UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED
MARCH 31, 1994
Commission File Number 1-3196
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CONSOLIDATED NATURAL GAS COMPANY
A Delaware Corporation
CNG Tower, 625 Liberty Avenue, Pittsburgh, PA 15222-3199
Telephone (412) 227-1000
IRS Employer Identification Number 13-0596475
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes___X___ No_______
Number of shares of Common Stock, $2.75 Par Value, outstanding at April 30,
1994: 93,014,418
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CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended March 31, 1994
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Quarters Ended March 31, 1994 and 1993............... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at March 31, 1994 (Unaudited), and December 31, 1993......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Quarters Ended March 31, 1994 and 1993............... 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................... 13
ITEM 2. CHANGES IN SECURITIES.................................. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 13
ITEM 5. OTHER INFORMATION...................................... 13
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K...................... 13
SIGNATURES....................................................... 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Natural Gas Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (Thousands of Dollars)
____________________________________________________________________________
Three Months to March 31
1994 1993
____________________________________________________________________________
OPERATING REVENUES
Regulated gas sales
Residential and commercial................... $ 793,906 $ 680,110
Industrial................................... 21,398 19,876
Wholesale.................................... 2,747 174,720
Nonregulated gas sales......................... 214,461 96,222
__________ __________
Total gas sales............................ 1,032,512 970,928
Other operating revenues....................... 181,084 160,598
__________ __________
Total operating revenues (Note 3).......... 1,213,596 1,131,526
__________ __________
OPERATING EXPENSES
Purchased gas.................................. 647,318 606,050
Other purchased products....................... 21,961 19,235
Operation expense.............................. 174,293 162,300
Maintenance.................................... 19,577 17,886
Depreciation and amortization.................. 78,402 74,493
Taxes, other than income taxes................. 54,606 51,393
__________ __________
Subtotal................................... 996,157 931,357
__________ __________
Operating income before income taxes....... 217,439 200,169
Income taxes - estimated....................... 66,587 55,265
__________ __________
Operating income........................... 150,852 144,904
__________ __________
OTHER INCOME
Interest revenues.............................. 1,255 1,742
Other (net).................................... 889 1,337
__________ __________
Total other income......................... 2,144 3,079
__________ __________
Income before interest charges............. 152,996 147,983
__________ __________
INTEREST CHARGES
Interest on long-term debt..................... 22,161 23,084
Other interest expense......................... 2,405 2,060
Total allowance for funds
used during construction (credit)............ (2,488) (2,875)
__________ __________
Total interest charges..................... 22,078 22,269
__________ __________
Income before cumulative effect of change
in accounting principle...................... 130,918 125,714
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109 (Note 4)............ - 17,422
__________ __________
NET INCOME..................................... $ 130,918 $ 143,136
========== ==========
Earnings per share of common stock,
based on average shares outstanding
Income before cumulative effect of change
in accounting principle.................. $1.41 $1.36
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109 (Note 4)........ - .19
_____ _____
Net Income................................. $1.41 $1.55
===== =====
Average common shares outstanding (thousands).. 92,941 92,609
Dividends declared per common share............ $.485 $.48
____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
1
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ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
_____________________________________________________________________________
At March At December
31, 1994 31, 1993
(Unaudited)
_____________________________________________________________________________
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant.................... $ 4,386,649 $ 4,362,996
Accumulated depreciation and amortization...... (1,637,470) (1,607,606)
___________ ___________
Net gas utility and other plant........... 2,749,179 2,755,390
___________ ___________
Exploration and production properties.......... 3,012,188 2,983,032
Accumulated depreciation and amortization...... (1,869,894) (1,822,154)
___________ ___________
Net exploration and production properties. 1,142,294 1,160,878
___________ ___________
Net property, plant and equipment......... 3,891,473 3,916,268
___________ ___________
CURRENT ASSETS
Cash and temporary cash investments............ 65,423 27,122
Accounts receivable, less allowance for
doubtful accounts............................ 687,637 629,473
Gas stored - current portion (LIFO method)..... 19,614 140,848
Materials and supplies (average cost method)... 36,779 38,784
Unrecovered gas costs (net).................... (16,337) (9,000)
Deferred income taxes - current portion........ 15,627 23,685
Prepayments and other current assets........... 187,469 192,212
___________ ___________
Total current assets...................... 996,212 1,043,124
___________ ___________
OTHER ASSETS
Unamortized abandoned facilities............... 49,813 52,676
Other investments.............................. 41,163 39,600
Deferred charges and other noncurrent
assets (Notes 3 and 5)....................... 358,845 357,918
___________ ___________
Total other assets........................ 449,821 450,194
___________ ___________
Total assets.............................. $ 5,337,506 $ 5,409,586
=========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholders' equity (Notes 7 and 8)
Common stock, par $2.75
(Issued: 1994 - 92,981,967 shares;
1993 - 92,933,828 shares).................. $ 255,700 $ 255,568
Capital in excess of par value............... 456,454 454,081
Retained earnings............................ 1,552,604 1,466,783
___________ ___________
Total common stockholders' equity......... 2,264,758 2,176,432
Long-term debt................................. 1,152,927 1,158,648
___________ ___________
Total capitalization...................... 3,417,685 3,335,080
___________ ___________
CURRENT LIABILITIES
Current maturities on long-term debt........... 4,000 -
Commercial paper............................... 221,000 455,000
Accounts payable............................... 272,334 345,126
Estimated rate contingencies and
refunds (Note 3)............................. 36,827 57,456
Taxes accrued.................................. 155,475 112,098
Temporary replacement reserve - gas
inventory (LIFO)............................. 104,792 -
Other accruals and current liabilities......... 168,867 143,218
___________ ___________
Total current liabilities................. 963,295 1,112,898
___________ ___________
DEFERRED CREDITS
Deferred income taxes.......................... 769,167 783,511
Accumulated deferred investment tax credits.... 35,195 35,849
Other deferred credits and noncurrent
liabilities.................................. 152,164 142,248
___________ ___________
Total deferred credits.................... 956,526 961,608
___________ ___________
COMMITMENTS AND CONTINGENCIES
___________ ___________
Total stockholders' equity and liabilities $ 5,337,506 $ 5,409,586
=========== ===========
_____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
2
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ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (Thousands of Dollars)
_____________________________________________________________________________
Three Months to March 31
1994 1993
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ 130,918 $ 143,136
Adjustments to reconcile net income to net
cash provided by operating activities
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109................... - (17,422)
Depreciation and amortization................ 78,402 74,493
Deferred income taxes (net).................. (8,128) (25,955)
Certain changes in current assets and
current liabilities
Accounts receivable, less allowance for
doubtful accounts........................ (58,110) (114,678)
Inventories................................ 123,239 103,429
Unrecovered gas costs (net)................ 7,337 100,746
Accounts payable........................... (66,010) (88,294)
Estimated rate contingencies and refunds... (20,629) 2,665
Taxes accrued.............................. 43,377 48,668
Temporary replacement reserve - gas
inventory (LIFO)......................... 104,792 104,524
Other (net)................................ 28,976 18,423
Certain changes in noncurrent assets and
noncurrent liabilities..................... 14,294 1,163
Other (net).................................. 99 15
_________ _________
Net cash provided by operating activities 378,557 350,913
_________ _________
CASH FLOWS USED IN INVESTING ACTIVITIES
Plant construction and other property additions.. (61,051) (57,745)
Proceeds from dispositions of property, plant
and equipment (net)............................ (269) (780)
Cost of other investments (net).................. (880) 116
_________ _________
Net cash used in investing activities.... (62,200) (58,409)
_________ _________
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from issuance of common stock........... 156 4,135
Purchase of debentures........................... - (2,000)
Commercial paper (net)........................... (233,136) (250,367)
Dividends paid on common stock................... (45,074) (44,429)
Other (net)...................................... (2) (108)
_________ _________
Net cash used in financing activities.... (278,056) (292,769)
_________ _________
Net increase (or decrease) in cash and
temporary cash investments............. 38,301 (265)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1. 27,122 43,355
_________ _________
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31.. $ 65,423 $ 43,090
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 10,779 $ 12,741
Income taxes (net of refunds).................. $ 10,908 $ 11,624
Non-cash financing activities
Conversion of 7 1/4% Convertible
Subordinated Debentures...................... $ 2,005 $ -
_____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
3
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ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) With the exception of the Condensed Consolidated Balance Sheet at
December 31, 1993, which is derived from the Consolidated Balance Sheet at that
date which was included in the Annual Report to the Securities and Exchange
Commission ("SEC") on Form 10-K for 1993 ("1993 Form 10-K"), the consolidated
financial statements appearing on pages 1 through 3 are unaudited. In the
opinion of management, the information furnished reflects all adjustments
necessary to a fair statement of the results for the interim periods presented.
(2) Because of the seasonal nature of the subsidiary companies' heating
business, earnings for the first three months of any calendar year represent a
substantial part of full year earnings. Seasonal fluctuations are further
influenced by the timing of price relief granted under regulation to compensate
for past cost increases.
(3) Certain increases in prices by subsidiaries and other rate-making issues
are subject to final modification in regulatory proceedings. The related
accumulated provisions pertaining to these matters were $17,777,000 and
$15,343,000 at December 31, 1993, and March 31, 1994, including interest.
These amounts are reported in the Condensed Consolidated Balance Sheet under
"Estimated rate contingencies and refunds" together with $39,679,000 and
$21,484,000, respectively, which are primarily refunds received from suppliers
and refundable to customers under regulatory procedures.
The Company's distribution subsidiaries have incurred or are expected to
incur obligations to upstream pipeline companies, including CNG Transmission
Corporation ("CNG Transmission," a subsidiary), for transition costs under
Federal Energy Regulatory Commission ("FERC") Order 636. The estimated
liability for such costs was $81,592,000 and $72,124,000 at December 31, 1993,
and March 31, 1994, respectively. Additional amounts are likely to be recorded
in the future once the pipeline companies receive final FERC approval to
recover their remaining transition costs. Based on management's current
estimates, the distribution subsidiaries' portion of such additional costs
could be in the range of $75 million.
Based on the nature of the costs and the past rate-making treatment of
similar costs, management believes that the distribution companies should
generally be able to pass through all Order 636 transition costs to their
customers.
(4) Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." The cumulative effect of this accounting change increased net income
in the first three months of 1993 by $17,422,000, or $.19 per share, resulting
primarily from the reduction in deferred income tax balances associated with
the Company's nonregulated activities.
(5) Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Statement No. 106 requires that
the estimated future costs of providing postretirement benefits, such as health
care and life insurance, be recognized as an expense and a liability during the
employees' service periods. As permitted under the standard, the Company
elected to amortize the accumulated postretirement benefit obligation existing
at the date of adoption ("transition obligation") over a 20-year period.
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Concluded)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
The majority of the Company's estimated postretirement benefit costs and of
the transition obligation is attributable to its rate-regulated subsidiaries.
Accordingly, these subsidiaries are seeking, or intend to seek as soon as
practicable, rate relief from their respective regulatory commissions for the
increased level of expense resulting from the adoption of the standard. In
this regard, regulatory authorities having jurisdiction over the Company's
subsidiaries have indicated their intention to generally allow inclusion in
rates of postretirement benefit costs determined on an accrual basis, subject
to prudency and certain other conditions. As a result, the Company's rate-
regulated subsidiaries have generally deferred the differences between SFAS No.
106 costs and amounts currently included in rates pending expected recovery of
Statement No. 106 costs and related deferrals in regulatory proceedings. The
SFAS No. 106 costs deferred at December 31, 1993, and March 31, 1994, were
$27,662,000 and $35,062,000, respectively. These amounts are included in the
Condensed Consolidated Balance Sheet under "Deferred charges and other
noncurrent assets."
(6) Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The standard requires the accrual of a liability for
postemployment benefit obligations if certain specified conditions are met.
The adoption of the standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
(7) A summary of the changes in common stock, capital in excess of par value,
and treasury stock subsequent to December 31, 1993, follows:
_____________________________________________________________________________
Common Stock
Issued Capital in Treasury Stock
___________________ ________________
Number Value Excess of Number
of Shares at Par Par Value of Shares Cost
_____________________________________________________________________________
(In Thousands)
At December 31, 1993......... 92,934 $255,568 $454,081 - $ -
Common stock issued
Conversion of debentures... 37 103 1,936 - -
Stock awards............... 7 18 294 - -
Stock options.............. 4 11 145 - -
Purchase of treasury stock... - - - (4) (162)
Sale of treasury stock....... - - (2) 4 162
______ ________ ________ ____ _____
At March 31, 1994............ 92,982 $255,700 $456,454 - $ -
====== ======== ======== ==== =====
_____________________________________________________________________________
(8) The indenture relating to the Company's senior debenture issues contains
restrictions on dividend payments by the Company and acquisitions of its
capital stock. Under these provisions, $750,415,000 of consolidated retained
earnings was free from such restrictions at March 31, 1994.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Because of the seasonal nature of the regulated subsidiaries' heating business,
a substantial portion of the Company's cash receipts for the year are realized
in the first quarter of the year. As shown in the Condensed Consolidated
Statement of Cash Flows, net cash provided by operating activities was $378.6
million and $350.9 million for the three months ended March 31, 1994 and 1993,
respectively. In addition to satisfying cash requirements for operations,
capital expenditures, and dividend payments in the current year quarter,
available cash was used to reduce the amount of commercial paper borrowings
outstanding at the end of 1993.
Due to the significant amount of revenues generated during the first quarter,
the consolidated balance sheet at the end of March customarily shows an
increase in cash and temporary cash investments and an increase in accounts
receivable over balances at the end of the previous year. In addition, the
inventory of stored gas was reduced during the first quarter of the year due to
the increased demand for gas during the winter heating season. Under the LIFO
accounting method, the excess of the estimated current cost of replacing
inventories of gas withdrawn from storage during the early part of the year
over LIFO inventory cost at the time of withdrawal is recorded in the income
statement and as a current liability. This liability is reduced as the
inventory is replenished later in the year, and by year-end the liability is
eliminated.
The balances in "Unrecovered gas costs (net)" at both December 31, 1993, and
March 31, 1994, reflect a temporary overrecovery position by certain
subsidiaries. The overrecovery of these costs was due in part to higher actual
gas sales volumes compared to the estimated sales levels included in their
latest regulatory filings. Future gas cost recovery filings by these
subsidiaries will be adjusted to reflect the amounts collected.
During 1994, funds required for the capital spending program as well as other
general corporate purposes are expected to be obtained principally from
internal cash generation. The sale of commercial paper will be used to provide
short-term financing to the subsidiaries, primarily for working capital
requirements.
Borrowings under the Company's 1991 Credit Agreement may be used to temporarily
finance capital expenditures. Additional funds, if necessary, could be
obtained through the issuance of new debt securities. In this regard, the
Company has shelf registrations with the SEC that permit the sale of up to $500
million of debentures. Included in this total is $100 million remaining under
a prior shelf registration and $400 million under a new shelf registration
which became effective in March 1994. The amount and timing of any future sale
of these debentures will depend on capital requirements and financial market
conditions.
In connection with this discussion of financial condition, reference is made to
Notes 3, 5, 6, 7 and 8 to the consolidated financial statements.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
A major portion of the gas sold or transported by the Company's distribution
and transmission operations is ultimately used for space heating. As a result,
earnings are affected by changes in the weather. Because most of the operating
subsidiaries are subject to price regulation by federal or state commissions,
earnings can be affected by regulatory delays when price increases are sought
through general rate filings to recover certain higher costs of operation.
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
System Results
Net income for the first three months of 1994 was $130,918,000, or $1.41 per
share, compared with $143,136,000, or $1.55 per share, in the first three
months of 1993. Earnings for the 1993 first quarter included the cumulative
effect of an accounting change of $17,422,000, or 19 cents per share, for the
mandatory adoption of SFAS No. 109, the new accounting standard for income
taxes. Excluding the impact of the accounting change, net income was
$125,714,000, or $1.36 per share, in the first three months of 1993. Colder
weather, and higher gas wellhead prices and production, were the primary
reasons for the improvement in operating results in 1994. Offsetting factors
were lower oil prices and higher costs of operations, including higher income
taxes.
Weather in Consolidated's retail service territories in the 1994 first quarter
was 10.5 percent colder than 1993, and 6.6 percent colder than normal. The
colder weather resulted in increased space heating sales by the distribution
subsidiaries, and higher transportation volumes by the Company's transmission
operations. During a prolonged cold spell in January 1994, Consolidated
exceeded its previous daily throughput record of 7.9 billion cubic feet (Bcf)
three times in one week, reaching a throughput high of 9.1 Bcf -- a 15 percent
increase over the previous record. The new record throughput level was
achieved while maintaining all firm transportation commitments to customers.
Cold weather nationally and the overall higher demand for natural gas boosted
the Company's average gas wellhead price to $2.51 a thousand cubic feet (Mcf),
a 44 cent increase over the first quarter of 1993. Rate increase requests
pending at the Company's two largest distribution subsidiaries and the
Company's interstate gas pipeline subsidiary are expected to help moderate the
effect of the higher operating costs. Income taxes in the 1994 first quarter
were higher due in part to higher pretax earnings and to the increase in the
federal corporate tax rate from 34 percent to 35 percent enacted in August
1993. Although the tax rate increase was retroactive to January 1, 1993, the
higher taxes for the period prior to August 1993 were not recorded until the
new tax law was enacted, which occurred in the third quarter of 1993.
While weather in the first quarter of 1994 was both colder than normal and
colder than the 1993 first quarter, this pattern has not continued into the
second quarter, which through April has been warmer than normal and warmer than
last year. Earnings for the full year will be influenced by the weather,
particularly in the fourth quarter of the year. Other factors which may
significantly impact earnings during 1994 include the levels of gas and oil
prices, and the resolution of the current rate proceedings.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
DATA BY BUSINESS COMPONENTS
The following table sets forth certain data for the distribution, transmission,
and exploration and production components of the Company's business.
_____________________________________________________________________________
Three Months to
March 31
1994 1993
_____________________________________________________________________________
OPERATING INCOME (In Millions)
Distribution................................ $ 95.6 $ 91.1
Transmission................................ 34.3 36.7
Exploration and production.................. 14.3 9.0
Other....................................... 1.4 1.0
Intercompany eliminations and adjustments... 5.3 7.1
________ ________
Total..................................... $ 150.9 $ 144.9
======== ========
OPERATING REVENUES (In Millions)
Distribution................................ $ 854.2 $ 737.6
Transmission................................ 137.9 334.8
Exploration and production.................. 149.0 133.7
Other....................................... 153.9 61.0
Intercompany eliminations and adjustments... (81.4) (135.6)
________ ________
Total..................................... $1,213.6 $1,131.5
======== ========
GAS SALES (In Bcf)
Distribution................................ 145.3 137.2
Transmission................................ - 66.7
Exploration and production.................. 48.2 46.8
Other....................................... 50.6 22.6
Intercompany eliminations................... (16.1) (39.0)
________ ________
Total sales............................... 228.0 234.3
======== ========
GAS TRANSPORTATION (In Bcf)
Distribution................................ 46.1 44.9
Transmission................................ 277.3 198.2
Exploration and production.................. .2 .2
Other....................................... .6 -
Intercompany eliminations................... (80.0) (49.2)
________ ________
Total transportation...................... 244.2 194.1
======== ========
_____________________________________________________________________________
Distribution
Operating income of the gas distribution operations was $95.6 million in the
first three months of 1994, up $4.5 million, or 5 percent, from $91.1 million
in the first quarter of 1993. Distribution throughput in the 1994 quarter was
191.4 Bcf, a 5 percent increase from 182.1 Bcf in 1993. Both operating income
and throughput in the 1994 first quarter benefited from colder weather compared
with the 1993 period. The colder weather, however, also resulted in increased
costs, including employee overtime necessary to meet the heightened demand.
These weather-related costs combined with other increased operating expenses,
including higher income taxes, partially offset the income gains associated
with the higher throughput. Residential gas sales volumes rose 7.0 Bcf in the
first three months of 1994 to 104.9 Bcf. Sales to commercial customers
increased 1.3Bcf to 35.8 Bcf and volumes transported for these customers were
up 1.5 Bcf to
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
9.4 Bcf. Total deliveries to industrial customers increased 1.4 Bcf to 38.9
Bcf in the 1994 quarter. Industrial transport volumes were up 1.6 Bcf to 34.5
Bcf, while sales declined slightly to 4.4 Bcf. Off-system transport volumes
declined 2.0 Bcf in the quarter.
In order to reflect the higher cost of doing business in their cost-of-service
rate structures, the Company's two largest distribution subsidiaries, The East
Ohio Gas Company and The Peoples Natural Gas Company, are pursuing rate
increases with their respective state regulatory commissions. Resolution of
these proceedings is expected during the latter part of 1994.
Transmission
Operating income of the gas transmission operations in the first quarter of
1994 was $34.3 million, down $2.4 million from $36.7 million in the comparable
1993 period. A significant factor affecting the operating income comparison
was the sale by CNG Transmission during the first quarter of 1993 of
approximately 45 Bcf of gas from storage inventory in anticipation of the
transition to FERC Order 636. These sales, which were made at reduced prices
under alternative FERC-approved tariff schedules, increased available capacity
to provide storage service for customer-owned gas supplies under Order 636.
Higher operating expenses, including taxes and weather-related costs, and lower
by-products prices also contributed to the decline in operating income in
the 1994 quarter. Gas throughput was 277.3 Bcf in the 1994 first quarter, up
from 264.9 Bcf in 1993. Since CNG Transmission abandoned its traditional sales
service with the October 1, 1993 implementation of Order 636, transmission
throughput in the first three months of 1994 consisted solely of transportation
volumes. Gas transported was 277.3 Bcf in the 1994 first quarter, up from
198.2 Bcf in 1993. Gas sales in the 1993 first quarter were 66.7 Bcf,
including the 45 Bcf of sales from storage inventory.
Exploration and Production
Operating income from Consolidated's exploration and production operations was
$14.3 million in the first three months of 1994, up from $9.0 million in the
1993 first quarter. The impact of higher gas wellhead prices and higher gas
production in 1994 more than offset the effect of lower oil prices and
production, and lower margins realized for brokered gas. The 1994 first
quarter results were also adversely affected by higher income taxes.
Consolidated's average gas wellhead price in the first quarter of 1994 was
$2.51 an Mcf, up from $2.07 in the 1993 first quarter. Gas production in the
first three months of 1994 was 34.7 Bcf, up 7 percent from 32.6 Bcf in 1993.
Reflecting the general decline in oil prices worldwide, Consolidated's average
oil wellhead price fell to $12.08 a barrel in the 1994 quarter from $16.91 a
year ago. Oil production in the first quarter of 1994 was 923,200 barrels,
down from 963,000 barrels in 1993. This decrease is attributable to normal oil
production declines at older properties.
Other
Operating income from Consolidated's "Other operations" was $1.4 million in the
first quarter of 1994, compared with $1.0 million in the 1993 first quarter. A
large portion of the operating income of these operations in the 1994 quarter,
and of the operating revenues in both the 1993 and 1994 quarters, is
attributable to CNG Gas Services Corporation ("CNG Gas Services," a
subsidiary). Operating income of CNG Gas Services was $1.2 million in the
first three months of 1994, compared with an operating loss of $.1 million in
the 1993 first quarter. Gas sales for this subsidiary were 50.6 Bcf in the
1994 quarter compared with 22.6 Bcf in 1993. Total operating revenues of CNG
Gas Services were $146.1 million and $51.7 million in the first three months of
1994 and 1993, respectively.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
OPERATING REVENUES
Gas sales revenues in the first three months of 1994 increased $61.6 million
from the comparable 1993 period. Total gas sales volumes in the 1994 quarter
were 228.0 Bcf, down 6.3 Bcf from 1993. The average unit selling price of all
gas was $4.53 per Mcf in the 1994 first quarter, up from $4.14 per Mcf in the
1993 period. Higher residential and commercial space heating sales due to the
colder weather, and higher nonregulated sales, including increased sales of
produced gas and higher sales by CNG Gas Services, contributed to the revenue
increase in the 1994 quarter. The lower sales volumes in the first quarter of
1994 reflects both the abandonment of traditional wholesale sales service by
CNG Transmission and the sales of gas from inventory made in the first quarter
of 1993 in anticipation of FERC Order 636. The higher average selling price in
the 1994 quarter is primarily the result of the upward industry trend in gas
prices, including higher wellhead prices, and the recovery by the subsidiaries
of certain prior gas cost increases.
Other operating revenues were $181.1 million in the 1994 first quarter, up
$20.5 million over the comparable 1993 period. The increase was due
principally to higher gas transportation revenues, which were up $19.8 million
in the 1994 quarter as the result of increased volumes. Oil and condensate
revenues declined $9.7 million as lower prices and volumes adversely affected
revenues from both oil production and brokering activities. Revenues from the
sale of oil and condensate production declined $5.3 million, while revenues
from oil brokering were down $4.4 million. Revenues from the sale of products
extracted from natural gas were also lower in the 1994 first quarter, declining
$2.4 million due to lower prices received for all categories of by-products.
These revenue declines were offset, however, by increases in other
miscellaneous revenues, including the recovery of transport costs by the
Company's nonregulated operations.
OPERATING EXPENSES
Operating expenses, including income taxes, increased $76.1 million in the
first three months of 1994 to $1.06 billion. Total purchased gas expense was
up $41.3 million to $647.3 million. Increased volume requirements by the
distribution subsidiaries and higher spot market gas prices were the primary
factors for the increase. Other purchased products expense increased $2.7
million in the first quarter of 1994 due to increased transport capacity
purchased from other pipeline companies. This increase was partially offset by
reduced expenses related to the Company's brokered oil program due to lower oil
prices and lower volumes purchased. Combined operation and maintenance
expenses in the first quarter of 1994 increased $13.7 million due primarily to
higher payroll costs, including weather-related overtime. Increased royalties
paid as the result of higher gas wellhead prices and higher production-related
costs also contributed to the increase in operation expense. The higher
depreciation and amortization charges in the 1994 first quarter were due to the
increased plant investment of the subsidiaries and to higher gas production
volumes by the exploration and production operations. Taxes, other than income
taxes, were up $3.2 million in the 1994 quarter due in part to higher revenue-
based taxes, and increased property and payroll taxes.
"Income taxes -- estimated" increased $11.3 million in the first quarter of
1994 due in part to higher pretax earnings and to the increase in the federal
corporate income tax rate from 34 percent to 35 percent enacted in August 1993.
Although the tax rate increase was retroactive to January 1, 1993, the higher
taxes for the period prior to August 1993 were not recorded until the new tax
law was enacted, which occurred in the third quarter of 1993.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
OTHER INCOME AND INTEREST CHARGES
Total other income was down $.9 million in the first three months of 1994.
Interest revenues declined $.5 million primarily due to lower amounts
recognized in connection with various regulatory recovery mechanisms. "Other
(net)" was down $.4 million in the 1994 quarter as various items were lower,
none of which are individually significant. Total interest charges of $22.1
million in the first quarter of 1994 are relatively unchanged from those of the
same period of 1993.
In connection with this discussion of results of operations, reference is made
to Notes 2 through 6 to the consolidated financial statements.
SELECTED TWELVE-MONTH DATA
The following selected financial data (unaudited) relates to the twelve months
ended March 31, 1994 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $3,266,155
Operating expenses..................................... 3,002,769
Operating income................................... 263,386
Other income........................................... 9,596
Interest charges....................................... 79,284
Net income......................................... $ 193,698
Earnings per share of common stock................. $2.09
Average common shares outstanding (thousands)...... 92,890
Times fixed charges earned............................. 4.13
______________________________________________________________________________
OTHER INFORMATION
Rate Matters
On December 30, 1993, CNG Transmission filed a general rate filing with the
FERC requesting an annual revenue increase of $106.6 million. The rate
increase request is intended to cover higher operating costs, increased plant
investment, and the recovery of $9.2 million of Order 636 transition costs
related to stranded facilities. The effective date of the rate increase was
suspended by the FERC until July 1, 1994. If FERC approval is not received by
that date, CNG Transmission will begin collecting the additional revenues,
subject to refund. However, if abandonment authorization has not been received
by July 1, 1994, the FERC will require CNG Transmission to remove the stranded
costs from its rates.
On January 18, 1994, The East Ohio Gas Company ("East Ohio Gas") filed with the
Public Utilities Commission of Ohio ("PUCO") for a $99.1 million annual
increase in base rates. The rate increase request is intended to cover higher
operating costs and increases in plant investment. On March 18, 1994, East
Ohio Gas submitted an update to its filing, but the total amount of the annual
revenue increase remained unchanged. A decision by the PUCO is expected in
October 1994.
On October 29, 1993, the Public Service Commission of West Virginia ("PSC")
granted Hope Gas, Inc. ("Hope Gas," a subsidiary) an indicated $1.9 million
annual revenue increase effective November 1, 1993. In its March 1993 filing,
Hope Gas had requested an $8.2 million increase in revenues. On November 8,
1993, Hope Gas filed a petition for rehearing in the case. On March 30, 1994,
the PSC issued an order on reconsideration which set the company's authorized
return on equity at 10.55 percent, resulting in an additional increase in
annual revenues of $.3 million. The latter increase was effective March 30,
1994.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
Exploration and Production
CNG Producing Company ("CNG Producing," a subsidiary), acting alone or with
partners, was the high bidder on 10 tracts offered at the federal government's
March 31, 1994, Gulf of Mexico lease sale. The company's bids totaled $6.6
million for 100 percent working interests in six tracts and 50 percent working
interests in four tracts, all in the central Gulf of Mexico. If the government
accepts all the bids, CNG Producing will add about 40,000 net acres to the
approximately 386,000 net acres it already holds in the Gulf.
**********
In connection with the financial information included in PART I of this report,
reference is made to the Company's 1993 Annual Report and its Annual Report to
the Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1993.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the first
quarter of 1994, and there have been no material developments during the
quarter in the legal proceedings disclosed in the Company's 1993 Form 10-K as
then pending.
Reference is made to "Rate Matters" on page 11 for a description of certain
regulatory proceedings.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) Limitations on the payment of dividends by the Company are set forth in
Note 8 to the consolidated financial statements, page 5, and reference is made
thereto.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None, other than as described elsewhere in this report.
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K - None.
EXHIBITS
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings Per
Share, and Fully Diluted Earnings Per Share of Consolidated Natural Gas
Company and Subsidiaries for the three months ended March 31, 1994 and
1993
(12) Statement re Computation of Ratios:
Ratio of Earnings to Fixed Charges of Consolidated Natural Gas Company
and Subsidiaries for the twelve months ended March 31, 1994
______________________________________________________________________________
13
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.
CONSOLIDATED NATURAL GAS COMPANY
_______________________________________
(Registrant)
L. D. JOHNSON
_______________________________________
L. D. Johnson, Executive Vice President
and Chief Financial Officer
S. R. MCGREEVY
_______________________________________
S. R. McGreevy, Vice President,
Accounting and Financial Control
May 13, 1994
14
<PAGE>
EXHIBIT INDEX
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings Per
Share, and Fully Diluted Earnings Per Share of Consolidated Natural Gas
Company and Subsidiaries for the three months ended March 31, 1994 and
1993, are filed herewith
(12) Statement re Computation of Ratios:
Ratio of Earnings to Fixed Charges of Consolidated Natural Gas Company
and Subsidiaries for the twelve months ended March 31, 1994, is filed
herewith
______________________________________________________________________________
EXHIBIT 11
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (Note)
(In Thousands, Except Per Share Data)
____________________________________________________________________________
Three Months to March 31
1994 1993
____________________________________________________________________________
EARNINGS PER SHARE OF COMMON STOCK,
as Shown on the Consolidated Statement of Income
Income before cumulative effect of change in
accounting principle.......................... $130,918 $125,714
Cumulative effect prior to January 1, 1993,
of applying Statement of Financial
Accounting Standards No. 109
(SFAS No. 109)................................ - 17,422
________ ________
Net income...................................... $130,918 $143,136
======== ========
Average common shares outstanding............... 92,941 92,609
________ ________
Earnings per share of common stock
Income before cumulative effect of change
in accounting principle..................... $ 1.41 $ 1.36
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109.................... - .19
________ ________
Net income.................................... $ 1.41 $ 1.55
======== ========
PRIMARY EARNINGS PER SHARE
Income before cumulative effect of change in
accounting principle......................... $130,918 $125,714
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109...................... - 17,422
________ ________
Net income...................................... $130,918 $143,136
======== ========
Average common shares outstanding............... 92,941 92,609
Incremental shares resulting from
assumed exercise of stock options............. 157 248
________ ________
Average common shares, as adjusted.............. 93,098 92,857
________ ________
Primary earnings per share
Income before cumulative effect of change
in accounting principle..................... $ 1.41 $ 1.35
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109.................... - .19
________ ________
Net income.................................... $ 1.41 $ 1.54
======== ========
____________________________________________________________________________
<PAGE>
EXHIBIT 11
(Cont.)
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (Note) (Continued)
(In Thousands, Except Per Share Data)
____________________________________________________________________________
Three Months to March 31
1994 1993
____________________________________________________________________________
Fully Diluted Earnings Per Share
Income before cumulative effect of change in
accounting principle.......................... $130,918 $125,714
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect................. 3,029 3,175
________ ________
Income before cumulative effect of change in
accounting principle, as adjusted............. 133,947 128,889
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109...................... - 17,422
________ ________
Net income, as adjusted......................... $133,947 $146,311
======== ========
Average common shares outstanding............... 92,941 92,609
Incremental shares resulting from
assumed exercise of stock options............. 156 307
Shares issuable from assumed conversion of
7 1/4% Convertible Subordinated Debentures.... 4,628 4,630
________ ________
Average common shares, as adjusted.............. 97,725 97,546
________ ________
Fully diluted earnings per share
Income before cumulative effect of change in
accounting principle, as adjusted........... $ 1.37 $ 1.32
Cumulative effect prior to January 1, 1993,
of applying SFAS No. 109.................... - .18
________ ________
Net income, as adjusted....................... $ 1.37 $ 1.50
======== ========
____________________________________________________________________________
Note: This calculation is submitted in accordance with Regulation S-K
Item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
EXHIBIT 12
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
_____________________________________________________________________________
Twelve Months to March 31 1994
_____________________________________________________________________________
Earnings:
Net income................................................ $193,698
Add income taxes.......................................... 111,228
________
Income before income taxes.............................. 304,926
Distributed income from unconsolidated investee,
less equity in earnings thereof......................... 3,345
________
Subtotal................................................ 308,271
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 84,342
Other interest expense.................................. 5,340
Portion of rentals deemed to be representative
of the interest factor................................ 8,720
________
Total Fixed Charges......................................... 98,402
________
Total Earnings.............................................. $406,673
========
Ratio of Earnings to Fixed Charges.......................... 4.13
========
_____________________________________________________________________________
