-----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, OmTMTDSyPVkVSS5iDNFdlhR4fzZnvI4El7D4MYpa+KJIbiZSWRrwd1x/PvQLpAur VKExAggEFC61/XyZEFteQg== 0000950129-02-004613.txt : 20020916 0000950129-02-004613.hdr.sgml : 20020916 20020916164921 ACCESSION NUMBER: 0000950129-02-004613 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20020916 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12204 FILM NUMBER: 02765116 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-Q 1 h99818e10vq.txt TRANSTEXAS GAS CORPORATION - PERIOD JULY 31, 2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002 ---------- 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.) ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The number of shares of Class A Common of the registrant outstanding on September 16, 2002 was 63,448,832. ================================================================================ TRANSTEXAS GAS CORPORATION TABLE OF CONTENTS
PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements: Report of Independent Accountants............................................................ 2 Condensed Consolidated Balance Sheet as of July 31, 2002 and January 31, 2002................ 3 Condensed Consolidated Statement of Operations for the Three and Six Months Ended July 31, 2002 and 2001.................................................................... 4 Condensed Consolidated Statement of Cash Flows for the Six Months Ended July 31, 2002 and 2001.................................................................... 5 Notes to Condensed Consolidated Financial Statements......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................... 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 23 Item 4. Controls and Procedures......................................................................... 23 PART II OTHER INFORMATION Item 1. Legal Proceedings............................................................................... 24 Item 4. Submission of Matters to a Vote of Security Holders............................................. 24 Item 5. Other Information............................................................................... 25 Item 6. Exhibits and Reports on Form 8-K................................................................ 25 Signature.................................................................................................. 26 Certifications............................................................................................. 27
1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of TransTexas Gas Corporation We have reviewed the accompanying condensed consolidated balance sheet of TransTexas Gas Corporation (the "Company") as of July 31, 2002 and the related condensed consolidated statements of operations for the three and six month periods ended July 31, 2002 and 2001 and the consolidated statement of cash flows for the six months ended July 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has not paid the $15 million interest payment due September 15, 2002 on its 15% Senior Secured Notes due 2005. The Company does not intend to make the $15 million interest payment within a 30-day cure period and will then be in default under terms of its debt agreements which could result in acceleration of the maturity of such obligations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of January 31, 2002, and the related consolidated statements of operations, of stockholders' equity (deficit), and of cash flows for the year then ended (not presented herein); and in our report dated April 30, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Houston, Texas September 16, 2002 2 TRANSTEXAS GAS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
JULY 31, JANUARY 31, 2002 2002 ----------- ----------- ASSETS Current assets: Cash and cash equivalents ............................................................. $ 11,238 $ 6,559 Accounts receivable ................................................................... 11,836 15,267 Inventories ........................................................................... 592 818 Other ................................................................................. 1,645 3,112 ----------- ----------- Total current assets ............................................................. 25,311 25,756 ----------- ----------- Property and equipment ................................................................... 501,896 494,748 Less accumulated depreciation, depletion and amortization ................................ 384,408 367,801 ----------- ----------- Net property and equipment - based on the full cost method of accounting for gas and oil properties of which $46,670 and $45,301 was excluded from amortization at July 31, 2002 and January 31, 2002, respectively ............................................. 117,488 126,947 ----------- ----------- Other assets ............................................................................. 2,977 2,101 ----------- ----------- $ 145,776 $ 154,804 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt .................................................. $ 6,755 $ 2,444 Accounts payable ...................................................................... 3,313 5,805 Accrued liabilities ................................................................... 26,418 26,127 Senior secured notes .................................................................. 200,000 -- ----------- ----------- Total current liabilities ........................................................ 236,486 34,376 ----------- ----------- Long-term debt, net of current maturities ................................................ 59,266 261,774 Production payments, net of current portion .............................................. 31,749 26,005 Other liabilities ........................................................................ 6,399 6,644 Redeemable preferred stock ............................................................... 99,765 72,125 Commitments and contingencies (Note 6) ................................................... -- -- Stockholders' equity (deficit): Common stock, $0.01 par value, 100,247,500 shares authorized and 1,250,251 shares issued and outstanding .............................. 12 12 Additional paid-in capital ............................................................ 25,013 25,013 Accumulated deficit ................................................................... (313,123) (273,493) Accumulated other comprehensive income ................................................ 209 2,348 ----------- ----------- Total stockholders' deficit ...................................................... (287,889) (246,120) ----------- ----------- $ 145,776 $ 154,804 =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 TRANSTEXAS GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, -------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Revenues: Gas, condensate and natural gas liquids ................. $ 19,354 $ 29,837 $ 41,009 $ 76,907 Other ................................................... 391 125 709 472 ----------- ----------- ----------- ----------- Total revenues ........................................ 19,745 29,962 41,718 77,379 ----------- ----------- ----------- ----------- Costs and expenses: Operating ............................................... 3,143 6,277 6,669 11,166 Depreciation, depletion and amortization ................ 7,141 20,749 16,637 41,082 General and administrative .............................. 3,226 5,037 9,038 10,428 Taxes other than income taxes ........................... 951 1,652 1,909 3,498 Impairment of gas and oil properties .................... -- 56,827 -- 56,827 ----------- ----------- ----------- ----------- Total costs and expenses .............................. 14,461 90,542 34,253 123,001 ----------- ----------- ----------- ----------- Operating income (loss) ............................... 5,284 (60,580) 7,465 (45,622) ----------- ----------- ----------- ----------- Other income (expense): Interest income ......................................... 17 146 33 438 Interest expense, net ................................... (9,941) (8,314) (19,488) (16,826) ----------- ----------- ----------- ----------- Total other expense ................................... (9,924) (8,168) (19,455) (16,388) ----------- ----------- ----------- ----------- Loss before income taxes .............................. (4,640) (68,748) (11,990) (62,010) Income tax benefit - deferred .............................. -- (12,342) -- (9,984) ----------- ----------- ----------- ----------- Net loss .............................................. (4,640) (56,406) (11,990) (52,026) Accretion of preferred stock ............................... 12,309 10,861 27,640 20,502 ----------- ----------- ----------- ----------- Net loss available to common stockholders ............. $ (16,949) $ (67,267) $ (39,630) $ (72,528) =========== =========== =========== =========== Basic and diluted net loss per share ....................... $ (13.56) $ (53.80) $ (31.70) $ (58.01) =========== =========== =========== =========== Weighted average number of shares outstanding for basic and diluted net loss per share .......................... 1,250,251 1,250,251 1,250,251 1,250,251 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 TRANSTEXAS GAS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JULY 31, ------------------------------ 2002 2001 ------------ ------------ Operating activities: Net loss .......................................................... $ (11,990) $ (52,026) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization ....................... 16,637 41,082 Impairment of gas and oil properties ........................... -- 56,827 Accretion of discount on long-term debt ........................ 117 (15) Amortization of debt issue costs ............................... 456 246 Deferred income taxes .......................................... -- (9,984) Changes in assets and liabilities: Accounts receivable .......................................... 3,431 21,693 Receivable from affiliates ................................... -- 8 Inventories .................................................. 226 (303) Other current assets ......................................... (672) 1,232 Accounts payable ............................................. (2,492) 15,421 Accrued liabilities .......................................... (509) (4,491) Other assets ................................................. 164 -- Other liabilities ............................................ (245) (425) ------------ ------------ Net cash provided by operating activities ................. 5,123 69,265 ------------ ------------ Investing activities: Capital expenditures .............................................. (7,593) (95,993) Proceeds from the sale of assets .................................. 514 2 ------------ ------------ Net cash used by investing activities ..................... (7,079) (95,991) ------------ ------------ Financing activities: Issuance of production payments ................................... 27,000 34,800 Principal payments on production payments ......................... (20,456) (8,304) Issuance of debt .................................................. 2,000 -- Principal payments on debt ........................................ (1,079) (2,169) Revolving credit agreement, net ................................... 745 (11,794) Debt issue costs .................................................. (1,575) (196) ------------ ------------ Net cash provided by financing activities ................. 6,635 12,337 ------------ ------------ Increase (decrease) in cash and cash equivalents .......... 4,679 (14,389) Beginning cash and cash equivalents .................................. 6,559 20,715 ------------ ------------ Ending cash and cash equivalents ..................................... $ 11,238 $ 6,326 ============ ============
See accompanying notes to condensed consolidated financial statements. 5 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL In the opinion of management, all adjustments, consisting of normal recurring accruals, have been made that are necessary to fairly state the financial position of TransTexas Gas Corporation ("TransTexas" or the "Company") as of July 31, 2002 and the results of its operations and cash flows for the interim periods ended July 31, 2002 and 2001. The condensed consolidated balance sheet as of January 31, 2002 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results of operations for interim periods should not be regarded as necessarily indicative of results that may be expected for the entire year. The financial information presented herein should be read in conjunction with the consolidated financial statements and notes included in TransTexas' annual report on Form 10-K for the year ended January 31, 2002. Unless otherwise noted, the terms "TransTexas" and the "Company" refer to TransTexas Gas Corporation and its subsidiaries, Galveston Bay Processing Corporation and Galveston Bay Pipeline Company. Comprehensive Income (Loss) A summary of the Company's comprehensive loss for the three and six months ended July 31, 2002 and 2001 is as follows (in thousands of dollars):
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Comprehensive loss: Net loss ..................................................... $ (4,640) $ (56,406) $ (11,990) $ (52,026) Cumulative effect of adopting SFAS 133 ....................... -- -- -- (1,282) Change in the fair value of hedging agreements ............... 1,063 396 (2,139) 534 Reclassification adjustments for hedge agreement settlements ................................................. -- -- -- 1,144 ------------ ------------ ------------ ------------ $ (3,577) $ (56,010) $ (14,129) $ (51,630) ============ ============ ============ ============
A summary of the Company's accumulated other comprehensive income for the period ended July 31, 2002 is as follows (in thousands of dollars): Accumulated other comprehensive income: Balance at January 31, 2002 .................................. $ $2,348 Change in the fair value of hedging agreements ............... (2,139) ------------ Balance at July 31, 2002 ..................................... $ 209 ============
Reorganization On April 19, 1999 (the "Petition Date"), TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. This filing did not include the Company's subsidiaries, Galveston Bay Processing Corporation and Galveston Bay Pipeline Company. The United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division confirmed the Company's Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (the "Plan") on February 7, 2000. The Effective Date of the Plan was March 17, 2000. Recently Issued Accounting Pronouncements In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations." SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Under SFAS 143, salvage value is not considered when determining the retirement obligation. The Company is evaluating the impact of SFAS 143, which is effective for the Company in February 2003. 6 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 did not affect the ceiling test calculation under the full cost method of accounting. The adoption of SFAS 144 effective February 1, 2002 had no impact on the Company's financial statements. In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS 145 provides guidance for income statement classification of gains or losses from extinguishment of debt and accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. SFAS 145 will be effective for the Company in February 2003 and will be used to report any debt extinguished or leases modified after that date. In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires recognition of a liability for costs associated with an exit or disposal activity when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and will be used to report any exit or disposal activity after that date. 2. LIQUIDITY In order to maintain or increase proved oil and gas reserves, TransTexas is required to make substantial capital expenditures for the exploration and development of natural gas and oil prospects. TransTexas remains highly leveraged and a substantial portion of its cash flow will be required for servicing debt and the production payment obligation. In addition, cash flow from operations is dependent on the level of gas and oil prices, which are historically volatile. Management plans to fund TransTexas' 2003 debt service requirements and capital expenditures with cash flows from operating activities and borrowings under the production payment drilling program and other financings. In addition, the Company has commenced negotiations for joint venture drilling opportunities with several unrelated entities. Should these drilling prospects not be productive or should oil and gas prices decline for a prolonged period, absent other sources of capital, the Company would substantially reduce its capital expenditures, which would limit its ability to maintain or increase production and in turn meet its debt service requirements. Asset sales and financings are restricted under the terms of the Company's debt documents and Series A Senior Preferred Stock of the Company (the "Senior Preferred Stock"). Liquidity of the Company may be adversely affected by the occurrence of the events of default and any resulting acceleration of the maturity of the Company's long-term debt as discussed in Note 3 below. 3. CREDIT AGREEMENTS AND PRODUCTION PAYMENTS Accounts Receivable Facility On the Effective Date, the Company and GMAC Commercial Credit LLC ("GMACC") entered into a Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of March 15, 2000 (the "Accounts Receivable Facility"). The Accounts Receivable Facility is a revolving credit facility secured by accounts receivable and inventory. The maximum loan amount under the facility is $15 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. The Accounts Receivable Facility matures on March 14, 2005. Advances under the facility bear interest monthly in arrears at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1%, payable monthly in arrears. As of July 31, 2002, the outstanding principal balance under the Accounts Receivable Facility was $2.1 million with availability for additional advances of approximately $0.4 million. 7 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) Production Payments In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties. The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment requires the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In June 2002, the Company closed a Ninth Supplement to the production payment whereby the Company received $13.0 million in exchange for additional properties being made subject to the production payment. As of July 31, 2002, the outstanding balance of the production payment was $35.0 million, of which $3.3 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Revolving Credit and Term Loan Agreement (the "Oil and Gas Facility") entered into by the Company, as Borrower, Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors, and with GMACC, as Lender and as Agent, places certain restrictions on the amount that may be outstanding under the production payment. Preferred Stock Dividends and Conversion to Class A Common Stock The Certificate of Designation for the Senior Preferred Stock of the Company provides for the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Senior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Series A Junior Preferred Stock ("Junior Preferred Stock" and together with the Senior Preferred Stock, the "Preferred Stock") provides for the mandatory conversion of all of the outstanding shares of Junior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Junior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for each of the Senior Preferred Stock and the Junior Preferred Stock required the payment to the holders of a cash dividend on the Senior Preferred Stock and an in-kind dividend on the Junior Preferred Stock, respectively, by the Company on June 15, 2002 and on September 15, 2002. The Company did not make the required dividend payments on either date. Therefore, the liquidation preference of the Senior Preferred Stock was increased to approximately $1.04 per share and the liquidation preference of the Junior Preferred Stock was increased to approximately $1.05 per share. As a result, on September 16, 2002, each two shares of Senior Preferred Stock was converted into one share of New Senior Preferred and into approximately 0.3596 shares of Class A Common Stock and each share of Junior Preferred Stock was converted into approximately 0.1227 shares of Class A Common Stock. No fractional shares will be issued in the conversion. The Board of Directors of the Company has determined that the fair market value of each share of the Preferred Stock and Common Stock for purposes of the conversion is less than $0.01 per share and, therefore, no cash will be paid to holders of Preferred Stock in lieu of fractional shares. In the aggregate, 164,333,875 shares of Senior Preferred Stock representing one-half of all of the outstanding Senior Preferred Stock were converted into approximately 59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior Preferred Stock representing all of the outstanding Junior Preferred stock were converted into 3,097,338 shares of Class A Common Stock. Since the Company did not pay the required dividend payments, holders of the Senior Preferred Stock will have the right, voting separately as a class, to elect all five directors to the Company's Board of Directors. The effect of the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock and all of the outstanding shares of Junior Preferred Stock into Class A Common Stock as if the conversion had occurred on July 31, 2002 is as follows (in thousands of dollars):
BALANCE CONVERSION PRO FORMA JULY 31, 2002 ADJUSTMENT JULY 31, 2002 ------------- ----------- ------------- Redeemable preferred stock .................. $ 99,765 $ (51,480) $ 48,285 =========== =========== =========== Stockholders' equity (deficit): Common stock ............................... $ 12 $ 599 $ 611 Additional paid-in capital ................. 25,013 50,881 75,894 Accumulated deficit ........................ (313,123) -- (313,123) Accumulated other comprehensive income ..... 209 -- 209 ----------- ----------- ----------- Total stockholders' deficit ............... $ (287,889) $ 51,480 $ (236,409) =========== =========== ===========
8 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) Events of Default In addition, as a result of its current cash position, the Company has not paid the $15 million interest payment due September 15, 2002 on its 15% Senior Secured Notes due 2005 ("15% Notes") and has entered the 30-day cure period described under the terms of the indenture governing the 15% Notes. The Company does not intend to make the $15 million interest payment within such cure period. If the Company does not make the $15 million interest payment within such cure period, (i) the Company will be in default under the terms of the Oil and Gas Facility, the Accounts Receivable Facility and other long-term debt of the Company which could result in acceleration of the maturity of the obligations thereunder and (ii) the Company will be in default under the indenture allowing the holders of the 15% Notes to make the outstanding debt on the 15% Notes immediately due and payable. As a consequence of these uncertainties, at July 31, 2002, the outstanding balance of $200 million of the 15% Notes was classified in current liabilities. Recapitalization The Company has entered into discussions with holders owning approximately 90% of the outstanding principal amount of the 15% Notes and the outstanding shares of Preferred Stock and with the lenders under the Oil and Gas Facility and the Accounts Receivable Facility with respect to a proposed consensual recapitalization. The Company has engaged Jefferies & Company, Inc. as a financial advisor to assist in exploring strategic alternatives in connection with such consensual recapitalization. The Company believes that any such recapitalization may significantly reduce overall debt and the Company's interest and dividend obligations. As with any recapitalization, no assurance can be given that the Company will be successful in reaching an agreement with any of its investors or lenders or in reaching agreement with the other parties to the recapitalization. In the event that negotiations are not successful, the Company will consider other available alternatives. 4. HEDGING AGREEMENTS As of July 31, 2002, the Company had entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a portion of the Company's natural gas production:
CONTRACT PRICE ------------------------------- TOTAL COLLAR VOLUMES IN ------------------------------ PERIOD MMBtus FLOOR CEILING - ------ ------------ ------------ ------------ Natural gas: February 2002 - March 2002 ...................... 590,000 $ 2.85 $ 3.30 February 2002 - July 2002 ....................... 1,267,000 3.30 3.95 April 2002 - October 2002 ....................... 1,070,000 2.85 3.35 August 2002 - October 2002 ...................... 644,000 3.10 3.40 November 2002 - March 2003 ...................... 755,000 3.50 3.95 November 2002 - March 2003 ...................... 755,000 3.50 3.90 April 2003 - October 2003 ....................... 1,284,000 3.25 4.05
For the six months ended July 31, 2002, the Company recognized hedging gains of $0.8 million, which are reflected in gas, condensate and natural gas liquids revenues. At July 31, 2002, the Company estimated that these contracts had a fair value of $0.2 million. Because substantially all of its long-term obligations at July 31, 2002 are at fixed rates, the Company considers its interest rate exposure to be minimal. The Company's borrowings under its credit facility ($2.1 million outstanding at July 31, 2002) are subject to a rate of interest that fluctuates based on short-term interest rates. The Company had no interest rate hedges at July 31, 2002. 9 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) 5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The following information reflects TransTexas' noncash financing activities (in thousands of dollars):
SIX MONTHS ENDED JULY 31, ----------------------------- 2002 2001 ------------ ------------ Financing activities: Accretion of preferred stock .................................. $ 27,640 $ 20,502 ============ ============
6. COMMITMENTS AND CONTINGENCIES Legal Proceedings TransTexas is a party to various claims and routine litigation arising in the normal course of its business. Any obligations of the Company in respect of such claims and litigation arising out of activities prior to the Petition Date were discharged or otherwise disposed of pursuant to the Plan. Recovery of these obligations, if any, will be limited to any collateral held by the claimant and/or such claimant's pro rata share of amounts available to pay general unsecured claims. Environmental Matters TransTexas' operations and properties are subject to extensive federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for various of TransTexas' operations, and these permits are subject to revocation, modification and renewal by issuing authorities. TransTexas also is subject to federal, state and local laws and regulations that impose liability for the cleanup or remediation of property which has been contaminated by the discharge or release of hazardous materials or wastes into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunctions, or both. Certain aspects of TransTexas' operations may not be in compliance with applicable environmental laws and regulations, and such noncompliance may give rise to compliance costs and administrative penalties. It is not anticipated that TransTexas will be required in the near future to expend amounts that are material to the financial condition or operations of TransTexas by reason of environmental laws and regulations, but because such laws and regulations are frequently changed and, as a result, may impose increasingly strict requirements, TransTexas is unable to predict the ultimate cost of complying with such laws and regulations. Potential Tax Liabilities Part of the debt refinancing of TransAmerican Natural Gas Corporation ("TransAmerican") in 1993 involved the cancellation of approximately $65.9 million of accrued interest and of a contingent liability for interest of $102 million owed by TransAmerican. TransAmerican has taken the federal tax position that the entire amount of this debt cancellation is excluded from its income under the cancellation of indebtedness provision (the "COD Exclusion") of the Internal Revenue Code of 1986, as amended, and has reduced its tax attributes (including its net operating loss and credit carryforwards) as a consequence of the COD Exclusion. 10 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) As a former member of the affiliated group for tax purposes (the "TNGC Consolidated Group") which included TNGC, the sole stockholder of TransAmerican, TransAmerican, TransAmerican Energy Corporation, TransTexas and TransAmerican Refining Corporation, TransTexas will be severally liable for any tax liability resulting from any transaction of the TNGC Consolidated Group that occurred during any taxable year of the TNGC Consolidated Group during which TransTexas was a member, including the above-described transaction. The IRS commenced an audit of the consolidated federal income tax returns of the TNGC Consolidated Group for its taxable years ended July 31, 1994 and July 31, 1995. The Company has been advised by the IRS that its audit has been completed and that no tax deficiencies were proposed by the IRS. TransTexas expects that a significant portion of its net operating loss carryovers ("NOLs") will be eliminated and the use of those NOLs that are not eliminated will be severely restricted as a consequence of the Plan. In addition, certain other tax attributes of TransTexas may under certain circumstances be eliminated or reduced as a consequence of the Plan. The potential elimination or reduction of NOLs and such other tax attributes may substantially increase the amount of tax payable by TransTexas. Drilling Rig Commitment During February 2001, TransTexas entered into a one-year contract with an independent contractor for utilization of a drilling rig capable of drilling wells to a depth of approximately 18,500 feet. TransTexas utilized this rig to drill wells in the Galveston Bay area. As of July 31, 2002, the balance remaining to be paid under this contract was approximately $1.0 million. Gas Delivery Commitments TransTexas has entered into contracts with Kinder Morgan Ship Channel Pipeline, L.P., formerly Tejas Ship Channel, LLC, for transportation of its production from the Eagle Bay field to the Winnie facilities at a fixed negotiated rate. Under these contracts, the Company has agreed to deliver up to 75,000 MMBtu per day of natural gas and associated condensate. The Company also entered into a contract with Centana Intrastate Pipeline Company for transportation of natural gas on a firm and interruptible basis from the Winnie facility to natural gas liquids recovery facilities located in the Beaumont/Port Arthur, Texas area, and residue gas from these facilities to various distribution points. Under the agreement, the Company has agreed to deliver up to a maximum of 56,250 Mcf of natural gas and 19,500 MMBtu of residue gas per day. Transportation fees for natural gas and residue gas are based on fixed negotiated rates. 7. RELATED PARTY TRANSACTIONS In March 2002, John R. Stanley resigned as Chief Executive Officer and as Chairman and member of the Board of Directors of the Company. Pursuant to a separation agreement, the Company is obligated to pay Mr. Stanley $3.0 million in cash in installments through November 2002, plus interest at the rate of 10% per annum until paid in full. At July 31, 2002, the severance remaining to be paid to Mr. Stanley was $1.1 million and this amount is included in accrued liabilities. On March 15, 2002, Credit Suisse First Boston Management Corporation ("CSFB") and the Company, as borrower, and Galveston Bay Processing Corporation, as guarantor, entered into an unsecured Term Loan Agreement, wherein CSFB advanced to the Company the principal sum of $2.0 million which is due and payable, together with interest at a rate of 15% per annum, on October 15, 2002. CSFB is the beneficial owner of more than 10% of the 15% Notes, Class A Common Stock, Senior Preferred Stock and Junior Preferred Stock. 8. SUPPLEMENTAL GUARANTOR INFORMATION Galveston Bay Pipeline Company and Galveston Bay Processing Corporation are guarantors of the 15% Notes and the Oil and Gas Facility. Separate financial statements of the Guarantors are not considered to be material to holders of the 15% Notes and GMACC. The following condensed consolidating financial statements present supplemental information of the Guarantors as of and for the three and six-month periods ended July 31, 2002. 11 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JULY 31, 2002 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ----------- ----------- ----------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents ......................... $ 10,804 $ 2 $ 432 $ -- $ 11,238 Accounts receivable, net .......................... 11,676 -- 160 -- 11,836 Receivables from affiliates ....................... 16,518 -- -- (16,518) -- Inventories ....................................... 592 -- -- -- 592 Other current assets .............................. 1,644 -- 1 -- 1,645 ----------- ----------- ----------- ----------- ----------- Total current assets .......................... 41,234 2 593 (16,518) 25,311 ----------- ----------- ----------- ----------- ----------- Property and equipment ............................... 487,989 2,269 11,638 -- 501,896 Less accumulated depreciation, depletion and amortization ....................................... 379,095 785 4,528 -- 384,408 ----------- ----------- ----------- ----------- ----------- Net property and equipment .................... 108,894 1,484 7,110 -- 117,488 ----------- ----------- ----------- ----------- ----------- Other assets ......................................... 2,979 -- -- (2) 2,977 ----------- ----------- ----------- ----------- ----------- $ 153,107 $ 1,486 $ 7,703 $ (16,520) $ 145,776 =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt ............... $ 6,660 $ 25 $ 70 $ -- $ 6,755 Accounts payable ................................... 3,244 3 66 -- 3,313 Accrued liabilities ................................ 26,349 -- 69 -- 26,418 Senior secured notes ............................... 200,000 -- -- -- 200,000 ----------- ----------- ----------- ----------- ----------- Total current liabilities ..................... 236,253 28 205 -- 236,486 ----------- ----------- ----------- ----------- ----------- Payable to affiliates ................................ -- 2,263 14,255 (16,518) -- Long-term debt, net of current maturities ............ 58,799 355 112 -- 59,266 Production payments, net of current portion .......... 31,749 -- -- -- 31,749 Other liabilities .................................... 6,399 -- -- -- 6,399 Redeemable preferred stock ........................... 99,765 -- -- -- 99,765 Stockholders' equity (deficit): Common stock ....................................... 12 -- -- -- 12 Additional paid-in capital ......................... 25,013 1 1 (2) 25,013 Accumulated deficit ................................ (305,092) (1,161) (6,870) -- (313,123) Accumulated other comprehensive income ............. 209 -- -- -- 209 ----------- ----------- ----------- ----------- ----------- Total stockholders' deficit ................... (279,858) (1,160) (6,869) (2) (287,889) ----------- ----------- ----------- ----------- ----------- $ 153,107 $ 1,486 $ 7,703 $ (16,520) $ 145,776 =========== =========== =========== =========== ===========
12 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 31, 2002 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
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 ............................ (267,031) (899) (5,563) -- (273,493) Accumulated other comprehensive income ......... 2,348 -- -- -- 2,348 ------------ ------------ ------------ ------------ ------------ Total stockholders' deficit ................ (239,658) (898) (5,562) (2) (246,120) ------------ ------------ ------------ ------------ ------------ $ 160,152 $ 1,647 $ 8,530 $ (15,525) $ 154,804 ============ ============ ============ ============ ============
13 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JULY 31, 2002 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Revenues: Gas, condensate and natural gas liquids ... $ 19,354 $ -- $ -- $ -- $ 19,354 Other ..................................... 146 5 980 (740) 391 ------------ ------------ ------------ ------------ ------------ Total revenues .......................... 19,500 5 980 (740) 19,745 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Operating ................................. 2,924 10 949 (740) 3,143 Depreciation depletion and amortization ... 6,771 57 313 -- 7,141 General and administrative ................ 3,203 5 18 -- 3,226 Taxes other than income taxes ............. 922 -- 29 -- 951 ------------ ------------ ------------ ------------ ------------ Total costs and expenses ................ 13,820 72 1,309 (740) 14,461 ------------ ------------ ------------ ------------ ------------ Operating income (loss) ................. 5,680 (67) (329) -- 5,284 ------------ ------------ ------------ ------------ ------------ Other income (expense): Interest income ........................... 16 -- 1 -- 17 Interest expense, net ..................... (9,496) (62) (383) -- (9,941) ------------ ------------ ------------ ------------ ------------ Total other expense ..................... (9,480) (62) (382) -- (9,924) ------------ ------------ ------------ ------------ ------------ Net loss ................................ $ (3,800) $ (129) $ (711) $ -- $ (4,640) ============ ============ ============ ============ ============
14 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JULY 31, 2001 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Revenues: Gas, condensate and natural gas liquids ... $ 29,837 $ -- $ -- $ -- $ 29,837 Other ..................................... 17 89 430 (411) 125 ------------ ------------ ------------ ------------ ------------ Total revenues .......................... 29,854 89 430 (411) 29,962 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Operating ................................. 5,515 3 1,170 (411) 6,277 Depreciation, depletion and amortization .. 20,305 68 376 -- 20,749 General and administrative ................ 5,004 1 32 -- 5,037 Taxes other than income taxes ............. 1,627 1 24 -- 1,652 Impairment of gas and oil properties ...... 56,827 -- -- -- 56,827 ------------ ------------ ------------ ------------ ------------ Total costs and expenses ................ 89,278 73 1,602 (411) 90,542 ------------ ------------ ------------ ------------ ------------ Operating income (loss) ................. (59,424) 16 (1,172) -- (60,580) ------------ ------------ ------------ ------------ ------------ Other income (expense): Interest income ........................... 144 -- 2 -- 146 Interest expense, net ..................... (7,853) (76) (385) -- (8,314) ------------ ------------ ------------ ------------ ------------ Total other expense ..................... (7,709) (76) (383) -- (8,168) ------------ ------------ ------------ ------------ ------------ Loss before income taxes ................ (67,133) (60) (1,555) -- (68,748) Income tax benefit - deferred ................ (12,342) -- -- -- (12,342) ------------ ------------ ------------ ------------ ------------ Net loss ................................ $ (54,791) $ (60) $ (1,555) $ -- $ (56,406) ============ ============ ============ ============ ============
15 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED JULY 31, 2002 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Revenues: Gas, condensate and natural gas liquids ... $ 41,009 $ -- $ -- $ -- $ 41,009 Other ..................................... 146 15 2,252 (1,704) 709 ------------ ------------ ------------ ------------ ------------ Total revenues .......................... 41,155 15 2,252 (1,704) 41,718 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Operating ................................. 6,388 12 1,973 (1,704) 6,669 Depreciation, depletion and amortization .. 15,787 132 718 -- 16,637 General and administrative ................ 8,997 6 35 -- 9,038 Taxes other than income taxes ............. 1,839 -- 70 -- 1,909 ------------ ------------ ------------ ------------ ------------ Total costs and expenses ................ 33,011 150 2,796 (1,704) 34,253 ------------ ------------ ------------ ------------ ------------ Operating income (loss) ................. 8,144 (135) (544) -- 7,465 ------------ ------------ ------------ ------------ ------------ Other income (expense): Interest income ........................... 31 -- 2 -- 33 Interest expense, net ..................... (18,595) (127) (766) -- (19,488) ------------ ------------ ------------ ------------ ------------ Total other expense ..................... (18,564) (127) (764) -- (19,455) ------------ ------------ ------------ ------------ ------------ Net loss ................................ $ (10,420) $ (262) $ (1,308) $ -- $ (11,990) ============ ============ ============ ============ ============
16 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED JULY 31, 2001 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Revenues: Gas, condensate and natural gas liquids ... $ 76,907 $ -- $ -- $ -- $ 76,907 Other ..................................... 68 141 1,607 (1,344) 472 ------------ ------------ ------------ ------------ ------------ Total revenues .......................... 76,975 141 1,607 (1,344) 77,379 ------------ ------------ ------------ ------------ ------------ Costs and expenses: Operating ................................. 10,002 4 2,504 (1,344) 11,166 Depreciation, depletion and amortization .. 40,224 136 722 -- 41,082 General and administrative ................ 10,395 -- 33 -- 10,428 Taxes other than income taxes ............. 3,438 1 59 -- 3,498 Impairment of gas and oil properties ...... 56,827 -- -- -- 56,827 ------------ ------------ ------------ ------------ ------------ Total costs and expenses ................ 120,886 141 3,318 (1,344) 123,001 ------------ ------------ ------------ ------------ ------------ Operating loss .......................... (43,911) -- (1,711) -- (45,622) ------------ ------------ ------------ ------------ ------------ Other income (expense): Interest income ........................... 434 -- 4 -- 438 Interest expense, net ..................... (15,893) (151) (782) -- (16,826) ------------ ------------ ------------ ------------ ------------ Total other expense ..................... (15,459) (151) (778) -- (16,388) ------------ ------------ ------------ ------------ ------------ Loss before income taxes ................ (59,370) (151) (2,489) -- (62,010) Income tax benefit - deferred ................ (9,984) -- -- -- (9,984) ------------ ------------ ------------ ------------ ------------ Net loss ................................ $ (49,386) $ (151) $ (2,489) $ -- $ (52,026) ============ ============ ============ ============ ============
17 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JULY 31, 2002 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Operating activities: Net loss ..................................... $ (10,420) $ (262) $ (1,308) $ -- $ (11,990) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation depletion and amortization .... 15,787 132 718 -- 16,637 Accretion of discount on long-term debt .... 89 14 14 -- 117 Amortization of debt issue costs ........... 456 -- -- -- 456 Changes in assets and liabilities: Accounts receivable ...................... 3,357 -- 74 -- 3,431 Receivable from affiliates ............... (967) -- -- 967 -- Inventories .............................. 226 -- -- -- 226 Other current assets ..................... (673) -- 1 -- (672) Accounts payable ......................... (2,302) 3 (193) -- (2,492) Accrued liabilities ...................... (566) -- 57 -- (509) Transactions with affiliates, net ........ -- 315 652 (967) -- Other assets ............................. 164 -- -- -- 164 Other liabilities ........................ (245) -- -- -- (245) ------------ ------------ ------------ ------------ ------------ Net cash provided by operating activities .................. 4,906 202 15 -- 5,123 ------------ ------------ ------------ ------------ ------------ Investing activities: Capital expenditures ......................... (7,590) (2) (1) -- (7,593) Proceeds from the sale of assets ............. 514 -- -- -- 514 ------------ ------------ ------------ ------------ ------------ Net cash used by investing activities ................. (7,076) (2) (1) -- (7,079) ------------ ------------ ------------ ------------ ------------ Financing activities: Issuance of production payments .............. 27,000 -- -- -- 27,000 Principal payments on production payments .... (20,456) -- -- -- (20,456) Issuance of debt ............................. 2,000 -- -- -- 2,000 Principal payments on long-term debt ......... (798) (231) (50) -- (1,079) Revolving credit agreement, net .............. 745 -- -- -- 745 Debt issue costs ............................. (1,575) -- -- -- (1,575) ------------ ------------ ------------ ------------ ------------ Net cash provided (used) by financing activities .................. 6,916 (231) (50) -- 6,635 ------------ ------------ ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents ...................... 4,746 (31) (36) -- 4,679 Beginning cash and cash equivalents ............ 6,058 33 468 -- 6,559 ------------ ------------ ------------ ------------ ------------ Ending cash and cash equivalents ............... $ 10,804 $ 2 $ 432 $ -- $ 11,238 ============ ============ ============ ============ ============
18 TRANSTEXAS GAS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED JULY 31, 2001 (IN THOUSANDS OF DOLLARS) (UNAUDITED)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ------------ ------------ ------------ ------------ ------------ Operating activities: Net loss ...................................... $ (49,386) $ (151) $ (2,489) $ -- $ (52,026) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization .... 40,224 136 722 -- 41,082 Impairment of gas and oil properties ........ 56,827 -- -- -- 56,827 Accretion of discount on long-term debt ..... (64) 20 29 -- (15) Amortization of debt issue costs ............ 246 -- -- -- 246 Deferred income taxes ....................... (9,984) -- -- -- (9,984) Changes in assets and liabilities: Accounts receivable ....................... 21,640 -- 53 -- 21,693 Receivable from affiliates ................ (2,992) -- -- 3,000 8 Inventories ............................... (303) -- -- -- (303) Other current assets ...................... 1,387 (184) 29 -- 1,232 Accounts payable .......................... 15,210 21 190 -- 15,421 Accrued liabilities ....................... (4,536) -- 45 -- (4,491) Transactions with affiliates, net ......... -- 549 2,451 (3,000) -- Other liabilities ......................... (425) -- -- -- (425) ------------ ------------ ------------ ------------ ------------ Net cash provided by operating activities .................... 67,844 391 1,030 -- 69,265 ------------ ------------ ------------ ------------ ------------ Investing activities: Capital expenditures .......................... (94,800) (308) (885) -- (95,993) Proceeds from the sale of assets .............. 2 -- -- -- 2 ------------ ------------ ------------ ------------ ------------ Net cash used by investing activities ................... (94,798) (308) (885) -- (95,991) ------------ ------------ ------------ ------------ ------------ Financing activities: Issuance of production payments ............... 34,800 -- -- -- 34,800 Principal payments on production payments ..... (8,304) -- -- -- (8,304) Principal payments on long-term debt .......... (1,487) (59) (623) -- (2,169) Revolving credit agreement, net ............... (11,794) -- -- -- (11,794) Debt issue costs .............................. (196) -- -- -- (196) ------------ ------------ ------------ ------------ ------------ Net cash provided (used) by financing activities .................... 13,019 (59) (623) -- 12,337 ------------ ------------ ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents ........................ (13,935) 24 (478) -- (14,389) Beginning cash and cash equivalents ............. 19,902 39 774 -- 20,715 ------------ ------------ ------------ ------------ ------------ Ending cash and cash equivalents ................ $ 5,967 $ 63 $ 296 $ -- $ 6,326 ============ ============ ============ ============ ============
19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto of TransTexas included elsewhere in this report. RESULTS OF OPERATIONS General TransTexas' results of operations are dependent upon natural gas production volumes and unit prices from sales of natural gas, condensate and natural gas liquids ("NGLs"). The profitability of TransTexas also depends on its ability to minimize finding and lifting costs and maintain its reserve base while maximizing production. TransTexas' operating data for the three and six months ended July 31, 2002 and 2001 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Sales volumes: Gas (Bcf) ............................... 2.9 5.5 6.5 11.3 NGLs (MMgal) ............................ 9.3 4.2 20.6 16.8 Condensate (MBbls) ...................... 225 235 548 536 Average prices: Gas (dry) (per Mcf) ..................... $ 3.49 $ 4.04 $ 3.11 $ 5.02 NGLs (per gallon) ....................... 0.32 0.37 0.30 0.45 Condensate (per Bbl) .................... 26.04 26.16 24.26 27.10 Number of gross wells drilled ................ -- 6 -- 11 Percentage of wells completed ................ -- 100% -- 91%
A summary of TransTexas' operating expenses is set forth below (in millions of dollars):
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, --------------------------- --------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Operating costs and expenses: Lease ................................... $ 1.8 $ 4.0 $ 3.8 $ 6.3 Pipeline and gathering .................. 1.4 2.3 2.9 4.9 ------------ ------------ ------------ ------------ 3.2 6.3 6.7 11.2 Taxes other than income taxes (severance, property and other taxes) ... 0.9 1.7 1.9 3.5 ------------ ------------ ------------ ------------ $ 4.1 $ 8.0 $ 8.6 $ 14.7 ============ ============ ============ ============
TransTexas' average depletion rates have been as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JULY 31, JULY 31, ----------------------------- -------------------------- 2002 2001 2002 2001 ------------- ------------ ------------ ------------ Depletion rates (per Mcfe) ................... $ 1.63 $ 2.92 $ 1.62 $ 2.77 ============ ============ ============ ============
Three Months Ended July 31, 2002 Compared with the Three Months Ended July 31, 2001 Gas, condensate and NGL revenues for the three months ended July 31, 2002 decreased $10.5 million from the prior period, due primarily to a decrease in natural gas sales volumes. Approximately 1.0 Bcf of the decrease in natural gas volumes for the three months ended July 31, 2002 was attributable to the sale of TransTexas' interest in the Bob West field and approximately 1.2 Bcf of the decrease is attributable to reduced production rates from wells in the Southwest Bonus field. The average monthly prices received per Mcf of gas ranged from $3.40 to $3.56 in the three months ended July 31, 2002, compared to a range of $3.44 to $5.22 in the prior period. 20 Lease operating expenses for the three months ended July 31, 2002 decreased $2.2 million from the prior period due primarily to a decrease in workover expenses and fewer number of productive wells due to the sale of the Bob West field. Pipeline and gathering expenses decreased $0.9 million from the prior period due primarily to lower labor costs. Depreciation, depletion and amortization expense for the three months ended July 31, 2002 decreased $13.6 million due to a $1.29 per Mcfe decrease in the depletion rate. General and administrative expenses decreased $1.8 million primarily as a result of lower personnel and related costs. Taxes other than income taxes decreased by $0.8 million over the prior period due primarily to lower severance and production taxes. Interest expense for the three months ended July 31, 2002 increased by $1.6 million from the prior period due primarily to lower capitalized interest. The impairment loss for the three months ended July 31, 2001 relates to a write-down of $56.8 million of TransTexas' net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. The cost center ceiling at July 31, 2001 decreased from that at April 30 and January 31, 2001 primarily due to a decrease in prices for natural gas and condensate. Six Months Ended July 31, 2002 Compared With the Six Months Ended July 31, 2001 Gas, condensate and NGL revenues for the six months ended July 31, 2002 decreased $35.9 million from the prior period, due primarily to lower prices for all products and lower natural gas sales volumes. Approximately 2.0 Bcf of the decrease in natural gas volumes for the six months ended July 31, 2002 was attributable to the sale of TransTexas' interest in the Bob West field and approximately 2.2 Bcf of the decrease is attributable to reduced production rates from wells in the Southwest Bonus field. The average monthly prices received per Mcf of gas ranged from $2.16 to $3.62 in the six months ended July 31, 2002, compared to a range of $3.44 to $6.73 in the prior period. Lease operating expenses for the six months ended July 31, 2002 decreased $2.5 million from the prior period due primarily to a decrease in workover expenses and fewer number of productive wells due to the sale of the Bob West field. Pipeline and gathering expenses decreased $2.0 million from the prior period due primarily to the lower cost of natural gas used in operations and lower labor costs. Depreciation, depletion and amortization expense for the six months ended July 31, 2002 decreased $24.4 million due to a $1.15 per Mcfe decrease in the depletion rate. General and administrative expenses decreased $1.4 million primarily as a result of lower professional fees. Interest income decreased $0.4 million compared to the prior period due to lower cash balances available for investment. Interest expense for the six months ended July 31, 2002 increased by $2.7 million from the prior period due to lower capitalized interest. The impairment loss for the six months ended July 31, 2001 relates to a write-down of $56.8 million of TransTexas' net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. The cost center ceiling at July 31, 2001 decreased from that at April 30 and January 31, 2001 primarily due to a decrease in prices for natural gas and condensate. LIQUIDITY AND CAPITAL RESOURCES On April 19, 1999, TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. This filing did not include the Company's subsidiaries, Galveston Bay Processing Corporation and Galveston Bay Pipeline Company. The United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division confirmed the Plan on February 7, 2000. The Effective Date of the Plan was March 17, 2000. On the Effective Date, the Company and GMAC entered into the Accounts Receivable Facility. The Accounts Receivable Facility is a revolving credit facility secured by accounts receivable and inventory. The maximum loan amount under the facility is $15 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. The Accounts Receivable Facility matures on March 14, 2005. Advances under the facility bear interest monthly in arrears at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in arrears. As of July 31, 2002, the outstanding principal balance under the Accounts Receivable Facility was $2.1 million, with availability for additional advances of approximately $0.4 million. In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties. The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment requires the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In June 2002, the Company closed a Ninth Supplement to the production payment whereby the Company received $13.0 million in exchange for additional properties being made subject to the production payment. As of July 31, 2002, the outstanding balance of the production payment 21 was $35.0 million, of which $3.3 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Facility places certain restrictions on the amount that may be outstanding under the production payment. On March 15, 2002, CSFB and the Company, as borrower, and Galveston Bay Processing Corporation, as guarantor, entered into an unsecured Term Loan Agreement, wherein CSFB advanced to the Company the principal sum of $2.0 million which is due and payable, together with interest at a rate of 15% per annum, on October 15, 2002. CSFB is the beneficial owner of more than 10% of the 15% Notes, Class A Common Stock, Senior Preferred Stock and Junior Preferred Stock. TransTexas is highly leveraged and has significant cash requirements for servicing debt and the production payment obligation and significant charges to net income available for common stockholders for Senior Preferred Stock and Junior Preferred Stock dividends. In order to maintain or increase proved oil and gas reserves, TransTexas must continue to make substantial capital expenditures for the exploration and development of its natural gas and oil prospects. For the six months ended July 31, 2002, total capital expenditures incurred were $8 million, including $3 million for capitalized interest, $1 million for nonproducing leases and $4 million for drilling and development. Capital expenditures for the remainder of fiscal year 2003 are estimated to be approximately $15 million. Management plans to fund TransTexas' 2003 debt service requirements and capital expenditures with cash flows from operating activities and borrowings under the production payment drilling program and other financings. In addition, the Company has commenced negotiations for joint venture drilling opportunities with several unrelated entities. Should these drilling prospects not be productive or should oil and gas prices decline for a prolonged period, absent other sources of capital, the Company would substantially reduce its capital expenditures, which would limit its ability to maintain or increase production and in turn meet its debt service requirements. Asset sales and financings are restricted under the terms of the Company's debt documents and Senior Preferred Stock. Preferred Stock Dividends and Conversion to Class A Common Stock The Certificate of Designation for the Senior Preferred Stock of the Company provides for the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Senior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Junior Preferred Stock provides for the mandatory conversion of all of the outstanding shares of Junior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Junior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. Upon the occurrence of the mandatory conversion specified above, the outstanding shares of Senior Preferred Stock and Junior Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Class A Common Stock issuable upon such conversion unless the certificates evidencing such shares of Senior Preferred Stock and Junior Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder thereof notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such mandatory conversion of the Preferred Stock, the holders of Preferred Stock shall surrender the certificates representing each share of such Preferred Stock at the office of the Company or any transfer agent for the Preferred Stock. Thereupon, there shall be issued and delivered to each such holder of Senior Preferred Stock promptly at such office and in its name as shown on such surrendered certificate or certificates, (i) a certificate or certificates for the number of shares of Class A Common Stock into which one-half of the number of shares of Senior Preferred Stock surrendered by such holder were convertible on the date on which such automatic conversion occurred, and (ii) a certificate or certificates for one-half of the number of shares of Senior Preferred surrendered by such holder. Thereupon, there shall be issued and delivered to each such holder of Junior Preferred Stock promptly at such office and in its name as shown on such surrendered certificate or certificates a certificate or certificates for the number of shares of Class A Common Stock into which the shares of Junior Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. The Certificate of Designation for each of the Senior Preferred Stock and the Junior Preferred Stock required the payment to the holders of a cash dividend on the Senior Preferred Stock and an in-kind dividend on the Junior Preferred Stock, respectively, by the Company on June 15, 2002 and on September 15, 2002. The Company did not make the required dividend payments on either date. Therefore, the liquidation preference of the Senior Preferred Stock was increased to approximately $1.04 per share and the liquidation preference of the Junior Preferred Stock was increased to approximately $1.05 per share. As a result, on September 16, 2002, each two shares of Senior Preferred Stock was converted into one share of New Senior Preferred and into approximately 0.3596 shares of Class A Common Stock and each share of Junior Preferred Stock was converted into approximately 0.1227 shares of Class A Common Stock. No fractional shares will be issued in the conversion. The Board of Directors of the Company has determined that the fair market value of each share of the Preferred Stock and Common Stock for purposes of the conversion is less than $0.01 per share and, therefore, no cash will be paid to holders of Preferred Stock in lieu of fractional shares. In the aggregate 164,333,875 shares of Senior Preferred Stock representing one-half of all of the outstanding Senior Preferred Stock were converted into 59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior Preferred Stock representing all of the outstanding Junior Preferred Stock were converted into 3,097,338 shares of Class A Common Stock. Since the Company did not pay the required dividend payments, holders of the Senior Preferred Stock will have the right, voting separately as a class, to elect all five directors to the Company's Board of Directors. Events of Default In addition, as a result of its current cash position, the Company has not paid the $15 million interest payment due September 15, 2002 on the 15% Notes and has entered the 30-day cure period described under the terms of the indenture governing the 15% Notes. The Company does not intend to make the $15 million interest payment within such cure period. If the Company does not make the $15 million interest payment within such cure period, (i) the Company will be in default under the terms of the Oil and Gas Facility, the Accounts Receivable Facility and other long-term debt of the Company which could result in acceleration of the maturity of the obligations thereunder and (ii) the Company will be in default under the indenture allowing the holders of the 15% Notes to make the outstanding debt on the 15% Notes immediately due and payable. Recapitalization The Company has entered into discussions with holders owning approximately 90% of the outstanding principal amount of the 15% Notes and the outstanding shares of Preferred Stock and with the lenders under the Oil and Gas Facility and the Accounts Receivable Facility with respect to a proposed consensual recapitalization. The Company has engaged Jefferies & Company, Inc. as a financial advisor to assist in exploring strategic alternatives in connection with such consensual recapitalization. The Company believes that any such recapitalization may significantly reduce overall debt and the Company's interest and dividend obligations. As with any recapitalization, no assurance can be given that the Company will be successful in reaching an agreement with any of its investors or lenders or in reaching agreement with the other parties to the recapitalization. In the event that negotiations are not successful, the Company will consider other available alternatives. Potential Tax Liabilities Part of the debt refinancing of TransAmerican in 1993 involved the cancellation of approximately $65.9 million of accrued interest and of a contingent liability for interest of $102 million owed by TransAmerican. TransAmerican has taken the federal tax position that the entire amount of this debt cancellation is excluded from its income under the COD Exclusion and has reduced its tax attributes (including its net operating loss and credit carryforwards) as a consequence of the COD Exclusion. As a former member of the TNGC Consolidated Group which included TNGC, the sole stockholder of TransAmerican, TransAmerican, TransAmerican Energy Corporation, TransTexas and TransAmerican Refining Corporation, TransTexas will be severally liable for any tax liability resulting from any transaction of the TNGC Consolidated Group that occurred during any taxable year of the TNGC Consolidated Group during which TransTexas was a member, including the above-described transaction. The IRS has commenced an audit of the consolidated federal income tax returns of the TNGC Consolidated Group for its taxable years ended July 31, 1994 and July 31, 1995. The Company has been advised by the IRS that its audit has been completed and that no tax deficiencies were proposed by the IRS. 22 TransTexas expects that a significant portion of its NOLs will be eliminated and the use of those NOLs that are not eliminated will be severely restricted as a consequence of the Plan. In addition, certain other tax attributes of TransTexas may under certain circumstances be eliminated or reduced as a consequence of the Plan. The potential elimination or reduction of NOLs and such other tax attributes may substantially increase the amount of tax payable by TransTexas. Forward-Looking Statements Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, are included throughout this report. All statements other than statements of historical facts included in this report regarding TransTexas' financial position, business strategy, and plans and objectives of management for future operations, including, but not limited to words such as "anticipates," "expects," "estimates," "believes" and "likely" indicate forward-looking statements. TransTexas' management believes its current views and expectations are based on reasonable assumptions; however, there are significant risks and uncertainties that could significantly affect expected results. Factors that could cause actual results to differ materially from those in the forward-looking statements include fluctuations in the commodity prices for natural gas, crude oil, condensate and natural gas liquids, the extent of TransTexas' success in discovering, developing and producing reserves, conditions in the equity and capital markets, competition and the ultimate resolution of litigation. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from adverse changes in prices for natural gas, condensate and oil and interest rates as discussed below. The Company's revenues, profitability, access to capital and future rate of growth are substantially dependent upon the prevailing prices of natural gas, condensate and oil. These prices are subject to wide fluctuations in response to relatively minor changes in supply and demand and a variety of additional factors beyond the Company's control. From time to time, the Company has utilized hedging transactions with respect to a portion of its gas and oil production to achieve a more predictable cash flow, as well as to reduce exposure to price fluctuations. While hedging limits the downside risk of adverse price movements, it may also limit future revenues from favorable price movements. Because gains or losses associated with hedging transactions are included in gas and oil revenues when the hedged volumes are delivered, such gains and losses are generally offset by similar changes in the realized prices of commodities. As of July 31, 2002, the Company had entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a portion of the Company's natural gas production:
CONTRACT PRICE ----------------------------- TOTAL COLLAR VOLUMES IN ----------------------------- PERIOD MMBtus FLOOR CEILING - ------ ------------ ------------ ------------ Natural gas: February 2002 - March 2002 ............ 590,000 $ 2.85 $ 3.30 February 2002 - July 2002 ............. 1,267,000 3.30 3.95 April 2002 - October 2002 ............. 1,070,000 2.85 3.35 August 2002 - October 2002 ............ 644,000 3.10 3.40 November 2002 - March 2003 ............ 755,000 3.50 3.95 November 2002 - March 2003 ............ 755,000 3.50 3.90 April 2003 - October 2003 ............. 1,284,000 3.25 4.05
For the six months ended July 31, 2002, the Company recognized hedging gains of $0.8 million, which are reflected in gas, condensate and natural gas liquids revenues. At July 31, 2002, the Company estimated that these contracts had a fair value of $0.2 million. Because substantially all of its long-term obligations at July 31, 2002 are at fixed rates, the Company considers its interest rate exposure to be minimal. The Company's borrowings under its credit facility ($2.1 million outstanding at July 31, 2002) are subject to a rate of interest that fluctuates based on short-term interest rates. The Company had no interest rate hedges at July 31, 2002. ITEM 4. CONTROLS AND PROCEDURES Not applicable. 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 6 to the condensed consolidated financial statements for a discussion of TransTexas' legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting on June 17, 2002. The matters voted on included: The election of two persons to serve as Class II directors of the Company for a three-year term. Votes representing shares of Senior Preferred Stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Not Voted ------------- ------------- -------------- R. Gerald Bennett 316,206,189 86,024 12,375,537 Ronald H. Benson 316,206,189 86,024 12,375,537
The election of one person to serve as a Class III director of the Company for the unexpired portion of a three-year term. Votes representing shares of all classes of stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Not Voted ------------- ------------- -------------- Vincent J. Intrieri 342,612,082 87,023 12,459,409
Approval of the amendments to the Certificate of Designation for the Senior Preferred Stock. Votes representing shares of Senior Preferred Stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Abstained Not Voted ------------- ------------- -------------- --------------- 185,542,726 112,905,947 27,492 30,191,585
Approval of the amendments to the Certificate of Designation for the Junior Preferred Stock. Votes representing shares of Junior Preferred Stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Abstained Not Voted ------------- ------------- -------------- --------------- 20,697,227 -- 4,432,478 110,808
Approval of the amendment to the Certification of Incorporation to change the name of the Company. Votes representing shares of all classes of stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Abstained Not Voted ------------- ------------- ------------- --------------- 338,131,274 97,262 4,470,569 12,459,409
Approval of the amendment to the Certification of Incorporation to increase the number of authorized shares of Class A Common Stock. Votes representing shares of all classes of stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Abstained Not Voted ------------- ------------- -------------- --------------- 206,984,202 113,271,088 4,466,477 30,436,777
Ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants for fiscal year 2003. Votes representing shares of all classes of stock were cast (or shares were not voted) on this proposal as follows:
For Withheld Abstained Not Voted ------------- ------------- -------------- --------------- 338,185,564 63,212 4,450,329 12,459,409
24 ITEM 5. OTHER INFORMATION See "Preferred Stock Dividends and Conversion to Class A Common Stock", "Events of Default" and "Recapitalization" under "Liquidity and Capital Resources" contained in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" above. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT NUMBER DESCRIPTION 10.1 Amendment No. 2 to Oil and Gas Revolving Credit and Term Loan Agreement dated June 6, 2002 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors. 10.2 Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated June 6, 2002 between TransTexas and GMAC Commercial Credit LLC. 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the three months ended July 31, 2002. 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSTEXAS GAS CORPORATION By: /s/ ED DONAHUE ------------------------------------------- Ed Donahue Vice President and Chief Financial Officer September 16, 2002 26 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Arnold H. Brackenridge, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 16, 2002 /s/ ARNOLD H. BRACKENRIDGE ---------------------------------------- Arnold H. Brackenridge President and Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Ed Donahue, certify that: 1. I have reviewed this quarterly report on Form 10-Q of TransTexas Gas Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 16, 2002 /s/ ED DONAHUE ------------------------------------------ Ed Donahue Vice President and Chief Financial Officer Note: Pursuant to the Transition Provisions of Exchange Act Release No. 34-46427, paragraphs 4, 5 and 6 of the certifications above have been omitted because this Form 10-Q covers a period ending before the Effective Date of Rules 13a-14 and 15d-14. 27 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Amendment No. 2 to Oil and Gas Revolving Credit and Term Loan Agreement dated June 6, 2002 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors. 10.2 Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated June 6, 2002 between TransTexas and GMAC Commercial Credit LLC. 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-10.1 3 h99818exv10w1.txt AMEND.NO.2 TO OIL & GAS REVOLVING CREDIT & TERM EXHIBIT 10.1 AMENDMENT NO. 2 TO OIL & GAS REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS AMENDMENT NO. 2 (this "Amendment") is entered into as of June 6, 2002, by and among TRANSTEXAS GAS CORPORATION, a Delaware corporation ("Borrower"), the financial institutions set forth on the signature pages hereto (each a "Lender" and collectively, "Lenders") and GMAC COMMERCIAL CREDIT LLC as agent for Lenders (in such capacity, "Agent"). BACKGROUND Borrower, Agent and Lenders are parties to an Oil & Gas Revolving Credit and Term Loan Agreement dated as of March 15, 2000 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement") pursuant to which Agent and Lenders provide Borrower with certain financial accommodations. Borrower has requested that Agent and Lenders make certain amendments to the Loan Agreement, and Agent and Lenders are willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrower by Agent and Lenders, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Loan Agreement. 2. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 4 below, the Loan Agreement is hereby amended as follows: (a) The following defined terms are added to Section 1.2 in their appropriate alphabetical order and shall provide as follows: "Amendment No. 2" shall mean Amendment No. 2 to Oil & Gas Revolving Credit and Term Loan Agreement by and among Borrower, Agent and Lenders. "Amendment No. 2 Effective Date" shall mean the date when the conditions of effectiveness set forth in Section 4 of Amendment No. 2 have been met to Agent's satisfaction. "Amendment No. 2 Fee" shall mean the fee paid by Borrower to Agent on the Amendment No. 2 Effective Date in the amount of $25,000 which fee shall be deemed earned in full and payable on such date and shall be shared by the Lenders in accordance with their respective Commitment Percentages. (b) Section 7.2 is amended in its entirety to provide as follows: "7.2. Consolidated Net Income. Not permit the sum of (i) Consolidated Net Income for Borrower and its Subsidiaries on a consolidated basis plus (ii) dividend requirements of Borrower and its consolidated Subsidiaries (whether in cash or otherwise (except dividends payable solely in shares of Qualified Capital Stock)) with respect to Preferred Stock paid, accrued, or scheduled to be paid or accrued during each period set forth below (in each case to the extent attributable to such period and excluding items eliminated in consolidation) at the end of each fiscal quarter with respect to the immediately preceding fiscal period set forth below (ending on the last day of such fiscal quarter) to be less than (or if a net loss, such net loss shall not be greater than) the amount set forth below as corresponds to the applicable fiscal period:
Four Quarters Ended Net Income ------------------- ---------- 4/30/02 ($55,000,000) 7/31/02 ($50,000,000) 10/31/02 ($45,000,000) 1/31/03 ($40,000,000) 4/30/03 ($35,000,000) 7/31/03 ($30,000,000) 10/31/03 ($25,000,000) 1/31/04 and thereafter ($20,000,000) until the end of the Term"
(c) Section 7.3 is amended in its entirety to provide as follows: "7.3. Minimum Consolidated EBITDA. Not permit Consolidated EBITDA for Borrower and its Subsidiaries on a consolidated basis at the end of each fiscal quarter with respect to the immediately preceding fiscal period set forth below (ending on the last day of such fiscal quarter) to be less than the Consolidated EBITDA set forth below as corresponds to the applicable fiscal period: 2
Four Quarters Ended EBITDA ------------------- ------ 4/30/02 $52,500,000 7/31/02 $55,000,000 10/31/02 $57,500,000 1/31/03 $60,000,000 4/30/03 $62,500,000 7/31/03 $65,500,000 10/31/03 $67,500,000 1/31/04 and thereafter until $70,000,000 the end of the Term"
(d) Section 7.4 is amended in its entirety to provide as follows: "7.4. Drilling Production Payments. From and after the Amendment No. 2 Effective Date, outstanding Debt with respect to Drilling Production Payments shall not, in the aggregate exceed the amounts set forth below during the periods set forth:
Maximum Amount of Drilling Production Period Payment Liabilities ------ ------------------- Amendment No. 2 Effective Date $40,000,000 through 9/30/02 10/1/02 through 10/31/02 $35,000,000 11/1/02 and thereafter through $30,000,000 the end of the Term"
3. Agreements Regarding Reserves. From the Amendment No. 2 Effective Date through and including October 31, 2002, Agent and Lenders waive compliance with Sections 2.1(a) and (b) of the Loan Agreement, and Borrower shall have no obligation to repay any Coverage Shortfall arising during such period. 4. Conditions of Effectiveness. This Amendment shall become effective upon satisfaction of the following conditions precedent: Agent shall have received (a) one (1) copy of this Amendment executed by Borrower and Required Lenders and consented and agreed to by Guarantors and (b) the Amendment No. 2 Fee, which shall be charged to Borrower's Account under and as defined in the Receivables Facility and the payment of which shall be evidenced by Agent's execution of this Amendment. 5. Representations and Warranties. Borrower hereby represents and warrants as follows: 3 (a) This Amendment and the Loan Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms. (b) Upon the effectiveness of this Amendment, Borrower hereby reaffirms all covenants, representations and warranties made in the Loan Agreement to the extent the same are not amended hereby and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the effective date of this Amendment. (c) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment. (d) Borrower has no defense, counterclaim or offset with respect to the Loan Agreement. 6. Effect on the Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Loan Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or Lenders, nor, except as provided in Section 3 hereof, constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 7. Governing Law. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 8. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 9. Counterparts; Facsimile. This Amendment may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. 4 [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written above. TRANSTEXAS GAS CORPORATION By: ------------------------------------------ Ed Donahue, Vice President GMAC COMMERCIAL CREDIT LLC, as Agent and Lender By: ------------------------------------------ Name: Title: Commitment Percentage: 61.90477% CREDIT SUISSE FIRST BOSTON MANAGEMENT, as a Lender By: ------------------------------------------ Name: Title: Commitment Percentage: 12.69841% ANGELO GORDON & CO. L.P. By: ------------------------------------------ Name: Title: Commitment Percentage: 12.69841% [SIGNATURES CONTINUED ON THE FOLLOWING PAGE] 6 OAKTREE CAPITAL MANAGEMENT, as a general partner and investment manager of certain funds and accounts it manages, as Lender By: ------------------------------------------ Name: Title: Commitment Percentage: 12.698411% CONSENTED AND AGREED TO: GALVESTON BAY PROCESSING CORPORATION, as Guarantor By: ------------------------------------- Ed Donahue, Vice President GALVESTON BAY PIPELINE COMPANY, as Guarantor By: ----------------------------------- Ed Donahue, Vice President 7 EX-10.2 4 h99818exv10w2.txt AMEND #2 TO 3RD ACCOUNTS RECEIVABLE MGT & SECURITY EXHIBIT 10.2 AMENDMENT NO. 2 TO THIRD AMENDED AND RESTATED ACCOUNTS RECEIVABLE MANAGEMENT AND SECURITY AGREEMENT THIS AMENDMENT NO. 2 (this "Amendment No. 2") is entered into as of June 6, 2002, by and between TransTexas Gas Corporation, a Delaware corporation ("Borrower") and GMAC Commercial Credit LLC ("Lender"). BACKGROUND Borrower and Lender are parties to a Third Amended and Restated Accounts Receivable Management and Security Agreement dated as of March 15, 2000 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), pursuant to which Lender provides Borrower with certain financial accommodations. Borrower has requested that Lender make certain amendments to the Credit Agreement and Lender is willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or hereafter made to or for the account of Borrower by Lender, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Credit Agreement. 2. Amendment to Credit Agreement. Subject to satisfaction of the conditions precedent set forth in Section 4 below, the Credit Agreement is hereby amended as follows: (a) The following defined terms are added to Section 1(A) in their appropriate alphabetical order to provide as follows: "Amendment No. 2" means Amendment No. 2 to this Credit Agreement dated as of June 6, 2002, between Borrower and Lender. "Amendment No. 2 Effective Date" means the date upon which all of the conditions precedent set forth in Section 4 of Amendment No. 2 have been satisfied. (b) The following defined term in Section 1(A) is amended in its entirety to provide as follows: "Maximum Loan Amount" at any time means $15,000,000. (c) Sections 13(l)(ii) and (iii) are amended in their entirety to provide as follows: "(ii) Consolidated Net Income. Not permit the sum of (i) Consolidated Net Income for Borrower and its Subsidiaries on a consolidated basis plus (ii) dividend requirements of Borrower and its consolidated Subsidiaries (whether in cash or otherwise (except dividends payable solely in shares of Qualified Capital Stock)) with respect to Preferred Stock paid, accrued, or scheduled to be paid or accrued during each period set forth below (in each case to the extent attributable to such period and excluding items eliminated in consolidation) at the end of each fiscal quarter with respect to the immediately preceding fiscal period set forth below (ending on the last day of such fiscal quarter) to be less than (or if a net loss, such net loss shall not be greater than) the amount set forth below as corresponds to the applicable fiscal period:
Four Quarters Ended Net Income ------------------- ---------- 4/30/02 ($55,000,000) 7/31/02 ($50,000,000) 10/31/02 ($45,000,000) 1/31/03 ($40,000,000) 4/30/03 ($35,000,000) 7/31/03 ($30,000,000) 10/31/03 ($25,000,000) 1/31/04 and thereafter until ($20,000,000) the end of the Term
(iii) Consolidated EBITDA Not permit Consolidated EBITDA for Borrower and its Subsidiaries on a consolidated basis at the end of each fiscal quarter with respect to the immediately preceding fiscal period set forth below (ending on the last day of such fiscal quarter) to be less than the consolidated EBITDA set forth below as corresponds to the applicable fiscal period:
Four Quarters Ended EBITDA ------------------- ------ 4/30/02 $52,500,000 7/31/02 $55,000,000 10/31/02 $57,500,000 1/31/03 $60,000,000 4/30/03 $62,500,000 7/31/03 $65,500,000 10/31/03 $67,500,000 1/31/04 and thereafter until $70,000,000 the end of the Term"
2 3. Conditions of Effectiveness. This Amendment No. 2 shall become effective upon (a) Lender's receipt of one (1) copy of this Amendment No. 2 executed by Borrower and (b) Lender's execution of this Amendment No. 2. 4. Representations and Warranties. Borrower hereby represents and warrants as follows: (a) This Amendment No. 2 and the Credit Agreement, as amended hereby, constitute legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their respective terms. (b) Upon the effectiveness of this Amendment No. 2, Borrower hereby reaffirms all covenants, representations and warranties made in the Credit Agreement to the extent the same are not amended hereby and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the Amendment No. 2 Effective Date. (c) No Event of Default or Default has occurred and is continuing or would exist after giving effect to this Amendment No. 2. (d) Borrower has no defense, counterclaim or offset with respect to the Credit Agreement. 5. Effect on the Credit Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended herein, the Credit Agreement, and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment No. 2 shall not operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Credit Agreement, or any other documents, instruments or agreements executed and/or delivered under or in connection therewith. 6. Governing Law. This Amendment No. 2 shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of New York. 7. Headings. Section headings in this Amendment No. 2 are included herein for convenience of reference only and shall not constitute a part of this Amendment No. 2 for any other purpose. 3 8. Counterparts; Facsimile. This Amendment No. 2 may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed as of the day and year first written above. TRANSTEXAS GAS CORPORATION By: --------------------------- Ed Donahue, Vice President GMAC COMMERCIAL CREDIT LLC By: --------------------------- Name: Title: 5 EX-99.1 5 h99818exv99w1.txt CERTIFICATION OF CEO & CFO PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION OF QUARTERLY REPORT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Arnold H. Brackenridge, President and Chief Executive Officer of TransTexas Gas Corporation (the "Company") and Ed Donahue, Vice President and Chief Financial Officer of the Company, certify that to his knowledge: 1. The Quarterly Report on Form 10-Q of the Company for the period ended July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. September 16, 2002 /s/ ARNOLD H. BRACKENRIDGE ------------------------------------- Arnold H. Brackenridge President and Chief Executive Officer September 16, 2002 /s/ ED DONAHUE ------------------------------------------ Ed Donahue Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----