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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7176
THE COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1734212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-1400
---------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
As of October 31, 1996, there were outstanding 105,245,620 shares of Common
Stock, 33-1/3 cents par value per share, and 383,704 shares of Class A Common
Stock, 33-1/3 cents par value per share, of the Registrant.
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements of The Coastal Corporation and its subsidiaries
(the "Company" or "Coastal") are presented herein and are unaudited, except for
balances as of December 31, 1995, and therefore are subject to year-end
adjustments; however, all adjustments which are, in the opinion of management,
necessary for a fair statement of the results of operations for the periods
covered have been made. The adjustments which have been made are of a normal
recurring nature. Such results are not necessarily indicative of results to be
expected for the year due to seasonal variations and market conditions affecting
sales of natural gas and petroleum products.
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................... $ 64.4 $ 58.4
Receivables, less allowance for doubtful accounts of $25.7 million
(1996) and $22.7 million (1995)...................................... 1,463.1 1,192.3
Inventories............................................................. 1,023.9 781.1
Prepaid expenses and other.............................................. 242.1 218.3
----------- -----------
Total Current Assets................................................. 2,793.5 2,250.1
----------- -----------
Property, Plant and Equipment - at cost:
Natural gas systems..................................................... 5,973.1 5,866.2
Refining, crude oil and chemical facilities............................. 2,185.3 1,957.8
Gas and oil properties - at full-cost................................... 1,656.4 1,450.9
Other................................................................... 760.9 743.1
----------- -----------
10,575.7 10,018.0
Accumulated depreciation, depletion and amortization.................... 3,808.0 3,556.1
----------- -----------
6,767.7 6,461.9
----------- -----------
Other Assets:
Goodwill................................................................ 512.5 525.7
Investments - equity method............................................. 538.5 447.4
Other................................................................... 848.7 973.7
----------- -----------
1,899.7 1,946.8
----------- -----------
$ 11,460.9 $ 10,658.8
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable........................................................... $ 275.0 $ 123.2
Accounts payable........................................................ 2,079.6 1,630.2
Accrued expenses........................................................ 357.3 325.4
Current maturities on long-term debt.................................... 7.0 128.5
---------- -----------
Total Current Liabilities............................................ 2,718.9 2,207.3
---------- -----------
Debt:
Long-term debt, excluding current maturities............................ 3,791.7 3,661.7
---------- -----------
Deferred Credits and Other:
Deferred income taxes................................................... 1,472.1 1,473.8
Other deferred credits.................................................. 638.4 636.6
---------- -----------
2,110.5 2,110.4
---------- -----------
Mandatory Redemption Preferred Stock:
Issued by subsidiaries.................................................. - .6
---------- -----------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $209.0 million)................................................... 2.7 2.7
Class A common stock.................................................... .1 .1
Common stock............................................................ 36.5 36.4
Additional paid-in capital.............................................. 1,235.3 1,225.0
Retained earnings....................................................... 1,697.7 1,547.1
---------- -----------
2,972.3 2,811.3
Less common stock in treasury - at cost................................. (132.5) (132.5)
---------- -----------
2,839.8 2,678.8
---------- -----------
$ 11,460.9 $ 10,658.8
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Millions of Dollars, Except Per Share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues............................................ $ 2,785.5 $ 2,546.2 $ 8,818.6 $ 7,778.0
--------- ---------- --------- ---------
Operating Costs and Expenses:
Purchases.................................................. 2,089.4 1,862.2 6,702.3 5,640.0
Operating expenses......................................... 435.0 440.6 1,277.5 1,336.9
Depreciation, depletion and amortization................... 113.2 91.9 319.5 279.2
--------- ---------- --------- ---------
2,637.6 2,394.7 8,299.3 7,256.1
--------- ---------- --------- ---------
Operating Profit.............................................. 147.9 151.5 519.3 521.9
--------- ---------- --------- ---------
Other Income - net............................................ 27.2 11.6 63.6 35.9
--------- ---------- --------- ---------
Other Expenses:
General and administrative................................. 13.8 13.6 42.4 41.5
Interest and debt expense, less $2.2 million (1996)
and $1.4 million (1995) three months and $5.5
million (1996) and $4.6 million (1995) nine
months capitalized...................................... 87.5 102.4 278.2 314.9
Taxes on income............................................ 15.2 2.9 55.1 42.4
--------- ---------- --------- ---------
116.5 118.9 375.7 398.8
--------- ---------- --------- ---------
Earnings Before Extraordinary Item............................ 58.6 44.2 207.2 159.0
Extraordinary item - loss on early extinguishment
of debt................................................. - - (12.0) -
--------- ---------- --------- ---------
Net Earnings.................................................. 58.6 44.2 195.2 159.0
Dividends on Preferred Stock.................................. 4.3 4.3 13.0 13.0
--------- ---------- --------- ---------
Net Earnings Available
to Common Stockholders.................................. $ 54.3 $ 39.9 $ 182.2 $ 146.0
========= ========== ========= =========
Earnings Per Share:
Before extraordinary item.................................. $ .51 $ .38 $ 1.83 $ 1.39
Extraordinary item......................................... - - (.11) -
--------- ---------- --------- ---------
Net Earnings Per Common
and Common Equivalent Share............................. $ .51 $ .38 $ 1.72 $ 1.39
========= ========== ========= =========
Cash Dividends Per Common Share............................... $ .10 $ .10 $ .30 $ .30
========= ========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousand of Shares and Millions of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------
1996 1995
------------------------ ------------------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Preferred stock, par value
33-1/3 cents per share, authorized 50,000,000 shares:
Cumulative convertible preferred:
$1.19, Series A, redemption or liquidation
amount of $33 per share:
Beginning balance........................... 61 $ - 63 $ -
Converted to common......................... (1) - (1) -
----------- ---------- ----------- ----------
Ending balance.............................. 60 - 62 -
=========== ---------- =========== ----------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance........................... 79 .1 84 .1
Converted to common......................... (4) - (4) -
----------- ---------- ----------- ----------
Ending balance.............................. 75 .1 80 .1
=========== ---------- =========== ----------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance........................... 33 - 34 -
Converted to common......................... (1) - - -
----------- ---------- ----------- ----------
Ending balance.............................. 32 - 34 -
=========== ---------- =========== ----------
Cumulative preferred:
$2.125, Series H, liquidation amount
of $25 per share:
Beginning and ending balance................ 8,000 2.6 8,000 2.6
=========== ---------- =========== ----------
Class A common stock, par value 33-1/3 cents per share,
authorized 2,700,000 shares:
Beginning balance................................ 404 .1 416 .1
Converted to common.............................. (32) - (15) -
Conversion of preferred stock and
exercise of stock options..................... 13 - 7 -
----------- ---------- ----------- ----------
Ending balance................................... 385 .1 408 .1
=========== ---------- =========== ----------
Common stock, par value 33-1/3 cents per share,
authorized 250,000,000 shares:
Beginning balance................................ 109,168 36.4 108,726 36.2
Conversion of preferred stock.................... 27 - 24 -
Conversion of Class A common stock............... 32 - 15 -
Exercise of stock options........................ 397 .1 207 .1
----------- ---------- ----------- ----------
Ending balance................................... 109,624 $ 36.5 108,972 $ 36.3
=========== ---------- =========== ----------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousands of Shares and Millions of Dollars)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------
1996 1995
------------------------ ------------------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance................................... $ 1,225.0 $ 1,214.7
Exercise of stock options........................... 10.3 4.7
---------- ----------
Ending balance...................................... 1,235.3 1,219.4
---------- ----------
Retained earnings:
Beginning balance................................... 1,547.1 1,336.0
Net earnings for period............................. 195.2 159.0
Dividends on preferred stock........................ (13.0) (13.0)
Dividends on common stock........................... (31.6) (31.4)
---------- ----------
Ending balance...................................... 1,697.7 1,450.6
---------- ----------
Less treasury stock - at cost.......................... 4,395 (132.5) 4,395 (132.5)
=========== ---------- =========== ----------
Total.................................................. $ 2,839.8 $ 2,576.6
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
- 5 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Earnings before extraordinary item.......................................... $ 207.2 $ 159.0
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization................................. 322.5 282.1
Deferred income taxes.................................................... (.5) 5.7
Amortization of producer contract reformation costs...................... 23.5 22.4
Distributed earnings from equity investments............................. 17.0 18.8
Working capital and other changes, excluding changes relating to cash and
non-operating activities:
Accounts receivable................................................... (294.0) 110.9
Inventories........................................................... (240.5) 21.7
Prepaid expenses and other............................................ (4.7) (5.1)
Accounts payable...................................................... 478.4 (343.0)
Accrued expenses...................................................... (22.8) 30.1
Other................................................................. 85.2 35.3
--------- --------
571.3 337.9
--------- --------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment.................................. (598.1) (449.7)
Proceeds from sale of property, plant and equipment......................... 13.0 98.1
Additions to investments.................................................... (90.7) (77.2)
Proceeds from investments................................................... 13.6 32.3
Recovery of gas supply prepayments.......................................... .2 .4
--------- --------
(662.0) (396.1)
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes .................................... (48.2) 367.3
Redemption of mandatory redemption preferred stock.......................... (.6) -
Proceeds from issuing common stock.......................................... 10.4 4.8
Proceeds from long-term debt issues......................................... 744.5 98.1
Payments to retire long-term debt........................................... (564.8) (376.5)
Dividends paid.............................................................. (44.6) (44.4)
--------- --------
96.7 49.3
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 6.0 (8.9)
Cash and Cash Equivalents at Beginning of Period............................... 58.4 73.5
--------- --------
Cash and Cash Equivalents at End of Period..................................... $ 64.4 $ 64.6
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
- 6 -
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
For additional information relative to operations and financial position,
reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. Certain minor reclassifications of prior period
statements have been made to conform with current reporting practices. The
effect of the reclassifications was not material to the Company's consolidated
results of operations or financial condition.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which establishes financial accounting and reporting
standards for stock-based employee compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods and services from
nonemployees. FAS 123 requires, among other things, that compensation cost be
calculated for fixed stock options at the grant date by determining fair value
using an optionpricing model. The Company has the option of recognizing the
compensation cost over the vesting period as an expense in the statement of
consolidated operations or making pro forma disclosures in the notes to
financial statements as to the effects on net earnings as if the compensation
cost had been recognized in the statement of consolidated operations. The
Company adopted FAS 123 in 1996 and will make the required pro forma disclosures
in the notes to the annual financial statements. As of September 30, 1996, the
Company had granted 661,500 options in March with an exercise price of $36.56
and 5,000 options in September with an exercise price of $40.56. The exercise
price was equal to the market price of the stock at the grant dates.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" in 1996. The application of the new standard did not have a
material effect on the Company's consolidated results of operations or financial
position.
The interstate natural gas pipeline and certain storage subsidiaries are
subject to the regulations and accounting procedures of the Federal Energy
Regulatory Commission ("FERC"). These subsidiaries meet the criteria and,
accordingly, follow the reporting and accounting requirements of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" ("FAS 71"). FAS 71 provides that rate-regulated public
utilities account for and report assets and liabilities consistent with the
economic effect of the way in which regulators establish rates, if the rates
established are designed to recover the costs of providing the regulated service
and if the competitive environment makes it reasonable to assume that such rates
can be charged and collected. Although the accounting methods for companies
subject to rate regulation may differ from those used by non-regulated
companies, the accounting methods prescribed by the regulatory authority conform
to the generally accepted accounting principle of matching costs with the
revenue to which they apply.
Transactions which the subsidiaries have recorded differently than a
non-regulated entity include the following: the subsidiaries (i) have
capitalized the cost of equity funds used during construction, and, (ii) have
deferred purchase gas costs, gas transportation surcharges, contract reformation
costs, certain lease costs, postemployment/postretirement benefit costs and
income tax reductions related to changes in federal income tax rates. These
items are being, or are anticipated to be, recovered or refunded in rates
chargeable to customers.
The subsidiaries have applied FAS 71 and evaluate the applicability of
regulatory accounting and the recoverability of these assets through rate or
other contractual mechanisms on an ongoing basis. If FAS 71 accounting
principles should no longer be applicable to the subsidiaries' operations, an
amount would be charged to earnings as an extraordinary item. At September 30,
1996, this amount was approximately $79 million, net of income taxes. The
Company does not expect that its cash flows would be affected by discontinuing
application of FAS 71. Any potential charge to earnings would be noncash and
would have no direct effect on the subsidiaries' ability to include the
underlying deferred items in their future rate proceedings or on their ability
to collect the rates set thereby.
- 7 -
<PAGE>
Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: The Company made cash payments for interest and
financing fees, net of amounts capitalized, of $284.0 million and $301.6 million
for the nine months ended September 30, 1996 and 1995, respectively. Cash
payments for income taxes amounted to $44.5 million and $31.7 million for the
nine months ended September 30, 1996 and 1995, respectively.
2. Inventories
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals............................... $ 779.5 $ 556.5
Natural gas in underground storage...................................... 69.9 49.9
Coal, materials and supplies............................................ 174.5 174.7
----------- ----------
$ 1,023.9 $ 781.1
=========== ==========
</TABLE>
The excess of replacement cost over the carrying value of natural gas in
underground storage carried by the last-in, first-out method was approximately
$33.2 million at September 30, 1996 and $36.5 million at December 31, 1995.
3. Common Stock
On September 30, 1996, 3,270,997 shares of Common Stock of the Company were
reserved for employee stock option plans, 716,789 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 384,731 shares were
reserved for conversion of outstanding Class A Common Stock and 22,122 shares
were reserved for conversion of Class A Common Stock subject to future issuance.
The Class A Common Stock reserved for future issuance consists of 2,280 shares
reserved for employee stock option plans and 19,842 shares reserved for
conversion of the Series A, B, and C Preferred Stocks.
4. Income Taxes
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal................................................. $ 9.9 $ 8.6 $ 42.4 $ 31.9
Foreign................................................. 2.5 .1 3.4 .5
State................................................... 2.9 1.9 9.8 4.3
--------- ---------- --------- ---------
15.3 10.6 55.6 36.7
--------- ---------- --------- ---------
Deferred Income Taxes:
Federal................................................. - (7.2) - 7.8
Foreign................................................. .8 - 2.2 -
State................................................... (.9) (.5) (2.7) (2.1)
--------- ---------- --------- ---------
(.1) (7.7) (.5) 5.7
--------- ---------- --------- ---------
$ 15.2 $ 2.9 $ 55.1 $ 42.4
========= ========== ========= =========
</TABLE>
Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.
- 8 -
<PAGE>
5. Extraordinary Item
In June 1996, the Company retired $400.0 million of 11-3/4% Senior
Debentures due in 2006. Payment of the redemption premium and the recognition of
deferred costs related to the Debentures resulted in an extraordinary loss of
$12.0 million ($.11 per share), net of income taxes of $6.5 million.
6. Litigation, Regulatory and Environmental Matters
Litigation
A subsidiary of Coastal initiated a suit against TransAmerican Natural Gas
Corporation ("TransAmerican") in the District Court of Webb County, Texas for
breach of two gas purchase agreements. In February 1993, TransAmerican filed a
Third Party Complaint and a Counterclaim in this action against Coastal and
certain subsidiaries. TransAmerican alleged breach of contract, fraud,
conspiracy, duress, tortious interference and violations of the Texas Free
Enterprises and Anti-trust Act arising out of the gas purchase agreements. Final
judgment in this matter was entered April 22, 1994. The subsidiary was awarded
approximately $2.0 million, including pre-judgment interest and attorney fees.
All of TransAmerican's claims and causes of action were denied. The Court of
Appeals for the Fourth Judicial District has denied TransAmerican's appeal in
this case. TransAmerican sought a Writ of Error in August of 1996, which is
pending before the Texas Supreme Court.
In December 1992, certain of Colorado Interstate Gas Company's ("CIG")
natural gas lessors in the West Panhandle Field filed a complaint in the U.S.
District Court for the Northern District of Texas claiming underpayment, breach
of fiduciary duty, fraud and negligent misrepresentation. Management believes
that CIG has numerous defenses to the lessors' claims, including (i) that the
royalties were properly paid, (ii) that the majority of the claims were released
by written agreement and (iii) that the majority of the claims are barred by the
statute of limitations. In March of 1995, the Trial Court granted a partial
summary judgment in favor of CIG, holding that the four-year statute of
limitations had not been tolled, that the releases are valid, and dismissing all
tort claims and claims for breach of any duty of disclosure. The remaining claim
for underpayment of royalties was tried to a jury which, in May 1995, made
findings favorable to CIG. On June 7, 1995, the Trial Court entered a judgment
that the lessors recover no monetary damages from CIG and permanently estopping
the lessors from asserting any claim based on an interpretation of the contract
different than that asserted by CIG in the litigation. The lessors' motion for a
new trial is pending. On June 7, 1996 the same plaintiffs sued CIG in state
court in Amarillo, Texas for underpayment of royalties. CIG removed the second
lawsuit to federal court which granted a stay of the second suit pending the
outcome of the first lawsuit.
A natural gas producer has filed a claim on behalf of the U.S. government
in the U.S. District Court for the District of Columbia under the federal False
Claims Act. The Second Amended Complaint filed on May 24, 1996, against seventy
(70) defendants, including ANR Pipeline Company ("ANR Pipeline"), CIG and
Coastal States Gas Transmission Company, alleges that the defendants' methods of
measuring the heating content and volume of natural gas purchased from
federally-owned or Indian properties have caused underpayment of royalties to
the U.S. government. Responsive pleadings will be filed.
Numerous other lawsuits and other proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company or its
subsidiaries.
Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, the Company
believes there are meritorious defenses to substantially all of the above claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Regulatory Matters
On January 31, 1996, the FERC issued a "Statement of Policy and Request for
Comments" in Docket Nos. RM95-6 and RM96-7 with respect to a pipeline's ability
to negotiate and charge rates for individual customers' services which would not
be limited to the "cost-based" rates established by the FERC in traditional rate
making. Under this Policy,
- 9 -
<PAGE>
a pipeline and a customer will be allowed to negotiate a contract for service
which provides for rates and charges that exceed the pipeline's posted maximum
tariff rates, provided that the shipper agreeing to such negotiated rates has
the ability to elect to receive service at the pipeline's posted maximum rate
(known as a "recourse rate"). In order to implement this Policy, a pipeline must
make an initial tariff filing with the FERC to indicate that it intends to
contract for services under this Policy, and subsequent tariff filings will
indicate each instance where the pipeline has negotiated a rate for service
which exceeds the posted maximum tariff rate. The FERC is also considering
comments on whether this "recourse rate" program should be extended to other
terms and conditions of pipeline transportation services. On July 31, 1996, the
FERC also issued a "Notice of Proposed Rulemaking" in Docket No. RM96-14
requesting comments on various aspects of secondary market transactions on
interstate natural gas pipelines, including the comparability of pipeline
capacity with released capacity.
Under ANR Pipeline's Interim Settlement, which became effective November 1,
1992 and expired on November 1, 1993, gas inventory demand charges were
collected from ANR Pipeline's former resale customers. This method of gas cost
recovery required refunds for any over-collections and placed ANR Pipeline at
risk for under-collections. As required by the Interim Settlement, on April 29,
1994, ANR Pipeline filed with the FERC a reconciliation report showing
over-collections and proposing refunds totaling $45.1 million. Certain customers
have disputed the level of those refunds. Pursuant to a February 27, 1995 FERC
order approving ANR Pipeline's refund allocation methodology, ANR Pipeline paid
undisputed refunds on March 29, 1995 of $45.1 million, together with applicable
interest, subject to further investigation of the claims made by the customers.
The FERC's approval of ANR Pipeline's refund allocation methodology was appealed
by certain customers to the United States Court of Appeals for the D.C. Circuit
and that appeal was dismissed in an April 24, 1996 Court order. On May 2, 1995,
the FERC issued an order setting other issues for an evidentiary hearing which
concluded on May 29, 1996. ANR Pipeline submitted an adjusted reconciliation
report on October 31, 1995, which was also disputed by certain customers and
which was also consolidated with the ongoing evidentiary hearing. Initial briefs
were filed on July 31, 1996, and reply briefs were filed on October 21, 1996.
On April 8, 1992, the FERC issued Order 636, which required significant
changes in the services provided by interstate natural gas pipelines. ANR
Pipeline and numerous other parties have sought judicial review of aspects of
Order 636 before the United States Court of Appeals for the D.C. Circuit. On
July 16, 1996, the Court issued its opinion upholding the basic structure of
Order 636, while remanding to the FERC for further consideration certain limited
aspects, such as the basis for its determination relative to the recovery by the
pipelines of the full level of their prudently incurred transition costs.
Several persons, including ANR Pipeline, have also appealed aspects of the
FERC's orders approving ANR Pipeline's restructuring filings made pursuant to
Order 636 and these appeals are now expected to be scheduled for briefing. ANR
Pipeline placed its restructured services under Order 636 into effect on
November 1, 1993. On March 24, 1994, the FERC issued its "Fourth Order on
Compliance Filing and Third Order on Rehearing," which addressed numerous
rehearing issues and confirmed that, after minor tariff modifications, ANR
Pipeline would be fully in compliance with Order 636 and the requirements of the
orders on its restructuring filings.
Under FERC Docket No. RP94-43, ANR Pipeline filed a general rate increase
on November 1, 1993. By a March 23, 1994 order, the FERC granted and denied
various requests for summary disposition and established hearing procedures for
issues remaining to be investigated in the proceeding. The hearing commenced on
January 31, 1996 and concluded on April 24, 1996. Initial briefs were filed on
July 15, 1996, and reply briefs were filed on September 13, 1996. The case is
now pending before a substitute Administrative Law Judge ("ALJ"). Under the
March 23, 1994 order, certain costs were reduced or eliminated, resulting in
revised rates that reflect an $85.7 million increase in the cost of service
underlying that approved in the Interim Settlement, and a $182.8 million
increase over the cost of service underlying ANR Pipeline's approved rates for
its Order 636 restructured services. On April 29, 1994, ANR Pipeline filed a
motion with the FERC that placed the new rates into effect May 1, 1994, subject
to refund. ANR Pipeline's filing was accepted by the FERC in a September 21,
1994 order, subject to further modifications, including an additional reduction
in cost of service of approximately $5 million. ANR Pipeline submitted revised
rates in compliance with this order on October 6, 1994, which rates are
currently in effect, subject to refund. ANR Pipeline sought rehearing of various
aspects of the March 23, 1994 order and the FERC denied rehearing in a December
8, 1994 order. On January 26, 1995, ANR Pipeline appealed these orders to the
United States Court of Appeals for the D.C. Circuit, and the Court is expected
to schedule the cases for briefing.
- 10 -
<PAGE>
The FERC has also issued a series of orders and orders on rehearing in ANR
Pipeline's rate proceeding that apply a new policy governing the order of
attribution of revenues received by ANR Pipeline related to transition costs
under Order 636. Under that new policy, ANR Pipeline is required to first
attribute the revenues it receives for its services to the recovery of its
transition costs under Order 636. In its pending rate proceeding, the revenues
ANR Pipeline receives for its services were first attributed to the recovery of
its base cost of service. The FERC's change in its revenue attribution policy
has the effect of understating ANR Pipeline's currently effective maximum rates
and has accelerated its amortization of transition costs. In light of the FERC's
policy, ANR Pipeline has filed with the FERC to increase its discount recovery
adjustment in its pending rate proceeding. ANR Pipeline has also sought judicial
review of these orders before the United States Court of Appeals for the D.C.
Circuit, and the Court is expected to schedule the case for briefing.
Claims were filed in 1990 in the United States District Court in North
Dakota by Dakota Gasification Company ("Dakota") and the United States
Department of Energy regarding ANR Pipeline's obligations under certain gas
purchase and transportation contracts with the Great Plains Coal Gasification
Plant (the "Plant"). On February 16, 1994, ANR Pipeline, Dakota and the
Department of Energy executed a Settlement Agreement (the "Settlement
Agreement"), which, subject to FERC approval, resolves the litigation and
disputes among the parties, amends the gas purchase agreement between ANR
Pipeline and Dakota and terminates the transportation contract with the Plant.
On August 3, 1994, ANR Pipeline filed a petition with the FERC requesting: (i)
approval of the Settlement Agreement; (ii) an order approving ANR Pipeline's
proposed tariff mechanism to recover the costs incurred to implement the
Settlement Agreement; and (iii) an order dismissing a then pending FERC
proceeding wherein certain of ANR Pipeline's customers challenged Dakota's
pricing under the original gas supply contract. By an October 18, 1994 order,
the FERC consolidated ANR Pipeline's petition with similar petitions of three
other pipeline companies. Hearings were held before the ALJ on the prudence of
the Settlement Agreement, and on December 29, 1995, the ALJ issued an Initial
Decision rejecting the proposed Settlement Agreement and determining the level
of Dakota costs that ANR Pipeline and the other pipeline companies would be
permitted to recover from their customers beginning as of May 1993. Because the
amounts ANR Pipeline has billed to its customers since May 1993 are greater than
the Dakota costs ANR Pipeline would be permitted to recover under the Initial
Decision, ANR Pipeline may be required to refund to its customers the amount of
excess collections. At September 30, 1996, that potential refund amount is
approximately $84 million, plus interest. It is ANR Pipeline's position that (i)
the Settlement Agreement is prudent, (ii) the FERC has no lawful authority to
order refunds for past periods and (iii) even if refunds were ultimately found
to be lawful, ANR Pipeline should not lawfully be required to refund amounts in
excess of the amounts it collects from Dakota. ANR Pipeline has filed with the
FERC seeking reversal of the Initial Decision, and approval of the Settlement
Agreement. The FERC conducted an oral argument on September 25, 1996 and a
decision is expected before the end of 1996.
Order 636 provides mechanisms for recovery of transition costs associated
with compliance with that Order. Limited aspects of those mechanisms are the
subject of the Court remand discussed above. ANR Pipeline's transition costs
consist primarily of gas supply realignment costs and pricing differential
costs. As of September 30, 1996, ANR Pipeline incurred transition costs in the
amount of $62.3 million. In addition, ANR Pipeline recorded a contingent
liability for $64.1 million representing future above-market gas purchase
obligations, including future obligations of $52.3 million associated with the
Settlement Agreement, as discussed above. The charge related to the contingent
liability has been deferred in anticipation of future rate recovery. ANR
Pipeline has filed for recovery of approximately $59.9 million of incurred
transition costs. The FERC has accepted $42.7 million of these filings for
recovery, of which $28.6 million has been settled with the parties to the
respective FERC proceedings. Those filings not settled are subject to refund and
further proceedings. Additional transition costs filings will be made by ANR
Pipeline in the future.
In October, 1995, as amended in February and March, 1996, CIG filed with
the FERC seeking authority to transfer to its affiliate, CIG Field Services
Company ("CFS"), substantially all of CIG's facilities as to which there were in
effect certificates of public convenience and necessity. Such facilities were
used to provide "gathering" services (as distinct from "transmission" services).
CIG did not seek to abandon any of its Panhandle Field facilities under this
filing. CIG also sought a declaration that such filed for facilities would be
considered "non-jurisdictional" in the hands of CFS. The net book value of the
facilities spun-down at October 1, 1996 was approximately $42 million. On June
26, 1996, the FERC approved CIG's request. Thereafter, certain parties sought
rehearing of that order. Separately, on August 2, 1996, the U.S. Court of
Appeals for the District of Columbia Circuit issued its decision in Conoco, Inc.
v. FERC, 90 F.3d 536 (D.C. Cir. 1996) in which it upheld the FERC's authority to
allow the transfer of certificated gathering facilities to "non-
- 11 -
<PAGE>
jurisdictional" affiliates of the regulated pipeline. The court in Conoco,
however, rejected the FERC's imposition of a "default contract" requirement in
such cases as a means to ensure that historic gathering shippers had assurances
of continuity of service for a 2-year period. On October 31, 1996, several
parties filed a petition for a Writ of Certiorari in the U.S. Supreme Court
seeking review of the D.C. Circuit's Conoco decision, which is pending. In a
filing dated August 27, 1996, CIG informed the FERC that CIG and CFS were
prepared to offer to CIG's historic gathering customers a 2-year "default
contract" irrespective of the holding in Conoco that the FERC could not
affirmatively impose such a requirement as a condition of approving a spin-down
of gathering services from a pipeline to an affiliate. Thereafter, on September
25, 1996, the FERC issued an order denying the requests for rehearing and
thereby authorizing the abandonment of the certificated properties to CFS to be
effective October 1, 1996. On September 26, 1996, the FERC issued a related
order accepting CIG's filing under Section 4 of the Natural Gas Act confirming
that CIG no longer offered gathering services through the abandoned/spun-down
facilities.
On March 29, 1996, CIG filed with the FERC under Docket No. RP96-190 to
increase its rates by approximately $30 million annually and to realign certain
transportation services. On April 25, 1996, the FERC accepted the filing to
become effective October 1, 1996, subject to refund. In this filing, CIG also
established a new tariff provision to allow CIG to enter into negotiated rate
arrangements. The FERC has also accepted this provision, subject to refund,
effective May 1, 1996. As of November 11, 1996, CIG has had two settlement
conferences and a third is scheduled for November 19, 1996. In the event that
the case cannot be settled prior to hearing, the schedule provides for
commencement of hearings before an ALJ at the FERC in June 1997.
CIG, ANR Pipeline, ANR Storage Company and Wyoming Interstate Company, Ltd.
("WIC"), subsidiaries of the Company, are regulated by the FERC. Certain of the
above regulatory matters and other regulatory issues remain unresolved among
these companies, their customers, their suppliers and the FERC. The Company has
made provisions which represent management's assessment of the ultimate
resolution of these issues. As a result, the Company anticipates that these
regulatory matters will not have a material adverse effect on its consolidated
financial position or results of operations. While the Company estimates the
provisions to be adequate to cover potential adverse rulings on these and other
issues, it cannot estimate when each of these issues will be resolved.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. The Company anticipates
capital expenditures of approximately $55 million in 1996 in order to comply
with such laws and regulations. The majority of the 1996 expenditures is
attributable to construction projects at the Company's refineries. The Company
currently anticipates capital expenditures for environmental compliance for the
years 1997 through 1999 of $20 to $40 million per year. Additionally,
appropriate governmental authorities may enforce the laws and regulations with a
variety of civil and criminal enforcement measures, including monetary penalties
and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a potentially responsible party ("PRP")
in several "Superfund" waste disposal sites. At the 15 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$337 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $4.1 million and has made appropriate
provisions. At 5 other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the Company with an estimate of total clean-up costs
and, accordingly, the Company is unable to calculate its share of those costs.
Finally, at 9 other sites, the Company has paid amounts to other PRPs or to the
EPA as its proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one site, the North Carolina Department of Health, Environment and Natural
Resources has estimated the total clean-up costs to be approximately $50
million, but the Company believes that the subsidiaries' activities at this site
were de minimis. At the other state site, the Florida Department of
Environmental Protection has estimated the total clean-up costs to be
approximately $40,000.
- 12 -
<PAGE>
There are additional areas of environmental remediation responsibilities to
which the Company may be subject. The states have regulatory programs that
mandate waste clean-up. The Clean Air Act Amendments of 1990 include new
permitting regulations which will result in increased operating expenditures.
Coastal is also supplying reduced-emission reformulated gasoline in all of its
markets where such gasoline is required.
In October 1996, the New Jersey Department of Environmental Protection
issued an administrative order and notice of civil administration assessment
(the "Order") to Coastal Eagle Point Oil Company ("CEPOC"), a subsidiary of
Coastal. The Order alleges that sulphur dioxide emissions from the sulfur
recovery unit and carbon monoxide from the marine thermal oxidizer at CEPOC's
New Jersey refinery exceeded the permit limits during the last quarter of 1995.
CEPOC will respond to the Order and seek a hearing to contest the penalty in
November of 1996. The Company believes that this action could result in monetary
sanctions which, while not material to the Company and its subsidiaries, could
exceed $100,000.
Future information and developments will require the Company to continually
reassess the expected impact of these environmental matters. However, the
Company has evaluated its total environmental exposure based on currently
available data, including its potential joint and several liability, and
believes that compliance with all applicable laws and regulations will not have
a material adverse impact on the Company's liquidity, consolidated financial
position or results of operations.
7. Sale of Western Coal Properties
On October 24, 1996, the Company announced it will sell its coal mining
operations in the western United States for $615 million in cash, retaining its
coal properties in the eastern United States. The sale of the western properties
is expected to close by year-end, contingent upon receipt of any required
regulatory approvals. Proceeds from the sale will enable the Company to pay down
a significant amount of high-cost financial obligations and provide enhanced
financial flexibility to take advantage of higher-growth opportunities. The
Company will continue to operate its coal properties in the eastern United
States.
Item 2.A. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forwardlooking statements reflecting the Company's
expectations in the near future; however, many factors which may affect the
actual results, especially natural gas prices and changing regulations, are
difficult to predict. Accordingly, there is no assurance that the Company's
expectations will be realized.
The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.
Liquidity and Capital Resources
The Company uses the following consolidated ratios to measure liquidity
and its ability to meet future funding needs and debt service requirements.
<TABLE>
<CAPTION>
Twelve Months Ended
------------------------------
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Net return on average common stockholders' equity.............. 11.5% 10.8%
Cash flow from operating activities to long-term debt.......... 23.3% 17.7%
Total debt to total capitalization............................. 58.9% 59.4%
Times interest earned (before tax)............................. 1.9 1.8
</TABLE>
- 13 -
<PAGE>
The above ratios reflect increased earnings in the 1996 nine months period.
Decreases in working capital also contributed to the increase in cash flow from
operating activities to long-term debt and reduced interest expense contributed
to the increase in the times interest earned ratio.
Financing for capital expansion, mandatory debt retirements and other
expenditures will be provided by internally generated funds, existing credit
lines, proceeds from the sale of selective non-core assets and new financings.
On October 24, 1996, the Company announced it will sell its coal mining
operations in the western United States for $615 million in cash, retaining its
coal properties in the eastern United States. The sale of the western
properties, expected to close by year-end contingent upon receipt of any
required regulatory approvals, satisfies the Company's objectives in offering
its coal properties for sale. The western coal operations sold 9.8 million tons
of coal in 1995 and include approximately 300 million tons of reserves. Proceeds
from the sale will enable the Company to pay down a significant amount of
high-cost financial obligations and provide enhanced financial flexibility to
take advantage of higher-growth opportunities. The Company will continue to
operate and develop the coal operations in the eastern United States.
In September 1996, Coastal and Westcoast Energy Inc. ("Westcoast") jointly
announced plans to form North America's fourth largest marketer of natural gas
and electricity through the merger of the two companies' related marketing and
services subsidiaries. The merger would create new entities in which Coastal and
Westcoast will indirectly own 50% each. The boards of directors of both
companies have approved the merger in principle, subject to further due
diligence and execution of definitive agreements.
On June 15, 1996 the Company redeemed all of its 11-3/4% Senior Debentures
due June 15, 2006, of which $400 million in principal amount was outstanding.
Debentures in the principal amount of $60 million were redeemed at par plus
accrued interest to the date of redemption pursuant to sinking fund provisions,
with the securities selected for redemption by lot. The remaining $340 million
in debentures was redeemed at 103.917% of par plus accrued interest to the date
of redemption.
The Company has approved an $80 million increase in its 1996 capital
expenditures budget for Exploration and Production. Recent success in South
Texas and in the Gulf of Mexico offshore Texas and Louisiana have identified
substantial new opportunities for low-risk, high potential development drilling
programs. With the increase in the 1996 program, natural gas equivalent
production will increase substantially from 1995 and per-unit costs should be
reduced.
Funding for certain proposed projects is anticipated to be provided through
non-recourse project financings in which the projects' assets and contracts will
be pledged as collateral. Equity participation by other entities will be
considered. To the extent required, cash for equity contributions to projects
will be from general corporate funds.
The Company continues to maintain a financial position that will enable it
to generate and obtain capital for financing needs in the foreseeable future.
Unused lines of credit at September 30, 1996 were as follows (millions of
dollars):
Short-term................................... $ 568.3
Long-term*................................... 439.9
-----------
$ 1,008.2
* As of September 30, 1996, $45.1 million of unused long-term credit
lines is dedicated to a specific use.
Results of Operations
The changes in the Company's earnings for the three and nine month periods
ended September 30, 1996 in comparison to the same periods in 1995 are a result
of the following:
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<PAGE>
Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 942.0 $ 713.5 $ 2,870.5 $ 2,222.6
Refining, marketing and chemicals....................... 1,690.8 1,661.9 5,523.7 5,020.6
Exploration and production.............................. 102.8 64.0 303.3 194.7
Coal.................................................... 120.0 115.3 333.5 341.0
Power................................................... 21.4 13.6 67.4 28.9
Other................................................... 8.5 40.3 24.7 122.0
Adjustments and eliminations............................ (100.0) (62.4) (304.5) (151.8)
--------- ---------- --------- ---------
$ 2,785.5 $ 2,546.2 $ 8,818.6 $ 7,778.0
========= ========== ========= =========
</TABLE>
Operating Profit. The operating profit by segment was as follows (millions
of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Natural gas............................................. $ 76.4 $ 86.7 $ 276.3 $ 302.5
Refining, marketing and chemicals....................... 17.5 29.3 75.8 125.8
Exploration and production.............................. 23.0 5.8 78.1 13.2
Coal ................................................... 25.5 25.4 67.8 75.4
Power................................................... 2.1 3.9 12.3 3.8
Other................................................... 3.4 .4 9.0 1.2
--------- ---------- --------- ---------
$ 147.9 $ 151.5 $ 519.3 $ 521.9
========= ========== ========= =========
</TABLE>
Natural Gas. The increase in operating revenues of $228.5 million for the
third quarter and $647.9 million for the nine months ended September 30, 1996,
can be attributed to increased prices and volumes, primarily for the unregulated
gas marketing companies. Transportation revenues decreased in both periods,
reflecting the continued, intensified competition across the United States
natural gas industry.
Purchases increased by $262.0 million for the three months and $700.3
million for the nine months ended September 30, 1996, due to increased prices
and volumes. Gross profit decreased by $33.5 million and $52.4 million for the
three months and nine months periods, respectively.
The operating profit decrease of $10.3 million in the third quarter results
from reduced transportation and storage revenues of $36.4 million and lower
margins of $10.8 million offset by reduced operating expenses of $16.8 million,
increased volumes of $10.2 million and other increases of $9.9 million. The
operating profit decrease of $26.2 million for the nine month period results
from reduced transportation and storage revenues of $62.4 million and reduced
margins of $23.4 million offset by increased volumes of $14.2 million, reduced
operating expenses of $31.8 million and other increases of $13.6 million. The
transportation and storage revenue reductions are primarily due to decreases of
$33.5 million and $41.7 million in the three and nine month periods,
respectively, for revenue received in 1995 related to contract settlements and
increases in provisions for rate related contingencies. Operating expenses were
lower for both periods due to reduced transportation services provided by others
and lower salaries and benefits due to an early retirement incentive program in
1995.
Refining, Marketing and Chemicals. Operating revenues increased by $28.9
million in the third quarter as a result of higher volumes and $503.1 million in
the nine months ended September 30, 1996 as a result of higher volumes and
increased prices. Purchases for the segment increased by $15.4 million and
$517.5 million in the three and nine
- 15 -
<PAGE>
month periods, respectively, resulting in a gross profit increase of $13.5
million for the third quarter and a gross profit decrease of $14.4 million for
the nine month period. The amounts for both periods reflect significantly
improved refining gross profit, offset by substantially lower paraxylene
margins. In addition, the nine month period includes reduced gross profit due to
the sale of certain liquid pipeline assets in 1995.
The operating profit decrease of $11.8 million for the third quarter
results from increased operating expenses of $23.0 million and other decreases
of $.9 million offset by increased volumes of $2.4 million and higher margins of
$9.7 million. For the nine month period, operating profit decreased by $50.0
million due to reduced margins of $78.8 million; a non-recurring gain of $ 17.0
million from the sale of certain liquid pipeline assets noted above and
increased operating expenses of $30.2 million which were offset by increased
volumes of $62.8 million; increased gross profit from the sale, trading and
exchanging of third party products of $12.5 million and other increases of $.7
million. The increased operating expenses for both periods result from increased
fuel costs; expanded retail operations and the acquisition of a chemical plant
in the first quarter of 1996.
Exploration and Production. Operating revenues increased by $38.8 million
and $108.6 million in the three month and nine month periods ended September 30,
1996, respectively, as a result of improved production volumes and higher
prices. The production volume increase results from Coastal's ongoing successful
drilling program, especially offshore in the Gulf of Mexico and in the Bob West
and Jeffress fields in South Texas.
Operating profit increased by $17.2 million in the three months ended
September 30, 1996 as increased volumes of $26.5 million and higher prices of
$24.3 million were partially offset by increased operating expenses of $5.3
million; the net effects of hedging activities of $8.0 million; higher
depreciation, depletion and amortization of $16.9 million and other decreases of
$3.4 million. For the nine month period, operating profit increased by $64.9
million as higher prices of $57.9 million and increased volumes of $57.7 million
were partially offset by higher depreciation, depletion and amortization of
$26.5 million; increased operating expenses of $18.3 million and other decreases
of $5.9 million. The increased operating expenses for both periods are primarily
due to higher costs associated with increased volumes at the Company's
processing plants. Operating expenses related to producing wells also
contributed to the nine month increase. Depreciation, depletion and amortization
increased in the three month and nine month periods due to the improved
production volumes.
Coal. Operating revenues increased by $4.7 million in the three months and
decreased by $7.5 million in the nine months ended September 30, 1996,
respectively. The three month increase results from increased coal sales volumes
and other revenue increases offset by lower prices; while the decrease for the
nine month period is attributable to lower prices and reduced coal sales volumes
partially offset by other revenue increases. The other revenue increases for
both periods result from sales in 1996 of coke from the Company's refinery in
Aruba, improved revenues from the brokering of coal for others and higher
royalty revenues.
Operating profit increased by $.1 million in the three month period as
increased volumes of $1.4 million and other increases of $3.1 million were
partially offset by lower prices of $4.4 million. For the nine month period,
operating profit decreased by $7.6 million as lower volumes of $9.2 million and
reduced prices of $13.3 million were partially offset by decreased operating
expenses of $5.2 million and other increases of $9.7 million. The other
increases for both periods are primarily attributable to the other revenue
increases noted above. The volume decrease for the nine month period includes
the deferments of deliveries by certain customers. Operating expenses decreased
in the nine month period as a result of the reduced sales volumes.
Power. The operating revenue increases of $7.8 million and $38.5 million
for the three month and nine month periods ended September 30, 1996,
respectively, result primarily from the power plant in El Salvador which began
operations late in the third quarter of 1995. Operating profit decreased by $1.8
million in the third quarter of 1996 due to a development fee of approximately
$5.0 million recognized in the third quarter of 1995. For the nine months ended
September 30, 1996, operating profit increased by $8.5 million as a result of
the El Salvador operations.
Other. The decreases in operating revenues of $31.8 million and $97.3
million for the three months and nine months ended September 30, 1996,
respectively, are due to the trucking activities, which were merged into a new
company in which Coastal has a 50% interest in November 1995. Operating profit
increased by $3.0 million and $7.8
- 16 -
<PAGE>
million for the three and nine month periods, respectively, due primarily to the
losses from trucking operations in 1995 not recurring.
Other Income-Net. The increases of $15.6 million for the third quarter and
$27.7 million for the nine months ended September 30, 1996 result primarily from
increased equity earnings from unconsolidated subsidiaries.
Interest and Debt Expense. Interest and debt expense decreased by $14.9
million in the third quarter and $36.7 million in the nine month period due
primarily to reduced effective interest rates.
Taxes on Income. Federal income taxes increased by $8.5 million in the
third quarter as a result of increased earnings and a higher effective federal
income tax rate, while the nine month increase of $2.7 million results from
increased earnings before extraordinary item partially offset by a lower
effective federal income tax rate. State and foreign income taxes increased by
$3.8 million and $10.0 million in the three month and nine month periods,
respectively.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. The Company anticipates
capital expenditures of approximately $55 million in 1996 in order to comply
with such laws and regulations. The majority of the 1996 expenditures is
attributable to construction projects at the Company's refineries. The Company
currently anticipates capital expenditures for environmental compliance for the
years 1997 through 1999 of $20 to $40 million per year. Additionally,
appropriate governmental authorities may enforce the laws and regulations with a
variety of civil and criminal enforcement measures, including monetary penalties
and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a PRP in several "Superfund" waste
disposal sites. At the 15 sites for which there is sufficient information, total
clean-up costs are estimated to be approximately $337 million, and the Company
estimates its pro-rata exposure, to be paid over a period of several years, is
approximately $4.1 million and has made appropriate provisions. At 5 other
sites, 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. Finally, at 9 other sites, the Company has paid amounts to
other PRPs or to the EPA as its proportional share of associated clean-up costs.
As to these latter sites, the Company believes that its activities were de
minimis. Additionally, certain subsidiaries of the Company have been named as
PRP's in two state sites. At one site, the North Carolina Department of Health,
Environment and Natural Resources has estimated the total clean-up costs to be
approximately $50 million, but the Company believes that the subsidiaries'
activities at this site were de minimis. At the other state site, the Florida
Department of Environmental Protection has estimated the total clean-up costs to
be approximately $40,000.
There are additional areas of environmental remediation responsibilities to
which the Company may be subject. The states have regulatory programs that
mandate waste clean-up. The Clean Air Act Amendments of 1990 include new
permitting regulations which will result in increased operating expenditures.
Coastal is also supplying reduced-emission reformulated gasoline in all of its
markets where such gasoline is required.
Future information and developments will require the Company to continually
reassess the expected impact of these environmental matters. However, the
Company has evaluated its total environmental exposure based on currently
available data, including its potential joint and several liability, and
believes that compliance with all applicable laws and regulations will not have
a material adverse impact on the Company's liquidity, consolidated financial
position or results of operations.
- 17 -
<PAGE>
Item 2.B. Other Developments.
In October 1996, the Company announced its agreement to sell its western
coal operations, which consist of the Utah mines and a 9% interest in the Los
Angeles Export Terminal Co., Inc., for $615 million in cash to a limited
liability company jointly owned by subsidiaries of Atlantic Richfield Co. and
ITOCHU Corp. The sale is expected to close by the end of 1996, contingent upon
receipt of any required regulatory approvals. It is anticipated that proceeds
from the sale will be used to pay down a significant amount of Coastal's
high-cost financial obligations and provide enhanced financial flexibility to
take advantage of higher-growth opportunities. Coastal will retain its coal
operations in the eastern United States and continue to develop those
businesses. These subsidiaries operate mines and processing plants and market
coal from extensive reserves located in West Virginia, Virginia and Kentucky.
On October 25, 1996, ANR Pipeline filed an application with the FERC to
construct and operate 37 miles of offshore and onshore pipeline looping at a
cost of $51.2 million. The project is to be located between Eugene Island Block
63 and Patterson, Louisiana, providing ANR Pipeline with the capability to
access a significant portion of gas being produced from new deep-water regions
in the Gulf of Mexico. The proposed facilities would add up to a total of 461
MMcf per day to the offshore Louisiana production ANR Pipeline currently
delivers and could be in service by August 1998, subject to receipt of necessary
federal regulatory approvals.
In September 1996, Coastal and Westcoast Energy Inc. ("Westcoast") jointly
announced plans to form North America's fourth largest marketer of natural gas
and electricity through the merger of the two companies' related marketing and
services subsidiaries. The merger would create new entities in which Coastal and
Westcoast will indirectly own 50% each, and the new entities would handle
aggregate physical sales volumes of approximately seven billion cubic feet
("Bcf") of natural gas per day. The boards of directors of both companies have
approved the merger in principle, subject to further due diligence and execution
of definitive agreements.
American Natural Resources Company, a subsidiary of Coastal, acquired the
common stock of Primark Storage Leasing Corporation ("Primark") in September of
1996. Primark (now named Mid Michigan Gas Storage Company) owns eight
underground natural gas storage fields as well as certain related pipeline and
compressor facilities. Located near Big Rapids, Michigan, these fields, which
are leased to and operated by ANR Pipeline, provide a total working storage
capacity of approximately 77 Bcf and 1.4 Bcf per day of deliverability.
In September 1996, Coastal Baltica Holding Company Ltd., a joint venture
owned by a Coastal subsidiary and Baltica Finance N.V., commenced operations at
its terminal and new port facilities near Tallinn, Estonia on the Baltic Sea.
The joint venture recently completed the construction of a 4.6-mile pipeline
connecting the terminal with the Port of Muuga, one of the deepest ports on the
Baltic. The terminal operation will import and export almost 2.5 million metric
tons (16 million barrels) of petroleum products annually, primarily from Russia
and the former republics of the Soviet Union to markets in Europe, North and
South America and the Caribbean.
On March 29, 1996, CIG filed an application with the FERC for authority to
expand the capacity of the Wind River Lateral by 68 MMcf per day above the
current capacity of 195,000 Mcf per day. The cost of the expansion is estimated
to be approximately $10.8 million. On September 11, 1996, the FERC issued an
order granting CIG a certificate to construct and operate facilities to increase
capacity on the Wind River Lateral. The projected in-service date of the full
expansion is during the third quarter of 1997.
- 18 -
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The information required hereunder is incorporated by reference into
Part II of this Report from Note 6 of the Notes to Consolidated Financial
Statements and from Item 2.A., "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Environmental Matters" set forth
in Part I of this Report.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.16 - Pension Plan for Employees of The Coastal
Corporation as of January 1, 1993, as further amended
by the Twelfth Amendment dated August 29, 1996 and
the Thirteenth Amendment dated September 16, 1996.
11 - Statement re Computation of Per Share Earnings.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE COASTAL CORPORATION
(Registrant)
Date: November 13, 1996 By: COBY C. HESSE
-----------------------------
Coby C. Hesse
Senior Vice President
and Controller
(As Authorized Officer and
Chief Accounting Officer)
- 19 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- -----------------------------------------------------------------------------
10.16 Pension Plan for Employees of The Coastal Corporation as of
January 1, 1993, as further amended by the Twelfth Amendment dated
August 29, 1996 and the Thirteenth Amendment dated September 16,
1996.
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule
- 20 -
<PAGE>
EXHIBIT 10.16
TWELFTH AMENDMENT TO THE PENSION PLAN
FOR EMPLOYEES OF THE COASTAL CORPORATION
THIS AMENDMENT is made the 29th day of August, 1996, by The Coastal
Corporation, a Delaware corporation (hereinafter referred to as the "Company")
and Coastal Refining & Marketing, Inc., a Delaware corporation ("Coastal
Refining").
WITNESSETH:
WHEREAS, Coastal Refining acquired certain assets known as the St. Helens
Facility from Chevron Chemical Company ("Chevron") on or about January 24, 1996;
and
WHEREAS, in conjunction with the acquisition of the St. Helens Facility,
certain individuals who were formerly employees of Chevron became employees of
Coastal Refining or a Related Employer on or about January 24, 1996; and
WHEREAS, as part of the terms of the acquisition, Coastal Refining agreed
(i) to recognize the prior service of the former Chevron employees for purposes
of eligibility to participate, vesting and benefit eligibility under the pension
plan which Coastal Refining adopted; and (ii) to adopt for a five-year period
the Chevron pension plan benefit formula as a minimum benefit, including a
recognition of the prior service and compensation of the former Chevron
employees; and
WHEREAS, Coastal Refining has adopted the Pension Plan for Employees of The
Coastal Corporation (the "Plan"); and
WHEREAS, the Company and Coastal Refining would like to amend the Plan to
include as a supplement the provisions which apply to the former Chevron
employees; and
WHEREAS, the Company wishes to amend the Plan to clarify the Social
Security offset language; and
WHEREAS, the Company wishes to amend the Plan provisions with respect to
the amendment procedure to conform the language to recent case law; and
WHEREAS, the Company wishes to amend the Plan to clarify various
provisions;
NOW, THEREFORE, the Plan is amended as follows:
1. A St. Helens Facility Supplement is added as a Twelfth Supplement to the
Plan to read in its entirety as follows:
TWELFTH SUPPLEMENT
ST. HELENS FACILITY SUPPLEMENT
ARTICLE I
INTRODUCTION
This Supplement is referred to as the "St. Helens Facility
Supplement." The purpose of this Supplement is to provide a separate
minimum benefit structure for a five-year period within the Plan for
Participants who were formerly employees of Chevron Chemical Company at
the St. Helens Facility located in St. Helens, Oregon.
- 21 -
<PAGE>
The provisions of the St. Helens Facility Supplement apply in
lieu of inconsistent or contrary provisions contained in the Plan
(excluding this Supplement) with respect to persons to whom this
Supplement applies.
ARTICLE II
DEFINITIONS
Terms used in this Supplement which are defined in the Plan
have the same meaning in this Supplement unless such terms are defined
differently for purposes of this Supplement. The definition of terms
defined in this Supplement apply only to this Supplement and not to
other parts of the Plan.
2.1 "Coastal Refining" means Coastal Refining & Marketing, Inc., a
Delaware corporation.
2.2 "Chevron" means Chevron Chemical Company, a Delaware corporation.
2.3 "Chevron Plan" means the Chevron Corporation Retirement Plan, as
amended and restated effective January 1, 1995.
ARTICLE III
BENEFITS
3.1 Five-Year Minimum Benefit. With respect to the five-year
period commencing January 24, 1996 and ending January 23, 2001
("Five-Year Period"), the Retirement Income of a Participant who was
formerly an employee of Chevron at its St. Helens, Oregon facility and
who became an Employee on or about January 24, 1996 in conjunction with
the acquisition of the St. Helens, Oregon facility by Coastal Refining,
shall be the greater of (i) the age 65 benefit accrued, as determined
under the Chevron Plan formula, recognizing both the Participant's
Years of Credited Service with Chevron (as defined in the Chevron Plan)
and Years of Service during the Five-Year Period with the Company or a
Related Employer (as defined in the Plan) and Regular Earnings (as
defined in the Chevron Plan, but including Compensation from the
Company and Related Employers during the Five-Year Period), reduced by
the amount of the age 65 benefit accrued which is attributable to
service with Chevron before the Five-Year Period, or (ii) the Accrued
Benefit determined under the Plan, excluding the provisions of this
Supplement. For purposes of determining the amount of the offset in
clause (i), age 65 benefits accrued under the Plan and the Chevron Plan
shall be expressed in the form of a single-life annuity commencing at
age sixty-five.
3.2 There shall be no duplication of benefits from the Plan
with respect to the five-year minimum benefit provided for in the
Retirement Income calculations described in this Supplement. The
Retirement Income calculated pursuant to this Supplement shall be
reduced by the Actuarial Equivalent of any Retirement Income or other
benefit which is paid or distributed pursuant to other provisions of
the Plan. For purposes of the Plan, the benefit calculated pursuant to
this Supplement shall be frozen at the end of the Five-Year Period and
any frozen benefit payable to a Participant pursuant to the terms of
this Supplement shall be payable pursuant to provisions of the Plan and
not pursuant to provisions of the Chevron Plan."
3. The first sentence of Section 1.15A is amended to read in its entirety as
follows:
"1.15A "Normal Retirement Age" means the date the Participant
attains the age of sixty-five years except that, in the case of a
Participant who commences participation in the Plan after attainment of
sixty years of age, Normal Retirement Age is the later of the date the
Participant attains the age of sixty-five years or, the fifth
anniversary of the date such Participant commenced participation in the
Plan."
- 22 -
<PAGE>
4. The introductory section of Section 11.1 is hereby amended to read in its
entirety as follows:
"11.1 Amendment. Coastal reserves the right at any time and
from time to time to modify or amend, in whole or in part, any or all
of the provisions of the Plan, by resolution of the Board, as evidenced
by a written instrument executed by an authorized officer of Coastal,
and all Employees and persons claiming any interest hereunder shall be
bound thereby; provided however, that no amendment shall have the
effect of:"
5. Section 12.15 is amended to read in its entirety as follows:
"12.15 Expenses of Administration. The Company, Related
Employers and Subsidiaries may pay all expenses incurred in the
establishment and administrations of the Plan, including expenses and
fees of the Trustee, but they shall not be obligated to do so. Any such
expenses not so paid may be paid from the Trust Fund to the extent
permitted by applicable laws, including ERISA."
6. Except for the preceding, all of the terms of the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the Company and Coastal Refining have caused this
instrument to be executed by their duly authorized officers and their corporate
seals to be affixed hereto as of the date indicated above and this Amendment
shall be effective as of the date indicated above, unless otherwise stated or
required by law.
ATTEST: THE COASTAL CORPORATION
(Seal)
AUSTIN M. O'TOOLE By: DAVID A. ARLEDGE
- ---------------------------------- ------------------------------------
Austin M. O'Toole David A. Arledge
Senior Vice President President and Chief Executive Officer
and Secretary
ATTEST: COASTAL REFINING & MARKETING, INC.
(Seal)
DALE V. SHULTZ By: AUSTIN M. O'TOOLE
- ---------------------------------- ------------------------------------
Dale V. Shultz Austin M. O'Toole
Assistant Secretary Senior Vice President and Secretary
- 23 -
<PAGE>
THIRTEENTH AMENDMENT TO THE PENSION PLAN
FOR EMPLOYEES OF THE COASTAL CORPORATION
(AMENDMENT TO THE NINTH SUPPLEMENT - PACIFIC REFINING/ WESTERN FUEL)
THIS AMENDMENT is made the 16th day of September, 1996, by The Coastal
Corporation, a Delaware corporation (hereinafter referred to as the "Company")
and Pacific Refining Company, a California General Partnership ("Pacific
Refining").
WITNESSETH:
WHEREAS, the Pension Plan for Employees of The Coastal Corporation was
restated as of January 1, 1989, and has since been amended (such plan, as
restated and amended, is hereinafter referred to as the "Plan" or the "Coastal
Plan"); and
WHEREAS, as of January 1, 1989, Pacific Refining adopted the Plan as a
separate plan (the "Pacific Refining Plan") and a Ninth Supplement was added to
the Coastal Plan to provide benefit accruals for Hours of Service after December
31, 1991 for the participants of the Pacific Refining Plan; and
WHEREAS, effective as of June 1, 1996, Pacific Refining became a
wholly-owned, indirect subsidiary of the Company; and
WHEREAS, the Company and Pacific Refining wish to merge the Pacific
Refining Plan into the Coastal Plan effective as of June 1, 1996; and
NOW, THEREFORE, the Pacific Refining Plan is merged into the Coastal Plan
and the Plan is amended in the following respects:
1. The "INTRODUCTION" of the Plan is amended to add the following before the
section entitled "Termination of Service."
"PACIFIC REFINING PLAN
As of January 1, 1989, Pacific Refining Company ("Pacific
Refining") adopted the Plan as a separate benefit plan (the "Pacific
Refining Plan"), and the Plan was subsequently amended to add the Ninth
Supplement which provided for benefits which were applicable to
participants of the Pacific Refining Plan.
As of June 1, 1996, the Pacific Refining Plan was merged into
the Plan."
2. The Ninth Supplement is amended and restated to read in its entirety as
follows:
"NINTH SUPPLEMENT - PACIFIC REFINING
(Amended and Restated)
This Supplement is referred to as the "Pacific Refining
Supplement." This Supplement includes provisions applicable to
Employees of Pacific Refining Company ("Pacific Refining") and Western
Fuel Oil Company ("Western"), a subsidiary of Pacific Refining, who
have been credited with an Hour of Service due to employment with
Pacific Refining or Western with respect to periods of time after
December 31, 1991 and before October 1, 1996.
The provisions of the Pacific Refining Supplement apply in
lieu of inconsistent or contrary provisions contained in the Plan
(excluding this Supplement) with respect to persons to whom this
Supplement applies. Plan provisions which are not modified or
superseded by the provisions of this Pacific Refining Supplement shall
apply to this Supplement in their entirety and as such Plan provisions
may be amended from time to time.
- 24 -
<PAGE>
The formula used to determine the Retirement Income of a
Participant pursuant to Section 5.1 of the Plan is modified by
inserting "three hundred sixty dollars" in lieu of "forty-eight"
dollars in item (ii) of subsection (a) of Section 5.1."
3. Except for the preceding, all of the terms of the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the Company and Pacific Refining have caused this
instrument to be executed by their duly authorized officers and their seals to
be affixed hereto as of the date indicated above and the provisions of this
Amendment shall be effective as of the date indicated above, unless otherwise
stated or required by law.
ATTEST: THE COASTAL CORPORATION
(Seal)
AUSTIN M. O'TOOLE By: DAVID A. ARLEDGE
- ----------------------------------- -----------------------------------
Austin M. O'Toole David A. Arledge
Senior Vice President and Secretary President and Chief Executive Officer
ATTEST: PACIFIC REFINING COMPANY
(No Seal) By: Coastal West Ventures, Inc.,
a general partner
DALE V. SHULTZ By: AUSTIN M. O'TOOLE
- ---------------------------------- -----------------------------------
Dale V. Shultz Austin M. O'Toole
Assistant Secretary Senior Vice President and Secretary
- 25 -
<PAGE>
EXHIBIT 11
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Millions of Dollars, Except Per Share Amounts,
and Thousands of Shares)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
common stock equivalents................................... $ 54.3 $ 39.9 $ 182.2 $ 146.0
========= ========== ========= =========
Average number of common shares outstanding................... 105,189 104,499 105,041 104,422
Class A common shares......................................... 387 413 392 412
Common share equivalents:
$1.19 Cumulative Convertible Preferred, Series A*.......... 223 231 223 231
Dilutive effect of outstanding stock options after
application of treasury stock method*...................... 600 371 574 288
--------- ---------- --------- ---------
Average common and common equivalent shares................... 106,399 105,514 106,230 105,353
========= ========== ========= =========
Net earnings per average common and common
equivalent share outstanding:
Earnings before extraordinary item......................... $ .51 $ .38 $ 1.83 $ 1.39
Extraordinary item......................................... - - (.11) -
--------- ---------- --------- ---------
Net earnings............................................... $ .51 $ .38 $ 1.72 $ 1.39
========= ========== ========= =========
ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
common stock equivalents................................... $ 54.3 $ 39.9 $ 182.2 $ 146.0
Dividends applicable to dilutive preferred stock:
Series B................................................... - - .1 .1
Series C................................................... - - .1 .1
--------- ---------- --------- ---------
Adjusted net earnings assuming full dilution.................. $ 54.3 $ 39.9 $ 182.4 $ 146.2
========= ========== ========= =========
Average number of common shares outstanding................... 105,189 104,499 105,041 104,422
Class A common shares......................................... 387 413 392 412
Common and Class A common share equivalents:
Series A Preferred Stock*.................................. 223 231 223 231
Equivalent common and Class A shares from
Series B and C Preferred Stock*............................ 514 543 514 543
Dilutive effect of outstanding stock options after
application of treasury stock method*...................... 617 456 630 456
--------- ---------- --------- ---------
Fully diluted shares.......................................... 106,930 106,142 106,800 106,064
========= ========== ========= =========
Fully diluted earnings per share:
Earnings before extraordinary item......................... $ .51 $ .38 $ 1.82 $ 1.38
Extraordinary item......................................... - - (.11) -
--------- ---------- --------- ---------
Net earnings**............................................. $ .51 $ .38 $ 1.71 $ 1.38
========= ========== ========= =========
<FN>
* Convertible securities and options are not considered in the calculations
if the effect of the conversion is anti-dilutive.
** Reporting not required by generally accepted accounting principles because
of small variances from earnings on average common and common equivalent
shares.
</FN>
</TABLE>
- 26 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COASTAL CORPORATION FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 1,463
<ALLOWANCES> 0
<INVENTORY> 1,024
<CURRENT-ASSETS> 2,794
<PP&E> 10,576
<DEPRECIATION> 3,808
<TOTAL-ASSETS> 11,461
<CURRENT-LIABILITIES> 2,719
<BONDS> 3,792
0
3
<COMMON> 37
<OTHER-SE> 2,800
<TOTAL-LIABILITY-AND-EQUITY> 11,461
<SALES> 8,819
<TOTAL-REVENUES> 8,882
<CGS> 6,702
<TOTAL-COSTS> 8,299
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 262
<INCOME-TAX> 55
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> (12)
<CHANGES> 0
<NET-INCOME> 195
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
