UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
Commission File Number 1-3196
-------------
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
-------------
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 October 31,
1996: 94,835,480
<PAGE>
CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended September 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Three and Nine Months Ended September 30, 1996 and 1995... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at September 30, 1996 (Unaudited), and December 31, 1995.......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Nine Months Ended September 30, 1996 and 1995............. 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................ 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 15
ITEM 2. CHANGES IN SECURITIES....................................... 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
ITEM 5. OTHER INFORMATION........................................... 15
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K........................... 15
SIGNATURES............................................................ 16
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Natural Gas Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (Thousands of Dollars)
<TABLE>
<CAPTION>
________________________________________________________________________________
____________________________
Nine Months to
Three Months to
September 30
September 30
________________________ ____________________
1996
1995 1996 1995
_____________________________________________________________________________________
_______________________
<S> <C> <C>
<C> <C>
OPERATING REVENUES
Regulated gas sales . . . . . . . . . . . . . . . . $1,165,054
$1,087,117 $150,648 $133,809
Nonregulated gas sales . . . . . . . . . . . . . . . 743,283
780,940 221,193 221,563
__________
__________ ________ ________
Total gas sales . . . . . . . . . . . . . . . . 1,908,337
1,868,057 371,841 355,372
Gas transportation and storage . . . . . . . . . . . 341,388
325,364 99,467 98,057
Other . . . . . . . . . . . . . . . . . . . . . . . 315,366
178,330 123,749 61,713
__________
__________ ________ ________
Total operating revenues (Note 3). . . . . . . . 2,565,091
2,371,751 595,057 515,142
__________
__________ ________ ________
OPERATING EXPENSES
Purchased gas. . . . . . . . . . . . . . . . . . . . 1,043,591
1,182,205 183,963 219,567
Transport capacity and other purchased products . . 227,121
111,953 100,363 39,162
Operation expense (Note 5) . . . . . . . . . . . . . 483,092
465,450 159,450 131,849
Maintenance. . . . . . . . . . . . . . . . . . . . . 58,541
61,934 19,625 20,405
Depreciation and amortization. . . . . . . . . . . . 223,870
188,975 77,309 59,536
Impairment of gas and oil producing
properties (Note 4) . . . . . . . . . . . . . . . -
226,209 - -
Taxes, other than income taxes . . . . . . . . . . . 143,706
145,988 43,302 42,667
__________
__________ ________ ________
Subtotal . . . . . . . . . . . . . . . . . . . . 2,179,921
2,382,714 584,012 513,186
__________
__________ ________ ________
Operating income before income taxes . . . . . . 385,170
(10,963) 11,045 1,956
Income taxes . . . . . . . . . . . . . . . . . . . . 109,658
(41,648) (3,806) (8,575)
__________
__________ ________ ________
Operating income . . . . . . . . . . . . . . . . 275,512
30,685 14,851 10,531
__________
__________ ________ ________
OTHER INCOME (DEDUCTIONS)
Interest revenues. . . . . . . . . . . . . . . . . . 2,356
7,577 772 1,994
Write-down of coal properties (Note 5) . . . . . . . -
(31,266) - -
Other-net . . . . . . . . . . . . . . . . . . . . . 8,199
4,761 3,612 1,846
__________
__________ ________ ________
Total other income (deductions). . . . . . . . . 10,555
(18,928) 4,384 3,840
__________
__________ ________ ________
Income before interest charges . . . . . . . . . 286,067
11,757 19,235 14,371
__________
__________ ________ ________
INTEREST CHARGES
Interest on long-term debt . . . . . . . . . . . . . 74,082
71,030 24,695 24,797
Other interest expense . . . . . . . . . . . . . . . 5,631
10,993 1,038 2,407
Allowance for funds used during construction . . . . (3,945)
(4,143) (1,380) (1,618)
__________
__________ ________ ________
Total interest charges . . . . . . . . . . . . . 75,768
77,880 24,353 25,586
__________
__________ ________ ________
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 210,299 $
(66,123) $ (5,118) $(11,215)
==========
========== ======== ========
Earnings (loss) per share of common stock,
based on average shares outstanding . . . . . . $ 2.23 $
(.71) $(.05) $(.12)
Average common shares outstanding
(thousands). . . . . . . . . . . . . . . . . . . 94,284
93,180 94,637 93,312
Dividends declared per common share. . . . . . . . $1.455
$1.455 $.485 $.485
_____________________________________________________________________________________
_______________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
_____________________________________________________________________________
At September At December
30, 1996 31, 1995
(Unaudited)
_____________________________________________________________________________
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant.................... $ 4,775,179 $ 4,710,086
Accumulated depreciation and amortization...... (1,818,928) (1,785,965)
___________ ___________
Net gas utility and other plant........... 2,956,251 2,924,121
___________ ___________
Exploration and production properties.......... 3,405,008 3,219,264
Accumulated depreciation and amortization...... (2,350,262) (2,230,980)
___________ ___________
Net exploration and production properties. 1,054,746 988,284
___________ ___________
Net property, plant and equipment......... 4,010,997 3,912,405
___________ ___________
CURRENT ASSETS
Cash and temporary cash investments............ 33,577 36,277
Accounts receivable, less allowance for
doubtful accounts............................ 361,344 656,338
Gas stored - current portion................... 220,802 112,429
Materials and supplies (average cost method)... 36,490 35,815
Unrecovered gas costs.......................... 106,826 25,123
Deferred income taxes - current (net).......... - 20,993
Prepayments and other current assets........... 154,604 181,686
___________ ___________
Total current assets...................... 913,643 1,068,661
___________ ___________
REGULATORY AND OTHER ASSETS
Unamortized abandoned facilities............... 19,037 28,672
Other investments (Note 9)..................... 98,087 60,939
Deferred charges and other assets (Notes 3
and 5)....................................... 356,960 347,616
___________ ___________
Total regulatory and other assets......... 474,084 437,227
___________ ___________
Total assets.............................. $ 5,398,724 $ 5,418,293
=========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholders' equity (Notes 6 and 7)
Common stock, par $2.75
(Issued: 1996 - 94,800,947 shares;
1995 - 93,591,623 shares)................ $ 260,703 $ 257,377
Capital in excess of par value............... 530,580 478,535
Retained earnings............................ 1,382,547 1,309,906
Unearned compensation........................ (18,122) -
___________ ___________
Total common stockholders' equity......... 2,155,708 2,045,818
Long-term debt (Note 8)........................ 1,288,723 1,291,811
___________ ___________
Total capitalization...................... 3,444,431 3,337,629
___________ ___________
CURRENT LIABILITIES
Current maturities on long-term debt........... 10,250 10,250
Commercial paper............................... 409,000 336,000
Accounts payable............................... 311,695 410,296
Estimated rate contingencies and
refunds (Note 3)............................. 24,313 59,363
Amounts payable to customers................... - 40,315
Taxes accrued.................................. 17,270 114,335
Deferred income taxes - current (net).......... 33,467 -
Other current liabilities...................... 159,179 140,731
___________ ___________
Total current liabilities................. 965,174 1,111,290
___________ ___________
DEFERRED CREDITS
Deferred income taxes.......................... 687,790 672,266
Accumulated deferred investment tax credits.... 29,380 31,031
Deferred credits and other liabilities......... 271,949 266,077
___________ ___________
Total deferred credits.................... 989,119 969,374
___________ ___________
COMMITMENTS AND CONTINGENCIES
___________ ___________
Total stockholders' equity and liabilities $ 5,398,724 $ 5,418,293
=========== ===========
_____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (Thousands of Dollars)
_____________________________________________________________________________
Nine Months to September 30
_____________________
1996 1995
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................... $ 210,299 $ (66,123)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization................... 223,870 188,975
Impairment of gas and oil producing
properties.................................... - 226,209
Write-down of coal properties................... - 31,266
Deferred income taxes-net....................... 65,402 (114,367)
Changes in current assets and
current liabilities
Accounts receivable-net....................... 293,450 177,394
Inventories................................... (109,048) 1,334
Unrecovered gas costs......................... (81,703) 13,135
Accounts payable.............................. (121,130) (29,081)
Estimated rate contingencies and refunds...... (35,050) 47,316
Amounts payable to customers.................. (40,315) 7,621
Taxes accrued................................. (97,065) (10,353)
Other-net..................................... 45,188 45,663
Changes in other assets and
other liabilities............................. 3,340 55,095
Other........................................... 505 2,276
_________ _________
Net cash provided by operating activities... 357,743 576,360
_________ _________
CASH FLOWS USED IN INVESTING ACTIVITIES
Plant construction and other property additions..... (297,649) (311,042)
Proceeds from dispositions of property, plant
and equipment-net................................. 9,748 12,489
Cost of other investments-net....................... (37,397) (4,761)
_________ _________
Net cash used in investing activities....... (325,298) (303,314)
_________ _________
CASH FLOWS PROVIDED BY (OR USED IN) FINANCING ACTIVITIES
Issuance of common stock............................ 32,617 11,887
Issuance of debentures.............................. - 148,899
Unsecured loan repayment............................ (4,000) (4,000)
Commercial paper-net................................ 73,307 (299,805)
Dividends paid...................................... (137,072) (135,496)
Other-net........................................... 3 (10)
_________ _________
Net cash used in financing activities....... (35,145) (278,525)
_________ _________
Net decrease in cash and temporary
cash investments.......................... (2,700) (5,479)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1.... 36,277 31,923
_________ _________
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30. $ 33,577 $ 26,444
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)............. $ 65,411 $ 60,320
Income taxes (net of refunds)..................... $ 78,970 $ 58,501
Non-cash financing activities
Issuance of stock under benefit plans............. $ 23,720 $ 975
_____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
3
<PAGE>
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, 1995, 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 1995 (1995 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. Because of
low seasonal demand for gas during the summer months, third quarter results
are usually the least significant of the year for the Company. 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 $24,239,000 and
$5,553,000 at December 31, 1995, and September 30, 1996, respectively,
including interest. These amounts are reported in the Condensed Consolidated
Balance Sheet under "Estimated rate contingencies and refunds" together with
$35,124,000 and $18,760,000, 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 $37,021,000 and $20,663,000 at December 31, 1995,
and September 30, 1996, 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 $20 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 1995 Form 10-K, the Company 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 during the first
quarter of 1995, 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
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) The Company recognized charges in the 1995 second and third quarters and
the 1996 first quarter in connection with workforce reduction programs and in
the 1995 second quarter for the write-down of the carrying value of its coal
properties.
Workforce Reduction Programs
A 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. In June 1995, the Board
of Directors approved a separate workforce reduction program at a seventh
subsidiary that included voluntary early retirement incentives similar to
those offered at the other six subsidiaries. The early retirement program was
offered at the seventh subsidiary from July 1 through August 31, 1995, with
eligible employees retiring before December 31, 1995. A total of 571 eligible
employees elected to accept the early retirement offer and an additional 217
employees were separated from the Company in conjunction with these programs.
In connection with the programs, the Company recorded charges to earnings in
the second and third quarters of 1995 amounting to $36,412,000 and $3,457,000,
respectively, for retirement incentives and severance costs. Such charges
reduced 1995 second and third quarter net income by $23,668,000, or 25 cents a
share, and $2,343,000, or 2 cents a share, respectively. In addition, certain
of the Company's regulated subsidiaries deferred $10,004,000 of workforce
reduction costs pending recovery in future rate-making proceedings.
In January 1996, unions at two subsidiaries approved the adoption of a
workforce reduction program that consisted of a voluntary early retirement
program, with eligibility based upon the employee's age and years of service
as of December 31, 1996, and a voluntary separation program. The early
retirement incentives included five additional years of age and pension
service for determining pension benefits. The early retirement program was
offered from February 1 through March 31, 1996, with eligible employees
retiring effective April 1, 1996. The voluntary separation program involved
severance benefit payments to affected employees. A total of 73 eligible
employees elected to accept the early retirement offer and an additional 57
employees were separated from the Company under the voluntary program. In
connection with the workforce reduction program, the Company recorded charges
to earnings in the first quarter of 1996 amounting to $3,379,000 for
retirement incentives and severance costs. Such charges reduced 1996 first
quarter net income by $2,069,000, or 2 cents a share. In addition, one of the
subsidiaries has deferred $812,000 of workforce reduction costs pending
recovery in future rate-making proceedings.
In September 1996, the Board of Directors approved a separate early
retirement program for West Ohio Gas Company (West Ohio Gas) in connection
with its planned merger into The East Ohio Gas Company (East Ohio Gas) (see
"Other Information," page 14), each a wholly owned subsidiary of the Company.
This program includes voluntary early retirement incentives similar to those
offered previously at the Company's other subsidiaries and is being offered
from October 1 through November 29, 1996, with eligible employees retiring
effective December 1, 1996. Charges resulting from this program are not
expected to be significant.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Write-down and Subsequent Sale of Coal Properties
In early 1995, 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). These reserves had been acquired 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 was not economically feasible to develop such reserves, nor were these
assets 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, which indicated that a write-down was
warranted. Accordingly, at June 30, 1995, the cost of these properties was
written down resulting in a pretax 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.
In July 1996, CNG Coal completed the sale of its coal properties to Cyprus
Consolidated Resources Corporation, a subsidiary of Cyprus Amax Minerals
Company. Proceeds from the sale consist of an initial cash payment, cash to
be received in the form of equal annual installments, and payments to be
received from the future production of the coal reserves. The sale of the
properties did not have a material effect on the Company's financial
condition, results of operations or cash flow.
(6) A summary of the changes in common stock, capital in excess of par value,
unearned compensation and treasury stock subsequent to December 31, 1995,
follows:
<TABLE>
<CAPTION>
________________________________________________________________________________
____________________________
Common Stock
Issued Capital in
Treasury Stock
____________________
____________________
Number Value Excess of
Unearned Number
of Shares at Par Par Value
Compensation of Shares Cost
________________________________________________________________________________
____________________________
(In Thousands)
<S> <C> <C> <C> <C>
<C> <C>
At December 31, 1995............. 93,592 $257,377 $478,535 $
- - - $ -
Common stock issued
Stock options.................. 679 1,869 26,097
- - - -
Performance shares-net......... 374 1,028 16,016
(17,044) - -
Stock awards-net............... 80 221 3,453
(3,564) - -
Dividend Reinvestment Plan..... 76 208 3,537
- - - -
Amortization and adjustment.... - - 3,002
2,486 - -
Purchase of treasury stock....... - - -
- - (62) (3,355)
Sale of treasury stock........... - - (60)
- - 62 3,355
______ ________ ________
________ _____ _____
At September 30, 1996............ 94,801 $260,703 $530,580
$(18,122) - $ -
====== ======== ========
======== ===== =====
________________________________________________________________________________
____________________________
</TABLE>
Beginning in the first quarter of 1996, restricted stock awards and
performance restricted stock awards (performance shares) were granted to
certain key employees of the Company. The common stock issued for these
awards is held by the Company until the attached restrictions lapse. The
market value of the restricted stock awards on the date granted is recognized
as compensation expense over the vesting period - in this case, three years.
For performance shares, the market value of the awards, including any changes
since the date of grant, is recognized as compensation expense over the three-
year performance period. The value of the awards not yet recognized as
compensation expense is reflected in common stockholders' equity as unearned
compensation.
6
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Concluded)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(7) The indenture between the Company and The Chase Manhattan Corporation
(formerly 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,
$576,274,000 of consolidated retained earnings was free from such restrictions
at September 30, 1996.
(8) The 9 3/8% Debentures Due February 1, 1997, continue to be classified as
long-term debt at September 30, 1996, based on the Company's intent and
ability to refinance the Debentures. Subsequent to the end of the third
quarter, the Company sold $150,000,000 of 6 7/8% Debentures Due October 15,
2026. The Debentures are noncallable but will be redeemed at par at the
option of the holder on October 15, 2006. Payment for the Debentures took
place on October 21, 1996.
(9) As previously reported, on June 28, 1996, CNG Iroquois, Inc. (CNG
Iroquois), a wholly owned subsidiary of CNG Transmission, entered into a
definitive agreement with ANR Iroquois, Inc. to acquire an additional 6.6%
interest in Iroquois Gas Transmission System, L.P. (Iroquois). Iroquois owns
and operates a 375-mile interstate natural gas transmission pipeline from
Canada to the northeast United States. The transaction was completed
September 17, 1996, at a net purchase price of $13.8 million in cash. At
September 30, 1996, CNG Iroquois held a 16% general partnership interest in
Iroquois with a total investment of $31.4 million.
(10) Effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This standard requires that long-lived assets and certain intangibles be
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the aggregate
estimated future cash flows to be derived from an asset are less than its
carrying amount, an impairment must be recognized. The Company's gas and oil
producing activities that are subject to the SEC's full cost accounting method
will continue to be evaluated for impairment under SEC Regulation S-X. SFAS
No. 121 also requires the write-off of a regulatory asset if and when it is no
longer probable that future revenues will provide for the recovery of the
carrying value of the asset. The adoption of SFAS No. 121 did not have a
material effect on the Company's financial position, results of operations or
cash flows.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Because of low seasonal demand for gas during the summer months, sales and
transportation revenues are lower during this period compared to the first and
second quarters, and third quarter results generally range from a loss to a
small profit. As shown in the Condensed Consolidated Statement of Cash Flows,
net cash provided by operating activities was $357.7 million and $576.3
million for the nine months ended September 30, 1996 and 1995, respectively.
The decline in net cash provided by operating activities in 1996 is due in
part to the deferral of purchased gas costs in excess of costs currently
recovered in rates and the payment of customer refunds during the period. In
the current nine-month period, available cash was used primarily to satisfy
cash requirements for operations, capital expenditures, and dividend payments.
Due to the seasonality of the regulated subsidiaries' heating business, the
balance sheet at the end of September customarily shows a significant decrease
in accounts receivable from the balance at the end of the previous year.
Also, by September 30, gas inventories which had been withdrawn during the
early part of the year have been substantially replenished for the forthcoming
heating season.
As discussed in Note 8 to the consolidated financial statements, subsequent to
the end of the third quarter the Company sold $150 million of debentures under
a currently-effective shelf registration with the SEC. The proceeds from this
transaction will be used to finance, in part, 1996 capital expenditures and/or
acquire, retire or redeem securities of which the Company is an issuer.
During the remainder of 1996, 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 for the subsidiaries, primarily for
gas inventory and other working capital requirements.
The Company's two short-term credit agreements totaling $775 million are
available to support commercial paper borrowings. In addition, borrowings
under the short-term credit agreements may be used to temporarily finance
capital expenditures. There were no amounts outstanding under these
agreements at September 30, 1996. Although the Company does not currently
anticipate the need for additional external financing in 1996, such funds, if
necessary, could be obtained through the issuance of new debt securities. In
this regard, the Company's shelf registration with the SEC would permit the
sale of up to $200 million of debt securities.
Reference is made to Note 10 to the consolidated financial statements for
information regarding a new accounting standard adopted by the Company in
1996. Also in connection with this discussion of financial condition,
reference is made to Notes 3 and 5 through 7 to the consolidated financial
statements.
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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
System Results
The Company reported net income for the first nine months of 1996 of
$210,299,000, or $2.23 a share, compared with a net loss of $66,123,000, or 71
cents a share, in the first nine months of 1995. Results for 1995, however,
include the effects of three special items. During the 1995 first quarter,
the Company 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 and third quarters of 1995, the Company recorded
charges totaling $26,011,000 after taxes, or 27 cents a share, for costs
related to the implementation of workforce reduction programs. Also in the
1995 second quarter, the Company 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 nine
months of 1995 would have been $125,211,000, or $1.34 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 1996 third quarter, the Company reported a net loss of $5,118,000, or
5 cents a share, compared with a net loss of $11,215,000, or 12 cents a share,
in the prior year period. Excluding workforce reduction charges of $2,343,000
after taxes, or 2 cents a share, recognized during the 1995 third quarter, the
net loss for the prior year quarter would have been $8,872,000, or 10 cents a
share. The Company's utility operations normally experience a loss in the
third quarter because of low seasonal demand for gas in the summer months.
Higher wellhead prices for natural gas and oil, increased gas and oil
production, colder weather, cost controls and the impact of new rates in place
for most of the Company's gas distribution customers contributed to the
improved results for both the first nine months and third quarter of 1996.
Weather in the Company's retail service territories through the first nine
months of 1996 was 13.8 percent colder than 1995 and 7.5 percent colder than
normal.
Operating Revenues
Regulated gas sales revenues in the first nine months of 1996 increased $77.9
million from the comparable 1995 period, with sales volumes increasing 15.9
billion cubic feet (Bcf), to 203.7 Bcf. Regulated gas sales revenues and
volumes increased in 1996 for the Company's residential and commercial
customer groups, while revenues and volumes declined for the industrial
customer class. In the third quarter, regulated gas sales revenues increased
$16.8 million, to $150.6 million, as higher gas sales rates for residential
and commercial customers more than offset the effect of declines in sales
volumes. Nonregulated gas sales revenues declined $37.7 million, to $743.3
million, in the first nine months of 1996 while sales volumes declined 171.6
Bcf, to 282.0 Bcf. Third quarter 1996 nonregulated gas sales revenues
decreased $.4 million, to $221.2 million, while sales volumes decreased 38.8
Bcf to 92.5 Bcf. Despite higher gas sales prices, reduced transaction volumes
of the energy marketing services component due to market conditions and lower
gas margins resulted in the declines in nonregulated gas sales in both 1996
periods.
Gas transportation and storage revenues were $341.4 million in the first nine
months of 1996, up $16.0 million over 1995. The increase was due to higher
gas transportation revenues, which increased $19.4 million due to higher
volumes and rates, partly offset by lower storage service revenues. Gas
transportation and storage revenues increased $1.4 million in the third
quarter of 1996 compared to the year-ago period due to higher gas
transportation revenues, as higher rates more than offset the effect of lower
volumes and lower storage service revenues.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Other operating revenues increased $137.1 million in the first nine months of
1996. Electricity sales by the energy marketing services component increased
$51.1 million compared to the first nine months of 1995. Revenues from oil
brokering increased $47.4 million due to both higher volumes and rates, while
revenues from the sale of oil and condensate production increased $20.2
million. Revenues from the sale of products extracted from natural gas
increased $5.7 million. Other revenues increased $12.7 million in the first
nine months of 1996 due in part to increased revenues from royalties and other
miscellaneous revenue categories. In the third quarter of 1996, total other
operating revenues increased $62.1 million compared to 1995 due largely to
increased revenues from electricity sales and oil brokering.
Operating Expenses
Excluding the impact of the 1995 first quarter impairment of gas and oil
producing properties and the 1995 second and third quarter workforce reduction
charges, total operating expenses, excluding income taxes, for the first nine
months of 1996 increased $63.2 million. Excluding the effect of the 1995
third quarter workforce reduction charge, operating expenses were up $74.2
million in the third quarter. Total purchased gas expense was down $138.6
million in the first nine months and $35.6 million in the third quarter of
1996 compared to the prior year periods. Decreased volume requirements in
connection with nonregulated gas sales and the deferral of purchased gas costs
by the regulated subsidiaries more than offset the effect of higher average
purchase prices during both 1996 periods. Transport capacity and other
purchased products expense was higher in both 1996 periods, increasing $115.1
million in the first nine months and $61.1 million in the third quarter.
These increases were due primarily to electricity purchased for resale by the
energy marketing services component and oil purchased for resale by CNG
Producing Company (CNG Producing, a subsidiary). Excluding the effect of the
1995 workforce reduction charges, combined operation and maintenance expense
increased $54.1 million in the first nine months of 1996 and $30.3 million in
the third quarter due in large part to higher royalties paid in 1996 resulting
from higher gas and oil wellhead prices and production. Workforce reduction
costs incurred in the first quarter of the year also affected 1996 expenses
(see Note 5 to the consolidated financial statements, page 5). The increases
in both 1996 periods were partially offset by lower payroll and certain
administrative expenses. Depreciation and amortization expense increased
$34.9 million and $17.8 million in the first nine months and third quarter of
1996, respectively, due primarily to higher gas and oil production volumes.
Taxes, other than income taxes, were down $2.3 million in the first nine
months of 1996 due in large part to lower excise and payroll taxes.
Income taxes increased $151.4 million in the first nine months of 1996
reflecting pretax income of $320.0 million in the period, compared to a pretax
loss of $107.8 million in 1995. The 1996 third quarter income tax benefit
decreased $4.8 million compared to the prior year quarter due chiefly to a
smaller pretax operating loss in 1996.
Interest Revenues and Interest Charges
Interest revenues declined $5.2 million in the first nine months of 1996 and
$1.2 million in the third quarter due primarily to the lower level of
temporary cash investments in 1996.
Total interest charges decreased $2.1 million and $1.2 million in the first
nine months and the third quarter of 1996, respectively. The declines in both
periods were due largely to lower interest expense related to customer
refunds. The decrease in the first nine months of 1996 was partially offset
by higher interest expense related to the $150 million of debentures issued in
April 1995.
10
<PAGE>
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.
____________________________________________________________________________
Nine Months to Three Months to
September 30 September 30
__________________ ________________
1996 1995 1996 1995
____________________________________________________________________________
OPERATING INCOME BEFORE INCOME TAXES (In Millions)
Distribution . . . . . . . . . . . . . $ 175.9 $ 101.3 $ (37.4) $ (33.7)
Transmission . . . . . . . . . . . . . 133.9 106.2 35.3 28.2
Exploration and production . . . . . . 89.7 (223.4) 26.0 8.3
Energy marketing services* . . . . . . (7.8) 2.3 (10.0) (2.1)
Other. . . . . . . . . . . . . . . . . (.2) 2.1 (.8) .6
Corporate and eliminations . . . . . . (6.3) .5 (2.0) .6
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $ 385.2 $ (11.0) $ 11.1 $ 1.9
======== ======== ======= =======
OPERATING REVENUES (In Millions)
Distribution . . . . . . . . . . . . . $1,273.8 $1,190.1 $ 176.2 $ 165.1
Transmission . . . . . . . . . . . . . 367.3 330.5 108.8 88.7
Exploration and production . . . . . . 446.0 254.8 154.5 84.0
Energy marketing services* . . . . . . 907.8 853.9 286.4 248.1
Other. . . . . . . . . . . . . . . . . 13.6 13.1 4.6 4.3
Corporate and eliminations . . . . . . (443.4) (270.6) (135.4) (75.0)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $2,565.1 $2,371.8 $ 595.1 $ 515.2
======== ======== ======= =======
GAS SALES (In Bcf)
Distribution . . . . . . . . . . . . . 203.9 187.8 18.2 19.1
Exploration and production . . . . . . 118.2 92.2 40.4 29.9
Energy marketing services* . . . . . . 300.9 454.8 99.0 131.4
Eliminations . . . . . . . . . . . . . (137.3) (93.4) (46.9) (30.0)
________ ________ _______ _______
Total sales. . . . . . . . . . . . . 485.7 641.4 110.7 150.4
======== ======== ======= =======
GAS TRANSPORTATION (In Bcf)
Distribution . . . . . . . . . . . . . 126.0 118.4 32.4 33.4
Transmission . . . . . . . . . . . . . 548.9 528.4 117.6 125.1
Exploration and production . . . . . . 1.4 1.3 .5 .4
Energy marketing services* . . . . . . 2.3 3.9 .7 1.2
Eliminations . . . . . . . . . . . . . (133.4) (111.9) (20.6) (25.1)
________ ________ _______ _______
Total transportation . . . . . . . . 545.2 540.1 130.6 135.0
======== ======== ======= =======
_____________________________________________________________________________
*Amounts for the three and nine months ended September 30, 1996 and the three
and six months ended September 30, 1995 include CNG Storage Service Company
(CNG Storage). CNG Storage was included in the "Transmission" component for
the three months ended March 31, 1995.
11
<PAGE>
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
$175.9 million in the first nine months of 1996, compared to $101.3 million in
the first nine months of 1995. Results for the 1995 period include workforce
reduction charges totaling $20.9 million. Excluding these special charges,
operating income before income taxes for the first nine months of 1995 was
$122.2 million. Distribution throughput in the first nine months of 1996 was
329.9 Bcf, an 8 percent increase over the prior year, reflecting weather that
was both colder than normal and colder than 1995. Operating results for the
first nine months of 1996 also benefited from cost control efforts at the
distribution subsidiaries and the impact of general rate increases that went
into effect in the latter part of 1995 at The Peoples Natural Gas Company,
Hope Gas, Inc. and East Ohio Gas.
Residential gas sales volumes increased 13.8 Bcf in the first nine months of
1996 to 150.4 Bcf. Commercial sales increased 1.0 Bcf while volumes
transported for these customers were up 5.6 Bcf. Deliveries to industrial
customers were slightly lower in the 1996 period, decreasing .7 Bcf to 101.1
Bcf. Industrial sales were down .2 Bcf to 4.8 Bcf, while transportation
volumes declined .5 Bcf to 96.3 Bcf.
In the third quarter of 1996, the distribution operations reported an
operating loss before income taxes of $37.4 million, compared to an operating
loss before income taxes of $33.7 million in the prior year quarter.
Excluding workforce reduction charges, the 1995 third quarter operating loss
before income taxes was $30.5 million. Results for the 1996 quarter reflect
lower throughput and the costs associated with combining and streamlining
certain business functions. Cost savings from these restructuring changes
should be realized in future periods. Residential gas sales volumes of 13.3
Bcf were relatively flat compared to the year ago period. While commercial
sales volumes were down .6 Bcf to 4.1 Bcf, gas transported for these customers
was up .4 Bcf to 3.8 Bcf in the 1996 quarter. Deliveries to industrial
customers decreased 1.7 Bcf to 29.0 Bcf reflecting declines in both sales and
transportation volumes.
Transmission
Operating income before income taxes of the gas transmission operations in the
first nine months of 1996 was $133.9 million, up $27.7 million from $106.2
million in 1995. Results for 1995 include workforce reduction charges
totaling $6.5 million. Excluding these charges, operating income before
income taxes for the first nine months of 1995 was $112.7 million. For the
1996 third quarter, operating income before income taxes was $35.3 million, an
increase of $7.1 million from $28.2 million in 1995. Excluding special
charges, 1995 third quarter operating income before income taxes was $28.6
million. Cost control efforts and increased gas transportation and by-
products revenues, partially offset by first quarter 1996 workforce reduction
charges of $3.4 million, contributed to results for the first nine months of
1996. Higher gas transportation and other operating revenues contributed to
improved third quarter results.
Gas throughput for the transmission operations, consisting entirely of
transportation volumes, was 548.9 Bcf in the first nine months of 1996, up
from 528.4 Bcf in the comparable 1995 period. Gas throughput was 117.6 Bcf in
the third quarter of 1996, down 7.5 Bcf from 1995.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Exploration and Production
Operating results for both the first nine months and third quarter of 1996
benefited from higher gas and oil wellhead prices and increased gas and oil
production. The exploration and production operations reported operating
income before income taxes of $89.7 million in the first nine months of 1996,
compared to an operating loss before income taxes of $223.4 million in 1995.
In the third quarter, operating income before income taxes was $26.0 million,
compared to $8.3 million in 1995. The loss for the first nine months of 1995
reflects the non-cash charge of $226.2 million in the first quarter for the
impairment of gas and oil producing properties (see Note 4 to the consolidated
financial statements, page 4). In addition, the first nine months and third
quarter results for 1995 include an $8.9 million charge and a credit of $.3
million, respectively, recognized in connection with workforce reductions.
Excluding the effects of these special items, the exploration and production
operations had operating income before income taxes of $11.7 million and $8.0
million in the first nine months and third quarter of 1995, respectively.
The Company's average gas wellhead price in the first nine months of 1996 was
$2.40 a thousand cubic feet (Mcf), compared with $1.80 in 1995. In the third
quarter, the average gas price was $2.24 per Mcf, up from $1.78 in the third
quarter of 1995. Gas production in the first nine months of 1996 was 104.4
Bcf, up 40 percent from 74.5 Bcf in 1995. Third quarter gas production was
36.9 Bcf, up 56 percent from 23.6 Bcf in the 1995 quarter. The increase in
gas production in both 1996 periods is due partially to the impact of two
significant Gulf of Mexico projects which commenced production in the first
quarter of 1996, Popeye and Main Pass 225. Production also benefited from the
effect of production enhancement efforts at existing Company-operated fields.
The Company's average oil wellhead prices were higher in both 1996 periods.
Oil wellhead prices averaged $17.19 a barrel in the nine months compared with
$16.24 in 1995, while prices for the quarter averaged $17.63 a barrel, up from
$15.54 a year ago. Oil production was 3.4 million barrels in the first nine
months of 1996, up 43 percent from 2.4 million barrels in 1995. For the third
quarter, oil production was 1.3 million barrels, up 57 percent from .8 million
barrels in the 1995 quarter. The increase in oil production in both 1996
periods is due in large part to production from the Popeye project.
Energy Marketing Services
Energy marketing services reported an operating loss before income taxes of
$7.8 million in the first nine months of 1996 compared with operating income
before income taxes of $2.3 million in the first nine months of 1995. For the
1996 third quarter, the operating loss before income taxes was $10.0 million,
compared with an operating loss before income taxes of $2.1 million in the
prior year quarter. The 1996 third quarter loss occurred in part because this
component contracted for quantities of natural gas to supply power plants
during the summer air-conditioning season; these quantities proved to be too
high when third quarter weather turned cooler than expected. Higher overhead
costs also contributed to the 1996 third quarter loss. Total throughput for
this component was 303.2 Bcf for the first nine months of 1996, a decrease of
155.5 Bcf compared to the first nine months of 1995. For the third quarter,
total throughput was 99.7 Bcf, compared to 132.6 Bcf in the prior year
quarter. This component reduced transaction volumes in both 1996 periods due
to market conditions and low gas margins. Power marketing, which includes the
sale of wholesale electricity, increased in the first nine months of 1996 to
2,791,000 megawatt-hours compared to 1,654,000 megawatt-hours in 1995.
Electricity marketed in the third quarter of 1996 was 1,494,000 megawatt-hours
compared to 874,000 megawatt-hours in 1995.
This component also reported equity income of $5.0 million and $2.9 million in
the first nine months of 1996 and 1995, respectively. Third quarter equity
income was $2.5 million in 1996, compared to $1.7 million in 1995. Equity
income of this component is primarily attributable to the Company's ownership
in seven independent power plants. These amounts are not included in
operating income before income taxes.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
SELECTED TWELVE-MONTH DATA
The following selected financial data (unaudited) relates to the twelve months
ended September 30, 1996 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $3,500,665
Operating expenses..................................... 2,955,076
Operating income before income taxes............... 545,589
Income taxes........................................... 154,249
Other income........................................... 8,977
Interest charges....................................... 102,551
Net income......................................... $ 297,766*
Earnings per share of common stock................. $3.17*
Average common shares outstanding (thousands)...... 94,072
Times fixed charges earned............................. 4.82
______________________________________________________________________________
*Includes charges related to workforce reductions totaling $1,676,000 after
taxes, or 2 cents a share.
OTHER INFORMATION
State Regulatory Matters
On September 12, 1996, the Company announced its intention to merge West Ohio
Gas into East Ohio Gas effective no later than January 1, 1997, pending
regulatory approval. The planned merger is part of an overall objective to
improve the cost-effectiveness of the distribution operations and to better
position the Company for competing in the future energy environment.
On September 25, 1996, Virginia Natural Gas, Inc. (Virginia Natural Gas) filed
an expedited rate application with the Virginia State Corporation Commission
requesting an annual revenue increase of $13.9 million. The requested rate
increase reflects the recovery of higher operating costs and additional
investment in facilities required to serve customers on Virginia Natural Gas'
system. The new rates went into effect, subject to refund, on October 25,
1996.
Also on September 25, 1996, East Ohio Gas filed a proposal with the Public
Utilities Commission of Ohio to permit open access for all of its Ohio
customers. If approved, open access service to customers who do not already
have such an option - small business and residential customers - would be
phased in beginning mid-1997 with full implementation proposed for April 1998.
Under open access programs, natural gas suppliers other than the local utility
can use the utility's existing lines to deliver gas to customers. Under this
proposal, Ohio customers would also have the option of continuing to purchase
natural gas from East Ohio Gas.
Exploration and Production
On October 17, 1996, CNG Producing announced the acquisition of 47 Bcf
equivalent of natural gas reserves in two Utah producing fields for
approximately $24 million. CNG Producing purchased the interests of Enserch
Exploration, Inc., in Riverbend, a natural gas field, and West Willow Creek,
an oilfield, both in the state of Utah. The purchase gives CNG Producing
complete ownership of both fields.
**********
In connection with the financial information included in PART I of this
report, reference is made to the Company's 1995 Annual Report, its 1995 Form
10-K and its quarterly reports to the SEC on Form 10-Q for the quarters ended
March 31 and June 30, 1996.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the third
quarter of 1996, and there have been no material developments during the
quarter in the legal proceedings disclosed in the Company's 1995 Form 10-K or
in any earlier Form 10-Q for 1996 as then pending.
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 7, 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 and nine
months ended September 30, 1996 and 1995
(12) Statement re Computation of Ratios:
Ratio of Earnings to Fixed Charges of Consolidated Natural Gas Company
and Subsidiaries for the twelve months ended September 30, 1996
(27) Financial Data Schedule
______________________________________________________________________________
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)
D. M. Westfall
_______________________________________
D. M. Westfall
Senior Vice President
and Chief Financial Officer
S. R. McGreevy
_______________________________________
S. R. McGreevy, Vice President,
Accounting and Financial Control
November 12, 1996
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 and nine
months ended September 30, 1996 and 1995 is 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 September 30, 1996 is
filed herewith
(27) Financial Data Schedule is filed herewith
______________________________________________________________________________
EXHIBIT 11
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
________________________________________________________________________________
_________________________
Nine Months to
Three Months to
September 30
September 30
_____________________
_____________________
1996 1995
1996 1995
________________________________________________________________________________
_________________________
<S> <C> <C>
<C> <C>
EARNINGS (LOSS) PER SHARE OF COMMON STOCK,
as Shown on the Consolidated
Statement of Income
Net income (loss) . . . . . . . . . . . . . . . . . $210,299
$(66,123) $ (5,118) $(11,215)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,284 93,180
94,637 93,312
________ ________
________ ________
Earnings (loss) per share of common stock . . . . $ 2.23 $
(.71) $ (.05) $ (.12)
======== ========
======== ========
PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $210,299
$(66,123) $ (5,118) $(11,215)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,284 93,180
94,637 93,312
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 606 69
1,057 75
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 94,890 93,249
95,694 93,387
________ ________
________ ________
Primary earnings (loss) per share . . . . . . . . $ 2.22(1) $
(.71)(2) $ (.05)(2) $ (.12)(2)
======== ========
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $210,299
$(66,123) $ (5,118) $(11,215)
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect. . . . . . . . . . . 8,867 8,948
2,973 3,090
________ ________
________ ________
Net income (loss), as adjusted . . . . . . . . . . . $219,166
$(57,175) $ (2,145) $ (8,125)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,284 93,180
94,637 93,312
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 770 110
1,063 155
Shares issuable from assumed conversion
of 7 1/4% Convertible Subordinated
Debentures . . . . . . . . . . . . . . . . . . . . 4,559 4,559
4,559 4,559
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 99,613 97,849
100,259 98,026
________ ________
________ ________
Fully diluted earnings (loss) per share . . . . . $ 2.20(1) $
(.58)(2)$ (.02)(2) $ (.08)(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 September 30 1996
_____________________________________________________________________________
Earnings:
Net income................................................ $297,766
Add income taxes.......................................... 154,249
________
Income before income taxes.............................. 452,015
Distributed income from unconsolidated investees,
less equity in earnings thereof......................... 6,793
________
Subtotal................................................ 458,808
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 98,875
Other interest expense.................................. 9,370
Portion of rentals deemed to be representative
of the interest factor................................ 10,095
Fixed charges associated with 50% projects with debt.... 1,623
________
TOTAL FIXED CHARGES......................................... 119,963
________
TOTAL EARNINGS.............................................. $578,771
========
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4.82
========
_____________________________________________________________________________
<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 SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,956,251
<OTHER-PROPERTY-AND-INVEST> 1,054,746
<TOTAL-CURRENT-ASSETS> 913,643
<TOTAL-DEFERRED-CHARGES> 356,960
<OTHER-ASSETS> 117,124
<TOTAL-ASSETS> 5,398,724
<COMMON> 260,703
<CAPITAL-SURPLUS-PAID-IN> 490,300
<RETAINED-EARNINGS> 1,382,547
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,155,708
0
0
<LONG-TERM-DEBT-NET> 1,288,723
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 409,000
<LONG-TERM-DEBT-CURRENT-PORT> 10,250
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,557,201
<TOT-CAPITALIZATION-AND-LIAB> 5,398,724
<GROSS-OPERATING-REVENUE> 2,565,091
<INCOME-TAX-EXPENSE> 109,658
<OTHER-OPERATING-EXPENSES> 2,179,921
<TOTAL-OPERATING-EXPENSES> 2,289,579
<OPERATING-INCOME-LOSS> 275,512
<OTHER-INCOME-NET> 10,555
<INCOME-BEFORE-INTEREST-EXPEN> 286,067
<TOTAL-INTEREST-EXPENSE> 75,768
<NET-INCOME> 210,299
0
<EARNINGS-AVAILABLE-FOR-COMM> 210,299
<COMMON-STOCK-DIVIDENDS> 137,658
<TOTAL-INTEREST-ON-BONDS> 97,107
<CASH-FLOW-OPERATIONS> 357,743
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.20
</TABLE>