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
JUNE 30, 1995
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 July 31,
1995: 93,272,221
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CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended June 30, 1995
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Three and Six Months Ended June 30, 1995 and 1994.... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at June 30, 1995 (Unaudited), and December 31, 1994.......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Six Months Ended June 30, 1995 and 1994.............. 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................... 14
ITEM 2. CHANGES IN SECURITIES.................................. 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 14
ITEM 5. OTHER INFORMATION...................................... 14
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K...................... 15
SIGNATURES....................................................... 16
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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, 1994, 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 1994 (1994 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 a major portion of the gas sold or transported by the Company's
distribution and transmission operations is ultimately used for space heating,
both revenues and earnings are subject to seasonal fluctuations. 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 $52,210,000 and
$91,253,000 at December 31, 1994, and June 30, 1995, including interest.
These amounts are reported in the Condensed Consolidated Balance Sheet under
"Estimated rate contingencies and refunds" together with $31,194,000 and
$25,677,000, 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 $69,451,000 and $56,837,000 at December 31, 1994,
and June 30, 1995, respectively. Additional amounts are likely to be accrued
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 $40 million.
Based on regulatory actions in two jurisdictions and the past rate-making
treatment of similar costs in the other jurisdictions, management believes
that the distribution subsidiaries should generally be able to pass through
all Order 636 transition costs to their customers.
(4) As described in the 1994 Form 10-K, Consolidated follows the full cost
method of accounting for its gas and oil producing activities prescribed by
the SEC. Under this method, all costs directly associated with property
acquisition, exploration and development activities are capitalized, with the
limitation that such amounts, net of related deferred taxes, not exceed the
present value of the estimated future net revenues expected from the
production of the related proved gas and oil reserves. The estimate of future
revenues is determined under guidelines established by the SEC and is not
necessarily indicative of the future economic value of the Company's proved
reserves. However, if net capitalized costs exceed the estimated value at the
end of any quarterly period, then a permanent write-down of the assets must be
recognized in that period.
Due primarily to the decline in wellhead gas prices, the Company was
required to recognize an impairment of its gas and oil producing properties at
March 31, 1995. The charge amounted to $226,209,000 and reduced 1995 first
quarter net income by $145,000,000, or $1.56 per share. The charge had no
effect on the Company's cash flow.
4
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ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) As described in the 1994 Form 10-K, the Company has been considering a
variety of cost cutting and restructuring measures to permanently reduce costs
in light of current competitive conditions. In this regard, the Company
recognized charges in the 1995 second quarter in connection with a previously
announced workforce reduction program and for the write-down of the carrying
value of its coal properties.
Workforce Reduction Program
As previously reported, the workforce reduction program approved in March
1995 by the Company's Board of Directors included a voluntary early retirement
program and an involuntary separation program. The early retirement program
was offered at six of the Company's subsidiaries from April 1 through May 31,
1995, with eligible employees retiring before December 31, 1995. A total of
479 eligible employees elected to accept the early retirement offer. Thus far
in 1995, an additional 103 employees have been separated from the Company in
conjunction with the workforce reduction program. It is anticipated that
additional employees may be separated later in 1995. In connection with the
program, Consolidated recorded charges to earnings in the second quarter
amounting to $36,412,000 for retirement incentives and severance costs. Such
charges reduced 1995 second quarter net income by $23,668,000, or 25 cents a
share. In addition, certain of the Company's regulated subsidiaries have
deferred $3,402,000 of workforce reduction program costs pending recovery in
future rate-making proceedings. Savings attributable to reduced salary and
benefit costs will be realized in the last six months of 1995 and in future
periods.
Adoption of the early retirement program is still subject to union
approval at two subsidiaries. If adopted, the program may result in
additional charges later in 1995 which are not expected to be significant.
In June 1995, the Board of Directors approved a separate workforce
reduction program at a seventh subsidiary. This program includes voluntary
early retirement incentives similar to those offered at the other six
subsidiaries and is being offered from July 1 through August 31, 1995, with
eligible employees retiring before December 31, 1995. A major portion of the
costs of the workforce reduction program at this subsidiary is expected to be
deferred pending recovery in future rates.
Write-down of Coal Properties
In connection with a review of non-strategic assets, the Company initiated
an evaluation of the possible disposition of the coal reserves and related
properties owned by CNG Coal Company (CNG Coal, a subsidiary). The Company
had acquired these reserves in the late 1960s and 1970s to meet expected long-
term gas supply needs through coal gasification. However, due to gas industry
deregulation, excess gas supplies nationwide, and both low demand and prices
for coal, the Company concluded that it is not economically feasible to
develop such reserves, nor are these assets currently aligned with the
Company's longer term strategy.
An appraisal of the properties was completed during the second quarter of
1995 by an independent geological firm and indicated that a write-down was
warranted. Accordingly, at June 30, 1995, the cost of these properties was
written down resulting in a charge amounting to $31,266,000. This charge
reduced 1995 second quarter net income by $20,323,000, or 22 cents per share,
but had no effect on the Company's cash flow.
5
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ITEM 1. FINANCIAL STATEMENTS (Concluded)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(6) A summary of the changes in common stock, capital in excess of par value,
and treasury stock subsequent to December 31, 1994, 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, 1994......... 93,028 $255,827 $458,628 - $ -
Common stock issued
System Thrift Plans........ 181 498 6,468 - -
Dividend Reinvestment Plan. 37 101 1,335 - -
Stock awards-net........... 15 41 497 - -
Stock options.............. 10 28 320 - -
Purchase of treasury stock... - - - (16) (572)
Sale of treasury stock....... - - (11) 16 572
______ ________ ________ ____ _____
At June 30, 1995............. 93,271 $256,495 $467,237 - $ -
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_____________________________________________________________________________
(7) The indenture between the Company and Chemical Bank, as Trustee, relating
to certain of the Company's senior debenture issues contains restrictions on
dividend payments by the Company and acquisitions of its capital stock. Under
these provisions, $521,739,000 of consolidated retained earnings was free from
such restrictions at June 30, 1995.
(8) During April 1995, the Company sold $150,000,000 of 7 3/8% Debentures Due
April 1, 2005. Net proceeds from the sale were received on April 19, 1995.
6
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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 six months of the year. As shown in the Condensed
Consolidated Statement of Cash Flows, net cash provided by operating
activities was $558.7 million and $559.1 million for the six months ended June
30, 1995 and 1994, respectively. In addition to satisfying cash requirements
for operations, capital expenditures, and dividend payments in the current
six-month period, available cash was used to reduce the amount of commercial
paper borrowings outstanding at the end of 1994.
Due to the significant amount of revenues generated during the first six
months of a year, the consolidated balance sheet at the end of June
customarily shows an increase in cash and temporary cash investments over the
balance at the end of the previous year. The June 30, 1995 balance of cash
and temporary cash investments was also impacted by the Company's issuance of
$150 million of debentures in April 1995 (see Note 8 to the consolidated
financial statements, page 6). After the winter heating season and by June
30, accounts receivable have declined, as is customary, from the high levels
at the end of the previous year and March of the current year. In addition,
the inventory of stored gas was reduced during the first six months of 1995
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 is charged to the income statement and
recorded 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.
As a result of the charges in 1995 for workforce reduction costs and write-
downs of gas and oil producing properties and coal properties, Consolidated's
ability to issue funded debt will be restricted for a period of time (see
"Restrictions Under Certain Debt Agreements," page 4, of the 1994 Form 10-K).
However, the Company has adequate alternative financing resources available to
meet expected operating and capital requirements.
The proceeds from the April debenture sale will be used to finance, in part,
1995 capital expenditures and/or reduce short-term debt. During the remainder
of 1995, 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 gas inventory
and other working capital requirements. The Company currently has back-up
lines of credit totaling $475 million available to support commercial paper
borrowings. An additional $125 million of back-up lines may be obtained, if
necessary.
In connection with this discussion of financial condition, reference is also
made to Notes 3 through 7 to the consolidated financial statements.
7
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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 AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
System Results
The Company reported a net loss for the first six months of 1995 of
$54,908,000, or 59 cents a share, compared with net income of $133,987,000, or
$1.44 per share, in the first six months of 1994. Earnings for 1995, however,
include the effects of three special items. During the first quarter,
Consolidated recorded a non-cash charge to write down the cost of gas and oil
producing properties, amounting to $145,000,000 after taxes, or $1.56 per
share. During the second quarter of 1995, the Company recorded a charge
amounting to $23,668,000 after taxes, or 25 cents a share, for costs related
to the implementation of a workforce reduction program. Also in the second
quarter, Consolidated recognized a non-cash charge of $20,323,000 after taxes,
or 22 cents a share, in connection with a write-down of coal properties.
Excluding these special items, net income for the first six months of 1995
would have been $134,083,000, or $1.44 per share. Reference is made to Notes
4 and 5 to the consolidated financial statements, pages 4 and 5, for details
of the special charges recognized in 1995.
For the second quarter of 1995, Consolidated reported a net loss of
$33,512,000, or 36 cents a share, compared with net income of $3,069,000, or 3
cents a share, in the prior year period. Excluding the impact of the two
special charges recognized in the second quarter, net income for the three
months would have been $10,479,000, or 11 cents a share, in 1995.
Excluding the special charges from the 1995 results, the favorable effects of
higher rates in place for most of the Company's gas distribution customers,
cost control, and higher oil wellhead prices more than offset the impact of
continued low wellhead prices for natural gas, warmer than normal weather and
lower gas and oil production for both the second quarter and six months of
1995.
Weather in Consolidated's retail service territories through the first half of
1995 was 11.8 percent warmer than 1994 and 6.9 percent warmer than normal. In
the second quarter of 1995, weather was 4.9 percent warmer than both the
year-ago period and normal.
Operating Revenues
Regulated gas sales in the first six months of 1995 declined $126.1 million
from the comparable 1994 period, with sales volumes declining 18.2 billion
cubic feet (Bcf) from the prior year to 168.7 Bcf. Nonregulated gas sales
revenues increased $171.4 million in the first six months of 1995, with sales
volumes increasing 161.7 Bcf over the 1994 period, to 322.3 Bcf. Regulated
gas sales revenues and volumes declined for each of the Company's major
customer groups -- residential, commercial, and industrial -- in the first six
months of 1995 reflecting, for the most part, weather that was warmer than the
prior year. The increase in nonregulated gas sales revenues and volumes was
attributable to the growth of the energy marketing services component. The
increased volumes sold more than offset the effect of the decline in wellhead
and brokered gas prices. In the 1995 second quarter, regulated gas sales
revenues declined $14.3 million to $247.0 million due to lower gas sales rates
as sales volumes were flat.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Second quarter 1995 nonregulated gas sales revenues rose
$92.9 million, to $266.5 million, with sales volumes increasing 72.4 Bcf to
150.3 Bcf.
Gas transportation and storage revenues were $227.3 million in the first half
of 1995, up $23.3 million over 1994. The increase was due principally to
higher gas transportation revenues, which increased $21.8 million. Gas
transportation and storage revenues increased in the second quarter of 1995 by
$9.3 million compared with the prior year quarter, as gas transportation
revenues increased $8.5 million. The higher gas transportation revenues in
both 1995 periods were due to increased transportation volumes and higher
rates.
Other operating revenues declined $7.6 million to $116.6 million in the first
six months of 1995. Oil and condensate revenues increased $4.1 million due
primarily to higher prices. Revenues from oil brokering were up $2.1 million,
while revenues from the sale of oil and condensate production increased $2.0
million. Revenues from the sale of products extracted from natural gas
declined $3.7 million in the first half of 1995, due largely to the absence of
ethane sales volumes in the current year. Other revenues decreased $8.0
million in the first six months of 1995 due in part to reduced revenues from
royalties and other miscellaneous revenue categories. In the second quarter,
total other operating revenues declined $4.9 million from 1994 due primarily
to reduced revenues from royalties and other miscellaneous revenue categories.
Operating Expenses
Total operating expenses, excluding income taxes, increased $313.5 million in
the first half of 1995 and $102.2 million in the second quarter. Excluding
the impact of the 1995 first quarter impairment of gas and oil producing
properties and the second quarter charge in connection with the workforce
reduction program, operating expenses for the first six months of 1995 were up
$50.9 million. Excluding the latter charge, operating expenses were up $65.8
million in the second quarter. Total purchased gas expense was up $79.2
million in the first half and $80.7 million in the second quarter of 1995 due
primarily to increased volume requirements associated with nonregulated gas
sales. Transport capacity and other purchased products expense was higher in
both 1995 periods, increasing $10.0 million in the first half and $.7 million
in the second quarter, due largely to increased purchases of transport
capacity by the energy services subsidiary. Excluding the effect of the
charge related to the workforce reduction program, combined operation and
maintenance expense declined $17.6 million in the first six months and $5.3
million in the second quarter of 1995 due in large part to lower payroll
costs. The absence of incentive bonuses in 1995 as compared to 1994 was a
major factor for the reduced payroll costs. Lower royalties paid as a result
of lower gas wellhead prices also contributed to the decreases in operation
expense. Depreciation and amortization expense declined $23.0 million and
$10.5 million in the first six months and second quarter of 1995,
respectively, due primarily to lower gas production volumes and lower
investment due to the first quarter write-down of gas and oil producing
properties. Taxes, other than income taxes, were up $2.3 million in the first
half of 1995 due largely to higher revenue-based taxes and increased property
taxes.
Interest Income and Interest Charges
Interest revenues increased $3.3 million in the first six months of 1995 and
$3.2 million in the second quarter due primarily to the higher level of
temporary cash investments in 1995.
Total interest charges were up $9.4 million in the first half of 1995 and $5.5
million in the 1995 second quarter due largely to higher interest rates
incurred on an increased level of commercial paper borrowings, and interest
expense related to the $150 million of debentures issued in April 1995.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In connection with this discussion of results of operations, reference is also
made to Notes 2 and 3 to the consolidated financial statements.
DATA BY BUSINESS COMPONENTS
The following table sets forth certain data for the components of the
Company's business.
____________________________________________________________________________
Six Months to Three Months to
June 30 June 30
__________________ ________________
1995 1994 1995 1994
____________________________________________________________________________
OPERATING INCOME BEFORE INCOME TAXES (In Millions)
Distribution . . . . . . . . . . . . . $ 135.0 $ 134.5 $ (17.9) $ (10.5)
Transmission . . . . . . . . . . . . . 78.0 75.0 23.8 22.5
Exploration and production . . . . . . (231.7) 28.1 (4.3) 10.1
Energy marketing services* . . . . . . 4.4 - 1.9 -
Other. . . . . . . . . . . . . . . . . 1.5 4.1 .7 .4
Corporate and eliminations . . . . . . (.1) (2.1) (1.2) (.3)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $ (12.9) $ 239.6 $ 3.0 $ 22.2
======== ======== ======= ======
OPERATING REVENUES (In Millions)
Distribution . . . . . . . . . . . . . $1,025.0 $1,142.9 $ 275.8 $ 288.7
Transmission . . . . . . . . . . . . . 241.8 235.8 101.3 97.9
Exploration and production . . . . . . 170.8 281.0 87.2 132.0
Energy marketing services* . . . . . . 605.8 - 282.4 -
Other. . . . . . . . . . . . . . . . . 8.8 268.3 4.4 114.4
Corporate and eliminations . . . . . . (195.6) (132.4) (86.1) (51.0)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $1,856.6 $1,795.6 $ 665.0 $ 582.0
======== ======== ======= =======
GAS SALES (In Bcf)
Distribution . . . . . . . . . . . . . 168.7 186.9 41.0 41.6
Exploration and production . . . . . . 62.3 94.7 32.0 46.5
Energy marketing services* . . . . . . 323.4 - 151.5 -
Other. . . . . . . . . . . . . . . . . - 95.0 - 44.4
Eliminations . . . . . . . . . . . . . (63.4) (29.1) (33.2) (13.0)
________ ________ _______ _______
Total sales. . . . . . . . . . . . . 491.0 347.5 191.3 119.5
======== ======== ======= =======
GAS TRANSPORTATION (In Bcf)
Distribution . . . . . . . . . . . . . 85.0 79.4 37.0 33.3
Transmission . . . . . . . . . . . . . 403.3 419.7 148.4 142.4
Exploration and production . . . . . . .9 .4 .5 .2
Energy marketing services* . . . . . . 2.7 - 1.4 -
Other. . . . . . . . . . . . . . . . . - 3.5 - 2.9
Eliminations . . . . . . . . . . . . . (86.8) (113.8) (23.8) (33.8)
________ ________ _______ _______
Total transportation . . . . . . . . 405.1 389.2 163.5 145.0
======== ======== ======= =======
_____________________________________________________________________________
*Includes CNG Energy Services Corporation (CNG Energy Services), CNG Power
Company, CNG Power Services Corporation, and CNG Storage Service Company
(CNG Storage). These subsidiaries, except CNG Storage, were included in
"Other" in 1994. CNG Storage was included in the "Transmission" component
in 1994 and in the three months ended March 31, 1995.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Distribution
Operating income before income taxes of the gas distribution operations was
$135.0 million in the first six months of 1995, up slightly from $134.5
million in the first half of 1994. First half results for 1995 include a
$17.7 million charge recognized during the second quarter in connection with
the workforce reduction program. Excluding this special item, operating
income before taxes for the first six months of 1995 was $152.7 million.
General rate increases put into effect in the latter part of 1994 at The East
Ohio Gas Company, The Peoples Natural Gas Company (Peoples Natural Gas), and
Virginia Natural Gas, Inc. offset the effects of reduced throughput. Total
distribution throughput was 253.7 Bcf, down 5 percent compared with 266.3 Bcf
in the first half of 1994. Warmer weather in 1995 was the primary reason for
the lower throughput volumes. Residential gas sales decreased 11.9 Bcf in the
first half of 1995 to 123.1 Bcf. Commercial sales decreased 4.2 Bcf to 41.4
Bcf while volumes transported for these customers were up 2.6 Bcf. Deliveries
to industrial customers were higher in the 1995 period, increasing 2.8 Bcf to
71.1 Bcf. Although industrial sales were down 2.1 Bcf to 4.0 Bcf,
transportation volumes rose 4.9 Bcf to 67.1 Bcf.
In the second quarter of 1995, the distribution operations experienced an
operating loss before income taxes of $17.9 million, compared with an
operating loss of $10.5 million in the 1994 second quarter. Excluding the
charge for the workforce reduction program, the 1995 second quarter operating
loss before income taxes was $.2 million. Results for the 1995 period reflect
the higher rates noted above. Residential gas sales of 30.2 Bcf were flat
compared with the prior year, while commercial sales were down .3 Bcf to 9.5
Bcf. Gas transported for commercial customers in the 1995 quarter was 5.9 Bcf,
up 1.5 Bcf from 1994. Deliveries to industrial customers increased 2.9 Bcf to
32.3 Bcf, as increased transportation volumes offset a decline in sales.
Transmission
Operating income before income taxes of the gas transmission operations in the
first six months of 1995 was $78.0 million, up 4 percent from $75.0 million in
1994. For the second quarter, operating income before income taxes was $23.8
million, an increase of 6 percent from $22.5 million in 1994. Excluding the
impact of the 1995 second quarter charge of $6.1 million related to the
workforce reduction program, first half and second quarter operating income
before income taxes would have been $84.1 million and $29.9 million,
respectively. Results for both 1995 periods reflect higher transportation and
storage revenues, which more than offset declines in by-products and other
operating revenues. In addition, a general rate increase which became
effective July 1, 1994, subject to refund, contributed favorably to 1995
results in both periods.
Gas throughput for the transmission operations, consisting entirely of
transportation volumes, was 403.3 Bcf in the first six months of 1995, down
from 419.7 Bcf in the first half of 1994. Gas throughput was 148.4 Bcf in the
second quarter of 1995, up 6.0 Bcf from 1994.
Exploration and Production
The exploration and production operations reported an operating loss before
income taxes of $231.7 million in the first six months of 1995, compared with
operating income before income taxes of $28.1 million in 1994. In the second
quarter, the operating loss before income taxes was $4.3 million, compared to
operating income before income taxes of $10.1 million in 1994. The loss for
the first six months of 1995 reflects the non-cash charge of $226.2 million in
the 1995 first quarter for the impairment of gas and oil properties resulting
primarily from low gas wellhead prices. In addition, the 1995 first half and
second quarter results include a $9.2 million charge recognized in connection
with the workforce reduction program. Excluding the effects of these special
items, the exploration and production operations
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
experienced operating income of $3.7 million and $4.9 million in the first
half and second quarter of 1995, respectively. The impact of continued low
gas wellhead prices and lower gas and oil production more than offset the
favorable impact of higher oil wellhead prices and reduced production-related
expenses in 1995.
Consolidated's average gas wellhead price in the first six months of 1995 was
$1.82 a thousand cubic feet (Mcf), compared with $2.35 in 1994. In the second
quarter, the average gas price was $1.81 per Mcf, down from $2.17 in the
second quarter of 1994. Gas production in the first half of 1995 was 50.9
Bcf, down 23 percent from 66.5 Bcf in 1994. Second quarter gas production was
26.6 Bcf, down 16 percent from 31.8 Bcf in the 1994 quarter. A combination of
voluntary production shut-ins due to low prices and normal declines at certain
properties caused the decrease in production. Consolidated's average oil
prices were higher in both 1995 periods, reflecting a strengthening of world
oil prices. Wellhead prices averaged $16.59 a barrel in the six months
compared with $13.54 in 1994, while prices for the quarter averaged $17.05 a
barrel, up from $15.09 a year ago. Oil production was 1.6 million barrels in
the first half of 1995, down from 1.8 million barrels in 1994. For the second
quarter, oil production was 822,000 barrels, compared with 882,000 barrels in
the 1994 quarter. The lower oil production in both 1995 periods was primarily
attributable to normal production declines at older properties.
Energy Marketing Services
Energy marketing services reported operating income before income taxes of
$4.4 million and $1.9 million in the first six months and second quarter of
1995, respectively. This component is comprised primarily of CNG Energy
Services, a marketing subsidiary that provides large customers with natural
gas, electricity and related services throughout North America. Total
throughput for this component was 326.1 Bcf for the first half of 1995 and
152.9 Bcf for the second quarter.
This component also encompasses the Company's ownership interests in seven
independent power plants and reported equity income of $1.2 million and $.9
million in the first six months and second quarter of 1995, respectively.
These amounts are not included in operating income before income taxes.
SELECTED TWELVE-MONTH DATA
The following selected financial data (unaudited) relates to the twelve months
ended June 30, 1995 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $3,097,033
Operating expenses..................................... 3,006,127
Operating income before income taxes............... 90,906
Income taxes........................................... (17,653)
Other income (deductions).............................. (17,360)
Interest charges....................................... 96,923
Net loss........................................... $ (5,724)*
Loss per share of common stock..................... $(.06)*
Average common shares outstanding (thousands)...... 93,067
Times fixed charges earned............................. .79**
______________________________________________________________________________
*Includes an impairment of gas and oil producing properties in the 1995 first
quarter amounting to $145,000,000 after taxes, or $1.56 per share; charges
related to a workforce reduction program in the 1995 second quarter
amounting to $23,668,000 after taxes, or 25 cents a share; and a write-down
of coal properties in the 1995 second quarter amounting to $20,323,000 after
taxes, or 22 cents a share.
**To achieve a one-to-one coverage, an additional $24.2 million of pretax
earnings would be needed.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
OTHER INFORMATION
Federal and State Regulatory Matters
As previously reported, on December 30, 1993, CNG Transmission filed a general
rate filing with the FERC. The increase went into effect July 1, 1994,
subject to refund. On June 28, 1995, CNG Transmission filed a settlement
agreement with FERC resolving the issues in this case. FERC approval of the
settlement is expected in the fourth quarter of 1995.
Peoples Natural Gas filed a settlement agreement with the Pennsylvania Public
Utility Commission (PA PUC) in June 1995 in connection with its February 1,
1995 general rate filing. The settlement was approved by the PA PUC on August
3, 1995, with the rate increase effective August 4, 1995. The approved
settlement includes an $8.0 million annual revenue increase.
In July 1995, Hope Gas, Inc. filed a settlement agreement with the Public
Service Commission of West Virginia (PSC) covering its January 4, 1995 general
rate filing. The settlement, if approved by the PSC, would provide an annual
revenue increase effective November 1, 1995. The proposal also includes
provisions designed to reduce the gas cost portion of rates over the
three-year settlement period.
Energy Alliance Partnership
As previously reported, in November 1994 CNG Energy Services formed a
marketing alliance with two Canadian firms, Hydro-Quebec and Noverco. In June
1995, the companies signed an agreement to create a partnership to conduct
alliance business. The new partnership will conduct business under the name
of Energy Alliance Partnership. The agreement is subject to SEC and other
regulatory approvals.
Gathering Pipeline System
In the second quarter, CNG Energy Services and Centana Energy Corporation
(Centana) announced plans to build a gas and oil gathering pipeline system to
serve two production areas in the Gulf of Mexico - Main Pass and Viosca Knoll.
The system will have the capacity to carry 300 million cubic feet per day of
natural gas, 5,000 barrels per day of condensate and 25,000 barrels per day of
crude oil. Construction on the project is scheduled to begin this year and be
completed in 1996. Centana will operate the natural gas and condensate lines
and CNG Energy Services will operate the oil pipeline. The two companies will
form a partnership for the project, with the Company's participation subject
to approval by the SEC. The estimated cost of the project is $60 million,
with CNG Energy Services' share amounting to approximately $30 million.
Exploration and Production
CNG Producing Company, acting alone or with partners, was the high bidder on
eight of the tracts offered at the federal government's May 10, 1995 Gulf of
Mexico lease sale. The Company's bid totaled $3.2 million for 100 percent
working interests in five tracts and 50 percent, 40 percent, and 37.5 percent
interests in the remaining three tracts. Seven bids have been accepted by the
government and one is pending acceptance.
**********
In connection with the financial information included in PART I of this
report, reference is made to the Company's 1994 Annual Report and its Annual
Report to the SEC on Form 10-K for the year ended December 31, 1994, and its
quarterly report to the SEC on Form 10-Q for the quarter ended March 31, 1995.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the second
quarter of 1995, and there have been no material developments during the
quarter in the legal proceedings disclosed in the Company's 1994 Form 10-K or
in any earlier Form 10-Q for 1995 as then pending.
Reference is made to "Federal and State Regulatory Matters," page 13, 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 7 to the consolidated financial statements, page 6, and reference is made
thereto.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 16, 1995. Common
shareholders voted on the election of four Directors for a three-year term
expiring May 1998, the ratification of the appointment of independent
accountants for the year 1995, and a shareholder proposal regarding non-
employee director retirement benefits. The voting results on these matters
were as follows:
1. Election of Directors
Votes Votes Broker
Nominees For Withheld Non-Votes
________ __________ __________ ________
J. W. Connolly 73,132,975 1,917,229 0
George A. Davidson, Jr. 72,646,052 2,404,152 0
Lester D. Johnson 73,158,941 1,891,263 0
Richard P. Simmons 73,186,002 1,864,202 0
Directors whose term of office continued after the meeting:
Term expiring May 1996: Paul E. Lego, Margaret A. McKenna, and
Walter R. Peirson
Term expiring May 1997: William S. Barrack, Jr., Ray J. Groves,
Steven A. Minter and Lois Wyse
2. Appointment of
Price Waterhouse LLP as Votes Votes Broker
Independent Accountants For Against Abstentions Non-Votes
__________ _______ ___________ _________
73,421,879 1,110,505 517,820 0
3. Shareholder proposal regarding
Non-Employee Director Votes Votes Broker
Retirement Benefits For Against Abstentions Non-Votes
__________ _______ ___________ _________
19,183,016 45,491,260 2,708,989 7,666,939
ITEM 5. OTHER INFORMATION
None, other than as described elsewhere in this report.
14
<PAGE>
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K
Reports on Form 8-K
As previously reported, on April 10, 1995, the Company filed a Current Report
on Form 8-K with the SEC to disclose the following matters:
(a) Impairment of gas and oil producing properties;
(b) Workforce reduction program; and
(c) Environmental matter.
On June 20, 1995, the Company filed a Current Report on Form 8-K with the SEC
regarding the workforce reduction program (See Note 5 to the consolidated
financial statements, page 5).
Financial statements were not required with either of these filings.
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 June 30, 1995
and 1994
(12) Statement re Computation of Ratios:
Ratio of Earnings to Fixed Charges of Consolidated Natural Gas Company
and Subsidiaries for the twelve months ended June 30, 1995
______________________________________________________________________________
15
<PAGE>
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, Vice Chairman
and Chief Financial Officer
S. R. MCGREEVY
_______________________________________
S. R. McGreevy, Vice President,
Accounting and Financial Control
August 10, 1995
16
<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 June 30, 1995
and 1994, 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 June 30, 1995, is filed
herewith
______________________________________________________________________________
EXHIBIT 11
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS (Note 1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
________________________________________________________________________________
_________________________
Six Months to
Three Months to
June 30
June 30
_____________________
_____________________
1995 1994
1995 1994
________________________________________________________________________________
_________________________
<S> <C> <C>
<C> <C>
EARNINGS (LOSS) PER SHARE OF COMMON STOCK,
as Shown on the Consolidated
Statement of Income
Net income (loss) . . . . . . . . . . . . . . . . . $(54,908) $133,987
$(33,512) $ 3,069
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 93,113 92,977
93,180 93,014
________ ________
________ ________
Earnings (loss) per share of common stock . . . . $ (.59) $ 1.44
$ (.36) $ .03
======== ========
======== ========
PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $(54,908) $133,987
$(33,512) $ 3,069
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 93,113 92,977
93,180 93,014
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 67 110
113 61
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 93,180 93,087
93,293 93,075
________ ________
________ ________
Primary earnings (loss) per share . . . . . . . . $ (.59)(2) $ 1.44
$ (.36)(2) $ .03
======== ========
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $(54,908) $133,987
$(33,512) $ 3,069
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect. . . . . . . . . . . 5,858 6,048
2,884 3,019
________ ________
________ ________
Net income (loss), as adjusted . . . . . . . . . . . $(49,050) $140,035
$(30,628) $ 6,088
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 93,113 92,977
93,180 93,014
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 89 181
114 171
Shares issuable from assumed conversion
of 7 1/4% Convertible Subordinated
Debentures . . . . . . . . . . . . . . . . . . . . 4,559 4,595
4,559 4,595
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 97,761 97,753
97,853 97,780
________ ________
________ ________
Fully diluted earnings (loss) per share . . . . . $ (.50)(2) $ 1.43
$ (.31)(2) $ .06(2)
======== ========
======== ========
________________________________________________________________________________
_________________________
<FN>
Notes:
(1) 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%.
(2) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is
contrary to either paragraph 30 or 40 of APB Opinion No. 15 because the
assumed exercise of
stock options and/or the assumed conversion of the 7 1/4% Convertible
Subordinated Debentures
produce an antidilutive result.
</TABLE>
EXHIBIT 12
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
_____________________________________________________________________________
Twelve Months to June 30 1995
_____________________________________________________________________________
Earnings:
Net loss.................................................. $ (5,724)
Add income taxes.......................................... (17,653)
________
Loss before income taxes................................ (23,377)
Distributed income from unconsolidated investee,
less equity in earnings thereof......................... (789)
________
Subtotal................................................ (24,166)
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 90,424
Other interest expense.................................. 13,748
Portion of rentals deemed to be representative
of the interest factor................................ 8,566
________
Total Fixed Charges......................................... 112,738
________
Total Earnings.............................................. $ 88,572
========
Ratio of Earnings to Fixed Charges.......................... .79(1)
========
_____________________________________________________________________________
Note:
(1) To achieve a one-to-one coverage, an additional $24.2 million of pretax
earnings would be needed.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF CONSOLIDATED NATURAL
GAS COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,863,057
<OTHER-PROPERTY-AND-INVEST> 968,898
<TOTAL-CURRENT-ASSETS> 916,155
<TOTAL-DEFERRED-CHARGES> 322,299
<OTHER-ASSETS> 97,124
<TOTAL-ASSETS> 5,167,533
<COMMON> 256,495
<CAPITAL-SURPLUS-PAID-IN> 426,957
<RETAINED-EARNINGS> 1,324,595
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,048,327
0
0
<LONG-TERM-DEBT-NET> 1,297,453
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 145,000
<LONG-TERM-DEBT-CURRENT-PORT> 4,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,672,753
<TOT-CAPITALIZATION-AND-LIAB> 5,167,533
<GROSS-OPERATING-REVENUE> 1,856,609
<INCOME-TAX-EXPENSE> (33,073)
<OTHER-OPERATING-EXPENSES> 1,869,528
<TOTAL-OPERATING-EXPENSES> 1,836,455
<OPERATING-INCOME-LOSS> 20,154
<OTHER-INCOME-NET> (22,768)
<INCOME-BEFORE-INTEREST-EXPEN> (2,614)
<TOTAL-INTEREST-EXPENSE> 52,294
<NET-INCOME> (54,908)
0
<EARNINGS-AVAILABLE-FOR-COMM> (54,908)
<COMMON-STOCK-DIVIDENDS> 90,376
<TOTAL-INTEREST-ON-BONDS> 97,565
<CASH-FLOW-OPERATIONS> 558,672
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.50)
</TABLE>
