================================================================================
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, 1997
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
incorporation or organization) Identification No.)
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-1400
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
As of April 30, 1997, there were outstanding 105,474,466 shares of Common
Stock, 33-1/3 cents par value per share, and 376,150 shares of Class A Common
Stock, 33-1/3 cents par value per share, of the Registrant.
<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, 1996, 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 1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................... $ 109.5 $ 106.3
Receivables, less allowance for doubtful accounts of $14.7 million
(1997) and $23.4 million (1996)...................................... 1,803.0 1,801.0
Inventories............................................................. 739.2 1,143.9
Prepaid expenses and other.............................................. 137.8 145.2
----------- -----------
Total Current Assets................................................. 2,789.5 3,196.4
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems..................................................... 5,726.2 5,691.5
Refining, crude oil and chemical facilities............................. 2,238.7 2,213.9
Gas and oil properties - at full-cost................................... 1,723.5 1,669.4
Other................................................................... 392.5 386.7
----------- -----------
10,080.9 9,961.5
Accumulated depreciation, depletion and amortization.................... 3,413.5 3,306.6
----------- -----------
6,667.4 6,654.9
----------- -----------
Other Assets:
Goodwill................................................................ 504.1 508.9
Investments - equity method............................................. 634.8 589.1
Other................................................................... 690.2 663.8
----------- -----------
1,829.1 1,761.8
----------- -----------
$ 11,286.0 $ 11,613.1
=========== ===========
</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 1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable........................................................... $ 255.0 $ 105.0
Accounts payable........................................................ 2,154.6 2,425.9
Accrued expenses........................................................ 315.0 408.3
Current maturities on long-term debt.................................... 21.2 8.0
------------ ------------
Total Current Liabilities............................................ 2,745.8 2,947.2
------------ ------------
Debt:
Long-term debt, excluding current maturities............................ 3,434.2 3,526.1
------------ ------------
Deferred Credits and Other:
Deferred income taxes................................................... 1,380.8 1,404.8
Other deferred credits.................................................. 591.6 598.5
------------ ------------
1,972.4 2,003.3
------------ ------------
Preferred Stock:
Issued by subsidiaries.................................................. 100.0 100.0
------------ ------------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $208.8 million)................................................... 2.6 2.6
Class A common stock.................................................... .1 .1
Common stock............................................................ 36.6 36.6
Additional paid-in capital.............................................. 1,241.0 1,239.6
Retained earnings....................................................... 1,885.8 1,890.1
------------ ------------
3,166.1 3,169.0
Less common stock in treasury - at cost................................. 132.5 132.5
------------ ------------
3,033.6 3,036.5
------------ ------------
$ 11,286.0 $ 11,613.1
============ ============
</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,
---------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Operating Revenues...................................................................... $ 3,205.8 $ 3,097.8
--------- ---------
Operating Costs and Expenses:
Purchases............................................................................ 2,465.4 2,360.5
Operating expenses................................................................... 404.5 438.4
Depreciation, depletion and amortization............................................. 115.9 100.3
--------- ---------
2,985.8 2,899.2
--------- ---------
Operating Profit........................................................................ 220.0 198.6
--------- ---------
Other Income - net...................................................................... 24.6 18.1
--------- ---------
Other Expenses:
General and administrative........................................................... 15.0 14.5
Interest and debt expense, less $2.4 million (1997)
and $1.5 million (1996) capitalized............................................... 79.2 95.6
Taxes on income...................................................................... 49.2 24.1
--------- ---------
143.4 134.2
--------- ---------
Earnings Before Extraordinary Item...................................................... 101.2 82.5
Extraordinary item - loss on early extinguishment of debt............................... (90.6) -
--------- ---------
Net Earnings............................................................................ 10.6 82.5
Dividends on Preferred Stock............................................................ 4.3 4.3
--------- ---------
Net Earnings Available
to Common Stockholders............................................................... $ 6.3 $ 78.2
========= =========
Earnings Per Share:
Before extraordinary item............................................................ $ .91 $ .74
Extraordinary item................................................................... (.85) -
--------- ---------
Net Earnings Per Common
and Common Equivalent Share.......................................................... $ .06 $ .74
========= =========
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,
------------------------------------------------------
1997 1996
------------------------ ------------------------
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........................... 60 $ - 61 $ -
Converted to common......................... (1) - - -
----------- ---------- ----------- ----------
Ending balance.............................. 59 - 61 -
=========== ---------- =========== ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance........................... 74 - 79 .1
Converted to common......................... (2) - (2) -
----------- ---------- ----------- ----------
Ending balance.............................. 72 - 77 .1
=========== ---------- =========== ----------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance........................... 32 - 33 -
Converted to common......................... - - - -
----------- ---------- ----------- ----------
Ending balance.............................. 32 - 33 -
=========== ---------- =========== ----------
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................................ 382 .1 404 .1
Converted to common.............................. (2) - (5) -
Conversion of preferred stock and
exercise of stock options..................... - - 1 -
----------- ---------- ----------- ----------
Ending balance................................... 380 .1 400 .1
=========== ---------- =========== ----------
Common stock, par value 33-1/3 cents per share,
authorized 250,000,000 shares:
Beginning balance................................ 109,756 36.6 109,168 36.4
Conversion of preferred stock.................... 8 - 12 -
Conversion of Class A common stock............... 2 - 5 -
Exercise of stock options........................ 95 - 188 .1
----------- ---------- ----------- ----------
Ending balance................................... 109,861 $ 36.6 109,373 $ 36.5
=========== ---------- =========== ----------
</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,
------------------------------------------------------
1997 1996
------------------------ ------------------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance................................... $ 1,239.6 $ 1,225.0
Exercise of stock options........................... 1.4 3.5
---------- ----------
Ending balance...................................... 1,241.0 1,228.5
---------- ----------
Retained earnings:
Beginning balance................................... 1,890.1 1,547.1
Net earnings for period............................. 10.6 82.5
Dividends on preferred stock........................ (4.3) (4.3)
Dividends on common stock........................... (10.6) (10.6)
---------- ----------
Ending balance...................................... 1,885.8 1,614.7
---------- ----------
Less treasury stock - at cost.......................... 4,395 132.5 4,395 132.5
=========== ---------- =========== ----------
Total.................................................. $ 3,033.6 $ 2,750.0
========== ==========
</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,
-------------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Earnings before extraordinary item.......................................... $ 101.2 $ 82.5
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization................................. 116.8 101.3
Deferred income taxes.................................................... 4.6 5.4
Amortization of producer contract reformation costs...................... - 8.2
Distributed (undistributed) earnings from equity investments............. (8.1) 17.4
Working capital and other changes, excluding changes relating to cash and
non-operating activities:
Accounts receivable................................................... .1 (181.1)
Inventories........................................................... 371.8 (74.9)
Prepaid expenses and other............................................ 5.7 10.8
Accounts payable...................................................... (243.0) 159.3
Accrued expenses...................................................... (50.9) 19.6
Other................................................................. 14.1 14.7
--------- --------
312.3 163.2
--------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment.................................. (142.7) (145.9)
Proceeds from sale of property, plant and equipment......................... 2.7 1.2
Additions to investments.................................................... (92.2) (17.6)
Proceeds from investments................................................... 4.4 -
Recovery of gas supply prepayments.......................................... - .1
--------- --------
(227.8) (162.2)
--------- --------
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes .................................... 400.0 (197.0)
Redemption of mandatory redemption preferred stock.......................... - (.1)
Proceeds from issuing common stock.......................................... 1.4 3.6
Proceeds from long-term debt issues......................................... 527.7 271.5
Payments to retire long-term debt........................................... (995.5) (71.7)
Dividends paid.............................................................. (14.9) (14.9)
--------- --------
(81.3) (8.6)
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 3.2 (7.6)
Cash and Cash Equivalents at Beginning of Period............................... 106.3 58.4
--------- --------
Cash and Cash Equivalents at End of Period..................................... $ 109.5 $ 50.8
========= ========
</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, 1996. 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, financial position or cash flows.
The interstate natural gas pipeline and certain storage subsidiaries are
subject to the regulations and accounting procedures of the Federal Energy
Regulatory Commission ("FERC"). The Company's subsidiaries historically followed
the reporting and accounting requirements of Statement of Financial Accounting
Standards No. 71, " Accounting for the Effects of Certain Types of Regulation"
("FAS 71"). Effective November 1, 1996, these subsidiaries discontinued
application of FAS 71. This accounting change has no direct effect on either the
subsidiaries' ability to include the deferred items in future rate proceedings
or on their ability to collect the rates set thereby. The Company believes this
accounting change results in financial reporting which better reflects the
results of operations in the economic environment in which these subsidiaries
operate.
The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" in 1997. The application of the new standard did not have a
material effect on the Company's consolidated results of operations, financial
position or cash flows.
The Company adopted Statement of Position 96-1 on Environmental Remediation
Liabilities in 1997. The application of the new statement is not expected to
have a material effect on the Company's consolidated results of operations,
financial position or cash flows.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") to be
effective for periods ending after December 15, 1997. FAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face on the income statement for all entities with complex capital
structures. The Company has computed basic and diluted earnings per share for
the three month periods ended March 31, 1997 and 1996, respectively, following
the guidance in FAS 128. The results are not materially different from the
amounts presented in the Statement of Consolidated Operations.
The FASB has issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("FAS 129") to be effective
for periods ending after December 15, 1997. FAS 129 establishes standards for
disclosing information about an entity's capital structure. The Company does not
believe that the application of the new standard will have a material effect on
its consolidated results of operations, financial position or cash flows.
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 $80.6 million and $62.7 million
for the three months ended March 31, 1997 and 1996, respectively. Cash payments
for income taxes amounted to $36.6 million and $1.7 million for the three months
ended March 31, 1997 and 1996, respectively.
- 7 -
<PAGE>
2. Inventories
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals............................... $ 572.9 $ 920.3
Natural gas in underground storage...................................... 22.4 77.7
Coal, materials and supplies............................................ 143.9 145.9
----------- ----------
$ 739.2 $ 1,143.9
=========== ==========
</TABLE>
Elements included in inventory cost are material, labor and manufacturing
expense. Natural gas in underground storage at December 31, 1996 included $26.3
million which was transferred to Property, Plant and Equipment for regulatory
and accounting purposes.
3. Notes Payable
At March 31, 1997, the Company had $505.0 million of outstanding
indebtedness to banks under short-term lines of credit. The Company's financial
statements at March 31, 1997, reflect $250.0 million of short-term borrowings
which have been reclassified as long-term, based on the availability of
committed credit lines with maturities in excess of one year and the Company's
intent to maintain such amounts as long-term borrowings. There was no such
reclassification as of December 31, 1996.
4. Common Stock
On March 31, 1997, 3,043,255 shares of Common Stock of the Company were
reserved for employee stock option plans, 702,071 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 379,882 shares were
reserved for conversion of outstanding Class A Common Stock and 21,715 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 2,280 shares
reserved for employee stock option plans and 19,435 shares reserved for
conversion of the Series A, B, and C Preferred Stocks.
During the quarter ended March 31, 1997, the Company granted options to
purchase common shares under stock option plans as follows - 759,300 options
with an exercise price of $47.06 and 4,750 options with an exercise price of
$47.69. The exercise prices are equal to the market price of the common shares
at grant date.
- 8 -
<PAGE>
5. Income Taxes
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Current Income Taxes:
Federal........................................................................... $ 38.0 $ 14.6
Foreign........................................................................... 1.5 .6
State............................................................................. 5.1 3.5
--------- --------
44.6 18.7
--------- --------
Deferred Income Taxes:
Federal........................................................................... 4.5 6.0
Foreign........................................................................... .9 .5
State............................................................................. (.8) (1.1)
--------- --------
4.6 5.4
--------- --------
$ 49.2 $ 24.1
========= ========
</TABLE>
Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.
6. Extraordinary Item
In February 1997, the Company purchased and retired $798.0 million of notes
and debentures with interest rates ranging from 9-3/4% to 10-3/4%. None of the
issues were eligible for redemption and the purchase included payment of a
premium. The Company incurred an extraordinary charge of $90.6 million ($.85 per
share), net of income taxes of $48.7 million, in connection with the repurchase
of these debt securities.
7. 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 million, including pre-judgment interest and attorney fees. All
of TransAmerican's claims and causes of action were denied. The Court of Appeals
for the Fourth Judicial District has denied TransAmerican's appeal in this case.
TransAmerican subsequently filed a Writ of Error with the Texas Supreme Court,
which was denied in December 1996. In January 1997, TransAmerican's Motion for
Rehearing of its Writ of Error was filed and subsequently denied. On March 24,
1997, the Texas Supreme Court issued its Mandate and payment of the judgment
against TransAmerican in the approximate amount of $2 million, which amount is
expected to be paid in late May of 1997.
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 of 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.
- 9 -
<PAGE>
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. One June 7, 1996,
the same plaintiffs sued CIG in state court in Amarillo, Texas for underpayment
of royalties. CIG removed the second lawsuit to federal court which granted a
stay of the second suit pending the outcome of the first lawsuit.
A natural gas producer has filed a claim on behalf of the U.S. government
in the U.S. District Court for the District of Columbia under the federal False
Claims Act. The Second Amended Complaint filed on May 24, 1996, against seventy
(70) defendants, including ANR Pipeline Company ("ANR Pipeline"), CIG and
Coastal States Gas Transmission Company, alleges that the defendants' methods of
measuring the heating content and volume of natural gas purchased from
federally-owned or Indian properties have caused underpayment of royalties to
the U.S. government. The Company's subsidiaries, together with the other
pipeline defendants, filed a motion to dismiss. On March 27, 1997, the Court
granted the motion and dismissed, without prejudice, the claims against the
Company's subsidiaries and most of the other pipeline defendants.
In October 1996, the Company, along with several subsidiaries, was named as
a defendant in a suit filed by several former and current African American
employees in the United States District Court, Southern District of Texas. The
suit alleges racially discriminatory employment policies and practices and seeks
damages in the amount of at least $100 million and punitive damages of at least
three times that amount. Plaintiffs' counsel are seeking to have the suit
certified as a class action. Coastal vigorously denies these allegations and has
filed responsive pleadings.
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,
results of operations or cash flows.
Regulatory Matters
From November 1, 1992 to 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. In April 1994, ANR
Pipeline filed with the FERC a refund report showing over-collections and
proposing refunds totaling $45.1 million. Certain customers disputed the level
of those refunds. The FERC approved ANR Pipeline's refund allocation methodology
and ANR Pipeline, in March 1995, paid undisputed refunds of $45.1 million,
together with applicable interest, subject to further investigation of
customers' claims. The FERC's approval of ANR Pipeline's refund allocation
methodology was upheld by the United States Court of Appeals for the D.C.
Circuit in April 1996. Disputed issues related to the refunds are the subject of
further proceedings before the FERC. In March 1997, an Initial Decision was
issued, which adopted most of ANR Pipeline's positions, but which will not take
effect until the FERC has reviewed the exceptions that have been filed.
ANR Pipeline filed a general rate increase on November 1, 1993. Issues
related to the general rate increase are the subject of continuing FERC and
judicial proceedings. Under a March 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 and a $182.8 million increase over
the cost of service underlying ANR Pipeline's approved rates for its Order 636
restructured services. In September 1994, the FERC accepted ANR Pipeline's
filing to place the new rates into effect May 1, 1994, subject to further
modifications. ANR Pipeline submitted revised rates in compliance with this
order in October 1994, which rates are currently in effect, subject to refund.
In January 1997, an Initial Decision was issued on the issues set for hearing by
the March 1994 order. That Initial Decision, which accepted some but not all of
ANR Pipeline's rate change proposals, does not take effect until reviewed by the
FERC. ANR Pipeline and other parties have filed exceptions regarding some of the
findings in the Initial Decision.
- 10 -
<PAGE>
The FERC has also issued a series of orders 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 rather than 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 accelerating its amortization of
transition costs for regulatory accounting purposes. 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 sought judicial
review of these orders before the United States Court of Appeals for the D.C.
Circuit.
In May 1997, certain of ANR Pipeline's customers filed a motion with the
FERC for immediate refund of approximately $77 million, which the customers
claim ANR Pipeline is holding in escrow. The refund claim is related to ANR
Pipeline's settlement with Dakota Gasification Company, which was recently
approved by the FERC. ANR Pipeline believes that the customers' claim is grossly
overstated and will respond to the FERC, identifying the amounts which ANR
Pipeline is currently holding in escrow for refund to its customers.
On March 29, 1996, CIG filed with the FERC under Docket No. RP96-190 to
increase its rates by approximately $30 million annually, to realign certain
transportation services and to add tariff language that would allow CIG to enter
into "negotiated" rates (rates which could exceed CIG's "cost-based" rates) in
certain circumstances subject to FERC policies. On April 25, 1996, the FERC
accepted the rate change filing and the transportation service realignment to
become effective October 1, 1996, subject to refund, and also accepted the
"negotiated rate" tariff provision to become effective May 1, 1996. While
certain parties have sought judicial review of the acceptance of the "negotiated
rate" tariff provisions, those provisions are currently in effect although CIG
has so far not entered into any "negotiated rate" agreements under these
provisions. With respect to the rate change and the transportation service
realignment, a hearing is schedule for August 1997 in the event that the case
cannot be settled.
In July 1996, the United States Court of Appeals for the D.C. Circuit
upheld the basic structure of the FERC's Order 636 (issued in April 1992), but
remanded to the FERC, for further consideration, certain limited aspects of the
Order. In its order responding to the remand (Order 636-C, issued February 27,
1997) the FERC: (1) reaffirmed the right of pipelines to recover 100% of their
prudently incurred transition costs, but required pipelines to file a proposal
for the level of costs to be allocated to interruptible transportation
customers; and (2) reduced from 20-years to 5-years, the term "cap" to be
applied to evaluation of bids for renewal of contracts on existing volumes. ANR
Pipeline and CIG have sought rehearing and clarification of these holdings as
they relate to past and future periods.
CIG, ANR Pipeline, ANR Storage Company and Wyoming Interstate Company,
Ltd., 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, results of operations or cash flows. 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 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 $42 million in 1997 in order to comply
with such laws and regulations. The majority of the 1997 expenditures is
attributable to construction projects at the Company's refining, chemical and
terminal facilities. The Company currently anticipates capital expenditures for
environmental compliance for the years 1998 through 2000 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 16 sites for which there
- 11 -
<PAGE>
is sufficient information, total clean-up costs are estimated to be
approximately $333 million, and the Company estimates its pro-rata exposure, to
be paid over a period of several years, is approximately $7.4 million and has
made appropriate provisions. At 4 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 10 other sites, the Company has paid amounts to
other PRPs or to the EPA as is proportional share of associated clean-up costs.
As to these latter sites, the Company believes that its activities were de
minimis. Additionally, certain subsidiaries of the Company have been named as
PRPs in two state sites. At one 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. At the other state site, the Florida
Department of Environmental Protection has demanded reimbursement of its costs,
which total $40,000, and suitable remediation. There is not sufficient
information to estimate the remedial costs or the Company's pro-rata exposure at
this site.
By letter dated April 8, 1997, the United States Department of Justice (the
"Department") notified ANR Coal Company, LLC ("ANR Coal"), a subsidiary of
Coastal, that the EPA has requested the Department to bring an action against
ANR Coal for alleged violations of the Clean Water Act resulting from discharges
from a mine in which ANR Coal had a leasehold interest in the minerals. The
letter offers to settle the matter prior to litigation for $900,000 and
agreement to implement certain injunctive relief which includes the necessary
improvements to the existing water treatment system. ANR Coal does not believe
that it has any responsibility for these discharges, but is currently reviewing
the matter. The Company believes that this threatened action, if an action is
brought and the allegations substantiated, could result in monetary sanctions
which, while not material to the Company and its subsidiaries, could exceed
$100,000.
In October 1996, the New Jersey Department of Environmental Protection
issued an administrative order and notice of civil administrative penalty
assessment (the "Order") to Coastal Eagle Point Oil Company ("CEPOC"), a
subsidiary of Coastal. The Order alleged that sulphur dioxide emissions from the
sulfur recovery unit ("SRU") and carbon monoxide emissions from the marine
thermal oxidizer at CEPOC's New Jersey refinery exceeded permit limits during
the last quarter of 1995 and first quarter of 1996. CEPOC and the State of New
Jersey have verbally reached a settlement agreement of $301,200 for the
violations alleged in the Order and for the emission exceedances incurred at the
SRU during the remainder of 1996. CEPOC is awaiting issuance of the final
consent Order from the state.
In April 1996, Coastal Oil & Gas Corporation ("COG"), a subsidiary of
Coastal, received a letter from the EPA Region VIII notifying it that the EPA
believes that COG's facility located in Patrick Draw, Wyoming is in violation of
certain PCB regulations promulgated pursuant to the Toxic Substances Control
Act. The EPA has offered COG an opportunity to resolve this matter without
litigation. The Company is currently having discussions with the EPA regarding
resolution of the matter. If the EPA were to initiate an action, the Company
believes that the EPA could seek penalties which, although not material, 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, including commodity prices, market conditions, industry
competition 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,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity.............. 11.7% 14.8%
Cash flow from operating activities to long-term debt.......... 20.7% 15.9%
Total debt to total capitalization............................. 54.2% 53.7%
Times interest earned (before tax)............................. 2.5 2.5
</TABLE>
The decrease in the net return on average common stockholders' equity can
be attributed to the extraordinary charge in the 1997 first quarter. The cash
flows from operating activities to long-term debt ratio increased primarily due
to changes in working capital.
In February 1997, the Company purchased and retired $798 million of notes
and debentures with interest rates ranging from 9-3/4% to 10-3/4%. None of the
issues were eligible for redemption and the purchase included payment of a
premium. The Company incurred an after-tax extraordinary charge in the first
quarter of 1997 of $90.6 million ($.85 per share), net of income taxes of $48.7
million, in connection with the repurchase of these debt securities.
Also in February 1997, the Company issued $200.0 million of 6.70% senior
debentures due in 2027 and $200.0 million of 7.42% senior debentures due in
2037. The net proceeds from the sale of the debentures were used to refinance a
portion of the bank borrowings incurred in connection with the retirement of the
debt securities referred to above. The 6.70% senior debentures are not
redeemable at the option of the Company prior to maturity; but each holder of
such senior debentures has the right to require the Company to redeem such
debentures, in whole or in part, on February 15, 2007, at a redemption price
equal to 100% of the aggregate principal amount thereof plus accrued and unpaid
interest. The 7.42% senior debentures are not redeemable prior to maturity.
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.
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.
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, 1997 were as follows (millions of dollars):
Short-term...................................... $ 748.3
Long-term*...................................... 582.9
---------
$ 1,331.2
=========
*$52.4 million of unused long-term credit lines is dedicated to a specific use.
- 13 -
<PAGE>
In September 1996, Coastal and Westcoast Energy Inc. ("Westcoast") jointly
announced plans to form one of North America's largest marketers of natural gas
and electricity through the combination of the operations of the two companies'
related marketing and service subsidiaries. Agreements were concluded in
February 1997, which created new entities in which Coastal and Westcoast
indirectly own 50% each.
The FASB has issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128") to be effective for periods ending after
December 15, 1997. FAS 128 replaces the presentation of primary earnings per
share with a presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face on the income
statement for all entities with complex capital structures. The Company has
computed basic and diluted earnings per share for the three month periods ended
March 31, 1997 and 1996, respectively, following the guidance in FAS 128. The
results are not materially different from the amounts presented in the Statement
of Consolidated Operations.
The FASB has issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("FAS 129") to be effective
for periods ending after December 15, 1997. FAS 129 establishes standards for
disclosing information about an entity's capital structure. The Company does not
believe that the application of the new standard will have a material effect on
its consolidated results of operations, financial position or cash flows.
Results of Operations
The change in the Company's earnings for the three-month period ended March
31, 1997 in comparison to the same period in 1996 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,
---------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Natural gas....................................................................... $ 1,231.1 $ 1,003.4
Refining, marketing and chemicals................................................. 1,854.0 1,956.9
Exploration and production........................................................ 167.3 87.7
Coal.............................................................................. 54.3 107.3
Power............................................................................. 26.0 20.2
Other............................................................................. 8.0 8.0
Adjustments and eliminations...................................................... (134.9) (85.7)
--------- ---------
$ 3,205.8 $ 3,097.8
========= =========
</TABLE>
Operating Profit (Loss). The operating profit (loss) by segment was as
follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Natural gas....................................................................... $ 185.5 $ 126.1
Refining, marketing and chemicals................................................. (50.8) 34.8
Exploration and production........................................................ 66.1 14.1
Coal ............................................................................. 12.5 18.4
Power............................................................................. 4.1 2.4
Other............................................................................. 2.6 2.8
--------- ---------
$ 220.0 $ 198.6
========= =========
</TABLE>
- 14 -
<PAGE>
Natural Gas. The increase in operating revenues of $227.7 million can be
attributed to increased prices for the gas marketing companies and a $42.0
million gain recognized in connection with the merger of the Company's
unregulated gas marketing operations with similar operations of Westcoast Energy
Inc., offset by reduced sales volumes for the gas marketing companies.
Transportation, storage and gathering revenues for the regulated operations
increased slightly from the prior period.
Purchases increased by $177.8 million in the 1997 period due to increased
prices offset by reduced volumes, primarily for the gas marketing companies.
Gross profit increased by $49.9 million from the 1996 first quarter.
Operating profit increased by $59.4 million as a result of the $42.0
million gain discussed above; increased gross profit of $13.1 million associated
with ANR Pipeline's remaining gas purchase contracts; higher transportation,
storage and gathering revenues of $6.4 million; reduced operating expenses of
$11.5 million and other increases of $.5 million, being partially offset by
reduced gross margins of $14.1 million. The reduced operating expenses are due
to decreases for gas and gas liquids handling costs, gas purchase deferrals, and
gas used in operations.
Refining, Marketing and Chemicals. Operating revenues decreased by $102.9
million in the 1997 first quarter due to lower volumes partially offset by
higher prices. Purchases for the segment decreased by $24.0 million, also a
result of lower volumes and higher prices, resulting in a gross profit decrease
of $78.9 million.
The operating profit decrease of $85.6 million results from decreased
margins of $42.7 million; lower volumes of $29.0 million; decreased gross profit
from the sale, trading and exchanging of third-party products of $5.0 million;
increased operating expenses of $4.6 million and other decreases of $4.3
million. Included in the operating loss for the first quarter of 1997 is an
inventory loss of $60.0 million which resulted from the falling product and
crude oil prices. The milder winter weather in the northeastern United States
and an ongoing refocusing of the Company's marketing assets to eliminate
marginal activities and more directly support the Company's core refining assets
contributed to the volume decrease.
Exploration and Production. The increase in operating revenues of $79.6
million resulted from increased prices and volumes. The higher volumes reflect
the continued growth of the Company's drilling program. Operating profit
increased by $52.0 million as increased prices of $42.4 million and increased
volumes of $39.4 million were partially offset by increases for operating
expenses of $11.6 million; depreciation, depletion and amortization of $17.1
million and other of $1.1 million. The higher operating expenses result from
increases for processing plant operations, additional offshore activity and
production taxes. The depreciation, depletion and amortization increase is a
result of increased production volumes.
Coal. Operating revenues from the coal segment decreased by $53.0 million
in the 1997 first quarter due primarily to the sale of the Company's Utah coal
operations in December 1996. Operating profit decreased by $5.9 million as
reductions due to the sale of the Utah coal operations of $13.3 million, lower
prices for the mines in the eastern United States of $1.1 million and other
decreases of $2.4 million were partially offset by the favorable resolution of a
contingency in the first quarter of 1997 for $9.0 million and higher volumes of
$1.9 million. The other decrease results primarily from nonrecurring income from
the sale of coke from the Company's Aruba refinery.
Power. The operating revenue increase of $5.8 million and operating profit
increase of $1.7 million are primarily a result of the El Salvador operations.
Most of the plants in which the Power segment has investments are
partially-owned, thus the equity earnings from those plants are classified as
other income-net rather than operating profit. Equity income from the
partially-owned plants amounted to $10.4 million for the first quarter of 1997,
compared with $7.5 million for the same period last year.
Other Income-Net. Other income-net increased by $6.5 million in the 1997
first quarter due to increased equity income from investments.
Interest and Debt Expense. Interest and debt expense decreased by $16.4
million due to reduced rates on variable rate debt and lower debt levels.
Taxes on Income. Federal income taxes increased by $21.9 million in the
1997 period as a result of increased earnings before taxes and a higher
effective federal income tax rate. State income taxes increased by $1.9 million
and foreign income taxes increased by $1.3 million.
Extraordinary Item. The 1997 extraordinary item, net of income taxes,
resulted from the early retirement of debt.
- 15 -
<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 $42 million in 1997 in order to comply
with such laws and regulations. The majority of the 1997 expenditures is
attributable to construction projects at the Company's refining, chemical and
terminal facilities. The Company currently anticipates capital expenditures for
environmental compliance for the years 1998 through 2000 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 16 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$333 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $7.4 million and has made appropriate
provisions. At 4 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 10 other sites, the Company has paid amounts to other PRPs or to the
EPA as is proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one 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. At the other state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
$40,000, and suitable remediation. There is not sufficient information to
estimate the remedial costs or the Company's pro-rata exposure at this site.
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 March 1997, Great Lakes Gas Transmission Limited Partnership ("Great
Lakes") announced plans to construct approximately 1,000 miles of pipeline and
associated compression facilities at a cost of approximately $2.5 billion to
meet customer requests for new firm transportation service. Coastal and
TransCanada Pipelines Limited ("TransCanada"), a non-affiliated company, each
own 50% of Great Lakes. A request to transport up to an additional 2 Bcf of
natural gas per day was received from TransCanada. The proposed expansion will
be located along the Great Lakes' existing mainline system, which is a
2,000-mile system from the Manitoba-Minnesota border to an interconnection on
the Michigan-Ontario border at St. Clair, Michigan. The expansion project will
serve markets primarily in the Northeastern United States and eastern Canada.
Construction of this project is planned to begin in the winter of 1998-99,
subject to receipt of satisfactory regulatory approvals.
On March 27, 1997, ANR Pipeline, a subsidiary of Coastal, received the
necessary FERC authorizations to construct and operate, at an estimated cost of
$19.1 million, 11.9 miles of 42-inch loopline on ANR Pipeline's system between
Sandwich, Illinois and Bridgman, Michigan. The facilities will increase capacity
by 135 MMcf per day and will alleviate the capacity constraints on that segment
of the mainline system. The facilities are expected to be placed in service by
the end of 1997.
On March 31, 1997, ANR Pipeline and Transcontinental Gas Pipe Line Company
("Transco"), a subsidiary of The Williams Companies, filed an application with
the FERC for a Certificate of Public Convenience and Necessity authorizing the
construction and operation of a new interstate natural gas pipeline
(the"Independence Pipeline") to serve markets for natural gas in the Eastern
United States. As proposed, the Independence Pipeline would consist of
approximately 370 miles of 36-inch diameter pipe, with an initial winter
capacity of up to 900 MMcf per day. It would extend from ANR Pipeline's existing
compressor station at Defiance, Ohio, to Transco's facilities at Leidy,
Pennsylvania.
- 16 -
<PAGE>
Affiliates of ANR Pipeline and Transco would each own 50% of the estimated $630
million project. The Independence Pipeline is planned to be in service November
1999, subject to receipt of satisfactory regulatory approvals.
In connection with the Independence Pipeline project, ANR Pipeline filed a
companion application with the FERC on March 31, 1997, for a Certificate of
Public Convenience and Necessity authorizing the construction and operation of
approximately 72 miles of mainline looping and additional compression. The
proposed expansion would link the Independence Pipeline with planned pipeline
expansions designed to transport gas primarily from Canadian-producing regions
into the Midwest. The proposed facilities will increase the transmission
capacity on ANR Pipeline's mainline between a point west of Joliet, Illinois and
Defiance, Ohio by up to 750 MMcf per day. The facilities, as proposed, will
provide additional west-to-east transportation service at an estimated cost of
$124.8 million. The project is also planned to be in service November 1999,
subject to receipt of satisfactory regulatory approvals.
- 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 7 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.
(a) Exhibits.
11 - Statement re Computation of Per Share Earnings.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
(1) A report on Form 8-K was filed on January 6, 1997.
The items reported were:
(i) Item 2. Acqusition or Disposition of Assets.
(ii) Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
(c) Exhibits.
(2.1) Purchase and Sale Agreement dated as of
October 23, 1996.
(2.2) Amendment to Purchase and Sale Agreement
dated as of December 20, 1996.
(99) Press release.
(2) A report on Form 8-K was filed on February 18, 1997. The
item reported was:
Item 7. Financial Statements and Exhibits.
(c) Exhibts.
(12) Ratio of Earnings to Fixed Charges.
- 18 -
<PAGE>
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, 1997 By: COBY C. HESSE
--------------------------------
Coby C. Hesse
Executive Vice President
and Principal Accounting Officer
(As Authorized Officer and
Chief Accounting Officer)
- 19 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- -------------------------------------------------------------------------------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
- 20 -
<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,
---------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
common stock equivalents............................................................. $ 6.3 $ 78.2
========= =========
Average number of common shares outstanding............................................. 105,414 104,873
Class A common shares................................................................... 381 397
Common and Class A common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A*.................................... 219 226
Dilutive effect of outstanding stock options after
application of treasury stock method*................................................ 777 530
--------- ---------
Average common and common equivalent shares............................................. 106,791 106,026
========= =========
Net earnings per average common and common equivalent share outstanding:
Earnings before extraordinary item................................................... $ .91 $ .74
Extraordinary item................................................................... (.85) -
--------- ---------
Net earnings......................................................................... $ .06 $ .74
========= =========
ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
common stock equivalents............................................................. $ 6.3 $ 78.2
Dividends applicable to dilutive preferred stock:
Series B............................................................................. - -
Series C............................................................................. - .1
--------- ---------
Adjusted net earnings assuming full dilution............................................ $ 6.3 $ 78.3
========= =========
Average number of common shares outstanding............................................. 105,414 104,873
Class A common shares................................................................... 381 397
Common and Class A common share equivalents:
Series A Preferred Stock*............................................................ 219 226
Equivalent common and Class A common shares from
Series B and C Preferred Stock*...................................................... - 525
Dilutive effect of outstanding stock options after
application of treasury stock method*................................................ 777 593
--------- ---------
Fully diluted shares.................................................................... 106,791 106,614
========= =========
Fully diluted earnings per share**:
Earnings before extraordinary item................................................... $ .91 $ .73
Extraordinary item................................................................... (.85) -
--------- ---------
Net earnings......................................................................... $ .06 $ .73
========= =========
<FN>
* 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.
</FN>
</TABLE>
- 21 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COASTAL CORPORATION FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1997
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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 110
<SECURITIES> 0
<RECEIVABLES> 1,803
<ALLOWANCES> 0
<INVENTORY> 739
<CURRENT-ASSETS> 2,790
<PP&E> 10,081
<DEPRECIATION> 3,414
<TOTAL-ASSETS> 11,286
<CURRENT-LIABILITIES> 2,746
<BONDS> 3,434
0
3
<COMMON> 37
<OTHER-SE> 2,994
<TOTAL-LIABILITY-AND-EQUITY> 11,286
<SALES> 3,206
<TOTAL-REVENUES> 3,230
<CGS> 2,465
<TOTAL-COSTS> 2,986
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 150
<INCOME-TAX> 49
<INCOME-CONTINUING> 101
<DISCONTINUED> 0
<EXTRAORDINARY> (90)
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
