<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 June 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 July 29, 1994, there were outstanding 104,312,472 shares of Common
Stock, 33-1/3 cents par value per share, and 420,874 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>
June 30, December 31,
ASSETS 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 92.3 $ 159.2
Receivables, less allowance for doubtful accounts of $18.8 million
(1994) and $16.1 million (1993) . . . . . . . . . . . . . . . . . 1,265.4 1,284.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926.7 992.2
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 174.4 137.3
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . 2,458.8 2,573.6
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems . . . . . . . . . . . . . . . . . . . . . . . . 5,686.3 5,461.6
Refining, crude oil and chemical facilities . . . . . . . . . . . . 1,906.1 1,821.3
Gas and oil properties - at full-cost . . . . . . . . . . . . . . . 1,216.7 1,204.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677.6 677.0
----------- -----------
9,486.7 9,164.1
Accumulated depreciation, depletion and amortization . . . . . . . . 3,342.4 3,216.0
----------- -----------
6,144.3 5,948.1
----------- -----------
Other Assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553.9 563.3
Investments - equity method . . . . . . . . . . . . . . . . . . . . 388.6 424.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696.7 717.4
----------- -----------
1,639.2 1,705.4
----------- -----------
$ 10,242.3 $ 10,227.1
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 3
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable and preferred stock redeemable within one year . . . . $ 150.0 $ 271.7
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,559.0 1,649.1
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 436.6 374.0
Current maturities on long-term debt . . . . . . . . . . . . . . . . 41.5 95.1
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 2,187.1 2,389.9
----------- -----------
Debt:
Long-term debt, excluding current maturities . . . . . . . . . . . . 3,689.3 3,612.8
Subordinated long-term debt, excluding current maturities . . . . . 199.7 199.7
----------- -----------
3,889.0 3,812.5
----------- -----------
Deferred Credits and Other:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,390.6 1,339.9
Other deferred credits . . . . . . . . . . . . . . . . . . . . . . . 397.1 380.1
----------- -----------
1,787.7 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 $209.9 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 . . . . . . . . . . . . . . . . . . . . . . . . . 1,257.3 1,162.7
----------- -----------
2,510.4 2,411.0
Less common stock in treasury - at cost . . . . . . . . . . . . . . 132.5 132.9
----------- -----------
2,377.9 2,278.1
----------- -----------
$ 10,242.3 $ 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues . . . . . . . . . . . . . . . . . . . $ 2,486.9 $ 2,631.9 $ 5,187.7 $ 5,279.0
---------- --------- --------- ---------
Operating Costs and Expenses:
Purchases . . . . . . . . . . . . . . . . . . . . . . 1,780.0 1,949.0 3,680.0 3,917.6
Operating expenses . . . . . . . . . . . . . . . . . . 462.5 452.4 946.5 886.7
Depreciation, depletion and
amortization . . . . . . . . . . . . . . . . . . . 88.4 87.5 182.2 177.1
---------- --------- --------- ---------
2,330.9 2,488.9 4,808.7 4,981.4
---------- --------- --------- ---------
Operating Profit . . . . . . . . . . . . . . . . . . . . 156.0 143.0 379.0 297.6
---------- --------- --------- ---------
Other Income - net . . . . . . . . . . . . . . . . . . . 20.4 20.8 36.4 39.9
---------- --------- --------- ---------
Other Expenses:
General and administrative . . . . . . . . . . . . . . 12.9 12.5 26.4 25.4
Interest and debt expense, less $2.5 million (1994)
and $2.0 million (1993) three months and
$4.1 million (1994) and $4.2 million (1993)
six months capitalized . . . . . . . . . . . . . . 97.0 110.7 199.5 232.3
Taxes on income . . . . . . . . . . . . . . . . . . . 23.4 11.8 65.3 26.0
---------- --------- --------- ---------
133.3 135.0 291.2 283.7
---------- --------- --------- ---------
Earnings Before Extraordinary Item . . . . . . . . . . . 43.1 28.8 124.2 53.8
Extraordinary Item - Loss on Early
Extinguishment of Debt . . . . . . . . . . . . . . - (2.5) - (2.5)
---------- --------- --------- ---------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . 43.1 26.3 124.2 51.3
Dividends on Preferred Stock . . . . . . . . . . . . . . 4.3 2.5 8.7 2.6
---------- --------- --------- ---------
Net Earnings Available
to Common Stockholders . . . . . . . . . . . . . . $ 38.8 $ 23.8 $ 115.5 $ 48.7
---------- --------- --------- ---------
---------- --------- --------- ---------
Earnings Per Share:
Before extraordinary item . . . . . . . . . . . . . . $ .37 $ .25 $ 1.10 $ .49
Extraordinary item . . . . . . . . . . . . . . . . . . - (.02) - (.02)
---------- --------- --------- ---------
Net Earnings Per Common
and Common Equivalent Share . . . . . . . . . . . . $ .37 $ .23 $ 1.10 $ .47
---------- --------- --------- ---------
---------- --------- --------- ---------
Cash Dividends Per Common Share . . . . . . . . . . . . . $ .10 $ .10 $ .20 $ .20
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
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<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>
Six Months Ended June 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) - (1) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 64 - 68 -
---------- ---------- ---------- ----------
---------- ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance . . . . . . . . . . . 89 .1 95 .1
Converted to common . . . . . . . . . . (3) - (3) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . 86 .1 92 .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 . . . . . . . . . . . . . (15) - (9) -
Conversion of preferred stock and
exercise of stock options . . . . . . . . . 13 - 2 -
---------- ---------- ---------- ----------
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
<PAGE> 6
Ending balance . . . . . . . . . . . . . . . 421 .1 438 .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 . . . . . . . . 18 - 18 -
Conversion of Class A common stock . . . . . 15 - 9 -
Exercise of stock options . . . . . . . . . . 152 - 72 -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . . . . . . 108,697 $ 36.2 108,066 $ 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>
Six Months Ended June 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 2.9
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,214.1 1,200.8
---------- ----------
Retained earnings:
Beginning balance . . . . . . . . . . . . . . . 1,162.7 1,099.9
Net earnings for period . . . . . . . . . . . . 124.2 51.3
Dividends on preferred stock . . . . . . . . . . (8.7) (2.6)
Dividends on common stock . . . . . . . . . . . (20.9) (20.8)
---------- ----------
Ending balance . . . . . . . . . . . . . . . . . 1,257.3 1,127.8
---------- ----------
Less treasury stock - at cost . . . . . . . . . . . 4,395 (132.5) 4,415 (132.9)
---------- ---------- ---------- ----------
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,377.9 $ 2,234.5
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
<PAGE> 8
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 124.2 $ 51.3
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 184.5 178.9
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 15.9 .9
Amortization of producer contract reformation costs . . . . . . . . . 17.9 25.2
Undistributed earnings from equity method investments . . . . . . . . (8.3) (24.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 (9.9)
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 19.5 450.6
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (118.0) 222.8
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . .2 (15.6)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . (87.2) (397.3)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 62.6 (15.4)
-------- --------
227.0 466.6
-------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . (199.1) (171.4)
Proceeds from sale of property, plant and equipment . . . . . . . . . . 12.0 3.2
Additions to investments . . . . . . . . . . . . . . . . . . . . . . . . (3.1) (64.0)
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . 46.3 18.7
Gas supply settlements and prepayments . . . . . . . . . . . . . . . . . (2.8)
Recovery of gas supply prepayments . . . . . . . . . . . . . . . . . . . .4 28.1
-------- --------
(143.5) (188.2)
-------- --------
Cash Flow From Financing Activities:
Decrease in short-term notes . . . . . . . . . . . . . . . . . . . . . (114.0) (86.4)
Redemption of mandatory redemption preferred stock . . . . . . . . . . . (33.7)
Proceeds from issuing common stock . . . . . . . . . . . . . . . . . . . 5.2 2.9
Proceeds from issuing preferred stock . . . . . . . . . . . . . . . . . 193.8
Proceeds from issuing long-term debt . . . . . . . . . . . . . . . . . . 133.8 309.5
Payments to retire long-term debt . . . . . . . . . . . . . . . . . . . (112.1) (617.6)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29.6) (23.4)
-------- --------
(150.4) (221.2)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . (66.9) 57.2
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . 159.2 43.5
-------- --------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . $ 92.3 $ 100.7
-------- --------
-------- --------
</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.
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 $207.8 million and $224.9
million for the six months ended June 30, 1994 and 1993, respectively. Cash
payments for income taxes amounted to $80.3 million and $18.7 million for
the six months ended June 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>
June 30, December 31,
1994 1993
--------------- --------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals . . . . . . . . . . . . . $ 682.0 $ 568.8
Natural gas in underground storage - first-in, first-out method . . 45.9 229.2
Natural gas in underground storage - last-in, first-out method . . . 23.5 31.2
Coal, materials and supplies . . . . . . . . . . . . . . . . . . . . 175.3 163.0
---------- ----------
$ 926.7 $ 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 $31.9 million at June 30, 1994 and $52.6 million at December
31, 1993.
3. Common Stock
On June 30, 1994, 4,116,098 shares of Common Stock of the Company were
reserved for employee stock option plans, 790,653 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 421,480 shares were
reserved for conversion of outstanding Class A Common Stock and 47,226
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 25,341 shares reserved for employee stock option plans and
21,885 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . $ 17.4 $ 11.3 $ 46.5 $ 20.3
State . . . . . . . . . . . . . . . . . . . . . . . (1.0) 2.4 2.9 4.8
---------- --------- --------- ---------
16.4 13.7 49.4 25.1
---------- --------- --------- ---------
Deferred Income Taxes:
Federal . . . . . . . . . . . . . . . . . . . . . . 3.0 (.8) 12.0 .9
State . . . . . . . . . . . . . . . . . . . . . . . 4.0 (1.1) 3.9 -
---------- --------- --------- ---------
7.0 (1.9) 15.9 .9
$ 23.4 $ 11.8 $ 65.3 $ 26.0
---------- --------- --------- ---------
---------- --------- --------- ---------
</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 $112.8 million and $134.0 million at June 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 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
transition cost mechanisms of Order 636 or through negotiated agreements
with customers. The Company believes that these mechanisms provide adequate
coverage for such costs.
- 9 -
<PAGE>
<PAGE> 11
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
six month period ended June 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.
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 has not been set for trial at this
time.
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 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.
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.
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 June 30, 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 at Docket RP94-43. 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
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.
On April 7, 1994, ANR Pipeline submitted a compliance filing pursuant to the
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.
- 11 -
<PAGE>
<PAGE> 13
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 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. 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 realignments costs, the cost of stranded
pipeline investment and the Dakota costs described above. As of June 30,
1994, ANR Pipeline has incurred transition costs in the amount of $35.1
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
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 FERC, while gas processing rates are not subject to FERC
regulations.
Colorado's gas sales 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 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.
- 12 -
<PAGE>
<PAGE> 14
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 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 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.
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. The complaint seeks civil penalties of $374,000.
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.
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.
- 13 -
<PAGE>
<PAGE> 15
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
-------------------------------
June 30, December 31,
1994 1993
------------- ----------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity . . . . 8.2% 5.2%
Cash flow from operating activities to long-term debt . . 14.7% 21.2%
Total debt to total capitalization . . . . . . . . . . . 63.2% 64.3%
Times interest earned (before tax) . . . . . . . . . . . 1.7 1.4
</TABLE>
The increases in most of the above ratios can be attributed to
increased earnings in the twelve months ended June 30, 1994 and decreased
total 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 June 30, 1994 were as follows (millions of
dollars):
<TABLE>
<CAPTION>
<S> <C>
Short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 610.1
Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . 566.0
----------
$ 1,176.1
----------
----------
</TABLE>
- 14 -
<PAGE>
<PAGE> 16
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 six month
periods ended June 30, 1994 in comparison to the same periods in 1993 are a
result of the following:
Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . $ 806.9 $ 805.3 $ 1,683.7 $ 1,667.0
Refining and marketing . . . . . . . . . . . . . . 1,513.9 1,628.2 3,183.0 3,242.1
Exploration and production . . . . . . . . . . . . 76.1 90.7 157.8 180.2
Coal . . . . . . . . . . . . . . . . . . . . . . . 110.8 98.0 220.2 204.2
Other . . . . . . . . . . . . . . . . . . . . . . . 60.7 49.0 107.6 96.0
Adjustments and eliminations . . . . . . . . . . . (81.5) (39.3) (164.6) (110.5)
---------- --------- --------- ---------
$ 2,486.9 $ 2,631.9 $ 5,187.7 $ 5,279.0
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas . . . . . . . . . . . . . . . . . . . . $ 102.6 $ 94.0 $ 231.4 $ 216.9
Refining and marketing . . . . . . . . . . . . . . 17.0 15.5 84.8 17.2
Exploration and production . . . . . . . . . . . . 7.8 10.2 12.8 20.5
Coal . . . . . . . . . . . . . . . . . . . . . . . 25.5 24.8 49.7 47.9
Other . . . . . . . . . . . . . . . . . . . . . . . 3.1 (1.5) .3 (4.9)
---------- --------- --------- ---------
$ 156.0 $ 143.0 $ 379.0 $ 297.6
---------- --------- --------- ---------
---------- --------- --------- ---------
</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
- 15 -
<PAGE>
<PAGE> 17
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 to firm customers (including an authorized return on rate base and
associated taxes) are to be received through fixed monthly demand 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
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 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, thereby having minimal impact on net earnings.
The increase in operating revenues of $1.6 million for the three month
period ended June 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
increase in operating revenues of $16.7 million for the six months ended
June 30, 1994 is attributable to increased volumes and prices for the gas
marketing companies and higher storage and transportation revenues for the
interstate pipelines due to volume increases, partially offset by decreased
sales volumes and prices for the interstate pipelines. 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 decreased by $.1 million and $20.2 million for the three
month and six month periods, respectively, as volume decreases for the
interstate pipelines more than offset volume increases for the gas marketing
companies. Gross profit increased by $1.7 million and $36.9 million over the
1993 second quarter and six months, respectively.
The increase in operating profit of $8.6 million in the second quarter
of 1994 results from increased transportation revenues of $13.2 million,
improved storage revenues of $16.1 million, decreased operating expenses of
$8.1 million and other of $.1 million offset by sales margin decreases of
$19.2 million and volume reductions of $9.7 million. The reduced operating
expenses result primarily from a benefit in 1994 related to the revision of
certain estimated costs. The operating profit increase of $14.5 million for
the six month period ended June 30, 1994 can be attributed to increased
transportation revenues of $63.4 million and improved storage revenues of
$34.0 million offset by lower sales margins of $18.0 million, reduced sales
volumes of $39.5 million, increased operating expenses of $19.7 million and
other of $5.7 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 decreased by $114.3 in the
second quarter of 1994 and $59.1 million in the six months ended June 30,
1994 as lower prices more than offset increased volumes. Purchases decreased
- 16 -
<PAGE>
<PAGE> 18
by $114.1 million and $149.7 million for the three month and six month
periods, respectively, resulting in a gross profit decrease of $.2 million
for the second quarter and a gross profit increase of $90.6 million for the
six month period.
The operating profit increase of $1.5 million in the second quarter
results from improved marine revenues of $2.6 million, reduced operating
expenses of $2.6 million and other of $4.4 million being partially offset by
lower margins of $3.6 million and lower volumes of $4.5 million. For the six
months ended June 30, 1994, operating profit increased by $67.6 million as
improved margins of $71.5 million, increased volumes of $9.0 million, higher
marine revenues of $2.8 million and other of $5.5 million were offset by
increased operating expenses of $21.2 million. The increased operating
expenses are a result of increased volumes.
Exploration and Production. Operating revenues decreased by $14.6
million in the three months ended June 30, 1994 as decreased prices for all
products and reduced revenues from interstate natural gas marketing
activities were partially offset by higher natural gas volumes. The decrease
in operating revenues of $22.4 million for the six month period ended June
30, 1994 can be attributed to decreased volumes and prices for crude oil and
condensate and reduced revenues from interstate natural gas marketing
activities partially offset by increased prices and volumes for natural gas.
Operating profit decreased by $2.4 million in the three months ended
June 30, 1994 as reduced revenue from crude oil, condensate and natural gas
liquids of $4.3 million and increased operating expenses of $.3 million were
partially offset by increased gross profit from interstate natural gas
marketing activities of $1.5 million and other of $.7 million. The decrease
in operating profit of $7.7 million for the six month period ended June 30,
1994 resulted from decreased revenues from crude oil, condensate and natural
gas liquids of $11.5 million, lower revenue from plant products of $4.8
million and increased depreciation, depletion and amortization of $1.1
million offset by increased revenue from natural gas of $8.6 million,
decreased operating expenses of $.8 million and other of $.3 million.
Coal. Operating revenues increased by $12.8 million and $16.0 million
in the three and six month periods ended June 30, 1994, respectively, as
increased volumes more than offset slightly lower prices. Operating profit
increased by $.7 million in the three month period as the revenue increase
of $12.8 million and reduced depreciation, depletion and amortization of
$1.0 million were offset by increased operating expenses of $13.1 million.
The increase in operating profit of $1.8 million for the six month period
can be attributed to increased revenues of $16.0 million and reduced
depreciation, depletion and amortization of $.6 million offset by increased
operating expenses of $14.8 million. The increased operating expenses in
both periods are attributable to increased volumes.
Other. The operating revenue increases of $11.7 million for the three
month period ended June 30, 1994 and $11.6 million for the six month period
ended June 30, 1994 result from increased volumes for the trucking
operations. Operating profit increased by $4.6 million in the three month
period as the increased revenues of $11.7 million were offset by increased
expenses of $7.1 million. For the six month period, the increased operating
profit of $5.2 million resulted from the operating revenue increase of $11.6
million being offset by higher expenses of $6.4 million. The operating
expense increase for both periods is attributable to the increased volumes
for the trucking operations.
- 17 -
<PAGE>
<PAGE> 19
Other Income-Net. The decrease of $.4 million for the second quarter
of 1994 results from reduced equity income from unconsolidated subsidiaries
of $7.7 million and other decreases of $2.1 million offset by a $9.4 million
gain related to the disposition of investments in oil and gas properties in
Argentina. The decrease of $3.5 million for the six months ended June 30,
1994 primarily results from a $3.0 million settlement recorded in the 1993
first quarter not recurring, reduced equity income from unconsolidated
subsidiaries of $5.6 million and other of $4.3 million offset by the $9.4
million gain noted above.
Interest and Debt Expense. The decreases of $13.7 million for the
three month period and $32.8 million for the six month period ended June 30,
1994 result from lower average debt outstanding and lower interest rates.
Taxes on Income. Federal income taxes increased by $9.9 million in the
second quarter and $37.3 million in the six months ended June 30, 1994 as a
result of increased earnings before taxes and a higher effective federal
income tax rate. State income taxes increased by $1.7 million and $2.0
million in the three and six month periods, respectively.
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 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.
- 18 -
<PAGE>
<PAGE> 20
Item 2.B. Other Developments
In May 1994, the Company announced its subsidiary's plans to add a $100
million delayed coker unit at its refining complex in Aruba, which unit will
provide for conversion of about 23,000 barrels per day of residual fuel oil
into more valuable light-end petroleum products and petroleum coke.
Construction of the unit is expected to be completed by September 1995, for
which lease financing has been arranged.
On May 25, 1994, FERC issued a preliminary determination on SunShine
Interstate Transmission Company's application, approving the application
with certain conditions and subject to the outcome of the environmental
analysis being conducted by the FERC, which involves preparation of an
Environmental Impact Statement on both the interstate and intrastate
portions of the project. ANR Pipeline, through a wholly-owned subsidiary,
will have a 40% interest in the interstate pipeline segment of this project.
Rehearing of several of the conditions imposed by that preliminary
determination is 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. The
decision follows the withdrawal in early June of one key shipper and a
project partner and the recent withdrawal of another shipper. As a result of
these changes, Liberty cannot be reformulated in time to meet a 1996 in-
service date. The Liberty partners, including a subsidiary of ANR Pipeline,
still believe that an additional delivery point onto Long Island, as
proposed by Liberty, will be necessary in the future, and they plan to
continue to pursue that goal.
The Canadian National Energy Board ("NEB") 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 will not seek further review of the NEB's denial of
the applications. ANR Pipeline intends to continue to pursue the potential
for providing transportation and storage services into Canada and the
Northeastern United States and is discussing alternative arrangements to
provide services to these markets.
- 19 -
<PAGE>
<PAGE> 21
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, "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.
On May 5, 1994, the 1994 Annual Meeting of Stockholders of the
Company was held. At such meeting all four directors nominated as a Class II
director were elected uncontested: (i) 90,040,850 votes were cast for the
election of David A. Arledge and 625,589 votes were withheld; (ii)
128,571,099 votes were cast for the election of George L. Brundrett, Jr. and
793,540 votes were withheld; (iii) 128,577,958 votes were cast for the
election of L. D. Wooddy, Jr. and 786,681 votes were withheld and (iv)
128,576,927 votes were cast for the election of O. S. Wyatt, Jr. and 787,712
votes were withheld. The Company proposed that The Coastal Corporation 1994
Incentive Stock Plan be adopted. The proposal was approved; 117,911,367
affirmative votes and 9,371,320 negative votes were cast with respect to
such matter. The Company proposed that The Coastal Corporation Stock
Purchase Plan be adopted. The proposal was approved; 124,296,642 affirmative
votes and 3,130,434 negative votes were cast with respect to such matter. A
shareholders' proposal requesting that the Company prepare a report that
would (a) describe the Company's position with respect to the CERES
Principles (involving environmental matters); (b) describe Company programs,
progress, and plans relative to these Principles; and (c) report information
in the format specified by CERES was voted upon at such meeting. The
proposal was defeated; 8,768,172 affirmative votes and 98,105,196 negative
votes were cast with respect to such matter.
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 June
30, 1994.
- 20 -
<PAGE>
<PAGE> 22
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: August 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> <C>
11 Statement Re Computation of Per Share Earnings
</TABLE>
- 19 -
<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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . $ 38.8 $ 23.8 $ 115.5 $ 48.7
---------- --------- --------- ---------
---------- --------- --------- ---------
Average number of common shares outstanding . . . . . . . 104,266 103,601 104,212 103,581
Class A common shares . . . . . . . . . . . . . . . . . . 424 447 424 448
Common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A . . . 238 247 238 247
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . 294 364 334 333
---------- --------- --------- ---------
Average common and common equivalent shares . . . . . . . 105,222 104,659 105,208 104,609
---------- --------- --------- ---------
---------- --------- --------- ---------
Net earnings (loss) per average common and common
equivalent share outstanding:
Earnings before extraordinary item . . . . . . . . . . $ .37 $ .25 $ 1.10 $ .49
Extraordinary item . . . . . . . . . . . . . . . . . . - (.02) - (.02)
---------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ .37 $ .23 $ 1.10 $ .47
---------- --------- --------- ---------
---------- --------- --------- ---------
ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
common stock equivalents . . . . . . . . . . . . . . . $ 38.8 $ 23.8 $ 115.5 $ 48.7
Dividends applicable to dilutive preferred stock:
Series B . . . . . . . . . . . . . . . . . . . . . . . - - .1 .1
Series C . . . . . . . . . . . . . . . . . . . . . . . .1 .1 .1 .1
---------- --------- --------- ---------
Adjusted net earnings assuming full dilution . . . . . . $ 38.9 $ 23.9 $ 115.7 $ 48.9
---------- --------- --------- ---------
---------- --------- --------- ---------
Average number of common shares outstanding . . . . . . . 104,266 103,601 104,212 103,581
Class A common shares . . . . . . . . . . . . . . . . . . 424 463 424 465
Common share equivalents:
Series A preferred stock . . . . . . . . . . . . . . . 238 247 238 247
Equivalent common shares from
Series B and C Preferred Stock . . . . . . . . . . . . 574 586 574 586
- 20 -
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<PAGE> 25
Dilutive effect of outstanding stock options after
application of treasury stock method . . . . . . . . . 294 364 349 364
---------- --------- --------- ---------
Fully diluted shares . . . . . . . . . . . . . . . . . . 105,796 105,261 105,797 105,243
---------- --------- --------- ---------
---------- --------- --------- ---------
Fully diluted earnings (loss) per share:
Earnings before extraordinary item . . . . . . . . . . $ .37 $ .25 $ 1.09 $ .48
Extraordinary item . . . . . . . . . . . . . . . . . . - (.02) - (.02)
---------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ .37 $ .23 $ 1.09 $ .46
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
