================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 character)
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 October 31, 2000, there were outstanding 214,950,075 shares of Common
Stock, 33-1/3 (cent) par value per share, and 314,799 shares of Class A Common
Stock, 33-1/3 (cent) 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 ("Coastal") and its
subsidiaries (collectively the "Company") are presented herein and are
unaudited, except for balances as of December 31, 1999, 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 and deliveries of natural gas and petroleum
products.
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................... $ 136.7 $ 44.4
Receivables, less allowance for doubtful accounts of $10.8 million
(2000) and $17.4 million (1999)...................................... 2,059.1 1,932.5
Inventories............................................................. 1,010.3 732.7
Prepaid expenses and other.............................................. 205.8 213.9
----------- -----------
Total Current Assets................................................. 3,411.9 2,923.5
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems..................................................... 6,422.9 6,328.7
Refining, crude oil and chemical facilities............................. 2,618.6 2,555.0
Gas and oil properties - at full-cost................................... 4,740.5 3,832.0
Other................................................................... 684.4 581.5
----------- -----------
14,466.4 13,297.2
Accumulated depreciation, depletion and amortization.................... 4,163.0 3,959.8
----------- -----------
10,303.4 9,337.4
----------- -----------
Other Assets:
Goodwill................................................................ 437.5 451.8
Investments - equity method............................................. 1,581.8 1,434.9
Other................................................................... 1,049.8 975.4
----------- -----------
3,069.1 2,862.1
----------- -----------
$ 16,784.4 $ 15,123.0
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable........................................................... $ 210.0 $ 105.9
Accounts payable........................................................ 2,414.1 2,350.1
Accrued expenses........................................................ 538.6 420.0
Current maturities on long-term debt.................................... 220.8 161.6
----------- -----------
Total Current Liabilities............................................ 3,383.5 3,037.6
----------- -----------
Debt:
Long-term debt, excluding current maturities............................ 5,584.3 4,798.2
----------- -----------
Deferred Credits and Other:
Deferred income taxes................................................... 1,883.8 1,814.2
Other deferred credits.................................................. 813.8 785.2
----------- -----------
2,697.6 2,599.4
----------- -----------
Securities of Subsidiaries:
Company-obligated mandatory redemption
preferred securities of a consolidated trust......................... 300.0 300.0
Preferred stock issued by subsidiaries.................................. 165.0 165.0
Consolidated joint venture.............................................. 286.0 285.9
----------- -----------
751.0 750.9
----------- -----------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $6.9 million)..................................................... - -
Class A common stock.................................................... .1 .1
Common stock............................................................ 73.1 72.5
Additional paid-in capital.............................................. 1,056.4 1,031.7
Retained earnings....................................................... 3,370.8 2,965.1
----------- -----------
4,500.4 4,069.4
Less common stock in treasury - at cost................................. 132.4 132.5
----------- -----------
4,368.0 3,936.9
----------- -----------
$ 16,784.4 $ 15,123.0
=========== ===========
</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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues............................................ $ 3,156.3 $ 2,060.1 $ 9,155.0 $ 5,661.8
--------- ---------- --------- ---------
Operating Costs and Expenses:
Purchases.................................................. 2,211.3 1,295.5 6,380.1 3,425.7
Operating and general expenses............................. 500.6 442.2 1,477.4 1,266.7
Depreciation, depletion and amortization................... 152.5 124.2 446.7 348.6
--------- ---------- --------- ---------
2,864.4 1,861.9 8,304.2 5,041.0
--------- ---------- --------- ---------
Other Income - net............................................ 27.4 22.9 92.0 78.0
--------- ---------- --------- ---------
Earnings Before Interest and Income Taxes..................... 319.3 221.1 942.8 698.8
--------- ---------- --------- ---------
Interest and debt expense, less $14.0 million (2000)
and $8.6 million (1999) three months and $40.6
million (2000) and $24.4 million (1999)
nine months capitalized.................................... 111.1 81.5 301.7 240.0
Taxes on income............................................... 63.4 37.5 195.0 128.9
--------- ---------- --------- ---------
Net Earnings.................................................. 144.8 102.1 446.1 329.9
Dividends on Preferred Stock.................................. - - .2 .2
--------- ---------- --------- ---------
Net Earnings Available
to Common Stockholders..................................... $ 144.8 $ 102.1 $ 445.9 $ 329.7
========= ========== ========= =========
Basic Earnings Per Share...................................... $ .67 $ .48 $ 2.08 $ 1.55
========= ========== ========= =========
Diluted Earnings Per Share.................................... $ .65 $ .47 $ 2.03 $ 1.52
========= ========== ========= =========
Cash Dividends Per Common Share............................... $ .0625 $ .0625 $ .1875 $ .1875
========= ========== ========= =========
</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>
Nine Months Ended September 30,
------------------------------------------------------
2000 1999
------------------------ ------------------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Preferred stock, par value
33-1/3 (cent)per share, authorized 50,000,000 shares:
Cumulative convertible preferred:
$1.19, Series A, redemption or liquidation
amount of $33 per share:
Beginning balance........................... 53 $ - 56 $ -
Converted to common......................... (1) - (3) -
----------- ---------- ----------- ----------
Ending balance.............................. 52 - 53 -
=========== ---------- =========== ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance........................... 58 - 61 -
Converted to common......................... (5) - (1) -
----------- --------- ----------- ----------
Ending balance.............................. 53 - 60 -
=========== ---------- =========== ----------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance........................... 27 - 28 -
Converted to common......................... (1) - (1) -
----------- ---------- ----------- ----------
Ending balance.............................. 26 - 27 -
=========== ---------- =========== ----------
Class A common stock, par value 33-1/3 (cent) per
share, authorized 2,700,000 shares:
Beginning balance................................ 345 .1 354 .1
Converted to common.............................. (30) - (10) -
Conversion of preferred stock and exercise of
stock options................................. 1 - 3 -
----------- ---------- ----------- ----------
Ending balance................................... 316 .1 347 .1
=========== ---------- =========== ----------
Common stock, par value 33-1/3 (cent) per share,
authorized 500,000,000 shares:
Beginning balance................................ 217,705 72.5 216,765 72.2
Conversion of preferred stock.................... 59 - 48 -
Conversion of Class A common stock............... 30 - 10 -
Exercise of stock options........................ 1,463 .6 820 .3
----------- ---------- ----------- ----------
Ending balance................................... 219,257 $ 73.1 217,643 $ 72.5
=========== ---------- =========== ----------
</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>
Nine Months Ended September 30,
------------------------------------------------------
2000 1999
------------------------ ------------------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance................................... $ 1,031.7 $ 1,016.2
Exercise of stock options........................... 24.8 13.7
Issuance of FELINE PRIDESSM......................... (.1) 6.5
---------- ----------
Ending balance...................................... 1,056.4 1,036.4
---------- ----------
Retained earnings:
Beginning balance................................... 2,965.1 2,519.8
Net earnings for period............................. 446.1 329.9
Dividends on preferred stock........................ (.2) (.2)
Dividends on common stock........................... (40.2) (40.0)
---------- ----------
Ending balance...................................... 3,370.8 2,809.5
---------- ----------
Less treasury stock - at cost.......................... 4,393 132.4 4,396 132.5
=========== ---------- =========== ----------
Total.................................................. $ 4,368.0 $ 3,786.0
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
- 5 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings................................................................ $ 446.1 $ 329.9
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization................................. 449.8 351.3
Deferred income taxes.................................................... 166.7 96.4
Undistributed earnings from equity investments........................... (5.3) (29.3)
Working capital and other changes, excluding changes relating to cash and
non-operating activities:
Accounts receivable................................................... (127.3) (397.6)
Inventories........................................................... (301.5) (155.7)
Prepaid expenses and other............................................ 1.2 13.6
Accounts payable...................................................... (89.2) 393.6
Accrued expenses...................................................... 96.8 101.6
Other................................................................. 36.0 119.5
--------- --------
673.3 823.3
--------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment.................................. (1,461.8) (1,226.8)
Proceeds from sale of property, plant and equipment......................... 7.4 9.4
Additions to investments.................................................... (167.3) (359.5)
Proceeds from investments................................................... 79.5 15.1
Net from discontinued operations............................................ (.3) -
--------- --------
(1,542.5) (1,561.8)
--------- --------
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes .................................... (45.9) 153.0
Proceeds from issuing common stock.......................................... 25.5 14.0
Proceeds from long-term debt issues......................................... 1,615.4 1,065.2
Payments to retire long-term debt........................................... (593.1) (504.2)
Dividends paid.............................................................. (40.4) (40.2)
--------- --------
961.5 687.8
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 92.3 (50.7)
Cash and Cash Equivalents at Beginning of Period............................... 44.4 106.9
--------- --------
Cash and Cash Equivalents at End of Period..................................... $ 136.7 $ 56.2
========= ========
</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/A for the fiscal
year ended December 31, 1999. 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.
Repair and maintenance costs incurred in connection with planned major
maintenance activities at certain refineries or plants are accrued as a
liability in a systematic and rational manner over the period of time until the
planned major maintenance activities occur. Any difference between the accrued
liability and the actual costs incurred in performing the accrual maintenance
activities are charged or credited to expense at the time the maintenance
occurs. At certain other refineries or plants, the cost of each major
maintenance activity is capitalized and amortized to expense in a systematic and
rational manner over the estimated period extending to the next planned major
maintenance activity.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), as amended by Statements of Financial
Accounting Standards No. 137 and No. 138, to be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. FAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and derivative instruments
used for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The corresponding offset
for the change in fair value of the derivative instruments will be to income or
other comprehensive income, depending on their designation, their intended use,
or their ability to qualify as hedges under FAS 133. The Company will adopt FAS
133 beginning January 1, 2001, and will apply the standard to all derivative
instruments that exist on that date except for derivative instruments embedded
in other contracts. As provided for in FAS 133, the Company will apply the
provisions of the standard to derivative instruments embedded in other contracts
issued, acquired, or substantially modified after December 31, 1998. The Company
is continuing to study the impact of FAS 133 and has not yet quantified the
effects on its financial statements.
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 $264.2 million and $214.6 million
for the nine months ended September 30, 2000 and 1999, respectively. Cash
payments for income taxes amounted to $17.7 million and $8.1 million for the
nine months ended September 30, 2000 and 1999, respectively.
2. Inventories
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals............................... $ 836.3 $ 576.2
Coal, materials and supplies............................................ 174.0 156.5
----------- ----------
$ 1,010.3 $ 732.7
=========== ==========
<FN>
Elements included in inventory cost are material, labor and manufacturing
expense.
</FN>
</TABLE>
- 7 -
<PAGE>
3. Debt
At September 30, 2000, the Company had $535 million of outstanding
indebtedness under the Company's commercial paper program and indebtedness to
banks under short-term lines of credit. The Company's financial statements at
September 30, 2000, reflect $325 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 a similar reclassification of
$475 million as of December 31, 1999.
In September 2000, the Company issued $215 million of 7.625% Notes due in
2008. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of short-term borrowings of the
Company and its subsidiaries.
In August 2000, the Company issued $300 million of 7 1/2% Notes due in
2006. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of floating rate indebtedness.
In July 2000, the Company issued $200 million of Floating Rate Notes due
in 2003. The Notes bear interest at a rate equal to the three-month London
Interbank Offered Rate ("LIBOR") plus 0.60%. The net proceeds from the sale were
used for general corporate purposes, including the repayment of floating rate
indebtedness.
4. Common Stock
On September 30, 2000, 11,120,654 shares of Common Stock of the Company
were reserved for employee stock option plans, 1,139,331 shares were reserved
for conversion of the Series A, B, and C Preferred Stocks, 315,916 shares were
reserved for conversion of outstanding Class A Common Stock and 15,554 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 shares
reserved for conversion of the Series A, B, and C Preferred Stocks.
5. Segment Information
The Company's operating revenues from external customers, intersegment
revenues and earnings (loss) before interest and income taxes for the three- and
nine-months ended September 30, 2000 and 1999 are shown as follows (millions of
dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues From External Customers:
Natural gas............................................. $ 472.1 $ 279.3 $ 1,219.3 $ 899.8
Refining, marketing and chemicals....................... 2,328.6 1,527.7 6,871.8 4,116.2
Exploration and production.............................. 242.9 151.7 724.4 354.5
Power................................................... 39.7 34.0 118.5 94.7
Coal.................................................... 71.2 66.1 215.7 192.0
Corporate and other..................................... 1.8 1.3 5.3 4.6
--------- ---------- --------- ---------
$ 3,156.3 $ 2,060.1 $ 9,155.0 $ 5,661.8
========= ========== ========= =========
</TABLE>
Intersegment revenues for the three-month period were as follows: Natural
gas - $2.2 million (2000), $.8 million (1999); Refining, marketing and chemicals
- $9.9 million (2000), $.1 million (1999); Exploration and production - $12.1
million (2000), $7.8 million (1999); and Corporate and other - $2.1 million
(2000), $2.5 million (1999).
- 8 -
<PAGE>
Intersegment revenues for the nine-month period were as follows: Natural
gas - $10.2 million (2000), $2.4 million (1999); Refining, marketing and
chemicals - $13.7 million (2000), $1.0 million (1999); Exploration and
production - $40.1 million (2000), $18.9 million (1999); and Corporate and other
- $6.3 million (2000), $6.6 million (1999).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings (Loss) Before Interest and Income Taxes:
Natural gas............................................. $ 114.4 $ 113.6 $ 436.0 $ 416.0
Refining, marketing and chemicals....................... 110.8 52.6 201.9 185.9
Exploration and production.............................. 98.2 53.4 318.3 88.9
Power................................................... 32.9 21.3 100.8 65.0
Coal.................................................... 5.3 5.9 12.7 12.8
Corporate and other..................................... (42.3) (25.7) (126.9) (69.8)
--------- ---------- --------- ---------
$ 319.3 $ 221.1 $ 942.8 $ 698.8
========= ========== ========= =========
</TABLE>
6. Income Taxes
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal................................................. $ (9.4) $ 4.0 $ 10.1 $ 20.0
Foreign................................................. 2.3 2.6 7.1 5.4
State................................................... 2.9 3.8 11.1 7.1
--------- ---------- --------- ---------
(4.2) 10.4 28.3 32.5
--------- ---------- --------- ---------
Deferred Income Taxes:
Federal................................................. 65.7 29.0 163.4 99.0
Foreign................................................. .9 .4 2.5 2.1
State................................................... 1.0 (2.3) .8 (4.7)
--------- ---------- --------- ---------
67.6 27.1 166.7 96.4
--------- ---------- --------- ---------
$ 63.4 $ 37.5 $ 195.0 $ 128.9
========= ========== ========= =========
<FN>
Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.
</FN>
</TABLE>
- 9 -
<PAGE>
7. Earnings Per Share
Earnings per share are calculated following Statement of Financial
Accounting Standards No. 128. The following data shows the amounts used in
computing basic earnings per share and the effects on income and the weighted
average number of shares of dilutive securities.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
------------------------------------- ---------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) Per-Share (Numerator) (Denominator) Per-Share
(Millions) (Thousands) Amount (Millions) (Thousands) Amount
----------- ------------- --------- ------------ ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Net earnings............. $ 144.8 $ 446.1
Less preferred stock
dividends................ - .2
---------- ----------
Basic earnings per share
Income available to
common stockholders.... 144.8 214,801 $ .67 445.9 214,213 $ 2.08
========= =========
Effect of dilutive securities
Options................ - 3,507 - 3,170
FELINE PRIDESSM........ - 3,014 - 1,517
Convertible preferred stock - 1,171 .2 1,192
---------- ------------ ---------- ------------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions $ 144.8 222,493 $ .65 $ 446.1 220,092 $ 2.03
========== ============ ========= ========== ============ =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999 Nine Months Ended September 30, 1999
------------------------------------- ---------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) Per-Share (Numerator) (Denominator) Per-Share
(Millions) (Thousands) Amount (Millions) (Thousands) Amount
----------- ------------- --------- ------------ ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Net earnings............. $ 102.1 $ 329.9
Less preferred stock
dividends................ - .2
---------- ----------
Basic earnings per share
Income available to
common stockholders.... 102.1 213,496 $ .48 329.7 213,166 $ 1.55
========= =========
Effect of dilutive securities
Options................ - 2,835 - 2,524
Convertible preferred stock - 1,235 .2 1,251
---------- ------------ ---------- ------------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions $ 102.1 217,566 $ .47 $ 329.9 216,941 $ 1.52
========== ============ ========= ========== ============ =========
</TABLE>
8. Litigation, Regulatory and Environmental Matters
Litigation Matters
In December 1992, certain of Colorado Interstate Gas Company's ("Colorado"
or "CIG") natural gas lessors in the West Panhandle Field filed a complaint in
the U.S. District Court, Northern District of Texas, claiming underpayment of
royalties, 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
- 10 -
<PAGE>
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 and 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 was denied on July 18, 1997, and both parties filed appeals. On 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. The
Fifth Circuit Court of Appeals heard oral arguments in December 1998 and
affirmed the trial court judgment in September 2000. The plaintiffs have filed a
motion for rehearing of the September 2000 decision.
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 U.S. District Court, Southern District of Texas. The suit
alleges racially discriminatory employment policies and practices. Coastal
vigorously denies these allegations and has filed responsive pleadings.
Plaintiffs' counsel are seeking to have the suit certified as a class action of
all former and current African American employees and initially claimed
compensatory and punitive damages of $400 million. In February 1999, in response
to Coastal's motion to deny class certification, plaintiffs' counsel obtained
permission from the Court to delete all claims for compensatory and punitive
damages and to seek equitable relief only.
Two legal proceedings, one in federal court and the other in state court,
have been instituted against a number of gas pipeline companies and their
affiliates, including Coastal and several of its subsidiaries. The plaintiffs in
each suit seek damages for the alleged undermeasurement of the heating value and
the volume of natural gas. In the federal proceeding, Jack Grynberg filed 77
separate False Claim Act suits in September 1997 against natural gas
transmission companies and producers, gatherers, and processors of natural gas,
seeking unspecified damages which could include treble damages for the maximum
period permitted by law (potentially as much as ten years) and penalties of up
to $10,000 per false claim. In addition to the measurement claims, these suits
also allege that the defendants undervalued the gas in paying royalties. The
Coastal defendants were sued in the U.S. District Courts of Colorado and the
Eastern District of Michigan. In April 1999, the U.S. Department of Justice
notified the Company that the United States would not intervene in these cases
at that time. The MultiDistrict Litigation Panel has consolidated the Grynberg
suits with several other Grynberg cases for pre-trial proceedings in Wyoming.
The defendants filed a motion to dismiss which was argued in March 2000, and the
parties are awaiting the Court's decision. The United States has filed a motion
to dismiss part of the Grynberg case.
In the state proceedings, the Quinque Operating Company, on behalf of
itself and subclasses of gas producers, royalty owners, overriding royalty
owners, and state taxing authorities, in May 1999, instituted a legal proceeding
in State Court in Stevens County, Kansas, against over 200 gas companies,
including several Coastal subsidiaries. The Quinque suit seeks unspecified
actual, punitive and treble damages for the alleged undermeasurement of all
natural gas measured in the United States from non-federal and non-Indian lands
since 1974. The plaintiffs are seeking certification of a national class of all
similarly situated gas producers, royalty owners, overriding royalty owners, and
state taxing authorities. The suit was removed to the U.S. District Court for
the District of Kansas. The plaintiffs filed a motion to remand the case back to
the state court. The MultiDistrict Litigation Panel has transferred the Quinque
suit to Wyoming and consolidated it with the Grynberg proceedings as a result of
a motion filed by several of the defendants in the Quinque suit.
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 such 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.
- 11 -
<PAGE>
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. Compliance with such laws
and regulations can be costly. Additionally, 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," imposes liability for the release of a "hazardous
substance" into the environment. Superfund liability is imposed without regard
to fault and even if the waste disposal was in compliance with the then current
laws and regulations. With the joint and several liability imposed under
Superfund, a potentially responsible party ("PRP") may be required to pay more
than its proportional share of such costs. Certain subsidiaries of the Company
and a company in which Coastal owns a 50% interest have been named as a PRP in
various "Superfund" waste disposal sites. At the eight sites for which there is
sufficient information, total cleanup costs are estimated to be approximately
$605 million, and the Company estimates its pro-rata exposure, to be paid over a
period of years, is approximately $4 million and has made appropriate
provisions. At twelve other sites, the U.S. Environmental Protection Agency
("EPA") is currently unable to provide the Company with an estimate of total
cleanup costs, and accordingly, the Company is unable to calculate its share of
those costs.
Additionally, certain subsidiaries of the Company have been named as PRPs
in four state sites. At one site, the North Carolina Department of Health,
Environmental and Natural Resources has estimated the total cleanup costs to be
approximately $50 million, but the Company believes the subsidiary's activities
at this site were de minimis. At a second state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
approximately $300,000, and suitable remediation, with approximately $100,000
potentially attributable to the Coastal subsidiary's activities. At the third
site, the Texas Natural Resource Conservation Commission has estimated the total
cleanup costs to be approximately $2 million, but the Company believes the
subsidiary's activities at this site were de minimis. At the fourth site, a
remediation plan has been submitted to the Utah Department of Environmental
Quality for approval, with current estimated cleanup costs of approximately $1.2
million attributable to the Coastal subsidiary's activities.
From March to October 2000, Coastal's Eagle Point Oil Company ("CEPOC")
received several Administrative Order Notices of Civil Administrative Penalty
Assessment ("AOs") from the New Jersey Department of Environmental Protection
("NJDEP"). All of the AOs are related to similar alleged noncompliance of the
New Jersey Air Pollution Control Act pertaining to occurrences of air pollution
from the first quarter 1999 through the second quarter 2000 by CEPOC's refinery
in Westville, New Jersey. The NJDEP has assessed penalties totaling $1,148,000
for these alleged noncompliances. CEPOC has requested an administrative hearing
on all issues raised by the AOs and concurrently, is negotiating with the NJDEP
to settle the AOs.
Future information and developments, including legislative and enforcement
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 consolidated financial position or results of operations.
Regulatory Matters
In 1999, the Federal Energy Regulatory Commission ("FERC") approved a
settlement between Wyoming Interstate Company, Ltd. ("WIC") and its customers
which resolved WIC's 1997 general rate case ("1997 rate case"). Two parties who
objected to the settlement appealed the FERC's approval to the U.S. Court of
Appeals, District of Columbia. Those parties later sought rehearing of a FERC
order which clarified the scope of the settlement. On May 19, 2000, the Court of
Appeals dismissed that appeal on the grounds that a party may not seek agency
rehearing of an order and simultaneously seek judicial review of the same order.
While the FERC has now denied the rehearing
- 12 -
<PAGE>
request, the time for seeking judicial review of that order has not yet expired.
WIC has made refunds as required by the settlement, but has authority to recoup
those refunds in the event that the settlement is overturned or modified.
On July 1, 1999, WIC filed with the FERC a new rate case to increase its
rates by approximately $8 million annually (based on the rates determined under
the 1997 rate case). On July 29, 1999, the FERC issued its order accepting the
rate filing and suspending it for five months to become effective on January 1,
2000. The order also set the case for hearing, which is currently scheduled to
commence in the fourth quarter of 2000. In April 2000, WIC filed an offer of
settlement that would resolve all issues in the case. All but two parties agreed
to the settlement, and the FERC has approved that settlement with respect to all
of the parties except the two who objected. The FERC has allowed those two
parties to continue to litigate their issues in the case, but has clarified that
the outcome of the litigation will apply only to those parties. Hearing
procedures are in place to address the issues raised by the two parties severed
from the settlement.
Certain other regulatory issues remain unresolved among CIG, ANR Pipeline,
ANR Storage Company and WIC, 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.
9. Merger
Coastal and El Paso Energy Corporation ("El Paso Energy") announced, on
January 18, 2000, the execution of definitive agreements for the merger of
Coastal and a subsidiary of El Paso Energy. Each share of Coastal common stock
and Class A common stock will be converted on a tax-free basis (except for cash
paid in lieu of fractional shares) into 1.23 shares of El Paso Energy common
stock. The outstanding convertible preferred stock of Coastal will be exchanged
tax free (except for cash paid in lieu of fractional shares) for El Paso Energy
common stock on the same basis as if the preferred stock had been converted into
Coastal common stock immediately prior to the merger. On May 5, 2000, the merger
was approved by the shareholders of Coastal and El Paso Energy. It is expected
that the merger will be completed during the fourth quarter of 2000 and be
accounted for as a pooling of interests. The merger is subject to additional
conditions, particularly federal regulatory approval.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking
statements. The forward-looking statements reflect the Company's expectations,
objectives and goals with respect to future events and financial performance,
and are based on assumptions and estimates which the Company believes are
reasonable. However, actual results could differ materially from anticipated
results. Important factors which may affect the actual results include, but are
not limited to, commodity prices, political developments, market and economic
conditions, industry competition, the weather, changes in financial markets and
changing legislation and regulations. The forward-looking statements contained
in this Report are intended to qualify for the safe harbor provisions of Section
21E of the Securities Exchange Act of 1934, as amended.
The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.
- 13 -
<PAGE>
Liquidity and Capital Resources
The Company uses the following consolidated ratios to measure liquidity
and its ability to meet future funding needs and debt service requirements.
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------------------
September 30, December 31,
2000 1999
-------------- ----------------
(Unaudited)
<S> <C> <C>
Return on average common stockholders' equity.................. 15.1% 13.5%
Cash flow from operating activities to long-term debt.......... 16.0% 21.8%
Total debt to total capitalization............................. 54.0% 51.9%
Times interest earned (before tax)............................. 3.2 3.1
</TABLE>
The return on average common stockholders' equity ratio increased
primarily as a result of higher earnings in the 2000 period. The decrease in the
cash flow from operating activities to long-term debt ratio resulted primarily
from changes in working capital and long-term debt. The increase in the total
debt to total capitalization ratio resulted from the changes in debt.
In September 2000, the Company issued $215 million of 7.625% Notes due in
2008. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of short-term borrowings of the
Company and its subsidiaries.
In August 2000, the Company issued $300 million of 7 1/2% Notes due in
2006. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of floating rate indebtedness.
In July 2000, the Company issued $200 million of Floating Rate Notes due
in 2003. The Notes bear interest at a rate equal to the three-month LIBOR plus
0.60%. The net proceeds from the sale were used for general corporate purposes,
including the repayment of floating rate indebtedness.
In June 2000, the Company issued $400 million of 7 3/4% Notes due in 2010.
The net proceeds from the sale of the Notes were used to repay floating rate
indebtedness, including indebtedness of a subsidiary under a revolving credit
facility, and for general corporate purposes.
In March 2000, the Company issued $400 million of Floating Rate Notes due
in 2002. The Notes bear interest at a rate equal to the three-month LIBOR plus
0.45%. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of indebtedness of Coastal and its
subsidiaries.
The Company has entered into hedging transactions to manage price risk
relating to a portion of the Company's future natural gas production. At
September 30, 2000, the Company had entered into hedging contracts on 69 billion
cubic feet ("Bcf") of remaining year 2000 natural gas production and on 165 Bcf
of year 2001 natural gas production. Average monthly prices on these contracts
range from $2.55 to $2.76 per thousand cubic feet (based on the Henry Hub
price).
Financing for capital expansion, mandatory debt retirements and other
expenditures will be provided by internally generated funds, existing credit
lines, 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.
- 14 -
<PAGE>
Unused lines of credit at September 30, 2000 were as follows (millions of
dollars):
Short-term...................................... $ 1,992.8
Long-term*...................................... 674.9
-----------
$ 2,667.7
===========
*$343.0 million of unused long-term credit lines is dedicated to a
specific use.
The FASB has issued FAS 133, as amended by Statements of Financial
Accounting Standards No. 137 and No. 138, to be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. FAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and derivative instruments
used for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The corresponding offset
for the change in fair value of the derivative instruments will be to income or
other comprehensive income, depending on their designation, their intended use,
or their ability to qualify as hedges under FAS 133. The Company will adopt FAS
133 beginning January 1, 2001, and will apply the standard to all derivative
instruments that exist on that date except for derivative instruments embedded
in other contracts. As provided for in FAS 133, the Company will apply the
provisions of the standard to derivative instruments embedded in other contracts
issued, acquired, or substantially modified after December 31, 1998. The Company
is continuing to study the impact of FAS 133 and has not yet quantified the
effects on its financial statements.
Results of Operations
The changes in the Company's earnings for the three- and nine-month
periods ended September 30, 2000, in comparison to the same periods in 1999 are
a result of the following:
Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 474.3 $ 280.1 $ 1,229.5 $ 902.2
Refining, marketing and chemicals....................... 2,338.5 1,527.8 6,885.5 4,117.2
Exploration and production.............................. 255.0 159.5 764.5 373.4
Power................................................... 39.7 34.0 118.5 94.7
Coal.................................................... 71.2 66.1 215.7 192.0
Other................................................... 3.9 3.8 11.6 11.2
Adjustments and eliminations............................ (26.3) (11.2) (70.3) (28.9)
--------- ---------- --------- ---------
$ 3,156.3 $ 2,060.1 $ 9,155.0 $ 5,661.8
========= ========== ========= =========
</TABLE>
- 15 -
<PAGE>
Earnings (Loss) Before Interest and Income Taxes. The earnings (loss)
before interest and income taxes by segment was as follows (millions of
dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 114.4 $ 113.6 $ 436.0 $ 416.0
Refining, marketing and chemicals....................... 110.8 52.6 201.9 185.9
Exploration and production.............................. 98.2 53.4 318.3 88.9
Power................................................... 32.9 21.3 100.8 65.0
Coal ................................................... 5.3 5.9 12.7 12.8
Corporate and other..................................... (42.3) (25.7) (126.9) (69.8)
--------- ---------- --------- ---------
$ 319.3 $ 221.1 $ 942.8 $ 698.8
========= ========== ========= =========
</TABLE>
Natural Gas. The increases in operating revenues of $194.2 million and
$327.3 million for the three months and nine months ended September 30, 2000,
respectively, can be attributed to increased volumes of natural gas liquids,
primarily as a result of gas processing plants acquired during 1999 and higher
prices for natural gas and natural gas liquids. Purchases increased by $196.1
million for the three-month period and $311.0 million for the nine- month period
due to higher natural gas prices and increased costs for the gas processing
plants.
Earnings before interest and income taxes ("EBIT") increased by $.8
million for the third quarter as a result of increased earnings from equity
investments of $6.1 million and other increases of $1.0 million partially offset
by increased operating and general expenses of $4.4 million and decreased gross
profit of $1.9 million. EBIT increased by $20.0 million for the nine-month
period as a result of the increased gross profit of $16.3 million, increased
earnings from equity investments of $26.4 million and other increases of $1.2
million partially offset by higher operating and general expenses of $23.9
million. Operating and general expenses increased in the three- and nine- month
periods primarily as a result of higher expenses for the gas processing plants.
Refining, Marketing and Chemicals. Operating revenues increased by $810.7
million in the third quarter and $2,768.3 million for the nine months due
primarily to increased prices and volumes. Purchases increased by $741.0 million
in the third quarter and $2,686.8 million for the nine months, also due
primarily to higher prices and volumes. The gross profit increase of $69.7
million for the three-month period ended September 30, 2000, results from
increased margins of $34.2 million; higher volumes sold of $16.8 million; an
increase of $11.1 million from the sale, trading, and exchanging of third-party
products and other increases of $7.6 million. Gross profit increased by $81.5
million for the nine-month period due to increased margins of $18.9 million;
higher volumes sold of $16.3 million; an increase of $31.2 million from the
sale, trading and exchanging of third-party products; increased income from
marine activities of $11.8 million and other increases of $3.3 million.
The EBIT increase of $58.2 million for the third quarter results from the
increased gross profit of $69.7 million partially offset by higher operating and
general expenses of $8.7 million and other decreases of $2.8 million. EBIT
increased by $16.0 million for the nine months ended September 30, 2000, as the
increased gross profit of $81.5 million and increased earnings from equity
investments of $11.2 million was partially offset by higher operating and
general expenses of $76.7 million. The increased operating and general expenses
for both periods result primarily from higher fuel costs, increased repairs and
maintenance expense and other expense increases at the refineries, partially due
to the increased volumes processed. The nine-month operating and general
expenses for 2000 include a $6.0 million charge related to a legal settlement.
Exploration and Production. Operating revenues increased by $95.5 million
and $391.1 million in the three- month and nine-month periods, respectively, as
a result of higher production volumes and sales prices for natural gas, crude
oil and condensate. The EBIT increase of $44.8 million for the third quarter
results from increased prices of $40.7 million and increased volumes of $60.3
million partially offset by increased depreciation, depletion and
- 16 -
<PAGE>
amortization of $26.4 million; higher operating and general expenses of $23.4
million and other decreases of $6.4 million. EBIT increased by $229.4 million in
the nine months ended September 30, 2000, as a result of increased prices of
$220.0 million and higher volumes of $183.2 million partially offset by
increased depreciation, depletion and amortization of $93.2 million; higher
operating and general expenses of $66.7 million and other decreases of $13.9
million. The increases for depreciation, depletion and amortization and
operating and general expenses result primarily from the increased production
volumes. The other decreases for the nine-month period includes a $7.8 million
business tax refund in 1999.
Power. Operating revenues increased by $5.7 million in the three months
and $23.8 million in the nine months ended September 30, 2000. The increase for
the three months is the result of higher electricity prices for the El Salvador
operations and the nine-month increase results from a gain in the 2000 first
quarter of $16.5 million from the disposition of the Company's interest in a
Guatemala power facility and higher electricity prices for the El Salvador
operations. The EBIT increase of $11.6 million for the third quarter results
from increased earnings from equity investments of $8.6 million and the
increased operating revenues of $5.7 million partially offset by higher
operating and general expenses of $2.5 million and other decreases of $.2
million. EBIT increased by $35.8 million for the nine months due to the $16.5
million gain noted above, increased earnings from equity investments of $19.0
million and other operating revenue increases of $7.3 million partially offset
by higher operating and general expenses of $6.0 million and other decreases of
$1.0 million. The increased operating and general expenses result primarily from
increased fuel costs. The increased earnings from equity investments result from
an additional investment in the Midland Cogeneration Venture Limited Partnership
and new projects.
Coal. Operating revenues increased by $5.1 million and $23.7 million in
the three-month and nine-month periods, respectively, as a result of increased
volumes partially offset by lower prices. EBIT decreased by $.6 million for the
three-month period ended September 30, 2000, as the increased operating and
general expenses of $3.6 million and increased depreciation, depletion and
amortization of $2.1 million more than offset the increased operating revenues
of $5.1 million. The EBIT decrease of $.1 million for the nine-month period
results from increased operating and general expenses of $18.8 million and
higher depreciation, depletion and amortization of $5.0 million partially offset
by the operating revenue increase of $23.7 million. Operating and general
expenses, which include cost of coal processed, and depreciation, depletion and
amortization increased in both periods as a result of the additional volumes
sold.
Corporate and Other. The EBIT for these operations, which include certain
real estate activities and corporate income and expenses not allocated to
operating segments, decreased in both 2000 periods primarily as a result of
increased dividends/expenses related to the securities of subsidiaries,
merger-related charges and increased expenses from financing activities.
Interest and Debt Expense. Interest and debt expense increased by $29.6
million in the three months and $61.7 million in the nine months ended September
30, 2000, due to higher average debt and increased average interest rates
partially offset by increased capitalized interest.
Taxes on Income. Federal income taxes increased by $23.3 million and $54.5
million in the three-month and nine-month periods ended September 30, 2000,
respectively, as a result of increased earnings before income taxes and a higher
effective federal income tax rate. State income taxes increased by $2.4 million
and $9.5 million in the three-month and nine-month periods, respectively, due to
increased earnings and a tax refund in 1999.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. Compliance with such laws
and regulations can be costly. Additionally, governmental authorities may
enforce the laws and regulations with a variety of civil and criminal
enforcement measures, including monetary penalties and remediation requirements.
- 17 -
<PAGE>
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," imposes liability for the release of a "hazardous
substance" into the environment. Superfund liability is imposed without regard
to fault and even if the waste disposal was in compliance with the then current
laws and regulations. With the joint and several liability imposed under
Superfund, a potentially responsible party ("PRP") may be required to pay more
than its proportional share of such costs. Certain subsidiaries of the Company
and a company in which Coastal owns a 50% interest have been named as a PRP in
various "Superfund" waste disposal sites. At the eight sites for which there is
sufficient information, total cleanup costs are estimated to be approximately
$605 million, and the Company estimates its pro-rata exposure, to be paid over a
period of years, is approximately $4 million and has made appropriate
provisions. At twelve other sites, the U.S. Environmental Protection Agency
("EPA") is currently unable to provide the Company with an estimate of total
cleanup costs, and accordingly, the Company is unable to calculate its share of
those costs.
Additionally, certain subsidiaries of the Company have been named as PRPs
in four state sites. At one site, the North Carolina Department of Health,
Environmental and Natural Resources has estimated the total cleanup costs to be
approximately $50 million, but the Company believes the subsidiary's activities
at this site were de minimis. At a second state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
approximately $300,000, and suitable remediation, with approximately $100,000
potentially attributable to the Coastal subsidiary's activities. At the third
site, the Texas Natural Resource Conservation Commission has estimated the total
cleanup costs to be approximately $2 million, but the Company believes the
subsidiary's activities at this site were de minimis. At the fourth site, a
remediation plan has been submitted to the Utah Department of Environmental
Quality for approval, with current estimated cleanup costs of approximately $1.2
million attributable to the Coastal subsidiary's activities.
From March to October 2000, Coastal's Eagle Point Oil Company ("CEPOC")
received several Administrative Order Notices of Civil Administrative Penalty
Assessment ("AOs") from the New Jersey Department of Environmental Protection
("NJDEP"). All of the AOs are related to similar alleged noncompliance of the
New Jersey Air Pollution Control Act pertaining to occurrences of air pollution
from the first quarter 1999 through the second quarter 2000 by CEPOC's refinery
in Westville, New Jersey. The NJDEP has assessed penalties totaling $1,148,000
for these alleged noncompliance. CEPOC has requested an administrative hearing
on all issues raised by the AOs and concurrently, is negotiating with the NJDEP
to settle the AOs.
Future information and developments, including legislative and enforcement
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 consolidated financial position or results of operations.
- 18 -
<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 8 of the Notes to Consolidated Financial
Statements set forth in Part I of this Report and from Item 2., "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Environmental Matters" set forth in Part I of this Report.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.23 - Pension Plan for Employees of The Coastal Corporation,
restated as of January 1, 1989, as further amended by the
Fifteenth Amendment dated September 29, 2000.
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 August 4, 2000. The item
reported was:
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following document is filed as an
exhibit to this current report.
99.1 Press release issued July 26, 2000,
entitled "Coastal Reports Record Second
Quarter Earnings."
(2) A report on Form 8-K was filed on August 8, 2000. The item
reported was:
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
(12) Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
- 19 -
<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: November 10, 2000 By: COBY C. HESSE
----------------------------------
Coby C. Hesse
Senior Executive Vice President
and Principal Accounting Officer
(As Authorized Officer and
Chief Accounting Officer)
- 20 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
-------------------------------------------------------------------------------
10.23 Pension Plan for Employees of The Coastal Corporation, restated as of
January 1, 1989, as further amended by the Fifteenth Amendment dated
September 29, 2000.
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
- 21 -
