ITEM 1. BUSINESS
INTRODUCTION
In January 2001, we became a wholly owned subsidiary of El Paso Corporation through the merger of a wholly owned El Paso subsidiary with The Coastal Corporation. In the merger, each share of Coastal common stock, and Class A common stock was converted on a tax-free basis into 1.23 shares of El Paso common stock. The outstanding convertible preferred stock of Coastal was exchanged tax free for El Paso common stock on the same basis as if the preferred stock had been converted into Coastal common stock immediately prior to the merger. El Paso issued a total of approximately 271 million shares of El Paso common stock, including approximately 4 million shares issued in exchange for outstanding Coastal stock options.
We are a Delaware corporation organized in 1945. All of our outstanding common stock is owned by American Natural Resources Company. American Natural Resources is a direct, wholly owned subsidiary of Coastal Natural Gas Company, and an indirect subsidiary of El Paso CGP Company (formerly Coastal). We own and operate an interstate natural gas pipeline system.
NATURAL GAS SYSTEM
OPERATIONS
We are involved in the open access transportation, storage and gathering of natural gas owned by third parties. Our two interconnected, large-diameter multiple pipeline systems transport natural gas from gas-producing fields in Texas, Oklahoma, Louisiana, the Gulf of Mexico, and Canada to markets in the Midwest and Northeast regions of the United States, including the metropolitan areas of Detroit, Chicago, and Milwaukee.
Our system consists of 10,600 miles of pipeline and 74 compressor stations, with a design peak capacity of approximately 6.6 Bcf/d. During 2000, we transported natural gas volumes averaging approximately 71 percent of our capacity. Along our system, we also have approximately 202 Bcf of underground working gas storage capacity, with a maximum daily delivery capacity of 3 Bcf. Working gas storage capacity operated by us of 126.3 Bcf is available from five owned and five leased underground storage facilities in Michigan. We also have the contracted rights for 75.4 Bcf of working gas storage capacity, of which 45.4 Bcf is provided by Blue Lake Gas Storage Company and 30 Bcf is provided by ANR Storage.
We own a 50 percent indirect interest in the East Breaks, High Island Offshore, Stingray and U-T Offshore systems, all of which are located in the Gulf of Mexico. We also own an indirect 16 percent interest in the Iroquois pipeline system that transports gas from Canada to the northeastern U.S. As a result of the El Paso merger, we were required, under a Federal Trade Commission consent order, to dispose of our interests in the U-T Offshore and Stingray systems. These sales were completed in February 2001. Under that same order, we will dispose of our 16 percent interest in the Iroquois Gas Transmission System. The sale of our interest in the Iroquois system is expected to be completed in the first half of 2001.
Deliveries on our system for the years 2000, 1999 and 1998 were as follows:
In January 2001, we placed in service an expansion of our Wisconsin system that provides an efficient means for customers to gain access to increased supplies of natural gas at the Joliet Market Hub. This expansion added 20,000 horsepower of compression and provides 109 MMcf/d of additional capacity.
REGULATORY ENVIRONMENT
Our interstate systems and those of our investee pipelines are regulated by the Federal Energy Regulatory Commission (FERC) under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Our systems operate under FERC approved tariffs that establish rates, terms, and conditions under which each system provides services to its customers. Generally, FERC's authority extends to:
- transportation and storage of natural gas, rates and charges;
- certification and construction of new facilities;
- extension or abandonment of services and facilities;
- maintenance of accounts and records;
- regulatory accounting policies;
- acquisition and disposition of facilities;
- initiation and discontinuation of services; and
- various other matters.
Tariffs for our and our investee pipeline systems have been established through filings with FERC and have a variety of terms and conditions, each of which affects the pipelines' operations and their ability to recover fees for the services they provide. By and large, changes to these fees or terms can only be implemented upon approval by FERC.
We are also subject to the Natural Gas Pipeline Safety Act of 1968 that establishes pipeline and liquefied natural gas plant safety requirements. We are also subject to environmental legislation and regulations. Our systems have a continuing program of inspection designed to keep all of our facilities in compliance with pollution control and pipeline safety requirements. We believe that our systems are in substantial compliance with the applicable requirements.
We are also subject to regulation with respect to safety requirements in the design, construction, operation and maintenance of our interstate natural gas transmission and storage facilities by the U.S. Department of Transportation. Operations on United States government land are regulated by the U.S. Department of the Interior.
For further discussion of our regulatory matters, see Item 8, Financial Statements and Supplementary Data, Note 4.
MARKETS AND COMPETITION
In our historical market areas of Wisconsin and Michigan, we compete with other interstate and intrastate pipeline companies and local distribution companies in the transportation and storage of natural gas. We have been successful in restructuring the service portfolios of a number of our major Wisconsin customers. This restructuring has enabled us to extend contracts that were set to expire in 2003, with the restructured
contracts providing for a combined winter maximum daily quantity of 674 MMcf/d that will expire in 2008 and 2010. We continue to work with our largest customer, Wisconsin Gas Company, to restructure and extend contracts that are set to expire in 2003. However, Wisconsin Gas is a sponsor of the proposed Guardian Pipeline, which received a FERC certificate on March 14, 2001, and that pipeline will directly compete for a portion of this expiring capacity. We also have 900 MMcf/d of capacity under contract with Michigan Consolidated Gas Company. Of that amount, 110 MMcf/d is due to expire in March 2002, another 175 MMcf/d will expire in 2003, and the remainder of the capacity will expire between 2006 and 2011. Extensions of these contracts are under negotiation.
We also face competition in the Northeast markets from other interstate pipelines serving electric generation and local distribution companies.
ENVIRONMENTAL
A description of our environmental activities is included in Item 8, Financial Statements and Supplementary Data, Note 4, and is incorporated herein by reference.
EMPLOYEES
At January 31, 2001, we had 981 employees engaged in the operation of ANR, including the employees engaged in the operation of ANR Storage Company and Empire State Pipeline. None of our employees are subject to collective bargaining agreements.
ITEM 2.
ITEM 2. PROPERTIES
A description of our properties is included in Item 1, Business and is incorporated herein by reference.
We are of the opinion that we have satisfactory title to the properties owned and used in our businesses, subject to liens for current taxes, liens incident to minor encumbrances, and easements and restrictions that do not materially detract from the value of such property or the interests therein or the use of such properties in our businesses. We believe that our physical properties are adequate and suitable for the conduct of our business in the future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
See Item 8, Financial Statements and Supplementary Data, Note 4, which is incorporated herein by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4, Submission of Matters to a Vote of Security Holders, has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of our common stock, par value $100 per share, is owned by American Natural Resources, and accordingly, there is no public trading market for our securities. American Natural Resources is an indirect subsidiary of Coastal. On January 29, 2001, Coastal became a wholly owned subsidiary of El Paso.
We pay dividends on our common stock from time to time from legally available funds that have been approved for payment by our Board of Directors. We paid cash dividends of $74 million, $127 million and $161 million to our parent in 2000, 1999 and 1998.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Item 6, Selected Financial Data, has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is presented in a reduced disclosure format permitted by General Instruction I to Form 10-K. The Notes to Consolidated Financial Statements contain information that is pertinent to the following analysis.
In January 2001, we became a wholly owned subsidiary of El Paso through the merger of a wholly owned El Paso subsidiary with Coastal. In the merger, El Paso issued a total of approximately 271 million shares of its common stock, including approximately 4 million shares issued in exchange for outstanding Coastal stock options.
In September 2000, it was announced that our headquarters would be relocated from Detroit, Michigan to Houston, Texas following the merger. We expect to incur charges associated with relocations of our employees and assets, and charges for asset and contract terminations that will occur as our operations are consolidated. We anticipate a majority of these charges will occur in the first half of 2001.
On January 30, 2001, we completed an employee restructuring that resulted in the reduction of approximately 900 full time positions through a combination of early retirements and terminations. These reductions will result in severance and termination charges, retention payments to employees retained on a transition basis following the merger, and the acceleration of employee benefit payments under existing benefit plans and employment contracts. We expect a majority of these charges to occur in the first quarter of 2001.
As a result of the merger, we were required, under a Federal Trade Commission consent order, to dispose of our 50 percent indirect interests in the U-T Offshore and Stingray systems. These sales were completed in February 2001. Under that same order, we will dispose of our 16 percent interest in the Iroquois Gas Transmission System. The sale of our interest in the Iroquois system is expected to be completed in the first half 2001.
The final cost of the merger-related activities and the charges we will incur as we continue to integrate our activities with El Paso are not fully known at this time. However, we expect that most of these charges will be recorded in 2001.
RESULTS OF OPERATIONS
Operating results and an analysis of those results for the years ended December 31, 2000 and 1999 are as follows:
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Operating revenues decreased by $9 million in 2000 as compared to 1999. This decrease was primarily due to lower storage and transportation revenues resulting from lower average rates charged to customers. We expect the trend in lower average rates to continue in the near term, as there currently exists excess pipeline capacity for deliveries of natural gas in the Midwest region of the United States. Also contributing to the decrease was a continuing decline in surcharge revenues related to FERC Order 636 transition costs. The decrease in lower storage and transportation revenues was partially offset by an increase in other revenues primarily due to higher Dakota gas sales revenues resulting from natural gas price increases.
Operating expenses increased by $35 million in 2000 as compared to 1999. This increase was largely due to higher prices impacting Dakota gas purchases and accruals for the replacement of system balancing gas. Also contributing to the increase was a $15 million benefit recorded in the first quarter of 1999 related to revisions of various gas costs, gas transportation costs and environmental cleanup cost accruals.
Other income increased by $7 million in 2000 as compared to 1999. The increase is primarily due to higher equity in earnings from pipeline partnerships.
Income taxes decreased by $18 million in 2000 as compared to 1999 primarily due to lower pre-tax income. The effective tax rate was 35 percent and 37 percent for 2000 and 1999.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any forward-looking statement includes a statement of the assumptions or bases underlying the forward-looking statement, we caution that, while we believe these assumptions or bases to be reasonable and to be made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, we or our management express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis. We cannot assure you, however, that the statement of expectation or belief will result or be achieved or accomplished. The words "believe," "expect," "estimate," "anticipate" and similar expressions will generally identify forward-looking statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table presents hypothetical changes in fair values in our debt obligations at December 31, 2000 and 1999. The modeling technique used measures the change in fair values arising from selected changes in interest rates. Market changes reflect immediate hypothetical changes in interest rates at December 31. Fair values are calculated as the net present value of the expected cash flows of the financial instrument.
We have a note receivable from a related party with a carrying value of $128 million and $136 million at December 31, 2000 and 1999. The note earns interest at a variable rate tied to market rates of interest, and therefore, the carrying amount is a reasonable estimate of its fair value. A 10 percent change in interest rates from December 31 levels would not have a material impact on our income.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS)
See accompanying notes.
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AMOUNTS)
See accompanying notes.
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
See accompanying notes.
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN MILLIONS, EXCEPT SHARE AMOUNTS)
See accompanying notes.
ANR PIPELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We are a wholly owned subsidiary of American Natural Resources Company, which is an indirect subsidiary of El Paso CGP Company (formerly Coastal). In connection with Coastal's merger with a wholly owned subsidiary of El Paso in January 2001, Coastal became a subsidiary of El Paso. Coastal then changed its name to El Paso CGP Company. We were originally acquired by Coastal in 1985. Our financial statements are presented on a historical cost basis and do not reflect the cost basis to Coastal when they acquired us. The preparation of these financial statements, in conformity with generally accepted accounting principles, requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Our actual results are likely to differ from those estimates and assumptions used.
Principles of Consolidation
Our consolidated financial statements include accounts of all wholly owned subsidiaries, after eliminating all significant intercompany transactions. The equity method of accounting is used for investments in which we are able to exert significant influence, but not control over operating and financial policies. Other investments where we are unable to exert significant influence are accounted for by the cost method.
Natural Gas Imbalances
Natural gas imbalances result from differences in gas volumes received from and delivered to our transportation and storage customers and arise when a customer delivers more or less gas into our pipeline than they take out. We value these gas imbalances due to or from shippers and operators at an appropriate index price. Natural gas imbalances are settled in cash or made up in-kind, subject to the pipelines' various terms.
Property, Plant and Equipment
Property additions include capitalized interest costs allocable to construction. Such costs amounted to $2 million in both 2000 and 1999 and $3 million in 1998.
Our 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 rate was approximately 1.2 percent for 2000, 1999 and 1998.
Costs of minor property units, or components thereof, retired or abandoned are charged or credited, net of salvage, to accumulated depreciation. Gain or loss on sales of major property units is credited or charged to income.
Income Taxes
We are a member of a consolidated group which files a consolidated federal income tax return. Members of the consolidated group with taxable income are charged with the amount of income taxes as if they filed separate federal income tax returns, and members providing deductions and credits which result in income tax savings are allocated credits for such savings. We follow the liability method of accounting for deferred income taxes as required by the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Cash and Cash Equivalents
Cash equivalents include time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. We made cash payments for interest, net of amounts capitalized, of $46 million, $47 million and $61 million in 2000, 1999 and 1998. Cash payments for income taxes amounted to $48 million, $71 million and $54 million in 2000, 1999 and 1998.
Price Risk Management Activities
We periodically enter into swaps, futures and other contracts to hedge the price risk of natural gas anticipated to be sold. We defer the impact of changes in the market value of these contracts until such time as the hedged transaction is completed. At that time, the impact of the changes in fair market value of these contracts is recognized in income.
Nature of Operations and Concentrations of Credit Risk
We are involved in the transportation, storage and gathering of natural gas primarily for markets in the Midwest and Northeast regions of the United States. We operate under arrangements with other companies including distributors, intrastate and interstate pipelines, producers, brokers, marketers and end-users. As a result, we have a concentration of receivables due from these customers. This may affect our 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, we analyze customers' credit positions prior to extending credit.
Reclassifications
Minor reclassifications of prior period statements have been made to conform with current reporting practices. The effect of these reclassifications was not material to our financial position, operating results or cash flows.
Accounting for Derivative Instruments and Hedging Activities
In June of 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In June of 1999, the FASB extended the adoption date of SFAS No. 133 through the issuance of SFAS No. 137, Deferral of the Effective Date of SFAS 133. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which also amended SFAS No. 133. SFAS No. 133, and its amendments and interpretations, establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and derivative instruments used for hedging activities. It requires that we measure all derivative instruments at their fair value, and classify them as either assets or liabilities on our balance sheet, with a corresponding offset to income or other comprehensive income depending on their designation, their intended use, or their ability to qualify as hedges under the standard.
We adopted SFAS No. 133 on January 1, 2001. The adoption of SFAS No. 133 had no impact on our financial position, operating results or cash flows.
2. LONG-TERM DEBT
Our long-term debt outstanding consisted of the following at December 31:
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
We have estimated the fair value amounts of our financial instruments, 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 we could realize in a current market exchange. The carrying amounts and estimated fair values of our financial instruments at December 31 are as follows:
The note receivable from a related party is at a floating market rate of interest, and therefore, the carrying amount is a reasonable estimate of its fair value. The estimated values of our long-term debt are based on interest rates at December 31, 2000 and 1999 for new issues with similar remaining maturities.
4. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In 1997, we and a number of our affiliates were served as defendants in actions brought by Jack Grynberg on behalf of the U.S. Government under the False Claims Act. Generally, these complaints allege an industry-wide conspiracy to under report the heating value as well as the volumes of the natural gas produced from federal and Native American lands, which deprived the U.S. Government of royalties. These matters have been consolidated for pretrial purposes. (In re: Natural Gas Royalties Qui Tam Litigation, U.S. District Court for the District of Wyoming.)
We and a number of our affiliates were served as defendants in an action styled Quinque Operating Company, et al v. Gas Pipelines and Their Predecessors, et al, filed in 1999 in the District Court of Stevens County, Kansas. This class action complaint alleges that the defendants mismeasured natural gas volumes and heating content of natural gas on non-federal and non-Native American lands. The Quinque complaint, once transferred to the same court handling the Grynberg complaint, has been sent back to the Kansas State Court for further proceedings.
We are also a named defendant in other lawsuits arising in the ordinary course of our business.
While the outcome of the matters discussed above cannot be predicted with certainty, we do not expect the ultimate resolution of these matters will have a material adverse effect on our financial position, operating results or cash flows.
Environmental
Our operations are subject to extensive and evolving federal, state and local environmental laws and regulations. Compliance with these laws and regulations can be costly. Additionally, governmental authorities may enforce the laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties and remediation requirements.
We spent approximately $5 million in 2000 on environmental capital projects and anticipate capital expenditures of approximately $6 to $8 million per year over the next several years aimed at maintaining compliance with these laws and regulations.
The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes liability for the release of a hazardous substance into the environment. CERCLA liability is imposed without
regard to fault and even if the waste disposal was in compliance with the then current laws and regulations. With the joint and several liability imposed under CERCLA, a potentially responsible party may be required to pay more than its proportional share of such costs. We have been named as a potentially responsible party in three CERCLA waste disposal sites. At these sites, there is sufficient information to estimate total cleanup costs of approximately $52 million, and we estimate our pro-rata exposure, to be paid over a period of several years, is approximately $1 million and have made appropriate provisions.
In Michigan, where we have extensive operations, the Environmental Response Act requires individuals, including corporations, who have caused contamination to remediate the contamination to regulatory standards. Owners or operators of contaminated property who did not cause the contamination are not required to remediate the contamination, but must exercise due care in their use of the property so that the contamination is not exacerbated and the property does not pose a threat to human health. We estimate that our costs to comply with the Michigan regulations will be approximately $8 million, which will be expended over a period of several years and for which appropriate provisions have been made.
In October 1998, the EPA announced a Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone (NOx SIP Call), which required the submission of state implementation plans by 22 states, including eight states in which we operate, and the District of Columbia. The NOx SIP Call is the subject of legal proceedings instituted by nine of the affected states and numerous affected industries. In a May 1999 order, the U.S. District Court, District of Columbia stayed, until further order, compliance with the NOx SIP Call. As a result of the gas industry's success in the litigation, the EPA released, on January 5, 2001, its Rulemaking for Purposes of Reducing Interstate Ozone Transport: Response to March 3, 2000, Decision of the U.S. Court of Appeals for the District of Columbia Circuit (Remand Proposal). In the Remand Proposal, the EPA intends to require nitric oxide controls on all engines emitting more than one ton per day of nitric oxide during the 1995 "ozone season." We have approximately 18 engines that would require nitric oxide controls, if the Remand Proposal is adopted without change. We will not be able to estimate the amount of any obligation resulting from the NOx SIP Call until the states have submitted compliant state implementation plans.
It is possible that new information or future developments could require us to reassess our potential exposure related to environmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possible that other developments, such as increasingly strict environmental laws and regulations, and claims for damages to property, employees, other persons and the environment resulting from our current or past operations, could result in substantial costs and liabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. While there are still uncertainties relating to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe that compliance with all applicable laws and regulations will not have a material adverse impact on our financial position, operating results or cash flows.
Regulatory Matters
Several regulatory issues remain unresolved among us, our customers and FERC. We have made provisions that represent our assessment of the ultimate resolution of these issues. While we cannot predict with certainty the final outcome or the timing of the resolution of all our regulatory matters, we believe the ultimate resolution of these issues will not have a material adverse effect on our financial position, operating results or cash flows.
Lease Commitments
Operating lease rentals included in operating expenses amounted to $20 million for each of 2000 and 1999 and $12 million for 1998. Aggregate minimum lease payments under existing noncapitalized, long-term leases are estimated to be $17 million for each of the years 2001 and 2002, $25 million for 2003 through 2005 and $249 million thereafter.
5. INCOME TAXES
The following table reflects the components of income tax expense for the years ended December 31:
El Paso CGP and the Internal Revenue Service Appeals Office have concluded a tentative settlement of the adjustments proposed to El Paso CGP's federal income tax returns filed for the years 1988 through 1994. Examination of El Paso CGP's federal income tax returns filed for the years 1995, 1996 and 1997 began in 1999 and is ongoing. We believe that adequate provisions for federal income taxes have been reflected in our consolidated financial statements.
Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35 percent for the following reasons at December 31:
The following are the components of our net deferred tax liability at December 31:
6. BENEFIT PLANS
We participate in the non-contributory pension plan of El Paso CGP which covers substantially all of our employees. The pension plan provides benefits based on final average monthly compensation and years of service, subject to maximum limitations as defined in the plans. As of December 31, 2000, the pension plan did not have an unfunded accumulated benefit obligation. We made no contributions to the pension plan for 2000, 1999 or 1998. Assets of the pension plan are not segregated or restricted by participating employers, and pension obligations for our employees would remain the obligation of the pension plan if we were to withdraw.
We also make contributions to a thrift plan, which is a trusteed, voluntary and contributory plan for our eligible employees. We match 100 percent of participant basic contributions up to 8 percent, with the matching contribution being made in common stock of Coastal. Our contributions, which are based on matching employee contributions, amounted to $6 million for each of the years 2000, 1999 and 1998.
We provide health care and life insurance benefits for substantially all of our employees. The estimated costs of retiree benefit payments are accrued during the years the employee provides services.
In conjunction with the El Paso merger, some of our benefit plans will be merged into comparable El Paso benefit plans, while other benefit plans will be terminated.
The following table sets forth the changes in benefit obligation, change in plan assets, reconciliation of funded status, and components of net periodic benefit cost for postretirement benefits.
Postretirement benefit obligations are based upon actuarial estimates as described below.
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.8 percent in 2000, declining gradually to 6.0 percent by the year 2004. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.4 percent and 9.0 percent in 1999 and 1998. 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, 2000 by approximately 5.69 percent and the net postretirement health care cost by approximately 5.01 percent. A one percentage point decrease in the assumed health care cost trend rate for each year would decrease the accumulated postretirement benefit obligation as of December 31, 2000 by approximately 5.63 percent and the net postretirement health care cost by approximately 5.13 percent. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.75 percent in 2000 and 8.0 percent in 1999, and the expected long-term rate of return on assets was 4.3 percent in 2000 and 1999.
7. TRANSACTIONS WITH MAJOR CUSTOMERS AND RELATED PARTIES
Major Customers:
The Consolidated Statements of Income include revenues from major customers amounting to 10 percent or more of our consolidated operating revenues as follows:
Revenues from any other single customer did not amount to 10 percent or more of our consolidated operating revenues for the years ended December 31, 2000, 1999 and 1998.
Related Parties:
Operation and maintenance expenses within the Consolidated Statements of Income includes affiliate and other related party transactions as follows:
Services provided by us at cost for affiliated companies were $12 million for both of 2000 and 1999 and $13 million for 1998. The services we provide to affiliates, and provided by affiliates to us, primarily reflect the allocation of costs relating to the sharing of facilities and administrative functions, characteristic of group operations. Costs are allocated based on several factors including revenues, property and payroll.
We have lease agreements with El Paso CGP and its affiliates for the rental of office space, natural gas storage fields and several pipeline facilities. Our investment in an affiliate, Coastal Medical Services, Inc., was $61 million at December 31, 2000 and $65 million at December 31, 1999. The affiliate has assumed the responsibility for facilitating the management of a portion of our medical obligations and the medical obligations of several other El Paso CGP subsidiaries. At December 31, 1999, our Accounts receivable -- Related parties balance includes $21 million of costs incurred for the proposed Gulfstream System, which was divested in conjunction with the merger of El Paso and Coastal. In 2000, these costs were reimbursed by an affiliate that held the investment in this project. In 1999, we sold several storage facilities and related base gas to an affiliate for net book value of $38 million.
We participate in a program that matches short-term cash excesses and requirements of participating affiliates, thus minimizing borrowings from outside sources. We had advanced to an associated company at a market rate of interest, $128 million at December 31, 2000 and $136 million at December 31, 1999. Such amounts are repayable on demand.
8. MERGER-RELATED EMPLOYEE RESTRUCTURING
In September 2000, it was announced that our headquarters would be relocated from Detroit, Michigan to Houston, Texas following the merger. On January 30, 2001, we completed an employee restructuring that resulted in the reduction of approximately 900 full time positions through a combination of early retirements and terminations. These reductions will result in severance and termination charges, retention payments to employees retained on a transition basis following the merger, and the acceleration of employee benefit payments under existing benefit plans and employment contracts.
9. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Financial information by quarter is summarized below. In the opinion of management, all adjustments necessary for a fair presentation have been made.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder ANR Pipeline Company Detroit, Michigan
We have audited the accompanying consolidated balance sheets of ANR Pipeline Company (an indirect, wholly owned subsidiary of El Paso CGP Company, formerly The Coastal Corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Detroit, Michigan March 19, 2001
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10, "Directors and Executive Officers of the Registrant;" Item 11, "Executive Compensation;" Item 12, "Security Ownership of Certain Beneficial Owners and Management;" and Item 13, "Certain Relationships and Related Transactions," have been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction I to Form 10-K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements.
The following Consolidated Financial Statements are included in Part II, Item 8, of this report:
2. Financial Statement Schedules.
Schedules are omitted because they are not applicable.
3. Exhibits.
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K dated February 2, 2001, announcing that we became an indirect subsidiary of El Paso Corporation as a result of the merger of a wholly owned subsidiary of El Paso with The Coastal Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, ANR Pipeline Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March 2001.
ANR PIPELINE COMPANY
By: /s/ E. J. HOLM -------------------------------- E. J. Holm Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of ANR Pipeline Company and in the capacities and on the dates indicated:
EXHIBIT INDEX