousands of dollars):
ACCUMULATED ACCUMULATED OTHER COMPREHENSIVE COMPREHENSIVE LOSS INCOME ----------------- ----------------- Balance at January 31, 2001........................................ $ $ -- Net loss for the year ended January 31, 2002....................... (219,911) Other comprehensive income: Cumulative effect of adopting SFAS 133.......................... (1,282) (1,282) Change in the fair value of hedge agreements.................... 2,486 2,486 Reclassification adjustments for hedge agreement settlements.... 1,144 1,144 ----------------- ----------------- Comprehensive loss....................................... $ (217,563) ================= Balance at January 31, 2002........................................ $ 2,348 =================
Pursuant to the terms of the Company's production payment agreement entered into in March 2000, the Company entered into the following hedge arrangements with respect to a portion of the natural gas and condensate production associated therewith and which effectively hedge a portion of the Company's production:
CONTRACT PRICE ------------------- TOTAL COLLAR VOLUMES IN ------------------- PERIOD MMBtus/Bbls FLOOR CEILING ------ ----------- -------- --------- Natural gas: April 2000 - October 2000...................................... 3,745,000 $ 2.10 $ 3.40 November 2000 - March 2001..................................... 1,887,500 2.35 3.95 Condensate: April 2000 - September 2000.................................... 228,750 18.50 32.50 October 2000 - March 2001..................................... 182,000 18.50 29.25
Under these contracts, the counterparty was required to make payment to the Company if the settlement price (based on New York Merchantile Exchange prices) for the period was below the floor, and the Company was required to make payment to the counterparty if the settlement price for any period was above the ceiling price. The Company recognized hedging losses of $1.6 million and $6.7 million under these contracts for the years ended January 31, 2002 and 2001, respectively. 26 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July and September 2001, the Company entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) with respect to a portion of the Company's natural gas production:
CONTRACT PRICE -------------------- TOTAL COLLAR VOLUMES IN -------------------- PERIOD MMBtus FLOOR CEILING ------ -------------- --------- -------- Natural gas: August 2001 - July 2002........................................ 2,555,000 $ 3.30 $ 3.95 November 2001 - March 2002..................................... 1,510,000 2.85 3.30 April 2002 - October 2002...................................... 1,070,000 2.85 3.35
As of January 31, 2002, the Company recognized hedging gains of $1.1 million. At January 31, 2002, the Company estimated that these contracts had a fair value of $2.3 million. In November 2000, the Company entered into the following commodity price hedging arrangement with respect to a portion of the Company's natural gas production:
CONTRACT PRICE ------------------- TOTAL COLLAR VOLUMES IN ------------------- PERIOD MMBtus/Bbls FLOOR CEILING ------ ----------- -------- --------- Natural gas: December 2000 - November 2001................................. 7,300,000 $ 3.50 $ 6.00
Under terms of this collar transaction, the counterparty is required to make payment to the Company if the settlement price (based on a published industry index of natural gas prices at Houston Ship Channel) for any settlement period is below the floor price for such transaction and the Company is required to make payment to the counterparty if the settlement price for any settlement period is above the ceiling price for such transaction. For the years ended January 31, 2002 and 2001, the Company recognized hedging gains of $2.1 million and hedging losses of $2.4 million, respectively, under this contract. Income Taxes Prior to the Effective Date, TransTexas filed a consolidated tax return with TransAmerican. Income taxes were due from or payable to TransAmerican in accordance with a tax allocation agreement, as amended, between TransTexas, TNGC Holdings Corporation, TransAmerican and TransAmerican's other subsidiaries (the "Tax Allocation Agreement"). It was TransTexas' policy to record income tax expense as though TransTexas had filed separately. Subsequent to the Effective Date, TransTexas and its wholly owned subsidiaries file a consolidated tax return. Deferred income taxes are recognized, at enacted tax rates, to reflect the future effects of temporary differences arising between the financial reporting and tax bases of assets and liabilities. Income taxes include federal and state income taxes. Net Income (Loss) Per Share Basic and diluted net income (loss) per share has been calculated based on the weighted average number of shares of common stock outstanding during each period, excluding treasury shares. After adopting fresh-start reporting, the number of common shares used to calculate basic earnings per share is 1,250,251. At January 31, 2002, potential common shares to be included in diluted earnings per share, if they were dilutive, are as follows: Series A Senior Preferred Stock.......................... 54,167,576 Series A Junior Preferred Stock.......................... 2,876,187 Class A Common Stock..................................... 1,002,751 Class B Common Stock..................................... 247,500 Class A Common Stock Warrants............................ 738,004 ------------ 59,032,018 ============
27 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Recently Issued Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. SFAS 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill as well as other intangible assets no longer be amortized to earnings, but instead be reviewed annually for impairment. SFAS 141 and SFAS 142 do not apply to the Company unless it enters into a future business combination. In August 2001, the FASB issued 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. The Company is evaluating the impact of SFAS 143 that will be effective for the Company in February 2003. 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. 2. REORGANIZATION On April 19, 1999, TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. TransTexas filed its bankruptcy petition in order to preserve cash and to give the Company the opportunity to restructure its debt. On April 20, 1999, TEC and its wholly owned subsidiary, TransAmerican Refining Corporation ("TARC") also filed voluntary petitions under Chapter 11. On May 20, 1999, the cases were transferred to the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"). TransTexas' Chapter 11 filing did not include its subsidiaries, including Galveston Bay Processing and Galveston Bay Pipeline. The Company's Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (the "Plan") was confirmed by the Bankruptcy Court on February 7, 2000. The Effective Date of the Plan is March 17, 2000. In connection with the Effective Date of the Plan, the Company: (1) paid approximately $2.6 million in cash to settle certain accounts payable and royalty claims; (2) agreed to pay approximately $28.3 million to settle certain accounts payable, severance, property and franchise taxes. The $28.3 million is payable in quarterly installments generally over a five year period with stated interest ranging from 8% to 10%. The Company paid $6.6 million and $7.6 million of this amount in fiscal 2002 and 2001, respectively. (3) paid approximately $21.9 million in cash, issued $200 million principal amount of 15% Senior Secured Notes due 2005 (the "Notes"), 222,455,320 shares of Series A Senior Preferred Stock, 20,716,080 shares of Series A Junior Preferred Stock, 1,002,751 shares of Class A Common Stock, 247,500 shares of Class B Common Stock and 625,000 warrants to purchase Class A Common Stock to settle the TransTexas Senior Secured Notes Claims. A portion of this distribution was reallocated pursuant to the Plan as follows: (a) $20 million in cash and five million shares of Senior Preferred Stock to settle on a pro rata basis all general prepetition unsecured claims; (b) $1.8 million in cash, 2,455,320 shares of Senior Preferred Stock and all of the Junior Preferred Stock to the holders of TransTexas 13 3/4% Senior Subordinated Notes; 28 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (c) 52,500 shares of Class A Common Stock and warrants exercisable to purchase 109,879 shares of Class A Common Stock at a price of $120 per share to the holders of the old TransTexas common stock who were not Affiliates of the Debtor (as defined in the Plan); and (d) all of the Class B Common Stock and warrants exercisable to purchase 515,625 shares of Class A Common Stock at an exercise price of $120 per share to John R. Stanley; (4) issued $6.7 million in secured notes in exchange for old secured notes and related accrued interest; and (5) canceled all of the old TransTexas common stock and 13 3/4% Senior Subordinated Notes. The January 31, 2000 consolidated balance sheet is the opening balance sheet of reorganized TransTexas, the successor company, in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." The January 31, 2000 consolidated balance sheet includes all adjustments necessary to reflect assets at the reorganization value and the Plan's treatment of creditor claims and previous equity interests. Since the January 31, 2000 consolidated balance sheet was affected by fresh-start reporting, it is not comparable in certain material respects to the consolidated balance sheets of any prior period. The consolidated statements of operations and cash flows for the years ended January 31, 2000 and 1999 reflect the activities of the predecessor reporting entity; however, the statements for fiscal 2000 reflect certain reorganization items. Pursuant to fresh-start reporting, the Company's reorganization value as of January 31, 2000 was estimated by management and allocated to identified assets based on their relative fair values. Postpetition liabilities were valued at the present value of amounts to be paid. The present value of liabilities was adjusted for imputed interest at a rate of 15% for the period from February 1, 2000 to the Effective Date of the Plan. The imputed interest was charged to interest expense during the first quarter of fiscal 2001. On January 31, 2002, the Company's equity securities consisted of (i) 313,016,913 shares of Series A Senior Preferred Stock, $0.001 par value, (ii) 24,624,894 shares of Series A Junior Preferred Stock, $0.001 par value (iii) 1,002,751 shares of Class A Common Stock, $0.01 par value, (iv) 247,500 shares of Class B Common Stock, $0.01 par value, and (v) warrants exercisable to purchase 738,004 shares of Class A Common Stock at a price of $120 per share. Redeemable Preferred Stock The Series A Senior Preferred Stock (the "Senior Preferred Stock") has a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Senior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first two years following the Effective Date, the Company was required to pay cash dividends at a rate of $0.10 per share per annum, or, at its option, in-kind dividends of additional shares of Senior Preferred Stock at a rate of $0.20 per share per annum. The Company paid these quarterly dividends with additional shares of Preferred Stock. The Senior Preferred Stock is mandatorily redeemable on March 15, 2006 at a rate of $1.00 per share plus accrued and unpaid dividends. One-half of the then-outstanding shares of Senior Preferred Stock is mandatorily convertible into shares of Class A Common Stock at a rate of 0.3461 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Senior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. Holders of Senior Preferred Stock have the right, voting separately as a class, to elect four (4) of the five (5) directors to the Board of Directors; provided, that if the Company has not paid dividends with respect to any two payments due commencing June 15, 2002, such holders will have the right, voting separately as a class, to elect all five (5) directors to the Board of Directors. Holders of Senior Preferred Stock have one vote per share, voting together with the Class A Common Stock, the Junior Preferred Stock and any other series or classes of stock entitled to vote with the Class A Common Stock, on all matters on which the holders of the Class A Common Stock are entitled to vote generally. Voting rights of the Senior Preferred Stock may not be changed without the consent of the holders of 75% of the shares of Senior Preferred Stock, voting as a class. 29 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Series A Junior Preferred Stock (the "Junior Preferred Stock") has a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The terms of the Junior Preferred Stock include a cumulative dividend preference, payable quarterly out of funds legally available therefor, if any. During the first six years following the Effective Date, the Company is required to pay in-kind dividends of additional shares of Junior Preferred Stock at a rate of $0.10 per share per annum. Thereafter, dividends are payable both in cash at a rate of $0.10 per share per annum and in-kind at a rate of $0.10 per share per annum. The Junior Preferred Stock is mandatorily redeemable on March 15, 2010 at a rate of $1.00 per share plus accrued and unpaid dividends. Each share of Junior Preferred Stock is mandatorily convertible into shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock per $1.00 of liquidation preference if either (i) more than 75 million shares of Senior Preferred Stock remain outstanding after March 15, 2006 or (ii) the Company fails to pay dividends on the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Junior Preferred Stock includes restrictive covenants comparable to those included in the Indenture. Such covenants will become effective when all of the Notes (and any refinancings thereof) have been repaid and all of the Senior Preferred Stock has been redeemed. Holders of Junior Preferred Stock have one vote per share, voting together with holders of the Class A Common Stock, the Senior Preferred Stock and any other series or classes of stock entitled to vote with the Class A Common Stock, on all matters on which holders of the Class A Common Stock are entitled to vote. If no shares of the Senior Preferred Stock are outstanding, holders of the shares of Junior Preferred Stock will have the right, voting separately as a class, to elect two directors to the Board of Directors. Voting rights of the Junior Preferred Stock may not be changed without the consent of the holders of 75% of the shares of the Junior Preferred Stock, voting as a class. Based on the reorganization value of the Company, the fair value of the Junior Preferred Stock, together with the Senior Preferred Stock, (the "Preferred Stock") and the Class A Common Stock, together with the Class B Common Stock, (the "Common Stock") was estimated to be zero. The Senior Preferred Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010, respectively. As a result, the Company accretes, in the form of a non-cash dividend deducted to arrive at net income (loss) available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, net income (loss) available to common stockholders reflects dividends earned and accrued on the Preferred Stock. Accrued preferred stock dividends are recorded at fair value. Any difference between the initial fair value and the redemption value are accreted in the same manner as described above. For the years ended January 31, 2002 and 2001, accretion of preferred stock totaled $46.4 million and $25.7 million, respectively. The Company does not anticipate paying cash dividends on the Senior or Junior Preferred Stock in the future. The Company has had discussions with certain of its preferred stockholders relating to amendments of the Certificates of Designation of the Senior and Junior Preferred Stock to enable the Company to convert all of the Preferred Stock to shares of Class A Common Stock based on agreed upon rates of conversion. 3. 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 debt service. 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 TransTexas' debt documents and Senior Preferred Stock. 30 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. OTHER CURRENT ASSETS The major components of other current assets are as follows (in thousands of dollars):
JANUARY 31, ------------------------------ 2002 2001 ------------- -------------- Prepayments: Trade................................................................. $ 485 $ 362 Insurance............................................................. 252 147 Fair value of hedging contracts......................................... 2,348 -- Deferred commodity hedging contract losses.............................. -- 1,972 Other................................................................... 27 40 ------------- --------------- $ 3,112 $ 2,521 ============= ==============
5. PROPERTY AND EQUIPMENT The major components of property and equipment, at cost, are as follows (in thousands of dollars):
JANUARY 31, ------------------------------ 2002 2001 ------------- -------------- Gas and oil properties.................................................. $ 437,813 $ 364,171 Gas gathering and transportation ....................................... 50,462 43,774 Equipment and other..................................................... 6,473 5,866 ------------- -------------- $ 494,748 $ 413,811 ============= ==============
In October 2001, TransTexas sold its interest in the Bob West field in Zapata County, Texas for a sales price of $56.5 million, exclusive of closing costs. In August 2000, TransTexas sold certain producing properties in Jim Hogg County, Texas for a sales price of $6.5 million, exclusive of closing costs. In December 2000, TransTexas sold certain producing properties in Kent, Starr, Wharton and Zapata Counties, Texas for a sales price of $11.0 million, exclusive of closing costs. TransTexas incurred approximately $46.7 million, $48.2 million and $41.2 million of interest charges of which approximately $11.4 million, $14.1 million and $2.7 million were capitalized for the years ended January 31, 2002, 2001 and 2000, respectively. Capitalized interest is included as part of the cost of gas and oil properties. TransTexas uses capitalization rates based on its weighted average cost of borrowings used to finance such expenditures. For the year ended January 31, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. 6. OTHER ASSETS The major components of other assets are as follows (in thousands of dollars):
JANUARY 31, ------------------------------ 2002 2001 ------------- -------------- Debt issue costs, net of accumulated amortization of $1,184 at January 31, 2002 and $482 at January 31, 2001................................. $ 1,632 $ 2,024 Other ................................................................ 469 625 ------------- -------------- $ 2,101 $ 2,649 ============= ==============
7. LONG-TERM DEBT AND PRODUCTION PAYMENTS Long-Term Debt Long-term debt consists of the following (in thousands of dollars): 31 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, ---------------------------- 2002 2001 ------------- ------------ 15% Senior Secured Notes due 2005 ...................................... $ 200,000 $ 200,000 Revolving Credit Note................................................... 30,000 30,000 Term Note............................................................... 22,106 22,331 Revolving credit agreement ............................................. 1,305 17,944 Notes payable, ranging from 8% to 10%, due through 2005.......................................................... 10,807 15,265 ------------ ------------ Total long-term debt................................................ 264,218 285,540 Less current maturities................................................. 2,444 4,269 ------------ ------------ $ 261,774 $ 281,271 ============ ============
Aggregate annual maturities of long-term debt for fiscal years 2003 to 2006 are $3.2 million, $4.8 million, $2.0 million and $254.2 million, respectively. All of the Company's long-term debt is scheduled to be paid by the end of fiscal year 2006. 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 $20 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. Advances under the facility bear interest 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%. In July 2001, GMACC agreed to make advances of $3.0 million in excess of a predetermined formula ("Overadvances") used to calculate the amount that the Company can borrow under the Accounts Receivable Facility. The Company utilized the Overadvances in August 2001 and repaid $2.0 million of the Overadvances in October 2001. As of January 31, 2002, the outstanding principal balance under the Accounts Receivable Facility was $1.3 million with availability for additional advances of approximately $1.3 million and will be due on March 14, 2005. On the Effective Date, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors, entered into an Oil and Gas Revolving Credit and Term Loan Agreement, dated as of March 15, 2000 (the "Oil and Gas Facility") with GMACC, as a Lender and as Agent. The Oil and Gas facility consists of a term loan (the "Term Loan") in the amount of $22.5 million and a revolving facility (the "Revolving Loan") in a maximum amount of $30 million (all of which was funded on the Effective Date). The Term Loan bears interest at a rate of 14% per annum and the Revolving Loan bears interest at a rate of 13 1/2% per annum. Interest on the Term Loan and the Revolving Loan is payable monthly in arrears. Principal amortization of the Term Loan is due in 20 quarterly installments of $56,250 each beginning June 14, 2000, with the balance due March 14, 2005; however the Company may, and in certain circumstances must, make prepayments of such amount. If, subsequent to such prepayments, the Company demonstrates sufficient collateral value meeting the requirements of the Oil and Gas Facility provisions, the Company may be entitled to borrow additional advances under the Revolving Loan. The Oil and Gas Facility is secured by substantially all of the assets of the Company. The security interest in accounts receivable and inventory securing the Oil and Gas Facility is subordinated to the security interest of GMACC under the Accounts Receivable Facility. On the Effective Date, the Company, as Issuer, Galveston Bay Pipeline Company and Galveston Bay Processing Corporation, as Guarantors, and Firstar Bank, N.A., as Trustee, entered into an Indenture dated as of March 15, 2000, pursuant to which the Company issued the Notes. Interest on the Notes is due semi-annually on March 15 and September 15. The Notes are secured by substantially all of the assets of the Company other than accounts receivable and inventory. The Indenture contains certain covenants that restrict the Company's ability to incur indebtedness, engage in related party transactions, dispose of assets or engage in sale/leaseback transactions, issue dividends on common stock, change its line of business, consolidate or merge with or into another entity or convey, transfer or lease all or substantially all of its assets, and suffer a change of control. The security interest in favor of the Trustee is subordinated to the Security Interest in favor of the Agent under the Oil and Gas Facility. The fair value of the Notes, based on quoted market prices on January 31, 2002, was $108 million. 32 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1998, TransTexas borrowed $5.65 million from an unaffiliated third party in order to meet a portion of its December 31, 1998 interest payment obligations. In accordance with the Plan, the principal amount of the note was increased to $6.7 million, bears interest at 8% and is collateralized by a pledge of the stock of Galveston Bay Processing Corporation and a mortgage on the Winnie, Texas processing facility. At January 31, 2002, the undiscounted principal balance outstanding of this note was $4.2 million. Additional notes payable totaling $6.8 million and $10.2 million at January 31, 2002 and 2001, respectively, consist of amounts payable pursuant to the Plan in settlement of the claims of certain creditors. Such amounts are generally payable over a five year period with stated interest rates ranging from 8% to 10%; however, these notes have been discounted to an effective interest rate of 14%. Production Payments In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties ("Subject Interests"). The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment calls for the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In February 2001, the Company closed a Fourth Supplement to the production payment whereby the Company received $19.8 million in exchange for additional properties being made subject to the production payment. In July 2001, the Company closed a Fifth Supplement to the production payment whereby the Company received $15.0 million. In September 2001, the Company closed a Sixth and Seventh Supplement to the production payment whereby the Company received $15.0 million. As of January 31, 2002, the aggregate purchase price of all interests purchased pursuant to this production payment drilling program was $76.8 million and the outstanding balance of the production payment was $28.5 million, of which $2.5 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Revolving Credit 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 a Lender and as Agent, places certain restrictions on the amount that may be outstanding under the production payment. Certain of these restrictions were waived by the required lenders in connection with the Sixth and Seventh Supplements to the production payment. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In connection with the production payment, the Company entered into various marketing and processing agreements with one of the third parties. Pursuant to these agreements, the Company will pay a nominal marketing fee with respect to the Company's production associated with the New Subject Interests. In addition, the third party will pay a fee for certain processing services to be provided by Galveston Bay Processing. 8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The following information reflects TransTexas' noncash financing activities (in thousands of dollars):
SUCCESSOR PREDECESSOR ------------------------------ ------------- YEAR ENDED JANUARY 31, --------------------------------------------------- 2002 2001 2000 ------------- -------------- | -------------- | Financing activities: | Accretion of stock............................ $ 46,403 $ 25,722 | $ -- ============= ============== | ============= Cancellation of old preferred common stock.... $ -- $ 740 | $ -- ============= ============== | ============= Issuance of new common stock.................. $ -- $ 12 | $ -- ============= ============== | =============
33 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash paid for interest is as follows (in thousands of dollars):
SUCCESSOR PREDECESSOR ------------------------------ ------------ YEAR ENDED JANUARY 31, -------------------------------------------------- 2002 2001 2000 ------------- ------------- | ------------- | Interest......................................... $ 33,321 $ 16,352 | $ 9,616 ============= ============== | =============
Cash paid during the year ended January 31, 2000 for reorganization items was $6.2 million. 9. ACCRUED LIABILITIES Accrued liabilities classified as current liabilities consist of the following (in thousands of dollars):
JANUARY 31, ----------------------------------- 2002 2001 -------------- -------------- Royalties............................................. $ 2,110 $ 5,849 Taxes other than income taxes......................... 498 749 Accrued interest...................................... 14,803 13,511 Payroll............................................... 1,090 1,283 Current portion of production payments................ 2,468 2,072 Accrued insurance..................................... 1,980 1,675 Commodity hedging contract losses..................... -- 5,178 Reorganization claims................................. 2,084 2,446 Other................................................. 1,094 390 -------------- -------------- $ 26,127 $ 33,153 ============== ==============
10. OTHER LIABILITIES The major components of other liabilities are as follows (in thousands of dollars):
JANUARY 31, ----------------------------------- 2002 2001 -------------- -------------- Reorganization claims................................. $ 6,644 $ 8,011 ============== ==============
11. INCOME TAXES Income tax expense (benefit) includes the following (in thousands of dollars):
SUCCESSOR PREDECESSOR ----------------------------- ------------- YEAR ENDED JANUARY 31, ------------------------------------------------ 2002 2001 2000 ------------ ------------- | ------------- | Federal | Deferred ...................................... $ (9,984) $ 9,984 | $ 10,000 ============ ============= | =============
Total income tax expense differs from amounts computed by applying the statutory federal income tax rate to income before income taxes. The items accounting for this difference are as follows (in thousands of dollars): 34 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUCCESSOR PREDECESSOR ----------------------------- ------------- YEAR ENDED JANUARY 31, ------------------------------------------------ 2002 2001 2000 ------------- ------------- | ------------- | Federal income tax expense (benefit) at the | statutory rate................................ $ (80,463) $ 9,984 | $ 153,760 Increase (decrease) in tax resulting from: | Debt discharged pursuant to Plan.............. -- -- | (160,641) Adjustment of tax assumption.................. -- -- | 10,000 Valuation allowance........................... 70,479 -- | 6,881 ------------- ------------- | ------------- $ (9,984) $ 9,984 | $ 10,000 ============= ============= | =============
Significant components of TransTexas' tax attributes are as follows (in thousand of dollars):
JANUARY 31, -------------------------------- 2002 2001 ------------- ------------- Deferred tax liabilities: Depreciation, depletion and amortization..................... $ -- $ 12,694 ------------- ------------- Net deferred tax liabilities ........................... -- 12,694 ------------- ------------- Deferred tax assets: Depreciation, depletion and amortization..................... 56,634 -- Net operating loss carryforwards........................ 13,845 2,710 ------------- ------------- 70,479 2,710 Valuation allowance.......................................... (70,479) -- ------------- ------------- Net deferred tax assets................................. -- 2,710 ------------- ------------- $ -- $ 9,984 ============= =============
Part of the refinancing of TransAmerican's debt 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 (the "Tax Code"), and has reduced its tax attributes (including its net operating loss and credit carryforwards) as a consequence of the COD Exclusion. No federal tax opinion was rendered with respect to this transaction, however, and TransAmerican has not obtained a ruling from the Internal Revenue Service ("IRS") regarding this transaction. TransTexas believes that there is substantial legal authority to support the position that the COD Exclusion applies to the cancellation of TransAmerican's indebtedness. However, due to factual and legal uncertainties, there can be no assurance that the IRS will not challenge this position, or that any such challenge would not be upheld. Prior to the Effective Date, TransTexas filed a consolidated tax return with TransAmerican. Income taxes were due from or payable to TransAmerican in accordance with a tax allocation agreement, as amended, between TransTexas, TNGC Holdings Corporation, TransAmerican and TransAmerican's other subsidiaries (the "Tax Allocation Agreement"). Under the Tax Allocation Agreement, TransTexas has agreed to pay an amount equal to any federal tax liability (which would be approximately $25.4 million) attributable to the inapplicability of the COD Exclusion. Any such tax would be offset in future years by alternative minimum tax credits and retained loss and credit carryforwards to the extent recoverable from TransAmerican. As a former member of the affiliated group for tax purposes (the "TNGC Consolidated Group") which included TNGC Holdings Corporation, the sole stockholder of TransAmerican ("TNGC"), TransAmerican, TEC, TransTexas and TARC, 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 transactions. 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 not been advised by the IRS as to whether any tax deficiencies will be proposed by the IRS as a result of its review. 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 35 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 12. RELATED PARTY TRANSACTIONS In March 2000, a services agreement was entered into between TNGC and the Company. Pursuant to the agreement, TransTexas provided certain accounting, legal, administrative and other services to TNGC and its affiliates in exchange for a monthly fee of $2,000. This agreement expired on September 30, 2001. 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 will pay Mr. Stanley $3.0 million in cash, in installments through November 2002, together with interest at the rate of 10% per annum until paid in full. 13. COMMITMENTS AND CONTINGENCIES 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. 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. Operating Leases As of January 31, 2002, TransTexas had long-term leases covering land and other property and equipment. Rental expense was approximately $3 million for each of the years ended January 31, 2002, 2001 and 2000, respectively. Future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of January 31, 2002, are as follows (in thousands of dollars): 2003-$317, 2004-$179, 2005-$90, 2006-$77, 2007-$7. 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 January 31, 2002, the balance remaining to be paid under this contract, which commenced in May 2001, was approximately $1.7 million. Gas Delivery Agreements TransTexas has entered into contracts with 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. 36 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 up to 19,500 MMBtu of residue gas per day. Transportation fees for natural gas and residue gas are based on fixed negotiated rates. 14. PREFERRED STOCK DIVIDENDS On January 31, May 30, August 29, November 28, 2001 and March 12, 2002, the Board of Directors of the Company authorized the payment of quarterly dividends to the holders of the Company's Preferred Stock of record on March 1, June 1, September 1, December 1, 2001 and March 1, 2002, respectively. The quarterly dividends were paid in-kind on March 15, June 15, September 17, December 17, 2001 and March 15, 2002 in additional shares of Preferred Stock of the same class at an annual rate of $0.20 per share for each share of Series A Senior Preferred Stock and at an annual rate of $0.10 per share for each share of Series A Junior Preferred Stock in accordance with the Certificate of Designation for Series A Senior Preferred Stock and the Certificate of Designation for Series A Junior Preferred Stock, respectively. Fractional shares were not issued, but were settled in cash. 15. SHORT-SWING SALE During the year ended January 31, 2001, the Company received $25,000 in cash from a stockholder as a result of such stockholder's compliance with the requirement of the Securities Exchange Act of 1934, as amended, that profits from the sale of certain securities of a company that were held less than six months by certain officers, directors and principal stockholders must be returned to the Company. The Company recorded the proceeds as an increase to additional paid-in capital. 16. BUSINESS SEGMENTS TransTexas currently conducts its operations in one industry segment, exploration and production ("E&P"), which explores for, develops, produces and markets natural gas, condensate and natural gas liquids. All of TransTexas' significant gas and oil operations are located along the Texas Gulf Coast and in South Texas. TransTexas' revenues are derived principally from sales to interstate and intrastate gas pipelines, direct end users, industrial companies, marketers and refiners located in the United States. For the year ended January 31, 2002, two customers provided approximately $88 million in E&P revenues. For the year ended January 31, 2001, two customers provided approximately $124 million in E&P revenues. For the year ended January 31, 2000, three customers provided approximately $62 million in E&P revenues. TransTexas believes that the loss of any single purchaser would not have a material adverse effect on TransTexas due to the availability of other purchasers for its production at comparable prices. 17. CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
SUCCESSOR -------------------------------------------------------------- YEAR ENDED JANUARY 31, 2002 -------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------ Revenues.................................... $ 47,417 $ 29,962 $ 32,373 $ 24,631 Operating income (loss)..................... 14,958 (60,580) (43,575) (105,975) Net income (loss)........................... 4,380 (56,406) (52,531) (115,354) Net income (loss) per share-- basic and diluted............................... (4.21) (53.80) (51.78) (103.22)
37 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUCCESSOR -------------------------------------------------------------- YEAR ENDED JANUARY 31, 2001 -------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------ Revenues.................................... $ 38,609 $ 44,240 $ 50,082 $ 57,160 Operating income............................ 6,949 13,206 19,044 22,823 Net income (loss)........................... (2,232) 3,917 6,912 9,946 Net income (loss) per share-- basic and diluted............................... (5.72) (5.03) 2.69 2.32
PREDECESSOR -------------------------------------------------------------- YEAR ENDED JANUARY 31, 2000 -------------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------ Revenues..................................... $ 19,078 $ 28,584 $ 29,415 $ 38,153 Operating income (loss)...................... (13,217) (4,116) 2,855 4,846 Net income (loss)............................ (35,881) (6,954) (4,406) 476,556(1) Net income (loss) per share-- basic and diluted................................ (0.62) (0.12) (0.08) 8.28
- ------------------- (1) Net income for the fourth quarter of 2000 includes a $436.5 million extraordinary gain on the extinguishment of debt and a $50.5 million credit for reorganization items. 18. SUPPLEMENTAL GUARANTOR INFORMATION Galveston Bay Pipeline Company and Galveston Bay Processing Corporation are guarantors of the Notes and the Oil and Gas Facility. Separate financial statements of the Guarantors are not considered to be material to holders of the Notes and GMACC. The following condensed consolidating financial statements present supplemental information of the Guarantors as of and for the years ended January 31, 2002 and 2001. 38 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 31, 2002 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ----------- ASSETS Current assets: Cash and cash equivalents .................... $ 6,058 $ 33 $ 468 $ $ 6,559 Accounts receivable .......................... 15,033 -- 234 -- 15,267 Receivables from affiliates .................. 15,523 -- -- (15,523) -- Inventories .................................. 818 -- -- -- 818 Other ........................................ 3,110 -- 2 -- 3,112 --------- --------- --------- --------- --------- Total current assets ...................... 40,542 33 704 (15,523) 25,756 --------- --------- --------- --------- --------- Property and equipment .......................... 480,850 2,267 11,631 -- 494,748 Less accumulated depreciation, depletion and amortization .................................. 363,343 653 3,805 -- 367,801 --------- --------- --------- --------- --------- Net property and equipment ................ 117,507 1,614 7,826 -- 126,947 --------- --------- --------- --------- --------- Other assets .................................... 2,103 -- -- (2) 2,101 --------- --------- --------- --------- --------- $ 160,152 $ 1,647 $ 8,530 $ (15,525) $ 154,804 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt ......... $ 2,353 $ 17 $ 74 $ -- $ 2,444 Accounts payable ............................. 5,546 -- 259 -- 5,805 Accrued liabilities .......................... 26,115 -- 12 -- 26,127 --------- --------- --------- --------- --------- Total current liabilities ................. 34,014 17 345 -- 34,376 --------- --------- --------- --------- --------- Payable to affiliates ........................... (28) 1,948 13,603 (15,523) -- Long-term debt, net of current maturities ....... 261,050 580 144 -- 261,774 Production payments, net of current portion ..... 26,005 -- -- -- 26,005 Other liabilities ............................... 6,644 -- -- -- 6,644 Redeemable preferred stock ...................... 72,125 -- -- -- 72,125 Stockholders' equity (deficit): Common stock ................................. 12 -- -- -- 12 Additional paid-in capital ................... 25,013 1 1 (2) 25,013 Accumulated deficit .......................... (264,683) (899) (5,563) -- (271,145) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) ...... (239,658) (898) (5,562) (2) (246,120) --------- --------- --------- --------- --------- $ 160,152 $ 1,647 $ 8,530 $ (15,525) $ 154,804 ========= ========= ========= ========= =========
39 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 31, 2001 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- ---------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents .................. $ 19,902 $ 39 $ 774 $ -- $ 20,715 Accounts receivable ........................ 42,127 -- 406 -- 42,533 Receivables from affiliates ................ 11,660 -- -- (11,639) 21 Inventories ................................ 1,476 -- -- -- 1,476 Other ...................................... 2,486 -- 35 -- 2,521 --------- --------- --------- --------- --------- Total current assets .................... 77,651 39 1,215 (11,639) 67,266 --------- --------- --------- --------- --------- Property and equipment ....................... 401,290 1,917 10,604 -- 413,811 Less accumulated depreciation, depletion and amortization ............................... 79,181 314 1,988 -- 81,483 --------- --------- --------- --------- --------- Net property and equipment ............. 322,109 1,603 8,616 -- 332,328 --------- --------- --------- --------- --------- Other assets ................................. 2,651 -- -- (2) 2,649 --------- --------- --------- --------- --------- $ 402,411 $ 1,642 $ 9,831 $ (11,641) $ 402,243 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt ....... $ 3,641 $ 14 $ 614 $ -- $ 4,269 Accounts payable ........................... 9,070 27 158 -- 9,255 Accrued liabilities ........................ 33,145 -- 8 -- 33,153 --------- --------- --------- --------- --------- Total current liabilities .............. 45,856 41 780 -- 46,677 --------- --------- --------- --------- --------- Payable to affiliates ........................ -- 1,114 10,525 (11,639) -- Long-term debt, net of current maturities .... 280,240 828 203 -- 281,271 Production payments, net of current portion .. 12,732 -- -- -- 12,732 Deferred income taxes ........................ 9,984 -- -- -- 9,984 Other liabilities ............................ 8,011 -- -- -- 8,011 Redeemable preferred stock ................... 25,722 -- -- -- 25,722 Stockholders' equity (deficit): Common stock ............................... 12 -- -- -- 12 Additional paid-in capital ................. 25,013 1 1 (2) 25,013 Accumulated deficit ........................ (5,159) (342) (1,678) -- (7,179) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) .... 19,866 (341) (1,677) (2) 17,846 --------- --------- --------- --------- --------- $ 402,411 $ 1,642 $ 9,831 $ (11,641) $ 402,243 ========= ========= ========= ========= =========
40 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended January 31, 2002 (In thousands of dollars)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- ---------- ---------- ------------ ------------ Revenues: Gas, condensate and natural gas liquids $ 133,138 $ -- $ -- $ -- $ 133,138 Other .................................. 167 285 4,307 (3,514) 1,245 --------- --------- --------- --------- --------- Total revenues ...................... 133,305 285 4,307 (3,514) 134,383 --------- --------- --------- --------- --------- Costs and expenses: Operating .............................. 18,089 9 4,611 (3,514) 19,195 Depreciation, depletion and amortization 89,110 339 1,817 -- 91,266 General and administrative ............. 19,559 201 94 -- 19,854 Taxes other than income taxes .......... 4,045 2 128 -- 4,175 Impairment of gas and oil properties ... 195,065 -- -- -- 195,065 --------- --------- --------- --------- --------- Total costs and expenses ............ 325,868 551 6,650 (3,514) 329,555 --------- --------- --------- --------- --------- Operating loss ...................... (192,563) (266) (2,343) -- (195,172) --------- --------- --------- --------- --------- Other income (expense): Interest income ........................ 573 -- 7 -- 580 Interest expense, net .................. (33,463) (291) (1,549) -- (35,303) --------- --------- --------- --------- --------- Total other expense ................. (32,890) (291) (1,542) -- (34,723) --------- --------- --------- --------- --------- Loss before income taxes ............ (225,453) (557) (3,885) -- (229,895) Income tax benefit - deferred .......... (9,984) -- -- -- (9,984) --------- --------- --------- --------- --------- Net loss ............................ $(215,469) $ (557) $ (3,885) $ -- $(219,911) ========= ========= ========= ========= =========
41 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Year Ended January 31, 2001 (In thousands of dollars)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ Revenues: Gas, condensate and natural gas liquids $ 187,883 $ -- $ -- $ -- $ 187,883 Other .................................. 520 599 6,830 (5,741) 2,208 --------- --------- --------- --------- --------- Total revenues ....................... 188,403 599 6,830 (5,741) 190,091 --------- --------- --------- --------- --------- Costs and expenses: Operating .............................. 20,559 34 4,275 (5,741) 19,127 Depreciation, depletion and amortization 79,182 314 1,987 -- 81,483 General and administrative ............. 19,713 132 458 -- 20,303 Taxes other than income taxes .......... 7,104 7 45 -- 7,156 --------- --------- --------- --------- --------- Total costs and expenses ............. 126,558 487 6,765 (5,741) 128,069 --------- --------- --------- --------- --------- Operating income ..................... 61,845 112 65 -- 62,022 --------- --------- --------- --------- --------- Other income (expense): Interest income ........................ 574 -- -- -- 574 Interest expense, net .................. (31,872) (454) (1,743) -- (34,069) --------- --------- --------- --------- --------- Total other expense .................. (31,298) (454) (1,743) -- (33,495) --------- --------- --------- --------- --------- Income before income taxes ........... 30,547 (342) (1,678) -- 28,527 Income taxes-- deferred .................. 9,984 -- -- -- 9,984 --------- --------- --------- --------- --------- Net income (loss) .................... $ 20,563 $ (342) $ (1,678) $ -- $ 18,543 ========= ========= ========= ========= =========
42 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended January 31, 2002 (In thousands of dollars)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- ----------- ---------- ------------ ------------ Operating activities: Net loss ..................................... $(215,469) $ (557) $ (3,885) $ -- $(219,911) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization .... 89,110 339 1,817 -- 91,266 Impairment of gas and oil properties ........ 195,065 -- -- -- 195,065 Accretion of discount on long-term debt ..... 78 38 45 -- 161 Amortization of debt issue costs ............ 530 -- -- -- 530 Deferred income taxes ....................... (9,984) -- -- -- (9,984) Changes in assets and liabilities: Accounts receivable ...................... 27,094 -- 172 -- 27,266 Receivable from affiliates ............... (3,891) -- -- 3,912 21 Inventories .............................. 658 -- -- -- 658 Other current assets ..................... 1,724 -- 33 -- 1,757 Accounts payable ......................... (3,524) (27) 101 -- (3,450) Accrued liabilities ...................... (7,426) -- 4 -- (7,422) Transactions with affiliates, net ........ -- 834 3,078 (3,912) -- Other assets ............................. 156 -- -- -- 156 Other liabilities ........................ (1,367) -- -- -- (1,367) --------- --------- --------- --------- --------- Net cash provided by operating activities ............................ 72,754 627 1,365 -- 74,746 --------- --------- --------- --------- --------- Investing activities: Capital expenditures ......................... (132,977) (350) (998) -- (134,325) Proceeds from the sale of assets ............. 53,627 -- -- -- 53,627 --------- --------- --------- --------- --------- Net cash used by investing activities ............................ (79,350) (350) (998) -- (80,698) --------- --------- --------- --------- --------- Financing activities: Issuance of production payments .............. 49,800 -- -- -- 49,800 Issuance of long-term debt ................... 2,134 -- -- -- 2,134 Principal payments on production payments .... (36,131) -- -- -- (36,131) Principal payments on long-term debt ......... (6,103) (283) (673) -- (7,059) Revolving credit agreement net ............... (16,639) -- -- -- (16,639) Debt issue costs ............................. (309) -- -- -- (309) --------- --------- --------- --------- --------- Net cash used by financing activities .. (7,248) (283) (673) -- (8,204) --------- --------- --------- --------- --------- Decrease in cash and cash equivalents .. (13,844) (6) (306) -- (14,156) Beginning cash and cash equivalents ............ 19,902 39 774 -- 20,715 --------- --------- --------- --------- --------- Ending cash and cash equivalents ............... $ 6,058 $ 33 $ 468 $ -- $ 6,559 ========= ========= ========= ========= =========
43 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Year Ended January 31, 2001 (In thousands of dollars)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS --------- --------- --------- ------------ ------------ Operating activities: Net income (loss) ............................. $ 20,563 $ (342) $ (1,678) $ -- $ 18,543 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization .... 79,182 314 1,987 -- 81,483 Accretion of discount on long-term debt ..... 3,571 58 184 -- 3,813 Amortization of debt issue costs ............ 343 -- -- -- 343 Deferred income taxes ....................... 9,984 -- -- -- 9,984 Changes in assets and liabilities: Accounts receivable ...................... (22,984) 110 (67) -- (22,941) Receivable from affiliates ............... (1,414) -- -- 2,500 1,086 Inventories .............................. 265 -- -- -- 265 Other current assets ..................... (1,578) -- (17) -- (1,595) Accounts payable ......................... (6,645) 24 54 -- (6,567) Accrued liabilities ...................... 23,313 (11) (47) -- 23,255 Transactions with affiliates, net ........ -- 477 2,023 (2,500) -- Other assets ............................. (113) -- 1 -- (112) Other liabilities ........................ (26,635) -- -- -- (26,635) --------- --------- --------- --------- --------- Net cash provided by operating activities ........................... 77,852 630 2,440 -- 80,922 --------- --------- --------- --------- --------- Investing activities: Capital expenditures .......................... (99,853) (682) (654) -- (101,189) Proceeds from the sale of assets .............. 15,646 536 -- -- 16,182 --------- --------- --------- --------- --------- Net cash used by investing activities ........................... (84,207) (146) (654) -- (85,007) --------- --------- --------- --------- --------- Financing activities: Issuance of production payments ............. 27,000 -- -- -- 27,000 Principal payments on production payments ... (47,303) -- -- -- (47,303) Issuance of long-term debt .................. 32,500 -- -- -- 32,500 Principal payments on long-term debt ........ (15,049) (489) (1,405) -- (16,943) Revolving credit agreement, net ............. 13,739 -- -- -- 13,739 Proceeds from short-swing sale .............. 25 -- -- -- 25 Debt issue costs ............................ (2,506) -- -- -- (2,506) --------- --------- --------- --------- --------- Net cash provided (used) by financing activities ............................ 8,406 (489) (1,405) -- 6,512 --------- --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents ........................... 2,051 (5) 381 -- 2,427 Beginning cash and cash equivalents ............. 17,851 44 393 -- 18,288 --------- --------- --------- --------- --------- Ending cash and cash equivalents ................ $ 19,902 $ 39 $ 774 $ -- $ 20,715 ========= ========= ========= ========= =========
44 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 19. SUPPLEMENTAL GAS AND OIL DISCLOSURE (Unaudited) The accompanying tables present information concerning TransTexas' gas and oil producing activities and are prepared in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities." Estimates of TransTexas' proved reserves and proved developed reserves were prepared by Netherland, Sewell & Associates, Inc., an independent firm of petroleum engineers, based on data supplied to them by TransTexas. Such estimates are inherently imprecise and may be subject to substantial revisions as additional information such as reservoir performance, additional drilling, technological advancements and other factors become available. Capitalized costs relating to gas and oil producing activities are as follows (in thousands of dollars):
JANUARY 31, ---------------------- 2002 2001 -------- -------- Proved properties ............................................................ $442,974 $326,564 Unproved properties .......................................................... 45,301 81,381 -------- -------- Total ..................................................................... 488,275 407,945 Less accumulated depreciation, depletion and amortization..................... 365,182 80,145 -------- -------- $123,093 $327,800 ======== ========
Costs incurred for gas and oil producing activities are as follows (in thousands of dollars):
SUCCESSOR PREDECESSOR ---------------------- ----------- YEAR ENDED JANUARY 31, -------------------------------------- 2002 2001 2000 -------- -------- | -------- | Property acquisitions ......................................... $ 21,965 $ 20,594 | $ 6,175 Exploration ................................................... 89,850 82,004 | 43,238 Development ................................................... 22,110 -- | 4,350 -------- -------- | -------- $133,925 $102,598 | $ 53,763 ======== ======== | ========
Results of operations for gas and oil producing activities are as follows (in thousands of dollars):
SUCCESSOR PREDECESSOR ------------------------ ----------- YEAR ENDED JANUARY 31, ----------------------------------------- 2002 2001 2000 --------- --------- | ---------- | Revenues ....................................................... $ 133,138 $ 187,883 | $112,898 --------- --------- | -------- | Expenses: | Production costs ............................................. 23,381 25,723 | 29,935 Depreciation, depletion and amortization ..................... 89,973 80,145 | 73,721 General and administrative ................................... 9,017 8,578 | 10,572 Impairment of gas and oil properties ......................... 195,065 -- | -- --------- --------- | -------- Total operating expenses .................................. 317,436 114,446 | 114,228 --------- --------- | -------- Income (loss) before income taxes ......................... (184,298) 73,437 | (1,330) Income taxes (benefit) ......................................... (64,504) 25,703 | (466) --------- --------- | -------- $(119,794) $ 47,734 | $ (864) ========= ========= | ======== Depletion rate per net equivalent Mcf .......................... $ 2.98 2.22 | $ 1.89 ========= ========= | ========
45 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Reserve Quantity Information Proved reserves are estimated quantities of natural gas, condensate and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Natural gas quantities represent gas volumes which include amounts that will be extracted as natural gas liquids. TransTexas' estimated net proved reserves and proved developed reserves of natural gas (billions of cubic feet) and condensate (millions of barrels) are shown in the table below.
SUCCESSOR PREDECESSOR ------------------------------------- ------------- YEAR ENDED JANUARY 31, ------------------------------------------------------- 2002 2001 2000 --------------- ----------------- | ------------- GAS OIL GAS OIL | GAS OIL ----- ----- ----- ----- | ----- ----- | Proved reserves: | Beginning of year ................. 112.9 3.2 95.6 3.7 | 120.7 6.6 Increase (decrease) during | the year attributable to: | Revisions of previous estimates ... (15.4) (0.2) 7.9 0.4 | (4.1) (1.2) Extensions, discoveries and other | additions ........................ 5.5 0.1 42.4 0.8 | 6.8 0.1 Sales of reserves ................. (25.2) -- (6.2) (0.2) | -- -- Production ........................ (22.5) (1.3) (26.8) (1.5) | (27.8) (1.8) ----- ----- ----- ----- | ----- ----- End of year (Successor in 2000) ... 55.3 1.8 112.9 3.2 | 95.6 3.7 ===== ===== ===== ===== | ===== ===== Proved developed reserves: | Beginning of year ................. 66.9 2.0 82.3 3.5 | 87.8 5.0 End of year (Successor in 2000) (1) 33.9 1.4 66.9 2.0 | 82.3 3.5
- --------------- (1) As of January 31, 2001, proved undeveloped reserves in the amount of 5.7 Bcf of natural gas and 0.5 MMBbls of condensate became proved developed reserves in February 2001 with the casing of a well in the Eagle Bay field. Standardized Measure Information The calculation of estimated future net cash flows in the following table assumed the continuation of existing economic conditions and applied year-end prices (except for future price changes as allowed by contract) of gas and condensate to the expected future production of such reserves, less estimated future expenditures (based on current costs) to be incurred in developing and producing those proved reserves. The standardized measure of discounted future net cash flows does not purport, nor should it be interpreted, to present the fair market value of TransTexas' gas and oil reserves. These estimates reflect proved reserves only and ignore, among other things, changes in prices and costs, revenues that could result from probable reserves which could become proved reserves in fiscal 2003 or later years and the risks inherent in reserve estimates. The standardized measure of discounted future net cash flows relating to proved gas and oil reserves is as follows (in thousands of dollars): 46 TRANSTEXAS GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEAR ENDED JANUARY 31, ----------------------------------------- 2002 2001 2000 --------- --------- --------- Future cash inflows ........................ $163,275 $ 810,031 $ 361,411 Future production costs .................... (44,260) (103,245) (61,810) Future development costs ................... (39,707) (81,004) (18,302) Future income taxes ........................ -- (97,259) (18,611) -------- --------- --------- Future net cash flows ................... 79,308 528,523 262,688 Annual discount (10%) for estimated timing of cash flows ...................... (14,174) (118,355) (49,085) -------- --------- --------- Standardized measure of discounted future net cash flows .................. $ 65,134 $ 410,168 $ 213,603 ======== ========= =========
Principal sources of change in the standardized measure of discounted future net cash flows are as follows (in thousands of dollars):
SUCCESSOR PREDECESSOR ----------------------- ----------- YEAR ENDED JANUARY 31, ----------------------------------------- 2002 2001 2000 --------- --------- | --------- | Beginning of year .......................... $ 410,168 $ 213,603 | $ 161,530 Revisions: | Quantity estimates and production rates... (24,583) 84,923 | (18,829) Prices, net of lifting costs ............. (320,982) 162,231 | 136,550 Estimated future development costs ....... 44,898 7,403 | 14,534 Additions, extensions, discoveries and | improved recovery ......................... 8,697 163,384 | 10,467 Net sales of production .................... (118,297) (170,832) | (93,481) Development costs incurred ................. 22,110 -- | 4,350 Accretion of discount ...................... 39,598 18,322 | 13,615 Net changes in income taxes ................ 75,480 (60,347) | (15,133) Purchases (sales) of reserves .............. (71,955) (8,519) | -- --------- --------- | --------- End of year (Successor in 2000) .......... $ 65,134 $ 410,168 | $ 213,603 ========= ========= | =========
- ----------------------------- Year-end wellhead prices received by TransTexas from sales of natural gas, including margins from natural gas liquids, were $2.35, $6.39 and $2.74 per Mcf for 2002, 2001 and 2000, respectively. Year-end condensate prices were $18.61, $28.23 and $26.89 per barrel for 2002, 2001 and 2000, respectively. 47 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III ITEM 10. Directors and Executive Officers of the Registrant The information required by this item is incorporated by reference from TransTexas' definitive proxy statement to be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 11. Executive Compensation The information required by this item is incorporated by reference from TransTexas' definitive proxy statement to be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated by reference from TransTexas' definitive proxy statement to be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 13. Certain Relationships and Related Transactions The information required by this item is incorporated by reference from TransTexas' definitive proxy statement to be filed with the Commission within 120 days after the end of the fiscal year covered by this Form 10-K. 48 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page ---- (a) Financial Statements, Schedules and Exhibits (1) Report of Independent Accountants...................................................................... 19 Consolidated Balance Sheet............................................................................. 20 Consolidated Statement of Operations................................................................... 21 Consolidated Statement of Stockholders' Equity (Deficit)............................................... 22 Consolidated Statement of Cash Flows................................................................... 23 Notes to Consolidated Financial Statements............................................................. 24 (2) Report of Independent Accountants...................................................................... 57 Schedule II - Valuation and Qualifying Accounts........................................................ 58
(3) Exhibits EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 - Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 2.2 - Order Confirming Plan of Reorganization dated February 7, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 3.1 - Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.2 - Certificate of Designation, Series A Senior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.3 - Certificate of Designation, Series A Junior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.4 - Amended and Restated Bylaws (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.5 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 3.6 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding Amendments to Certificates of Designation) (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.1 - Pledge and Security Agreement dated as of September 19, 1996, between TransAmerican Exploration Corporation and Fleet National Bank (previously filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1996, and incorporated herein by reference). 4.2 - Registration Rights Agreement dated as of September 19, 1996, by and among TransTexas, TransAmerican, TransAmerican Exploration Corporation and Fleet National Bank (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1996, and incorporated herein by reference). 4.3 - Pledge Agreement dated as of February 23, 1995, between TEC and First Fidelity Bank, National Association, as Trustee (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S- (33-91494), and incorporated herein by reference). 49 4.4 - Pledge Agreement dated as of February 23, 1995, between TARC and First Fidelity Bank, National Association, as Trustee (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.5 - Registration Rights Agreement dated as of February 23, 1995, among TransTexas, TARC and TEC (filed as an exhibit to Post-Effective Amendment No. 5 to the Company's Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.6 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and Halliburton Company (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.7 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and RECO Industries, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.8 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and Frito-Lay, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.9 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and EM SectorHoldings, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.10 - Stock Pledge Agreement dated January 27, 1995, between TransAmerican and ITT Commercial Corp. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.11 - Registration Rights Agreement dated January 27, 1995, among TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.12 - Note Purchase Agreement dated December 13, 1996 between TransTexas and the Purchasers of 13 1/4% Series A Senior Subordinated Notes due 2003 (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.13 - Indenture dated March 15, 2000 between the Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.14 - Form of Mortgage dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.15 - Security and Pledge Agreement dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.16 - Oil and Gas Revolving Credit and Term Loan Agreement dated March 15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.17 - Form of Mortgage dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.18 - Security and Pledge Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference).
50 4.19 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank, N.A. and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.20 - Warrant Agreement, including form of Warrant Certificate, dated March 15, 2000 between the Company and ChaseMellon Shareholder Services, LLC, Warrant Agent (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.21 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Notes named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.22 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the common stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.23 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Senior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.24 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Junior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.25 - First Supplemental Indenture dated as of June 28, 2000 by and among the Company, Galveston Bay Processing Corporation, Galveston Bay Pipeline Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.26 - Amendment to Warrant Agreement dated as of March 28, 2001 between TransTexas and ChaseMellon Shareholder Services, L.L.C., Warrant Agent (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.1 - Tax Allocation Agreement dated August 24, 1993, by and among TransAmerican, TransTexas, and the other subsidiaries of TransAmerican, as amended (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-75050), and incorporated herein by reference). 10.2 - Gas Purchase Agreement dated June 8, 1987, by and between TransAmerican and The Coastal Corporation, as amended by the Amendment to Gas Purchase Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., as successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.3 - Gas Purchase Agreement dated October 29, 1987, by and between TransAmerican and The Coastal Corporation as amended by the Amendment to Gas Purchase Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.4 - Gas Transportation Agreement dated the Effective Date (as therein defined), by and between TransAmerican and The Coastal Corporation, as amended by the Amendment to Gas Transportation Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.5 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and between TransTexas and Associated Natural Gas, Inc. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1993, and incorporated herein by reference). 10.6 - Form of Indemnification Agreement by and between TransTexas and each of its directors (filed as an exhibit to TransTexas' current report on Form 8-K dated August 24, 1993 and incorporated herein by reference).
51 10.7 - Gas Purchase Agreement dated November 1, 1985, between TransAmerican and Washington Gas and Light Company, Frederick Gas Company, Inc., and Shenandoah Gas Company (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-75050), and incorporated herein by reference). 10.8 - Natural Gas Sales Agreement between TransTexas and Associated Natural Gas, Inc. dated September 30, 1993 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1993, and incorporated herein by reference). 10.9 - Amendment Extending Gas Purchase Agreement between TransTexas and Washington Gas Light Company, Inc., and Shenandoah Gas Company, as amended, dated November 1, 1993 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended January 31, 1994, and incorporated herein by reference). 10.10 - Agreement for Purchase of Production Payment between TransTexas and Southern States Exploration, Inc. dated April 1, 1994 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994, and incorporated herein by reference). 10.11 - Assignment of Proceeds Production Payment between TransTexas and Southern States Exploration, Inc. dated April 1, 1994 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994, and incorporated herein by reference). 10.12 - Transfer Agreement dated August 24, 1993, by and among TransAmerican, TransTexas, TTC, and John R. Stanley (filed as an exhibit to TransTexas' current report on Form 8-K dated August 24, 1993, and incorporated herein by reference). 10.13 - Amended and Restated Accounts Receivable Management and Security Agreement between TransTexas and BNY Financial Corporation (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1995, and incorporated herein by reference). 10.14 - Note Purchase Agreement, dated as of May 10, 1996, among TransTexas, TCW Shared Opportunity Fund II, L.P. and Jefferies & Company, Inc. (filed as an exhibit to the Company's Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.15 - Master Swap Agreement, dated June 6, 1996, between TransTexas and AIG Trading Corporation (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.16 - Purchase Agreement, dated January 30, 1996, between TransTexas and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.17 - Production Payment Conveyance, executed on January 30, 1996, from TransTexas to Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.18 - First Supplement to Purchase Agreement, dated as of February 12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.19 - First Supplement to Production Payment Conveyance, executed February 12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.20 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.21 - Production Payment Conveyance, executed May 14, 1996, from TransTexas to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership, L.P. and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference).
52 10.22 - Stock Purchase Agreement dated as of May 29, 1997 by and between TransTexas and First Union Bank of Connecticut, as trustee (filed as an exhibit to TransTexas' current report on Form 8-K dated May 29, 1997, and incorporated herein by reference). 10.23 - Interruptible Gas Transportation Agreement dated Effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.24 - Intrastate Firm Gas Transportation Agreement dated effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.25 - Master Services Contract dated May 30, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.26 - Agreement for Services dated effective March 1, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.27 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.28 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.29 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.30 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.31 - Employment Agreement dated December 1, 1997 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.32 - Purchase Agreement dated February 23, 1998 between TransTexas and TCW (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.33 - Production Payment Conveyance dated February 23, 1998 between TransTexas and TCW (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.34 - Employment Agreement dated March 17, 2000 between the Company and John R. Stanley (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.35 - Severance Agreement dated May 27, 1998 between the Company and Simon J. Ward (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.36 - Purchase Agreement dated March 14, 2000 between the Company, Southern Producer Services, L.P. ("SPS"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., TCW DR VI Investment Partnership, L.P. and TCW Asset Management Company ("TCW") (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.37 - Production Payment Conveyance dated March 14, 2000 between the Company, SPS and TCW (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference).
53 10.38 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.39 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.40 - Natural Gas Treating and Condensate Handling Agreement dated March 14, 2000 between Galveston Bay Processing Corporation and SPS (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.41 - Third Amended and Restated Accounts Receivable Management and Security Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.42 - Services Agreement dated March 17, 2000 between TNGC Holdings Corporation and the Company (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.43 - First Supplement to 2000 Production Payment Agreement, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.44 - First Supplement to 2000 Production Payment Conveyance, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.45 - Second Supplement to 2000 Production Payment Agreement, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.46 - Second Supplement to 2000 Production Payment Conveyance, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.47 - Subordination Agreement, dated as of September 7, 2000 between the Company and Firstar Bank of Minnesota, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.48 - Subordination Agreement, dated as of September 7, 2000 between the Company and GMAC Commercial Credit, LLC, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.49 - Amendment No.1 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated October 1, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.50 - Third Supplement to 2000 Production Payment Agreement, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.51 - Third Supplement to 2000 Production Payment Conveyance, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.52 - Subordination Agreement, dated as of February 7, 2001 between the Company and Firstar Bank of Minnesota, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.53 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC as Agent, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference).
54 10.54 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.55 - Fourth Supplement to 2000 Production Payment Agreement, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.56 - Fourth Supplement to 2000 Production Payment Conveyance, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.57 - Employment Agreement dated March 5, 2001 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2001, and incorporated herein by reference). 10.58 - Amendment No. 1 to Oil and Gas Revolving Credit and Term Loan Agreement dated September 7, 2001 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.59 - Fifth Supplement to 2000 Production Payment Agreement, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.60 - Fifth Supplement to 2000 Production Payment Conveyance, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.61 - Sixth Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.62 - Sixth Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.63 - Seventh Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.64 - Seventh Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 1999, and incorporated herein by reference). 21.2 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). *23.1 - Consent of Netherland, Sewell & Associates, Inc.
- ------------ * filed herewith (b) There were no reports on Form 8-K filed during the three months ended January 31, 2002. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 1, 2002. TRANSTEXAS GAS CORPORATION By: /s/ ARNOLD H. BRACKENRIDGE --------------------------------- Arnold H. Brackenridge, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on May 1, 2002.
NAME TITLE ---- ----- /s/ ARNOLD H. BRACKENRIDGE President, Chief Executive Officer and Chief Operating Officer - ----------------------------------------------------------- (Principal Executive Officer) Arnold H. Brackenridge /s/ ED DONAHUE Vice President and Chief Financial Officer - ----------------------------------------------------------- (Principal Financial and Accounting Officer) Ed Donahue /s/ R. GERALD BENNETT Director - ----------------------------------------------------------- R. Gerald Bennett /s/ RONALD BENSON Director - ----------------------------------------------------------- Ronald Benson /s/ TED E. DAVIS Director - ----------------------------------------------------------- Ted E. Davis /s/ WALTER S. PIONTEK Director - ----------------------------------------------------------- Walter S. Piontek
56 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders and Board of Directors TransTexas Gas Corporation Our audits of the consolidated financial statements referred to in our report dated April 30, 2002 appearing in the January 31, 2002 10-K of TransTexas Gas Corporation also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Houston, Texas April 30, 2002 57 Schedule II TRANSTEXAS GAS CORPORATION VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars)
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ----------- ---------- ---------- -------- ---------- ----------- Predecessor: Year ended January 31, 2000: Valuation allowance - accounts receivable ...... $ 191 $ 2,898 $ -- $(3,089)(1) $ -- (2) ======= ======= ======= ======= ======= Successor: Year ended January 31, 2001: Valuation allowance - accounts receivable ...... $ -- $ 850 $ (531) $ (319) $ -- ======= ======= ======= ======= ======= Year ended January 31, 2002: Valuation allowance - accounts receivable ...... $ -- $ 239 $ 28 $ -- $ 267 ======= ======= ======= ======= =======
- ------------------ (1) Adjustment for fresh-start reporting. (2) Successor balance at January 31, 2000. 58 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 - Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 2.2 - Order Confirming Plan of Reorganization dated February 7, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 3.1 - Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.2 - Certificate of Designation, Series A Senior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.3 - Certificate of Designation, Series A Junior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.4 - Amended and Restated Bylaws (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.5 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 3.6 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding Amendments to Certificates of Designation) (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.1 - Pledge and Security Agreement dated as of September 19, 1996, between TransAmerican Exploration Corporation and Fleet National Bank (previously filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1996, and incorporated herein by reference). 4.2 - Registration Rights Agreement dated as of September 19, 1996, by and among TransTexas, TransAmerican, TransAmerican Exploration Corporation and Fleet National Bank (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1996, and incorporated herein by reference). 4.3 - Pledge Agreement dated as of February 23, 1995, between TEC and First Fidelity Bank, National Association, as Trustee (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S- (33-91494), and incorporated herein by reference).
59 4.4 - Pledge Agreement dated as of February 23, 1995, between TARC and First Fidelity Bank, National Association, as Trustee (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.5 - Registration Rights Agreement dated as of February 23, 1995, among TransTexas, TARC and TEC (filed as an exhibit to Post-Effective Amendment No. 5 to the Company's Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.6 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and Halliburton Company (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.7 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and RECO Industries, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.8 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and Frito-Lay, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.9 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and EM SectorHoldings, Inc. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.10 - Stock Pledge Agreement dated January 27, 1995, between TransAmerican and ITT Commercial Corp. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.11 - Registration Rights Agreement dated January 27, 1995, among TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.12 - Note Purchase Agreement dated December 13, 1996 between TransTexas and the Purchasers of 13 1/4% Series A Senior Subordinated Notes due 2003 (filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration Statement on Form S-3 (33-91494), and incorporated herein by reference). 4.13 - Indenture dated March 15, 2000 between the Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.14 - Form of Mortgage dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.15 - Security and Pledge Agreement dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.16 - Oil and Gas Revolving Credit and Term Loan Agreement dated March 15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.17 - Form of Mortgage dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.18 - Security and Pledge Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference).
60 4.19 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank, N.A. and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.20 - Warrant Agreement, including form of Warrant Certificate, dated March 15, 2000 between the Company and ChaseMellon Shareholder Services, LLC, Warrant Agent (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.21 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Notes named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.22 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the common stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.23 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Senior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.24 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Junior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.25 - First Supplemental Indenture dated as of June 28, 2000 by and among the Company, Galveston Bay Processing Corporation, Galveston Bay Pipeline Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.26 - Amendment to Warrant Agreement dated as of March 28, 2001 between TransTexas and ChaseMellon Shareholder Services, L.L.C., Warrant Agent (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.1 - Tax Allocation Agreement dated August 24, 1993, by and among TransAmerican, TransTexas, and the other subsidiaries of TransAmerican, as amended (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-75050), and incorporated herein by reference). 10.2 - Gas Purchase Agreement dated June 8, 1987, by and between TransAmerican and The Coastal Corporation, as amended by the Amendment to Gas Purchase Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., as successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.3 - Gas Purchase Agreement dated October 29, 1987, by and between TransAmerican and The Coastal Corporation as amended by the Amendment to Gas Purchase Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.4 - Gas Transportation Agreement dated the Effective Date (as therein defined), by and between TransAmerican and The Coastal Corporation, as amended by the Amendment to Gas Transportation Agreement dated February 13, 1990, by and between TransAmerican and Texcol Gas Services, Inc., successor to The Coastal Corporation (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-62740), and incorporated herein by reference). 10.5 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and between TransTexas and Associated Natural Gas, Inc. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1993, and incorporated herein by reference). 10.6 - Form of Indemnification Agreement by and between TransTexas and each of its directors (filed as an exhibit to TransTexas' current report on Form 8-K dated August 24, 1993 and incorporated herein by reference).
61 10.7 - Gas Purchase Agreement dated November 1, 1985, between TransAmerican and Washington Gas and Light Company, Frederick Gas Company, Inc., and Shenandoah Gas Company (filed as an exhibit to TransTexas' Registration Statement on Form S-1 (No. 33-75050), and incorporated herein by reference). 10.8 - Natural Gas Sales Agreement between TransTexas and Associated Natural Gas, Inc. dated September 30, 1993 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1993, and incorporated herein by reference). 10.9 - Amendment Extending Gas Purchase Agreement between TransTexas and Washington Gas Light Company, Inc., and Shenandoah Gas Company, as amended, dated November 1, 1993 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended January 31, 1994, and incorporated herein by reference). 10.10 - Agreement for Purchase of Production Payment between TransTexas and Southern States Exploration, Inc. dated April 1, 1994 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994, and incorporated herein by reference). 10.11 - Assignment of Proceeds Production Payment between TransTexas and Southern States Exploration, Inc. dated April 1, 1994 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994, and incorporated herein by reference). 10.12 - Transfer Agreement dated August 24, 1993, by and among TransAmerican, TransTexas, TTC, and John R. Stanley (filed as an exhibit to TransTexas' current report on Form 8-K dated August 24, 1993, and incorporated herein by reference). 10.13 - Amended and Restated Accounts Receivable Management and Security Agreement between TransTexas and BNY Financial Corporation (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended October 31, 1995, and incorporated herein by reference). 10.14 - Note Purchase Agreement, dated as of May 10, 1996, among TransTexas, TCW Shared Opportunity Fund II, L.P. and Jefferies & Company, Inc. (filed as an exhibit to the Company's Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.15 - Master Swap Agreement, dated June 6, 1996, between TransTexas and AIG Trading Corporation (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.16 - Purchase Agreement, dated January 30, 1996, between TransTexas and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.17 - Production Payment Conveyance, executed on January 30, 1996, from TransTexas to Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.18 - First Supplement to Purchase Agreement, dated as of February 12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.19 - First Supplement to Production Payment Conveyance, executed February 12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.20 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). 10.21 - Production Payment Conveyance, executed May 14, 1996, from TransTexas to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership, L.P. and Sunflower Energy Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference).
62 10.22 - Stock Purchase Agreement dated as of May 29, 1997 by and between TransTexas and First Union Bank of Connecticut, as trustee (filed as an exhibit to TransTexas' current report on Form 8-K dated May 29, 1997, and incorporated herein by reference). 10.23 - Interruptible Gas Transportation Agreement dated Effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.24 - Intrastate Firm Gas Transportation Agreement dated effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.25 - Master Services Contract dated May 30, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.26 - Agreement for Services dated effective March 1, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.27 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.28 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.29 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.30 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.31 - Employment Agreement dated December 1, 1997 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.32 - Purchase Agreement dated February 23, 1998 between TransTexas and TCW (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.33 - Production Payment Conveyance dated February 23, 1998 between TransTexas and TCW (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 1998, and incorporated herein by reference). 10.34 - Employment Agreement dated March 17, 2000 between the Company and John R. Stanley (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.35 - Severance Agreement dated May 27, 1998 between the Company and Simon J. Ward (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.36 - Purchase Agreement dated March 14, 2000 between the Company, Southern Producer Services, L.P. ("SPS"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., TCW DR VI Investment Partnership, L.P. and TCW Asset Management Company ("TCW") (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.37 - Production Payment Conveyance dated March 14, 2000 between the Company, SPS and TCW (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference).
63 10.38 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.39 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.40 - Natural Gas Treating and Condensate Handling Agreement dated March 14, 2000 between Galveston Bay Processing Corporation and SPS (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.41 - Third Amended and Restated Accounts Receivable Management and Security Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.42 - Services Agreement dated March 17, 2000 between TNGC Holdings Corporation and the Company (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.43 - First Supplement to 2000 Production Payment Agreement, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.44 - First Supplement to 2000 Production Payment Conveyance, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.45 - Second Supplement to 2000 Production Payment Agreement, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.46 - Second Supplement to 2000 Production Payment Conveyance, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.47 - Subordination Agreement, dated as of September 7, 2000 between the Company and Firstar Bank of Minnesota, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.48 - Subordination Agreement, dated as of September 7, 2000 between the Company and GMAC Commercial Credit, LLC, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.49 - Amendment No.1 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated October 1, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.50 - Third Supplement to 2000 Production Payment Agreement, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.51 - Third Supplement to 2000 Production Payment Conveyance, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.52 - Subordination Agreement, dated as of February 7, 2001 between the Company and Firstar Bank of Minnesota, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.53 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC as Agent, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference).
64 10.54 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.55 - Fourth Supplement to 2000 Production Payment Agreement, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.56 - Fourth Supplement to 2000 Production Payment Conveyance, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.57 - Employment Agreement dated March 5, 2001 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2001, and incorporated herein by reference). 10.58 - Amendment No. 1 to Oil and Gas Revolving Credit and Term Loan Agreement dated September 7, 2001 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.59 - Fifth Supplement to 2000 Production Payment Agreement, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.60 - Fifth Supplement to 2000 Production Payment Conveyance, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.61 - Sixth Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.62 - Sixth Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.63 - Seventh Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.64 - Seventh Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 1999, and incorporated herein by reference). 21.2 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). *23.1 - Consent of Netherland, Sewell & Associates, Inc.
- ------------ * filed herewith 65 EX-23.1 3 h96327ex23-1.txt CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. EXHIBIT 23.1 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We consent to the references to our reserve report as of February 1, 2002, and to the use of our name in the Annual Report on Form 10-K of TransTexas Gas Corporation for the year ended January 31, 2002 in the form and context in which they appear. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ DANNY D. SIMMONS ----------------------------------- Danny D. Simmons Executive Vice President Houston, Texas May 1, 2002 66 -----END PRIVACY-ENHANCED MESSAGE-----