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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1993 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________
Commission file number 1-4874
COLORADO INTERSTATE GAS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0173305
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
TWO NORTH NEVADA AVENUE
COLORADO SPRINGS, COLORADO 80903-1727
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 473-2300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
10% Senior Debentures, due 2005 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of each class
-------------------
Cumulative Preferred Stock, $100 par value, 5.50% Series
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
As of March 16, 1994, there were outstanding 10 shares of common stock of the
Registrant, $5.00 par value per share, its only class of common stock. None of
the voting stock of the Registrant is held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
ITEM NO. PAGE
- ------- ----
Glossary............................................................................. (ii)
PART I
1. Business............................................................................. 1
Introduction...................................................................... 1
Natural Gas System................................................................ 1
Operations..................................................................... 1
General..................................................................... 1
Gas Sales, Storage and Transportation....................................... 1
Gas Gathering and Processing................................................ 2
Competition................................................................. 2
Gas System Reserves and Availability........................................... 3
General..................................................................... 3
Reserves.................................................................... 3
Availability................................................................ 3
Reserves Dedicated to a Particular Customer................................. 4
Reconciliation with FERC Form 15 Report..................................... 4
Regulations Affecting Gas System............................................... 4
General..................................................................... 4
Rate Matters................................................................ 5
Gas and Oil Exploration and Production............................................ 5
Environmental..................................................................... 6
Other Developments................................................................ 6
2. Properties........................................................................... 7
3. Legal Proceedings.................................................................... 7
4. Submission of Matters to a Vote of Security Holders.................................. 7
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................................ 8
6. Selected Financial Data.............................................................. 8
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 8
8. Financial Statements and Supplementary Data.......................................... 8
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................... 8
PART III
10. Directors and Executive Officers of the Registrant................................... 9
11. Executive Compensation............................................................... 11
12. Security Ownership of Certain Beneficial Owners and Management....................... 16
13. Certain Relationships and Related Transactions....................................... 20
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................... 21
(i)
GLOSSARY
"ANR" means American Natural Resources Company
"ANR Pipeline" means ANR Pipeline Company
"Bcf" means billion cubic feet
"Coastal" means The Coastal Corporation
"Coastal Natural Gas" means Coastal Natural Gas Company
"Colorado" or the "Company" means Colorado Interstate Gas Company and/or its
subsidiaries
"FAS" means Statement of Financial Accounting Standards
"FERC" means Federal Energy Regulatory Commission
"Huddleston" means Huddleston & Co., Inc., Houston, Texas
"Mcf" means thousand cubic feet
"MMcf" means million cubic feet
"NGA" means Natural Gas Act of 1938, as amended
"NGL" means natural gas liquids
"Order 636" means the FERC Order No. 636 series of orders which is more fully
described in Item 1, Business, Regulations Affecting Gas System - General
"WIC" means Wyoming Interstate Company, Ltd.
NOTE: All natural gas volumes presented in this Annual Report are stated at a
pressure base of 14.73 pounds per square inch absolute and 60 degrees
Fahrenheit.
ii
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Colorado is a Delaware corporation organized in 1927. All of Colorado's
outstanding common stock is owned by Coastal Natural Gas, which is a wholly-
owned subsidiary of Coastal. Colorado owns and operates an interstate natural
gas pipeline system and also has gas and oil exploration and production
operations. At December 31, 1993, the Company had 1,129 employees.
The revenues and operating profit of the Company by industry segment for each
of the three years in the period ended December 31, 1993, and the related
identifiable assets as of December 31, 1993, 1992 and 1991, are set forth in
Note 12 of Notes to Consolidated Financial Statements included herein.
NATURAL GAS SYSTEM
OPERATIONS
GENERAL
The Company is involved in all phases of the production, gathering,
processing, transportation, storage and sale of natural gas. Colorado purchases
and produces natural gas and makes sales of such gas principally to local gas
distribution companies for resale. Separately, Colorado contracts to gather,
process, transport and store natural gas owned by third parties.
Colorado's gas transmission system extends from gas production areas in the
Texas Panhandle, western Oklahoma and western Kansas, northwesterly through
eastern Colorado to the Denver area, and from production areas in Montana,
Wyoming and Utah, southeasterly to the Denver area. The Company's gas gathering
and processing facilities are located throughout the production areas adjacent
to its transmission system. Most of the Company's gathering facilities connect
directly to its transmission system, but some gathering systems are connected to
other pipelines. The Company also has certain gathering facilities located in
New Mexico. Colorado owns four underground gas storage fields; three located in
Colorado, and one in Kansas.
The Company's principal pipeline facilities at December 31, 1993 consisted of
6,347 miles of pipeline and 65 compressor stations with approximately 346,000
installed horsepower. At December 31, 1993, the design peak day delivery
capacity of the transmission system was approximately 2.0 Bcf per day. The
underground storage facilities have a working capacity of approximately 29 Bcf
per year and a peak day delivery capacity of approximately 769 MMcf.
GAS SALES, STORAGE AND TRANSPORTATION
Beginning in October, 1993, Colorado implemented Order 636 on its system and
as required by the Order, Colorado's gas sales are now made at "upstream"
locations (typically the wellhead). Colorado's gas sales contracts extend
through September 30, 1996, but provide for reduced customer purchases to be
made each year. Under Order 636, Colorado's certificate to sell gas for resale
allows sales to be made at negotiated prices and not at prices established by
FERC. Colorado is also authorized to abandon all sales for resale at such time
as the contracts expire and without prior FERC approval.
Effective October 1, 1993, Colorado formed an unincorporated Merchant
Division to conduct most of the Company's sales activity in the Order 636
environment. The gas sales volumes reported include those sales which continue
to be made by Colorado together with those of its Merchant Division.
1
Effective October 1, 1993, Colorado assigned an undivided interest in a
portion of its company-owned leases (representing approximately 20% of Company
owned reserves) to a new subsidiary. The subsidiary has entered into a contract
to sell the production to the Company's Merchant Division, which utilizes the
gas primarily for its sales to Colorado's traditional customers. The reserve
volumes reported represent those interests retained by Colorado together with
those assigned to the new subsidiary.
Gas sales revenues were $223 million in 1993, compared to $261 million in
1992. This decrease is due largely to the fact that prior to the mandated
restructuring under Order 636 the costs of providing gathering, storage and
transportation services for sales customers were recovered as part of the total
resale rate and were classified as part of gas sales revenue. Subsequent to
restructuring, these costs are now recovered under separate rates for each
service.
Colorado has engaged in "open access" transportation and storage of gas owned
by third parties for several years. In addition, prior to October 1, 1993,
Colorado provided storage and transportation services as part of its "bundled"
sales service. As a result of Order 636, the Company has "unbundled" these
services from its sales services and will continue to provide these services to
third parties under individual contracts. Such services will be at negotiated
rates that are within minimum and maximum levels established by the FERC. Also,
pursuant to Order 636, the Company, on September 30, 1993, sold all of its
working gas except for 3.8 Bcf which it retained for operational needs.
Colorado's deliveries for the years 1993, 1992 and 1991 are as follows:
Total Daily Average
System System
Year Deliveries Deliveries
---- ----------- -------------
(Bcf) (MMcf)
1993 453 1,241
1992 428 1,169
1991 408 1,119
GAS GATHERING AND PROCESSING
Prior to Order 636, the Company gathered and processed gas incident to its
"bundled" sales service (which also included storage and transportation
activities). However, in compliance with the FERC mandated restructuring,
Colorado now provides gathering and processing services on an "unbundled" or
stand-alone basis. The Company contracts for these services under terms which
are negotiated. With respect to gathering, the Company is limited to charging
rates which are between minimum and maximum levels approved by FERC. Processing
terms are not subject to FERC approval, but Colorado is required to provide
"open access" to its processing facilities.
Colorado has 2,994 miles of gathering lines and 110,500 horsepower of
compression in its gathering operations. Colorado owns and operates six gas
processing plants which recovered approximately 86 million gallons of liquid
hydrocarbons in 1993, compared to 77 million gallons in 1992 and 61 million
gallons in 1991, and 4,400 long tons of sulfur in 1993 and 3,600 long tons in
both 1992 and 1991. Additionally, in 1993, Colorado processed approximately 12
million gallons of liquid hydrocarbons owned by others compared to 10 million in
1992 and 11 million in 1991. These plants, with a total operating capacity of
approximately 697 MMcf daily, recover mainly propane, butanes, natural gasoline,
sulfur and other by-products, which are sold to refineries, chemical plants and
other customers.
COMPETITION
Colorado has historically competed with interstate and intrastate pipeline
companies in the sale, storage and transportation of gas and with independent
producers, brokers, marketers and other pipelines in the gathering, processing
and sale of gas within its service areas. On October 1, 1993, the Company
implemented Order 636 on its system. Order 636 also mandated implementation of
capacity release and secondary delivery point options allowing a pipeline's firm
transportation customers to compete with the pipeline for interruptible
transportation, which
2
may result in reduced interruptible transportation revenue of pipelines.
Additional information on this subject is included under "Regulations Affecting
Gas System" included herein.
Natural gas competes with other forms of energy available to customers,
primarily on the basis of price. These competitive forms of energy include
electricity, coal, propane and fuel oils. Changes in the availability or price
of natural gas or other forms of energy, as well as changes in business
conditions, conservation, legislation or governmental regulations, capability to
convert to alternate fuels, changes in rate structure, taxes and other factors
may affect the demand for natural gas in the areas served by Colorado.
GAS SYSTEM RESERVES AND AVAILABILITY
GENERAL
The following information about gas system reserves of Colorado and the
current and future availability of these reserves is based on data as of
December 31, 1993, 1992 and 1991, prepared by Huddleston, Colorado's independent
engineers. Based on annual requirements of 109 Bcf, the Company's reserve life
index at January 1, 1994 is approximately 12 years. See a further discussion of
estimated future sales requirements under "Gas System Reserves and Availability
- - Availability" included herein.
RESERVES
The table below presents the independent engineers' estimates of the
Company's gas system reserves as of December 31, 1993, 1992 and 1991 (Bcf):
1993 1992 1991
----- ----- -----
Under contract with independent producers.. 797 1,061 1,204
Owned or controlled by Colorado............ 433 478 522
Gas available from storage................. 41 55 57
----- ----- -----
Total.................................... 1,271 1,594 1,783
===== ===== =====
The estimates of controlled gas reserves include: (a) quantities
economically recoverable over the productive life of existing wells and
quantities estimated to be recoverable in the future, either from completions in
other productive zones of existing wells or from additional wells to be drilled
in proven reservoirs currently covered by existing gas purchase contracts and
(b) reserves attributable to gas in storage fields. The independent engineers'
estimates of reserves are based upon new analyses or upon a review of earlier
analyses updated by production and field performance.
At December 31, 1993, Colorado maintained under its own account 3 Bcf of
natural gas in underground working storage for system balancing and no-notice
storage services. The Company has an additional 38 Bcf of base gas in its four
owned storage fields.
AVAILABILITY
The table below presents the independent engineers' estimates of the
Company's aggregate daily volumes of gas available for sale for the next three
years (MMcf):
1994............ 428
1995............ 374
1996............ 340
3
The independent engineers' estimates of the current availability of gas from
Colorado's existing controlled gas reserves exceed the anticipated total
requirements for 1994 of 272 MMcf per day. The availability of future gas
volumes for years 1995 and 1996, including those available volumes from the
future development of the non-producing and undeveloped reserves, is greater
than the future total requirements of 227 MMcf per day averaged over that time
period. Future requirements have been estimated utilizing the projected effects
of Order 636 on future sales. Over the remaining life of Colorado's current gas
sales contracts (most of which expire October 1, 1996), it is expected that
customers will continue to reduce their contractual sales entitlements pursuant
to the provisions of Order 636. At this time, however, the magnitude of those
conversions cannot be estimated with reasonable certainty. See a further
discussion under "Regulations Affecting Gas System" included herein.
The independent engineers' estimates of gas available for sale in future
years are not firm, unconditional projections, but are calculations based on
reviews of historical data and estimates of the future availability of gas from
contracted gas reserves. In preparing the estimates of gas available for sale,
the independent engineers assumed pipeline availability at levels similar to
1993 purchases and did not make projections as to the volumes of gas which
Colorado may temporarily release from contract as being in excess of its
purchase requirements.
Colorado's ability to supply gas on a daily and annual basis to meet the
demands of its customers is subject to limiting factors in addition to the
quantities of gas available for sale. Such factors include, but are not limited
to, conservation, regulations by governmental agencies, a producer's right to
exercise prudent control of operations and maintenance of wells or leases,
mechanical operation of equipment, weather, the ability of wells to deliver gas
of pipeline quality and pressure, new production technology, unpredictable
declines of production, varying peakload demands, availability of alternate
fuels, gas storage capacity and pipeline capacity in particular areas.
RESERVES DEDICATED TO A PARTICULAR CUSTOMER
Colorado is committed to provide gas to Mesa Operating Company, formerly Mesa
Operating Limited Partnership ("Mesa"), a customer, from specific owned gas
reserves in the West Panhandle Field of Texas. Production from this area
contributed approximately 46% of Colorado's total supply in 1993. Approximately
68% of those volumes were delivered to Mesa. Under an agreement which was
effective January 1, 1991, as amended, Colorado has the right to take a
cumulative 23% of the total net production from such reserves for its customers
other than Mesa.
RECONCILIATION WITH FERC FORM 15 REPORT
The FERC Form 15 Annual Report of Gas Supplies is no longer required pursuant
to FERC Order No. 554 issued July 13, 1993.
REGULATIONS AFFECTING GAS SYSTEM
GENERAL
Under the NGA, the FERC has jurisdiction over Colorado as to rates and
charges for the transportation and storage of natural gas and the construction
of new facilities, extension or abandonment of service and facilities, accounts
and records, depreciation and amortization policies and certain other matters.
In addition, FERC has certificate authority over gas sales for resale in
interstate commerce, but under Order 636, had determined that it will not
regulate sales rates. Additionally, FERC has asserted rate-regulation (but not
certificate regulation) over gathering. Colorado is challenging the FERC's
assertion of rate jurisdiction over gathering, but has agreed in a settlement
that for three years beginning October 1, 1993, Colorado will post in its tariff
the minimum and maximum gathering rates which will be established and approved
by FERC. Colorado, where required, holds certificates of public convenience and
necessity issued by the FERC covering its jurisdictional facilities, activities
and services.
Colorado is also subject to regulation with respect to safety requirements in
the design, construction, operation and maintenance of its interstate gas
transmission and storage facilities by the Department of Transportation.
Operations on United States government land are regulated by the Department of
the Interior.
4
FERC Order Nos. 500 and 528 allowed regulated pipelines, including Colorado,
to recover, through a fixed charge, from 25% to 50% of the cost of payments made
to producers to extinguish outstanding claims under existing gas purchase
contracts or to secure reformation of existing contracts. Fixed charges are paid
by pipeline sales customers without regard to volumes of gas purchased. Under
this election, however, an amount equivalent to the amount included in the fixed
charge must be borne by the pipeline. Colorado has incurred costs related to
contract reformation and settlements of take-or-pay claims, a portion of which
have been recovered under Order Nos. 500 and 528.
On April 8, 1992, the FERC issued Order No. 636 ("Order 636"), which required
significant changes in the services provided by interstate natural gas
pipelines. The Company and numerous other parties have sought judicial review of
aspects of Order 636.
On July 2, 1993, the Company submitted to the FERC an unanimous offer of
settlement which resolved all the Order 636 restructuring issues which had been
raised in its restructuring proceedings. That settlement was ultimately approved
(except for minor issues), and the Company's restructured services became
effective October 1, 1993. Under that settlement, Colorado has "unbundled" its
gas sales from its other services. Separate gathering, transportation, storage,
no notice transportation and storage and other services are available on a
"stand-alone" basis to any customers desiring them. Colorado's Order 636
transition costs are not expected to be material and are expected to be
recovered through Colorado's rates.
RATE MATTERS
Under the NGA, Colorado continues to be required to file with the FERC to
establish or adjust certain of its service rates. The FERC may also initiate
proceedings to determine whether Colorado's rates are "just and reasonable."
On March 31, 1993, the Company filed at FERC to increase its rates by
approximately $26.5 million annually. Such rates (adjusted to reflect the
Company's Order 636 program) became effective subject to refund on October 1,
1993.
Certain regulatory issues remain unresolved among Colorado, its customers,
its suppliers, and the FERC. The Company has made provisions which represent
management's assessment of the ultimate resolution of these issues. While
Colorado 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.
GAS AND OIL EXPLORATION AND PRODUCTION
The Company has domestic gas and oil production operations. The gas is
delivered primarily to Colorado's interstate gas pipeline system while the crude
oil and condensate are sold at the wellhead to oil purchasing companies at
prevailing market prices. The production of gas and oil is subject to regulation
in states in which the Company operates.
The following table shows gas, oil and condensate production volumes of the
Company, including quantities attributable to its natural gas system, for the
three years ended December 31, 1993:
1993 1992 1991
------ ------ ------
Gas (MMcf)................ 56,454 55,150 52,008
Oil (000 barrels)......... 8 5 7
Condensate (000 barrels).. 49 42 37
5
The following table summarizes sales price and unit cost information of the
Company's exploration and production operations for the three years ended
December 31, 1993:
1993 1992 1991
----- ----- -----
Average sales price (net of production taxes):
Gas - per Mcf.................................... $ 1.81 $ 1.66 $ 1.60
Oil - per barrel................................. 15.18 17.76 19.46
Condensate - per barrel.......................... 15.92 16.44 19.38
Average production cost per unit (equivalent Mcf).. $ 0.51 $ 0.39 $ 0.49
At December 31, 1993, the gas and oil properties of the Company included
leasehold interests covering 475,622 acres (357,281 net acres), of which 388,012
acres (323,262 net acres) were producing and 87,610 acres (34,019 net acres)
were undeveloped. The net producing acreage, held by production, is concentrated
principally in Texas (77%), Oklahoma (9%), Wyoming (6%) and Utah (6%). The net
undeveloped acreage, not held by production, is principally in Wyoming (42%),
Colorado (20%) and Montana (22%).
The Company drilled 22 gross (12.53 net) gas wells, 39 gross (34.41 net) gas
wells and 24 gross (21.52 net) gas wells in 1993, 1992 and 1991, respectively.
Information on Company-owned reserves of oil and gas is included herein under
"Supplemental Information on Oil and Gas Producing Activities (Unaudited)" in
Item 14(a)1 included herein.
ENVIRONMENTAL
The Company's operations are subject to extensive federal, state and local
environmental laws and regulations which may affect such operations and costs as
a result of their effect on the construction and maintenance of its pipeline
facilities as well as its gas and oil exploration and production operations.
Appropriate governmental authorities may enforce the laws and regulations with a
variety of civil and criminal enforcement measures, including monetary penalties
and remediation requirements. Compliance with all applicable environmental
protection laws is not expected to have a material adverse impact on the
Company's liquidity or financial position. Future information and developments
will require the Company to continually reassess the expected impact of all
applicable environmental laws.
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." The Company is not presently, and has not been in the past, a
potentially responsible party in any "Superfund" waste disposal sites. There are
additional areas of environmental remediation responsibilities which may fall
upon the Company.
OTHER DEVELOPMENTS
Colorado owns approximately 20% of Natural Fuels Corporation ("NFC") which is
headquartered in Denver, Colorado. NFC's business is to develop compressed
natural gas ("CNG") as an alternative vehicular fuel. Major services provided by
NFC include vehicle conversions to CNG, fuel sales, CNG equipment sales,
maintenance services, and training. Besides operating a full service conversion
center which converts vehicles to CNG, NFC has installed 44 stations in
Colorado, 26 of which are open to the public. NFC, in joint partnership with
Total Petroleum, installs natural gas refueling facilities at selected Total
Petroleum stores along the Colorado Front Range. This project is one of the
largest public fueling station development commitments in the United States. As
of January 1994, seven
6
stations were operational and one was under construction. Also, Colorado is a
co-sponsor in the testing of two Colorado Springs buses that are powered by
dual-fueled engines modified to run on up to 90% natural gas.
ITEM 2. PROPERTIES.
Information on properties of Colorado is included in Item 1, "Business,"
included herein.
The real property owned by the Company in fee consists principally of sites
for compressor and metering stations and microwave and terminal facilities. With
respect to the four owned storage fields, the Company holds title to gas storage
rights representing ownership of, or has long-term leases on, various subsurface
strata and surface rights and also holds certain additional mineral rights.
Under the NGA, the Company may acquire by the exercise of the right of eminent
domain, through proceedings in United States District Courts or in state courts,
necessary rights-of-way to construct, operate and maintain pipelines and
necessary land or other property for compressor and other stations and equipment
necessary to the operation of pipelines.
ITEM 3. LEGAL PROCEEDINGS.
In December 1992, certain of Colorado's natural gas lessors in the West
Panhandle Field filed a complaint in the U.S. District Court for the Northern
District of Texas, claiming underpayment, breach of fiduciary duty, fraud and
negligent misrepresentation. Management believes that Colorado has numerous
defenses to the lessors' claims, including (i) that the royalties were properly
paid, (ii) that the majority of the claims were released by written agreement,
and (iii) that the majority of the claims are barred by the statute of
limitations.
Other lawsuits and other proceedings which have arisen in the ordinary course
of business are pending or threatened against Colorado 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.
Additional information regarding legal proceedings is set forth in Notes 3 and
10 of Notes to Consolidated Financial Statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All common stock of Colorado is owned by Coastal Natural Gas.
Certain preferred stock resolutions restrict the payment of dividends on
common stock. Under the most restrictive of these provisions, approximately
$311.5 million was available for dividends on the common stock of the Company at
December 31, 1993. Additional information relating to dividends is set forth
under the "Statement of Consolidated Retained Earnings and Additional Paid-In
Capital" included herein.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (in thousands of dollars) is derived
from the Consolidated Financial Statements included herein and Item 6 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1992. The
Notes to Consolidated Financial Statements included herein contain information
relating to this data.
1993 1992 1991 1990 1989
-------- --------- --------- --------- ---------
Operating revenues............................... $438,014 $ 402,220 $ 375,244 $ 372,854 $ 392,458
Net earnings..................................... 73,178 84,075 82,757 64,380 68,094
Total assets..................................... 901,627 1,097,178 1,023,586 1,016,781 1,077,436
Long-term debt, excluding current maturities..... 179,145 195,278 203,404 215,530 54,795
Mandatory redemption preferred stock, excluding
shares redeemable within one year............... 556 556 906 3,898 4,635
Common stock and other stockholders' equity...... 358,047 525,400 503,946 428,320 502,406
All of the outstanding common stock of Colorado is owned by Coastal Natural
Gas; therefore, earnings and cash dividends per common share have no
significance and are not presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations is presented on pages F-1 through F-4 herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of Colorado as of March 16, 1994, were
as follows:
NAME (AGE), YEAR FIRST ELECTED POSITIONS AND OFFICES
DIRECTOR AND/OR OFFICER WITH THE REGISTRANT
- ------------------------------ ---------------------
Harold Burrow (79), 1974 Chairman of the Board of Directors
Jon R. Whitney (49), 1987 and 1974 President, Chief Executive Officer and Director
Richard L. Anderson (57), 1989 Director
James F. Cordes (53), 1986 Director
Peter J. King, Jr. (72), 1989 Director
Roger L. Ogden (48), 1989 Director
Paul W. Powers (51), 1989 Director
William B. Tutt, (52), 1989 Director
O. S. Wyatt, Jr. (69), 1972 Director
David A. Arledge (49), 1981 Senior Executive Vice President and Director
Jeffrey A. Connelly (47), 1986 Executive Vice President and Treasurer
C. Scott Hobbs (40), 1985 Executive Vice President and Chief Operating Officer
Daniel F. Collins (52), 1986 Senior Vice President
Rebecca H. Noecker (42), 1988 Senior Vice President, General Counsel and Director
Austin M. O'Toole (58), 1984 Senior Vice President and Secretary
Donald J. Zinko (49), 1988 Senior Vice President
P. Dallas Childress (55), 1985 Vice President
Steven J. Coffin (38), 1990 Vice President
Ronald J. Gillet (52), 1993 Vice President
Coby C. Hesse (46), 1986 Vice President
Robert G. Holsclaw (59), 1984 Vice President
Thomas E. Jackson, Jr. (54), 1989 Vice President
Robert O. Reid (47), 1985 Vice President
E. C. Simpson (58), 1990 Vice President
Richard G. Smead (47), 1988 Vice President
William H. Sparger (51), 1992 Vice President
Steven W. Zuckweiler (43), 1991 Vice President
Dan A. Homec (45), 1989 Assistant Vice President and Controller
The above named persons bear no family relationship to each other. Their
respective terms of office expire coincident with Colorado's Annual Meeting of
the Sole Stockholder and Annual Meeting of the Board of Directors to be held in
May 1994. Each of the directors and officers named above have been officers or
employees of Colorado, ANR Pipeline and/or Coastal for five years or more except
for the following:
Mr. Anderson was elected to the Board of Directors of Colorado in April 1989.
He is a General Partner of Anderson Development Associates.
Mr. Coffin was elected a Vice President of Colorado in June 1990. Before
joining the Company, he practiced law with the Denver law firms of Holland &
Hart from 1986 to 1988 and Brownstein Hyatt Farber & Madden from 1988 to 1990.
Prior thereto, he served as Deputy Administrative Assistant to a United States
congressman.
Mr. Gillet was elected Vice President of Colorado in July 1993. Prior thereto
he served as Vice President of ANR Pipeline Company from 1985 to 1991 and as a
Vice President of Coastal States Management Corporation since 1983.
9
Mr. King was elected to Colorado's Board of Directors in April 1989. Prior
thereto, he served in various executive capacities with the Company.
Mr. Ogden was elected to the Board of Directors of Colorado in April 1989. He
has been President and General Manager of KCNC-TV, Denver, Colorado since 1983.
Mr. Powers was elected to Colorado's Board of Directors in April 1989. He
served as a Colorado State Senator from 1978 through 1988. He currently is a
member of the Board of Directors of the Vail National Bank and President of
Hanover Realty Corporation.
Mr. Sparger was elected a Vice President of Colorado in June 1992. Before
joining the Company, he served in various capacities with Transcontinental Gas
Pipe Line Corporation since 1967.
Mr. Tutt was elected to the Board of Directors of Colorado in April 1989. He
is Chairman of the Olympic Festival Committee, Chairman Emeritus of the
Colorado Springs Sports Corporation, Vice Chairman of the United States Space
Foundation and a member of the Boards of Directors of Norwest Bank of Colorado
and US West Communications/Colorado. He has also been past President of the
Broadmoor Management Company and past Vice President of the United States
Olympic Committee.
Mr. Zuckweiler was elected a Vice President of Colorado in August 1991. He
held the position of Director, Transportation and Exchange for the Company from
July 1981 to September 1988, at which time he was elected Assistant Vice
President.
10
ITEM 11. EXECUTIVE COMPENSATION.
Colorado is an indirectly wholly-owned subsidiary of Coastal. Information
concerning the cash compensation and certain other compensation of directors and
officers of Coastal is contained in this section.
The following table sets forth information for the fiscal years ended
December 31, 1993, 1992 and 1991 as to cash compensation paid by Coastal and its
subsidiaries, as well as certain other compensation paid or accrued for those
years, to Coastal's Chief Executive Office ("CEO") and its four most highly
compensated executive officers other than the CEO (the "Named Executive
Officers"). The table also sets forth the cash compensation paid to James R.
Paul, CEO through July 20, 1993, including Long Term Incentive Plan ("LTIP")
cash compensation.
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Long Term Compensation
----------------------------------------- -------------------------
Awards Payouts
-------------- ----------
Securities All Other
Underlying LTIP Compen-
Name and Options/ Payouts sation
Principal Position Year Salary ($) Bonus ($)(3) SARs (#)(4) ($) $(5)
- ----------------------- -------- ------------- ----------------- -------------- ---------- -------
O. S. Wyatt, Jr., 1993 896,120 (3) -0- -0- 138,065
Chairman of the Board 1992 949,678(2) -0- -0- 164,474
(and CEO commencing 1991 849,093 300,000 -0- 156,427
July 20, 1993)
David A. Arledge, 1993 455,211 (3) 38,848 -0- 60,042
President, Chief 1992 445,858(2) 60,000 35,000 72,794
Operating Officer and 1991 398,635 140,000 35,000 79,328
Director
James R. Paul, 1993 658,664 -0- -0- 45,000 76,000
President, CEO and 1992 648,724(2) -0- 40,000 159,148
Director (through 1991 580,015 266,666 40,000 172,401
July 20, 1993)
James F. Cordes, 1993 558,300 (3) 32,094 -0- 114,789
Executive V.P. 1992 507,721(2) 60,000 25,000 136,618
and Director 1991 453,946 160,000 25,000 136,816
Sam F. Willson, Jr., 1993 334,062 (3) 15,000 -0- 28,600
Executive V.P. 1992 344,603(2) 60,000 15,000 29,443
1991 334,062 150,000 15,000 31,225
Harold Burrow, 1993 292,614 52,000 14,189 -0- 80,033
Vice Chairman of 1992 359,117(2) -0- -0- 104,229
the Board 1991 345,816 -0- -0- 103,165
- ------------------------
/(1)/ Does not include the value of perquisites and other personal benefits
because the aggregate amount of such compensation, if any, does not exceed
the lesser of $50,000 or 10 percent of annual salary and bonus for any
named individual.
11
(2) Due to Coastal's practice of paying bi-weekly, there is one extra pay
period reflected in the 1992 salary. Normally there are 26 pay periods, but
approximately once every 11 years there are 27 pay periods; 1992 was such a
year.
(3) The bonuses shown in the table represent the amount awarded for
performance in the year indicated. With the exception of Mr. Burrow,
bonuses for 1993 will not be finalized until after preliminary results for
the 1994 first quarter are known. These bonuses will be reported in the
Coastal Proxy Statement for the 1995 Annual Meeting. Mr. Burrow's bonus was
paid in full in 1993. Bonuses for 1992 were paid or are payable in equal
installments over a three-year period, provided the employee is still
employed on the anniversary date of the award. The 1991 bonuses were
payable in equal installments in 1992 and 1993.
(4) The options do not carry any stock appreciation rights.
(5) All Other Compensation for 1993 consists of: (i) directors' fees paid by
Coastal, ANR and Colorado (O. S. Wyatt, Jr. $66,375; David A. Arledge
$18,000; James R. Paul $51,625; James F. Cordes $66,375; Sam F. Willson,
Jr. $-0-; and Harold Burrow $56,624); (ii) cash payments for relinquishing
certain stock appreciation rights (O. S. Wyatt, Jr. $ -0-; David A. Arledge
$5,625; James R. Paul $9,375; James F. Cordes $3,750; Sam F. Willson, Jr.
$1,875; and Harold Burrow $-0-); (iii) Coastal contributions to the Coastal
Thrift Plan (O. S. Wyatt, Jr. $15,000; David A. Arledge $15,000; James R.
Paul $15,000; James F. Cordes $15,000; Sam F. Willson, Jr. $15,000; and
Harold Burrow $15,000); and (iv) certain payments in lieu of Thrift Plan
contributions (O. S. Wyatt, Jr. $56,690; David A. Arledge $21,417; James R.
Paul $-0-; James F. Cordes $29,664; Sam F. Willson, Jr. $11,725; and Harold
Burrow $8,409).
Mr. Cordes is employed pursuant to a five-year employment contract expiring
in 1995, which provides that if he is terminated for a reason not permitted by
the employment contract, he will be entitled to receive for the remainder of the
term the salary, employee benefits, perquisites, salary increases, bonuses and
other incentive compensation which he would have received had he not been
terminated. Such reasons are a significant change in title, duties, authorities
or reporting responsibilities, a reduction in salary or benefits or a move of
the location of his office to a location not acceptable to him.
12
STOCK OPTIONS
The following table sets forth information with respect to stock options
granted on November 4, 1993 and December 8, 1993 for the fiscal year ended
December 31, 1993 to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1993)
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted(1) Fiscal Year(4) ($/Sh) Date Value ($)(5)
- --------------------- ------------- ----------------- ----------- ---------- ----------------
O. S. Wyatt, Jr. -0- -0- -0- -0-
David A. Arledge 3,848(2) 1.25 27.00 11/3/2003 44,156
35,000(3) 11.40 26.50 12/7/2003 370,072
James R. Paul -0- -0- -0- -0-
James F. Cordes 7,094(2) 2.31 27.00 11/3/2003 81,404
25,000(3) 8.14 26.50 12/7/2003 264,337
Sam F. Willson, Jr. 15,000(3) 4.88 26.50 12/7/2003 158,602
Harold Burrow 14,189(2) 4.62 27.00 11/3/2003 162,819
- ------------------
(1) Options expire ten years from the date of issuance and are granted at the
fair market value of the Common Stock of Coastal on the date of grant.
Options granted on November 4, 1993 vested in full immediately. Options
granted on December 8, 1993, vest in full on the second anniversary of the
date of grant.
(2) Granted November 4, 1993 as a one-time grant for relinquishment of
directors fees.
(3) Granted December 8, 1993.
(4) The options do not carry any stock appreciation rights. The option
information included in the table does not include grants made on March 4,
1993 for the fiscal year ended December 31, 1992 which (except for Mr.
Willson) were reported in the Coastal 1993 Proxy Statement. These grants
were at $26.06 per share as follows: O. S. Wyatt, Jr. -0-; David A. Arledge
35,000 shares; James R. Paul 40,000 shares; James F. Cordes 25,000 shares;
Sam F. Willson, Jr. 15,000 shares; and Harold Burrow -0-.
(5) Based on the Black-Scholes option pricing model expressed as a ratio (.425
for options granted on November 4, 1993; .399 for options granted on
December 8, 1993) x exercise price x number of shares. The actual value, if
any, an executive may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised, so that there
is no assurance the value realized by an executive will be at or near the
value estimated by the Black-Scholes model. The estimated values under that
model are based on assumptions that include (i) a stock price volatility of
.2786, calculated using monthly stock prices for the three years prior to
the grant date, (ii) an interest rate of 6.10%, (iii) a dividend yield of
1.44% and (iv) an option exercise term of ten years. No adjustments were
made for the non-transferability of the options or to reflect any risk of
forfeiture prior to vesting. The Securities and Exchange Commission
requires disclosure of the potential realizable value or present value of
each grant. The Company's use of the Black-Scholes model to indicate the
present value of each grant is not an endorsement of this valuation, which
is based on certain assumptions, including the assumption that the option
will be held for the full ten-year term prior to exercise. Studies
conducted by the Company's independent consultants indicate that options
are usually exercised before the end of the full ten-year term.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options and SARs held as of the fiscal year ("FY") ended
December 31, 1993.
13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1993)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)(1)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized ($) Unexercisable Unexercisable
- ---------------------- --------------- ------------------ ------------- -------------
O. S. Wyatt, Jr. -0- -0- -0- / -0- -0- / -0-
David A. Arledge -0- -0- 154,372 / 116,001 682,448/ 120,400
James R. Paul 330,917 2,950,384 42,750 / -0- -0- / -0-
James F. Cordes -0- -0- 89,786 / 82,001 307,534 / 86,000
Sam F. Willson, Jr. -0- -0- 22,149 / 51,000 16,380 / 51,600
Harold Burrow 23,750 454,813 14,189 / -0- 14,189 / -0-
- ------------------
(1) $-based on the market price of $28.00 at December 31, 1993.
PENSION PLAN
The following table shows for illustration purposes the estimated annual
benefits payable under the Pension Plan and Coastal's Replacement Pension
Plan described below upon retirement at age 65 based on the compensation and
years of credited service indicated.
PENSION PLAN TABLE
YEARS OF CREDITED SERVICE
------------------------------------------------
5-YEAR FINAL
AVERAGE PAY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ---------------- ------- ------- -------- -------- --------
$125,000... $34,403 $45,871 $ 57,339 $ 68,806 $ 68,118
150,000... 41,903 55,871 69,839 83,806 83,118
175,000... 49,403 65,871 82,339 98,806 98,118
200,000... 56,903 75,871 94,839 113,806 113,118
225,000... 62,610 83,480 104,351 125,221 124,532
250,000... 62,610 83,480 104,351 125,221 124,532
(A) Compensation covered under the Pension Plan for Employees of Coastal and
the Coastal Replacement Pension Plan generally includes only base salary and
is limited to $235,840 for 1993.
14
(B) At December 31, 1993 each of the individuals named in the Summary
Compensation Table had covered salary of $235,840 and the following years of
credited service: Mr. Wyatt, 38 years; Mr. Arledge, 13 years; Mr. Paul, 20
years; Mr. Cordes, 16 years; Mr. Willson, 21 years; and Mr. Burrow, 19
years.
(C) The normal form of retirement income is a straight life annuity. Benefits
payable under the Pension Plan are subject to offset by 1.5% of applicable
monthly social security benefits multiplied by the number of years of
credited service (up to 33 1/3 years).
The Employee Retirement Income Security Act of 1974, as amended by subsequent
legislation, limits the retirement benefits payable under the tax-qualified
Pension Plan. Where this occurs, Coastal will provide to certain executives,
including persons named in the Summary Compensation Table, additional
nonqualified retirement benefits under a Coastal Replacement Pension Plan. These
benefits, plus payments under the Pension Plan, will not exceed the maximum
amount which Coastal would have been required to provide under the Pension Plan
before application of the legislative limitations, and are reflected in the
above table.
15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners.
The following is information, as of March 16, 1994, on each person known or
believed by Colorado to be the beneficial owner of 5% or more of any class of
its voting securities:
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- ------------------------ --------------------------------- ---------------- ---------
Common Stock, Coastal Natural Gas Company 10 shares direct 100%
$5 par value per share Nine Greenway Plaza
Houston, Texas 77046
(b) Security ownership of management.
Colorado is an indirectly wholly-owned subsidiary of Coastal. Information
concerning the security ownership of certain beneficial owners and management of
Coastal is contained in this section.
The total number of shares of stock of Coastal outstanding as of March 16,
1994 is 112,832,796: consisting of 64,403 shares of $1.19 Cumulative
Convertible Preferred Stock, Series A (the "Series A Preferred Stock"), 87,398
shares of $1.83 Cumulative Convertible Preferred Stock, Series B (the "Series B
Preferred Stock"), 35,252 shares of $5.00 Cumulative Convertible Preferred
Stock, Series C (the "Series C Preferred Stock"), and 8,000,000 non-voting
shares of $2.125 Cumulative Preferred Stock, Series H (the "Series H Preferred
Stock"), 104,218,335 shares of Common Stock, and 427,408 shares of Class A
Common Stock.
Each voting share of Common Stock or Preferred Stock entitles the holder to
one vote with respect to all matters to come before a shareholders' meeting
while each share of Class A Common Stock entitles the holder to 100 votes.
However, 25% of Coastal's directors standing for election at each annual meeting
will be determined solely by holders of the Common Stock and voting Preferred
Stock voting as a class.
16
The following table sets forth information, as of March 16, 1994, with
respect to each person known or believed by Coastal to be the beneficial owner,
who has or shares voting and/or investment power (other than as set forth
below), of more than five percent (5%) of any class of its voting securities.
NAME AND ADDRESS PERCENT (%)
OF BENEFICIAL OWNER TITLE OF CLASS NUMBER OF SHARES OF CLASS (1)
- -------------------- -------------- ----------------- -------------
O. S. Wyatt, Jr. Class A Common Stock 154,577(2) 35.0
Chairman of the Board
of Coastal
Nine Greenway Plaza
Houston, Texas 77046-0995
Trustee/Custodian under the Common Stock 13,663,166(3) 13.0
Thrift, ESOP and Pension Plans Class A Common Stock 83,758(3) 18.9
of Coastal and its subsidiaries
Texas Commerce Bank
National Association
600 Travis, 10th Flr.
Houston, Texas 77002
The Prudential Insurance Common Stock 6,044,025 5.8
Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
Isabel H. Long Series A Preferred 28,976 45.0
485 S. Parkview Ave., Stock
Columbus, Ohio 43209-1075
The DeZurik Family Series C Preferred 35,252(4) 100.0
c/o David DeZurik Stock
2460 S.E. 8th St.
Pompano Beach, Florida 33062
_____________________
(1) Class includes presently exercisable stock options held by directors and
executive officers.
(2) Includes 7,354 shares of Class A Common Stock owned by the spouse and a
son of Mr. Wyatt, as to which shares beneficial ownership is disclaimed.
(3) The Trustee/Custodian is the record owner of these shares; and also is
the record owner of 969 shares of the Series B Preferred Stock, each of
which is convertible into 3.6125 shares of Common Stock and 0.1 share of
Class A Common Stock. Voting instructions are requested from each
participant in the Thrift Plan and ESOP and from the trustees under a
Pension Trust. Absent voting instructions, the Trustee is permitted to
vote Thrift Plan shares on any matter, but has no authority to vote ESOP
shares or Pension Plan shares. Nor does the Trustee/Custodian have any
authority to dispose of shares except pursuant to instructions of the
administrator of the Thrift Plan and ESOP or pursuant to instructions from
the trustees under the Pension Trust.
(4) Members of the DeZurik family acquired the Series C Preferred Stock in
connection with a 1972 Agreement of Merger involving the acquisition of
Colorado, a subsidiary of Coastal.
17
The following table sets forth information, as of March 16, 1994, regarding
each of the then current directors, including Class II directors standing for
election, and all directors and executive officers as a group. Each director has
furnished the information with respect to age, principal occupation and
ownership of shares of stock of Coastal. As of such date, Messrs. Bissell,
Burrow, Chapin, Cordes, Gates and Katzin were the Class I directors whose terms
expire in 1996; Messrs. Arledge, Brundrett, Wooddy and Wyatt were the Class II
directors whose terms expire in 1994; and Messrs. Buck, Johnson, Marshall and
McDade were the Class III directors whose terms expire in 1995.
OFFICES WITH COASTAL NUMBER OF SHARES
NAME, (AGE), YEAR AND/OR PRINCIPAL BENEFICIALLY PERCENT (%)
FIRST BECAME DIRECTOR OCCUPATION TITLE OF CLASS OWNED(1) OF CLASS*
- --------------------------- ------------------------------------- -------------------------- ----------------- -----------
O. S. Wyatt, Jr. Chairman of the Board and Common Stock 3,183,935(2) 3.0
(69), 1955 Chief Executive Officer Class A Common Stock 154,577(2) 35.0
Harold Burrow Vice Chairman of the Board; Common Stock 156,693(2)
(79), 1973 Chairman of Colorado Class A Common Stock 13,602 3.1
David A. Arledge President and Chief Operating Officer Common Stock 158,342
(49), 1988 Class A Common Stock 13,484 3.1
John M. Bissell Chairman and Chief Executive Common Stock 4,575
(63), 1985 Officer of Bissell Inc. Class A Common Stock -0-
George L. Brundrett, Jr. Attorney; Former Senior Vice Common Stock 4,910
(72), 1973 President and General Counsel of Class A Common Stock 2,290
Coastal
Ervin O. Buck Former Vice Chairman of Texas Common Stock 25,243
(89), 1973 National Bank of Commerce Class A Common Stock -0-
Roy D. Chapin, Jr. Former Chairman and Common Stock 3,250(2)
(78), 1988 Chief Executive Officer Class A Common Stock -0-
of American Motors Corporation
James F. Cordes Executive Vice President; Common Stock 105,117
(53), 1985 President of ANR; Class A Common Stock -0-
President, Natural Gas Group
Roy L. Gates Retired; Ranching and Investments Common Stock 4,095
(65), 1969 Class A Common Stock 2,736
Kenneth O. Johnson Senior Vice President Common Stock 89,308
(73), 1988 Class A Common Stock 9,604 2.2
Jerome S. Katzin Retired; Former Managing Common Stock 41,803(2)
(75), 1983 Director of Shearson Lehman Class A Common Stock -0-
Brothers Inc.
J. Howard Marshall, II Retired; Former Executive of Common Stock 11,924(2)
(89), 1973 Allied Chemical Corporation, Class A Common Stock 600(2)
Ashland Oil and Refining Company
and Signal Oil and Gas Company
Thomas R. McDade Senior Partner, Law Firm of McDade Common Stock 500
(61), 1993 and Fogler, Houston Class A Common Stock -0-
L. D. Wooddy, Jr. Retired; Former President of Common Stock 1,000
(67), 1992 Exxon Pipeline Company Class A Common Stock -0-
All directors and executive officers as a group Common Stock 4,393,491(3) 4.2
(33 persons, including the above) Class A Common Stock 202,129(3) 45.7
* Less than one percent unless otherwise indicated. Class includes outstanding
shares and presently exercisable stock options held by directors and executive
officers. Excluding presently exercisable stock options, directors and
executive officers as a group would own 187,501 shares of Class A Common Stock,
which would constitute 43.9% of the shares of such class.
18
(1) Except for the shares referred to in Notes 2 and 3 below, and the shares
represented by presently exercisable stock options, the holders are
believed by Coastal to have sole voting and investment power as to the
shares indicated. Amounts include shares in Coastal ESOP and Thrift
plans, and presently exercisable stock options held by Messrs. Burrow
(14,189 shares of Common Stock), Arledge (140,960 shares of Common Stock
and 13,412 shares of Class A Common Stock), Cordes (89,786 shares of
Common Stock), and Johnson (60,415 shares of Common Stock).
(2) Includes shares owned by the spouse and a son of Mr. Wyatt (266,295
shares of Common Stock and 7,354 shares of Class A Common Stock), by the
spouse of Mr. Burrow (5,000 shares of Common Stock), by the spouse of Mr.
Chapin (1,000 shares of Common Stock) and by the spouse of Mr. Katzin
(928 shares of Common Stock), as to which shares beneficial ownership is
disclaimed; also includes shares owned by the estate of the late Mrs.
Marshall (4,362 shares of Common Stock and 100 shares of Class A Common
Stock).
(3) Includes presently exercisable stock options to purchase 629,038 shares
of Common Stock and 14,628 shares of Class A Common Stock; also includes
280,239 shares of Common Stock and 7,354 shares of Class A Common Stock
owned by spouses and children, as to which shares beneficial ownership is
disclaimed; also includes 4,362 shares of Common Stock and 100 shares of
Class A Common Stock owned by the estate named in Note 2 above. In
addition, one executive officer owns 8 shares of Series B Preferred
Stock, each of which is convertible into 3.6125 shares of Common Stock
and 0.1 share of Class A Common Stock.
No incumbent director is related by blood, marriage or adoption to another
director or to any executive officer of Coastal or its subsidiaries or
affiliates.
Except as hereafter indicated, the above table includes the principal
occupation of each of the directors during the past five years. The listed
executive officers have held various executive positions with Coastal, ANR, ANR
Pipeline and/or Colorado during the five-year period.
Mr. Bissell is a member of the Boards of Directors of Old Kent Financial
Corporation and Batts Inc.
Mr. Cordes is a member of the Boards of Directors of Comerica Inc. and Royal
Group, Inc.
Mr. Katzin is a member of the Board of Directors of Qualcomm Incorporated.
Mr. Marshall is a member of the Boards of Directors of Missouri-Kansas-Texas
Railroad Company and Presidio Oil Company.
Mr. McDade is a trial lawyer and the founding senior partner of the Houston
law firm of McDade & Fogler. Prior to forming McDade & Fogler he was a senior
partner in the Houston law firm of Fulbright & Jaworski.
Messrs. Arledge, Burrow, Cordes and Wyatt are directors of Colorado. Mr.
Cordes is a director of ANR Pipeline. Both of these subsidiaries of Coastal are
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(c) Coastal knows of no arrangement which may, at a subsequent date, result
in a change in control of Coastal.
19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with management and others.
Colorado participates in a program which matches short-term cash excesses and
requirements of participating affiliates, thus minimizing total borrowings from
outside sources. At December 31, 1993 the Company had advanced $107.5 million to
an associated company at a market rate of interest. Such amount is repayable on
demand.
Additional information called for by this item is set forth under Item 11,
"Executive Compensation" and Notes 9 and 13 of Notes to Consolidated Financial
Statements included herein.
(b) Certain business relationships.
None.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report or
incorporated herein by reference:
1. Financial Statements and Supplemental Information.
The following Consolidated Financial Statements of Colorado and
Subsidiaries and Supplemental Information are included in response to Item
8 hereof on the attached pages as indicated:
Page
----
Independent Auditors' Report............................................................................................ F-5
Consolidated Balance Sheet at December 31, 1993 and 1992................................................................ F-6
Statement of Consolidated Earnings for the Years Ended December 31, 1993, 1992 and 1991................................. F-8
Statement of Consolidated Retained Earnings and Additional Paid-In Capital for the Years
Ended December 31, 1993, 1992 and 1991................................................................................ F-8
Statement of Consolidated Cash Flows for the Years Ended December 31, 1993, 1992 and 1991............................... F-9
Notes to Consolidated Financial Statements.............................................................................. F-10
Supplemental Information on Oil and Gas Producing Activities (Unaudited)................................................ F-22
2. Financial Statement Schedules.
The following schedules of Colorado and Subsidiaries are included on the
attached pages as indicated:
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties..................................................................... S-1
Schedule V - Plant, Property and Equipment............................................................................ S-2
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Plant, Property and
Equipment................................................................................................ S-3
Schedule X - Supplementary Income Statement Information............................................................... S-4
Schedules other than those referred to above are omitted as not
applicable or not required, or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits.
(3.1)+ Certificate of Incorporation of the Company (Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1980).
(3.2)+ By-laws of the Company (Filed as Module CIGBY-LAWS on
March 29, 1994).
(3.3)+ Certificate of Amendment of Certification of Incorporation
of the Company (Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989).
(4) With respect to instruments defining the rights of holders of
long-term debt, the Company will furnish to the Securities and
Exchange Commission any such document on request.
(21)* Subsidiaries of the Company.
(24)* Power of Attorney (included on signature pages herein).
Note:
+ Indicates documents incorporated by reference from the prior filing
indicated.
21
* Indicates documents filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1993.
22
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints David A. Arledge,
Dan A. Homec and Austin M. O'Toole and each of them, any one of whom may act
without the joinder of the others, as his attorney-in-fact to sign on his behalf
and in the capacity stated below and to file all amendments to this Annual
Report on Form 10-K, which amendment or amendments may make such changes and
additions thereto as such attorney-in-fact may deem necessary or appropriate.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COLORADO INTERSTATE GAS COMPANY
(Registrant)
By: JON R. WHITNEY
------------------------------
Jon R. Whitney
President
March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: HAROLD BURROW
------------------------------
Harold Burrow
Chairman of the Board
March 29, 1994
By: JON R. WHITNEY
------------------------------
Jon R. Whitney
President, Chief Executive Officer and Director
March 29, 1994
By: DAVID A. ARLEDGE
------------------------------
David A. Arledge
Principal Financial Officer and Director
March 29, 1994
By: DAN A. HOMEC
------------------------------
Dan A. Homec
Principal Accounting Officer
March 29, 1994
* * *
23
By: RICHARD L. ANDERSON By: ROGER L. OGDEN
------------------------------ ------------------------------
Richard L. Anderson Roger L. Ogden
Director Director
March 29, 1994 March 29, 1994
By: JAMES F. CORDES By: PAUL W. POWERS
------------------------------ ------------------------------
James F. Cordes Paul W. Powers
Director Director
March 29, 1994 March 29, 1994
By: By: WILLIAM B. TUTT
------------------------------ ------------------------------
Peter J. King, Jr. William B. Tutt
Director Director
March , 1994 March 29, 1994
By: REBECCA H. NOECKER By:
------------------------------ ------------------------------
Rebecca H. Noecker O. S. Wyatt, Jr.
Director Director
March 29, 1994 March , 1994
---
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses the following consolidated ratios to measure liquidity and
ability to meet future funding needs and debt service requirements.
1993 1992 1991
----- ------ ------
Cash flow from operating activities to capital expenditures and debt
service requirements................................................. 80.0% 105.2% 225.1%
Debt to total capitalization.......................................... 33.3% 27.1% 28.7%
Times interest earned (before tax).................................... 6.5 7.2 5.8
The Company's primary needs for cash are capital expenditures and debt
service requirements. Capital expenditures, debt retirements and other cash
needs in each of the years 1991 through 1993 and the sources of capital used to
finance these expenditures are summarized in the Statement of Consolidated Cash
Flows. Management believes the Company's stable financial position and earnings
capability will enable it to continue to generate and obtain capital for
financing needs in the foreseeable future.
Cash flow from operating activities amounted to $77.6 million in 1993 and
$169.1 million in 1992. Prepayments for gas supply and settlement of natural gas
contract disputes required investments of $7.1 million in 1993 and $2.4 million
in 1992. Liquidity needs were met in 1993 by internally generated funds and a
$249.7 million repayment of a note due from an associated company.
The Company has adopted a guideline capital expenditure budget of
approximately $51.6 million for 1994, a decrease from the capital additions of
$72.4 million in 1993. The anticipated decrease in 1994 is the result of a $19.0
million decrease for natural gas projects and a $1.8 million decrease for
exploration and production projects. Alternatives to finance capital
expenditures and other cash needs are primarily limited by the terms of a
Coastal Natural Gas debt instrument. As of December 31, 1993, the Company and
certain affiliates could incur approximately $916.8 million of additional
indebtedness. For the Company and such affiliates to incur indebtedness for
borrowed money in excess of $916.8 million, approximately $400 million of
indebtedness under this agreement would need to be retired.
The Company participates in a program which matches short-term cash excesses
and requirements of participating affiliates, thus minimizing borrowings from
outside sources. At December 31, 1993, the Company had advanced $107.5 million
to an associated company at a market rate of interest. Such amount is repayable
on demand.
The Company is responding to the extensive changes in the natural gas
industry by continuing to take steps to operate its facilities at their maximum
efficient capacity, renegotiating many gas purchase contracts to lower its cost
of gas and reduce take-or-pay obligations, pursuing innovative marketing
strategies and applying strict cost-cutting measures.
In 1993, the Company adopted changes in accounting for postretirement
benefits as required by FAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." See Note 8 of Notes to Consolidated Financial
Statements.
In 1994, the Company adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits." This standard covers the accounting for estimated
costs of benefits provided to former or inactive employees before their
retirement. The effect of this new standard is not expected to have a
significant effect on the Company's results of operations or financial position.
Order 636, issued in 1992, required significant changes in natural gas
pipeline services. See Note 10 of Notes to Consolidated Financial Statements.
F-1
The Company's operations are subject to extensive federal, state and local
environmental laws and regulations which may affect such operations and costs as
a result of their effect on the construction and maintenance of its pipeline
facilities as well as its gas and oil exploration and production operations.
Appropriate governmental authorities may enforce laws and regulations with a
variety of civil and criminal enforcement measures, including monetary penalties
and remediation requirements. Compliance with all applicable environmental
protection laws is not expected to have a material adverse impact on the
Company's liquidity or financial position. Future information and developments
will require the Company to continually reassess the expected impact of all
applicable environmental laws.
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." The Company is not presently, and has not been in the past, a
potentially responsible party in any "Superfund" waste disposal sites. There are
additional areas of environmental remediation responsibilities which may fall
upon the Company.
RESULTS OF OPERATIONS
OPERATING REVENUES
The following table reflects the increase (decrease) in operating revenues
experienced by segment during the past two years (millions of dollars):
Increase (Decrease)
From Prior Year
-------------------
1993 1992
---- ----
Natural gas.......................... $ 35 $ 27
Exploration and production........... 4 2
Adjustments and eliminations......... (3) (2)
---- ----
$ 36 $ 27
==== ====
NATURAL GAS
1993 Versus 1992. Revenues from natural gas operations increased in 1993 due
to the $35 million sale of storage gas inventory pursuant to the implementation
of Order 636, increased transportation and gathering revenues of $34 million and
increased extracted products revenue of $4 million offset by lower sales prices
of $23 million and decreased sales volumes for $15 million.
1992 Versus 1991. Revenues from natural gas operations increased in 1992 as a
result of higher sales volumes for a $10 million increase, a net $16 million
increase related to decreased reservations and an outstanding rate related
matter and increased transportation and gathering revenues of $5 million offset
by lower sales prices of $1 million and other decreases of $3 million.
The daily average volumes of natural gas sold were 272 MMcf, 287 MMcf and 278
MMcf for 1993, 1992 and 1991, respectively. However, over the remaining life of
Colorado's current gas sales contracts (most of which expire October 1, 1996),
it is expected that customers will reduce their contractual sales entitlement
pursuant to the provisions of Order 636. At this time, however, the magnitude of
those conversions cannot be estimated with reasonable certainty. Transportation
volumes increased by 16% in 1993 over the 1992 level and are expected to
increase slightly in 1994.
EXPLORATION AND PRODUCTION
1993 Versus 1992. Revenues from exploration and production increased in 1993
as natural gas volumes generated a $4 million increase and natural gas prices
increased by $1 million, partially offset by decreases of $1 million.
1992 Versus 1991. Revenues from exploration and production increased in 1992
as natural gas volumes generated a $2 million increase. The prices for natural
gas also increased slightly.
F-2
OTHER INCOME - NET
The decreases in 1993 and 1992 reflect changes in interest income, primarily
from loans to affiliated companies.
COST OF GAS SOLD
1993 Versus 1992. The increase in 1993 was due primarily to increased
transportation, gathering and exchange gas costs of $17 million and storage gas
costs associated with the sale of storage gas inventory pursuant to Order 636,
net of injection/withdrawals in the amount of $11 million, partially offset by
other increases and decreases of $1 million.
1992 Versus 1991. The increase in 1992 was due primarily to higher average
gas purchase rates for $11 million and an increase of $11 million for storage
gas due to larger withdrawal levels partially offset by decreased gas purchase
volumes for $10 million and other decreases of $2 million.
OPERATION AND MAINTENANCE
1993 Versus 1992. Operation and maintenance expenses increased in 1993 due
primarily to increased property and production taxes of $3 million, increased
professional services of $2 million, increased gas used costs of $2 million and
other increases of $1 million.
1992 Versus 1991. Operation and maintenance expenses increased in 1992 due
primarily to an $8 million increase for gas and gas liquids handling and other
increases of $2 million.
DEPRECIATION, DEPLETION AND AMORTIZATION
1993 Versus 1992. Depreciation, depletion and amortization increased $8
million in 1993 due primarily to an increase in the natural gas segment's
depreciable plant and increased production volumes in the exploration and
production segment.
1992 Versus 1991. Depreciation, depletion and amortization increased $4
million in 1992 due primarily to an increase in the natural gas segment's
depreciable plant and increased production volumes in the exploration and
production segment.
OPERATING PROFIT
The following table reflects the increase (decrease) in operating profit
experienced by segment during the past two years (millions of dollars):
Increase (Decrease)
From Prior Year
-------------------
1993 1992
---- ----
Natural gas........................... $ (7) $ 3
Exploration and production............ - -
---- ----
$ (7) $ 3
==== ====
NATURAL GAS
1993 Versus 1992. The natural gas segment's operating profit decrease in 1993
is due to increased gas related costs of $27 million, increased operation and
maintenance expenses of $6 million, increased depreciation, depletion and
amortization expenses of $6 million and other increases of $3 million partially
offset by increased operating revenues of $35 million.
1992 Versus 1991. The natural gas segment's operating profit increase in 1992
is due to increased operating revenues of $27 million partially offset by
increased gas related costs of $12 million, increased operation and maintenance
expenses of $9 million and increased depreciation, depletion and amortization
expenses of $3 million.
F-3
EXPLORATION AND PRODUCTION
1993 Versus 1992. The exploration and production segment's operating profit
was unchanged from 1992 as increased revenues of $4 million were offset by
increases of $2 million for operation and maintenance expenses and $2 million
for depreciation, depletion and amortization.
1992 Versus 1991. The exploration and production segment's operating profit
was unchanged from 1991 as increased revenues of $2 million were offset by
increases of $1 million for operation and maintenance expenses and $1 million
for depreciation, depletion and amortization.
INTEREST EXPENSE
The slight decrease in 1993 is primarily due to lower average debt
outstanding partially offset by increases in other financial expenses. The
decrease in 1992 is primarily due to decreased interest expense related to rate
refund provisions and lower average debt outstanding.
TAXES ON INCOME
Income taxes fluctuated primarily as a result of changing levels of income
before taxes and changes in the effective income tax rate. The effective federal
income tax rate for the Company was 32% in 1993, 32% in 1992 and 33% in 1991.
The Omnibus Budget Reconciliation Act of 1993 enacted in August 1993
included, among other things, an increase in the corporate federal income tax
rate from 34% to 35% retroactive to January 1, 1993. In September 1993, the
Company recorded a change in its deferred income tax balances reflecting this
change in corporate federal income tax rates. The cumulative impact of the tax
rate increase did not materially affect the Company's consolidated earnings and
financial position. The Company has mitigated the impact of this tax rate
increase in its rates effective October 1, 1993, subject to refund.
F-4
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Colorado Interstate Gas Company
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheets of Colorado
Interstate Gas Company (a wholly-owned subsidiary of The Coastal Corporation)
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of earnings, retained earnings and additional paid-in capital and
cash flows for each of the three years in the period ended December 31, 1993.
Our audits also included the financial statement schedules listed in the Index
at Item 14(a)2. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Colorado Interstate Gas Company and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE
Denver, Colorado
February 3, 1994
F-5
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
----------------------
ASSETS 1993 1992
---------- ----------
Plant, Property and Equipment, at cost:
Gas pipeline.................................................... $ 980,839 $ 915,789
Gas and oil properties, at full-cost............................ 139,757 138,720
---------- ----------
1,120,596 1,054,509
Accumulated depreciation, depletion and amortization............ 601,890 573,015
---------- ----------
518,706 481,494
---------- ----------
Current Assets:
Cash............................................................ 704 9
Receivables..................................................... 172,787 133,237
Receivables from affiliates..................................... 148,180 388,885
Inventories..................................................... 9,545 8,559
Current portion of gas stored underground and prepaid expenses.. 979 36,031
Current portion of deferred income taxes........................ 23,539 28,195
---------- ----------
355,734 594,916
---------- ----------
Other Assets:
Other deferred charges.......................................... 27,187 20,768
---------- ----------
$ 901,627 $1,097,178
========== ==========
See Notes to Consolidated Financial Statements.
F-6
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
--------------------
STOCKHOLDERS' EQUITY AND LIABILITIES 1993 1992
-------- ----------
Common Stock and Other Stockholders' Equity:
Common stock, $5 par value, authorized 10,000 shares; issued and
outstanding 10 shares at stated value................................... $ 27,561 $ 27,561
Additional paid-in capital............................................... 19,035 19,035
Retained earnings........................................................ 311,451 478,804
-------- ----------
358,047 525,400
-------- ----------
Mandatory Redemption Preferred Stock, $100 par value, authorized 550,000
shares, outstanding 5,560 shares:
5.50% Series............................................................ 556 556
-------- ----------
Debt:
Long-term debt, excluding current maturities............................. 179,145 195,278
-------- ----------
Current Liabilities:
Accounts payable and accrued expenses.................................... 233,802 244,327
Accounts payable to affiliates........................................... 43,786 21,747
Taxes on income.......................................................... 1,275 11,998
Current maturities on long-term debt..................................... - 8,200
-------- ----------
278,863 286,262
-------- ----------
Deferred Credits:
Deferred income taxes.................................................... 80,684 71,595
Other.................................................................... 4,332 18,087
-------- ----------
85,016 89,682
-------- ----------
$901,627 $1,097,178
======== ==========
See Notes to Consolidated Financial Statements.
F-7
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED EARNINGS
(Thousands of Dollars)
Year Ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
Revenues:
Operating revenues:
Nonaffiliates............................ $376,937 $353,777 $325,386
Affiliates............................... 61,077 48,443 49,858
-------- -------- --------
438,014 402,220 375,244
Other income-net.......................... 7,318 17,433 25,614
-------- -------- --------
445,332 419,653 400,858
-------- -------- --------
Costs and Expenses:
Cost of gas sold:
Nonaffiliates............................ 119,759 89,351 71,977
Affiliates............................... 8,104 11,663 18,810
-------- -------- --------
127,863 101,014 90,787
Operation and maintenance................. 148,351 139,890 129,814
Depreciation, depletion and amortization.. 36,345 28,137 24,175
Interest expense.......................... 20,426 20,876 27,109
Taxes on income........................... 39,169 45,661 46,216
-------- -------- --------
372,154 335,578 318,101
-------- -------- --------
Net Earnings............................... $ 73,178 $ 84,075 $ 82,757
======== ======== ========
STATEMENT OF CONSOLIDATED RETAINED EARNINGS AND
ADDITIONAL PAID-IN CAPITAL
(Thousands of Dollars)
Year Ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
Retained Earnings:
Beginning balance as previously reported.. $478,804 $457,364 $381,939
Net earnings............................. 73,178 84,075 82,757
Less dividends:
Preferred stock:
5.50% Series........................... 31 35 132
Common stock............................ 240,500 62,600 7,200
-------- -------- --------
240,531 62,635 7,332
-------- -------- --------
Ending balance............................ $311,451 $478,804 $457,364
======== ======== ========
Additional Paid-In Capital:
Beginning balance......................... $ 19,035 $ 19,021 $ 18,818
Gain on redemption of preferred stock.... - 14 203
-------- -------- --------
Ending balance............................ $ 19,035 $ 19,035 $ 19,021
======== ======== ========
See Notes to Consolidated Financial Statements.
F-8
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Thousands of Dollars)
Year Ended December 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Net Cash Flow From Operating Activities:
Net earnings.................................................................... $ 73,178 $ 84,075 $ 82,757
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization....................................... 36,345 28,137 24,175
Deferred income taxes.......................................................... 9,840 3,702 15,375
Producer contract reformation cost recoveries.................................. 1,245 2,977 644
Other.......................................................................... (11,043) 9,294 (5,596)
Working capital and other changes, excluding changes relating to
cash and non-operating activities:
Accounts receivable............................................................ (49,639) (16,741) 36,799
Receivables from affiliates.................................................... (8,985) (12,449) 19,438
Inventories.................................................................... (986) 528 617
Current portion of gas stored underground and prepaid expenses................. 35,052 7,769 420
Accounts payable and accrued expenses.......................................... (8,354) 40,588 (35,906)
Accounts payable to affiliates................................................. 11,673 3,865 (15)
Taxes on income................................................................ (10,713) 17,318 (3,140)
--------- --------- ---------
77,613 169,063 135,568
--------- --------- ---------
Cash Flow from Investing Activities:
Purchases of plant, property and equipment...................................... (72,433) (152,504) (46,518)
Proceeds from sale of plant, property and equipment............................. 1,331 3,056 5,303
Investments - other............................................................. (488) (800) (870)
Net (increase) decrease in notes receivable from associated
companies....................................................................... 249,690 48,494 (59,215)
Gas supply prepayments and settlements.......................................... (7,121) (2,416) (15,900)
Recovery of gas supply prepayments.............................................. 9,005 4,675 5,529
--------- --------- ---------
179,984 (99,495) (111,671)
--------- --------- ---------
Cash Flow from Financing Activities:
Mandatory redemption of preferred stock......................................... - (350) (2,992)
Premium paid on reacquisition of debt........................................... (166) - -
Payments to retire long-term debt............................................... (24,400) (8,200) (13,700)
Dividends paid.................................................................. (232,336) (62,639) (7,377)
--------- --------- ---------
(256,902) (71,189) (24,069)
--------- --------- ---------
Net Increase (Decrease) in Cash.................................................. 695 (1,621) (172)
Cash at Beginning of Year........................................................ 9 1,630 1,802
--------- --------- ---------
Cash at End of Year.............................................................. $ 704 $ 9 $ 1,630
========= ========= =========
See Notes to Consolidated Financial Statements.
F-9
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
- - Basis of Presentation
Colorado is a subsidiary of Coastal Natural Gas, a wholly-owned subsidiary of
Coastal. The stock of the Company was contributed by Coastal to Coastal Natural
Gas effective April 30, 1982. The financial statements presented herewith are
presented on the basis of historical cost and do not reflect the basis of cost
to Coastal Natural Gas.
The Company is regulated by and subject to the regulations and accounting
procedures of the FERC. Colorado meets the criteria and, accordingly, follows
the reporting and accounting requirements of FAS No. 71 for regulated
enterprises.
- - Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries after eliminating all significant intercompany transactions.
The equity method of accounting is used for investments in which the Company has
approximately 20% interests and exercises significant influence.
- - Statement of Cash Flows
For purposes of this Statement, cash equivalents include time deposits,
certificates of deposit and all highly liquid instruments with original
maturities of three months or less. The Company made cash payments for interest,
net of amounts capitalized, of $20.3 million, $20.7 million and $29.4 million in
1993, 1992 and 1991, respectively. Cash payments for income taxes amounted to
$40.5 million, $22.5 million and $49.6 million in 1993, 1992 and 1991,
respectively.
- - Inventories
Materials and supplies inventories are carried principally at average cost.
Gas stored underground is carried at last-in, first-out cost ("LIFO"), and the
current portion is included under the caption "Current portion of gas stored
underground and prepaid expenses." At December 31, 1993 there was no current gas
stored underground and the carrying value of current gas stored underground was
$25.9 million at December 31, 1992. Pursuant to FERC Order 636, on September 30,
1993, the Company sold all of its working gas except for 3.8 Bcf which it was
allowed to retain for operational needs. The excess of replacement cost over the
carrying value of gas in underground storage carried by the LIFO method,
including long-term amounts which are classified as Plant, Property and
Equipment, was $52.6 million and $47.8 million at December 31, 1993 and 1992,
respectively.
- - Plant, Property and Equipment
Property additions and betterments are capitalized at cost. In accordance
with accounting requirements of the FERC, an allowance for equity and borrowed
funds used during construction is included in the cost of property additions and
betterments. This cost amounted to $1.2 million, $2.4 million and $.7 million in
1993, 1992 and 1991, respectively. All costs incurred in the acquisition,
exploration and development of gas and oil properties, including unproductive
wells, are capitalized under the full-cost method of accounting.
The Company generally provides for depreciation on a straight-line basis,
although the unit-of-production method is used for depreciation, depletion and
amortization of certain natural gas properties. The average amortization rate
per equivalent unit of a thousand cubic feet of gas production for oil and gas
properties was $1.00 for the years 1993, 1992 and 1991.
The cost of minor property units replaced or retired, net of salvage, is
credited to plant accounts and charged to accumulated depreciation, depletion
and amortization. Since provisions for depreciation, depletion and amortization
expense are made on a composite basis, no adjustments to accumulated
depreciation, depletion and amortization are made in connection with retirements
or other dispositions occurring in the ordinary course of business. Gain or loss
on sales of major property units is credited or charged to income.
F-10
- - Income Taxes
The Company follows the liability method of accounting for deferred federal
income taxes as required by the provisions of FAS 109 "Accounting for Income
Taxes." The Company is a member of a consolidated group which files a
consolidated federal income tax return. Members of the consolidated group with
taxable income are charged with the amount of income taxes as if they filed
separate federal income tax returns, and members providing deductions and
credits which result in income tax savings are allocated credits for such
savings.
- - Gain or Loss on Reacquired Debt
As required by the FERC, gain or loss on reacquired debt is deferred and
amortized over the remaining life of the related long-term indebtedness.
- - Revenue Recognition
The Company recognizes revenues for the sale of their products in the period
of delivery. Revenue for services are recognized in the period the services are
provided.
- - Reclassification of Prior Period Statements
Certain minor reclassifications of prior period statements have been made to
conform with current reporting practices. The effect of the reclassifications
was not material to the Company's consolidated results of operations or
financial position.
2. Long-Term Debt
Balances at December 31 were as follows (thousands of dollars):
1993 1992
-------- --------
Debentures:
10% Series, due 2005...... $179,145 $179,078
Notes
9% due 1994............... - 8,400
9.875% due 1998........... - 16,000
-------- --------
Total Long-Term Debt..... 179,145 203,478
Less Current Maturities.. - 8,200
-------- --------
$179,145 $195,278
======== ========
The 9.875% Notes due in 1998 were redeemed in part through the exercise of
the doubling option on the annual installment due date of October 1, 1993, and
in part through an early redemption at a premium on October 6, 1993. The $8.4
million previously outstanding on the 9% Notes due 1994 were redeemed through
the exercise of a doubling option on the November 1, 1993 installment due date.
The 10% Series debentures, due 2005, are not redeemable prior to maturity and
have no sinking fund provisions.
There are no maturities of long-term debt in the next five years.
Alternatives to finance capital expenditures and other cash needs are
primarily limited by the terms of a Coastal Natural Gas debt instrument. As of
December 31, 1993, the Company and certain affiliates could incur approximately
$916.8 million of additional indebtedness. For the Company and such affiliates
to incur indebtedness for borrowed money in excess of $916.8 million,
approximately $400 million of indebtedness under this agreement would need to be
retired.
3. Take-or-Pay Obligations
The Consolidated Balance Sheet includes assets of $13.2 million and $22.3
million at December 31, 1993 and 1992, respectively, relating to prepayments for
gas under gas purchase contracts with producers and settlement payment amounts
relative to the restructuring of gas purchase contracts as negotiated with
producers. As a result of the implementation of Order 636 on October 1, 1993
(see Note 10 of Notes to Consolidated Financial Statements),
F-11
future gas sales will be made at negotiated prices and will not be subject to
regulatory price controls. This will not affect the recoverability or the
results of pending take-or-pay litigation or any take-or-pay or contractual
reformation settlements that the Company may achieve with respect to periods
before October 1, 1993. A portion of the costs associated with take-or-pay
incurred prior to October 1, 1993, may continue to be recovered pursuant to
FERC's Order No. 528.
A few producers have instituted litigation arising out of take-or-pay claims
against the Company. In the Company's experience, producers' claims are
generally vastly overstated and do not consider all adjustments provided for in
the contract or allowed by law. The Company has resolved the majority of the
exposure with its suppliers for approximately 11% of the amounts claimed. At
December 31, 1993, the Company estimated that unresolved asserted and unasserted
producers' claims amounted to approximately $22.9 million. The remaining
disputes will be settled where possible and litigated if settlement is not
possible.
At December 31, 1993, the Company was committed to make future purchases
under certain take-or-pay contracts with fixed, minimum or escalating price
provisions. Based on contracts in effect at that date, and before considering
reductions provided in the contracts or applicable law, such commitments are
estimated to be $1.2 million, $1.0 million, $1.0 million, $.9 million and $.8
million for the years 1994-1998, respectively, and $4.8 million thereafter. Such
commitments have not been adjusted for all amounts which may be assigned or
released, or for the results of future litigation or negotiation with producers.
The Company has made provisions, which it believes are adequate, for payments
to producers that may be required for settlement of take-or-pay claims and
restructuring of future contractual commitments. In determining the net loss
relating to such provisions, the Company has also made accruals for the
estimated portion of such payments which would be recoverable pursuant to FERC
approved settlements with customers.
4. Common Stock and Other Stockholders' Equity
All of the Company's common stock is owned by Coastal Natural Gas.
Certain provisions of the preferred stock resolutions restrict the payment of
dividends on common stock; however, all $311.5 million of retained earnings were
available for dividends on the common stock of the Company at December 31, 1993.
5. Mandatory Redemption Preferred Stock
The Company's Mandatory Redemption Preferred Stock consists of the following:
5.50% Cumulative Preferred Stock (Third Series) - Of the 150,000 shares
authorized and issued, 5,560 were outstanding as of December 31, 1993. The
shares are callable at the option of the Company at a price of $100 per share.
The sinking fund requirements have annual provisions which will retire all
shares of this series on or before July 1, 1997.
Required share redemptions during the remaining years are:
Series 1994 1995 1996 1997
------ ---- ---- ---- -----
5.50%.......................... - - - 5,560
==== ==== ==== =====
The outstanding series of the Company's Mandatory Redemption Preferred Stock
is a $100 par value, cumulative, non-convertible and non-voting issue. If at any
time dividends on the Mandatory Redemption Preferred Stock shall be in arrears
in an amount equal to six quarterly dividends, holders of the Mandatory
Redemption Preferred Stock, voting as a class, will have the right to elect not
less than one-fourth of the Company's Board of Directors until all accrued and
unpaid dividends on the Mandatory Redemption Preferred Stock are paid in full.
In addition, if at any time dividends shall be in arrears in an aggregate amount
equal to eight full quarterly dividends, holders of these securities, voting as
a class, will have the right to elect such number of Directors as shall be
necessary to constitute a minimum majority of the Board of Directors until all
accrued and unpaid dividends on the Mandatory Redemption Preferred Stock are
paid in full.
F-12
6. Fair Value of Financial Instruments
The estimated fair value amounts of the Company's financial instruments have
been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, thus, the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market exchange.
December 31, 1993 December 31, 1992
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Thousands of Dollars)
Financial assets:
Cash.................................. $ 704 $ 704 $ 9 $ 9
Note receivable from affiliate........ 107,453 107,453 357,143 357,143
Financial liabilities:
Long-term debt........................ 179,145 215,010 203,478 220,132
Mandatory redemption preferred stock.. 556 556 556 539
The carrying values of cash and the note receivable from affiliate are
reasonable estimates of their fair values. The estimated value of the Company's
long-term debt and mandatory redemption preferred stock is based on interest
rates at December 31, 1993 and 1992, respectively, for new issues with similar
remaining maturities.
7. Taxes On Income
Provisions for income taxes are composed of the following (thousands of
dollars):
Year Ended December 31,
-------------------------
1993 1992 1991
------- ------- -------
Current Income Taxes:
Federal................ $25,986 $37,233 $27,933
State.................. 3,343 4,726 2,908
------- ------- -------
29,329 41,959 30,841
------- ------- -------
Deferred Income Taxes:
Federal................ 8,818 2,830 12,856
State.................. 1,022 872 2,519
------- ------- -------
9,840 3,702 15,375
------- ------- -------
Taxes on Income......... $39,169 $45,661 $46,216
======= ======= =======
The Company and the Internal Revenue Service ("IRS") Appeals Office have
concluded a tentative settlement of all contested adjustments to federal income
tax returns filed for the years 1982 through 1984. The settlement is in the
process of being finalized. The Company's federal income tax returns filed for
the years 1985 through 1987 have been examined by the IRS, and the Company has
received notice of proposed adjustments to the returns for each of those years.
The Company currently is contesting certain of these adjustments with the IRS
Appeals Office. Examinations of the Company's federal income tax returns for
1988, 1989 and 1990 are currently in progress. It is the opinion of management
that adequate provisions for federal income taxes have been reflected in the
consolidated financial statements.
F-13
Provisions for federal income taxes were different from the amount computed
by applying the statutory United States federal income tax rate to earnings
before tax. The reasons for these differences are (thousands of dollars):
Year Ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
Tax expense computed by applying the U.S. federal income
tax rate of 35% for 1993 and 34% for 1992 and 1991....... $39,311 $44,110 $43,851
Increases (reductions) in taxes resulting from:
State income tax cost.................................... 2,837 3,695 3,582
Tight sands gas credit................................... (2,495) - (677)
Other.................................................... (484) (2,144) (540)
------- ------- -------
Taxes on Income........................................... $39,169 $45,661 $46,216
======= ======= =======
Deferred tax liabilities (assets) which are recognized for the estimated
future tax effects attributable to temporary differences are (thousands of
dollars):
December 31,
------------------
1993 1992
-------- --------
Excess of book basis over tax basis of plant, property and equipment.. $ 76,573 $ 69,602
AFUDC equity income tax gross-up pursuant to FAS 109.................. 3,676 3,445
Other................................................................. 435 -
-------- --------
Deferred tax liabilities............................................. 80,684 73,047
-------- --------
Provisions for rate refunds and contested claims...................... (22,449) (23,374)
Inventory adjustments................................................. (581) (740)
Purchase gas adjustment and other recoverable costs................... (213) (1,626)
Other................................................................. (296) (3,907)
-------- --------
Deferred tax (assets)................................................ (23,539) (29,647)
-------- --------
Deferred income taxes................................................ $ 57,145 $ 43,400
======== ========
The Omnibus Budget Reconciliation Act of 1993 enacted in August 1993
included, among other things, an increase in the corporate federal income tax
rate from 34% to 35% retroactive to January 1, 1993. In September 1993, the
Company recorded a change in its deferred income tax balances reflecting this
change in corporate federal income tax rates. The cumulative impact of the tax
rate increase did not materially affect the Company's consolidated earnings and
financial position. The Company has mitigated the impact of this tax rate
increase in its rates effective October 1, 1993, subject to refund.
8. Benefit Plans
The Company participates in the non-contributory pension plan of Coastal (the
"Plan") which covers substantially all employees. The Plan provides benefits
based on final average monthly compensation and years of service. As of December
31, 1993, the Plan did not have an unfunded accumulated benefit obligation.
Colorado made no contributions to the Plan for 1993, 1992 or 1991. Assets of the
Plan are not segregated or restricted by participating subsidiaries and pension
obligations for Company employees would remain the obligation of the Plan if the
Company were to withdraw.
The Company also makes contributions to a thrift plan, which is a trusteed,
voluntary and contributory plan for eligible employees of the Company. The
Company's contributions, which match the contributions made by employees,
amounted to approximately $2.8 million for 1993 and $2.6 million for each of
1992 and 1991.
- - Postretirement/Postemployment Benefits Other Than Pensions
The Company provides certain health care and life insurance benefits for
retired employees. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106"). FAS 106 requires the
Company to accrue the estimated cost of retiree benefit payments during the
years the employee provides services. The Company previously expensed
F-14
the cost of these benefits, which are principally health care, as claims were
incurred. FAS 106 allows recognition of the cumulative effect of the liability
in the year of the adoption or the amortization of the obligation over a period
of up to twenty years. The Company has elected to recognize the initial
postretirement benefit obligation of approximately $18.2 million over a period
of twenty years. The impact on the Company's results of operations for the nine
months ended September 30, 1993 of $1.8 million has been deferred and will be
amortized over three years consistent with rates effective October 1, 1993,
subject to refund. The impact on the Company's results of operations for three
months ended December 31, 1993 was approximately $.8 million.
(millions of
dollars)
------------
Accumulated postretirement benefit obligation as of December 31, 1993:
Retirees......................................................................... $ 15.2
Fully eligible plan participants................................................. 2.4
Other active plan participants................................................... 3.5
------
$ 21.1
======
Accumulated postretirement benefit obligations in excess of plan assets.............. $(19.0)
Unrecognized net transition obligation............................................... 17.3
Unrecognized net loss from past experience different from that assumed............... 1.7
------
Postretirement benefit obligation included in balance sheet as of December 31, 1993.. $ -
======
Net periodic postretirement benefit cost for the year ended December 31, 1993
consisted of the following components:
Service cost - benefits earned during the period.................................. $ .2
Interest cost on accumulated postretirement benefit obligation.................... 1.5
Amortization of transition obligation............................................. .9
Deferred regulatory asset......................................................... (1.8)
------
Net periodic postretirement benefit expense....................................... $ .8
======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 16.0% in 1993, declining gradually to 7.0%
by the year 2004. A one percentage point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of December 31, 1993 and net postretirement health care
cost by approximately 4.29%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.25%.
The Company adopted FAS No. 112, "Employers' Accounting for Postemployment
Benefits" effective January 1, 1994. This standard covers the accounting for
estimated costs of benefits provided to former or inactive employees before
their retirement. The effect of the new standard will not have a material effect
on the Company's results of operations or financial position.
9. Commitments
The Company and its subsidiary had rental expense of approximately $9.0
million, $9.7 million and $8.3 million in 1993, 1992 and 1991, respectively
(excluding leases covering natural resources). The aggregate minimum lease
payments under existing noncapitalized long-term leases are estimated to be $5.9
million, $3.1 million, $2.2 million, $.3 million and $.2 million for the years
1994-1998, respectively, and $1.1 million thereafter.
F-15
The Company has executed a service agreement with WIC, an affiliate,
providing for the availability of pipeline transportation capacity through
January 1, 2004. Under the service agreement, the Company is required to make
minimum payments on a monthly basis. The estimated amounts of minimum annual
payments are as follows (thousands of dollars):
1994............................. $ 3,500
1995............................. 3,400
1996............................. 3,300
1997............................. 3,300
1998............................. 3,200
Later years...................... 10,240
The Company made minimum payments of approximately $3.6 million under this
agreement in 1993. The Company has and will continue to pay additional amounts
based on the actual quantities shipped.
10. Litigation and Regulatory Matters
- - Litigation
In December 1992, certain of Colorado's natural gas lessors in the West
Panhandle Field filed a complaint in the U.S. District Court for the Northern
District of Texas, claiming underpayment, breach of fiduciary duty, fraud and
negligent misrepresentation. Management believes that Colorado has numerous
defenses to the lessors' claims, including (i) that the royalties were properly
paid, (ii) that the majority of the claims were released by written agreement,
and (iii) that the majority of the claims are barred by the statute of
limitations.
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.
- - Rate Matters
On April 8, 1992, the FERC issued Order No. 636 ("Order 636"), which required
significant changes in the services provided by interstate natural gas
pipelines. The Company and numerous other parties have sought judicial review of
aspects of Order 636.
On July 2, 1993, the Company submitted to the FERC an unanimous offer of
settlement which resolved all the Order 636 restructuring issues which had been
raised in its restructuring proceedings. That settlement was ultimately approved
(except for minor issues), and the Company's restructured services became
effective October 1, 1993.
Effective October 1, 1993, Colorado has separated all of its services and
separately contracts for each service on a stand-alone or "unbundled" basis.
Gathering, storage and transportation services are provided at negotiated rates
established between minimum and maximum levels approved by FERC, while gas
processing rates are not subject to FERC regulations.
Effective October 1, 1993, Colorado formed an unincorporated Merchant
Division to conduct most of the Company's sales activity in the Order 636
environment. The gas sales volumes reported include those sales which continue
to be made by Colorado together with those of its Merchant Division.
Colorado's gas sales contracts extend through September 30, 1996, but provide
for reduced customer purchases to be made each year. Under Order 636, Colorado's
certificate to sell gas for resale allows sales to be made at negotiated prices
and not at prices established by FERC. Colorado is also authorized to abandon
all sales for resale at such time as the contracts expire and without prior FERC
approval.
On March 31, 1993, the Company filed at FERC to increase its rates by
approximately $26.5 million annually. Such rates (adjusted to reflect the
Company's Order 636 program) became effective subject to refund on October 1,
1993.
F-16
The Company is regulated by the FERC. Certain rate issues remain unresolved
between the Company, its customers, its suppliers, and the FERC. The Company has
made provisions which represent management's assessment of the ultimate
resolution of these issues. While the Company estimates the provisions to be
adequate to cover potential adverse rulings on these issues, it cannot estimate
when each of these issues will be resolved.
11. Quarterly Results of Operations (Unaudited)
The results of operations by quarter for the years ended December 31, 1993
and 1992 were (thousands of dollars):
1993 Quarter Ended
-----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
Revenues......................... $136,289 $86,041 $106,651 $116,351
Cost of gas sold................. 51,288 10,337 31,362 34,876
-------- ------- -------- --------
Revenues less cost of gas sold.. 85,001 75,704 75,289 81,475
Other costs and expenses......... 62,008 59,321 60,832 62,130
-------- ------- -------- --------
Net earnings.................... $ 22,993 $16,383 $ 14,457 $ 19,345
======== ======= ======== ========
1992 Quarter Ended
-----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
Revenues......................... $121,564 $77,106 $ 75,536 $145,447
Cost of gas sold................. 33,718 8,743 (1,774) 60,327
-------- ------- -------- --------
Revenues less cost of gas sold.. 87,846 68,363 77,310 85,120
Other costs and expenses......... 61,855 52,055 58,276 62,378
-------- ------- -------- --------
Net earnings.................... $ 25,991 $16,308 $ 19,034 $ 22,742
======== ======= ======== ========
12. Segment Reporting
Natural gas system operations and gas and oil exploration and production are
the two segments of the Company's operations.
Natural gas system operations involve the production, purchase, gathering,
storage, transportation and sale of natural gas, principally to and for public
utilities, industrial customers, other pipelines, and other gas customers, as
well as the operation of natural gas liquids extraction plants.
Gas and oil exploration and production operations involve primarily the
development and production of natural gas, crude oil, condensate and natural gas
liquids.
Operating revenues by segment include both sales to unaffiliated customers,
as reported in the Company's statement of consolidated earnings, and
intersegment sales, which are accounted for on the basis of contract, current
market, or internally established transfer prices. The intersegment sales are
from the exploration and production segment to the natural gas segment.
Operating profit is total revenues less interest income from affiliates and
operating expenses. Operating expenses exclude income taxes, corporate general
and administrative expenses and interest.
Identifiable assets by segment are those assets that are used in the
Company's operations in each segment.
F-17
The Company's operating revenues and operating profit for the years ended
December 31, 1993, 1992 and 1991, and identifiable assets as of December 31,
1993, 1992 and 1991, by segment, are shown below (thousands of dollars):
Operating Operating Identifiable
Revenues Profit Assets
---------- ---------- ------------
1993
- ----
Natural gas.................................... $432,971 $127,411 $ 846,739
Exploration and production..................... 18,675 2,383 54,888
Adjustments and eliminations................... (13,632) - -
-------- -------- ----------
Segment totals................................ 438,014 129,794 901,627
Other income-net............................... 7,318 7,318 -
Corporate general and administrative expenses.. - (4,339) -
Interest....................................... - (20,426) -
Income taxes................................... - (39,169) -
-------- -------- ----------
Consolidated Totals........................... $445,332 $ 73,178 $ 901,627
======== ======== ==========
1992
- ----
Natural gas.................................... $397,737 $134,749 $1,037,840
Exploration and production..................... 14,463 2,739 59,338
Adjustments and eliminations................... (9,980) - -
-------- -------- ----------
Segment totals................................ 402,220 137,488 1,097,178
Other income-net............................... 17,433 17,433 -
Corporate general and administrative expenses.. - (4,309) -
Interest....................................... - (20,876) -
Income taxes................................... - (45,661) -
-------- -------- ----------
Consolidated Totals........................... $419,653 $ 84,075 $1,097,178
======== ======== ==========
1991
- ----
Natural gas.................................... $370,988 $132,337 $ 977,619
Exploration and production..................... 12,236 2,480 45,967
Adjustments and eliminations................... (7,980) - -
-------- -------- ----------
Segment totals................................ 375,244 134,817 1,023,586
Other income-net............................... 25,614 25,614 -
Corporate general and administrative expenses.. - (4,349) -
Interest....................................... - (27,109) -
Income taxes................................... - (46,216) -
-------- -------- ----------
Consolidated Totals........................... $400,858 $ 82,757 $1,023,586
======== ======== ==========
F-18
Capital expenditures and depreciation, depletion and amortization expense by
segment for the years ended December 31, 1993, 1992 and 1991, were (thousands of
dollars):
Depreciation,
Depletion and
Capital Amortization
Segment Expenditures Expense
------- ------------ -------------
1993
----
Natural gas................. $ 68,186 $26,064
Exploration and production.. 4,247 10,281
1992
----
Natural gas................. 132,642 20,471
Exploration and production.. 19,862 7,666
1991
----
Natural gas................. 31,618 17,733
Exploration and production.. 14,900 6,442
Revenues from sales and transportation of natural gas to individual customers
amounting to 10% or more of the Company's consolidated revenues were as
indicated below (thousands of dollars):
Year Ended December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
Public Service Company of Colorado $201,505 $207,300 $199,300
======== ======== ========
Revenues from sales and transportation of natural gas to any other single
customer did not amount to 10% or more of the Company's consolidated revenues
for the years ended December 31, 1993, 1992 and 1991, respectively. The Company
does not have any foreign operations.
Gas sales from the Company's transmission system are made primarily to public
utilities which resell the gas to residential, commercial and industrial
customers and to end-users in Colorado and southeastern Wyoming. Deliveries from
the Company's field system are made to markets in the Texas Panhandle region.
Transportation services are provided for brokers, producers, marketers,
distributors, end-users and other pipelines. The Company extends credit for
sales and transportation services provided to certain qualifying companies.
F-19
13. Transactions with Affiliates
The Statement of Consolidated Earnings includes the following major
transactions with affiliates (thousands of dollars):
1993 1992 1991
------------------ ------------------ -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------- --------- ------- --------- -------- ---------
Revenues
- --------
Gathering and Transportation -
ANR Pipeline Company........................ $ 6,548 4.9% $ 5,457 6.0% $ 3,714 4.3%
Coastal Chem, Inc........................... 2,711 2.0 2,145 2.4 1,645 1.9
Coastal Gas Marketing Company............... 8,438 6.4 9,577 10.5 11,804 13.7
Coastal Oil & Gas Corporation /1/........... 7,686 5.8 - - - -
Extracted Products and Gas Processing -
Coastal Refining & Marketing, Inc........... $32,597 92.4% $28,173 92.3% $29,280 97.5%
Coastal States Trading, Inc................. 869 2.5 717 2.4 - -
Incidental Gasoline, Oil and Condensate
Sales -
Coastal Refining & Marketing, Inc........... $ 905 34.2% $ 675 20.1% $ 1,427 39.9%
Coastal States Trading, Inc................. 1,219 46.1 1,592 47.4 1,410 39.5
Contract Storage -
Coastal Chem, Inc........................... $ 74 2.5% $ 98 8.6% $ 159 4.8%
Coastal Gas Marketing Company............... 30 1.0 9 .8 419 12.6
Costs and Expenses
- ------------------
Gas Purchases -
Coastal Gas Marketing Company............... $ 2,755 2.1% $ 5,143 3.1% $ 8,233 5.1%
Coastal Limited Ventures, Inc. - Net........ 374 .3 1,019 .6 4,393 2.7
Coastal Oil & Gas Corporation............... 4,975 3.9 5,501 3.3 6,184 3.8
Gathering, Transportation and Compression -
WIC /2/..................................... $ 5,362 51.2% $ 4,965 41.8% $(2,952) -%
- ----------------------------
/1/ The 1991 and 1992 amounts were immaterial.
/2/ The 1991 Gathering, Transportation and Compression amount for WIC
includes the result of a transportation rate refund in the amount of $15.6
million, inclusive of interest, for the period June 1, 1985 through August 31,
1991.
Services provided by the Company at cost for affiliated companies were $7.9
million for 1993, $8.1 million for 1992 and $4.4 million for 1991. Services
provided by affiliated companies for the Company at cost were $8.1 million for
1993, $7.9 million for 1992 and $7.3 million for 1991. The services provided by
the Company to affiliates, and by affiliates to the Company, primarily reflect
the allocation of costs relating to the sharing/operating of facilities and
general and administrative functions. Such costs are allocated to the Company
using a three factor formula consisting of revenue, property and payroll, or
other methods which have been applied on a reasonable and consistent basis.
In 1989, the Company entered into two separate five-year lease agreements
with ANR Western Storage Company, an affiliate, for the rental of certain
pipeline facilities. Rental expense of approximately $1.5 million for 1993 and
$1.6 million was recorded in both 1992 and 1991, in conjunction with the terms
of the lease agreements.
In 1992, the Company entered into a five-year lease agreement with ANR
Production Company, an affiliate, for the rental of certain pipeline facilities.
Rental expense of approximately $.2 million was recorded in 1993 and 1992 in
conjunction with the terms of the lease agreement.
F-20
The Company participates in a program which matches short-term cash excesses
and requirements of participating affiliates, thus minimizing total borrowings
from outside sources. At December 31, 1993, the Company had advanced $107.5
million to an associated company at a market rate of interest. Such amount is
repayable on demand.
F-21
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
Reserves, capitalized costs, costs incurred in oil and gas acquisition,
exploration and development activities, results of operations and the
standardized measure of discounted future net cash flows are presented for the
exploration and production segment. Natural gas systems reserves and the related
standardized measure of discounted future net cash flows are presented
separately for natural gas operations. All reserves are located in the United
States. Most of the Company-owned gas reserves are dedicated to Colorado's
system.
ESTIMATED QUANTITIES OF
PROVED RESERVES
Natural Gas Exploration
Company-Owned Reserves Systems and Production
---------------------- ----------- ------------------------
Developed Developed Undeveloped Total
----------- --------- ----------- -------
Natural Gas-Proved (MMcf):
-------------------------
1993....................................... 379,795 87,905 8,088 475,788
1992....................................... 418,831 88,631 7,687 515,149
1991....................................... 456,580 74,000 31,964 562,544
Oil, Condensate and NGL-Proved (000 barrels):
--------------------------------------------
1993....................................... 7 385 26 418
1992....................................... 14 341 35 390
1991....................................... 13 317 56 386
Changes in proved reserves since the end of 1990 are shown in the following
table:
Natural Gas Oil, Condensate and NGL
(MMcf) (thousands of barrels)
---------------------- -----------------------
Natural Exploration Natural Exploration
Gas and Gas and
Total Proved Reserves Systems Production Systems Production
- --------------------- ------- ----------- ------- -----------
Total, end of 1990................................ 302,673 90,676 11 419
Production during 1991............................ (45,845) (6,163) (2) (42)
Extensions and discoveries........................ - 3,822 - 38
Acquisitions...................................... - 4,993 - 6
Revisions of previous estimates and other......... 199,752 12,636 4 (48)
------- -------- ------ -------
Total, end of 1991................................ 456,580 105,964 13 373
Production during 1992............................ (47,754) (7,396) (2) (45)
Extensions and discoveries........................ - 9,849 - 43
Acquisitions...................................... - 2,310 - 16
Revisions of previous estimates and other......... 10,005 (14,409) 3 (11)
------- ------- ------ -------
Total, end of 1992................................ 418,831 96,318 14 376
Production during 1993............................ (46,524) (9,930) (1) (56)
Extensions and discoveries........................ - 6,455 - 33
Acquisitions...................................... - - - -
Revisions of previous estimates and other......... 7,488 3,150 (6) 58
------- ------- ------ -------
Total, end of 1993................................ 379,795 95,993 7 411
======= ======= ====== =======
Total proved reserves for natural gas systems exclude storage gas and liquids
volumes. The natural gas systems storage gas volumes are 41,012, 55,284 and
57,346 MMcf and storage liquids volumes are approximately 150, 159 and 207
thousand barrels at December 31, 1993, 1992 and 1991, respectively.
The 1991 "Revisions of previous estimates and other" for Colorado's company-
owned reserves of natural gas are related to the Company's independent
engineers' interpretation of an agreement, effective January 1, 1991, as
amended, between Colorado and Mesa Operating Company, formerly Mesa Operating
Limited Partnership, which is discussed under Item 1, "Business - Gas System
Reserves and Availability-Reserves Dedicated to a Particular Customer" herein.
Such revisions are not due to any change in gross reserve estimates for the
affected properties.
F-22
CAPITALIZED COSTS RELATING TO EXPLORATION AND PRODUCTION ACTIVITIES
(thousands of dollars)
December 31, 1993 December 31, 1992
---------------------------- ----------------------------
Accumulated Accumulated
Depreciation, Depreciation,
Capitalized Depletion and Capitalized Depletion and
Proved and Unproved Properties Cost Amortization Cost Amortization
- ------------------------------ ----------- ------------- ----------- -------------
Undeveloped........................... $ 506 $ 331 $ 553 $ 372
Developed............................. 139,251 91,687 138,167 84,607
-------- ------- -------- -------
$139,757 $92,018 $138,720 $84,979
======== ======= ======== =======
As described in Note 1 of Notes to Consolidated Financial Statements, the
Company follows the full-cost method of accounting for oil and gas properties.
COSTS INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
(thousands of dollars)
Year Ended December 31,
---------------------------------
1993 1992 1991
------- ------- -------
Property acquisition costs............. $ 52 $ 1,789 $ 5,645
Exploration costs...................... 63 270 -
Development costs...................... 4,123 17,824 9,233
Property acquisition costs consist of amounts paid for unproved reserves.
RESULTS OF OPERATIONS FOR EXPLORATION AND PRODUCTION ACTIVITIES
(thousands of dollars)
Year Ended December 31,
-------------------------------
1993 1992 1991
-------- ------- -------
Revenues:
Sales...................................... $ 3,133 $ 1,507 $ 2,827
Transfers.................................. 16,607 12,295 8,615
-------- ------- -------
Total..................................... 19,740 13,802 11,442
Production costs............................ (5,265) (2,958) (3,138)
Operating expenses.......................... (1,621) (1,878) (977)
Depreciation, depletion and amortization.... (10,281) (7,666) (6,442)
-------- ------- -------
2,573 1,300 885
Income tax benefit (expense)................ 1,594 (442) 370
-------- ------- -------
Results of operations for producing
activities (excluding corporate
overhead and interest costs)............... $ 4,167 $ 858 $ 1,255
======== ======= =======
The average amortization rate per equivalent Mcf was $1.00 in 1993, 1992 and
1991.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVE QUANTITIES
Future cash inflows from the sale of proved reserves and estimated production
and development costs, as calculated by the Company's independent engineers, are
discounted at 10% after they are reduced by the Company's estimate for future
income taxes. The calculations are based on year-end prices and costs, statutory
tax rates and nonconventional fuel source tax credits that relate to existing
proved oil and gas reserves in which the Company has mineral interests.
F-23
The standardized measure is not intended to represent the market value of
reserves and, in view of the uncertainties involved in the reserve estimation
process, including the instability of energy markets, may be subject to future
revisions (thousands of dollars):
At December 31,
-------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Natural Exploration Natural Exploration Natural Exploration
Gas and Gas and Gas and
Systems Production Systems Production Systems Production
--------- ------------ --------- ------------ --------- ------------
Future cash inflows........... $298,859 $226,754 $331,418 $197,374 $335,226 $193,010
Future production and
development costs............ (62,684) (59,499) (50,562) (55,492) (56,637) (62,898)
Future income tax expenses.... (81,827) (37,124) (95,491) (23,934) (93,865) (14,580)
-------- -------- -------- -------- -------- --------
Future net cash flows......... 154,348 130,131 185,365 117,948 184,724 115,532
10% annual discount for
estimated timing of cash
flows........................ (59,542) (45,605) (82,100) (41,251) (74,948) (46,614)
-------- -------- -------- -------- -------- --------
Standardized measure of
discounted future net
cash flows................... $ 94,806 $ 84,526 $103,265 $ 76,697 $109,776 $ 68,918
======== ======== ======== ======== ======== ========
Principal sources of change in the standardized measure of discounted future
net cash flows during each year are as follows (thousands of dollars):
At December 31,
-------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Natural Exploration Natural Exploration Natural Exploration
Gas and Gas and Gas and
Systems Production Systems Production Systems Production
--------- ------------ --------- ------------ --------- ------------
Sales and transfers, net of
production costs............. $(35,394) $(14,475) $(51,904) $(10,844) $(49,715) $ (8,304)
Net changes in prices and
production costs............. (881) 14,805 11,899 11,906 (40,358) (1,957)
Extensions and discoveries.... - 5,098 - 5,785 - 2,361
Acquisitions.................. - - - 1,190 - 3,814
Development costs incurred
during the period that
reduced estimated future
development costs............ - 1,694 8,560 14,438 - 2,520
Revisions of previous quantity
estimates, timing and other.. 11,975 2,694 11,280 (13,707) 60,414 5,254
Accretion of discount......... 12,409 7,334 11,596 6,174 11,970 4,879
Net change in income taxes.... 3,432 (9,321) 2,058 (7,163) 5,833 9,064
-------- -------- -------- -------- -------- --------
Net change.................. $ (8,459) $ 7,829 $ (6,511) $ 7,779 $(11,856) $ 17,631
======== ======== ======== ======== ======== ========
None of the amounts include any value for storage gas and liquids which were
approximately 41 Bcf and 150 thousand barrels, respectively, at the end of 1993.
F-24
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER
THAN RELATED PARTIES
(Thousands of Dollars)
Deductions Balance at End
Balance at ------------------ of Year
Beginning Amounts Amounts -----------------------
Name of Debtor 1 of Year Additions Collected Written Off Current Non-Current
- ------------------------------ -------- --------- --------- ----------- -------- -------------
Year Ended December 31, 1993
- ------------------------------
Coastal Natural Gas $357,143 $ - $249,690 $ - $107,453 $ -
======== ========= ======== ========== ======== ===========
Year Ended December 31, 1992
- ----------------------------
Coastal Natural Gas $405,637 $ - $ 48,494 $ - $357,143 $ -
======== ========= ========= ========== ======== ===========
Year Ended December 31, 1991
- ----------------------------
Coastal Natural Gas $346,422 $ 59,215 $ - $ - $405,637 $ -
======== ======== ======== =========== ======== ==========
- ----------------------------
1 The note receivable is a promissory note due from an affiliate on demand and
bears a market rate of interest.
S-1
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
SCHEDULE V - PLANT, PROPERTY AND EQUIPMENT
(Thousands of Dollars)
Balance at Retire- Other Balance
Beginning Additions ments or Changes at End
of Year at Cost Sales Add (Deduct) of Year
---------- --------- -------- --------------- ----------
Year Ended December 31, 1993
- ----------------------------
Gas pipeline properties............... $ 915,789 $ 68,186 $ 6,610 3,474 (A) $ 980,839
Gas and oil properties:
Undeveloped leases................... 553 52 77 (22)(A) 506
Production properties and equipment.. 138,167 4,195 1,510 (39)(A) 139,251
(1,562)(B)
---------- -------- ------- ------- ----------
$1,054,509 $ 72,433 $ 8,197 $ 1,851 $1,120,596
========== ======== ======= ======= ==========
Year Ended December 31, 1992
- ----------------------------
Gas pipeline properties............... $ 799,793 $132,642 $12,846 $(3,800)(A) $ 915,789
Gas and oil properties:
Undeveloped leases................... 680 32 125 (34)(A) 553
Production properties and equipment.. 121,922 19,830 125 (2,241)(A) 138,167
(1,219)(B)
---------- -------- ------- ------- ----------
$ 922,395 $152,504 $13,096 $(7,294) $1,054,509
========== ======== ======= ======= ==========
Year Ended December 31, 1991
- ----------------------------
Gas pipeline properties............... $ 779,799 $ 31,618 $ 9,362 $(2,262)(A) $ 799,793
Gas and oil properties:
Undeveloped leases................... 400 207 51 124 (A) 680
Production properties and equipment.. 110,813 14,693 517 (124)(A) 121,922
(2,943)(B)
---------- -------- ------- ------- ----------
$ 891,012 $ 46,518 $ 9,930 $(5,205) $ 922,395
========== ======== ======= ======= ==========
- ---------------
(A) Reclassifications and other miscellaneous adjustments.
(B) Amortization of exploration cost charged to income.
The Company generally provides for depreciation on a straight-line basis,
although the unit-of-production method is used for depreciation, depletion and
amortization of gas and oil properties. The depreciation rates for production
and gathering, products extraction, storage, and transmission plant are 1.55%,
3.85%, 2.90% and 2.60%, respectively.
S-2
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PLANT, PROPERTY AND EQUIPMENT
(Thousands of Dollars)
Reductions,
Additions Retirements, Other
Balance at Charged to Renewals Changes Balance
Beginning Costs and and Add at End
of Year Expenses Replacements (Deduct) of Year
---------- ---------- ------------- -------------- --------
Year Ended December 31, 1993
- ----------------------------
Gas pipeline properties............... $488,036 $24,834 $ 5,259 $ 2,261 (A) $509,872
Gas and oil properties:
Undeveloped leases................... 372 28 52 (17)(B) 331
Production properties and equipment.. 84,607 8,691 1,567 (44)(B) 91,687
-------- ------- ------- ------- --------
$573,015 $33,553 $ 6,878 $ 2,200 $601,890
======== ======= ======= ======= ========
Year Ended December 31, 1992
- ----------------------------
Gas pipeline properties............... $476,249 $20,471 $ 9,813 1,129 (A) $488,036
Gas and oil properties:
Undeveloped leases................... 348 25 74 73 (B) 372
Production properties and equipment.. 80,678 6,422 111 (2,382)(B) 84,607
-------- ------- ------- ------- --------
$557,275 $26,918 $ 9,998 $(1,180) $573,015
======== ======= ======= ======= ========
Year Ended December 31, 1991
- ----------------------------
Gas pipeline properties............... $464,007 $17,733 $ 6,645 1,154 (A) $476,249
Gas and oil properties:
Undeveloped leases................... 231 28 21 110 (B) 348
Production properties and equipment.. 75,364 3,471 (1,953) (110)(B) 80,678
-------- ------- ------- ------- --------
$539,602 $21,232 $ 4,713 $ 1,154 $557,275
======== ======= ======= ======= ========
- ---------------
(A) Charged to clearing and other accounts.
(B) Reclassification and other miscellaneous adjustments.
S-3
COLORADO INTERSTATE GAS COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Thousands of Dollars)
Charged to Costs and Expenses
Year Ended December 31,
----------------------------
1993 1992 1991
------- ------- -------
Maintenance and repairs........................................ $19,900 $20,300 $19,200
Amortization of intangible assets/1/........................... - - -
Taxes, other than payroll and income taxes/2/:
Real estate and personal property............................. 12,300 9,800 7,200
Other......................................................... 4,500 4,800 4,400
Royalties/1/................................................... - - -
Advertising costs/1/........................................... - - -
- ---------------------------------
/1/ Amounts are not presented as such amounts are less than 1% of revenues.
/2/ Production taxes for exploration and production operations are charged
against operating revenues.
S-4
EXHIBIT INDEX
Exhibit
Number Document
- ------ ------------------------------------------------------------------------
(3.1)+ Certificate of Incorporation of the Company (Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1980).
(3.2)+ By-laws of the Company (Filed as Module CIGBY-LAWS on March 29, 1994).
(3.3)+ Certificate of Amendment of Certification of Incorporation of the
Company (Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
(4) With respect to instruments defining the rights of holders of long-term
debt, the Company will furnish to the Securities and Exchange Commission
any such document on request.
(21)* Subsidiaries of the Company.
(24)* Power of Attorney (included on signature pages herein).
__________________________________
Note:
+ Indicates documents incorporated by reference from prior filing indicated.
* Indicates documents filed herewith.