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, 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
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes___X___ No_______
Number of shares of Common Stock, $2.75 Par Value, outstanding at July 31,
1997: 95,359,569
<PAGE>
CONSOLIDATED NATURAL GAS COMPANY
FORM 10-Q QUARTERLY REPORT
For the Quarter Ended June 30, 1997
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, 1997 and 1996.... 1
CONDENSED CONSOLIDATED BALANCE SHEET
at June 30, 1997 (Unaudited), and December 31, 1996.......... 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
for the Six Months Ended June 30, 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...................................... 14
ITEM 2. CHANGES IN SECURITIES.................................. 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 14
ITEM 5. OTHER INFORMATION...................................... 15
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K...................... 15
SIGNATURES....................................................... 16
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Natural Gas Company and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (Thousands of Dollars)
<TABLE>
<CAPTION>
________________________________________________________________________________
____________________________
Six Months to
Three Months to
June 30
June 30
________________________ ____________________
1997
1996 1997 1996
_____________________________________________________________________________________
_______________________
<S> <C> <C>
<C> <C>
OPERATING REVENUES
Regulated gas sales . . . . . . . . . . . . . . . . $1,139,485
$1,014,406 $ 331,889 $265,096
Nonregulated gas sales . . . . . . . . . . . . . . . 1,005,089
522,090 403,906 202,858
__________
__________ __________ ________
Total gas sales . . . . . . . . . . . . . . . . 2,144,574
1,536,496 735,795 467,954
Gas transportation and storage . . . . . . . . . . . 242,913
241,921 104,410 99,309
Other . . . . . . . . . . . . . . . . . . . . . . . 341,966
191,617 190,649 87,687
__________
__________ __________ ________
Total operating revenues (Note 3). . . . . . . . 2,729,453
1,970,034 1,030,854 654,950
__________
__________ __________ ________
OPERATING EXPENSES
Purchased gas. . . . . . . . . . . . . . . . . . . . 1,468,982
859,628 486,592 231,363
Transport capacity and other purchased products . . 259,936
126,758 144,653 54,659
Operation expense (Note 4) . . . . . . . . . . . . . 335,846
323,642 166,973 154,825
Maintenance. . . . . . . . . . . . . . . . . . . . . 43,157
38,916 23,244 21,003
Depreciation and amortization. . . . . . . . . . . . 159,893
146,561 84,196 75,909
Taxes, other than income taxes . . . . . . . . . . . 103,961
100,404 48,206 45,242
__________
__________ __________ ________
Subtotal . . . . . . . . . . . . . . . . . . . . 2,371,775
1,595,909 953,864 583,001
__________
__________ __________ ________
Operating income before income taxes . . . . . . 357,678
374,125 76,990 71,949
Income taxes . . . . . . . . . . . . . . . . . . . . 102,465
113,464 17,870 15,957
__________
__________ __________ ________
Operating income . . . . . . . . . . . . . . . . 255,213
260,661 59,120 55,992
__________
__________ __________ ________
OTHER INCOME
Interest revenues. . . . . . . . . . . . . . . . . . 951
1,584 505 504
Other-net . . . . . . . . . . . . . . . . . . . . . 9,338
4,587 5,032 2,514
__________
__________ __________ ________
Total other income . . . . . . . . . 10,289
6,171 5,537 3,018
__________
__________ __________ ________
Income before interest charges . . . . . . . . . 265,502
266,832 64,657 59,010
__________
__________ __________ ________
INTEREST CHARGES
Interest on long-term debt . . . . . . . . . . . . . 52,429
49,387 25,820 24,693
Other interest expense . . . . . . . . . . . . . . . 5,347
4,593 1,342 1,032
Allowance for funds used during construction . . . . (2,750)
(2,565) (1,490) (1,332)
__________
__________ __________ ________
Total interest charges . . . . . . . . . . . . . 55,026
51,415 25,672 24,393
__________
__________ __________ ________
NET INCOME . . . . . . . . . . . . . . . . . . . . . $ 210,476 $
215,417 $ 38,985 $ 34,617
==========
========== ========== ========
Earnings per share of common stock,
based on average shares outstanding . . . . . . $2.22
$2.29 $ .41 $.37
Average common shares outstanding
(thousands). . . . . . . . . . . . . . . . . . . 94,996
94,105 95,045 94,183
Dividends declared per common share. . . . . . . . $ .97 $
.97 $.485 $.485
_____________________________________________________________________________________
_______________________
</TABLE>
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 June
30, 1997 At December
(Unaudited) 31, 1996
_____________________________________________________________________________
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant.................... $ 4,917,107 $ 4,848,392
Accumulated depreciation and amortization...... (1,905,350) (1,840,129)
___________ ___________
Net gas utility and other plant........... 3,011,757 3,008,263
___________ ___________
Exploration and production properties.......... 3,575,920 3,455,813
Accumulated depreciation and amortization...... (2,469,896) (2,386,776)
___________ ___________
Net exploration and production properties. 1,106,024 1,069,037
___________ ___________
Net property, plant and equipment......... 4,117,781 4,077,300
___________ ___________
CURRENT ASSETS
Cash and temporary cash investments............ 35,166 44,524
Accounts receivable, less allowance for
doubtful accounts............................ 597,761 793,565
Gas stored - current portion................... 51,902 170,513
Materials and supplies (average cost method)... 34,056 33,070
Unrecovered gas costs.......................... 58,794 108,016
Prepayments and other current assets........... 228,254 243,333
___________ ___________
Total current assets...................... 1,005,933 1,393,021
___________ ___________
REGULATORY AND OTHER ASSETS
Unamortized abandoned facilities............... 9,085 15,791
Other investments.............................. 151,125 149,858
Deferred charges and other assets (Note 3)..... 386,559 364,635
___________ ___________
Total regulatory and other assets......... 546,769 530,284
___________ ___________
Total assets.............................. $ 5,670,483 $ 6,000,605
=========== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholders' equity (Notes 5 and 6)
Common stock, par $2.75
(Issued: 1997 - 95,141,822 shares;
1996 - 94,933,631 shares).................. $ 261,640 $ 261,068
Capital in excess of par value............... 545,028 537,002
Retained earnings............................ 1,542,884 1,424,624
Treasury stock, at cost (1997 - 72 shares)... (4) -
Unearned compensation........................ (14,364) (17,542)
___________ ___________
Total common stockholders' equity......... 2,335,184 2,205,152
Long-term debt................................. 1,422,906 1,426,315
___________ ___________
Total capitalization...................... 3,758,090 3,631,467
___________ ___________
CURRENT LIABILITIES
Current maturities on long-term debt........... 4,000 104,000
Commercial paper............................... 108,900 374,000
Accounts payable............................... 394,507 535,296
Estimated rate contingencies and
refunds (Note 3)............................. 28,681 21,602
Amounts payable to customers................... 2,485 -
Taxes accrued.................................. 136,657 97,336
Deferred income taxes - current (net).......... 23,786 36,096
Temporary replacement reserve - gas
inventory.................................... 26,544 -
Other current liabilities...................... 182,217 196,090
___________ ___________
Total current liabilities................. 907,777 1,364,420
___________ ___________
DEFERRED CREDITS
Deferred income taxes.......................... 699,132 681,334
Accumulated deferred investment tax credits.... 27,737 28,838
Deferred credits and other liabilities......... 277,747 294,546
___________ ___________
Total deferred credits.................... 1,004,616 1,004,718
___________ ___________
COMMITMENTS AND CONTINGENCIES
___________ ___________
Total stockholders' equity and liabilities $ 5,670,483 $ 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)
_____________________________________________________________________________
Six Months to June 30
_____________________
1997 1996
_____________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ 210,476 $ 215,417
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization................ 159,893 146,561
Deferred income taxes-net.................... (364) 68,166
Changes in current assets and
current liabilities
Accounts receivable-net.................... 195,308 213,227
Inventories................................ 117,625 48,123
Unrecovered gas costs...................... 49,222 (85,201)
Accounts payable........................... (135,040) (125,909)
Estimated rate contingencies and refunds... 7,079 (27,686)
Amounts payable to customers............... 2,485 (40,315)
Taxes accrued.............................. 39,321 (45,042)
Temporary replacement reserve - gas
inventory................................ 26,544 4,431
Other-net.................................. 337 22,429
Changes in other assets and
other liabilities.......................... (16,216) 15,995
Other........................................ 60 234
_________ _________
Net cash provided by operating activities 656,730 410,430
_________ _________
CASH FLOWS USED IN INVESTING ACTIVITIES
Plant construction and other property additions.. (210,845) (165,404)
Proceeds from dispositions of property, plant
and equipment-net.............................. (3,519) 9,592
Cost of other investments-net.................... (17) (26,753)
_________ _________
Net cash used in investing activities.... (214,381) (182,565)
_________ _________
CASH FLOWS PROVIDED BY (OR USED IN) FINANCING ACTIVITIES
Issuance of common stock......................... 8,344 12,613
Repayment of debentures.......................... (100,000) -
Unsecured loan repayment......................... (4,000) (4,000)
Commercial paper repayments-net.................. (264,001) (146,460)
Dividends paid................................... (92,115) (91,225)
Other-net........................................ 65 1
_________ _________
Net cash used in financing activities.... (451,707) (229,071)
_________ _________
Net decrease in cash and
temporary cash investments......... (9,358) (1,206)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1. 44,524 36,277
_________ _________
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30... $ 35,166 $ 35,071
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 60,005 $ 53,185
Income taxes (net of refunds).................. $ 49,709 $ 41,640
Non-cash financing activities
Issuance of common stock under benefit plans... $ 34 $ 21,682
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
$11,101,000 at December 31, 1996, and June 30, 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 $17,580,000, 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 $19,539,000 at December 31, 1996, and June
30, 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 (Concluded)
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.................. 154 425 5,699
- - - -
Dividend Reinvestment Plan..... 43 118 2,157
- - - -
Conversion of debentures....... - - 10
- - - -
Stock awards-net............... 23 63 1,177
(1,259) - -
Performance shares-net......... (12) (34) (269)
303 - -
Amortization and adjustment.... - - (902)
4,134 - -
Purchase of treasury stock....... - - -
- - (71) (3,790)
Sale of treasury stock and other. - - 154
- - 71 3,786
______ ________ ________
________ _____ _______
At June 30, 1997................ 95,142 $261,640 $545,028
$(14,364) - $ (4)
====== ======== ========
======== ===== =======
________________________________________________________________________________
____________________________
</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, $728,032,000 of consolidated
retained earnings was free from such restrictions at June 30, 1997.
(7) In February 1997, the Financial Accounting Standards Board
(FASB) 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. The
Company is required to adopt the provisions of SFAS No. 130 beginning
with its consolidated financial statements for the three months ending
March 31, 1998. SFAS No. 131 requires certain disclosures about segment
information in interim and annual financial statements and related
information about products and services, geographic areas and major
customers. The Company must adopt the provisions of SFAS No. 131 for
its consolidated financial statements for the year ending December 31,
1998.
The adoptions of SFAS No. 128, SFAS No. 130 and SFAS No. 131 are not
expected to have a material effect on the Company's financial position,
results of operations or cash flows.
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 six months of the year. As shown in the Condensed
Consolidated Statement of Cash Flows, net cash provided by operating
activities was $656.7 million and $410.4 million for the six months ended
June 30, 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
six-month period, 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 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, 1997, is less than the balance at December 31, 1996,
due primarily to the repayment of commercial paper borrowings during the
first half of 1997 and redemption of debentures during the first quarter of
1997.
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 1997 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. The amount charged to expense in the first six months of
1997 was $53.9 million compared to $92.5 million in 1996. As the volume of
gas withdrawn from storage is replaced either partially or in its entirety
later in the year, the liability is eliminated. In the event the inventory
is not entirely replaced, any remaining liability is eliminated by an
adjustment to purchased gas expense.
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 short-term credit agreement totaling $775 million is
available to support commercial paper borrowings. In addition, borrowings
under the short-term credit agreement may be used to temporarily finance
capital expenditures. This credit agreement is scheduled to expire on
June 26, 1998 and replaces two similar credit agreements that expired
in June 1997. There were no amounts outstanding under this credit agreement
at June 30, 1997.
In addition to the Company's use of commercial paper and its ability to
borrow under its short-term credit agreement, 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 shelf registration with the SEC that permits the sale of up to $1 billion
of debt securities or up to $950 million of equity securities. This shelf
registration became effective in July 1997 and replaced the Company's former
shelf registration. The amount and timing of any future sale of these
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 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
System Results
The Company reported net income for the first six months of 1997 of
$210,476,000, or $2.22 per share, compared with net income of $215,417,000,
or $2.29 per share, in the first six months of 1996. For the second
quarter of 1997, the Company reported net income of $38,985,000, or 41 cents
a share, compared with net income of $34,617,000, or 37 cents a share, in the
prior year period.
The effects of warmer weather in the first part of the year and lower average
wellhead prices for gas and oil more than offset the favorable earnings impact
of increased gas and oil production and cost containment efforts for the
first six months of 1997. However, for the second quarter of 1997 the
benefits of colder than normal weather, increased gas and oil production and
continued cost control outweighed the impact of lower average wellhead prices
for gas and oil compared to 1996.
Weather in the Company's retail service territories in the first half of 1997
was 8.5 percent warmer than 1996 and .6 percent warmer than normal. In the
second quarter of 1997, weather was 19.6 percent colder than last year and
30.4 percent colder than normal.
Operating Revenues
Regulated gas sales revenues increased $125.1 million, to $1,139.5 million,
in the first six months of 1997 with sales volumes decreasing 17.0 billion
cubic feet (Bcf) to 168.5 Bcf. Total regulated gas sales revenues increased
while volumes were down in the first half of 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. In the
1997 second quarter, regulated gas sales revenues increased $66.8 million,
to $331.9 million, due to higher gas sales rates and increased sales volumes
resulting from the colder weather in the period.
In the first six months of 1997, nonregulated gas sales revenues increased
$483.0 million, to $1,005.1 million with sales volumes increasing 168.0 Bcf
to 357.5 Bcf. Second quarter 1997 nonregulated gas sales revenues increased
$201.0 million, to $403.9 million, as sales volumes increased 94.4 Bcf to
174.4 Bcf. The increases in nonregulated gas sales revenues and volumes in
both 1997 periods were attributable chiefly to the energy marketing services
operations. The volume increases also reflect the increased gas production
at CNG Producing Company (CNG Producing).
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Gas transportation and storage revenues were $242.9 million in the 1997 first
half, up $1.0 million from the comparable 1996 period. Higher storage
service revenues in the period were partially offset by lower gas
transportation revenues. Gas transportation and storage revenues increased
$5.1 million in the second quarter of 1997 compared with the prior year
period due to higher gas transportation revenues at the distribution
subsidiaries.
Other operating revenues increased $150.4 million, to $342.0 million, in the
first six months of 1997. Electricity sales by the energy marketing services
component increased $108.9 million compared to the first half of 1996 due to
higher volumes. Revenues from oil brokering were up $21.2 million, while
revenues from the sale of oil and condensate production increased $14.4
million, both due to higher volumes. Revenues from the sale of products
extracted from natural gas increased $4.6 million in the first six months of
1997. Other revenues increased $1.3 million in the first six months of 1997.
In the second quarter of 1997, total other operating revenues increased
$103.1 million compared to 1996 due largely to increased revenues from
electricity sales and oil brokering.
Operating Expenses
Operating expenses, excluding income taxes, increased $775.9 million in the
first half of 1997 and $370.9 million in the second quarter. Total purchased
gas expense increased $609.4 million in the first half and $255.3 million in
the second quarter of 1997 compared to the prior year periods. Increased
volume requirements in connection with nonregulated gas sales and the
recognition of previously deferred purchased gas costs during both 1997
periods contributed to the increases. Average purchase prices were also up
slightly for the first six months of 1997. Transport capacity and other
purchased products expense was higher in both 1997 periods, increasing
$133.1 million in the first half and $89.9 million in the second quarter due
primarily to electricity purchased for resale by the energy marketing
services component and oil purchased for resale by CNG Producing. Combined
operation and maintenance expense increased $16.5 million in the first six
months and $14.4 million in the second quarter due largely to adjustments of
reserves for pipeline settlements and receivables recorded in the 1997 second
quarter by the energy marketing services component. Higher royalty expense
and production-related costs also contributed to the increase in operating
expense. The higher costs were partially offset by lower employee-related
costs and, for the first half of 1997, the absence of workforce reduction
costs (see Note 4 to the consolidated financial statements, page 4).
Depreciation and amortization expense increased $13.3 million in the first
half of 1997 and $8.2 million in the second quarter due primarily to higher
gas and oil production volumes in both periods. Taxes, other than income
taxes, were up $3.6 million and $3.1 million in the first six months and
second quarter of 1997, respectively, due in part to higher property taxes
in both periods.
Income taxes decreased $11.0 million in the first half of 1997 reflecting
pretax income of $313.0 million in the period, compared to pretax income of
$328.9 million in 1996. In the second quarter of 1997, income taxes
increased $1.9 million compared to 1996 as pretax income was $6.3 million
higher than the year-ago period.
Interest Revenues and Interest Charges
Interest revenues were $1.0 million in the first six months of 1997, down
$.6 million from the prior year due in part to the resolution of certain
regulatory matters in the first quarter of 1997. Second quarter 1997
interest revenues were unchanged compared to the prior year. Total interest
charges increased $3.6 million and $1.2 million in the first six months and
second quarter of 1997, respectively, due primarily to interest expense related
to the $300 million of debentures issued in the fourth quarter of 1996.
8
<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
__________________ ________________
1997 1996 1997 1996
____________________________________________________________________________
OPERATING INCOME BEFORE INCOME TAXES (In Millions)
Distribution . . . . . . . . . . . . . $ 199.7 $ 213.3 $ 27.3 $ 8.8
Transmission . . . . . . . . . . . . . 106.6 98.6 34.9 33.4
Exploration and production . . . . . . 73.4 63.7 35.1 27.5
Energy marketing services. . . . . . . (13.8) 2.2 (12.2) 3.2
Other. . . . . . . . . . . . . . . . . (2.6) .6 (.7) .1
Corporate and eliminations . . . . . . (5.6) (4.3) (7.4) (1.1)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $ 357.7 $ 374.1 $ 77.0 $ 71.9
======== ======== ======= =======
OPERATING REVENUES (In Millions)
Distribution . . . . . . . . . . . . . $1,224.8 $1,097.6 $ 366.6 $ 296.0
Transmission . . . . . . . . . . . . . 251.2 258.5 103.8 103.7
Exploration and production . . . . . . 331.0 291.5 165.7 149.2
Energy marketing services. . . . . . . 1,231.4 621.4 526.0 241.5
Other. . . . . . . . . . . . . . . . . 18.2 9.0 13.0 4.5
Corporate and eliminations . . . . . . (327.1) (308.0) (144.2) (140.0)
________ ________ _______ _______
Total. . . . . . . . . . . . . . . . $2,729.5 $1,970.0 $1,030.9 $ 654.9
======== ======== ======= =======
GAS SALES (In Bcf)
Distribution . . . . . . . . . . . . . 168.5 185.7 46.5 43.7
Exploration and production . . . . . . 81.0 77.8 41.7 40.9
Energy marketing services. . . . . . . 374.0 201.9 181.3 86.3
Eliminations . . . . . . . . . . . . . (97.5) (90.4) (48.6) (47.4)
________ ________ _______ _______
Total sales. . . . . . . . . . . . . 526.0 375.0 220.9 123.5
======== ======== ======= =======
GAS TRANSPORTATION (In Bcf)
Distribution . . . . . . . . . . . . . 98.6 93.6 43.1 37.9
Transmission . . . . . . . . . . . . . 410.4 431.3 152.0 146.9
Exploration and production . . . . . . .5 .9 .3 .5
Energy marketing services. . . . . . . 14.3 1.6 8.3 .7
Eliminations . . . . . . . . . . . . . (105.3) (112.8) (41.7) (36.5)
________ ________ _______ _______
Total transportation . . . . . . . . 418.5 414.6 162.0 149.5
======== ======== ======= =======
_____________________________________________________________________________
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
$199.7 million in the first six months of 1997, compared to $213.3 million in
the first half of 1996. Distribution throughput in the first half of 1997
declined 4 percent to 267.1 Bcf, reflecting weather that was both warmer than
normal and warmer than 1996. The effect of the weather in the first half
of 1997 more than offset the impact of lower operation and maintenance
expenses compared to the prior year period.
Residential gas sales volumes decreased 8.7 Bcf in the first six months of
1997 to 128.4 Bcf. Sales to commercial customers declined 5.7 Bcf to
37.3 Bcf while volumes transported to these customers increased 3.8 Bcf to
25.4 Bcf. Total deliveries to industrial customers decreased 1.0 Bcf, to
71.1 Bcf, compared with the prior year. Industrial transport volumes were
up .4 Bcf to 68.5 Bcf, while sales volumes declined 1.4 Bcf to 2.6 Bcf.
Off-system transport volumes were up .8 Bcf in the first half of 1997.
In the second quarter of 1997, the distribution operations reported operating
income before income taxes of $27.3 million, compared to $8.8 million in the
1996 second quarter. Results for the 1997 quarter reflect weather that was
30.4 percent colder than normal and 19.6 percent colder than the prior year
quarter, higher gas transportation revenues, and lower operating costs.
Residential gas sales volumes of 35.8 Bcf were up 3.6 Bcf compared to the
1996 quarter. Commercial sales volumes were up 1.0 Bcf, to 10.0 Bcf, while
gas transported to these customers was 9.3 Bcf, up 1.7 Bcf. Deliveries to
industrial customers increased 1.1 Bcf reflecting an increase in transport
volumes of 1.5 Bcf partially offset by a decline in sales volumes of .4 Bcf.
Transmission
Operating income before income taxes of the gas transmission operations in
the first six months of 1997 was $106.6 million, up $8.0 million from $98.6
million in the 1996 period. In the second quarter of 1997, operating income
before income taxes was $34.9 million, an increase of $1.5 million from $33.4
million in 1996. The improved operating results for the 1997 first half
reflect lower costs, the settlement of certain regulatory issues, and
workforce reduction charges totaling $3.4 million in the 1996 first quarter
that did not recur in 1997. Lower operating costs contributed to the improved
results for the second quarter of 1997.
Gas throughput, consisting entirely of transportation volumes, was 410.4 Bcf
in the first six months of 1997, down from 431.3 Bcf in 1996. Gas throughput
was 152.0 Bcf in the second quarter of 1997, up 5.1 Bcf from 1996.
Exploration and Production
The exploration and production operations reported operating income before
income taxes of $73.4 million in the first six months of 1997, compared to
$63.7 million in the first half of 1996. In the second quarter, operating
income before income taxes was $35.1 million, compared to $27.5 million in
1996. The 1997 results for both periods reflect increased gas and oil
production that more than offset the impact of lower gas and oil wellhead
prices and increased operating costs related to bringing certain new
production on line and increased workover activity.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company's average gas wellhead price in the first six months of 1997 was
$2.46 a thousand cubic feet (Mcf), down slightly from $2.48 in 1996. In the
second quarter, the average gas price was $2.22 per Mcf, down from $2.29 in
the second quarter of 1996. Gas production in the first half of 1997 was
75.5 Bcf, up 12 percent from 67.5 Bcf in 1996. Second quarter gas production
was 39.2 Bcf, up 9 percent from 35.8 Bcf in the 1996 quarter. Production from
several new fields in the Gulf of Mexico contributed to the increase in gas
production in both 1997 periods. The Company's oil wellhead prices averaged
$16.36 a barrel in the first six months of 1997 compared to $16.93 a barrel in
the first half of 1996, while prices for the second quarter averaged $15.74 a
barrel in 1997 compared to $17.05 in 1996. The decline in oil prices for both
1997 periods is consistent with the worldwide trend in prices during the year.
Oil production was 3.1 million barrels in the first half of 1997, up 45 percent
from 2.1 million barrels in 1996. Second quarter 1997 oil production was 1.8
million barrels, up 63 percent from 1.1 million barrels in 1996. The increase
in oil production for both 1997 periods is due largely to the impact of
Neptune, one of the Company's deep-water projects 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
$13.8 million in the first six months of 1997, compared to operating income
before income taxes of $2.2 million in 1996. For the second quarter, energy
marketing services reported an operating loss before income taxes of $12.2
million, compared to operating income before income taxes of $3.2 million in
1996. The declines in both 1997 periods are due chiefly to charges recorded
in the second quarter of 1997 in connection with reserves for pipeline
settlements and receivables. Reduced gross margins and higher overhead costs
associated with the sale of electricity also contributed to the operating
losses in both the first six months and second quarter of 1997. Total
throughput for this component was 388.3 Bcf in the first six months of 1997,
an increase from 203.5 Bcf in 1996. For the second quarter of 1997, total
throughput was 189.6 Bcf, compared to 87.0 Bcf in the prior year period. This
component reduced transaction volumes in both 1996 periods due to market
conditions and low gas margins. Power marketing, or electricity sold, increased
in the first half of 1997 to 7,126,000 megawatt-hours compared with 1,297,000
megawatt-hours in 1996. Electricity marketed in the 1997 second quarter was
4,527,000 megawatt-hours compared to 505,000 megawatt-hours in 1996.
This component reported equity income of $3.2 million in the first six months
of 1997, compared to $2.5 million in 1996, in connection with its ownership
interests in seven independent power plants and several joint ventures.
Second quarter equity income was $1.5 million in 1997, compared to $1.9
million in 1996. These amounts are not included in operating income before
income taxes.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
SELECTED TWELVE-MONTH DATA
The following selected financial data (unaudited) relates to the twelve months
ended June 30, 1997 (in thousands of dollars):
______________________________________________________________________________
Operating revenues..................................... $4,553,728
Operating expenses..................................... 4,022,201
Operating income before income taxes............... 531,527
Income taxes........................................... 144,831
Other income........................................... 13,422
Interest charges....................................... 106,786
Net income......................................... $ 293,332*
Earnings per share of common stock................. $3.09*
Average common shares outstanding (thousands)...... 94,877
Times fixed charges earned............................. 4.53
______________________________________________________________________________
*Includes charges related to workforce reductions totaling $7,786,000 after
taxes, or 8 cents a share.
OTHER INFORMATION
Federal and State Regulatory Matters
On July 1, 1997, CNG Transmission Corporation (CNG Transmission) filed a
general rate filing with the FERC requesting an annual revenue increase of
$71 million, related surcharges of approximately $12 million, and permission
to establish market-based pricing for some of its transportation and storage
services. The filing seeks to accelerate recovery of part of the Company's
investment in gathering facilities which will enable CNG Transmission to
fully unbundle its gathering facilities by January 1, 2001 in accordance
with prior rate case settlements. The filing reflects a proposed rate of
return on equity of 14.5 percent. On July 31, 1997 the FERC accepted in
part, and rejected in part, the filing. The FERC's actions included
rejection of the proposal to establish market based rates, permission to
place increased rates into effect January 1, 1998, subject to refund, and
establishment of hearing procedures.
On July 2, 1997, the Public Utilities Commission of Ohio (PUCO) approved The
East Ohio Gas Company's (East Ohio) "Energy Choice" program which will allow
approximately 15 percent of East Ohio's residential and small business
customers the opportunity to purchase their natural gas from competing
suppliers, if they so choose. East Ohio will continue to be responsible for
transporting the gas to its customers. Competing suppliers will be permitted
to market and deliver gas to East Ohio's customers beginning in the fourth
quarter of 1997. After 18 months, the PUCO will determine if the Energy
Choice program should be expanded to include additional East Ohio customers.
Year 2000 Technology Issue
Similar to all business entities, the Company will be impacted by the
inability of computer application software programs to distinguish between
the year 1900 and 2000 due to a commonly-used programming convention. Unless
such programs are modified or replaced prior to 2000, calculations and
interpretations based on date-based arithmetic or logical operations performed
by such programs may be incorrect.
Management is in the process of performing an assessment of the pervasiveness
of this issue and developing an action plan to mitigate the possibility of
business interruptions and related risks. In addition, the Company is in the
process of replacing many of its financial application and other operating
programs within the normal course of business, which should mitigate some of
these risks. At present, the amount of additional expenditures to be
incurred to address Year 2000 technology issues cannot be determined.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
Possible Sale of Cogeneration Investments
In connection with a reevaluation of the strategic focus of the energy
marketing services operations, management is considering the sale,
individually and/or in the aggregate, of the Company's ownership interests in
several independent power plants. The effect of such transactions on the
Company's financial position, results of operations or cash flows cannot
be determined.
Exploration and Production
As previously reported, 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 government has accepted all six of the bids.
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, including Exhibit
99 thereto, and its quarterly report to the SEC on Form 10-Q for the quarter
ended March 31, 1997.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material new legal proceedings instituted in the second
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 or
in any earlier Form 10-Q for 1997 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
The Company's Annual Meeting of Shareholders was held on May 20, 1997. Common
shareholders voted on six items. The voting results on these matters were as
follows:
1. Election of three Directors.
Votes Votes Broker
Nominees For Withheld Non-Votes
________ __________ __________ _________
William S. Barrack, Jr. 77,138,353 1,746,170 0
Ray J. Groves 77,166,670 1,717,853 0
Steven A. Minter 77,128,265 1,756,258 0
Directors whose term of office continued after the meeting:
Term expiring May 1998: J. W. Connolly, George A. Davidson, Jr.
and Richard P. Simmons
Term expiring May 1999: Paul E. Lego and Margaret A. McKenna
2. Ratification of the appointment of Price Waterhouse LLP as independent
accountants.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
77,627,151 715,884 541,488 0
3. A proposal to approve adoption of the 1997 Stock Incentive Plan.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
60,915,343 16,646,677 1,322,051 452
4. Action on a stockholder-proposed resolution regarding options.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
5,862,250 63,705,160 1,894,960 7,422,153
5. Action on a stockholder-proposed resolution regarding bonuses.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
6,590,778 63,043,322 1,828,269 7,422,154
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Concluded)
6. Action on a stockholder-proposed resolution regarding the
shareholder rights plan.
Votes Votes Broker
For Against Abstentions Non-Votes
__________ ___________ ___________ _________
38,665,075 30,833,870 1,963,424 7,422,154
ITEM 5. OTHER INFORMATION
None, other than as described elsewhere in this report.
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K - None
EXHIBITS
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings
Per Share, and Fully Diluted Earnings Per Share of Consolidated
Natural Gas Company and Subsidiaries for the three months and six
months ended June 30, 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 June 30, 1997
(27) Financial Data Schedule has been filed electronically
______________________________________________________________________________
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
_______________________________________
(Registrant)
D. M. WESTFALL
_______________________________________
D. M. Westfall
Senior Vice President
and Chief Financial Officer
S. R. MCGREEVY
_______________________________________
S. R. McGreevy, Vice President,
Accounting and Financial Control
August 8, 1997
16
<PAGE>
EXHIBIT INDEX
______________________________________________________________________________
SEC
Exhibit
Number Description of Exhibit
______________________________________________________________________________
(11) Statement re Computation of Per Share Earnings:
Computations of Earnings Per Share of Common Stock, Primary Earnings
Per Share, and Fully Diluted Earnings Per Share of Consolidated
Natural Gas Company and Subsidiaries for the three months and six
months ended June 30, 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 June 30, 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)
<TABLE>
<CAPTION>
________________________________________________________________________________
_________________________
Six Months to
Three Months to
June 30
June 30
_____________________
_____________________
1997 1996
1997 1996
________________________________________________________________________________
_________________________
<S> <C> <C>
<C> <C>
EARNINGS PER SHARE OF COMMON STOCK,
as Shown on the Consolidated
Statement of Income
Net income . . . . . . . . . . . . . . . . . . . . . $210,476 $215,417
$ 38,985 $ 34,617
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,996 94,105
95,045 94,183
________ ________
________ ________
Earnings per share of common stock . . . . . . . . $ 2.22 $ 2.29
$ .41 $ .37
======== ========
======== ========
PRIMARY EARNINGS PER SHARE (Note 1)
Net income . . . . . . . . . . . . . . . . . . . . . $210,476 $215,417
$ 38,985 $ 34,617
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,996 94,105
95,045 94,183
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 888 384
772 525
________ ________
________ ________
Average common shares, as adjusted . . . . . . . . . 95,884 94,489
95,817 94,708
________ ________
________ ________
Primary earnings per share . . . . . . . . . . . $ 2.20 $ 2.28
$ .41 $ .37
======== ========
======== ========
FULLY DILUTED EARNINGS PER SHARE
Net income . . . . . . . . . . . . . . . . . $210,476 $215,417
$ 38,985 $ 34,617
Interest on 7 1/4% Convertible Subordinated
Debentures, net of tax effect. . . . . . . . . . . 6,055 5,894
3,041 2,970
________ ________
________ ________
Net income, as adjusted . . . . . . . . . . . . . . $216,531 $221,311
$ 42,026 $ 37,587
________ ________
________ ________
Average common shares outstanding. . . . . . . . . . 94,996 94,105
95,045 94,183
Incremental shares resulting from
assumed exercise of stock options. . . . . . . . . 975 626
945 1,010
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 . . . . . . . . . 100,530 99,290
100,549 99,752
________ ________
________ ________
Fully diluted earnings per share . . . . . . . . . $ 2.15(1) $
2.23(1) $ .42(2) $ .38(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 1997
_____________________________________________________________________________
Earnings:
Net income................................................ $293,332
Add income taxes.......................................... 144,831
________
Income before income taxes.............................. 438,163
Distributed income from unconsolidated investees,
less equity in earnings thereof......................... (246)
________
Subtotal................................................ 437,917
________
Add fixed charges:
Interest on long-term debt, including amortization
of debt discount and expense less premium............. 104,856
Other interest expense.................................. 7,978
Portion of rentals deemed to be representative
of the interest factor................................ 9,213
Fixed charges associated with 50% projects with debt.... 2,067
________
TOTAL FIXED CHARGES......................................... 124,114
________
TOTAL EARNINGS.............................................. $562,031
========
RATIO OF EARNINGS TO FIXED CHARGES.......................... 4.53
========
_____________________________________________________________________________
<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,
1997 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-31-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,011,757
<OTHER-PROPERTY-AND-INVEST> 1,106,024
<TOTAL-CURRENT-ASSETS> 1,005,933
<TOTAL-DEFERRED-CHARGES> 386,559
<OTHER-ASSETS> 160,210
<TOTAL-ASSETS> 5,670,483
<COMMON> 261,640
<CAPITAL-SURPLUS-PAID-IN> 504,748
<RETAINED-EARNINGS> 1,542,884
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,335,184
0
0
<LONG-TERM-DEBT-NET> 1,422,906
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 108,900
<LONG-TERM-DEBT-CURRENT-PORT> 4,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,825,405
<TOT-CAPITALIZATION-AND-LIAB> 5,670,483
<GROSS-OPERATING-REVENUE> 2,729,453
<INCOME-TAX-EXPENSE> 102,465
<OTHER-OPERATING-EXPENSES> 2,371,775
<TOTAL-OPERATING-EXPENSES> 2,474,240
<OPERATING-INCOME-LOSS> 255,213
<OTHER-INCOME-NET> 10,289
<INCOME-BEFORE-INTEREST-EXPEN> 265,502
<TOTAL-INTEREST-EXPENSE> 55,026
<NET-INCOME> 210,476
0
<EARNINGS-AVAILABLE-FOR-COMM> 210,476
<COMMON-STOCK-DIVIDENDS> 92,216
<TOTAL-INTEREST-ON-BONDS> 102,465
<CASH-FLOW-OPERATIONS> 656,730
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.15
</TABLE>
