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
JUNE 30, 1996
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
-------------
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,
1996: 94,536,976
<PAGE>
CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended June 30, 1996
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, 1996 and 1995.... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at June 30, 1996 (Unaudited), and December 31, 1995.......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Six Months Ended June 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...................................... 16
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K...................... 16
SIGNATURES....................................................... 17
<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>
________________________________________________________________________________
____________________________
Six Months to
Three Months to
June 30
June 30
________________________ ____________________
1996
1995 1996 1995
_____________________________________________________________________________________
_______________________
<S> <C> <C>
<C> <C>
OPERATING REVENUES
Regulated gas sales . . . . . . . . . . . . . . . . $1,014,406 $
953,308 $265,096 $246,982
Nonregulated gas sales . . . . . . . . . . . . . . . 522,090
559,377 202,858 266,476
__________
__________ ________ ________
Total gas sales . . . . . . . . . . . . . . . . 1,536,496
1,512,685 467,954 513,458
Gas transportation and storage . . . . . . . . . . . 241,921
227,307 99,309 97,552
Other . . . . . . . . . . . . . . . . . . . . . . . 191,617
116,617 87,687 53,962
__________
__________ ________ ________
Total operating revenues (Note 3). . . . . . . . 1,970,034
1,856,609 654,950 664,972
__________
__________ ________ ________
OPERATING EXPENSES
Purchased gas. . . . . . . . . . . . . . . . . . . . 859,628
962,638 231,363 325,413
Transport capacity and other purchased products . . 126,758
72,791 54,659 30,420
Operation expense (Note 5) . . . . . . . . . . . . . 323,642
333,601 154,825 175,110
Maintenance. . . . . . . . . . . . . . . . . . . . . 38,916
41,529 21,003 21,039
Depreciation and amortization. . . . . . . . . . . . 146,561
129,439 75,909 63,536
Impairment of gas and oil producing
properties (Note 4) . . . . . . . . . . . . . . . -
226,209 - -
Taxes, other than income taxes . . . . . . . . . . . 100,404
103,321 45,242 46,455
__________
__________ ________ ________
Subtotal . . . . . . . . . . . . . . . . . . . . 1,595,909
1,869,528 583,001 661,973
__________
__________ ________ ________
Operating income before income taxes . . . . . . 374,125
(12,919) 71,949 2,999
Income taxes . . . . . . . . . . . . . . . . . . . . 113,464
(33,073) 15,957 (15,302)
__________
__________ ________ ________
Operating income . . . . . . . . . . . . . . . . 260,661
20,154 55,992 18,301
__________
__________ ________ ________
OTHER INCOME (DEDUCTIONS)
Interest revenues. . . . . . . . . . . . . . . . . . 1,584
5,583 504 4,261
Write-down of coal properties (Note 5) . . . . . . . -
(31,266) - (31,266)
Other-net . . . . . . . . . . . . . . . . . . . . . 4,587
2,915 2,514 1,547
__________
__________ ________ ________
Total other income (deductions). . . . . . . . . 6,171
(22,768) 3,018 (25,458)
__________
__________ ________ ________
Income before interest charges . . . . . . . . . 266,832
(2,614) 59,010 (7,157)
__________
__________ ________ ________
INTEREST CHARGES
Interest on long-term debt . . . . . . . . . . . . . 49,387
46,233 24,693 24,236
Other interest expense . . . . . . . . . . . . . . . 4,593
8,586 1,032 3,143
Allowance for funds used during construction . . . . (2,565)
(2,525) (1,332) (1,024)
__________
__________ ________ ________
Total interest charges . . . . . . . . . . . . . 51,415
52,294 24,393 26,355
__________
__________ ________ ________
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 215,417 $
(54,908) $ 34,617 $(33,512)
==========
========== ======== ========
Earnings (loss) per share of common stock,
based on average shares outstanding . . . . . . $2.29
$(.59) $ .37 $(.36)
Average common shares outstanding
(thousands). . . . . . . . . . . . . . . . . . . 94,105
93,113 94,183 93,180
Dividends declared per common share. . . . . . . . $ .97 $
.97 $.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 June At December
30, 1996 31, 1995
(Unaudited)
_____________________________________________________________________________
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant.................... $ 4,704,500 $ 4,710,086
Accumulated depreciation and amortization...... (1,790,791) (1,785,965)
___________ ___________
Net gas utility and other plant........... 2,913,709 2,924,121
___________ ___________
Exploration and production properties.......... 3,336,855 3,219,264
Accumulated depreciation and amortization...... (2,309,334) (2,230,980)
___________ ___________
Net exploration and production properties. 1,027,521 988,284
___________ ___________
Net property, plant and equipment......... 3,941,230 3,912,405
___________ ___________
CURRENT ASSETS
Cash and temporary cash investments............ 35,071 36,277
Accounts receivable, less allowance for
doubtful accounts............................ 444,165 656,338
Gas stored - current portion................... 60,458 112,429
Materials and supplies (average cost method)... 39,663 35,815
Unrecovered gas costs.......................... 110,324 25,123
Deferred income taxes - current (net).......... - 20,993
Prepayments and other current assets........... 175,916 181,686
___________ ___________
Total current assets...................... 865,597 1,068,661
___________ ___________
REGULATORY AND OTHER ASSETS
Unamortized abandoned facilities............... 22,282 28,672
Other investments (Note 10).................... 89,393 60,939
Deferred charges and other assets (Notes 3
and 5)....................................... 356,195 347,616
___________ ___________
Total regulatory and other assets......... 467,870 437,227
___________ ___________
Total assets.............................. $ 5,274,697 $ 5,418,293
=========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholders' equity (Notes 6, 7 and 8)
Common stock, par $2.75
(Issued: 1996 - 94,331,337 shares;
1995 - 93,591,623 shares).................. $ 259,411 $ 257,377
Capital in excess of par value............... 510,795 478,535
Retained earnings............................ 1,433,864 1,309,906
Unearned compensation........................ (17,874) -
___________ ___________
Total common stockholders' equity......... 2,186,196 2,045,818
Long-term debt (Note 9)........................ 1,288,420 1,291,811
___________ ___________
Total capitalization...................... 3,474,616 3,337,629
___________ ___________
CURRENT LIABILITIES
Current maturities on long-term debt........... 10,250 10,250
Commercial paper............................... 189,000 336,000
Accounts payable............................... 304,083 410,296
Estimated rate contingencies and
refunds (Note 3)............................. 31,677 59,363
Amounts payable to customers................... - 40,315
Taxes accrued.................................. 69,293 114,335
Deferred income taxes - current (net).......... 33,809 -
Temporary replacement reserve - gas
inventory.................................... 4,431 -
Other current liabilities...................... 158,180 140,731
___________ ___________
Total current liabilities................. 800,723 1,111,290
___________ ___________
DEFERRED CREDITS
Deferred income taxes.......................... 688,759 672,266
Accumulated deferred investment tax credits.... 29,930 31,031
Deferred credits and other liabilities......... 280,669 266,077
___________ ___________
Total deferred credits.................... 999,358 969,374
___________ ___________
COMMITMENTS AND CONTINGENCIES
___________ ___________
Total stockholders' equity and liabilities $ 5,274,697 $ 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)
_____________________________________________________________________________
Six Months to June 30
_____________________
1996 1995
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $ 215,417 $ (54,908)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization................ 146,561 129,439
Impairment of gas and oil producing
properties................................. - 226,209
Write-down of coal properties................ - 31,266
Deferred income taxes-net.................... 68,166 (116,402)
Changes in current assets and
current liabilities
Accounts receivable-net.................... 213,227 131,863
Inventories................................ 48,123 117,282
Unrecovered gas costs...................... (85,201) 13,135
Accounts payable........................... (125,909) (56,125)
Estimated rate contingencies and refunds... (27,686) 33,526
Amounts payable to customers............... (40,315) 17,091
Taxes accrued.............................. (45,042) (17,668)
Temporary replacement reserve - gas
inventory................................ 4,431 9,860
Other-net.................................. 22,429 36,260
Changes in other assets and
other liabilities.......................... 15,995 56,644
Other........................................ 234 1,200
_________ _________
Net cash provided by operating activities 410,430 558,672
_________ _________
CASH FLOWS USED IN INVESTING ACTIVITIES
Plant construction and other property additions.. (165,404) (203,425)
Proceeds from dispositions of property, plant
and equipment-net.............................. 9,592 6,284
Cost of other investments-net.................... (26,753) (4,047)
_________ _________
Net cash used in investing activities.... (182,565) (201,188)
_________ _________
CASH FLOWS PROVIDED BY (OR USED IN) FINANCING ACTIVITIES
Issuance of common stock......................... 12,613 8,750
Issuance of debentures........................... - 148,899
Unsecured loan repayment......................... (4,000) (4,000)
Commercial paper repayments-net.................. (146,460) (293,693)
Dividends paid................................... (91,225) (90,258)
Other-net........................................ 1 (11)
_________ _________
Net cash used in financing activities.... (229,071) (230,313)
_________ _________
Net increase (or decrease) in cash
and temporary cash investments......... (1,206) 127,171
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1. 36,277 31,923
_________ _________
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30... $ 35,071 $ 159,094
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 53,185 $ 50,026
Income taxes (net of refunds).................. $ 41,640 $ 57,219
Non-cash financing activities
Issuance of stock under benefit plans.......... $ 21,682 $ 538
_____________________________________________________________________________
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. 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
$11,647,000 at December 31, 1995, and June 30, 1996, including interest.
These amounts are reported in the Condensed Consolidated Balance Sheet under
"Estimated rate contingencies and refunds" together with $35,124,000 and
$20,030,000, 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 $27,213,000 at December 31, 1995,
and June 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 $25 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 quarter and the 1996
first quarter in connection with workforce reduction programs and 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. A total of 479 eligible
employees elected to accept the early retirement offer. Also, 103 employees
were separated from the Company in conjunction with the workforce reduction
program. In connection with the program, the Company recorded charges to
earnings in the second quarter of 1995 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 deferred $3,402,000 of workforce reduction
program 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.
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.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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
Performance shares............. 353 972 14,852
(15,824) - -
Stock options.................. 261 719 9,376
- - - - -
Stock awards-net............... 72 197 3,022
(3,140) - -
Dividend Reinvestment Plan..... 53 146 2,370
- - - - -
Amortization and adjustment.... - - 2,639
1,090 - -
Purchase of treasury stock....... - - -
- - - (6) (258)
Sale of treasury stock........... - - 1
- - - 6 258
______ ________ ________
________ _____ _____
At June 30, 1996 ................ 94,331 $259,411 $510,795
$(17,874) - $ -
====== ======== ========
======== ===== =====
________________________________________________________________________________
____________________________
</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.
(7) At the Company's Annual Meeting of Shareholders on May 21, 1996, the
common shareholders approved amendments to the Certificate of Incorporation to
increase the authorized number of shares of common stock, to eliminate the
existing authorized shares of preferred stock, and to authorize a new class of
preferred stock. Accordingly, the number of authorized shares of common stock
was increased from 200,000,000 shares of $2.75 par value, to 400,000,000
shares of $2.75 par value. In addition, the existing 2,500,000 authorized
shares of preferred stock of $100 par value were eliminated and replaced with
5,000,000 authorized shares of a new class of preferred stock of $100 par
value. There were no shares of preferred stock issued or outstanding at
December 31, 1995 or June 30, 1996.
(8) 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,
$630,688,000 of consolidated retained earnings was free from such restrictions
at June 30, 1996.
(9) The 9 3/8% Debentures Due February 1, 1997, continue to be classified as
long-term debt at June 30, 1996, based on the Company's current intent to
refinance the debentures at maturity through the use of the Company's
currently-effective registration statement for the sale of debt securities on
file with the SEC.
6
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Concluded)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(10) CNG Iroquois, Inc. (CNG Iroquois), a wholly owned subsidiary of CNG
Transmission, holds a 9.4% general partnership 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. CNG Iroquois' investment in Iroquois was $17.6 million as of
June 30, 1996.
On June 28, 1996, CNG Iroquois entered into a definitive agreement with
ANR Iroquois, Inc. to acquire an additional 6.6% interest in Iroquois for
approximately $15 million. Pending regulatory approvals which are expected to
occur later in 1996, CNG Iroquois will hold a 16% general partnership interest
in Iroquois.
(11) 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 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 $410.4 million and $558.7 million for the six months ended June
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 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 1995.
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. However, the balance of cash and
temporary cash investments at June 30, 1996, is less than the balance at
December 31, 1995, due primarily to the deferral by certain distribution
subsidiaries of gas cost increases incurred during the first quarter of 1996
and the repayment of commercial paper borrowings.
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 1996 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.
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 to 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. These credit agreements were scheduled to expire on
June 29, 1996; however, the Company has extended the expiration date to June
27, 1997. There were no amounts outstanding under these credit agreements at
June 30, 1996.
In addition to the short-term credit agreements, external financing could be
obtained, if necessary, through the issuance of new debt securities during the
remainder of 1996. In this regard, the Company has a currently effective
shelf registration with the SEC that would permit the sale of up to $350
million of debt securities. The amount and timing of any future sale of these
debt securities will depend on capital requirements and financial market
conditions. In addition, reference is made to Note 9 to the consolidated
financial statements regarding the use of debt securities under the shelf
registration.
Reference is made to Note 11 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 also made to Notes 3 and 5 through 8 to the consolidated
financial statements.
8
<PAGE>
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, 1996 AND 1995
System Results
The Company reported net income for the first six months of 1996 of
$215,417,000, or $2.29 a share, compared with a net loss of $54,908,000, or 59
cents a share, in the first six months of 1995. Results for the first half of
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 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
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 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 1996, the Company reported net income of
$34,617,000, or 37 cents a share, compared with a net loss of $33,512,000, or
36 cents a share, in the prior year period. Excluding the impact of the two
special charges recognized in the 1995 second quarter, net income for the
prior year quarter would have been $10,479,000, or 11 cents a share.
Higher wellhead prices for natural gas, increased gas and oil production,
colder weather, lower operating costs 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 half and second quarter of 1996.
Weather in the Company's retail service territories through the first half of
1996 was 14.2 percent colder than 1995 and 7.5 percent colder than normal. In
the second quarter of 1996, weather was 12.4 percent colder than last year and
8.3 percent colder than normal.
Operating Revenues
Regulated gas sales revenues in the first six months of 1996 increased $61.1
million from the comparable 1995 period, with sales volumes increasing 16.8
billion cubic feet (Bcf) from the prior year to 185.5 Bcf. Regulated gas
sales revenues and volumes increased in 1996 for the Company's residential and
commercial customer groups, while revenues declined and volumes were flat for
the industrial customer class. In the second quarter, regulated gas sales
revenues increased $18.1 million, to $265.1 million, due to both higher gas
sales rates and volumes. Nonregulated gas sales revenues declined $37.3
million, to $522.1 million, in the first six months of 1996 while sales
volumes declined 132.8 Bcf, to 189.5 Bcf, compared to last year. Second
quarter 1996 nonregulated gas sales revenues declined $63.6 million, to $202.9
million, with sales volumes decreasing 70.3 Bcf to 80.0 Bcf. Nonregulated gas
sales revenues and volumes declined in both 1996 periods as the energy
marketing services component reduced transaction volumes due to market
conditions and lower gas margins.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Gas transportation and storage revenues were $241.9 million in the first half
of 1996, up $14.6 million over 1995. The increase was due to higher gas
transportation revenues, which increased $15.0 million due to higher volumes
and rates, partly offset by slightly lower storage service revenues. Gas
transportation and storage revenues increased $1.7 million in the second
quarter of 1996 compared with the year-ago period due to higher gas
transportation revenues, as higher rates more than offset the effect of lower
volumes.
Other operating revenues increased $75.0 million to $191.6 million in the
first six months of 1996. Electricity sales by the energy marketing services
component increased $25.9 million compared to the first half of 1995.
Revenues from oil brokering increased $24.7 million due to both higher volumes
and rates, while revenues from the sale of oil and condensate production
increased $9.7 million. Revenues from the sale of products extracted from
natural gas increased $5.5 million. Other revenues increased $9.2 million in
the first six months of 1996 due in part to increased revenues from royalties
and other miscellaneous revenue categories. In the second quarter of 1996,
total other operating revenues increased $33.7 million compared to 1995 due
largely to increased revenues from oil brokering and electricity sales.
Operating Expenses
Total operating expenses, excluding income taxes, declined $273.6 million in
the first half of 1996 and $79.0 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 1996
decreased $11.0 million. Excluding the latter charge, operating expenses were
down $42.6 million in the second quarter. Total purchased gas expense was
down $103.0 million in the first half and $94.1 million in the second 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 $54.0
million in the first half and $24.3 million in the second 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). Excluding the effect of the charge related to the
1995 workforce reduction program, combined operation and maintenance expense
increased $23.8 million in the first six months of 1996 and $16.1 million in
the second quarter due largely to higher royalties paid in 1996. 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 $17.1 million and $12.4 million in the first six months and second
quarter of 1996, respectively, due primarily to higher gas and oil production
volumes. Taxes, other than income taxes, were down $2.9 million in the first
half of 1996 and $1.3 million in the second quarter due in large part to lower
excise and property taxes.
Income taxes increased $146.6 million in the first half of 1996 reflecting
pretax income of $328.9 million in the period, compared to a pretax loss of
$88.0 million in 1995. In the second quarter of 1996, income taxes increased
$31.3 million compared to 1995 as pretax income in 1996 was $99.4 million
higher than the year-ago period.
Interest Revenues and Interest Charges
Interest revenues declined $4.0 million in the first six months of 1996 and
$3.8 million in the second quarter due primarily to the lower level of
temporary cash investments in 1996.
Total interest charges decreased $.9 million and $1.9 million in the first six
months and second quarter of 1996, respectively. The declines in both periods
were due largely to reduced interest expense related to the decreased level of
commercial paper borrowings in 1996 and other interest expense, 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.
____________________________________________________________________________
Six Months to Three Months to
June 30 June 30
__________________ ________________
1996 1995 1996 1995
____________________________________________________________________________
OPERATING INCOME BEFORE INCOME TAXES (In Millions)
Distribution . . . . . . . . . . . . . $ 213.3 $ 135.0 $ 8.8 $ (17.9)
Transmission . . . . . . . . . . . . . 98.6 78.0 33.4 23.8
Exploration and production . . . . . . 63.7 (231.7) 27.5 (4.3)
Energy marketing services* . . . . . . 2.2 4.4 3.2 1.9
Other. . . . . . . . . . . . . . . . . .6 1.5 .1 .7
Corporate and eliminations . . . . . . (4.3) (.1) (1.1) (1.2)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $ 374.1 $ (12.9) $ 71.9 $ 3.0
======== ======== ======= =======
OPERATING REVENUES (In Millions)
Distribution . . . . . . . . . . . . . $1,097.6 $1,025.0 $ 296.0 $ 275.8
Transmission . . . . . . . . . . . . . 258.5 241.8 103.7 101.3
Exploration and production . . . . . . 291.5 170.8 149.2 87.2
Energy marketing services* . . . . . . 621.4 605.8 241.5 282.4
Other. . . . . . . . . . . . . . . . . 9.0 8.8 4.5 4.4
Corporate and eliminations . . . . . . (308.0) (195.6) (140.0) (86.1)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $1,970.0 $1,856.6 $ 654.9 $ 665.0
======== ======== ======= =======
GAS SALES (In Bcf)
Distribution . . . . . . . . . . . . . 185.7 168.7 43.7 41.0
Exploration and production . . . . . . 77.8 62.3 40.9 32.0
Energy marketing services* . . . . . . 201.9 323.4 86.3 151.5
Eliminations . . . . . . . . . . . . . (90.4) (63.4) (47.4) (33.2)
________ ________ _______ _______
Total sales. . . . . . . . . . . . . 375.0 491.0 123.5 191.3
======== ======== ======= =======
GAS TRANSPORTATION (In Bcf)
Distribution . . . . . . . . . . . . . 93.6 85.0 37.9 37.0
Transmission . . . . . . . . . . . . . 431.3 403.3 146.9 148.4
Exploration and production . . . . . . .9 .9 .5 .5
Energy marketing services* . . . . . . 1.6 2.7 .7 1.4
Eliminations . . . . . . . . . . . . . (112.8) (86.8) (36.5) (23.8)
________ ________ _______ _______
Total transportation . . . . . . . . 414.6 405.1 149.5 163.5
======== ======== ======= =======
_____________________________________________________________________________
*Amounts for the three and six months ended June 30, 1996 and the three months
ended June 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
$213.3 million in the first six months of 1996, compared to $135.0 million in
the first half of 1995. First half results for 1995 include a $17.7 million
second quarter charge in connection with the workforce reduction program.
Excluding this special item, operating income before income taxes for the
first six months of 1995 was $152.7 million. Distribution throughput in the
first half of 1996 was 279.3 Bcf, a 10 percent increase, reflecting weather
that was both colder than normal and colder than 1995. Operating results for
the first six months of 1996 also benefited from cost reduction 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 The East Ohio Gas Company.
Residential gas sales volumes increased 14.0 Bcf in the first half of 1996 to
137.1 Bcf. Commercial sales increased 1.6 Bcf while volumes transported for
these customers were up 5.2 Bcf. Deliveries to industrial customers were
slightly higher in the 1996 period, increasing 1.0 Bcf to 72.1 Bcf. While
industrial sales were unchanged at 4.0 Bcf, transportation volumes rose 1.0
Bcf to 68.1 Bcf.
In the second quarter of 1996, the distribution operations reported operating
income before income taxes of $8.8 million, compared to an operating loss
before income taxes of $17.9 million in the 1995 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 1996
quarter reflect colder than normal weather, lower operating costs and the
impact of new rates noted above. Residential gas sales volumes of 32.2 Bcf
were up 2.0 Bcf compared to the year-ago period, while commercial sales
volumes were down .5 Bcf to 9.0 Bcf. However, gas transported for these
customers was 7.6 Bcf, up 1.7 Bcf in the 1996 quarter. Deliveries to
industrial customers decreased 1.3 Bcf to 31.0 Bcf reflecting declines in both
sales and transportation volumes.
Transmission
Operating income before income taxes of the gas transmission operations in the
first six months of 1996 was $98.6 million, up $20.6 million from $78.0
million in 1995. For the second quarter of 1996, operating income before
income taxes was $33.4 million, an increase of $9.6 million from $23.8 million
in 1995. Excluding the impact of the 1995 second quarter charge of $6.1
million related to the workforce reduction program, 1995 first half and second
quarter operating income before income taxes would have been $84.1 million and
$29.9 million, respectively. Increased gas transportation and by-products
revenues, higher transportation rates and lower combined operation and
maintenance expenses, partially offset by first quarter 1996 workforce
reduction charges of $3.4 million, contributed to the 1996 first half results.
Higher gas transportation and other operating revenues and lower operating
costs contributed positively to second quarter results.
Gas throughput for the transmission operations, consisting entirely of
transportation volumes, was 431.3 Bcf in the first six months of 1996, up from
403.3 Bcf in the first half of 1995. Gas throughput was 146.9 Bcf in the
second quarter of 1996, down 1.5 Bcf from 1995.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Exploration and Production
The exploration and production operations reported operating income before
income taxes of $63.7 million for the first six months of 1996, compared to an
operating loss before income taxes of $231.7 million in the first half of
1995. In the second quarter, operating income before income taxes was $27.5
million, compared to an operating loss before income taxes of $4.3 million in
1995. The loss for the first six 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 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 had operating income before income taxes of $3.7 million
and $4.9 million in the first half and second quarter of 1995, respectively.
Operating results for both the first half and second quarter of 1996 benefited
from higher gas wellhead prices and increased gas and oil production.
The Company's average gas wellhead price in the first six months of 1996 was
$2.48 a thousand cubic feet (Mcf), up significantly from $1.82 in 1995. In
the second quarter, the average gas price was $2.29 per Mcf, up from $1.81 in
the second quarter of 1995. The higher prices in 1996 reflect higher demand
resulting from colder weather and reduced storage inventory levels nationwide.
Gas production in the first half of 1996 was 67.5 Bcf, up 33 percent from 50.9
Bcf in 1995. Second quarter gas production was 35.8 Bcf, up 35 percent from
26.6 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, and the effect of production enhancement efforts at existing
Company-operated fields. The Company's oil wellhead prices averaged $16.93 a
barrel in the first six months of 1996 compared to $16.59 a barrel in the
first half of 1995, while prices for the 1996 second quarter averaged $17.05 a
barrel, unchanged from the prior year quarter. Oil production was 2.1 million
barrels in the first half of 1996, up from 1.6 million barrels in 1995. For
the second quarter of 1996, oil production was 1,113,000 barrels, compared
with 822,000 barrels in 1995. 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 operating income before income taxes of
$2.2 million in the first six months of 1996, compared to $4.4 million in the
first half of 1995. For the second quarter, operating income before income
taxes was $3.2 million, an increase from $1.9 million in 1995. The higher
1996 second quarter results reflect an increased contribution from power
marketing operations. Total throughput for this component was 203.5 Bcf for
the first half of 1996, a decrease of 122.6 Bcf compared to the first six
months of 1995. For the second quarter of 1996, total throughput was 87.0
Bcf, compared to 152.9 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 six months of 1996 to 1,297,000 megawatt-hours compared
to 780,000 megawatt-hours in 1995. Electricity marketed in the second quarter
of 1996 was 505,000 megawatt-hours compared to 351,000 megawatt-hours in 1995.
This component also includes the Company's ownership in seven independent
power plants and reported equity income of $2.5 million in the first six
months of 1996, compared to $1.2 million in the first half of 1995. Second
quarter equity income was $1.9 million in 1996, compared to $.9 million in
1995. 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 June 30, 1996 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $3,420,750
Operating expenses..................................... 2,884,250
Operating income before income taxes............... 536,500
Income taxes........................................... 149,480
Other income........................................... 8,433
Interest charges....................................... 103,784
Net income......................................... $ 291,669*
Earnings per share of common stock................. $3.11*
Average common shares outstanding (thousands)...... 93,739
Times fixed charges earned............................. 4.62
______________________________________________________________________________
*Includes charges related to workforce reductions in the last two quarters of
1995 totaling $1,950,000 after taxes, or 2 cents a share, and charges
related to workforce reductions in the 1996 first quarter totaling $2,069,000
after taxes, or 2 cents a share.
OTHER INFORMATION
Exploration and Production
As previously reported, CNG Producing, acting alone or with partners, was the
high bidder on five of the tracts offered at the federal government's April
24, 1996 Gulf of Mexico lease sale. The Company's bids totaled $7.6 million
for 100 percent working interests in four tracts and a 50 percent interest in
the remaining property. All five of the bids have been accepted by the
government.
**********
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 report to the SEC on Form 10-Q for the quarter ended
March 31, 1996.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the second
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 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 21, 1996. Common
shareholders voted on seven items. The voting results on these matters were
as follows:
1. Election of three Directors.
Votes Votes Broker
Nominees For Withheld Non-Votes
________ __________ __________ _________
Paul E. Lego 71,637,626 2,837,460 0
Margaret A. McKenna 71,806,976 2,668,109 0
Walter R. Peirson 71,836,858 2,638,227 0
Directors whose term of office continued after the meeting:
Term expiring May 1997: William S. Barrack, Jr., Ray J. Groves,
Steven A. Minter and Lois Wyse
Term expiring May 1998: J. W. Connolly, George A. Davidson, Jr.
and Richard P. Simmons
2. Ratification of the appointment of Price Waterhouse LLP as independent
accountants.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
73,159,918 942,105 373,062 0
3. A proposal to amend article FOURTH of the Certificate of Incorporation to
increase the authorized number of shares of common stock from 200,000,000
shares of $2.75 par value, to 400,000,000 shares of $2.75 par value.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
63,619,777 10,078,257 777,051 0
4. A proposal to amend article FOURTH of the Certificate of Incorporation to
eliminate the existing authorized 2,500,000 shares of preferred stock of
$100 par value, to authorize 5,000,000 shares of a new class of
preferred stock of $100 par value, and to amend certain provisions.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
51,777,426 14,021,852 925,081 7,750,726
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Concluded)
5. Action on a stockholder-proposed resolution regarding the shareholder
rights plan.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
32,713,760 31,668,751 2,095,110 7,997,464
6. Action on a stockholder-proposed resolution regarding Director
compensation.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
27,057,618 37,388,995 2,035,183 7,993,289
7. Action on a stockholder-proposed resolution regarding change of control
agreements.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
26,620,050 36,839,471 3,122,275 7,893,289
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
______________________________________________________________________________
(3) Articles of Incorporation and By-Laws:
(3A) Certificate of Incorporation of Consolidated Natural Gas Company,
restated October 4, 1990 (incorporated by reference to Exhibit
A-1 to the Application-Declaration of Consolidated Natural Gas
Company on Form U-1, File No. 70-7811), and Amendments to
Certificate of Incorporation, filed with the State of Delaware
May 31, 1996 (incorporated by reference to Exhibit A-5 of the
Application-Declaration of Consolidated Natural Gas Company,
Amendment No. 4 to Form U-1, File No. 70-8667)
(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 six
months ended June 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 June 30, 1996
(27) Financial Data Schedule
______________________________________________________________________________
16
<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
August 9, 1996
<PAGE>
EXHIBIT INDEX
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(3) Articles of Incorporation and By-Laws:
(3A) Certificate of Incorporation of Consolidated Natural Gas Company,
restated October 4, 1990 (incorporated by reference to Exhibit
A-1 to the Application-Declaration of Consolidated Natural Gas
Company on Form U-1, File No. 70-7811), and Amendments to
Certificate of Incorporation, filed with the State of Delaware
May 31, 1996 (incorporated by reference to Exhibit A-5 of the
Application-Declaration of Consolidated Natural Gas Company,
Amendment No. 4 to Form U-1, File No. 70-8667)
(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 six
months ended June 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 June 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>
________________________________________________________________________________
_________________________
Six Months to
Three Months to
June 30
June 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) . . . . . . . . . . . . . . . . . $215,417
$(54,908) $ 34,617 $(33,512)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,105 93,113
94,183 93,180
________ ________
________ ________
Earnings (loss) per share of common stock . . . . $ 2.29 $
(.59) $ .37 $ (.36)
======== ========
======== ========
PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $215,417
$(54,908) $ 34,617 $(33,512)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,105 93,113
94,183 93,180
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 384 67
525 113
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 94,489 93,180
94,708 93,293
________ ________
________ ________
Primary earnings (loss) per share . . . . . . . . $ 2.28(1) $
(.59)(2) $ .37(1) $ (.36)(2)
======== ========
======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) . . . . . . . . . . . . . . . . . $215,417
$(54,908) $ 34,617 $(33,512)
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect. . . . . . . . . . . 5,894 5,858
2,970 2,884
________ ________
________ ________
Net income (loss), as adjusted . . . . . . . . . . . $221,311
$(49,050) $ 37,587 $(30,628)
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,105 93,113
94,183 93,180
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 626 89
1,010 114
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 . . . . . . . . . 99,290 97,761
99,752 97,853
________ ________
________ ________
Fully diluted earnings (loss) per share . . . . . $ 2.23(1) $
(.50)(2)$ .38(2) $ (.31)(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 1996
_____________________________________________________________________________
Earnings:
Net income................................................ $291,669
Add income taxes.......................................... 149,480
________
Income before income taxes.............................. 441,149
Distributed income from unconsolidated investees,
less equity in earnings thereof......................... 2,863
________
Subtotal................................................ 444,012
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 98,977
Other interest expense.................................. 10,739
Portion of rentals deemed to be representative
of the interest factor................................ 10,494
Fixed charges associated with 50% projects with debt.... 2,495
________
TOTAL FIXED CHARGES......................................... 122,705
________
TOTAL EARNINGS.............................................. $566,717
========
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4.62
========
_____________________________________________________________________________
<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,
1996 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-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,913,709
<OTHER-PROPERTY-AND-INVEST> 1,027,521
<TOTAL-CURRENT-ASSETS> 865,597
<TOTAL-DEFERRED-CHARGES> 356,240
<OTHER-ASSETS> 111,675
<TOTAL-ASSETS> 5,274,742
<COMMON> 259,411
<CAPITAL-SURPLUS-PAID-IN> 470,515
<RETAINED-EARNINGS> 1,433,864
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,186,241
0
0
<LONG-TERM-DEBT-NET> 1,288,420
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 189,000
<LONG-TERM-DEBT-CURRENT-PORT> 10,250
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,623,282
<TOT-CAPITALIZATION-AND-LIAB> 5,274,742
<GROSS-OPERATING-REVENUE> 1,970,034
<INCOME-TAX-EXPENSE> 113,464
<OTHER-OPERATING-EXPENSES> 1,595,909
<TOTAL-OPERATING-EXPENSES> 1,709,373
<OPERATING-INCOME-LOSS> 260,661
<OTHER-INCOME-NET> 6,171
<INCOME-BEFORE-INTEREST-EXPEN> 266,832
<TOTAL-INTEREST-EXPENSE> 51,415
<NET-INCOME> 215,417
0
<EARNINGS-AVAILABLE-FOR-COMM> 215,417
<COMMON-STOCK-DIVIDENDS> 91,459
<TOTAL-INTEREST-ON-BONDS> 97,244
<CASH-FLOW-OPERATIONS> 410,430
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.23
</TABLE>
