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
MARCH 31, 1997
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 April 30,
1997: 95,009,011
<PAGE>
CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended March 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Quarters Ended March 31, 1997 and 1996............... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at March 31, 1997 (Unaudited), and December 31, 1996......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Quarters Ended March 31, 1997 and 1996............... 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................... 12
ITEM 2. CHANGES IN SECURITIES.................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 12
ITEM 5. OTHER INFORMATION...................................... 12
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K...................... 12
SIGNATURES....................................................... 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Natural Gas Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (Thousands of Dollars)
____________________________________________________________________________
Three Months to March 31
________________________
1997 1996
____________________________________________________________________________
OPERATING REVENUES
Regulated gas sales............................ $ 807,596 $ 749,310
Nonregulated gas sales......................... 601,183 319,232
__________ __________
Total gas sales............................ 1,408,779 1,068,542
Gas transportation and storage................. 138,503 142,612
Other.......................................... 151,317 103,930
__________ __________
Total operating revenues (Note 3).......... 1,698,599 1,315,084
__________ __________
OPERATING EXPENSES
Purchased gas.................................. 982,390 628,265
Transport capacity and other
purchased products........................... 115,283 72,099
Operation expense (Note 4)..................... 168,873 168,817
Maintenance.................................... 19,913 17,913
Depreciation and amortization.................. 75,697 70,652
Taxes, other than income taxes................. 55,755 55,162
__________ __________
Subtotal................................... 1,417,911 1,012,908
__________ __________
Operating income before income taxes....... 280,688 302,176
Income taxes................................... 84,595 97,507
__________ __________
Operating income........................... 196,093 204,669
__________ __________
OTHER INCOME
Interest revenues.............................. 446 1,080
Other-net...................................... 4,306 2,073
__________ __________
Total other income......................... 4,752 3,153
__________ __________
Income before interest charges............. 200,845 207,822
__________ __________
INTEREST CHARGES
Interest on long-term debt..................... 26,609 24,694
Other interest expense......................... 4,005 3,561
Allowance for funds used during construction... (1,260) (1,233)
__________ __________
Total interest charges..................... 29,354 27,022
__________ __________
NET INCOME..................................... $ 171,491 $ 180,800
========== ==========
Earnings per share of common stock (Note 7):
Based on average shares outstanding........ $1.81 $1.92
Fully diluted.............................. $1.74 $1.86
Average common shares (thousands) (Note 7):
Outstanding................................ 94,947 94,028
Fully diluted.............................. 100,510 98,828
Dividends declared per common share.......... $.485 $.485
____________________________________________________________________________
The Notes to Consolidated Financial Statements are an integral part of this
statement.
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
Consolidated Natural Gas Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
_____________________________________________________________________________
At March At December
31, 1997 31, 1996
(Unaudited)
_____________________________________________________________________________
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant.................... $ 4,862,879 $ 4,848,392
Accumulated depreciation and amortization...... (1,872,348) (1,840,129)
___________ ___________
Net gas utility and other plant........... 2,990,531 3,008,263
___________ ___________
Exploration and production properties.......... 3,525,654 3,455,813
Accumulated depreciation and amortization...... (2,425,317) (2,386,776)
___________ ___________
Net exploration and production properties. 1,100,337 1,069,037
___________ ___________
Net property, plant and equipment......... 4,090,868 4,077,300
___________ ___________
CURRENT ASSETS
Cash and temporary cash investments............ 40,488 44,524
Accounts receivable, less allowance for
doubtful accounts............................ 816,615 793,565
Gas stored - current portion................... 23,432 170,513
Materials and supplies (average cost method)... 32,030 33,070
Unrecovered gas costs.......................... 92,525 108,016
Prepayments and other current assets........... 212,408 243,333
___________ ___________
Total current assets...................... 1,217,498 1,393,021
___________ ___________
REGULATORY AND OTHER ASSETS
Unamortized abandoned facilities............... 12,492 15,791
Other investments.............................. 153,559 149,858
Deferred charges and other assets
(Notes 3 and 4).............................. 370,165 364,635
___________ ___________
Total regulatory and other assets......... 536,216 530,284
___________ ___________
Total assets.............................. $ 5,844,582 $ 6,000,605
=========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholders' equity (Notes 5 and 6)
Common stock, par $2.75
(Issued: 1997 - 94,975,527 shares;
1996 - 94,933,631 shares).................. $ 261,183 $ 261,068
Capital in excess of par value............... 536,643 537,002
Retained earnings............................ 1,550,051 1,424,624
Unearned compensation........................ (12,884) (17,542)
___________ ___________
Total common stockholders' equity......... 2,334,993 2,205,152
Long-term debt................................. 1,422,608 1,426,315
___________ ___________
Total capitalization...................... 3,757,601 3,631,467
___________ ___________
CURRENT LIABILITIES
Current maturities on long-term debt........... 4,000 104,000
Commercial paper............................... 233,000 374,000
Accounts payable............................... 394,438 535,296
Estimated rate contingencies and
refunds (Note 3)............................. 17,865 21,602
Taxes accrued.................................. 152,822 97,336
Deferred income taxes - current (net).......... 38,604 36,096
Temporary replacement reserve - gas
inventory.................................... 53,881 -
Other current liabilities...................... 203,962 196,090
___________ ___________
Total current liabilities................. 1,098,572 1,364,420
___________ ___________
DEFERRED CREDITS
Deferred income taxes.......................... 685,610 681,334
Accumulated deferred investment tax credits.... 27,925 28,838
Deferred credits and other liabilities......... 274,874 294,546
___________ ___________
Total deferred credits.................... 988,409 1,004,718
___________ ___________
COMMITMENTS AND CONTINGENCIES
___________ ___________
Total stockholders' equity and liabilities $ 5,844,582 $ 6,000,605
=========== ===========
_____________________________________________________________________________
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)
_____________________________________________________________________________
Three Months to March 31
________________________
1997 1996
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ 171,491 $ 180,800
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization................ 75,697 70,652
Deferred income taxes-net.................... 4,327 34,723
Changes in current assets and
current liabilities
Accounts receivable-net.................... (22,959) (140,773)
Inventories................................ 148,121 93,914
Unrecovered gas costs...................... 15,491 (67,354)
Accounts payable........................... (133,743) 9,321
Estimated rate contingencies and refunds... (3,737) (18,873)
Amounts payable to customers............... - (35,861)
Taxes accrued.............................. 55,486 31,694
Temporary replacement reserve - gas
inventory................................ 53,881 92,457
Other-net.................................. 38,011 9,404
Changes in other assets and
other liabilities.......................... (9,267) 21,594
Other-net.................................... (1) 35
_________ _________
Net cash provided by operating activities 392,798 281,733
_________ _________
CASH FLOWS USED IN INVESTING ACTIVITIES
Plant construction and other property additions.. (106,143) (81,347)
Proceeds from dispositions of property, plant
and equipment-net.............................. (1,541) 932
Cost of other investments-net.................... (2,316) (14,920)
_________ _________
Net cash used in investing activities.... (110,000) (95,335)
_________ _________
CASH FLOWS PROVIDED BY (OR USED IN) FINANCING ACTIVITIES
Issuance of common stock......................... 3,750 3,880
Repayment of debentures.......................... (100,000) -
Unsecured loan repayment......................... (4,000) (4,000)
Commercial paper repayments-net.................. (140,432) (140,142)
Dividends paid................................... (46,044) (45,588)
Other-net........................................ (108) (1)
_________ _________
Net cash used in financing activities.... (286,834) (185,851)
_________ _________
Net increase (or decrease) in cash
and temporary cash investments......... (4,036) 547
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1. 44,524 36,277
_________ _________
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31.. $ 40,488 $ 36,824
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 13,416 $ 12,839
Income taxes (net of refunds).................. $ (14,019) $ 2,008
Non-cash financing activities
Issuance of common stock under benefit plans... $ (4,081) $ 17,955
Conversion of 7 1/4% Convertible
Subordinated Debentures...................... $ 10 $ -
_____________________________________________________________________________
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, 1996, which is derived from the Consolidated Balance Sheet at that date
which was included in Exhibit 99 to the Annual Report to the Securities and
Exchange Commission (SEC) on Form 10-K for 1996 (1996 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 the Company and other rate-making issues
are subject to final modification in regulatory proceedings. The related
accumulated provisions pertaining to these matters were $6,851,000 and
$9,154,000 at December 31, 1996, and March 31, 1997, respectively, including
interest. These amounts are reported in the Condensed Consolidated Balance
Sheet under "Estimated rate contingencies and refunds" together with
$14,751,000 and $8,711,000, respectively, which are primarily refunds received
from suppliers and refundable to customers under regulatory procedures.
The distribution subsidiaries have incurred or are expected to incur
obligations to upstream pipeline companies for transition costs under Federal
Energy Regulatory Commission (FERC) Order 636. The total estimated liability
for such costs was $27,727,000 and $22,886,000 at December 31, 1996, and March
31, 1997, respectively. Additional amounts are likely to be accrued in the
future once the pipeline companies receive final FERC approval to recover
these costs. Based on management's current estimates, the distribution
subsidiaries' portion of such costs is not expected to be material.
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) In January 1996, unions at two subsidiaries approved the adoption of a
workforce reduction program that consisted of a voluntary early retirement
program and a voluntary separation program. 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 separation
program. Accordingly, the Company recorded charges to earnings in the first
quarter of 1996 amounting to $3,379,000 for retirement incentives and
severance costs, which reduced 1996 first quarter net income by $2,069,000, or
2 cents a share.
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(5) A summary of the changes in common stock, capital in excess of par value,
unearned compensation and treasury stock subsequent to December 31, 1996,
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, 1996............. 94,934 $261,068 $537,002
$(17,542) - $ -
Common stock issued
Stock options.................. 66 183 2,508
- - - -
Dividend Reinvestment Plan..... 21 58 1,100
- - - -
Conversion of debentures....... - - 10
- - - -
Stock awards-net............... (7) (20) (270)
229 - -
Performance shares-net......... (38) (106) (1,588)
1,694 - -
Amortization and adjustment.... - - (2,096)
2,735 - -
Purchase of treasury stock....... - - -
- - (30) (1,595)
Sale of treasury stock and other. - - (23)
- - 30 1,595
______ ________ ________
________ _____ _______
At March 31, 1997................ 94,976 $261,183 $536,643
$(12,884) - $ -
====== ======== ========
======== ===== =======
________________________________________________________________________________
____________________________
</TABLE>
(6) One of the Company's indentures relating to senior debenture issues
contains restrictions on dividend payments by the Company and acquisitions of
its capital stock. Under these provisions, $737,394,000 of consolidated
retained earnings was free from such restrictions at March 31, 1997.
(7) Earnings per share based on average shares outstanding was calculated by
dividing net income, as reported, by the weighted average number of common
shares outstanding for each period presented. Primary earnings per share is
not materially dilutive for either period as compared to earnings per share
based on average shares outstanding.
Fully diluted earnings per share has been determined by adjusting net income
to exclude the after-tax interest cost on the Company's outstanding
convertible subordinated debentures. This pro forma net income has been
divided by the sum of: the weighted average number of common shares
outstanding; the net additional shares which would have been outstanding
assuming the exercise of potentially dilutive stock options; and the
additional shares which would have been outstanding assuming all the
convertible subordinated debentures had been converted to common shares on
January 1 of each year. While the Rights outstanding under the Company's
Shareholder Rights Plan may have a potentially dilutive effect, they were
excluded from the calculation of fully diluted earnings per share in both
years since the conditions necessary for the exercise of such Rights were not
satisfied.
(8) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." SFAS No. 128 establishes new standards for computing and presenting
earnings per share. The Company is required to adopt the provisions of SFAS
No. 128 for its consolidated financial statements beginning with the year
ending December 31, 1997. Upon adoption, the standard also requires the
restatement of all prior period earnings per share information presented.
The adoption of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share computations or disclosures.
5
<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 quarter of the year. As shown in the Condensed
Consolidated Statement of Cash Flows, net cash provided by operating
activities was $392.8 million and $281.7 million for the three months ended
March 31, 1997 and 1996, respectively. The increase in net cash provided by
operating activities in 1997 is due in part to higher gas sales revenues in
1997, including the recovery of previously deferred purchased gas costs by the
distribution subsidiaries, and the payment of customer refunds in 1996 that
did not recur in 1997. In addition to satisfying cash requirements for
operations, capital expenditures, and dividend payments in the current year
quarter, available cash was used to reduce the amount of commercial paper
borrowings outstanding at the end of 1996. The Company also redeemed at
maturity its $100 million 9 3/8% debenture issue during the first quarter of
1997.
Due to the significant amount of revenues generated during the first quarter,
the consolidated balance sheet at the end of March customarily shows an
increase in cash and temporary cash investments and an increase in accounts
receivable over balances at the end of the previous year. However, the
balance of cash and temporary cash investments at March 31, 1997, is less than
the balance at December 31, 1996, due primarily to the repayment of commercial
paper borrowings and redemption of debentures during the first quarter of
1997.
The inventory of stored gas was reduced during the first quarter of the year
due to the increased demand for gas during the winter heating season. Under
the LIFO accounting method, the excess of the estimated current cost of
replacing inventories of gas withdrawn from storage during the early part of
the year over LIFO inventory cost at the time of withdrawal is recorded in the
income statement and as a current liability. This liability is reduced as the
inventory is replenished later in the year, and by year-end the liability is
eliminated.
During the remainder of 1997, 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 are currently scheduled to
expire on June 27, 1997; however, the Company expects that the agreements will
be renewed or replaced by comparable agreements. There were no amounts
outstanding under these credit agreements at March 31, 1997.
In addition to the Company's use of commercial paper and its ability to borrow
under its short-term credit agreements, additional external financing could be
obtained, if necessary, through the issuance of new debt and/or equity
securities during the remainder of 1997. In this regard, the Company has a
currently effective shelf registration with the SEC that would permit the sale
of up to $50 million of debt securities. In addition, the Company has pending
before the SEC a new shelf registration that would permit the sale of up to an
additional $950 million of debt and/or equity securities. This shelf
registration is expected to become effective in the second quarter of 1997.
The amount and timing of any future sale of securities will depend on capital
requirements, including financing necessary to enable the Company to pursue
asset acquisition opportunities, and financial market conditions.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
In connection with this discussion of financial condition, reference is also
made to Notes 3, 5 and 6 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.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
System Results
The Company reported net income for the first three months of 1997 of
$171,491,000, or $1.81 per share, compared with net income of $180,800,000, or
$1.92 per share, in the first three months of 1996. The effects of warmer
weather more than offset the favorable earnings impact of increased gas and
oil production, higher average wellhead prices for oil and cost controls
during the first three months of 1997. Excluding the effect of weather in
both quarters and a special workforce reduction charge in the 1996 first
quarter, the Company's earnings would have been $1.94 per share in the 1997
first quarter and $1.82 per share in 1996.
Weather in the Company's retail service territories in the 1997 first quarter
was 15.3 percent warmer than 1996 and 8.0 percent warmer than normal. The
warmer weather resulted in lower space-heating sales by the Company's
distribution subsidiaries and reduced transportation volumes by the
transmission operations.
Gas production increased 15 percent and oil production was up 24 percent in
the first three months of 1997 compared to 1996. While the Company's average
gas wellhead price of $2.71 a thousand cubic feet (Mcf) was unchanged from
1996, the average oil wellhead price increased $.48 a barrel, to $17.28.
Operating Revenues
Regulated gas sales revenues increased $58.3 million, to $807.6 million, in
the first three months of 1997 compared to the prior year period, with sales
volumes decreasing 20.0 billion cubic feet (Bcf) to 122.0 Bcf. Total
regulated gas sales revenues increased while volumes were down in 1997 for
each of the Company's major customer classes - residential, commercial and
industrial. Higher average sales rates for each category reflect both higher
gas purchase prices in 1997 and the recovery of previously deferred purchased
gas costs. Nonregulated gas sales revenues increased $282.0 million, to
$601.2 million, while sales volumes increased 73.6 Bcf to 183.1 Bcf. The
increases in nonregulated gas sales revenues and volumes were attributable
chiefly to the energy marketing services operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Gas transportation and storage revenues were $138.5 million in the 1997 first
quarter, down $4.1 million from the comparable 1996 period. The decrease
reflects lower gas transportation revenues, which were down $6.0 million
compared to 1996 due largely to reduced transportation volumes at the
transmission operations.
Other operating revenues increased $47.3 million, to $151.3 million, in the
first three months of 1997. Electricity sales by the energy marketing
services component increased $31.5 million compared to the 1996 period due
chiefly to higher volumes. Revenues from oil brokering were up $13.7 million,
while revenues from the sale of oil and condensate production increased $4.9
million, both due to higher volumes and rates. Revenues from the sale of
products extracted from natural gas increased $.8 million in the 1997 first
quarter. Other revenues decreased $3.6 million in the first quarter of 1997
due to declines in miscellaneous revenue categories.
Operating Expenses
Operating expenses, excluding income taxes, increased $405.0 million in the
first three months of 1997 to $1,417.9 million. Total purchased gas expense
increased $354.1 million, to $982.4 million. Increased volume requirements in
connection with nonregulated gas sales, higher average purchase prices and the
recognition of previously deferred purchased gas costs during the 1997 quarter
contributed to the increase. Transport capacity and other purchased products
expense increased $43.2 million, to $115.3 million, due primarily to
electricity purchased for resale by the energy marketing services component
and oil purchased for resale by CNG Producing Company (CNG Producing).
Combined operation and maintenance expense increased $2.1 million in the 1997
first quarter due largely to higher royalties paid and higher production-
related expenses. These higher costs were partially offset by lower employee-
related costs, lower administrative expenses and the absence of workforce
reduction costs in 1997 (see Note 4 to the consolidated financial statements,
page 4). Depreciation and amortization expense increased $5.1 million due
primarily to higher gas and oil production volumes. Taxes, other than income
taxes, were up $.5 million in 1997 due to higher property and production taxes.
Income taxes decreased $12.9 million in the first quarter of 1997 reflecting
pretax income of $256.1 million in that quarter, compared to pretax income of
$278.3 million in the prior year period.
Interest Revenues and Interest Charges
Interest revenues were $.5 million in the 1997 first quarter, down $.6 million
from the prior year due in part to the resolution of certain regulatory
matters. Total interest charges increased $2.4 million in the first three
months of 1997 due primarily to interest expense related to the $300 million
of debentures issued in the fourth quarter of 1996.
In connection with this discussion of results of operations, reference is also
made to Notes 2 and 3 to the consolidated financial statements.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
DATA BY BUSINESS COMPONENTS
The following table sets forth certain data for the components of the
Company's business.
Three Months to
March 31
__________________
1997 1996
_____________________________________________________________________________
OPERATING INCOME BEFORE INCOME TAXES (In Millions)
Distribution................................ $ 172.4 $ 204.5
Transmission................................ 71.7 65.2
Exploration and production.................. 38.3 36.2
Energy marketing services................... (1.6) (1.0)
Other....................................... (1.9) .5
Corporate and eliminations.................. 1.8 (3.2)
________ ________
Total..................................... $ 280.7 $ 302.2
======== ========
OPERATING REVENUES (In Millions)
Distribution................................ $ 858.2 $ 801.6
Transmission................................ 147.4 154.8
Exploration and production.................. 165.3 142.3
Energy marketing services................... 705.4 379.9
Other....................................... 5.2 4.5
Corporate and eliminations.................. (182.9) (168.0)
________ ________
Total..................................... $1,698.6 $1,315.1
======== ========
GAS SALES (In Bcf)
Distribution................................ 122.0 142.0
Exploration and production.................. 39.3 36.9
Energy marketing services................... 192.7 115.6
Eliminations................................ (48.9) (43.0)
________ ________
Total sales............................... 305.1 251.5
======== ========
GAS TRANSPORTATION (In Bcf)
Distribution................................ 55.5 55.7
Transmission................................ 258.4 284.4
Exploration and production.................. .2 .4
Energy marketing services................... 6.0 .9
Eliminations................................ (63.6) (76.3)
________ ________
Total transportation...................... 256.5 265.1
======== ========
_____________________________________________________________________________
9
<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
$172.4 million in the first three months of 1997, down $32.1 million from the
1996 quarter. Distribution throughput in the first quarter of 1997 declined
10 percent to 177.5 Bcf, reflecting weather that was both warmer than normal
and warmer than 1996. The effect of the weather in the 1997 first quarter
more than offset the impact of lower operation and maintenance expenses
compared to the prior year period.
Residential gas sales volumes decreased 12.3 Bcf in the first three months of
1997 to 92.6 Bcf. Sales to commercial customers declined 6.7 Bcf to 27.3 Bcf
while volumes transported to these customers increased 2.1 Bcf to 16.1 Bcf.
Total deliveries to industrial customers decreased 2.1 Bcf, to 39.0 Bcf,
compared with the prior year. Industrial transport volumes were down 1.1 Bcf
to 37.1 Bcf, while sales volumes declined 1.0 Bcf to 1.9 Bcf. Off-system
transport volumes were down 1.2 Bcf in the 1997 quarter.
Transmission
Operating income before income taxes of the gas transmission operations in the
1997 first quarter was $71.7 million, up $6.5 million from $65.2 million in
the 1996 period. The increase in operating results for 1997 reflect lower
costs and the settlement of certain regulatory issues. Also, the 1996 first
quarter included workforce reduction charges totaling $3.4 million that did
not recur in 1997. Gas throughput, consisting entirely of transportation
volumes, was 258.4 Bcf in the first quarter of 1997, down from 284.4 Bcf in
1996.
Exploration and Production
The exploration and production operations reported operating income before
income taxes of $38.3 million in the first three months of 1997, compared to
$36.2 million in the first quarter of 1996. The 1997 first quarter results
reflect increased gas and oil production and higher oil wellhead prices
compared to 1996. These factors were somewhat offset by the increased costs
related to bringing certain new production projects on line in the first
quarter, and increased workover activity.
The Company's average gas wellhead price was $2.71 per Mcf in the 1997 first
quarter, unchanged from 1996. Gas production in the first three months of
1997 was 36.3 Bcf, up 15 percent from 31.7 Bcf in 1996 due largely to
production from several new fields in the Gulf of Mexico. The Company's
average oil wellhead price increased to $17.28 a barrel in the 1997 quarter
from $16.80 in the prior year. Oil production in the first quarter of 1997
was 1,239,500 barrels, up 24 percent from 1,002,700 barrels in 1996. The
increase in oil production is due partially to the impact of Neptune, a
deep-water project in the Gulf of Mexico which began production in March 1997,
and increased drilling activity in Canada.
Energy Marketing Services
Energy marketing services reported an operating loss before income taxes of
$1.6 million in the first three months of 1997, compared to an operating loss
before income taxes of $1.0 million in 1996. The loss in the 1997 period
reflects higher overhead costs incurred related to growing the power marketing
business. Total throughput for this component was 198.7 Bcf in the first
quarter of 1997, an increase from 116.5 Bcf in 1996. Power marketing, or
electricity sold, increased in the first quarter of 1997 to 2,599,000
megawatt-hours compared with 792,000 megawatt-hours in 1996.
This component reported equity income of $1.7 million in the first quarter
of 1997, compared to $.6 million in 1996, in connection with its ownership
interests in seven independent power plants and several joint ventures.
These amounts are not included in operating income before income taxes.
10
<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 March 31, 1997 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $4,177,824
Operating expenses..................................... 3,651,338
Operating income before income taxes............... 526,486
Income taxes........................................... 142,918
Other income........................................... 10,903
Interest charges....................................... 105,507
Net income......................................... $ 288,964*
Earnings per share of common stock................. $3.05*
Average common shares outstanding (thousands)...... 94,662
Times fixed charges earned............................. 4.49
______________________________________________________________________________
*Includes charges related to workforce reductions totaling $7,786,000 after
taxes, or 8 cents a share.
OTHER INFORMATION
Exploration and Production
CNG Producing, acting alone or with partners, was the high bidder on six
tracts offered at the federal government's March 5, 1997 Gulf of Mexico lease
sale. The Company's bids totaled $11.7 million for 100 percent working
interests in five tracts and a 50 percent working interest in the remaining
property. The bids must still be accepted by the government.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this Form 10-Q, including Management's Discussion
and Analysis of Financial Condition and Results of Operations, are "forward-
looking statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements
that describe the Company's future plans, objectives or goals are also
forward-looking statements. Such statements may address future events and
conditions concerning capital expenditures, earnings, litigation, rate and
other regulatory matters, liquidity and capital resources, and financial
accounting matters. Actual results in each instance could differ materially
from those currently anticipated in such statements, due to factors such as:
natural gas and electric industry restructuring, including ongoing state and
federal activities; the weather; demographics; general economic conditions and
specific economic conditions in the Company's distribution service areas;
developments in the legislative, regulatory and competitive markets in which
the Company operates; and other circumstances affecting anticipated revenues
and costs.
**********
In connection with the financial information included in PART I of this
report, reference is made to the Company's 1996 Form 10-K and Exhibit 99
thereto.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the first
quarter of 1997, and there have been no material developments during the
quarter in the legal proceedings disclosed in the Company's 1996 Form 10-K 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 6 to the consolidated financial statements, page 5, and reference is made
thereto.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None, other than as described elsewhere in this report.
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K - None
EXHIBITS
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings
Per Share, and Fully Diluted Earnings Per Share of Consolidated
Natural Gas Company and Subsidiaries for the three months ended March
31, 1997 and 1996
(12) Statement re Computation of Ratios:
Ratio of Earnings to Fixed Charges of Consolidated Natural Gas Company
and Subsidiaries for the twelve months ended March 31, 1997
(27) Financial Data Schedule has been filed electronically
______________________________________________________________________________
12
<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
May 12, 1997
13
<PAGE>
EXHIBIT INDEX
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings
Per Share, and Fully Diluted Earnings Per Share of Consolidated
Natural Gas Company and Subsidiaries for the three months ended March
31, 1997 and 1996 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 March 31, 1997 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)
____________________________________________________________________________
Three Months to March 31
________________________
1997 1996
____________________________________________________________________________
EARNINGS PER SHARE OF COMMON STOCK,
as Shown on the Consolidated Statement of Income
Net income...................................... $171,491 $180,800
________ ________
Average common shares outstanding............... 94,947 94,028
________ ________
Earnings per share of common stock............ $ 1.81 $ 1.92
======== ========
PRIMARY EARNINGS PER SHARE (Note)
Net income...................................... $171,491 $180,800
________ ________
Average common shares outstanding............... 94,947 94,028
Incremental shares resulting from
assumed exercise of stock options............. 1,004 241
________ ________
Average common shares, as adjusted.............. 95,951 94,269
________ ________
Primary earnings per share.................... $ 1.79 $ 1.92
======== ========
FULLY DILUTED EARNINGS PER SHARE
Net income...................................... $171,491 $180,800
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect................. 3,014 2,924
________ ________
Net income, as adjusted......................... 174,505 183,724
________ ________
Average common shares outstanding............... 94,947 94,028
Incremental shares resulting from
assumed exercise of stock options............. 1,004 241
Shares issuable from assumed conversion of
7 1/4% Convertible Subordinated Debentures.... 4,559 4,559
________ ________
Average common shares, as adjusted.............. 100,510 98,828
________ ________
Fully diluted earnings per share.............. $ 1.74 $ 1.86
======== ========
____________________________________________________________________________
Note: This calculation is submitted in accordance with Regulation S-K
Item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
EXHIBIT 12
CONSOLIDATED NATURAL GAS COMPANY AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands of Dollars)
_____________________________________________________________________________
Twelve Months to March 31 1997
_____________________________________________________________________________
Earnings:
Net income................................................ $288,964
Add income taxes.......................................... 142,918
________
Income before income taxes.............................. 431,882
Distributed income from unconsolidated investee,
less equity in earnings thereof......................... (113)
________
Subtotal................................................ 431,769
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 103,729
Other interest expense.................................. 7,668
Portion of rentals deemed to be representative
of the interest factor................................ 10,097
Fixed charges associated with 50% projects with debt.... 2,090
________
TOTAL FIXED CHARGES......................................... 123,584
________
TOTAL EARNINGS.............................................. $555,353
========
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4.49
========
_____________________________________________________________________________
<TABLE> <S> <C>
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<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 MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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