<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
COASTAL TOWER
NINE GREENWAY PLAZA
HOUSTON, TEXAS 77046-0995
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-1400
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of April 30, 1996, there were outstanding 105,061,728 shares of Common
Stock, 33-1/3 cents par value per share, and 394,329 shares of Class A Common
Stock, 33-1/3 cents par value per share, of the Registrant.
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<PAGE>
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, 1995, and therefore are subject to year-end adjustments;
however, all adjustments which are, in the opinion of management, necessary for
a fair statement of the results of operations for the periods covered have been
made. The adjustments which have been made are of a normal recurring nature.
Such results are not necessarily indicative of results to be expected for the
year due to seasonal variations and market conditions affecting sales of natural
gas and petroleum products.
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
------------ -----------
<S> <C> <C>
(Unaudited)
Current Assets:
Cash and cash equivalents........................................... $ 50.8 $ 58.4
Receivables, less allowance for doubtful accounts of $18.8 million
(1996) and $21.4 million (1995) 1,373.4 1,192.3
Inventories......................................................... 856.0 781.1
Prepaid expenses and other.......................................... 213.0 218.3
--------- ---------
Total Current Assets............................................... 2,493.2 2,250.1
--------- ---------
Property, Plant and Equipment - at cost:
Natural gas systems................................................. 5,891.3 5,866.2
Refining, crude oil and chemical facilities......................... 2,040.7 1,957.8
Gas and oil properties - at full-cost............................... 1,502.2 1,450.9
Other............................................................... 741.9 743.1
--------- ---------
10,176.1 10,018.0
Accumulated depreciation, depletion and amortization................ 3,663.1 3,556.1
--------- ---------
6,513.0 6,461.9
--------- ---------
Other Assets:
Goodwill............................................................ 521.0 525.7
Investments - equity method......................................... 446.4 447.4
Other............................................................... 953.4 973.7
--------- ---------
1,920.8 1,946.8
--------- ---------
$10,927.0 $10,658.8
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
(Unaudited)
Current Liabilities:
Notes payable...................................................... $ 226.2 $ 123.2
Accounts payable................................................... 1,789.5 1,630.2
Accrued expenses................................................... 337.5 325.4
Current maturities on long-term debt............................... 123.5 128.5
--------- ---------
Total Current Liabilities......................................... 2,476.7 2,207.3
--------- ---------
Debt:
Long-term debt, excluding current maturities....................... 3,592.3 3,661.7
--------- ---------
Deferred Credits and Other:
Deferred income taxes.............................................. 1,493.1 1,473.8
Other deferred credits............................................. 614.4 636.6
--------- ---------
2,107.5 2,110.4
--------- ---------
Mandatory Redemption Preferred Stock:
Issued by subsidiaries............................................. .5 .6
--------- ---------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $209.1 million)................................................ 2.7 2.7
Class A common stock............................................... .1 .1
Common stock....................................................... 36.5 36.4
Additional paid-in capital......................................... 1,228.5 1,225.0
Retained earnings.................................................. 1,614.7 1,547.1
--------- ---------
2,882.5 2,811.3
Less common stock in treasury - at cost............................ 132.5 132.5
--------- ---------
2,750.0 2,678.8
--------- ---------
$10,927.0 $10,658.8
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Millions of Dollars, Except Per Share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
Operating Revenues.................................... $3,095.1 $2,618.3
-------- --------
Operating Costs and Expenses:
Purchases............................................ 2,360.5 1,897.2
Operating expenses................................... 435.7 442.9
Depreciation, depletion and amortization............. 100.3 93.8
-------- --------
2,896.5 2,433.9
-------- --------
Operating Profit...................................... 198.6 184.4
-------- --------
Other Income - net.................................... 18.1 17.4
-------- --------
Other Expenses:
General and administrative........................... 14.5 14.2
Interest and debt expense, less $1.5 million (1996)
and $1.8 million (1995) capitalized................. 95.6 109.6
Taxes on income...................................... 24.1 20.4
-------- --------
134.2 144.2
-------- --------
Net Earnings.......................................... 82.5 57.6
Dividends on Preferred Stock.......................... 4.3 4.3
-------- --------
Net Earnings Available to Common Stockholders......... $ 78.2 $ 53.3
======== ========
Net Earnings Per Common and Common Equivalent Share... $ .74 $ .51
======== ========
Cash Dividends Per Common Share....................... $ .10 $ .10
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousands of Shares and Millions of Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1995
---------------- -----------------
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.............................. 61 $ - 63 $ -
Converted to common............................ - - - -
------- ------ ------- ------
Ending balance................................. 61 - 63 -
======= ------ ======= ------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance.............................. 79 .1 84 .1
Converted to common............................ (2) - (1) -
------- ------ ------- ------
Ending balance................................. 77 .1 83 .1
======= ------ ======= ------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance............................... 33 - 34 -
Converted to common............................. - - - -
------- ------ ------- ------
Ending balance.................................. 33 - 34 -
======= ------ ======= ------
Cumulative preferred:
$2.125, Series H, liquidation amount
of $25 per share:
Beginning and 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................................. 404 .1 416 .1
Converted to common............................... (5) - (5) -
Conversion of preferred stock and
exercise of stock options........................ 1 - 4 -
------- ------ ------- ------
Ending balance.................................... 400 .1 415 .1
======= ------ ======= ------
Common stock, par value 33-1/3 cent per share,
authorized 250,000,000 shares:
Beginning balance................................. 109,168 36.4 108,726 36.2
Conversion of preferred stock..................... 12 - 5 -
Conversion of Class A common stock................ 5 - 5 -
Exercise of stock options......................... 188 .1 34 .1
------- ------ ------- ------
Ending balance.................................... 109,373 $ 36.5 108,770 $ 36.3
======= ------ ======= ------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousands of Shares and Millions of Dollars)
(Continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1996 1995
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance............. $1,225.0 $1,214.7
Exercise of stock options..... 3.5 .9
-------- --------
Ending balance................ 1,228.5 1,215.6
-------- --------
Retained earnings:
Beginning balance............. 1,547.1 1,336.0
Net earnings for period....... 82.5 57.6
Dividends on preferred stock.. (4.3) (4.3)
Dividends on common stock..... (10.6) (10.5)
-------- --------
Ending balance................ 1,614.7 1,378.8
-------- --------
Less treasury stock - at cost...................... 4,395 132.5 4,395 132.5
======== -------- ======== --------
Total.............................................. $2,750.0 $2,501.0
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings.......................................... $ 82.5 $ 57.6
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization............. 101.3 94.8
Deferred income taxes................................ 5.4 5.8
Amortization of producer contract reformation costs.. 8.2 7.2
Distributed earnings from equity investments......... 17.4 .3
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable................................. (181.1) 25.2
Inventories......................................... (74.9) 135.3
Prepaid expenses and other.......................... 10.8 14.4
Accounts payable.................................... 159.3 (281.7)
Accrued expenses.................................... 19.6 35.8
Other............................................... 14.7 56.3
------- -------
163.2 151.0
------- -------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment............ (145.9) (80.9)
Proceeds from sale of property, plant and equipment... 1.2 3.8
Additions to investments.............................. (17.6) (10.1)
Proceeds from investments............................. - 10.7
Recovery of gas supply prepayments.................... .1 .1
------- -------
(162.2) (76.4)
------- -------
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes............... (197.0) 33.5
Redemption of mandatory redemption preferred stock.... (.1) -
Proceeds from issuing common stock.................... 3.6 1.0
Proceeds from long-term debt issues................... 271.5 109.0
Payments to retire long-term debt..................... (71.7) (205.1)
Dividends paid........................................ (14.9) (14.8)
------- -------
(8.6) (76.4)
------- -------
Net Decrease in Cash and Cash Equivalents.............. (7.6) (1.8)
Cash and Cash Equivalents at Beginning of Period....... 58.4 73.5
------- -------
Cash and Cash Equivalents at End of Period............. $ 50.8 $ 71.7
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
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, 1995. Certain minor reclassifications of prior
period statements have been made to conform with current reporting practices.
The effect of the reclassifications was not material to the Company's
consolidated results of operations or financial position.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which establishes financial accounting and reporting
standards for stock-based employee compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods and services from
nonemployees. FAS 123 requires, among other things, that compensation cost be
calculated for fixed stock options at the grant date by determining fair value
using an option-pricing model. The Company has the option of recognizing the
compensation cost over the vesting period as an expense in the statement of
consolidated operations or making pro forma disclosures in the notes to
financial statements as to the effects on net earnings as if the compensation
cost had been recognized in the statement of consolidated operations. The
Company adopted FAS 123 in 1996 and will make the required pro forma disclosures
in the notes to the annual financial statements. During the quarter ended March
31, 1996, the Company granted 661,500 options with an exercise price of $36.56.
The exercise price was equal to the market price of the stock at the grant date.
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" in 1996. The application of the new standard did not
have a material effect on the Company's consolidated results of operations or
financial position.
The interstate natural gas pipeline and certain storage subsidiaries
are subject to the regulations and accounting procedures of the Federal Energy
Regulatory Commission ("FERC"). These subsidiaries meet the criteria and,
accordingly, follow the reporting and accounting requirements of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("FAS 71"). FAS 71 provides that rate-regulated public
utilities account for and report assets and liabilities consistent with the
economic effect of the way in which regulators establish rates, if the rates
established are designed to recover the costs of providing the regulated service
and if the competitive environment makes it reasonable to assume that such rates
can be charged and collected. Although the accounting methods for companies
subject to rate regulation may differ from those used by non-regulated
companies, the accounting methods prescribed by the regulatory authority conform
to the generally accepted accounting principle of matching costs with the
revenue to which they apply.
Transactions which the subsidiaries have recorded differently than a
non-regulated entity include the following: the subsidiaries (i) have
capitalized the cost of equity funds used during construction, and, (ii) have
deferred purchase gas costs, contract reformation costs,
postemployment/postretirement benefit costs and income tax reductions related to
changes in federal income tax rates. These items are being, or are anticipated
to be, recovered or refunded in rates chargeable to customers.
The subsidiaries have applied FAS 71 and evaluate the applicability of
regulatory accounting and the recoverability of these assets through rate or
other contractual mechanisms on an ongoing basis. If FAS 71 accounting
principles should no longer be applicable to the subsidiaries' operations, an
amount would be charged to earnings as an extraordinary item. At March 31, 1996,
this amount was approximately $91 million, net of income taxes. The Company does
not expect that its cash flows would be affected by discontinuing application of
FAS 71. Any potential charge to earnings would be noncash and would have no
direct effect on the subsidiaries' ability to include the underlying deferred
items in their future rate proceedings or on their ability to collect the rates
set thereby.
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 $62.7 million and
7
<PAGE>
$70.9 million for the three months ended March 31, 1996 and 1995, respectively.
Cash payments (refunds) for income taxes amounted to $1.7 million and $(1.5)
million for the three months ended March 31, 1996 and 1995, respectively.
2. INVENTORIES
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals.. $654.6 $556.5
Natural gas in underground storage......... 28.6 49.9
Coal, materials and supplies............... 172.8 174.7
------ ------
$856.0 $781.1
====== ======
</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 $43.7 million at March 31, 1996 and $36.5 million at December 31,
1995.
3. COMMON STOCK
On March 31, 1996, 3,499,945 shares of Common Stock of the Company
were reserved for employee stock option plans, 731,201 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 399,677 shares were
reserved for conversion of outstanding Class A Common Stock and 35,022 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 14,780 shares
reserved for employee stock option plans and 20,242 shares reserved for
conversion of the Series A, B, and C Preferred Stocks.
4. INCOME TAXES
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
------- ---------
(Unaudited)
<S> <C> <C>
Current Income Taxes:
Federal............... $14.6 $14.2
Foreign............... .6 .3
State................. 3.5 .1
----- -----
18.7 14.6
----- -----
Deferred Income Taxes:
Federal............... 6.0 6.0
Foreign............... .5 -
State................. (1.1) (.2)
----- -----
5.4 5.8
----- -----
$24.1 $20.4
===== =====
</TABLE>
Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.
8
<PAGE>
5. LITIGATION, REGULATORY AND ENVIRONMENTAL MATTERS
Litigation Matters
A subsidiary of Coastal 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 Coastal 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 Interstate Gas Company's ("CIG")
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 CIG 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. In March 1995, the Trial Court granted a partial
summary judgment in favor of CIG, holding that the four-year statute of
limitations had not been tolled, that the releases are valid, and dismissing all
tort claims and claims for breach of any duty of disclosure. The remaining claim
for underpayment of royalties was tried to a jury which, in May 1995, made
findings favorable to CIG. On June 7, 1995, the Trial Court entered a judgment
that the lessors recover no monetary damages from CIG and permanently estopping
the lessors from asserting any claim based on an interpretation of the contract
different than that asserted by CIG in the litigation. The lessors' motion for a
new trial is pending.
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.
Regulatory Matters
On January 31, 1996, the FERC issued a "Statement of Policy and
Request for Comments" in Docket Nos. RM95-6 and RM96-7 with respect to a
pipeline's ability to negotiate and charge rates for individual customers'
services which would not be limited to the "cost-based" rates established by the
FERC in traditional rate making. Under this Policy, a pipeline and a customer
will be allowed to negotiate a contract for service which provides for rates and
charges that exceed the pipeline's posted maximum tariff rates, provided that
the shipper agreeing to such negotiated rates has the ability to elect to
receive service at the pipeline's posted maximum rate (known as a "recourse
rate"). In order to implement this Policy, a pipeline must make an initial
tariff filing with the FERC to indicate that it intends to contract for services
under this Policy, and subsequent tariff filings will indicate each instance
where the pipeline has negotiated a rate for service which exceeds the posted
maximum tariff rate. The FERC has also requested comments on whether this
"recourse rate" program should be extended to other terms and conditions of
pipeline transportation services.
Under ANR Pipeline Company's ("ANR Pipeline") Interim Settlement,
which became effective November 1, 1992 and expired on November 1, 1993, gas
inventory demand charges were collected from ANR Pipeline's former resale
customers. 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, on April 29, 1994, ANR Pipeline filed with the FERC a
reconciliation report showing over-collections and proposing refunds totaling
$45.1 million. Certain customers have disputed the level of those refunds.
Pursuant to a February 27, 1995 FERC order approving ANR Pipeline's refund
allocation methodology, ANR Pipeline paid undisputed refunds on March 29, 1995
of $45.1 million, together with applicable interest, subject to further
investigation of the claims made by the customers. On May 2, 1995, the FERC
issued an order setting these issues for an evidentiary hearing which commenced
on May 14, 1996. ANR Pipeline
9
<PAGE>
submitted an adjusted reconciliation report on October 31, 1995, which was also
disputed by certain customers and which has been consolidated with the ongoing
evidentiary hearing. The FERC's approval of ANR Pipeline's refund allocation
methodology was appealed by certain customers to the United States Court of
Appeals for the D.C. Circuit and that appeal was dismissed in an April 24, 1996
Court order.
On April 8, 1992, the FERC issued Order 636, which required
significant changes in the services provided by interstate natural gas
pipelines. ANR Pipeline and numerous other parties have sought judicial review
of aspects of Order 636 before the United States Court of Appeals for the D.C.
Circuit. Oral argument in the case was held on February 21, 1996. Several
persons, including ANR Pipeline, have also appealed aspects of the FERC's orders
approving ANR Pipeline's restructuring filings made pursuant to Order 636 and
these appeals are expected to be briefed shortly. ANR Pipeline placed its
restructured services under Order 636 into effect on November 1, 1993. 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 tariff modifications, ANR Pipeline would be fully in compliance with
Order 636 and the requirements of the orders on its restructuring filings.
Under FERC Docket No. RP94-43, ANR Pipeline filed a general rate
increase on November 1, 1993. By a March 23, 1994 order, the FERC granted and
denied various requests for summary disposition and established hearing
procedures for issues remaining to be investigated in the proceeding. The
hearing commenced on January 31, 1996 and concluded on April 24, 1996. Initial
briefs are due July 1, 1996, and reply briefs are due August 30, 1996. Under the
March 23, 1994 order, certain costs were reduced or eliminated, resulting in
revised rates that reflect an $85.7 million increase in the cost of service
underlying that approved in the Interim Settlement, and a $182.8 million
increase over the cost of service underlying ANR Pipeline's approved rates for
its Order 636 restructured services. 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's filing was accepted by the FERC in a September 21,
1994 order, subject to further modifications, including an additional reduction
in cost of service of approximately $5 million. ANR Pipeline submitted revised
rates in compliance with this order on October 6, 1994, which rates are
currently in effect, subject to refund. ANR Pipeline sought rehearing of various
aspects of the March 23, 1994 order and the FERC denied rehearing in a December
8, 1994 order. On January 26, 1995, ANR Pipeline appealed these orders to the
United States Court of Appeals for the D.C. Circuit and the Court dismissed the
appeal as premature.
The FERC has also issued a series of orders and orders on rehearing in
ANR Pipeline's rate proceeding that apply a new policy governing the order of
attribution of revenues received by ANR Pipeline related to transition costs
under Order 636. Under that new policy, ANR Pipeline is required to first
attribute the revenues it receives for its services to the recovery of its
transition costs under Order 636. In its pending rate proceeding, the revenues
ANR Pipeline receives for its services were first attributed to the recovery of
its base cost of service. The FERC's change in its revenue attribution policy
has the effect of understating ANR Pipeline's currently effective maximum rates
and has accelerated its amortization of transition costs. In light of the FERC's
policy, ANR Pipeline has filed with the FERC to increase its discount recovery
adjustment in its pending rate proceeding. ANR Pipeline has also sought judicial
review of these orders before the United States Court of Appeals for the D.C.
Circuit, although the Court granted the FERC's motion to hold ANR Pipeline's
appeal in abeyance pending the outcome of the Order 636 appeal discussed above.
Claims were filed in 1990 in the United States District Court in North
Dakota by Dakota Gasification Company ("Dakota") and the United States
Department of Energy regarding ANR Pipeline's obligations under certain gas
purchase and transportation contracts with the Great Plains Coal Gasification
Plant (the "Plant"). On February 16, 1994, ANR Pipeline, Dakota and the
Department of Energy executed a Settlement Agreement (the "Settlement
Agreement"), which, subject to FERC approval, resolves the litigation and
disputes among the parties, amends the gas purchase agreement between ANR
Pipeline and Dakota and terminates the transportation contract with the Plant.
On August 3, 1994, ANR Pipeline filed a petition with the FERC requesting: (i)
approval of the Settlement Agreement; (ii) an order approving ANR Pipeline's
proposed tariff mechanism to recover the costs incurred to implement the
Settlement Agreement; and (iii) an order dismissing a then pending FERC
proceeding wherein certain of ANR Pipeline's customers challenged Dakota's
pricing under the original gas supply contract. By an October 18, 1994 order,
the FERC consolidated ANR Pipeline's petition with similar petitions of three
other pipeline companies. Hearings were held before the FERC Administrative Law
Judge ("ALJ") on the prudence of the Settlement Agreement, and on December 29,
1995, the ALJ issued an Initial Decision rejecting the proposed Settlement
Agreement and determining the level of Dakota costs that ANR Pipeline and the
other pipeline companies would be permitted to recover from their customers
beginning as
10
<PAGE>
of May 1993. Because the amounts ANR Pipeline has billed to its customers since
May 1993 are greater than the Dakota costs ANR Pipeline would be permitted to
recover under the Initial Decision, ANR Pipeline may be required to refund to
its customers the amount of excess collections. At March 31, 1996, that
potential refund amount is approximately $75 million, plus interest. It is ANR
Pipeline's position that (i) the Settlement Agreement is prudent, (ii) the FERC
has no lawful authority to order refunds for past periods and (iii) even if
refunds were ultimately found to be lawful, ANR Pipeline should not lawfully be
required to refund amounts in excess of the amounts it collects from Dakota. ANR
Pipeline has filed with the FERC seeking reversal of the Initial Decision, and
approval of the Settlement Agreement.
Order 636 provides mechanisms for recovery of transition costs
associated with compliance with that Order. ANR Pipeline's transition costs
consist primarily of gas supply realignment costs and pricing differential
costs. As of March 31, 1996, ANR Pipeline incurred transition costs in the
amount of $55.5 million. In addition, ANR Pipeline recorded a contingent
liability for $83.9 million representing future above-market gas purchase
obligations, including future obligations of $66.3 million associated with the
Settlement Agreement, as discussed above. The charge related to the contingent
liability has been deferred in anticipation of future rate recovery. ANR
Pipeline has filed for recovery of approximately $44.5 million of incurred
transition costs. The FERC has accepted $42.7 million of these filings for
recovery, of which $28.6 million has been settled with the parties to the
respective FERC proceedings. Those filings not settled are subject to refund and
further proceedings. Additional transition cost filings will be made by ANR
Pipeline in the future.
On October 31, 1995, CIG filed an application with the FERC seeking
authority to transfer to CIG Field Services Company ("CFS"), a subsidiary of
CIG, certain facilities presently used for the gathering of natural gas that are
subject to certificates of public convenience and necessity. In that filing, CIG
requested that the FERC declare that in the hands of CFS the transferred
facilities will be considered "non-jurisdictional" gathering facilities. The
transferred facilities have a net book value of approximately $36 million. CIG
has requested that the FERC issue an order approving the application to be
effective on September 30, 1996. The filing was protested by certain parties,
resulting in a technical conference with the FERC staff and such protesting
parties. CIG filed an amendment addressing the issues of concern. Such filing
resulted in an adjusted net book value of approximately $33 million associated
with the transferred facilities. Following receipt of authorizations, CIG will
transfer the certificated and certain noncertificated gathering facilities to
CFS. The facilities to be transferred comprise most, but not all, of CIG's
current gathering and processing assets. Under current FERC policies, once the
facilities are transferred to CFS, the terms and conditions of service performed
by those facilities will cease to be subject to the FERC's general jurisdiction
under the Natural Gas Act of 1938, as amended, although the FERC has indicated
that, in certain very narrow circumstances, it will assert regulatory
jurisdiction over gathering by affiliates of interstate pipelines such as CFS.
As a condition of approving the transfer of gathering facilities to pipeline
affiliates, the FERC is requiring that the affiliate assure existing customers
of continued service for up to a 2-year period. The FERC policy also limits what
the gathering affiliate can charge during that period to the maximum gathering
rate which the pipeline could have charged for the same service prior to the
transfer. However, both the 2-year service condition and the rate limitation can
be overridden by a negotiated agreement between the shipper and the gathering
affiliate. The FERC's policy with respect to treatment of gathering affiliates
of interstate pipelines is on appeal at this time.
On March 29, 1996, CIG filed with the FERC under Docket No. RP96-190
to increase its rates by approximately $30 million annually and to realign
certain transportation services. On April 25, 1996, the FERC accepted the filing
to become effective October 1, 1996, subject to refund. In this filing, CIG also
established a new tariff provision to allow CIG to enter into negotiated rate
arrangements. The FERC has also accepted this provision, subject to refund,
effective May 1, 1996. A technical conference has been scheduled in this
proceeding to be held on May 21, 1996.
CIG, ANR Pipeline, ANR Storage Company and Wyoming Interstate Company,
Ltd. ("WIC"), subsidiaries of the Company, are regulated by the FERC. Certain of
the above regulatory matters and other 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. As a result, the Company anticipates that these
regulatory matters will not have a material adverse effect on its consolidated
financial position or results of operations. 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.
11
<PAGE>
Environmental Matters
The Company's operations are subject to extensive and evolving
federal, state and local environmental laws and regulations. The Company
anticipates capital expenditures of approximately $55 million in 1996 in order
to comply with such laws and regulations. The majority of the 1996 expenditures
is attributable to construction projects at the Company's refineries. The
Company currently anticipates capital expenditures for environmental compliance
for the years 1997 through 1999 of $20 to $40 million per year. 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 and a company in
which Coastal owns a 50% interest have been named as a potentially responsible
party ("PRP") in several "Superfund" waste disposal sites. At the 15 sites for
which there is sufficient information, total clean-up costs are estimated to be
approximately $336 million, and 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 6 other sites, the Environmental Protection Agency
("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 9 other sites, the Company has paid amounts to other
PRPs or to the EPA as its proportional share of associated clean-up costs. As to
these latter sites, the Company believes that its activities were de minimis.
Additionally, two subsidiaries of the Company have been named as PRPs in a state
site. The North Carolina Department of Health, Environment and Natural Resources
has estimated the total clean-up costs to be approximately $50 million, but the
Company believes that the subsidiaries' activities at this site were de minimis.
There are additional areas of environmental remediation
responsibilities to which the Company may be subject. The states have regulatory
programs that mandate waste clean-up. The Clean Air Act Amendments of 1990
include new permitting regulations which will result in increased operating
expenditures. Coastal is also supplying reduced-emission reformulated gasoline
in all markets where it is required.
In March 1996, the New Jersey Department of Environmental Protection
issued a Notice of Violation to Coastal Eagle Point Oil Company, a subsidiary of
Coastal, and the Eagle Point Cogeneration Partnership in which Coastal has an
indirect 50% interest. The Notice alleges certain violations of permit
conditions and an administrative consent order involving the installation and
testing of certain units at the New Jersey facility, but the New Jersey
Department of Environmental Protection has not specified the relief it is
seeking. 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.
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, consolidated
financial position or results of operations.
12
<PAGE>
ITEM 2.A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and
Results of Operations includes certain forward-looking statements reflecting the
Company's expectations in the near future; however, many factors which may
affect the actual results, especially commodity prices and changing regulations,
are difficult to predict. Accordingly, there is no assurance that the Company's
expectations will be realized.
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
------------------------
MARCH 31, DECEMBER 31,
1996 1995
----------- -------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity...... 11.6% 10.8%
Cash flow from operating activities to long-term debt.. 18.4% 17.7%
Total debt to total capitalization..................... 58.9% 59.4%
Times interest earned (before tax)..................... 1.9 1.8
</TABLE>
The above ratios reflect increased earnings in the 1996 first quarter.
A decrease in interest expense also contributed to the increase in the times
interest earned ratio.
Financing for capital expansion, mandatory debt retirements and other
expenditures will be provided by internally generated funds, existing credit
lines, proceeds from the sale of selective non-core assets and new financings.
On February 28, 1996, the Company announced that it will seek
qualified buyers for its coal operations. The proceeds from the proposed sale,
which the Company plans to complete in 1996, are expected to be used to
significantly strengthen the Company's balance sheet by the repayment of high-
cost debt and other obligations, and to provide improved financial flexibility
to pursue opportunities in the Company's other lines of business.
In April 1996, the Company announced that it will redeem on June 15,
1996 all of its 11-3/4% Senior Debentures due June 15, 2006, of which $400
million in principal amount was outstanding as of March 31, 1996. Debentures in
the principal amount of $60 million will be redeemed at par plus accrued
interest to the date of redemption pursuant to sinking fund provisions, with the
securities to be selected for redemption by lot. The remaining $340 million in
debentures will be redeemed at 103.917% of par plus accrued interest to the date
of redemption. The Company may, subject to market conditions, purchase the 11-
3/4% Senior Debentures in the open market prior to the record date for
redemption.
Funding for certain proposed projects is anticipated to be provided
through non-recourse project financings in which the projects' assets and
contracts will be pledged as collateral. Equity participation by other entities
will be considered. To the extent required, cash for equity contributions to
projects will be from general corporate funds.
13
<PAGE>
The Company continues to maintain a financial position that will
enable it to generate and obtain capital for financing needs in the foreseeable
future. Unused lines of credit at March 31, 1996 were as follows (millions of
dollars):
<TABLE>
<CAPTION>
<S> <C>
Short-term................... $677.3
Long-term*................... 672.6
--------
$1,349.9
========
</TABLE>
*$235 million of unused long-term credit lines is dedicated to a specific use.
RESULTS OF OPERATIONS
The change in the Company's earnings for the three-month period ended
March 31, 1996 in comparison to the same period in 1995 is a result of the
following:
OPERATING REVENUES. The operating revenues by segment were as follows
(millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
-------------------
1996 1995
-------------------
(Unaudited)
<S> <C> <C>
Natural gas............................................................................................. $1,003.4 $ 792.7
Refining, marketing and chemicals....................................................................... 1,956.9 1,646.1
Exploration and production.............................................................................. 85.0 63.4
Coal.................................................................................................... 107.3 114.0
Power................................................................................................... 20.2 7.6
Other................................................................................................... 8.0 42.2
Adjustments and eliminations............................................................................ (85.7) (47.7)
-------- --------
$3,095.1 $2,618.3
======== ========
OPERATING PROFIT (LOSS). The operating profit (loss) by segment was as follows (millions of dollars):
THREE MONTHS ENDED
March 31,
-------------------
1996 1995
-------------------
(Unaudited)
Natural gas............................................................................................. $ 126.1 $ 132.5
Refining, marketing and chemicals....................................................................... 34.8 24.2
Exploration and production.............................................................................. 14.1 2.9
Coal.................................................................................................... 18.4 24.3
Power................................................................................................... 2.4 (.2)
Other................................................................................................... 2.8 .7
-------- --------
$ 198.6 $ 184.4
======== ========
</TABLE>
NATURAL GAS. The increase in operating revenues of $210.7 million can
be attributed to increased prices and volumes, primarily for the gas marketing
companies. Transportation and storage revenues decreased slightly, primarily as
a result of the continued, intensified competition in the United States natural
gas industry.
Purchases increased by $211.5 million in the 1996 period due to
increased prices and volumes for the gas marketing companies. Gross profit
decreased by $.8 million from the 1995 first quarter.
14
<PAGE>
The operating profit decrease of $6.4 million in the 1996 first
quarter results from decreased margins of $6.3 million, reduced transportation
revenues of $2.0 million and increased operating expenses of $4.6 million offset
by increased sales volumes of $3.5 million and other increases of $3.0 million.
The operating expense increase results from increases for gas and gas liquids
handling and property and use taxes.
REFINING, MARKETING AND CHEMICALS. Operating revenues increased by
$310.8 million in the 1996 first quarter due to higher volumes and improved
prices. Purchases for the segment increased by $289.4 million, also a result of
higher prices and volumes, resulting in a gross profit increase of $21.4
million.
Operating profit increased by $10.6 million as increased volumes of
$26.1 million and other increases of $.8 million were offset by decreased
margins of $7.1 million and increased operating expenses of $9.2 million.
Increased production from the petrochemicals facility in Montreal, Quebec is
primarily responsible for the volume increase. The increased operating expenses
result from expanded retail operations, increased Canadian operations and the
acquisition of a chemical plant in the first quarter of 1996.
EXPLORATION AND PRODUCTION. The increase in operating revenues of
$21.6 million resulted from increased volumes and higher prices for all
products. The improved volumes reflect the success of the Company's drilling
program in 1995. Operating profit increased by $11.2 million as increases for
volumes of $10.2 million and prices of $14.7 million were partially offset by
increased operating expenses of $6.9 million; higher depreciation, depletion and
amortization of $3.1 million and other decreases of $3.7 million. The increased
operating expenses result from higher operating costs and maintenance due to
increased levels of offshore activity.
COAL. Operating revenues from the coal segment decreased by $6.7
million in the 1996 first quarter as a result of reduced volumes and lower
prices. Operating profit decreased by $5.9 million as decreased volumes of $6.0
million and lower margins of $4.1 million were partially offset by reduced
operating expenses of $2.3 million and other increases of $1.9 million. The
decreased operating expenses reflect the reduced volumes.
On February 28, 1996, the Company announced that it will seek
qualified buyers for its coal operations. The proceeds from the proposed sale,
which the Company plans to complete in 1996, are expected to be used to
significantly strengthen the Company's balance sheet by repayment of high-cost
debt and other obligations, and to provide improved financial flexibility to
pursue opportunities in the Company's other lines of business. The Coal
operations had operating revenues of $459.6 million, $451.3 million and $443.2
million for the years ended December 31, 1995, 1994 and 1993, respectively; with
operating profit for the same periods of $98.7 million, $98.2 million and $95.1
million, respectively. Identifiable assets of the Coal operations were $518.6
million and $498.3 million as of December 31, 1995 and 1994, respectively.
POWER. The increases in operating revenues of $12.6 million and
operating profit of $2.6 million result primarily from the power plant in El
Salvador which was not in operation in the first quarter of 1995.
OTHER. The decrease in operating revenues of $34.2 million is due to
the trucking activities, as these operations were merged into a new company in
which Coastal has a 50% interest in November 1995. Operating profit increased by
$2.1 million due primarily to the loss from trucking operations in 1995 not
recurring.
INTEREST AND DEBT EXPENSE. Interest and debt expense decreased by
$14.0 million due to reduced rates on variable rate debt and lower debt levels.
TAXES ON INCOME. Federal income taxes increased by $.4 million in the
1996 period as a result of increased earnings offset by a lower effective
federal income tax rate. State income taxes increased by $2.5 million and
foreign income taxes increased by $.8 million.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive and evolving
federal, state and local environmental laws and regulations. The Company
anticipates capital expenditures of approximately $55 million in 1996 in order
to comply with such laws and regulations. The majority of the 1996 expenditures
is attributable to construction projects at the
15
<PAGE>
Company's refineries. The Company currently anticipates capital expenditures for
environmental compliance for the years 1997 through 1999 of $20 to $40 million
per year. 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 and a company in
which Coastal owns a 50% interest have been named as a potentially responsible
party ("PRP") in several "Superfund" waste disposal sites. At the 15 sites for
which there is sufficient information, total clean-up costs are estimated to be
approximately $336 million, and 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 6 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 9 other
sites, the Company has paid amounts to other PRPs or to the EPA as its
proportional share of associated clean-up costs. As to these latter sites, the
Company believes that its activities were de minimis. Additionally, two
subsidiaries of the Company have been named as PRP's in a state site. The North
Carolina Department of Health, Environment and Natural Resources has estimated
the total clean-up costs to be approximately $50 million, but the Company
believes that the subsidiaries' activities at this site were de minimis.
There are additional areas of environmental remediation
responsibilities to which the Company may be subject. The states have regulatory
programs that mandate waste clean-up. The Clean Air Act Amendments of 1990
include new permitting regulations which will result in increased operating
expenditures. Coastal is also supplying reduced-emission reformulated gasoline
in all markets where it is required.
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, consolidated
financial position or results of operations.
ITEM 2.B. OTHER DEVELOPMENTS.
In January 1996, CIG announced an open season for interested parties
to request new transportation capacity on its Wind River Lateral. The lateral
has a current capacity of 195,000 Mcf per day and transports natural gas from
the Wind River Basin, where producers have increased natural gas production by
more than 25 percent since 1992. On March 29, 1996, CIG filed an application
with the FERC to increase the capacity of the Wind River Lateral by 68 MMcf per
day. The cost of the expansion is estimated to be approximately $10.8 million.
CIG has requested authority to construct the new facilities by September 1,
1996.
CIG has executed a 10-year firm transportation agreement with WIC, an
affiliate, and execution of a comparable agreement is expected soon with
Trailblazer Pipeline Company for 99 thousand and 10 thousand dekatherms per day
of firm transportation capacity, respectively. CIG has undertaken these
commitments in order to: 1) provide current and future customers of CIG with
direct access to points of delivery from these pipeline systems without the
customer having to contract separately for and administer contracts on multiple
pipeline systems; and 2) to enhance CIG's own operational reliability across the
portion of its pipeline system which generally parallels the WIC system. CIG
made the appropriate filings at the FERC to hold this capacity on April 17,
1996.
In addition, CIG recently signed five year agreements with its two
largest local distribution customers for transportation and storage services.
These two customers comprise about 90 percent of CIG's traditional local
distribution customer markets. CIG currently has no excess firm pipeline
capacity in its Rocky Mountain states marketing area.
In January 1996, WIC posted an open season to determine interest in
new transportation capacity on its pipeline system. On March 28, 1996, WIC
announced plans to expand its system by approximately 40% or 193,000 Mcf of
natural gas per day. The expansion is estimated to be in service by August 1997.
16
<PAGE>
A subsidiary of ANR Pipeline owns a 9.4% interest in Iroquois Gas
Transmission System, L.P. ("Iroquois"), a 370-mile pipeline which transports gas
from Canada to the northeastern United States (the "Iroquois Pipeline").
Iroquois contracted with Iroquois Pipeline Operating Company ("IPOC") for IPOC
to construct and operate the Iroquois Pipeline. IPOC is not affiliated with ANR
Pipeline. Federal and state agencies (including the United States Attorney's
office for the Northern District of New York) have been investigating alleged
civil and criminal violations of laws related to the construction and operation
of the Iroquois Pipeline. A global resolution of the federal civil and criminal
investigations and agency proceedings could involve fines and other monetary
sanctions that would not be material to the consolidated financial position or
results of operations of ANR Pipeline. In conjunction with this, and although no
agreements have been reached regarding the disposition of these matters, ANR
Pipeline has recorded a reserve for its share of the potential expense of the
Iroquois investigation and proceedings.
In April 1996, the Texas Supreme Court rendered its decision upholding
the validity of a Coastal subsidiary's take-or-pay contract with Tennessee Gas
Pipeline Company ("Tennessee Gas") related to the Bob West Field. The 20 year
purchase agreement, entered in 1979, is among such Coastal subsidiary, Tesoro
Petroleum Corp. and KCS Energy Inc., as sellers of the natural gas and Tennessee
Gas, as the buyer. The contract obligates Tennessee Gas to take or pay for 85%
of the producers' delivery capacity at escalating prices. Current sales net to
Coastal's subsidiary amount to approximately 8 million cubic feet per day at
$8.32 per thousand cubic feet.
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information required hereunder is incorporated by reference into Part II
of this Report from Note 5 of the Notes to Consolidated Financial Statements set
forth in Part I of this Report 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.
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C>
10.15 - Pension Plan for Employees of The Coastal Corporation as
of January 1, 1993, as further amended by the Tenth
Amendment dated March 25, 1996.
11 - Statement re Computation of Per Share Earnings.
27 - Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE COASTAL CORPORATION
(Registrant)
Date: May 13, 1996 By: COBY C. HESSE
--------------------------------
Coby C. Hesse
Senior Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
10.15 Tenth Amendment to the Pension Plan for Employees of the Coastal
Corporation dated March 25, 1996
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
19
<PAGE>
EXHIBIT 10.15
TENTH AMENDMENT TO THE PENSION PLAN
FOR EMPLOYEES OF THE COASTAL CORPORATION
----------------------------------------
THIS AMENDMENT is made the 25th day of March, 1996, by The Coastal
Corporation, a Delaware corporation (hereinafter referred to as the "Company").
WITNESSETH:
-----------
WHEREAS, in the Sixth Supplement to the Pension Plan for Employees of The
Coastal Corporation (the "Plan"), Great Lakes Gas Transmission Company ("Great
Lakes") was identified as a member of the same Controlled Group as the Company
for purposes of the Plan;
WHEREAS, in order to assure continued compliance with Section 401(a)(4) of the
Internal Revenue Code, the minimum benefit formula in the Plan should be
increased with respect to Employees of Great Lakes who terminate after 1994;
NOW, THEREFORE, the Sixth Supplement of the Plan is amended as follows:
1. The Sixth Supplement of the Plan is amended to read in its entirety as
follows:
SIXTH SUPPLEMENT
----------------
GREAT LAKES GAS TRANSMISSION COMPANY
------------------------------------
ARTICLE I
---------
INTRODUCTION
------------
* 1 moved from here; text not shown
This Supplement is referred to as the "Great Lakes Supplement." The purpose
of this Supplement is to provide a separate minimum benefit structure
within the Plan for Participants who are Employees of Great Lakes and who
are credited with an Hour of Service with respect to periods of time after
December 31, 1994 and during which time such Participant is an Employee of
Great Lakes.
The provisions of the Great Lakes Supplement apply in lieu of
inconsistent or contrary provisions contained in the Plan (excluding this
Supplement) with respect to persons to whom this Supplement applies.
ARTICLE II
----------
DEFINITIONS
-----------
Terms used in this Supplement which are defined in the Plan have the
same meaning in this Supplement unless such terms are defined differently
for purposes of this Supplement. The definition of terms defined in this
Supplement apply only to this Supplement and not to other parts of the
Plan.
2.1 "Great Lakes" means Great Lakes Gas Transmission Company, a
Delaware corporation, or any successor corporation resulting from a merger
or consolidation with Great Lakes or a transfer of substantially all of the
assets of Great Lakes if such successor or transferee shall adopt and
continue the Plan by appropriate corporate action pursuant to provisions of
the Plan.
<PAGE>
ARTICLE III
-----------
BENEFITS
--------
3.1 Minimum Benefit after 1994. With respect to a Participant who is
credited with an Hour of Service for periods of time after December 31,
1994 and during which time such Participant was an Employee of Great Lakes
and ending with the most recent termination of employment with Great Lakes,
the Retirement Income of such Participant shall be the Retirement Income
calculated pursuant to Plan provisions provided, however that for purposes
of Section 5.1(a)(ii), the amount of three hundred sixty dollars shall be
used in lieu of forty-eight dollars and the provisions of Section 8.1 of
the ANR Supplement to this Plan shall not apply. For purposes of the Plan,
the benefit calculated pursuant to this provision shall be considered a
minimum benefit and not a frozen benefit.
3.2 Great Lakes is a member of the same Controlled Group as The Coastal
Corporation for purposes of the Plan, including Section 6.10 of Article VI,
entitled "Assets for Benefit Payment."
2. Except for the preceding, all of the terms of the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the Company and Great Lakes have caused this instrument
to be executed by their duly authorized officers and their corporate seals to be
affixed hereto as of the date indicated above, but effective as of the date
indicated in this instrument.
ATTEST: THE COASTAL CORPORATION
(Seal)
AUSTIN M. O'TOOLE By: DAVID A. ARLEDGE
- ----------------- --------------------
Austin M. O'Toole David A. Arledge
Senior Vice President and President and Chief
Secretary Executive Officer
ATTEST: GREAT LAKES GAS TRANSMISSION
(Seal) COMPANY
NARINDER J.S. KATHURIA By: JAMES F. CORDES
- ---------------------- ---------------------
Narinder J.S. Kathuria James F. Cordes
Associate General Counsel Chairman
and Secretary
<PAGE>
EXHIBIT 11
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Millions of Dollars, Except Per Share Amounts,
and Thousands of Shares)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
COMMON STOCK AND EQUIVALENTS:
- ----------------------------------------------------
Net earnings applicable to common stock and
common stock equivalents........................... $ 78.2 $ 53.3
======== ========
Average number of common shares outstanding......... 104,873 104,468
Class A common shares............................... 397 415
Common and Class A common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A*.. 226 234
Dilutive effect of outstanding stock options after
application of treasury stock method*.............. 530 200
-------- --------
Average common and common equivalent shares......... 106,026 105,317
======== ========
Net earnings per average common and common
equivalent share outstanding....................... $ .74 $ .51
======== ========
ASSUMING FULL DILUTION:
- ----------------------------------------------------
Net earnings applicable to common stock and
common stock equivalents........................... $ 78.2 $ 53.3
Dividends applicable to dilutive preferred stock:
Series B........................................... - -
Series C........................................... .1 .1
-------- --------
Adjusted net earnings assuming full dilution........ $ 78.3 $ 53.4
======== ========
Average number of common shares outstanding......... 104,873 104,468
Class A common shares............................... 397 415
Common and Class A common share equivalents:
Series A Preferred Stock*.......................... 226 234
Equivalent common and Class A common shares from
Series B and C Preferred Stock*.................... 525 559
Dilutive effect of outstanding stock options after
application of treasury stock method*.............. 593 229
-------- --------
Fully diluted shares................................ 106,614 105,905
======== ========
Fully diluted earnings per share**.................. $ .73 $ .50
======== ========
</TABLE>
* Convertible securities and options are not considered in the calculations if
the effect of the conversion is anti-dilutive.
** Reporting not required by generally accepted accounting principles because of
small variances from earnings on average common and common equivalent shares.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COASTAL
CORPORATION FORM 10-Q QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 1,373
<ALLOWANCES> 0
<INVENTORY> 856
<CURRENT-ASSETS> 2,493
<PP&E> 10,176
<DEPRECIATION> 3,663
<TOTAL-ASSETS> 10,927
<CURRENT-LIABILITIES> 2,477
<BONDS> 3,592
1
3
<COMMON> 37
<OTHER-SE> 2,710
<TOTAL-LIABILITY-AND-EQUITY> 10,927
<SALES> 3,095
<TOTAL-REVENUES> 3,113
<CGS> 2,361
<TOTAL-COSTS> 2,896
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 106
<INCOME-TAX> 24
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> .74
<EPS-DILUTED> .73
</TABLE>
