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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 1-7320
ANR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 38-1281775
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 RENAISSANCE CENTER,
DETROIT, MICHIGAN 48243-1902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 496-0200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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9-5/8% Debentures, due 2021 New York Stock Exchange
7-3/8% Debentures, due 2024
$2.675 Series, Cumulative Preferred Stock ($1 par value)
$2.12 Series, Cumulative Preferred Stock ($1 par value)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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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 1,000 shares of common stock of
the Registrant, $100 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
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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 for Resale and Transportation.................................... 2
Gas Purchases.............................................................. 2
Gas Storage................................................................ 3
Competition................................................................ 3
Gas System Reserves and Availability.......................................... 4
Reconciliation with FERC Form 15 Report....................................... 4
Supply Area Deliverability.................................................... 4
Regulations Affecting Gas System.............................................. 4
General.................................................................... 4
Rate Matters............................................................... 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............................................ 9
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 9
PART III
10. Directors and Executive Officers of the Registrant.................................... 10
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.................... 22
(i)
GLOSSARY
"ANR" means American Natural Resources Company
"ANR Pipeline" or the "Company" means ANR Pipeline Company
"ANR Storage" means ANR Storage Company
"Bcf" means billion cubic feet
"Coastal" means The Coastal Corporation
"Coastal Natural Gas" means Coastal Natural Gas Company
"Colorado" means Colorado Interstate Gas Company
"Empire" means Empire State Pipeline
"EPA" means Environmental Protection Agency
"FAS" means Statement of Financial Accounting Standards
"FASB" means Financial Accounting Standards Board
"FERC" means Federal Energy Regulatory Commission
"GIC" means Gas Inventory Charge
"Great Lakes" means Great Lakes Gas Transmission Limited Partnership
"HIOS" means High Island Offshore System
"Interim Settlement" means the Company's Stipulation and Agreement submitted to
the FERC which is more fully described in Item 1, Business, Regulations
Affecting Gas System - Rate Matters
"Mcf" means thousand cubic feet
"MMcf" means million cubic feet
"NEB" means Canadian National Energy Board
"NGA" means Natural Gas Act of 1938, as amended
"NGPA" means Natural Gas Policy Act of 1978
"NGWDA" means Natural Gas Wellhead Decontrol Act of 1989
"OFE" means Office of Fossil Energy of the Department of Energy
"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
"Production Company" means ANR Production Company
"TransCanada" means TransCanada PipeLines Limited
"UTOS" means U-T Offshore System
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
ANR Pipeline is a Delaware corporation organized in 1945. All of ANR
Pipeline's outstanding common stock is owned by ANR. ANR is a direct, wholly-
owned subsidiary of Coastal Natural Gas, and an indirect subsidiary of Coastal.
ANR Pipeline owns and operates an interstate natural gas pipeline system. At
December 31, 1993, the Company had 2,126 employees engaged in the operation of
ANR Pipeline and 149 employees engaged in the operation of HIOS, UTOS and
Empire.
NATURAL GAS SYSTEM
OPERATIONS
GENERAL
The Company is involved in the storage, transportation and balancing of
natural gas. ANR Pipeline provides these services for various customers through
its facilities located in Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Michigan, Mississippi, Missouri, Nebraska, New Jersey, Ohio,
Oklahoma, Tennessee, Texas, Wisconsin, Wyoming and offshore in federal waters.
Prior to November 1, 1993, the Company was also engaged in the sale for resale
of natural gas. With the Company's implementation of Order 636 effective
November 1, 1993, ANR Pipeline no longer provides a merchant service. However,
former gas sales customers of ANR Pipeline have largely retained their firm
storage and transportation service levels previously included in their "bundled"
gas sales services. The Company will auction gas on the open market as part of
its gas restructuring program designed to handle the continuation of certain gas
purchase contracts pending renegotiation or expiration of such contracts. The
Company's gas sales for resale customers previously included 51 local
distributors in Michigan, Wisconsin, Illinois, Indiana, Iowa, Kansas, Missouri,
Ohio and Tennessee. The Company operates two major offshore gas pipeline systems
in the Gulf of Mexico which are owned by HIOS and UTOS, general partnerships
composed of ANR Pipeline subsidiaries and subsidiaries of other pipeline
companies. The Company also operates Empire, a 156-mile pipeline extending from
Niagara Falls to Syracuse, New York, in which an affiliate of the Company has a
45% interest.
During 1993, approximately 62% of the Company's gas supply was purchased from
gas producers and marketers in Illinois, Indiana, Kansas, Louisiana, Michigan,
Mississippi, Oklahoma, Texas, Wisconsin, Wyoming and the Texas and Louisiana
offshore areas; approximately 32% was obtained from three Canadian suppliers;
and approximately 6% was purchased from the Dakota Gasification Company in North
Dakota.
The Company's two interconnected, large-diameter multiple pipeline systems
transport gas to the Midwest from (a) the Hugoton Field and other fields in the
Anadarko Basin in Texas and Oklahoma and (b) the Louisiana onshore and Louisiana
and Texas offshore areas. Gas from Wyoming and Canada is obtained by the Company
through transportation and exchange agreements with other companies.
The Company's principal pipeline facilities at December 31, 1993 consisted of
12,657 miles of pipeline and 97 compressor stations with 1,069,788 installed
horsepower. At December 31, 1993, the design peak day delivery capacity of the
transmission system, considering supply sources, storage, markets and
transportation for others, was approximately 5.6 Bcf per day.
1
GAS SALES FOR RESALE AND TRANSPORTATION
ANR Pipeline transports gas to markets on its system and other markets under
transportation and exchange arrangements with other companies, including
distributors, intrastate and interstate pipelines, producers, brokers, marketers
and end-users. Typically, these arrangements call for ANR Pipeline to transport
such gas to points of interconnection with local distribution companies or other
interstate pipelines. Transportation service revenues provided by ANR Pipeline
amounted to $533 million for 1993 compared to $463 million for 1992 and $382
million for 1991.
During the period January through October of 1993, ANR Pipeline sold 228 Bcf
of gas, of which approximately 71% was sold to its three largest customers:
Michigan Consolidated Gas Company, Wisconsin Gas Company and Wisconsin Natural
Gas Company. Michigan Consolidated Gas Company serves the City of Detroit and
certain surrounding areas, the industrial cities of Grand Rapids and Muskegon,
the communities of Ann Arbor and Ypsilanti and numerous other communities in
Michigan. Wisconsin Gas Company serves the Milwaukee metropolitan area and
numerous other communities in Wisconsin. Wisconsin Natural Gas Company serves
the industrial cities of Racine, Kenosha, Appleton and their surrounding areas
in Wisconsin. In 1993, ANR Pipeline provided 71% and 33% of the total gas
requirements for Wisconsin and Michigan, respectively. Gas sales for resale by
ANR Pipeline amounted to $604 million for 1993, compared to $635 million for
1992 and $641 million for 1991.
ANR Pipeline's deliveries for the years 1993, 1992 and 1991 are as follows:
Total System Daily Average
Year Deliveries System Deliveries
---- ------------ -----------------
(Bcf) (MMcf)
1993 1,336 3,660
1992 1,335 3,648
1991 1,324 3,627
On November 1, 1992, as part of its Interim Settlement, ANR Pipeline
implemented a restructuring of its traditional sales service by replacing
existing services with a combination of competitive service alternatives. This
restructuring provided a number of options for pipeline customers and was
designed to enhance competition in ANR Pipeline's service areas. Under this
restructuring, the sales service was "unbundled" on an interim basis into firm
sales, transportation, flexible storage and flexible delivery services. Prior to
the restructuring, the cost of providing transportation services for sales
customers was recovered as part of ANR Pipeline's total resale rate and
therefore, was classified as part of gas sales revenue. Under the restructuring,
these costs were recovered through a separate rate and were included in
transportation revenue. Additional information concerning the restructuring is
set forth in "Regulations Affecting Gas System - Rate Matters" included herein.
Effective November 1, 1993, the Company implemented Order 636. This Order
required significant changes in the services provided by ANR Pipeline and
resulted in the elimination of the Company's merchant service. The Company now
offers an array of "unbundled" storage, transportation and balancing service
options. Additional information concerning Order 636, including transportation
and storage, is set forth in "Regulations Affecting Gas System - General"
included herein.
GAS PURCHASES
Effective November 1, 1993, as a result of the elimination of ANR Pipeline's
merchant service, as mentioned above, the Company's gas purchases decreased
substantially. However, the Company still purchases gas under a number of gas
purchase contracts. The Company's Order 636 restructured tariff provides
mechanisms for the purpose of recovering from or refunding to its customers any
pricing differential between costs incurred to purchase this gas and the amount
the Company recovers through auctioning of gas on the open market.
2
Of ANR Pipeline's gas purchases in 1993, approximately 62% was obtained
directly from producers, including 17% from affiliates. In addition, ANR
Pipeline received approximately 32% of its gas supply from Canadian suppliers
and 6% from a producer of synthetic fuels. The border price of gas originating
in Canada has been based on policies, established in 1984 by the NEB and the
OFE, allowing exporters and importers to negotiate market-responsive prices.
Gas purchase contracts with producers generally provide for minimum purchase
obligations based on estimated reserves under the well, the well's ability to
produce or allowable gas takes set by state regulatory agencies. The prices paid
depend upon, among other things, contractual requirements, market conditions,
and the quality, condition of delivery and location of the gas. Under the NGWDA,
effective July 26, 1989, all gas which would otherwise continue to be subject to
price controls under the NGPA was deregulated over a three-year period and
complete deregulation became effective January 1, 1993.
Some of ANR Pipeline's remaining gas purchase contracts with independent
producers contain provisions which require taking minimum volumes and/or making
prepayments for volumes not taken if purchases fall below specified levels
during the contract year ("take-or-pay"). Additional information on take-or-pay
matters is set forth in Note 6 of Notes to Consolidated Financial Statements
included herein.
GAS STORAGE
ANR Pipeline owns seven and leases eight underground storage facilities in
Michigan. The total working storage capacity of the system is approximately 193
Bcf, with a maximum day delivery capacity of 2 Bcf as late as the end of
February. However, of the 193 Bcf, the Company has proposed to the FERC to
reclassify 62.1 Bcf of working gas to recoverable base gas. The Company also has
the contract rights for 42 Bcf of storage capacity provided by Blue Lake Gas
Storage Company, 30 Bcf of storage capacity provided by ANR Storage and 10 Bcf
of storage capacity provided by Michigan Consolidated Gas Company. The contract
with Michigan Consolidated Gas Company expires in March, 1994. Underground
storage services of up to 166 Bcf of gas are provided by the Company to
customers on a firm basis. The Company also provides interruptible storage
services for customers on a short-term basis.
Coastal's independent engineers, Huddleston & Co., Inc., have estimated that
the Company's gas storage reserves as of December 31, 1993, 1992 and 1991 were
106.5 Bcf, 128 Bcf and 134 Bcf, respectively. The 1993 gas storage reserves are
comprised of 19.4 Bcf of natural gas, maintained under the Company's own account
as working gas for system balancing and no-notice storage services; 25 Bcf of
recoverable base gas reserves in seven owned storage fields; and 62.1 Bcf of
working gas which the Company has proposed to the FERC to reclassify as
recoverable base gas. The decrease in the gas storage reserves between 1993 and
1992 reflects the Company's elimination of its merchant service. Effective
November 1, 1993, Company storage reserves are solely used to facilitate the
overall operations of the system.
COMPETITION
ANR Pipeline has historically competed with interstate pipeline companies in
the sale, storage and transportation of gas and with independent producers,
brokers, marketers and other pipelines in the gathering and sale of gas within
its service areas. On November 1, 1993, the Company implemented Order 636 on its
system. As a consequence, the Company is no longer a seller of natural gas to
resale customers. 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
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
3
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 ANR Pipeline.
ANR Pipeline's storage, transportation and balancing services are influenced
by its customers' access to alternative providers of such services. The Company
competes directly with Panhandle Eastern Pipe Line Company, Trunkline Gas
Company, Northern Natural Gas Company, Natural Gas Pipeline Company of America,
Michigan Consolidated Gas Company and CMS Energy Company in its principal market
areas of Michigan and Wisconsin for its storage, transportation and balancing
business.
GAS SYSTEM RESERVES AND AVAILABILITY
With the termination of its merchant service, the Company no longer reports
on gas system reserves and availability and, therefore, this report has been
replaced by a general discussion set forth in "Supply Area Deliverability,"
presented below.
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.
SUPPLY AREA DELIVERABILITY
Shippers on ANR Pipeline have direct access to the two most prolific gas
supply areas in the United States, the Gulf Coast and Midcontinent. Statistics
published by the Energy Information Agency, Office of Oil and Gas, U. S.
Department of Energy, indicate that approximately 82% of all natural gas in the
lower 48 states is produced from these two supply areas. Interconnecting
pipelines provide shippers with access to all other major gas supply areas in
the United States and Canada.
Gas deliverability available to shippers on ANR Pipeline's system from the
Midcontinent and Gulf Coast supply areas through direct connections and
interconnecting pipelines and gatherers is approximately 3,800 MMcf per day. An
additional 275 MMcf per day of deliverability is accessible to shippers on
Company-owned, or partially owned, pipeline segments not directly connected to a
Company mainline.
The Company remains active in locating and connecting new gas supply sources
to facilitate transportation arrangements made by third party shippers. During
1993, field development, newly connected supply sources and pipeline
interconnections contributed 515 MMcf per day to total deliverability accessible
to shippers on ANR Pipeline.
REGULATIONS AFFECTING GAS SYSTEM
GENERAL
Under the NGA, the FERC has jurisdiction over ANR Pipeline as to sales,
storage, transportation and balancing of gas, rates and charges, construction of
new facilities, extension or abandonment of service and facilities, accounts and
records, depreciation and amortization policies and certain other matters. ANR
Pipeline, where required, holds certificates of public convenience and necessity
issued by the FERC covering its jurisdictional facilities, activities and
services. The OFE regulates the price and other terms of imports of natural gas.
ANR Pipeline 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
On November 1, 1990, the FERC issued Order No. 528 in which it sets forth
guidelines for an acceptable allocation method for a fixed direct charge to
collect take-or-pay settlement costs. Pursuant to Order No. 528, the Company has
filed for and received approval to recover 75% of expenditures associated with
resolving producer claims and renegotiating gas purchase contracts. The approved
filings provide for recovery of 25% of such expenditures via a direct bill to
the Company's former sales for resale customers and 50% via a surcharge on all
transportation volumes. Contract reformation and take-or-pay costs incurred as a
result of the mandated Order 636 restructuring will be recovered under the
transition cost mechanisms of Order 636 as well as through negotiated agreements
with the Company's customers.
On April 8, 1992, the FERC issued 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. ANR Pipeline placed its restructured services under Order 636 into
effect on November 1, 1993. The Company now offers a wide range of "unbundled"
storage, transportation and balancing services. Several persons, including ANR
Pipeline, have sought judicial review of aspects of the FERC's orders approving
the Company's restructuring filings. Order 636 also provides mechanisms for
recovery of transition costs associated with compliance with that Order. These
transition costs include gas supply realignment costs, the cost of stranded
pipeline investment and the cost of new facilities required to implement Order
636. The Company expects that it will incur transition costs of approximately
$150 million. As a result of the recovery mechanisms provided under Order 636,
the Company anticipates that these transition costs will not have a material
adverse effect on its consolidated financial position or its results of
operations.
RATE MATTERS
All of the Company's 1993 service options were subject to rate regulation by
the FERC. Under the NGA, ANR Pipeline must file with the FERC to establish or
adjust its service rates. The FERC may also initiate proceedings to determine
whether the Company's rates are "just and reasonable."
On March 10, 1992, the Company submitted to the FERC a comprehensive Interim
Settlement designed to resolve all outstanding issues resulting from its 1989
rate case and its 1990 proposed service restructuring proceeding. The Interim
Settlement involved, inter alia, an array of new sales, delivery, transportation
and storage service alternatives and the implementation of a GIC, designed to
compensate the Company for the costs of standing ready to serve its sales
customers. The Interim Settlement reflected a decrease in cost of service of
approximately $45 million, which was largely attributable to a reduction in
depreciation rates from 3.4% to 1.82%. Also included was a provision which
allowed the Company to direct bill its customers for its remaining unrecovered
purchased gas costs. The Interim Settlement became effective November 1, 1992
and expired with the Company's implementation of Order 636 on November 1, 1993.
Specific provisions of the Interim Settlement relating to the deferral and
future recovery of certain costs remain in effect.
On December 17, 1992, the FERC issued a policy statement that outlined
changes on how pipelines may recover the costs of employees' postretirement
benefits other than pensions. The FERC's policy will be to recognize, as a
component of jurisdictional cost-based rates, allowances for FAS No. 106 costs
of company employees when determined on an accrual basis, provided certain
conditions are met.
On November 1, 1993, the Company filed a general rate increase with the FERC.
The proposed rates reflect a $121 million increase in the Company's cost of
service from that approved in the Interim Settlement and a $218 million increase
over the Company's approved rates for its restructured services. The increase
represents higher plant investment, Order 636 restructuring costs, rate of
return and tax rate changes and increased costs related to the required adoption
of recent accounting rule changes, i.e., FAS Nos. 106 and 112 (see Note 10 of
Notes to Consolidated Financial Statements for a discussion of FAS Nos. 106 and
112). The FERC has permitted the Company to place its new rates into effect on
May 1, 1994, subject to refund and subject to certain required compliance
changes and the outcome of an evidentiary hearing on all remaining issues.
5
Certain regulatory issues remain unresolved among 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 and other issues, it cannot estimate when each of these issues
will be resolved.
ENVIRONMENTAL
Information concerning environmental matters is set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 7 of Notes to Consolidated Financial Statements included herein.
OTHER DEVELOPMENTS
The Empire State Pipeline Project, in which an affiliate of the Company has a
45% interest and the Company is the operator, was placed in service on November
1, 1993. The 156-mile pipeline system, extending from Niagara Falls to Syracuse,
New York, will carry up to 570 MMcf per day to western and central New York
State and provide the Company access to markets in the Northeastern United
States.
In August 1993, the Company and Arkla, Inc. ("Arkla") announced execution of
a restructured agreement under which the Company will purchase an ownership
interest in 250 MMcf per day of capacity in existing natural gas transmission
facilities from Arkla. The restructured agreement resolved certain conditions
imposed by the FERC in its October 1, 1992 authorization of the original
purchase and sale agreement. Financing for this acquisition will be provided
from internally generated funds. The capital expenditure of approximately $90
million is expected to be incurred in 1994, after FERC approval is received. The
reduction in value of the facilities from the original purchase and sale
agreement is the result of negotiations between the Company and Arkla in light
of the FERC's orders.
The Company is a partner in the SunShine Pipeline Project which is designed
to capture a share of the growing Florida power generation market, as well as
markets located in Mississippi, Alabama and the Florida Panhandle. SunShine
Interstate Transmission Company ("SITCO"), the interstate pipeline segments of
this project, will extend 170 miles from Pascagoula, Mississippi to Okaloosa,
Florida where it will connect with Sunshine Pipeline Company, ("SunShine") the
intrastate segment of this project. SunShine will be a 545-mile pipeline
starting in Okaloosa and extending down Florida's west coast to the Tampa area.
The Company, through a wholly-owned subsidiary, will have a 40% interest in
SITCO and an affiliate of the Company will have a 40% interest in SunShine.
Florida Power Corporation and TransCanada will both hold a 30% equity interest
in each of the two projects. SITCO will have an initial capacity of 329.5 MMcf
per day and SunShine will have an initial capacity of 249.5 MMcf per day. Both
SITCO and SunShine have signed precedent agreements for a portion of their
initial pipeline capacity. SITCO, which will be subject to FERC jurisdiction,
has filed with the FERC to obtain a Certificate of Public Convenience and
Necessity. FERC approval is expected in March 1995. SunShine, which will be
subject to the jurisdiction of the Florida Public Service Commission ("FPSC"),
has received approval of its request for a Determination of Need from the FPSC.
SunShine also expects environmental approval, in early 1995, under the
procedures set forth in Florida's Natural Gas Transmission Pipeline Siting Act.
Both projects are targeted to be placed into service in December 1995. The SITCO
pipeline is expected to cost $188 million, with the Company's share of this cost
approximating $75 million.
A subsidiary of the Company will have a 25% equity interest in the proposed
Liberty Pipeline project, a 38-mile pipeline extending from New Jersey across
New York Harbor to Long Island with a potential capacity of 500 MMcf per day.
The pipeline is expected to serve local distribution company participants and
independent power producers. A filing to obtain a Certificate of Public
Convenience and Necessity has been made and is currently pending before the
FERC. Subject to receiving applicable government approvals, an in-service date
of late 1995 is possible, at an estimated cost of $160 million.
6
The Company (20% equity interest) and Interprovincial Pipe Line System Inc.
plan to participate in the construction of InterCoastal Pipe Line, a project
designed to serve incremental markets in southern Ontario and potentially Quebec
and the Northeastern United States. The project will involve converting
approximately 130 miles of existing oil pipeline to natural gas service,
originating in Sarnia, Ontario and extending to Toronto, and the construction of
approximately 25 miles of new pipeline. In connection with the project,
facilities in Michigan will be constructed by the Company to deliver gas from
domestic sources. The project, which will have a maximum capacity of 175 MMcf
per day, is projected to cost $37.6 million. The InterCoastal Pipe Line is
subject to regulatory approval in Canada, and the ANR Pipeline facilities are
subject to regulatory approvals in the United States. Filings seeking necessary
authorizations from the NEB were made in the second quarter of 1993, and with
the FERC on July 19, 1993. The project could be in service as early as November
1, 1994.
A subsidiary of the Company and affiliates of TransCanada and Brooklyn Union
Gas Company have entered into a partnership agreement for the construction of
the Mayflower Pipeline, which is expected to expand natural gas transportation,
sales and storage services to markets in the Northeastern United States. The
Company will have a 45% interest in this project. The proposed 240-mile pipeline
will extend east from the Iroquois Gas Transmission System at Canajoharie, New
York to a location near Boston, Massachusetts and have an initial design
capacity of 350 MMcf per day. The total project cost is expected to be $540
million. The pipeline is expected to be in service in late 1997. Construction of
the project is subject to receipt of all federal regulatory approvals.
Funding for certain pending and proposed natural gas pipeline projects is
anticipated to be provided through non-recourse financings in which the
projects' assets and contracts will be pledged as collateral. This type of
financing typically requires the participants to make equity investments
totaling approximately 20% to 30% of the cost of the project, with the remainder
financed on a long term basis.
ITEM 2. PROPERTIES.
Information on properties of ANR Pipeline is 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 seven 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 gas
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.
All of the principal properties of the Company are subject to the lien of its
Mortgage and Deed of Trust dated as of September 1, 1948, securing its First
Mortgage Pipe Line Bonds, and some of such properties are subject to "permitted
liens" as defined in such Mortgage and Deed of Trust. The First Mortgage Pipe
Line Bonds were retired in 1993 and the Company is in the process of terminating
the associated Mortgage and Deed of Trust.
ITEM 3. LEGAL PROCEEDINGS.
Numerous lawsuits and other proceedings which have arisen in the ordinary
course of business are pending or threatened against the Company or its
subsidiaries. Although no assurances can be given and no determination can be
made at this time as to the outcome of any particular lawsuit or proceeding, the
Company believes there are meritorious defenses to substantially all such claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position.
Additional information regarding legal proceedings is set forth in Notes 6 and 7
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 ANR Pipeline is owned by ANR.
Under the terms of the most restrictive of the Company's financing
agreements, approximately $454 million was available at December 31, 1993 for
payment of dividends on the Company's common and preferred stock. In March 1994,
the Company paid a $255 million dividend on its common stock, which leaves
approximately $199 million of dividend capacity.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (in millions 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 fiscal year ended December 31,
1992. The Notes to Consolidated Financial Statements included herein contain
information relating to this data.
1993(2) 1992 1991 1990 1989
-------- -------- -------- -------- --------
Operating Revenues:
Gas sales............................. $ 603.5 $ 634.5 $ 641.2 $ 628.5 $ 877.4
Storage and transportation............ 634.7 534.0 441.4 366.5 333.0
Other................................. 33.6 23.3 31.8 81.8 48.4
-------- -------- -------- -------- --------
Total............................... $1,271.8 $1,191.8 $1,114.4 $1,076.8 $1,258.8
======== ======== ======== ======== ========
Net Earnings........................... $ 157.0 $ 151.0 $ 148.4 $ 148.1 $ 167.2
======== ======== ======== ======== ========
Dividends Declared on Common Stock..... $ 33.7 $ 28.6 $ 320.0 $ 46.9 $ 215.0
======== ======== ======== ======== ========
Total Assets........................... $1,920.3 $1,968.0 $1,905.1 $2,056.0 $2,059.6
======== ======== ======== ======== ========
Capital Structure:
Common stock and other stockholder's
equity/(1)/.......................... $ 970.3 $ 851.2 $ 734.0 $ 912.1 $ 812.9
Mandatory redemption cumulative
preferred stock...................... 26.0 36.1 48.3 61.2 74.0
Long-term debt and obligation under
capital leases....................... 374.0 435.1 482.6 436.8 495.8
-------- -------- -------- -------- --------
Total............................... $1,370.3 $1,322.4 $1,264.9 $1,410.1 $1,382.7
======== ======== ======== ======== ========
- ------------
(1) Includes unamortized investment tax credit, consistent with ratemaking
treatment.
(2) See Item 5 above for a discussion concerning a 1994 common stock dividend
payment.
All of the outstanding common stock of ANR Pipeline is owned by ANR;
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.
8
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.
9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of ANR Pipeline as of March 22, 1994,
were as follows:
NAME (AGE), YEAR FIRST ELECTED
DIRECTOR AND/OR OFFICER POSITIONS AND OFFICES WITH THE REGISTRANT
- ------------------------------ -----------------------------------------
James F. Cordes (53), 1982 Chairman of the Board of Directors and Chief
Executive Officer
David A. Arledge (49), 1985 Senior Executive Vice President
Richard A. Lietz (48), 1984 Executive Vice President and Chief Operating
Officer
Jeffrey A. Connelly (47), 1988 and 1983 Executive Vice President, Treasurer
and Director
Daniel F. Collins (52), 1988 and 1986 Senior Vice President and Director
Rebecca H. Noecker (42), 1989 Senior Vice President and General Counsel
Austin M. O'Toole (58), 1987 and 1985 Senior Vice President, Assistant
Secretary and Director
Wilbur A. Hitchcock (45), 1994 Senior Vice President
Pamela L. Prairie (39), 1989 Senior Vice President
William L. Johnson (36), 1991 Vice President and Controller
Scott P. Anger (49), 1990 Vice President
Stanley A. Babiuk (42), 1989 Vice President
Robert G. Holsclaw (59), 1990 Vice President
John D. Kobasa (53), 1988 Vice President
Richard H. Leehr (44), 1991 Vice President
Michael B. Lobin (44), 1991 Vice President
John P. Lucido (46), 1988 Vice President
Lawrence R. Marantette (44), 1992 Vice President
Michael E. Maslyn (53), 1986 Vice President
Thomas L. Miller (38), 1989 Vice President
Dennis J. Paruch (48), 1984 Vice President
Elias A. Shaptini (63), 1981 Vice President
C. D. Wilkerson (60), 1987 Vice President
Frederick H. Clark (65), 1984 Secretary
The above named persons bear no family relationship to each other. Their
respective terms of office expire coincident with ANR Pipeline'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 ANR Pipeline, Colorado and/or Coastal for five years or more
except for the following:
Mr. Hitchcock was elected a Senior Vice President of ANR Pipeline in March
1994. He previously served as a Vice President of Northern Indiana Public
Service Company, where he had been employed since 1990. From 1984 to 1990, he
was employed by Natural Gas Pipeline Company in various positions.
Ms. Prairie was elected a Senior Vice President in March 1994. She had been a
Vice President of ANR Pipeline since October 1989. Prior to that time she was an
Executive Director of Gas Supply for Michigan Consolidated Gas Company from
October 1987 to October 1989. She was an attorney for the law firm of John,
Hengerer & Esposito in Washington, D.C. from October 1986 to August 1987 and an
attorney for Michigan Consolidated Gas Company from January 1985 to September
1986.
Mr. Anger was elected a Vice President of ANR Pipeline in July 1990. From
October 1987 to 1989, he was an independent consultant to Coastal. Prior thereto
he worked in the Federal Affairs department of Coastal.
10
Mr. Johnson was elected a Vice President and Controller of ANR Pipeline in
August 1991. Prior thereto he was employed by Great Lakes Gas Transmission
Company from 1982 until 1991. He became an Assistant Controller for Great Lakes
in 1987 and served as their Controller from 1989 to 1991.
Mr. Leehr was elected a Vice President of ANR Pipeline in July 1991. Prior
thereto he held various positions with ANR Pipeline.
Mr. Marantette was elected a Vice President of ANR Pipeline in May 1992. He
has held various positions with other subsidiaries of ANR, including President
of ANR Development Corporation since 1985.
ITEM 11. EXECUTIVE COMPENSATION.
ANR Pipeline is an indirectly wholly-owned subsidiary of Coastal. Information
concerning the cash compensation and certain other compensation of the 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 Officer ("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.
11
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 1991 398,635 140,000 35,000 79,328
and Director
James R. Paul, 1993 658,664 -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.
(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.
12
(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 $8,409).
Mr. Cordes is employed pursuant to a five-year employment contract expiring
in 1995, which provides that if he is terminated for a reason not permitted by
the employment contract, he will be entitled to receive for the remainder of the
term the salary, employee benefits, perquisites, salary increases, bonuses and
other incentive compensation which he would have received had he not been
terminated. Such reasons are a significant change in title, duties, authorities
or reporting responsibilities, a reduction in salary or benefits or a move of
the location of his office to a location not acceptable to him.
STOCK OPTIONS
The following table sets forth information with respect to stock options
granted on November 4, 1993 and December 8, 1993 for the fiscal year ended
December 31, 1993 to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1993)
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(4) ($/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.
13
(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.
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.
14
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.
(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 ANR Pipeline 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, American Natural Resources Company 1,000 shares direct 100%
$100 par value per share One Woodward Avenue
Detroit, Michigan 48226
(b) Security ownership of management.
ANR Pipeline 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.
18
NUMBER OF SHARES
NAME, (AGE), YEAR OFFICES WITH COASTAL BENEFICIALLY PERCENT (%)
FIRST BECAME DIRECTOR AND/OR PRINCIPAL 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 Common Stock 158,342
(49), 1988 Chief Operating Officer 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 Class A Common Stock 2,290
of 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 Common Stock 4,095
(65), 1969 Investments 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 Class A Common Stock -0-
Lehman 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 Common Stock 500
(61), 1993 McDade and Fogler, Houston Class A Common Stock -0-
L. D. Wooddy, Jr. Retired; Former President Common Stock 1,000
(67), 1992 of 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.
19
(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").
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with management and others.
ANR Pipeline 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 $285.5 million
to an associated company at a market rate of interest. Such amount is repayable
on demand.
20
Additional information called for by this item is set forth under Item 11,
"Executive Compensation" and Note 11 of Notes to Consolidated Financial
Statements included herein.
(b) Certain business relationships.
None.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
21
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.
The following Consolidated Financial Statements of ANR Pipeline and
Subsidiaries 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
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
2. Financial Statement Schedules.
The following schedules of ANR Pipeline and Subsidiaries are included
on the attached pages as indicated:
PAGE
----
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters and
Employees Other Than Related Parties.......... S-1
Schedule V - Property, Plant and Equipment................. S-2
Schedule VI - Accumulated Depreciation...................... 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)+ Composite Certificate of Incorporation of ANR Pipeline effective
as of December 31, 1987 (Filed as Module ANRCertIncorp on
March 29, 1994).
(3.2)+ By-laws of ANR Pipeline effective as of August 29, 1991 (Filed
as Module ANRBY-LAWS on March 29, 1994).
(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.
(4.1)+ Board Resolution dated September 22, 1975 establishing the $2.675
Series of Cumulative Preferred Stock (Filed as Module
BoardRes_092275 on March 29, 1994).
22
(4.2)+ Board Resolution dated October 26, 1976 establishing the $2.12
Series of Cumulative Preferred Stock (Filed as Module
BoardRes_102676 on March 29, 1994).
(4.3)+ Board Resolution dated May 12, 1980 establishing the $12.00
Series of Cumulative Preferred Stock (Filed as Module
BoardRes_051280 on March 29, 1994).
(4.4)* Indenture dated as of February 15, 1994 and First Supplemental
Indenture dated as of February 15, 1994 for the $125 million
of 7-3/8% Debentures due February 15, 2024.
(10.1)+ Form of Employment Agreement between ANR Pipeline and certain of
its executive officers (Filed as Module ANREmployAgree
on March 29, 1994).
(10.2)+ Form of Employment Agreement between Coastal and certain Company
executive officers (Filed as Module TCCEmployAgree on
March 29, 1994).
(21)* Subsidiaries of the Company.
(23.1)* Consent of Deloitte & Touche.
(24)* Power of Attorney (included on signature pages herein).
- -----------
Note:
+ Indicates documents incorporated by reference from the prior filings
indicated.
* 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.
23
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Coby C. Hesse,
William L. Johnson 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.
ANR PIPELINE COMPANY
(Registrant)
By: /s/ JAMES F. CORDES
-------------------------
James F. Cordes
Chairman and Chief
Executive Officer
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: /s/ JAMES F. CORDES By: /s/ DANIEL F. COLLINS
------------------------- -------------------------
James F. Cordes Daniel F. Collins
Chairman and Chief Director
Executive Officer March 29, 1994
March 29, 1994
By: /s/ DAVID A. ARLEDGE By: /s/ JEFFREY A. CONNELLY
------------------------- -------------------------
David A. Arledge Jeffrey A. Connelly
Principal Financial Officer Director
March 29, 1994 March 29, 1994
By: /s/ WILLIAM L. JOHNSON By: /s/ AUSTIN M. O'TOOLE
------------------------- -------------------------
William L. Johnson Austin M. O'Toole
Principal Accounting Officer Director
March 29, 1994 March 29, 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
OVERVIEW. Internally generated funds have been the primary source to meet
mandatory debt and preferred stock retirements and other cash requirements of
the Company over the past three years. However, in 1991 the Company completed a
public offering of $300 million principal amount of 9-5/8% Debentures due
November 1, 2021. Approximately $238 million of the net proceeds were used to
repay long-term indebtedness and current maturities on long-term indebtedness of
the Company with the balance used for capital expenditures and other general
corporate purposes. The repayment of long-term indebtedness included the early
retirement of a $200 million note which was due to mature in 1993.
During 1993 the Company retired $78.1 million of its long-term debt
obligations, of which $47.4 million represented early redemptions. Interest
rates associated with the early redemptions ranged from 9-5/8% to 13-1/4%, which
are significantly higher than current market rates. Of the $47.4 million of
early redemptions, $37.7 million represents First Mortgage Pipe Line Bonds, with
the remaining amount representing Debentures.
On September 23, 1993, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the public offering of up to $200
million in senior unsecured debt securities, which became effective on October
5, 1993. Subsequently, in February 1994, the Company completed an offering of
$125 million in principal amount of 7-3/8% 30-year Debentures due in February
2024. The net proceeds from the sale of the Debentures were added to the general
funds of the Company and were used for capital expenditures and for other
general corporate purposes, including the payment of dividends.
In March 1994, the Company paid a $255 million dividend on its common stock.
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 long-term debt 59.9% 62.4% 84.0%
Long-term debt and capital leases to total capitalization 27.3% 32.9% 38.2%
The 1993 decrease in the cash flow from operating activities to long-term
debt resulted from lower rates associated with the settlement of the Company's
1989 rate case, partially offset by a decrease in long-term debt. The 1992
decrease can be attributed to higher operating expenses and costs related to the
settlement of the Company's 1989 rate case. The decreases in 1993 and 1992 in
long-term debt and capital leases to total capitalization resulted from the
retirement of long-term debt and an increase in retained earnings.
Management believes that the Company's stable financial position and earnings
ability will enable it to continue to generate and obtain capital for financing
needs in the foreseeable future.
Expenditures for 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."
CONSTRUCTION. Construction additions were $118.9 million in 1992 and $58.2
million in 1993. Capital expenditures for 1994, including the Company's equity
investments in partnerships and joint ventures, are currently
F-1
budgeted at approximately $138 million. Included in these expenditures is
approximately $90 million related to the acquisition of an ownership interest in
existing natural gas transmission facilities.
Funding for certain pending and proposed natural gas pipeline projects is
anticipated to be provided through non-recourse financings in which the
projects' assets and contracts will be pledged as collateral. This type of
financing typically requires the participants to make equity investments
totaling approximately 20% to 30% of the cost of the project, with the remainder
financed on a long term basis. Equity participation by other entities will also
be considered. To the extent required, cash for equity contributions to projects
will be from general corporate funds. Financing for the remaining budgeted
expenditures in 1994 will be accomplished by the use of internally generated
funds. Information concerning these projects is contained in Part I herein under
Item 1, "Business - Other Developments."
INVESTMENT IN STORAGE GAS. In 1993, storage gas inventories decreased by
$79.1 million as compared to 1992 year end levels and increased by $30.9 million
in 1992 as compared to 1991 year end levels. The decrease in 1993 is
attributable to the Company's implementation of Order 636 and the fact that,
effective November 1, 1993, the Company no longer provides a merchant service,
which previously required an ongoing investment in working storage gas. In
contrast, the increase in 1992 compared to 1991 is due to an increase in the
average cost of gas.
ASSETS RELATED TO EXCESS GAS SUPPLY. "Assets related to excess gas supply"
are being recovered through the currently allowed billing mechanism under FERC
Order No. 528, through gas takes against prepaid gas and through cash recoveries
of gas prepayments under certain take-or-pay contracts. In 1993, "Assets related
to excess gas supply" decreased by $82.6 million. The decline is attributable to
the recovery of producer contract reformation costs pursuant to FERC Order No.
528 and a significant first quarter cash recovery of a prepayment for gas under
a purchase contract with a producer.
FINANCING ALTERNATIVES. Alternatives to finance additional capital and other
expenditures are limited principally by the terms of certain debt instruments of
the Company and certain affiliates. Under the most restrictive of such
instruments, as of December 31, 1993, ANR Pipeline and certain affiliates could
incur in the aggregate approximately $917 million of additional indebtedness.
For the Company and these affiliates to incur indebtedness for borrowed money in
excess of this amount, approximately $400 million of indebtedness of Coastal
Natural Gas 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 $285.5 million
to an associated company at a market rate of interest. Such amount is repayable
upon demand.
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. Additionally, appropriate governmental
authorities may enforce the laws and regulations with a variety of civil and
criminal enforcement measures, including monetary penalties and remediation
requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." The Company has been named as a potentially responsible party in two
"Superfund" waste disposal sites. At one site for which the EPA has developed
sufficient information to estimate total clean-up costs of approximately $1.8
million, the Company estimates its pro-rata exposure is less than $50,000. At
the other site, the EPA is currently unable to provide the Company with an
estimate of total clean-up costs and, accordingly, the Company is unable to
calculate its share of those costs.
There are additional areas of environmental remediation responsibilities
which may fall on the Company. Future information and developments will require
the Company to continually reassess the expected impact of these environmental
matters. However, the Company has evaluated its total environmental exposure
based on currently
F-2
available data, including its potential joint and several liability, and
believes that compliance with all applicable laws and regulations will not have
a material adverse impact on the Company's liquidity or financial position.
RESULTS OF OPERATIONS
REVENUES. For the period November 1, 1992 through October 31, 1993, the
Company operated under restructured sales services as part of the Interim
Settlement. Prior to the restructuring, the cost of providing transportation
services for sales customers was recovered as part of the Company's total resale
rate and, therefore, was classified as part of gas sales revenue. Under the
Interim Settlement, these costs were recovered through a separate "bundled"
storage and transportation rate and were included in storage and transportation
revenue. Revenue recovered under this separate "bundled" service amounted to
$153.1 million and $29.3 million in 1993 and 1992, respectively.
In the fourth quarter of 1993, the Company implemented its Order 636
restructuring (see Note 7 of Notes to Consolidated Financial Statements), and
now offers an array of "unbundled" storage, transportation and balancing service
options. Under Order 636, the Company no longer offers a merchant service.
Former gas sales customers of the Company have largely retained their firm
storage and transportation service levels previously included in their "bundled"
gas sales services. Consequently, while operating revenues will be reduced as a
result of the implementation of Order 636, purchases and other related costs
will be reduced by a similar amount.
Gas sales revenues decreased by $31 million in 1993 as compared to 1992
primarily as a result of the sales service restructuring mentioned above and
rate decreases associated with gas pricing. These decreases were largely offset
by higher sales volumes resulting from sales customers purchasing gas for
storage injection during the spring and summer months. This purchase and storage
of gas by sales customers was in anticipation of the Company's implementation of
Order 636, and the fact that the Company would no longer provide a merchant
service effective November 1, 1993.
Gas sales revenues decreased by $6.7 million in 1992 in comparison to 1991
primarily as a result of the Company's restructuring of its sales service, as
mentioned above. Offsetting this decrease was a change in the provision for
rate-related contingencies associated with the settlement of the Company's 1989
rate case.
Storage and transportation revenues increased by 19% in 1993 as compared to
1992. The primary factors contributing to the increased revenue were the
recognition of $123.8 million of additional transportation revenue due to the
sales service restructuring mentioned above, and the addition of 24.4 Bcf and
46.2 Bcf of new firm storage and firm transportation services contracted for,
effective April 1 and November 1, 1993, respectively. These factors were offset
by lower transportation commodity rates associated with the settlement of the
Company's 1989 rate case, a decrease in open access transportation volumes of 7%
which, in part, is the result of higher sales volumes transported during the
period, and a change in the provision for rate-related contingencies associated
with the settlement of the Company's 1989 rate case.
Storage and transportation revenues increased by 21% in 1992 as compared to
1991. The factors contributing to the additional revenue for 1992 were the
addition of 25.8 Bcf of new firm storage and firm transportation services
contracted for the 1992/1993 heating season, the recognition of $29.3 million of
transportation revenue due to the sales service restructuring described
previously and a change in the provision for rate-related contingencies
associated with the settlement of the Company's 1989 rate case.
Other revenues increased in 1993 as compared to 1992 primarily because of
increased revenue from investments in pipeline partnerships and an increase in
interest income for 1993. Other revenues decreased in 1992 in comparison to 1991
because of a decrease in interest income for 1992 partially offset by an
increase in revenues from investments in pipeline partnerships.
COST OF GAS SOLD. As a result of the implementation of Order 636, as
discussed above, the Company no longer offers a merchant service. Because of
this, a significant portion of the Company's gas purchase contracts have been
bought out or reassigned. ANR Pipeline is continuing to negotiate the permanent
release from a number of gas
F-3
purchase contract obligations which still exist. The Company believes it will
recover any costs associated with the resolution of these negotiations with no
significant adverse financial impact. For additional information concerning the
recovery of transition costs resulting from the implementation of Order 636, see
Note 7 of Notes to Consolidated Financial Statements included herein.
Cost of gas sold increased by $119.6 million in 1993 as compared to 1992 due
to higher sales volumes. This increase was partially offset by a decrease in the
average rate of the cost of gas purchased. Certain costs previously recorded as
cost of gas sold, which are now included in transmission and compression expense
within operation and maintenance expenses as a result of the Interim Settlement,
also contributed to this decrease. The average unit cost of gas charged to
operations was $2.31 per Mcf in 1993 as compared to $2.86 per Mcf in 1992 and
$2.89 in 1991.
OPERATION AND MAINTENANCE. Operation and maintenance expenses for 1993
approximated those of 1992, although the following fluctuations were noted.
Transmission and compression expenses increased in 1993 as described above, and
storage expense increased due to the addition of 42 Bcf of storage capacity
provided by Blue Lake Gas Storage Company commencing in April 1993. These
increases were offset by an adjustment in 1993 to the estimated costs recorded
in 1992 related to the settlement of the Company's 1989 rate case, the Interim
Settlement, and provisions for unrecoverable producer contract reformation
costs.
Operation and maintenance expense increased by $83.5 million in 1992 as
compared to 1991 primarily due to increased costs for transmission and
compression of gas by others, higher compressor station expenses associated with
compressor fuel and costs related to the settlement of the Company's 1989 rate
case and the Interim Settlement previously described in Item 1, "Business,
Regulations Affecting Gas System - Rate Matters."
DEPRECIATION. The decrease in depreciation expense of $44.1 million in 1993
as compared to 1992 and $5.2 million in 1992 as compared to 1991, is caused by a
decrease in depreciation rates, which became effective November 1, 1992, as a
result of the Interim Settlement.
INTEREST EXPENSE. Interest expense decreased by $7.3 million in 1993
compared to 1992 due to a lower effective interest rate and lower average
outstanding long-term debt, partially offset by a reduction in 1992 interest
expense associated with changes in provisions for regulatory matters. Interest
expense decreased by $2.9 million in 1992 when compared to 1991 primarily as a
result of changes in provisions for rate refunds partially offset by higher
average outstanding long-term debt at a higher effective rate of interest.
TAXES ON INCOME. Income taxes increased by $3.3 million in 1993 as compared
to 1992 primarily due to an increase in pre-tax income, and an increase in the
federal income tax rate from 34% to 35%, offset by certain adjustments to state
income tax accruals.
RECENT ADOPTION OF FASB PRONOUNCEMENTS
In 1993, the Company adopted a change in accounting for postretirement
benefits as required by FAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
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 $3 million estimated earnings impact of adopting FAS No. 112
will be deferred, as the Company has included such costs in its November 1, 1993
general rate case application with the FERC.
See Note 10 of Notes to Consolidated Financial Statements included herein for
a discussion of these items.
F-4
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ANR Pipeline Company
Detroit, Michigan
We have audited the accompanying consolidated balance sheets of ANR Pipeline
Company (an indirect, 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 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 ANR Pipeline 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 10 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
Detroit, Michigan
February 3, 1994
F-5
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
DECEMBER 31,
------------------
1993 1992
-------- --------
ASSETS
Property, Plant and Equipment, at cost.................... $3,170.1 $3,139.2
Less - Accumulated depreciation.......................... 2,174.3 2,140.5
-------- --------
995.8 998.7
-------- --------
Current Assets:
Cash..................................................... .5 3.1
Special deposit.......................................... 33.4 -
Note receivable from affiliate........................... 285.5 227.5
Accounts receivable...................................... 94.2 98.6
Gas in underground storage, at FIFO cost................. 195.8 274.9
Materials and supplies at average cost................... 40.6 41.0
Other.................................................... .7 .9
-------- --------
650.7 646.0
-------- --------
Other Assets:
Deferred charges and other............................... 115.6 79.8
Investment in pipeline partnerships...................... 37.5 40.2
Assets related to excess gas supply...................... 120.7 203.3
-------- --------
273.8 323.3
-------- --------
$1,920.3 $1,968.0
======== ========
See Notes to Consolidated Financial Statements.
F-6
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
DECEMBER 31,
----------------------
1993 1992
-------- --------
STOCKHOLDERS' EQUITY AND LIABILITIES
Common Stock and Other Stockholder's Equity:
Common stock, $100 par value, authorized and outstanding 1,000 shares........... $ .1 $ .1
Additional paid-in capital...................................................... 466.2 466.3
Retained earnings............................................................... 503.0 383.7
-------- --------
969.3 850.1
-------- --------
Mandatory Redemption Cumulative Preferred Stock, $1 par value, authorized
10,000,000 shares, outstanding 1,086,640 and 1,413,310 shares, respectively..... 26.0 36.1
-------- --------
Long-Term Debt................................................................... 356.6 404.0
-------- --------
Obligation Under Capital Leases.................................................. 17.4 31.1
-------- --------
Current Liabilities:
Maturities and sinking fund requirements of long-term debt and preferred stock.. 7.7 38.4
Obligation under capital leases................................................. 3.0 5.0
Accounts payable................................................................ 207.3 264.0
Taxes on income................................................................. (15.8) 13.9
Other........................................................................... 52.3 58.6
-------- --------
254.5 379.9
-------- --------
Deferred Credits and Other:
Accumulated deferred income taxes............................................... 217.1 186.2
Unamortized rate reductions for excess deferred federal income taxes............ 12.6 32.7
Other........................................................................... 66.8 47.9
-------- --------
296.5 266.8
-------- --------
$1,920.3 $1,968.0
======== ========
See Notes to Consolidated Financial Statements.
F-7
ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED EARNINGS
(Millions of Dollars)
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Revenues:
Gas sales....................................... $ 603.5 $ 634.5 $ 641.2
Storage and transportation...................... 634.7 534.0 441.4
Other........................................... 33.6 23.3 31.8
-------- -------- --------
1,271.8 1,191.8 1,114.4
-------- -------- --------
Costs and Expenses:
Cost of gas sold................................ 539.6 420.0 421.2
Operation and maintenance....................... 397.6 395.1 311.6
Depreciation.................................... 46.6 90.7 95.9
Interest expense................................ 50.8 58.1 61.0
Taxes on income................................. 80.2 76.9 76.3
-------- -------- --------
1,114.8 1,040.8 966.0
-------- -------- --------
Net Earnings..................................... $ 157.0 $ 151.0 $ 148.4
======== ======== ========
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
(Millions of Dollars)
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Balance - Beginning of Year...................... $ 383.7 $ 266.5 $ 444.6
Net Earnings..................................... 157.0 151.0 148.4
Dividends:
Common stock.................................... (33.7) (28.6) (320.0)
Preferred stock................................. (4.0) (5.2) ( 6.5)
-------- -------- --------
Balance - End of Year............................ $ 503.0 $ 383.7 $ 266.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-8
ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
Cash Flows from Operating Activities:
Net earnings................................................................ $ 157.0 $ 151.0 $ 148.4
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation............................................................... 48.6 92.5 97.8
Increase in deferred income taxes.......................................... 13.6 7.7 9.0
Producer contract reformation cost recoveries.............................. 47.1 41.9 16.8
Provision for producer settlements......................................... (5.1) 13.6 13.5
Equity in earnings of pipeline partnerships................................ (6.5) (3.1) .1
Changes in other assets and liabilities affecting operating activities:
Decrease (increase) in accounts receivables................................ 4.4 (43.5) 91.6
Decrease (increase) in gas in underground storage.......................... 79.1 (30.9) 5.4
Increase (decrease) in accounts payable and other accruals................. (60.2) 13.7 (21.4)
Net increase (decrease) in other assets/liabilities........................ (64.5) 9.3 (25.8)
-------- -------- --------
Total adjustments......................................................... 56.5 101.2 227.0
-------- -------- --------
Net cash provided by operating activities................................. 213.5 252.2 375.4
-------- -------- --------
Cash Flows from Investing Activities:
Decrease (increase) in note receivable from affiliate....................... (58.0) (4.9) 77.5
Gas supply settlements and prepayments...................................... (4.3) (41.4) (50.7)
Recovery of gas supply prepayments.......................................... 24.9 4.4 23.0
Capital expenditures........................................................ (49.4) (112.0) (125.2)
-------- -------- --------
Net cash used in investing activities..................................... (86.8) (153.9) (75.4)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt.................................... - - 300.0
Retirement of long-term debt, capital lease obligation and preferred stock.. (91.5) (64.4) (276.5)
Common stock dividends paid................................................. (33.7) (28.6) (320.0)
Preferred stock dividends paid.............................................. (4.1) (5.5) (6.6)
-------- -------- --------
Net cash used in financing activities...................................... (129.3) (98.5) (303.1)
-------- -------- --------
Net Decrease in Cash......................................................... (2.6) (.2) (3.1)
Cash - Beginning of Period................................................... 3.1 3.3 6.4
-------- -------- --------
Cash - End of Period......................................................... $ .5 $ 3.1 $ 3.3
======== ======== ========
See Notes to Consolidated Financial Statements.
F-9
ANR PIPELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
- - Basis of Presentation
ANR Pipeline is a subsidiary of ANR, which is a direct subsidiary of Coastal
Natural Gas and an indirect subsidiary of Coastal. 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. Certain 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
results of operations or financial position.
The Company is regulated by and subject to the regulations and accounting
procedures of the FERC. In addition, the Company meets the criteria and,
accordingly, follows the accounting and reporting 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
a 20% to 50% continuing interest. The cost method of accounting is used for an
investment in which the Company has less than a 20% continuing interest.
- - Gas in Underground Storage
Gas in underground storage at December 31, 1993 includes $161.5 million,
pending approval by the FERC, which is to be transferred to Property, Plant and
Equipment for regulatory and accounting purposes.
- - Depreciation of Gas Plant
The Company's annual provisions for depreciation of gas plant are computed on
a straight-line basis using rates of depreciation which vary by type of
property. The annual composite depreciation rates for 1993, 1992 and 1991 were
approximately 1.6%, 3.1% and 3.4%, respectively.
- - 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
incomes 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.
- - Statement of Cash Flows
The Company made cash payments for interest, net of interest capitalized, of
$53.0 million, $68.3 million and $54.8 million in 1993, 1992 and 1991,
respectively. Cash payments for income taxes amounted to $103.2 million, $104.1
million and $78.5 million in 1993, 1992 and 1991, respectively.
- - Allowance for Funds Used During Construction
In accordance with the accounting requirements of the FERC, an allowance for
equity and borrowed funds used during construction is included in the cost of
the Company's major additions to gas plant. These costs amounted to $1.5
million, $3.9 million and $4.5 million in 1993, 1992 and 1991, respectively.
F-10
- - Concentrations of Credit Risk
The Company's primary market areas are located in the Midwest region of the
United States. The Company has a concentration of receivables due from
interstate pipelines, intrastate pipelines and local distribution companies in
these market areas. These concentrations of customers may affect the Company's
overall credit risk in that the customers may be similarly affected by changes
in economic, regulatory and other factors. Trade receivables are generally not
collateralized; however, the Company analyzes customers' credit positions prior
to extending credit.
2. Common Stock and Other Stockholder's Equity
All of ANR Pipeline's common stock is owned by ANR.
Under the terms of the most restrictive of the Company's financing
agreements, approximately $454 million was available at December 31, 1993 for
payment of dividends on the Company's common and preferred stock. In March 1994,
the Company paid a $255 million dividend on its common stock, which leaves
approximately $199 million of dividend capacity.
3. Mandatory Redemption Cumulative Preferred Stock
The following information relates to the preferred stock outstanding at
December 31, 1993:
$2.675 $2.12 $ 12.00
SERIES SERIES SERIES
-------- -------- --------
Year of issue..................................................... 1975 1976 1980
Shares outstanding (thousands).................................... 200.0 800.0 86.6
Issue price per share............................................. $ 25 $ 25 $ 100
Involuntary liquidation preference (millions of dollars).......... $ 5.0 $ 20.0 $ 8.7
Annual dividend per share......................................... $ 2.675 $ 2.12 $ 12.00
Redemption options:
Currently effective redemption price per share................... $ 25.268 $ 25.318 $103.790
Redemption price per share decreases annually to issue price by.. 1995 1996 1999
Redemptions during the years 1991-1993 (millions of dollars):
Balance outstanding at January 1, 1991........................... $ 20.0 $ 26.6 $ 21.3
Redemptions during 1991.......................................... (5.0) (1.6) (5.3)
1992.......................................... (5.0) (2.5) (4.6)
1993.......................................... (5.0) (2.5) (2.7)
-------- -------- --------
Balance outstanding at December 31, 1993......................... $ 5.0 $ 20.0 $ 8.7
======== ======== ========
Mandatory sinking fund requirements yet to be met during the succeeding five
years aggregate $7.7 million for each of the years 1994 and 1995, $5.1 million
for 1996, $3.1 million for 1997 and $2.5 million for 1998.
The holders of preferred stock are not entitled to vote unless four quarterly
dividend payments are in arrears.
F-11
4. Long-Term Debt
Balances at December 31 were as follows (millions of dollars):
1993 1992
------ ------
First Mortgage Pipe Line Bonds:
8-5/8% series due 1993........................ $ - $ 5.3
9-5/8% series due 1994........................ - 7.7
10-5/8% series due 1995........................ - 5.8
9.95% series due 1999........................ - 37.2
Debentures:
11-3/4% series due 1997........................ - 15.0
13-1/4% series due 1997........................ - 7.5
9-5/8% series due 2021........................ 300.0 300.0
Unsecured Debt:
Swiss Franc Bonds due 1995*.................... 58.1 58.1
Unamortized discount related to outstanding debt,
net of premium.................................. (1.5) (1.9)
------ ------
356.6 434.7
Less maturities and sinking fund requirements.... - 30.7
------ ------
$356.6 $404.0
====== ======
* In October 1985, the Company issued 6% bonds for 125 million Swiss francs
at a price of 100.25%. The foreign currency exposure resulting from the
issue has been contractually hedged through two currency swap agreements,
resulting in an effective borrowing cost of approximately 10.7%. Neither
the Company nor the counterparties are required to collateralize their
respective obligations under these swaps. In the event of nonperformance by
the counterparties to the currency swap, the Company would have no exposure
to credit loss.
Gas properties were pledged as security for the above listed First Mortgage
Pipe Line Bonds. Such bonds have been retired and the Company is in the process
of terminating the associated Mortgage and Deed of Trust.
Maturities and sinking fund requirements of the long-term debt during the
succeeding five years are as follows (millions of dollars):
1994...................... $ 0.0
1995...................... 58.1
1996...................... 0.0
1997...................... 0.0
1998...................... 0.0
In February 1994, the Company completed a public offering of $125 million of
7-3/8% Debentures due in 2024. The net proceeds from the sale were used for
capital expenditures and for other general corporate purposes, including the
payment of dividends.
Alternatives to finance additional capital and other expenditures are limited
principally by the terms of certain debt instruments of the Company and certain
affiliates. Under the most restrictive of such instruments, as of December 31,
1993, ANR Pipeline and certain affiliates could incur in the aggregate
approximately $917 million of additional indebtedness. For the Company and these
affiliates to incur indebtedness for borrowed money in excess of this amount,
approximately $400 million of indebtedness of Coastal Natural Gas would need to
be retired.
F-12
5. 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 ANOUNT VALUE
-------- ------ -------- ------
(MILLIONS OF DOLLARS)
Financial Assets:
Cash.................................. $ .5 $ .5 $ 3.1 $ 3.1
Special deposit....................... 33.4 33.4 - -
Marketable security of an affiliate... 2.0 2.2 - -
Note receivable from affiliate........ 285.5 285.5 227.5 227.5
Deferred gas cost receivable.......... 37.4 37.4 55.4 55.4
Financial Liabilities:
Long-term debt........................ 358.1 418.9 436.6 444.8
Mandatory redemption preferred stock.. 33.7 34.3 43.8 44.0
Foreign currency swaps................ - (32.1) - (22.6)
The estimated fair value of the marketable security of an affiliate is based
on the market quote at December 31, 1993 and is included under Deferred Charges
and Other Assets. The note receivable from affiliate and the deferred gas cost
receivable are at floating market rates of interest and therefore, the carrying
amounts are reasonable estimates of their fair value. The estimated values of
the Company's long-term debt and mandatory redemption preferred stock are based
on interest rates at December 31, 1993 and 1992, respectively, for new issues
with similar remaining maturities. The fair market values of the Company's
foreign currency swaps are based on the estimated termination values at December
31, 1993 and 1992, respectively.
6. Take-or-Pay Obligations
"Assets related to excess gas supply" consists of $120.7 million and $203.3
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. Currently, FERC regulations allow for the billing of a portion of the
costs of take-or-pay settlements and renegotiating gas purchase contracts.
Prepayments are normally recoupable through future deliveries of natural gas.
Contract reformation and take-or-pay costs incurred as a result of the
mandated Order 636 restructuring will be recovered under the transition cost
mechanisms of Order 636 as well as through negotiated agreements with the
Company's customers. The Company believes that these mechanisms provide adequate
coverage for such costs.
Several 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 13% of the amounts claimed. At
December 31, 1993, the Company estimated that unresolved asserted and unasserted
producers' claims amounted to approximately $8 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 $37 million, $29 million, $22 million, $14 million and $3
million for the years 1994-1998, respectively, and $4 million thereafter.
F-13
Such commitments have also not been adjusted for all amounts which may be
assigned or released, or for the results of future litigation or negotiation
with producers.
The Company has made provisions, which it believes are adequate, for payments
to producers that may be required for settlement of take-or-pay claims and
restructuring of future contractual commitments. In determining the net loss
relating to such provisions, the Company has also made accruals for the
estimated portion of such payments which would be recoverable pursuant to FERC-
approved settlements with customers.
7. Litigation, Environmental and Regulatory Matters
- - Litigation
Numerous lawsuits and other proceedings which have arisen in the ordinary
course of business are pending or threatened against the Company or its
subsidiaries. Although no assurances can be given and no determination can be
made at this time as to the outcome of any particular lawsuit or proceeding, the
Company believes there are meritorious defenses to substantially all such claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position.
- - 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. Additionally, appropriate governmental authorities may enforce the
laws and regulations with a variety of civil and criminal enforcement measures,
including monetary penalties and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." The Company has been named as a potentially responsible party in two
"Superfund" waste disposal sites. At one site for which the EPA has developed
sufficient information to estimate total clean-up costs of approximately $1.8
million, the Company estimates its pro-rata exposure is less than $50,000. At
the other site, the EPA is currently unable to provide the Company with an
estimate of total clean-up costs and, accordingly, the Company is unable to
calculate its share of those costs.
There are additional areas of environmental remediation responsibilities
which may fall on the Company. Future information and developments will require
the Company to continually reassess the expected impact of these environmental
matters. However, the Company has evaluated its total environmental exposure
based on currently available data, including its potential joint and several
liability, and believes that compliance with all applicable laws and regulations
will not have a material adverse impact on the Company's liquidity or financial
position.
- - Regulatory Matters
On March 10, 1992, the Company submitted to the FERC a comprehensive Interim
Settlement designed to resolve all outstanding issues resulting from its 1989
rate case and its 1990 proposed service restructuring proceeding. The Interim
Settlement involved, inter alia, an array of new sales, delivery, transportation
and storage service alternatives and the implementation of a GIC, designed to
compensate the Company for the costs of standing ready to serve its sales
customers. The Interim Settlement reflected a decrease in cost of service of
approximately $45 million, which was largely attributable to a reduction in
depreciation rates from 3.4% to 1.82%. Also included was a provision which
allowed the Company to direct bill its customers for its remaining unrecovered
purchased gas costs. The Interim Settlement became effective November 1, 1992
and expired with the Company's implementation of Order 636 on November 1, 1993.
Specific provisions of the Interim Settlement relating to the deferral and
future recovery of certain costs remain in effect.
On April 8, 1992, the FERC issued 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. ANR Pipeline placed its restructured services under Order 636 into
effect on November 1, 1993. The Company now offers a wide range of "unbundled"
storage, transportation and balancing services. Several persons,
F-14
including ANR Pipeline, have sought judicial review of aspects of the FERC's
orders approving the Company's restructuring filings. Order 636 also provides
mechanisms for recovery of transition costs associated with compliance with that
Order. These transition costs include gas supply realignment costs, the cost of
stranded pipeline investment and the cost of new facilities required to
implement Order 636. The Company expects that it will incur transition costs of
approximately $150 million. As a result of the recovery mechanisms provided
under Order 636, the Company anticipates that these transition costs will not
have a material adverse effect on its financial position or its results of
operations.
On December 17, 1992, the FERC issued a policy statement that outlined
changes on how pipelines may recover the costs of employees' postretirement
benefits other than pensions. The FERC's policy will be to recognize, as a
component of jurisdictional cost-based rates, allowances for FAS No. 106 costs
of company employees when determined on an accrual basis, provided certain
conditions are met.
On November 1, 1993, the Company filed a general rate increase with the FERC.
The proposed rates reflect a $121 million increase in the Company's cost of
service from that approved in the Interim Settlement and a $218 million increase
over the Company's approved rates for its restructured services. The increase
represents higher plant investment, Order 636 restructuring costs, rate of
return and tax rate changes and increased costs related to the required adoption
of recent accounting rule changes, i.e., FAS Nos. 106 and 112. The FERC has
permitted the Company to place its new rates into effect on May 1, 1994, subject
to refund and subject to certain required compliance changes and the outcome of
an evidentiary hearing on all remaining issues.
Certain regulatory issues remain unresolved among 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 and other issues, it cannot estimate when each of these issues
will be resolved.
Gas Costs
As part of the Company's Interim Settlement, the Company received the
authorization to refund or direct bill its former gas sales customers for the
outstanding amount of its deferred purchased gas costs as of October 31, 1992,
up to $72 million. The Company is also authorized to direct bill its former gas
sales customers for costs incurred to resolve billing disputes with its
producers up to an amount not to exceed $25 million. The Company began billing
for recovery of these costs in January 1993. The customers have up to five years
to pay on these billings. Interest will be accrued on any unpaid amounts.
Also, as part of the Company's Interim Settlement, a new demand-commodity
form of gas pricing replaced the purchased gas adjustment provision of the
Company's tariff. This new form of gas pricing included a cost-based GIC that
firm sales customers were obligated to pay for the right to purchase gas, and a
gas commodity charge which was capped by reference to a spot price index for gas
purchased. This method of gas cost recovery requires refund of over-collections,
and placed the Company at risk for under-collection, and expired under the terms
of the Interim Settlement on November 1, 1993. As required by the Interim
Settlement, the Company will file with the FERC in 1994 for approval of the
amount to be refunded.
Effective with the implementation of Order 636 on November 1, 1993, the
Company no longer provides a merchant service. However, the Company still
purchases gas under a number of gas purchase contracts. The Company's Order 636
restructured tariff provides mechanisms for the purpose of recovering from or
refunding to its customers any pricing differential between costs incurred to
purchase this gas and the amount the Company recovers through auctioning of gas
on the open market.
F-15
8. Lease Commitments
The Company is the lessee of eight storage fields under capital leases. The
storage field leases were to expire on May 1, 1998. However, the Company has the
option to extend each of the leases for up to three successive five year
periods. On April 27, 1993, the Company exercised the first of these three
successive and separate options, extending the current storage field leases to
May 1, 2003. The net present value of the future minimum lease payments is
included as part of Property, Plant and Equipment in the Company's Consolidated
Balance Sheet as follows (millions of dollars):
DECEMBER 31,
--------------
1993 1992
------ ------
Storage property..................................... $121.9 $134.6
Less: Accumulated depreciation...................... 101.5 98.5
------ ------
$ 20.4 $ 36.1
====== ======
The annual provision for depreciation included as a part of depreciation
expense was $3.0 million, $4.7 million and $4.9 million for 1993, 1992 and 1991,
respectively.
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of December 31, 1993 are as follows
(millions of dollars):
Year ending December 31:
1994........................................................ $10.6
1995........................................................ 10.1
1996........................................................ 9.6
1997........................................................ 9.1
1998 through 2003........................................... 34.8
-----
Total minimum lease payments................................ 74.2
Less: Amount representing executory costs.................. 22.6
-----
Net minimum lease payments.................................. 51.6
Less: Amount representing interest.......................... 31.2
-----
Present value of minimum lease payments..................... $20.4
=====
Operating lease rentals included in operating expenses totaled $16.2 million
for 1993, $16.4 million for 1992 and $18.3 million for 1991. Aggregate minimum
lease payments under existing noncapitalized long-term leases are estimated to
be $12.8 million, $11.7 million, $11.7 million, $11.7 million and $11.6 million
for the years 1994-1998, respectively, and $121.2 million thereafter.
F-16
9. Taxes On Income
Provisions for income taxes are composed of the following (millions of
dollars):
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
------ ------ ------
Federal:
Currently payable........................ $ 62.0 $ 87.6 $ 75.5
Deferred................................. 14.5 (17.6) (6.5)
------ ------ ------
76.5 70.0 69.0
State and City:
Currently payable........................ 2.1 8.1 8.1
Deferred................................. 1.6 (1.2) (.8)
------ ------ ------
Total income taxes...................... $80.2 $ 76.9 $ 76.3
====== ====== ======
Provisions for income taxes were different from the amount computed by
applying the statutory U.S. federal income tax rate to earnings before tax. The
reasons for these differences are (millions 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......................... $ 83.0 $ 77.5 $ 76.4
State and city income taxes reduced by federal income tax benefit.. 2.4 4.6 4.8
Normalization adjustment for liberalized depreciation.............. (4.8) (4.8) (4.8)
Other.............................................................. (.4) (.4) (.1)
------ ------ ------
Taxes on income................................................... $ 80.2 $ 76.9 $ 76.3
====== ====== ======
Deferred tax liabilities (assets) which are recognized for the estimated
future tax effects attributable to temporary differences and carryforwards are
(millions of dollars):
DECEMBER 31,
--------------
1993 1992
------ ------
Depreciation............................... $156.3 $130.6
Purchased gas and other recoverable costs.. 53.2 44.8
Other...................................... 15.2 11.0
------ ------
Deferred tax liabilities.................. 224.7 186.4
------ ------
Inventory capitalization................... (8.0) (10.6)
Benefit plans and accrued expenses......... (8.3) (7.8)
Other...................................... (6.5) (6.3)
------ ------
Deferred tax assets....................... (22.8) (24.7)
------ ------
Deferred income taxes..................... $201.9 $161.7
====== ======
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. The cumulative impact of
the tax rate increase, which amounted to $1.1 million, has been reflected in the
1993 federal income tax provisions above. In addition, the Company has included
in its November 1, 1993 general rate case application with the FERC a provision
to reduce, by $4 million, its obligation to ratepayers for the "Unamortized rate
reductions for excess deferred federal income taxes" as a result of this tax
rate increase.
F-17
10. Benefit Plans
The Company participates with its affiliates 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. ANR Pipeline made no contributions to the Plan for 1993,
1992 or 1991. Assets of the Plan are not segregated or restricted by its
participating subsidiaries and pension obligations for Company employees would
remain the obligation of the Plan if the Company were to withdraw.
ANR Pipeline 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 $5.9, $5.7 and $5.4 million for 1993, 1992 and 1991, respectively.
The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. Effective January 1, 1993, the
Company adopted FAS 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 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 20 years.
The Company has elected to recognize the initial postretirement benefit
obligation of approximately $62.7 million over a period of 20 years. The
Company's cash flows were not affected by the implementation of FAS 106 and the
incremental impact of $6.5 million on the Company's 1993 year-to-date results of
operations has been deferred, as the Company has included such costs in its
November 1, 1993 general rate case application with the FERC.
(millions of
dollars)
------------
Accumulated postretirement benefit obligation as of December 31, 1993:
Retirees........................................................................... $ 55.6
Fully eligible plan participants................................................... 6.3
Other active plan participants..................................................... 7.1
------
$ 69.0
======
Accumulated postretirement benefit obligation in excess of plan assets............... $(69.0)
Unrecognized transition obligation................................................... 59.6
Unrecognized net loss from past experience different from that assumed............... 2.9
------
Postretirement benefit obligation included in balance sheet as of December 31, 1993.. $ (6.5)
======
Net periodic postretirement benefit cost for the year ended December 31, 1993,
consisted of the following components:
Service cost - benefits earned during the period................................... $ .4
Interest cost on accumulated postretirement benefit obligation..................... 5.0
Amortization of transition obligation.............................................. 3.1
Deferred regulatory asset.......................................................... (6.5)
------
Net periodic postretirement benefit expense........................................ $ 2.0
======
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 the net postretirement health
care cost by approximately 7.2%. The assumed discount rate used in determining
the accumulated postretirement benefit obligation was 7.25%.
F-18
The FASB has issued FAS No. 112, "Employers' Accounting for Postemployment
Benefits" ("FAS 112"), to be effective in 1994. This standard covers the
accounting for estimated costs of benefits provided to former or inactive
employees before their retirement. The $3 million estimated earnings impact of
adopting FAS 112 will be deferred, as the Company has included such costs in its
November 1, 1993 general rate case application with the FERC. The Company
implemented FAS 112 effective January 1, 1994.
11. Transactions with Affiliates and Major Customers
The Statement of Consolidated Earnings includes Gas Sales and Storage and
Transportation revenues from major customers; the cost of Gas Purchases and
Transmission, Compression and Storage of gas by others from affiliates and
related parties as follows (millions of dollars):
1993 1992 1991
---------------- ----------------- -----------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ --------- ------ --------- ------ ---------
Gas Sales and Storage and Transportation Services
- -------------------------------------------------
Michigan Consolidated Gas Company................. $241.7 19.5% $243.8 20.9% $204.1 18.9%
Wisconsin Gas Company............................. 223.0 18.0 197.7 16.9 174.2 16.1
Gas Purchases
- -------------
Coastal Gas Marketing Company..................... $ 67.0 16.0% $ - -% $ - -%
Great Lakes....................................... - - .8 0.2 1.5 0.4
Production Company................................ 3.6 0.9 16.5 3.7 7.7 2.1
Transmission, Compression and Storage
- -------------------------------------
ANR Storage....................................... $ 11.8 7.6% $ 11.6 12.3% $ 11.6 17.1%
Blue Lake Gas Storage Company..................... 19.9 12.8 - - - -
Coastal Gas Marketing Company..................... 8.3 5.4 8.0 8.5 8.6 12.6
Colorado.......................................... 5.5 3.5 5.9 6.2 3.8 5.6
Great Lakes....................................... 11.5 7.4 4.8 5.1 0.8 1.2
HIOS.............................................. 12.0 7.7 13.3 14.1 11.4 16.8
The Consolidated Balance Sheet includes $6.2 million at December 31, 1993 and
$17.5 million at December 31, 1992 due from affiliates reflected in accounts
receivable and $17.7 million at December 31, 1993 and $39.6 million at December
31, 1992 due to affiliates reflected in accounts payable.
Services provided by the Company at cost for affiliated companies were $10.1
million for 1993, $10.4 million for 1992 and $9.8 million for 1991. Services
provided by affiliated companies for the Company at cost were $31.6 million for
1993, $31.5 million for 1992 and $27.4 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 of facilities and general and
administrative functions. Such costs are allocated to the Company using a three
factor formula consisting of revenues, property and payroll, which has been
applied on a reasonable and consistent basis.
The Company has a lease agreement with ANR Ren Cen, Inc., a subsidiary of
ANR, for the rental of office space in Detroit. Rental payments for the years
1993, 1992 and 1991 amounted to $4.9 million, $4.8 million and $4.6 million,
respectively.
The Company has lease agreements with Coastal and one of its affiliates for
the rental of certain facilities. Rental expenses of $4.1 million, $5.8 million
and $4.2 million were recorded in 1993, 1992 and 1991, respectively, in
conjunction with the terms of the lease agreements.
ANR Pipeline 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 $285.5 million
to an associated company at a market rate of interest. Such amount is repayable
on demand.
F-19
12. Quarterly Financial Data (Unaudited)
The results of operations by quarter for the years ended December 31, 1993
and 1992 were (millions of dollars):
1993 QUARTER ENDED
----------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
Revenues......................... $362.1 $337.6 $303.9 $268.2
Cost of gas sold................. 176.0 157.7 121.0 84.9
------ ------ ------ ------
Revenues less cost of gas sold.. 186.1 179.9 182.9 183.3
Other costs and expenses......... 136.4 142.9 151.8 144.1
------ ------ ------ ------
Net earnings.................... $ 49.7 $ 37.0 $ 31.1 $ 39.2
====== ====== ====== ======
1992 QUARTER ENDED
----------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
Revenues......................... $358.3 $261.6 $231.2 $340.7
Cost of gas sold................. 152.9 81.6 48.9 136.6
------ ------ ------ ------
Revenues less cost of gas sold.. 205.4 180.0 182.3 204.1
Other costs and expenses......... 152.3 148.5 146.2 173.8
------ ------ ------ ------
Net earnings.................... $ 53.1 $ 31.5 $ 36.1 $ 30.3
====== ====== ====== ======
F-20
ANR PIPELINE COMPANY AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER
THAN RELATED PARTIES
(Millions 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
- ------------------------------
ANR Credit Corporation $ 227.5 $ 58.0 $ - $ - $ 285.5 $ -
======= ========= ========= =========== ======= ===========
Year Ended December 31, 1992
- ----------------------------
ANR Credit Corporation $ 222.6 $ 4.9 $ - $ - $ 227.5 $ -
======= ========= ========= =========== ======= ===========
Year Ended December 31, 1991
- ----------------------------
ANR Credit Corporation $ 300.1 $ - $ 77.5 $ - $ 222.6 $ -
======= ========= ========= =========== ======= ===========
- -------------------------------------
1 The note receivable is a promissory note due from an affiliate on demand and
bears a market rate of interest.
S-1
ANR PIPELINE COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Millions of Dollars)
OTHER
BALANCE AT RETIRE- CHANGES BALANCE
BEGINNING ADDITIONS MENTS OR ADD AT END
OF YEAR AT COST SALES (DEDUCT) OF YEAR
---------- --------- -------- -------- --------
Year Ended December 31, 1993
- ----------------------------
Gas Plant, at original cost:
General............................... $3,004.6 $ 58.1 $14.5 $ - $3,048.2
Storage property under capital lease.. 134.6 .1 12.8 - 121.9
-------- ------ ----- ------- --------
Total................................ $3,139.2 $ 58.2 $27.3 $ - $3,170.1
======== ====== ===== ======= ========
Year Ended December 31, 1992
- ----------------------------
Gas Plant, at original cost:
General............................... $2,892.4 $118.7 $ 6.0 $ (0.5) $3,004.6
Storage property under capital lease.. 134.4 .2 - - 134.6
-------- ------ ----- ------- --------
Total................................ $3,026.8 $118.9 $ 6.0 $ (0.5) $3,139.2
======== ====== ===== ======= ========
Year Ended December 31, 1991
- ----------------------------
Gas Plant, at original cost:
General............................... $2,785.3 $116.0 $ 8.0 $ (0.9) $2,892.4
Storage property under capital lease.. 134.3 0.1 - - 134.4
-------- ------ ----- ------- --------
Total................................ $2,919.6 $116.1 $ 8.0 $ (0.9) $3,026.8
======== ====== ===== ======= ========
S-2
ANR PIPELINE COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Millions of Dollars)
OTHER
BALANCE AT ADDITIONS CHANGES BALANCE
BEGINNING CHARGED TO ADD AT END
OF YEAR EXPENSES RETIREMENTS (DEDUCT) OF YEAR
---------- ---------- ----------- -------- --------
Year Ended December 31, 1993
- ---------------------------------------
Gas Plant:
General............................... $ 2042.0 $45.6 $14.8 $ - $2,072.8
Storage property under capital lease.. 98.5 3.0 - - 101.5
-------- ----- ----- ------- --------
Total................................ $2,140.5 $48.6 $14.8 $ - $2,174.3
======== ===== ===== ======= ========
Year Ended December 31, 1992
- ---------------------------------------
Gas Plant:
General............................... $1,960.5 $87.8 $ 6.3 $ - $2,042.0
Storage property under capital lease.. 93.8 4.7 - - 98.5
-------- ----- ----- ------- --------
Total................................ $2,054.3 $92.5 $ 6.3 $ - $2,140.5
======== ===== ===== ======= ========
Year Ended December 31, 1991
- ---------------------------------------
Gas Plant:
General............................... $1,876.1 $92.9 $ 8.5 $ - $1,960.5
Storage property under capital lease.. 88.9 4.9 - - 93.8
-------- ----- ----- ------- --------
Total................................ $1,965.0 $97.8 $ 8.5 $ - $2,054.3
======== ===== ===== ======= ========
S-3
ANR PIPELINE COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Millions of Dollars)
CHARGED TO
OPERATIONS AND MAINTENANCE
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
---- ---- -----
Maintenance and repairs..................... $41.0 $41.9 $36.2
Taxes, other than payroll and income taxes.. 34.5 32.9 30.6
S-4
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
- ------ ----------------------------------------------------------------------
(3.1)+ Composite Certificate of Incorporation of ANR Pipeline effective
as of December 31, 1987. (Filed as Module ANRCertIncorp on
March 29, 1994).
(3.2)+ By-laws of ANR Pipeline effective as of August 29, 1991. (Filed
as Module ANRBY-LAWS on March 29, 1994).
(4.1)+ Board Resolution dated September 22, 1975 establishing the
$2.675 Series of Cumulative Preferred Stock. (Filed as
Module BoardRes_092275 on March 29, 1994).
(4.2)+ Board Resolution dated October 26, 1976 establishing the $2.12
Series of Cumulative Preferred Stock. (Filed as Module
BoardRes_102676 on March 29, 1994).
(4.3)+ Board Resolution dated May 12, 1980 establishing the $12.00
Series of Cumulative Preferred Stock. (Filed as Module
BoardRes_051280 on March 29, 1994).
(4.4)* Indenture dated as of February 15, 1994 and First Supplemental
Indenture dated as of February 15, 1994 for the $125 million of
7-3/8% Debentures due February 15, 2024.
(10.1)+ Form of Employment Agreement between the Company and certain of
its executive officers. (Filed as Module ANREmployAgree
on March 29, 1994).
(10.2)+ Form of Employment Agreement between Coastal and certain
Company executive officers. (Filed as Module TCCEmployAgree
on March 29, 1994).
(21)* Subsidiaries of the Company.
(23.1)* Consent of Deloitte & Touche.
(24)* Power of Attorney (included on signature pages herein).
- --------------
Note:
+ Indicates documents incorporated by reference from the prior filings
indicated.
* Indicates documents filed herewith.