<PAGE>
<PAGE> 1
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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 September 30, 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 October 31, 1994, there were outstanding 104,324,397 shares of
Common Stock, 33-1/3 cents par value per share, and 417,576 shares of Class
A Common Stock, 33-1/3 cents par value per share, of the Registrant.
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<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>
September 30, December 31,
ASSETS 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 61.8 $ 159.2
Receivables, less allowance for doubtful accounts of $18.8 million
(1994) and $16.1 million (1993) . . . . . . . . . . . . . . . . . 1,173.4 1,284.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959.4 992.2
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 167.3 137.3
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . 2,361.9 2,573.6
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems . . . . . . . . . . . . . . . . . . . . . . . . 5,709.4 5,461.6
Refining, crude oil and chemical facilities . . . . . . . . . . . . 1,974.1 1,821.3
Gas and oil properties - at full-cost . . . . . . . . . . . . . . . 1,244.5 1,204.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709.9 677.0
----------- -----------
9,637.9 9,164.1
Accumulated depreciation, depletion and amortization . . . . . . . . 3,405.1 3,216.0
----------- -----------
6,232.8 5,948.1
----------- -----------
Other Assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549.2 563.3
Investments - equity method . . . . . . . . . . . . . . . . . . . . 341.1 424.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792.1 717.4
----------- -----------
1,682.4 1,705.4
----------- -----------
$ 10,277.1 $ 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>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable and preferred stock redeemable within one year . . . . $ 154.5 $ 271.7
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600.4 1,649.1
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 398.8 374.0
Current maturities on long-term debt . . . . . . . . . . . . . . . . 30.6 95.1
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 2,184.3 2,389.9
----------- -----------
Debt:
Long-term debt, excluding current maturities . . . . . . . . . . . . 3,694.2 3,612.8
Subordinated long-term debt, excluding current maturities . . . . . 199.7 199.7
----------- -----------
3,893.9 3,812.5
----------- -----------
Deferred Credits and Other:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,417.8 1,339.9
Other deferred credits . . . . . . . . . . . . . . . . . . . . . . . 390.9 380.1
----------- -----------
1,808.7 1,720.0
----------- -----------
Mandatory Redemption Preferred Stock:
Issued by subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .6 26.6
----------- -----------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $209.8 million) . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.7
Class A common stock . . . . . . . . . . . . . . . . . . . . . . . . .1 .1
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 36.2
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 1,214.1 1,209.3
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 1,269.0 1,162.7
----------- -----------
2,522.1 2,411.0
Less common stock in treasury - at cost . . . . . . . . . . . . . . (132.5) (132.9)
----------- -----------
2,389.6 2,278.1
----------- -----------
$ 10,277.1 $ 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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . . . . . . . . . . $ 2,675.5 $ 2,307.9 $ 7,863.2 $ 7,586.9
--------- --------- --------- ---------
Operating Costs and Expenses:
Purchases . . . . . . . . . . . . . . . . . . . . . . 1,996.3 1,635.1 5,676.3 5,552.7
Operating expenses . . . . . . . . . . . . . . . . . . 456.2 460.9 1,402.7 1,347.6
Depreciation, depletion and
amortization . . . . . . . . . . . . . . . . . . . 90.7 88.9 272.9 266.0
--------- --------- --------- ---------
2,543.2 2,184.9 7,351.9 7,166.3
--------- --------- --------- ---------
Operating Profit . . . . . . . . . . . . . . . . . . . . 132.3 123.0 511.3 420.6
--------- --------- --------- ---------
Other Income - net . . . . . . . . . . . . . . . . . . . 14.1 18.4 50.5 58.3
--------- --------- --------- ---------
Other Expenses:
General and administrative . . . . . . . . . . . . . . 12.9 12.2 39.3 37.6
Interest and debt expense, less $2.4 million (1994)
and $1.2 million (1993) three months and
$6.5 million (1994) and $5.4 million (1993)
nine months capitalized . . . . . . . . . . . . . . 99.6 107.8 299.1 340.1
Taxes on income . . . . . . . . . . . . . . . . . . . 7.3 32.8 72.6 58.8
--------- --------- --------- ---------
119.8 152.8 411.0 436.5
--------- --------- --------- ---------
Earnings (Loss) Before Extraordinary Item . . . . . . . . 26.6 (11.4) 150.8 42.4
Extraordinary Item - Loss on Early
Extinguishment of Debt . . . . . . . . . . . . . . - - - (2.5)
--------- --------- --------- ---------
Net Earnings (Loss) . . . . . . . . . . . . . . . . . . . 26.6 (11.4) 150.8 39.9
Dividends on Preferred Stock . . . . . . . . . . . . . . 4.4 4.4 13.1 7.0
--------- --------- --------- ---------
Net Earnings (Loss) Available
to Common Stockholders . . . . . . . . . . . . . . $ 22.2 $ (15.8) $ 137.7 $ 32.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (Loss) Per Share:
Before extraordinary item . . . . . . . . . . . . . . $ .21 $ (.15) $ 1.31 $ .34
Extraordinary item . . . . . . . . . . . . . . . . . . - - - (.02)
--------- --------- --------- ---------
Net Earnings (Loss) Per Common
and Common Equivalent Share . . . . . . . . . . . . $ .21 $ (.15) $ 1.31 $ .32
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash Dividends Per Common Share . . . . . . . . . . . . . $ .10 $ .10 $ .30 $ .30
--------- --------- --------- ---------
--------- --------- --------- ---------
</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>
Nine Months Ended September 30,
----------------------------------------------------
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) - (4) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 64 - 65 -
---------- ---------- ---------- ----------
---------- ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance . . . . . . . . . . . 89 .1 95 .1
Converted to common . . . . . . . . . . (4) - (4) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 85 .1 91 .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 balance . . . . . . . . . . . 8,000 2.6 - -
Issuance . . . . . . . . . . . . . . . . - 8,000 2.6
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 8,000 2.6 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 . . . . . . . . . . . . . (21) - (97) -
Conversion of preferred stock and
exercise of stock options . . . . . . . . . 17 - 80 -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . . . 419 .1 428 .1
---------- ---------- ---------- ----------
---------- ----------
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
<PAGE> 6
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 . . . . . . . . 23 - 34 -
Conversion of Class A common stock . . . . . 21 - 97 -
Exercise of stock options . . . . . . . . . . 159 - 365 .2
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . . . 108,715 $ 36.2 108,463 $ 36.2
---------- ---------- ---------- ----------
---------- ----------
</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>
Nine Months Ended September 30,
----------------------------------------------------
1994 1993
----------------------- -----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance . . . . . . . . . . . . . . . $ 1,209.3 $ 1,006.7
Issuance of Series H preferred stock . . . . . . - 191.2
Exercise of stock options . . . . . . . . . . . 4.8 12.4
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,214.1 1,210.3
---------- ----------
Retained earnings:
Beginning balance . . . . . . . . . . . . . . . 1,162.7 1,099.9
Net earnings for period . . . . . . . . . . . . 150.8 39.9
Dividends on preferred stock . . . . . . . . . . (13.1) (7.0)
Dividends on common stock . . . . . . . . . . . (31.4) (31.2)
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,269.0 1,101.6
---------- ----------
Less treasury stock - at cost . . . . . . . . . . . 4,395 (132.5) 4,415 (132.9)
---------- ---------- ---------- ----------
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,389.6 $ 2,218.0
---------- ----------
---------- ----------
</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>
Nine Months Ended
September 30,
-------------------------
1994 1993
--------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150.8 $ 39.9
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 276.2 268.7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 21.4 29.8
Amortization of producer contract reformation costs . . . . . . . . . 25.5 37.4
Undistributed earnings from equity method investments . . . . . . . . (9.3) (42.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20.7) (10.2)
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 65.3 435.1
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150.7) 42.9
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 16.0 (15.7)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . (43.0) (193.8)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 24.8 32.7
-------- --------
356.3 624.2
-------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . (385.9) (279.3)
Proceeds from sale of property, plant and equipment . . . . . . . . . . 21.2 10.8
Additions to investments . . . . . . . . . . . . . . . . . . . . . . . . (9.5) (67.3)
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . 86.7 16.1
Gas supply settlements and prepayments . . . . . . . . . . . . . . . . . - (4.4)
Recovery of gas supply prepayments . . . . . . . . . . . . . . . . . . . .6 27.5
-------- --------
(286.9) (296.6)
-------- --------
Cash Flow From Financing Activities:
Decrease in short-term notes . . . . . . . . . . . . . . . . . . . . . (109.5) (136.4)
Redemption of mandatory redemption preferred stock . . . . . . . . . . . (33.7) (7.6)
Proceeds from issuing common stock . . . . . . . . . . . . . . . . . . . 5.2 12.6
Proceeds from issuing preferred stock . . . . . . . . . . . . . . . . . - 193.8
Proceeds from issuing long-term debt . . . . . . . . . . . . . . . . . . 137.3 245.3
Payments to retire long-term debt . . . . . . . . . . . . . . . . . . . (121.6) (604.2)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44.5) (38.2)
-------- --------
(166.8) (334.7)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . (97.4) (7.1)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 159.2 43.5
-------- --------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . $ 61.8 $ 36.4
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
- 7 -
<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.
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 $285.9 million and $296.2
million for the nine months ended September 30, 1994 and 1993, respectively.
Cash payments for income taxes amounted to $70.2 million and $17.7 million
for the nine months ended September 30, 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
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals . . . . . . . . . . . . . $ 689.1 $ 568.8
Natural gas in underground storage - first-in, first-out method . . 63.5 229.2
Natural gas in underground storage - last-in, first-out method . . . 31.4 31.2
Coal, materials and supplies . . . . . . . . . . . . . . . . . . . . 175.4 163.0
---------- ----------
$ 959.4 $ 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 $22.5 million at September 30, 1994 and $52.6 million at
December 31, 1993.
3. Common Stock
On September 30, 1994, 4,104,035 shares of Common Stock of the Company
were reserved for employee stock option plans, 785,460 shares were reserved
for conversion of the Series A, B, and C Preferred Stocks, 418,553 shares
were reserved for conversion of outstanding Class A Common Stock and 44,332
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 22,591 shares reserved for employee stock option plans and
21,741 shares reserved for conversion of the Series A, B, and C Preferred
Stocks.
- 8 -
<PAGE>
<PAGE> 10
4. Income Taxes
Provisions for federal and state income taxes were as follows (millions
of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . $ (1.0) $ 2.0 $ 45.5 $ 22.3
State . . . . . . . . . . . . . . . . . . . . . . . 2.8 1.9 5.7 6.7
--------- --------- --------- ---------
1.8 3.9 51.2 29.0
--------- --------- --------- ---------
Deferred Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . 7.1 28.9 19.1 29.8
State . . . . . . . . . . . . . . . . . . . . . . . (1.6) - 2.3 -
--------- --------- --------- ---------
5.5 28.9 21.4 29.8
$ 7.3 $ 32.8 $ 72.6 $ 58.8
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Interim period provisions for federal income taxes are based on
estimated effective annual income tax rates.
In the third quarter of 1993, the Company recorded a non-cash charge to
income of $29.0 million, relating primarily to the cumulative effect of
adjusting its deferred income tax liability to reflect the revised statutory
rates that resulted from the Omnibus Budget Reconciliation Act of 1993.
5. Take-or-Pay Obligations
Other assets include $105.0 million and $134.0 million at September 30,
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 gas sales are made at
negotiated prices and are not subject to regulatory price controls. This
does 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.
- 9 -
<PAGE>
<PAGE> 11
Contract reformation and take-or-pay costs incurred as a result of the
mandated Order 636 restructuring will be recovered either under the
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, subsidiaries of the Company were 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. Such provisions and
accruals were not material to the Company for the calendar year 1993 and the
nine month period ended September 30, 1994.
6. Litigation and Regulatory Matters
Litigation
A subsidiary of the Company initiated a suit against TransAmerican
Natural Gas Corporation ("TransAmerican") in the District Court of Webb
County, Texas for breach of two gas purchase agreements. In February 1993
TransAmerican 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. The judgment has been appealed by
TransAmerican and the case is presently pending before the Court of Appeals
for the Fourth Judicial District at San Antonio, Texas.
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
- 10 -
<PAGE>
<PAGE> 12
the statute of limitations. The matter has been set for trial on
November 29, 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.
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 or results of operations.
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. The United States Court of
Appeals for the D.C. Circuit is in the process of developing a briefing
schedule related to this judicial review.
On November 1, 1993, ANR Pipeline Company ("ANR Pipeline") placed its
Order 636 restructured services and rates into effect. Both ANR Pipeline and
certain of its customers have sought judicial review of aspects of the
FERC's orders approving ANR Pipeline's restructuring filings. 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. The FERC issued a further order regarding certain
compliance issues on July 1, 1994. In accordance with this order, ANR
Pipeline filed revised tariff sheets on July 18, 1994.
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 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, 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 September 30, 1994, and
are included in the Consolidated Balance Sheet under "Deferred Credits and
Other." Certain customers have disputed the level of those refunds. By order
issued July 20, 1994, the FERC directed ANR Pipeline to try to resolve all
issues through informal procedures. The matter is still pending.
On November 1, 1993, ANR Pipeline filed a general rate increase with the
FERC under Docket RP94-93. The increase represents the effects of 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" and Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits." On March 23, 1994, the
- 11 -
<PAGE>
<PAGE> 13
FERC issued an order granting and denying various requests for summary
disposition and establishing hearing procedures for issues remaining to be
investigated in this proceeding. 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.
ANR Pipeline sought rehearing and, if necessary, will seek judicial review
of certain aspects of the March 23, 1994 order. 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. On September 21, 1994, the FERC accepted ANR
Pipeline's filing in compliance with the March 23, 1994 order, subject to
further modifications including an additional reduction in cost of service
of approximately $5 million. ANR Pipeline submitted its compliance filing to
the FERC on October 6, 1994.
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 resolves 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 final FERC
approval, including an approval for ANR Pipeline to recover the settlement
costs from its customers. On August 3, 1994, ANR Pipeline filed a petition
with the FERC requesting: (a) that the Settlement Agreement be approved; (b)
an order approving ANR Pipeline's proposed tariff mechanism for the recovery
of the costs incurred to implement the Settlement Agreement; and (c) an
order dismissing a proceeding currently pending before the FERC, wherein
certain of ANR Pipeline's customers have challenged Dakota's pricing under
the original gas supply contract. On October 18, 1994, the FERC issued an
order consolidating ANR Pipeline's petition with similar petitions of three
other pipeline companies and setting the Settlement Agreement and other
Dakota-related proceedings for limited hearing before an Administrative Law
Judge who must render an initial decision by December 31, 1995. ANR Pipeline
believes the ultimate resolution of the Dakota related issues will not have
a material adverse impact on its financial position or results of
operations.
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 realignment costs, the cost of stranded
pipeline investment and the Dakota costs described above. As of September
30, 1994, ANR Pipeline has incurred transition costs in the amount of $39.5
million. ANR Pipeline has filed for recovery of approximately $21.3 million
of these transition costs, which have been accepted and made effective by
the FERC, subject to refund and subject to further proceedings. In addition,
ANR Pipeline has filed for recovery of approximately $90 million (present
value at August 1, 1994) of costs to be incurred associated with the
Settlement Agreement, as mentioned above. Additional transition cost filings
will be made by ANR Pipeline in the future. As a result of the recovery
mechanisms provided under Order 636, ANR Pipeline anticipates that these
transition costs will not have a material adverse effect on ANR Pipeline's
financial position or results of operations.
On July 2, 1993, Colorado submitted to the FERC an unanimous offer of
settlement which resolved all the Order 636 restructuring issues which had
- 12 -
<PAGE>
<PAGE> 14
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. As of October 1, 1993, Colorado separated
all of its services and separately contracts for each service on a stand-
alone or "unbundled" basis. Gathering, storage and transportation services
are provided at negotiated rates established between minimum and maximum
levels approved by the FERC, while gas processing rates are not subject to
FERC regulations.
Colorado's gas sales for resale contracts extend through September 30,
1996, but provide for reduced customer purchases to be made each year. Under
Order 636, Colorado's certificate to sell gas for resale allows sales to be
made at negotiated prices and not at prices established by FERC. Colorado is
also authorized to abandon all sales for resale without prior FERC approval
at such time as the contracts expire.
On March 31, 1993, Colorado filed at FERC under Docket RP93-99 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. On August 16, 1994, Colorado submitted an
offer of settlement which resolved all of the issues in the case and
established final rates (which are not subject to any refund obligation) for
the period beginning October 1, 1993. At its public meeting of November 9,
1994, the FERC adopted an order approving the settlement. Colorado will be
required to make refunds as a result of the approval of the settlement. Such
refunds will be distributed in early 1995. Colorado has fully accrued for
these refunds and therefore such refunds will not have an adverse effect on
its consolidated financial position or results of operations.
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
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 sixteen sites for which the Environmental Protection
Agency ("EPA") has developed sufficient information to estimate total clean-
up costs of approximately $400 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 six 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
- 13 -
<PAGE>
<PAGE> 15
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.
In October 1994, the Texas Natural Resources Conservation Commission
("TNRCC") sent a notification letter to Coastal Refining & Marketing, Inc.
("CR&M"), a subsidiary of the Company, alleging violations of the Resources
Conservation and Recovery Act. The TNRCC has referred the allegations to the
office of the Attorney General of the State of Texas. The Company believes
that this action could result in monetary sanctions which, while not
material to the Company and its subsidiaries, could exceed $100,000.
In June 1994, the EPA brought an administrative action against Coastal
Eagle Point Oil Company ("CEPOC"), a subsidiary of the Company, alleging
failure to file an inventory update form in 1990 as to the respective
quantities of certain toxic chemicals CEPOC allegedly uses or processes at
its New Jersey refinery. In September 1994, the parties agreed to a penalty
amount of $175,000.
In February 1993, the State of Texas filed suit against CR&M seeking
civil penalties for alleged public nuisance odor violations at the Corpus
Christi refinery. In October 1994, the parties agreed upon a penalty amount
of $561,000 regarding certain compliance issues.
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, financial position or results of operations.
Item 2.A. 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
The Company uses the following consolidated ratios to measure liquidity
and its ability to meet future funding needs and debt service requirements.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------
September 30, December 31,
1994 1993
-------------- -------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity . . . . 9.9% 5.2%
Cash flow from operating activities to long-term debt . . 13.9% 21.2%
Total debt to total capitalization . . . . . . . . . . . 63.1% 64.3%
Times interest earned (before tax) . . . . . . . . . . . 1.8 1.4
</TABLE>
The changes in most of the above ratios can be attributed to increased
earnings in the twelve months ended September 30, 1994 and decreased total
- 14 -
<PAGE>
<PAGE> 16
debt. The reduction in the cash flow from operating activities to long-term
debt 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 and other new financings.
Funding for certain proposed natural gas projects is anticipated to be
provided through non-recourse project financing 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 September 30, 1994 were as follows
(millions of dollars):
<TABLE>
<CAPTION>
<S> <C>
Short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 627.2
Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . 605.9
---------
$ 1,233.1
---------
---------
</TABLE>
On June 16, 1994, ANR Pipeline redeemed all shares of its outstanding
Cumulative Preferred Stock under sinking fund provisions or optional
redemption provisions. Such redemption included the payment of accrued
dividends to June 16, 1994.
Results of Operations
The changes in the Company's earnings for the three and nine month
periods ended September 30, 1994 in comparison to the same periods in 1993
are a result of the following:
- 15 -
<PAGE>
<PAGE> 17
Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . $ 792.3 $ 770.7 $ 2,476.0 $ 2,437.7
Refining and marketing . . . . . . . . . . . . . . 1,701.8 1,370.3 4,884.8 4,612.4
Exploration and production . . . . . . . . . . . . 66.8 89.6 224.6 269.8
Coal . . . . . . . . . . . . . . . . . . . . . . . 120.0 121.4 340.2 325.6
Other . . . . . . . . . . . . . . . . . . . . . . . 56.0 44.5 163.6 140.5
Adjustments and eliminations . . . . . . . . . . . (61.4) (88.6) (226.0) (199.1)
--------- --------- --------- ---------
$ 2,675.5 $ 2,307.9 $ 7,863.2 $ 7,586.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . $ 89.8 $ 82.7 $ 321.2 $ 299.6
Refining and marketing . . . . . . . . . . . . . . 2.9 10.0 87.7 27.2
Exploration and production . . . . . . . . . . . . 7.4 11.1 20.2 31.6
Coal . . . . . . . . . . . . . . . . . . . . . . . 25.3 22.5 75.0 70.4
Other . . . . . . . . . . . . . . . . . . . . . . . 6.9 (3.3) 7.2 (8.2)
--------- --------- --------- ---------
$ 132.3 $ 123.0 $ 511.3 $ 420.6
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Natural Gas. On April 8, 1992 the FERC issued Order 636 which required
significant changes in the services provided by interstate natural gas
pipelines (see Note 6 of the Notes to Consolidated Financial Statements).
The intent of Order 636 is to insure that interstate pipeline transportation
services are equal in quality for all gas supplies, whether the buyer
purchases gas from the pipeline or from any other gas supplier. The FERC
amended its regulations to require the use of the straight fixed variable
("SFV") rate setting methodology. In general, SFV provides that all fixed
costs of providing service to firm customers (including an authorized return
on rate base and associated taxes) are to be received through fixed monthly
reservation charges, which are not a function of volumes transported, while
including within the commodity billing component the pipeline's variable
operating costs.
ANR Pipeline placed its restructured services under Order 636 into
effect on November 1, 1993, and Colorado's restructured services became
- 16 -
<PAGE>
<PAGE> 18
effective October 1, 1993. Both subsidiaries now offer a wide range of
"unbundled" storage, transportation and balancing services. As a result of
Order 636, ANR Pipeline no longer offers merchant services, while Colorado's
gas sales for resale contracts extend through September 30, 1996, but
provide for reduced customer purchases to be made each year. While operating
revenues for interstate pipelines have been reduced as a result of the
implementation of Order 636, purchases and other related costs have also
been reduced by a similar amount.
The increases in operating revenues of $21.6 million for the three month
period and $38.3 million for the nine month period ended September 30, 1994
can be attributed to increased sales volumes for the gas marketing companies
and higher storage and transportation revenues for the interstate pipelines
due to increased volumes, partially offset by decreased sales volumes for
the interstate pipelines and lower prices. The primary factor contributing
to the increase in storage and transportation 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 increased by $21.4 million and $1.2 million in the three month
and nine month periods, respectively, as volume increases for the gas
marketing companies more than offset volume decreases for the interstate
pipelines and lower prices. Gross profit increased by $.2 million and $37.1
million over the 1993 third quarter and nine months, respectively.
The increase in operating profit of $7.1 million in the third quarter of
1994 results from improved storage revenues of $17.2 million, increased
transportation revenue of $9.8 million and decreased operating expenses of
$8.1 million offset by sales margin decreases of $22.9 million, volume
reductions of $4.6 million and other decreases of $.5 million. The reduced
operating expenses in 1994 are primarily due to a reduction in
transportation expense provided by others.
The operating profit increase of $21.6 million for the nine month period
ended September 30, 1994 can be attributed to increased transportation
revenues of $73.2 million, improved storage revenues of $51.2 million and
other of $3.2 million offset by lower sales margins of $48.0 million,
reduced sales volumes of $46.4 million and increased operating expenses of
$11.6 million. The increased operating expenses result from increased
throughput for the interstate pipelines and increased volumes handled by the
gas marketing companies.
Refining and Marketing. Operating revenues increased by $331.5 million
in the third quarter of 1994 and $272.4 million in the nine months ended
September 30, 1994. The third quarter increase results from increased
volumes and prices and the nine month increase results from increased
volumes being partially offset by lower prices. Purchases increased by
$330.1 million and $180.3 million for the three month and nine month
periods, respectively, resulting in increased gross profits of $1.4 million
for the third quarter and $92.1 million for the nine month period.
The operating profit decrease of $7.1 million in the third quarter
results from lower margins of $20.8 million and increased operating expenses
of $6.2 million being partially offset by increased volumes of $15.7 million
and other increases of $4.2 million. For the nine months period ended
September 30, 1994, operating profit increased by $60.5 million as increased
volumes of $24.7 million, higher margins of $55.3 million and other
increases of $7.9 million were partially offset by increased operating
expenses of $27.4 million. The increased operating expenses for both periods
are the result of increased volumes.
- 17 -
<PAGE>
<PAGE> 19
Exploration and Production. Operating revenues decreased by $22.8
million in the three months ended September 30, 1994 as decreased volumes
for all products, reduced revenues from natural gas marketing activities and
decreased natural gas prices more than offset increased prices for crude oil
and condensate. The decrease in operating revenues of $45.2 million for the
nine month period ended September 30, 1994 can be attributed to decreased
prices for all products, reduced revenues from natural gas marketing
activities and lower crude oil and condensate volumes being partially offset
by increased natural gas volumes.
Operating profit decreased by $3.7 million in the three months ended
September 30, 1994 as reduced revenue from natural gas of $8.8 million was
partially offset by increased gross profit from natural gas marketing
activities of $1.2 million, reduced depreciation, depletion and amortization
of $2.4 million and other of $1.5 million. The decrease in operating profit
of $11.4 million for the nine month period ended September 30, 1994 resulted
from decreased revenues from oil and condensate of $11.3 million and
decreased revenues from plant products of $5.5 million offset by increased
gross profit from natural gas marketing activities of $3.5 million,
decreased depreciation, depletion and amortization of $1.3 million and other
of $.6 million.
Coal. Operating revenues decreased by $1.4 million in the three month
period ended September 30, 1994 as lower prices and other decreases more
than offset increased volumes. The increase in operating revenues of $14.6
million for the nine months results from increased volumes more than
offsetting lower prices.
Operating profit increased by $2.8 million in the three month period as
reduced operating expenses of $4.6 million more than offset reduced revenues
of $1.4 million and lower depreciation, depletion and amortization of $.4
million. The increase in operating profit of $4.6 million for the nine
months ended September 30, 1994 results from increased revenues of $14.6
million offset by increased operating expenses of $10.0 million. The
operating expense increase is attributable to increased volumes.
Other. The operating revenue increases of $11.5 million for the three
month period ended September 30, 1994 and $23.1 million for the nine month
period ended September 30, 1994 result from increased volumes for the
trucking operations and increased revenue from real estate activities.
Operating profit increased by $10.2 million in the three month period as the
increased revenues of $11.5 million were offset by increased expenses of
$1.3 million. For the nine month period, the increased operating profit of
$15.4 million resulted from the operating revenue increase of $23.1 million
being offset by higher expenses of $7.7 million. The operating expense
increase for both periods is attributable to the increased volumes for the
trucking operations.
Other Income-Net. The decrease of $4.3 million for the third quarter of
1994 results from reduced equity income from unconsolidated subsidiaries of
$5.3 million and other decreases of $.9 million partially offset by a $1.9
gain from the sale of property. The decrease of $7.8 million for the nine
months ended September 30, 1994 results from a $3.0 million settlement
recorded in 1993 not recurring, reduced equity income from unconsolidated
subsidiaries of $11.4 million and other of $2.8 million offset by a $9.4
million gain related to the disposition of investments in oil and gas
properties in Argentina.
Interest and Debt Expense. The decreases of $8.2 million for the three
month period and $41.0 million for the nine month period ended September 30,
1994 result from lower average debt outstanding and lower interest rates.
- 18 -
<PAGE>
<PAGE> 20
Taxes on Income. Federal income taxes decreased by $24.8 million in the
third quarter and increased by $12.5 million in the nine months ended
September 30, 1994 as a result of increased earnings before taxes and a
higher effective federal income tax rate being offset by a $29.0 million
charge in the third quarter of 1993 relating to the cumulative effect of
adjusting the deferred income tax liability to reflect an increase in the
statutory rates. State income taxes decreased by $.7 million in the three
month period and increased by $1.3 million in the nine month period.
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 sixteen sites for which the EPA has developed
sufficient information to estimate total clean-up costs of approximately
$400 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 six 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, financial position or results of operations.
Item 2.B. Other Developments
Effective September 9, 1994, Florida Power Corporation ("FPC") withdrew
as an equity partner in both the Sunshine Interstate Transmission Company
and SunShine Pipeline Company ("SunShine") partnerships. As a result of
FPC's withdrawal, interests in the partnerships are now held by affiliates
of ANR Pipeline and TransCanada PipeLines Limited. FPC continues to be a
major customer of the SunShine Pipeline Project. However, FPC has indicated
that its need for gas supply has been delayed. In light of this and market
indicators, SunShine has obtained a postponement of its pipeline corridor
certification hearing at the Florida Department of Environmental Protection
until October 1995. Environmental review is also pending at the FERC.
Sponsors of the Liberty Pipeline Project ("Liberty") asked the FERC, on
August 1, 1994, to postpone indefinitely its review of the Project. As a
result, the FERC dismissed the application on August 12, 1994. ANR Pipeline
and certain Liberty partners still believe that an additional delivery point
- 19 -
<PAGE>
<PAGE> 21
onto Long Island, as originally proposed by Liberty, will be necessary in
the future.
In August 1994, the Company announced one of its subsidiary's plans to
build and operate a 91 megawatt power plant in El Salvador. Electricity from
the plant will be sold to the Salvadoran national utility under a 20 year
power purchase agreement. Construction of the power plant, for which lease
financing is being arranged, is expected to be completed by July 1995.
- 20 -
<PAGE>
<PAGE> 22
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 and from Item 2.A., "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Environmental
Matters" 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.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 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: November 10, 1994 By: COBY C. HESSE
------------------------------
Coby C. Hesse
Senior Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 21 -
<PAGE>
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------------------------
<S> <S>
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
- 18 -
<PAGE>
<PAGE> 24
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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- --------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK AND EQUIVALENTS:
Net earnings (loss) applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . $ 22.2 $ (15.8) $ 137.7 $ 32.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Average number of common shares outstanding . . . . . . . 104,313 103,853 104,246 103,661
Class A common shares . . . . . . . . . . . . . . . . . . 420 432 423 439
Common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A . . . 237 - 237 241
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . 298 - 322 324
--------- --------- --------- ---------
Average common and common equivalent shares . . . . . . . 105,268 104,285 105,228 104,665
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings (loss) per average common and common
equivalent share outstanding:
Earnings (loss) before extraordinary item . . . . . . $ .21 $ (.15) $ 1.31 $ .34
Extraordinary item . . . . . . . . . . . . . . . . . . - - - (.02)
--------- --------- --------- ----------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ .21 $ (.15) $ 1.31 $ .32
--------- --------- --------- ----------
--------- --------- --------- ----------
ASSUMING FULL DILUTION:
Net earnings (loss) applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . $ 22.2 $ (15.8) $ 137.7 $ 32.9
Dividends applicable to dilutive preferred stock:
Series B . . . . . . . . . . . . . . . . . . . . . . . - - .1 -
Series C . . . . . . . . . . . . . . . . . . . . . . . .1 - .2 -
--------- --------- --------- ---------
Adjusted net earnings (loss) assuming full dilution . . . $ 22.3 $ (15.8) $ 138.0 $ 32.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Average number of common shares outstanding . . . . . . . 104,313 103,853 104,246 103,661
Class A common shares . . . . . . . . . . . . . . . . . . 420 432 423 439
Common share equivalents:
Series A preferred stock . . . . . . . . . . . . . . . 237 - 237 241
Equivalent common shares from
- 19 -
<PAGE>
<PAGE> 25
Series B and C Preferred Stock . . . . . . . . . . . . 570 - 570 -
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . 298 - 332 342
--------- --------- --------- ---------
Fully diluted shares . . . . . . . . . . . . . . . . . . 105,838 104,285 105,808 104,683
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted earnings (loss) per share:
Earnings (loss) before extraordinary item . . . . . . $ .21 $ (.15) $ 1.30 $ .34
Extraordinary item . . . . . . . . . . . . . . . . . . - - - (.02)
--------- --------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . . . $ .21 $ (.15) $ 1.30 $ .32
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COASTAL
CORPORATION FORM 10-Q QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 1,173
<ALLOWANCES> 0
<INVENTORY> 959
<CURRENT-ASSETS> 2,362
<PP&E> 9,638
<DEPRECIATION> 3,405
<TOTAL-ASSETS> 10,277
<CURRENT-LIABILITIES> 2,184
<BONDS> 3,894
<COMMON> 36
1
3
<OTHER-SE> 2,351
<TOTAL-LIABILITY-AND-EQUITY> 10,277
<SALES> 7,863
<TOTAL-REVENUES> 7,914
<CGS> 5,676
<TOTAL-COSTS> 7,352
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> 224
<INCOME-TAX> 73
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
