<PAGE>
<PAGE> 1
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7176
THE COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1734212
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-1400
------------------------------
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
As of April 29, 1994, there were outstanding 104,249,566 shares of
Common Stock, 33-1/3 cents par value per share, and 425,468 shares of Class
A Common Stock, 33-1/3 cents par value per share, of the Registrant.
- - ---------------------------------------------------------------------------
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<PAGE>
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of The Coastal Corporation and its subsidiaries
(the "Company") are presented herein and are unaudited, except for balances
as of December 31, 1993, and therefore are subject to year-end adjustments;
however, all adjustments which are, in the opinion of management, necessary
for a fair statement of the results of operations for the periods covered
have been made. The adjustments which have been made are of a normal
recurring nature. Such results are not necessarily indicative of results to
be expected for the year due to seasonal variations and market conditions
affecting sales of natural gas and petroleum products.
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 115.1 $ 159.2
Receivables, less allowance for doubtful accounts of $17.0 million
(1994) and $16.1 million (1993) . . . . . . . . . . . . . . . . . 1,508.4 1,284.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857.6 992.2
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 175.2 137.3
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . 2,656.3 2,573.6
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems . . . . . . . . . . . . . . . . . . . . . . . . 5,641.8 5,461.6
Refining, crude oil and chemical facilities . . . . . . . . . . . . 1,857.1 1,821.3
Gas and oil properties - at full-cost . . . . . . . . . . . . . . . 1,206.9 1,204.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676.9 677.0
----------- -----------
9,382.7 9,164.1
Accumulated depreciation, depletion and amortization . . . . . . . . 3,285.7 3,216.0
6,097.0 5,948.1
Other Assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558.6 563.3
Investments - equity method . . . . . . . . . . . . . . . . . . . . 434.7 424.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712.7 717.4
1,706.0 1,705.4
$ 10,459.3 $ 10,227.1
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
<PAGE> 3
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable and preferred stock redeemable within one year . . . . $ 182.2 $ 271.7
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,688.8 1,649.1
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 503.0 374.0
Current maturities on long-term debt . . . . . . . . . . . . . . . . 32.6 95.1
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 2,406.6 2,389.9
----------- -----------
Debt:
Long-term debt, excluding current maturities . . . . . . . . . . . . 3,692.0 3,612.8
Subordinated long-term debt, excluding current maturities . . . . . 199.7 199.7
----------- -----------
3,891.7 3,812.5
----------- -----------
Deferred Credits and Other:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,399.8 1,339.9
Other deferred credits . . . . . . . . . . . . . . . . . . . . . . . 387.0 380.1
----------- -----------
1,786.8 1,720.0
----------- -----------
Mandatory Redemption Preferred Stock:
Issued by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 26.6 26.6
----------- -----------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $210.0 million) . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.7
Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . .1 .1
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 36.2
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 1,212.7 1,209.3
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 1,229.0 1,162.7
----------- -----------
2,480.7 2,411.0
Less common stock in treasury - at cost . . . . . . . . . . . . . . 133.1 132.9
----------- -----------
2,347.6 2,278.1
----------- -----------
$ 10,459.3 $ 10,227.1
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 4
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Millions of Dollars, Except Per Share)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,700.8 $ 2,647.1
--------- ---------
Operating Costs and Expenses:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900.0 1,968.6
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 484.0 434.3
Depreciation, depletion and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.8 89.6
--------- ---------
2,477.8 2,492.5
--------- ---------
Operating Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223.0 154.6
--------- ---------
Other Income - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.0 19.1
--------- ---------
Other Expenses:
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 12.9
Interest and debt expense, less $1.6 million (1994)
and $2.2 million (1993) capitalized . . . . . . . . . . . . . . . . . . . . . 102.5 121.6
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.9 14.2
--------- ---------
157.9 148.7
--------- ---------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.1 25.0
Dividends on Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 .1
--------- ---------
Net Earnings Available
to Common Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76.7 $ 24.9
--------- ---------
--------- ---------
Net Earnings Per Common
and Common Equivalent Share . . . . . . . . . . . . . . . . . . . . . . . . . . $ .73 $ .24
--------- ---------
--------- ---------
Cash Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . $ .10 $ .10
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 5
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Millions of Dollars and Thousands of Shares)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------
1994 1993
----------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Preferred stock, par value
33 1/3 cents per share, authorized 50,000,000 shares:
Cumulative convertible preferred:
$1.19, Series A, redemption or liquidation
amount of $33 per share:
Beginning balance . . . . . . . . . . . 65 $ - 69 $ -
Converted to common . . . . . . . . . . (1) - - -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 64 - 69 -
---------- ---------- ---------- ----------
---------- ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance . . . . . . . . . . . 89 .1 95 .1
Converted to common . . . . . . . . . . (2) - (1) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 87 .1 94 .1
---------- ---------- ---------- ----------
---------- ----------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance . . . . . . . . . . . 35 - 36 -
Converted to common . . . . . . . . . . - - - -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 35 - 36 -
---------- ---------- ---------- ----------
---------- ----------
Cumulative preferred:
$2.125, Series H, liquidation amount
of $25 per share:
Beginning and ending balance . . . . . . 8,000 2.6 - -
---------- ---------- ---------- ----------
---------- ----------
Class A common stock, par value 33 1/3 cents per share,
authorized 2,700,000 shares:
Beginning balance . . . . . . . . . . . . . . 423 .1 445 .1
Converted to common . . . . . . . . . . . . . (8) - (5) -
Conversion of preferred stock and
exercise of stock options . . . . . . . . . 12 - 2 -
---------- ---------- ---------- ----------
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
<PAGE> 6
Ending balance . . . . . . . . . . . . . . . 427 .1 442 .1
---------- ---------- ---------- ----------
---------- ----------
Common stock, par value 33 1/3 cents per share, authorized
250,000,000 shares:
Beginning balance . . . . . . . . . . . . . . 108,512 36.2 107,967 36.0
Conversion of preferred stock . . . . . . . . 11 - 7 -
Conversion of Class A common stock . . . . . 8 - 5 -
Exercise of stock options . . . . . . . . . . 119 - 7 -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . . . 108,650 $ 36.2 107,986 $ 36.0
---------- ---------- ---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 7
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Millions of Dollars and Thousands of Shares)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------
1994 1993
----------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance . . . . . . . . . . . . . . . $ 1,209.3 $ 1,006.7
Exercise of stock options . . . . . . . . . . . 3.4 .6
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,212.7 1,007.3
---------- ----------
Retained earnings:
Beginning balance . . . . . . . . . . . . . . . 1,162.7 1,099.9
Net earnings for period . . . . . . . . . . . . 81.1 25.0
Dividends on preferred stock . . . . . . . . . . (4.4) (.1)
Dividends on common stock . . . . . . . . . . . (10.4) (10.4)
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,229.0 1,114.4
---------- ----------
Less treasury stock - at cost . . . . . . . . . . . 4,416 133.1 4,415 132.9
---------- ---------- ---------- ----------
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,347.6 $ 2,025.0
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
- 6 -
<PAGE>
<PAGE> 8
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81.1 $ 25.0
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 95.0 90.5
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 8.9 2.8
Amortization of producer contract reformation costs . . . . . . . . . 10.2 16.1
Undistributed earnings from equity investments . . . . . . . . . . . (11.8) (8.7)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 (26.7)
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . (223.5) 285.2
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27.5) 98.5
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 13.0 (14.7)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 39.7 (193.3)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 129.0 37.2
-------- --------
118.3 311.9
-------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . (83.3) (80.3)
Proceeds from sale of property, plant and equipment . . . . . . . . . . 4.4 1.8
Additions to investments . . . . . . . . . . . . . . . . . . . . . . . . (1.6) (47.4)
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . 3.6 1.3
Gas supply settlements and prepayments . . . . . . . . . . . . . . . . . - (.8)
Recovery of gas supply prepayments . . . . . . . . . . . . . . . . . . . .1 22.3
-------- --------
(76.8) (103.1)
-------- --------
Cash Flow From Financing Activities:
Decrease in short-term notes . . . . . . . . . . . . . . . . . . . . . (89.5) (120.0)
Proceeds from issuing common stock . . . . . . . . . . . . . . . . . . . 3.2 .6
Proceeds from long-term debt issues . . . . . . . . . . . . . . . . . . 153.8 1.8
Payments to retire long-term debt . . . . . . . . . . . . . . . . . . . (138.3) (80.2)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14.8) (10.5)
-------- --------
(85.6) (208.3)
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . (44.1) .5
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 159.2 43.5
-------- --------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . $ 115.1 $ 44.0
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 9
THE COASTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
For additional information relative to operations and financial
position, reference is made to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
The Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("FAS 112"),
effective January 1, 1994. The effects of the changes required by FAS 112
are not material to the Company.
Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: The Company made cash payments for interest
and financing fees, net of amounts capitalized, of $61.0 million and
$60.9 million for the three months ended March 31, 1994 and 1993,
respectively. Cash payments for income taxes amounted to $28.7 million and
$7.1 million for the three months ended March 31, 1994 and 1993,
respectively. In March 1994, $162.1 million was transferred from
"Inventories" to "Property, Plant and Equipment" and included as part of
base gas, pending Federal Energy Regulatory Commission ("FERC") approval.
2. Inventories
<TABLE>
Inventories were as follows (millions of dollars):
<CAPTION>
March 31, December 31,
1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals . . . . . . . . . . . . . $ 589.8 $ 568.8
Natural gas in underground storage - first-in, first-out method . . 69.0 229.2
Natural gas in underground storage - last-in, first-out method . . . 31.4 31.2
Coal, materials and supplies . . . . . . . . . . . . . . . . . . . . 167.4 163.0
---------- ----------
$ 857.6 $ 992.2
---------- ----------
---------- ----------
</TABLE>
The excess of replacement cost over the carrying value of natural gas
in underground storage carried by the last-in, first-out method was
approximately $41.9 million at March 31, 1994 and $52.6 million at December
31, 1993.
3. Common Stock
On March 31, 1994, 2,166,372 shares of Common Stock of the Company were
reserved for employee stock option plans, 796,947 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 426,992 shares were
reserved for conversion of outstanding Class A Common Stock and 54,862
shares were reserved for conversion of Class A Common Stock subject to
future issuance. The Class A Common Stock reserved for future issuance
consists of 32,803 shares reserved for employee stock option plans and
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<PAGE>
<PAGE> 10
22,059 shares reserved for conversion of the Series A, B, and C Preferred
Stocks.
4. Income Taxes
Provisions for federal and state income taxes were as follows (millions
of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
Current Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29.1 $ 9.0
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 2.4
--------- ---------
33.0 11.4
--------- ---------
Deferred Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 1.7
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.1) 1.1
--------- ---------
8.9 2.8
$ 41.9 $ 14.2
--------- ---------
--------- ---------
</TABLE>
Interim period provisions for federal income taxes are based on
estimated effective annual income tax rates.
5. Take-or-Pay Obligations
Other assets include $123.7 million and $134.0 million at March 31,
1994 and December 31, 1993, respectively, relating to prepayments for gas
under gas purchase contracts with producers and settlement payment amounts
relative to the restructuring of gas purchase contracts as negotiated with
producers. Currently, FERC regulations allow for the billing of a portion of
the costs of take-or-pay settlements and renegotiating gas purchase
contracts. Prepayments are normally recoupable through future deliveries of
natural gas.
As a result of the implementation of Order 636 (as defined in Note 6 of
the Notes to Consolidated Financial Statements) by Colorado Interstate Gas
Company ("Colorado") on October 1, 1993, Colorado's future gas sales will be
made at negotiated prices and will not be subject to regulatory price
controls. This will not affect the recoverability or the results of pending
take-or-pay litigation or any take-or-pay or contractual reformation
settlements that Colorado may achieve with respect to periods before October
1, 1993. A portion of the costs associated with take-or-pay incurred prior
to October 1, 1993 may continue to be recovered by Colorado pursuant to
FERC's Order No. 528.
Contract reformation and take-or-pay costs incurred as a result of the
mandated Order 636 restructuring will be recovered either under the
- 9 -
<PAGE>
<PAGE> 11
transition cost mechanisms of Order 636 or through negotiated agreements
with customers. The Company believes that these mechanisms provide adequate
coverage for such costs.
Several producers have instituted litigation arising out of take-or-pay
claims against subsidiaries of the Company. In the Company's experience,
producers' claims are generally vastly overstated and do not consider all
adjustments provided for in the contract or allowed by law. The subsidiaries
have resolved the majority of the exposure with their suppliers for
approximately 13% of the amounts claimed. At December 31, 1993, the Company
estimated that unresolved asserted and unasserted producers' claims amounted
to approximately $31 million. The remaining disputes will be settled where
possible and litigated if settlement is not possible.
At December 31, 1993, the Company was committed to make future
purchases under certain take-or-pay contracts with fixed, minimum or
escalating price provisions. Based on contracts in effect at that date, and
before considering reductions provided in the contracts or applicable law,
such commitments are estimated to be $38 million, $30 million, $23 million,
$15 million and $4 million for the years 1994-1998, respectively, and $9
million thereafter. Such commitments have also not been adjusted for all
amounts which may be assigned or released, or for the results of future
litigation or negotiation with producers.
The Company has made provisions, which it believes are adequate, for
payments to producers that may be required for settlement of take-or-pay
claims and restructuring of future contractual commitments. In determining
the net loss relating to such provisions, the Company has also made accruals
for the estimated portion of such payments which would be recoverable
pursuant to FERC-approved settlements with customers.
6. Litigation and Regulatory Matters
Litigation
A subsidiary of the Company initiated a suit against TransAmerican
Natural Gas Corporation in the District Court of Webb County, Texas for
breach of two gas purchase agreements. In February 1993 TransAmerican
Natural Gas Corporation filed a Third Party Complaint and a Counterclaim in
this action against the Company and certain subsidiaries. TransAmerican
alleged breach of contract, fraud, conspiracy, duress, tortious interference
and violations of the Texas Free Enterprises and Anti-trust Act arising out
of the gas purchase agreements. Final Judgment in this matter was entered
April 22, 1994. The subsidiary was awarded approximately $2.0 million,
including pre-judgment interest and attorney fees. All of TransAmerican's
claims and causes of action were denied.
In December 1992, certain of Colorado's natural gas lessors in the West
Panhandle Field filed a complaint in the U.S. District Court for the
Northern District of Texas, claiming underpayment, breach of fiduciary duty,
fraud and negligent misrepresentation. Management believes that Colorado has
numerous defenses to the lessors' claims, including (i) that the royalties
were properly paid, (ii) that the majority of the claims were released by
written agreement, and (iii) that the majority of the claims are barred by
the statute of limitations. The matter is set for trial on June 13, 1994.
Numerous other lawsuits and other proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company or
its subsidiaries.
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<PAGE>
<PAGE> 12
Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, the
Company believes there are meritorious defenses to substantially all of the
above claims and that any liability which may finally be determined should
not have a material adverse effect on the Company's consolidated financial
position.
Rate Regulation
On April 8, 1992, the FERC issued Order No. 636 ("Order 636"), which
required significant changes in the services provided by interstate natural
gas pipelines. Subsidiaries of the Company and numerous other parties have
sought judicial review of aspects of Order 636.
On November 1, 1993, ANR Pipeline Company ("ANR Pipeline") placed its
Order 636 restructured services and rates into effect. On March 24, 1994,
the FERC issued its "Fourth Order on Compliance Filing and Third Order on
Rehearing," which addressed numerous rehearing issues and confirmed that
after minor required tariff modifications, ANR Pipeline is now fully in
compliance with Order 636 and the requirements of the orders on its
restructuring filings. ANR Pipeline filed the required tariff modifications
on April 8, 1994. Several persons, including ANR Pipeline, have sought
judicial review of aspects of the FERC's orders approving ANR Pipeline's
restructuring filings.
On March 10, 1992, ANR Pipeline submitted to the FERC a comprehensive
Interim Settlement designed to resolve all outstanding issues resulting from
its 1989 rate case and its 1990 proposed service restructuring proceeding.
The Interim Settlement involved, inter alia, an array of new sales,
delivery, transportation and storage service alternatives and the
implementation of a gas inventory charge, designed to compensate ANR
Pipeline for the costs of standing ready to serve its sales customers. The
Interim Settlement became effective November 1, 1992 and expired with ANR
Pipeline's implementation of Order 636 on November 1, 1993. Under ANR
Pipeline's approved Interim Settlement of previous rate case and
restructuring proceedings, gas inventory demand charges were collected from
ANR Pipeline's resale customers for the period November 1, 1992 through
October 31, 1993. This method of gas cost recovery required refunds for any
over-collections, and placed ANR Pipeline at risk for under-collections. As
required by the Interim Settlement, ANR Pipeline filed with the FERC on
April 29, 1994, a reconciliation report showing over-collections and,
therefore, proposed refunds totaling $45.1 million. Such refund obligations
were recorded at December 31, 1993 and March 31, 1994, and are included in
the Consolidated Balance Sheet under "Deferred Credits and Other."
On November 1, 1993, ANR Pipeline filed a general rate increase with
the FERC. The increase represents higher plant investment, Order 636
restructuring costs, rate of return and tax rate changes and increased costs
related to the required adoption of recent accounting rule changes, i.e.,
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("FAS 106") and FAS 112. On
March 23, 1994, the FERC issued an order granting and denying various
requests for summary disposition and establishing hearing procedures for
issues remaining to be investigated in ANR Pipeline's rate case proceeding
at Docket No. RP94-43. The order required the reduction or elimination of
certain costs which resulted in revised rates such that the revised rates
reflect an $85.7 million increase in the cost of service from that approved
in the Interim Settlement and a $182.8 million increase over ANR Pipeline's
approved rates for its restructured services under Order 636. On April 7,
1994, ANR Pipeline submitted a compliance filing pursuant to the
- 11 -
<PAGE>
<PAGE> 13
requirements of the March 23, 1994 order. Further, on April 29, 1994, ANR
Pipeline filed a motion with the FERC that placed the new rates into effect
May 1, 1994, subject to refund. ANR Pipeline has also sought rehearing and,
if necessary, will seek judicial review of the March 23, 1994 order.
ANR Pipeline has executed a Settlement Agreement (the "Settlement
Agreement") with Dakota Gasification Company ("Dakota") and the Department
of Energy which resolves litigation concerning purchases of synthetic gas by
ANR Pipeline from the Great Plains Coal Gasification Plant (the "Plant").
That litigation, originally filed in 1990 in the United States District
Court in North Dakota, involved claims regarding ANR Pipeline's obligations
under certain gas purchase and transportation contracts with the Plant. The
Settlement Agreement settles all disputes between the parties, amends the
gas purchase agreement between ANR Pipeline and Dakota and terminates the
transportation contract. The Settlement Agreement is subject to FERC
approval, including an approval for ANR Pipeline to recover the settlement
costs from its customers. It is anticipated that applications for such FERC
approvals will be filed shortly.
Order 636 provides mechanisms for recovery of transition costs
associated with compliance with that Order. ANR Pipeline has estimated that
its transition costs will amount to approximately $150 million, which will
consist primarily of gas supply realignments costs, the cost of stranded
pipeline investment and the Dakota costs described above. As of March 31,
1994, ANR Pipeline has incurred transition costs in the amount of $40.3
million. As a result of the recovery mechanisms provided under Order 636,
the Company anticipates that these transition costs will not have a material
adverse effect on the Company's consolidated financial position or its
results of operations.
On December 17, 1992, the FERC issued a policy statement that outlined
changes on how pipelines may recover the costs of employees' post-retirement
benefits other than pensions. The FERC's policy will be to recognize, as a
component of jurisdictional cost-based rates, allowances for FAS 106 costs
of company employees when determined on an accrual basis, provided certain
conditions are met.
On July 2, 1993, Colorado submitted to the FERC an unanimous offer of
settlement which resolved all the Order 636 restructuring issues which had
been raised in its restructuring proceedings. That settlement was ultimately
approved (except for minor issues), and Colorado's restructured services
became effective October 1, 1993.
Colorado has "unbundled" its gas sales from its other services.
Separate gathering, transportation, storage and other services are available
on a "stand-alone" basis to any customers desiring them. Colorado's Order
636 transition costs are not expected to be material.
On March 31, 1993, Colorado filed at FERC to increase its rates by
approximately $26.5 million annually. Such rates (adjusted to reflect
Colorado's Order 636 program) became effective subject to refund on October
1, 1993.
Colorado, ANR Pipeline, ANR Storage Company and Wyoming Interstate
Company, Ltd., subsidiaries of the Company, are regulated by the FERC.
Certain regulatory issues remain unresolved among these companies, their
customers, their suppliers and the FERC. The Company has made provisions
which represent management's assessment of the ultimate resolution of these
issues. While the Company estimates the provisions to be adequate to cover
- 12 -
<PAGE>
<PAGE> 14
potential adverse rulings on these and other issues, it cannot estimate when
each of these issues will be resolved.
Environmental Regulation
The Company's operations are subject to extensive federal, state and
local environmental laws and regulations. The Company anticipates annual
capital expenditures of $20 to $40 million over the next several years aimed
at compliance with such laws and regulations. Additionally, appropriate
governmental authorities may enforce the laws and regulations with a variety
of civil and criminal enforcement measures, including monetary penalties and
remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability
Act, also known as "Superfund," as reauthorized, imposes liability, without
regard to fault or the legality of the original act, for disposal of a
"hazardous substance." Certain subsidiaries of the Company have been named
as a potentially responsible party ("PRP") in several "Superfund" waste
disposal sites. At the 15 sites for which the Environmental Protection
Agency ("EPA") has developed sufficient information to estimate total clean-
up costs of approximately $350 million, the Company estimates its pro-rata
exposure to be paid over a period of several years is approximately $5
million and has made appropriate provisions. At four other sites, the EPA is
currently unable to provide the Company with an estimate of total clean-up
costs and, accordingly, the Company is unable to calculate its share of
those costs. Finally, at five other sites, the Company has paid amounts to
other PRPs as its proportional share of associated clean-up costs. As to
these latter sites, the Company believes that its activities were de
minimis.
There are additional areas of environmental remediation
responsibilities which may fall on the Company. Future information and
developments will require the Company to continually reassess the expected
impact of these environmental matters. However, the Company has evaluated
its total environmental exposure based on currently available data,
including its potential joint and several liability, and believes that
compliance with all applicable laws and regulations will not have a material
adverse impact on the Company's liquidity or financial position.
- 13 -
<PAGE>
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Notes to Consolidated Financial Statements contain information that
is pertinent to the following analysis.
Liquidity and Capital Resources
<TABLE>
The Company uses the following consolidated ratios to measure liquidity
and its ability to meet future funding needs and debt service requirements.
<CAPTION>
Twelve Months Ended
-------------------------------
March 31, December 31,
1994 1993
------------- ----------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity . . . . 7.6% 5.2%
Cash flow from operating activities to long-term debt . . 15.8% 21.2%
Total debt to total capitalization . . . . . . . . . . . 63.2% 64.3%
Times interest earned (before tax) . . . . . . . . . . . 1.7 1.4
</TABLE>
The changes in most of the above ratios can be attributed to increased
earnings in the twelve months ended March 31, 1994 and decreased total debt.
The reduction in the cash flow from operating activities to long-term debt
ratio results primarily from working capital changes.
In February 1994, ANR Pipeline completed an offering of $125 million in
principal amount of 7-3/8% Debentures due in 2024. The net proceeds from the
sale of the Debentures were used for capital expenditures and other general
corporate purposes.
Financing for capital expansion, mandatory debt retirements and other
expenditures will be provided by internally generated funds, existing credit
lines, the ANR Pipeline Debentures and other new financings.
Funding for certain proposed natural gas projects is anticipated to be
provided through non-recourse project financings in which the projects'
assets and contracts will be pledged as collateral. Equity participation by
other entities will be considered. To the extent required, cash for equity
contributions to projects will be from general corporate funds.
The Company continues to maintain a financial position that will enable
it to generate and obtain capital for financing needs in the foreseeable
future. Unused lines of credit at March 31, 1994 were as follows (millions
of dollars):
Short-term . . . . . . . . . . . . . . . . . . . $ 579.8
Long-term . . . . . . . . . . . . . . . . . . . 633.9
---------
$ 1,213.7
---------
---------
On June 16, 1994, ANR Pipeline will redeem all shares of its
outstanding Cumulative Preferred Stock under sinking fund provisions or
- 14 -
<PAGE>
<PAGE> 16
optional redemption provisions. Redemption will include the payment of
accrued dividends to June 16, 1994.
The Company adopted the change in accounting for postemployment
benefits as required by FAS 112 in 1994. The effects of the changes required
by FAS 112 are not material to the Company.
Results of Operations
The change in the Company's earnings for the three month period ended
March 31, 1994 in comparison to the same period in 1993 is a result of the
following:
<TABLE>
Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):
<CAPTION>
Three Months Ended
March 31,
---------------------
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 876.8 $ 861.7
Refining and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,669.1 1,613.9
Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . 81.7 89.5
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109.4 106.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.9 47.0
Adjustments and eliminations . . . . . . . . . . . . . . . . . . . . . . . . (83.1) (71.2)
--------- ---------
$ 2,700.8 $ 2,647.1
--------- ---------
--------- ---------
</TABLE>
<TABLE>
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (millions of dollars):
<CAPTION>
Three Months Ended
March 31,
------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128.8 $ 122.9
Refining and marketing . . . . . . . . . . . . . . . . . . . . . . . 67.8 1.7
Exploration and production . . . . . . . . . . . . . . . . . . . . . 5.0 10.3
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.2 23.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.8) (3.4)
-------- --------
$ 223.0 $ 154.6
-------- --------
-------- --------
</TABLE>
- 15 -
<PAGE>
<PAGE> 17
Natural Gas. The increase in operating revenues of $15.1 million in
the first quarter of 1994 can be attributed to increased volumes and prices
for the gas marketing companies and higher transportation and storage
revenue for the interstate pipelines due to increased rates and volumes,
partially offset by decreased sales volumes for the interstate pipelines.
Colder weather experienced in the first quarter of 1994 as compared to the
same period in 1993 contributed to the additional volumes. The primary
factor contributing to the increase in transportation and storage revenues
and the decrease in sales revenue for the interstate pipelines is the
restructuring of pipeline bundled sales into separate components as required
by changing regulations.
Purchases decreased by $20.1 million as volume decreases for the
interstate pipelines more than offset the price and volume increases for the
gas marketing companies. Gross profit increased by $35.2 million over the
1993 first quarter.
The operating profit increase of $5.9 million in the first quarter of
1994 results from increases for transportation revenue of $50.2 million,
storage revenue of $18.0 million and sales margins of $1.2 million partially
offset by reduced sales volumes of $29.8 million, increased operating
expenses of $27.8 million, increased depreciation, depletion and
amortization of $1.6 million and other of $4.3 million. The operating
expense increase results from increased throughput for the interstate
pipelines and increased volumes handled by the gas marketing companies.
Refining and Marketing. Operating revenues increased by $55.2 million
in the 1994 first quarter as increased volumes more than offset lower
prices. The volume increase can be partially attributed to the colder
weather experienced in the 1994 first quarter. Purchases decreased by $35.6
million during the same period, resulting in a gross profit increase of
$90.8 million.
The operating profit increase of $66.1 million in the first quarter of
1994 results from improved margins of $75.1 million, volume increases of
$13.5 million and increased gross profit of $2.2 million from the sale,
trading and exchanging of third-party products, partially offset by
increased operating expenses of $23.8 million and other decreases of $.9
million. Operating expenses increased as a result of increased volumes.
Exploration and Production. The decrease in operating revenues of $7.8
million in the first quarter of 1994 can be attributed to decreased volumes
and prices for crude oil, condensate and natural gas liquids partially
offset by increased natural gas prices and volumes.
The operating profit decrease of $5.3 million in the first quarter of
1994 results from reduced revenue from oil, condensate and natural gas
liquids of $7.3 million, lower revenue from plant products of $4.4 million,
increased depreciation, depletion and amortization of $1.1 million and other
of $1.7 million, partially offset by increased natural gas revenues of $8.1
million and reduced operating expenses of $1.1 million. The operating
expense decrease results primarily from reduced costs at the processing
plants. The increase in depreciation, depletion and amortization results
from increased volumes partially offset by a lower rate.
Coal. The increase in operating revenues of $3.2 million in the first
quarter of 1994 can be attributed primarily to increased prices as volumes
were comparable for both periods. Operating profit increased by $1.1 million
as the revenue increase of $3.2 million was partially offset by increases
for operating expenses of $1.7 million and depreciation, depletion and
- 16 -
<PAGE>
<PAGE> 18
amortization of $.4 million. The increased operating expenses are primarily
attributable to the Soldier Creek Mine purchased in late 1993.
Other. The $.1 million decrease in operating revenues results
primarily from trucking operations. The operating loss decreased by $.6
million as reduced operating expenses of $1.0 million more than offset the
revenue reduction of $.1 million and increased depreciation and amortization
of $.3 million. The reduced operating expenses resulted from the
elimination of certain operations in late 1993.
Other Income Net. The decrease of $3.1 million primarily results
from a $3.0 million settlement recorded in the 1993 first quarter not
recurring.
Interest and Debt Expense. Interest and debt expense decreased by
$19.1 million in the 1994 first quarter as a result of lower average debt
outstanding and lower interest rates.
Taxes on Income. Federal income taxes increased by $27.4 million in
the 1994 first quarter as a result of increased earnings before taxes and a
higher effective federal income tax rate. State income taxes increased by
$.3 million.
Environmental Matters
The Company's operations are subject to extensive federal, state and
local environmental laws and regulations. The Company anticipates annual
capital expenditures of $20 to $40 million over the next several years aimed
at compliance with such laws and regulations. Additionally, appropriate
governmental authorities may enforce the laws and regulations with a variety
of civil and criminal enforcement measures, including monetary penalties and
remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability
Act, also known as "Superfund," as reauthorized, imposes liability, without
regard to fault or the legality of the original act, for disposal of a
"hazardous substance." Certain subsidiaries of the Company have been named
as a potentially responsible party ("PRP") in several "Superfund" waste
disposal sites. At the 15 sites for which the EPA has developed sufficient
information to estimate total clean-up costs of approximately $350 million,
the Company estimates its pro-rata exposure to be paid over a period of
several years is approximately $5 million and has made appropriate
provisions. At four other sites, the EPA is currently unable to provide the
Company with an estimate of total clean-up costs and, accordingly, the
Company is unable to calculate its share of those costs. Finally, at five
other sites, the Company has paid amounts to other PRPs as its proportional
share of associated clean-up costs. As to these latter sites, the Company
believes that its activities were de minimis.
There are additional areas of environmental remediation
responsibilities which may fall on the Company. Future information and
developments will require the Company to continually reassess the expected
impact of these environmental matters. However, the Company has evaluated
its total environmental exposure based on currently available data,
including its potential joint and several liability, and believes that
compliance with all applicable laws and regulations will not have a material
adverse impact on the Company's liquidity or financial position.
- 17 -
<PAGE>
<PAGE> 19
Other Developments
The Canadian National Energy Board has denied the applications of
Interprovincial Pipe Line System Inc. and its subsidiary to own and operate
InterCoastal Pipe Line, a proposed natural gas pipeline in Southern Ontario.
ANR Pipeline and the other project sponsors are currently evaluating the
viability of this project or other alternatives.
- 18 -
<PAGE>
<PAGE> 20
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The information required hereunder is incorporated by reference
into Part II of this Report from Notes 5 and 6 of the Notes to Consolidated
Financial Statements set forth in Part I of this Report.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 - Statement re Computation of Per Share Earnings.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
THE COASTAL CORPORATION
(Registrant)
Date: May 13, 1994 By: COBY C. HESSE
----------------------------
Coby C. Hesse
Senior Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 19 -
<PAGE>
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
Sequentially
Exhibit Numbered
Number Description Page
- - ----------------------------------------------------------------------------
<C> <S>
11 Statement Re Computation of Per Share Earnings
</TABLE>
- 20 -
<PAGE>
<PAGE> 22
EXHIBIT 11
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Millions of Dollars, Except Per Share Amounts,
and Thousands of Shares)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 76.7 $ 24.9
--------- ---------
--------- ---------
Average number of common shares outstanding . . . . . . . . . . . . . . . . 104,162 103,562
Class A common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 444
Common and Class A common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A . . . . . . . . . . . . 238 256
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . . . . . . . . . . 374 301
--------- ---------
Average common and common equivalent shares . . . . . . . . . . . . . . . . 105,199 104,563
--------- ---------
--------- ---------
Net earnings per average common and common
equivalent share outstanding . . . . . . . . . . . . . . . . . . . . . . $ .73 $ .24
--------- ---------
--------- ---------
ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 76.7 $ 24.9
Dividends applicable to dilutive preferred stock:
Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Series C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 .1
--------- ---------
Adjusted net earnings assuming full dilution . . . . . . . . . . . . . . . $ 76.8 $ 25.0
--------- ---------
--------- ---------
Average number of common shares outstanding . . . . . . . . . . . . . . . . 104,162 103,562
Class A common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 425 444
Common and Class A common share equivalents:
Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . 238 256
Equivalent common and Class A common shares from
Series B and C Preferred Stock . . . . . . . . . . . . . . . . . . . . . 581 609
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . . . . . . . . . . 403 352
--------- ---------
- 21 -
<PAGE>
<PAGE> 23
Fully diluted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,809 105,223
--------- ---------
--------- ---------
Fully diluted earnings per share . . . . . . . . . . . . . . . . . . . . . $ .73 $ .24
--------- ---------
--------- ---------
</TABLE>
