<PAGE> 1
COMMISSION FILE NO. 30-203
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM U5S
ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------------
Filed pursuant to the Public Utility Holding Company Act of 1935
by
CONSOLIDATED NATURAL GAS COMPANY
CNG TOWER, 625 LIBERTY AVENUE, PITTSBURGH, PA 15222-3199
<PAGE> 2
CONSOLIDATED NATURAL GAS COMPANY
FORM U5S -- ANNUAL REPORT
For the Year Ended December 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. SYSTEMS COMPANIES AND INVESTMENT THEREIN AS OF
DECEMBER 31, 1997........................................... 1
ITEM 2. ACQUISITIONS OR SALES OF UTILITY ASSETS..................... 4
ITEM 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM
SECURITIES.................................................. 4
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM
SECURITIES.................................................. 6
ITEM 5. INVESTMENTS IN SECURITIES OF NON-SYSTEM COMPANIES........... 10
ITEM 6. OFFICERS AND DIRECTORS
Part I. Names, principal business address and positions
held as of December 31, 1997....................... 11
Part II. Banking connections............................... 16
Part III. Compensation and other related information....... 16
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS.......................... 18
ITEM 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS
Part I. Contracts for services or goods between system
companies.......................................... 18
Part II. Contracts to purchase services or goods between
any system company and any affiliate........................ 19
Part III. Employment of any person by any system company
for the performance on a continuing basis of management
services......................................... 19
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES
Part I. Information concerning interests held by system
companies in exempt wholesale generators or foreign utility
companies.......................................... 20
Part II. Relationship of exempt wholesale generators and
foreign utility companies to system companies, and financial
data.............................................. 22
Part III. Investment in exempt wholesale generators and
foreign utility companies........................ 22
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements (Index)................................ 24
Exhibits.................................................... 83
SIGNATURE.............................................................. 84
</TABLE>
<PAGE> 3
CONSOLIDATED NATURAL GAS COMPANY
FORM U5S--ANNUAL REPORT
For the Year Ended December 31, 1997
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Owner's
Common % of Issuer's Book
Shares Voting Book Value
Name of Company Business Owned Power Value (Note 1)
- ------------------------------------- ---------------------------- --------- ------ -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED NATURAL GAS COMPANY Holding Company
(Registrant, Parent Company, Company
or CNG):
Consolidated Natural Gas Service
Company, Inc. (Service Company or
CNGSvc)............................ Service Company 100 100% $ 10 $ 10
Unsecured debt................... -- -- $ 14,152 $ 14,152
CNG Transmission Corporation
(CNG Transmission or CNGT)......... Gas transmission 59,000 100% $739,505 $737,479
Unsecured debt................... -- -- $398,205 $398,205
CNG Iroquois, Inc. (CNG
Iroquois)...................... Special purpose subsidiary 2,394 100% $ 33,416 $ 33,416
(Note 2)
The East Ohio Gas Company
(East Ohio Gas or EOG) (Note 3).... Gas utility 4,759,353 100% $458,978 $438,210
Unsecured debt................... -- -- $260,980 $260,980
The Peoples Natural Gas Company
(Peoples Natural Gas or PNG)....... Gas utility 1,835,350 100% $257,600 $247,547
Unsecured debt................... -- -- $153,628 $153,628
Virginia Natural Gas, Inc.
(Virginia Natural Gas or VNG)...... Gas utility 5,173 100% $206,334 $206,687
Unsecured debt................... -- -- $ 97,418 $ 97,418
Hope Gas, Inc. (Hope Gas or HGI)..... Gas utility 409,000 100% $ 55,544 $ 54,340
Unsecured debt................... -- -- $ 42,052 $ 42,052
CNG Producing Company
(CNG Producing or CNGP)............ Exploration and production 32,600 100% $483,793 $487,971
Unsecured debt................... -- -- $343,575 $343,575
CNG Pipeline Company (CNG
Pipeline)........................ Oil pipeline 12,000 100% $ 1,488 $ 1,488
CNG Energy Services Corporation
(CNG Energy Services or CNGESC).... Energy marketing 3,906 100% $ 84,690 $ 84,479
CNG Main Pass Gas Gathering
Corporation (CNG Main Pass)...... Special purpose subsidiary 1 100% $ 1,740 $ 1,740
(Note 4)
CNG Oil Gathering Corporation
(CNG Oil Gathering).............. Special purpose subsidiary 1 100% $ 545 $ 545
(Note 5)
CNG Retail Services Corporation
(CNG Retail)..................... Retail energy marketing 600 100% $ 3,644 $ 3,644
(Note 6)
CNG Power Company (CNG Power)...... Nonutility energy ventures 22,460 100% $ 32,016 $ 25,392
Unsecured debt (Note 7).......... -- -- $ 12,693 $ 12,693
CNG Market Center Services, Inc.
(CNG Market Center Services or
CNGMCS)........................ Special purpose subsidiary 10 100% $ 801 $ 801
(Note 8)
</TABLE>
- ---------------
Notes to ITEM 1 appear on page 3.
1
<PAGE> 4
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1997
(Continued)
<TABLE>
<CAPTION>
Number of Owner's
Common % of Issuer's Book
Shares Voting Book Value
Name of Company Business Owned Power Value (Note 1)
- ------------------------------------- ---------------------------- --------- ------ -------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED NATURAL GAS COMPANY (Continued)
CNG Energy Services Corporation (Continued)
CNG Power Company (Continued)
CNG Bear Mountain, Inc.
(CNG Bear Mountain)............ Special purpose subsidiary 1 100% $ 16 $ 16
(Note 9)
Granite Road CoGen, Inc.
(Granite Road)................. Special purpose subsidiary 1,000 100% $ 1 $ 1
(Note 10)
CNG Products and Services, Inc.
(CNG Products and Services)...... Nonutility energy business 399 100% $ 2,915 $ 2,915
CNG Technologies, Inc.
(CNG Technologies)............. Development of new 200 100% $ 1,863 $ 1,863
gas-related technologies
CNG Storage Service Company
(CNG Storage or CNGStr).......... Gas storage services 1,366 100% $ 17,132 $ 17,056
Unsecured debt (Note 7)........ -- -- $ 7,350 $ 7,350
CNG Power Services Corporation
(CNG Power Services or CNGPSC)..... Electric power marketing 1,552 100% $ 6,330 $ 6,330
CNG Lakewood, Inc. (CNG
Lakewood)........................ Special purpose subsidiary 52 100% $ 101 $ 529
(Note 11)
CNG International Corporation
(CNG International or CNGI)........ Energy-related activities 8,555 100% $ 79,088 $ 79,088
Unsecured debt................... outside of the United States -- -- $ 40,000 $ 40,000
CNG Cayman One Ltd.
(CNG Cayman One)................. Special purpose subsidiary 990 100% $ 38,318 $ 38,318
(Note 12)
CNG Cayman Two Ltd.
(CNG Cayman Two)................. Special purpose subsidiary 10 100% $ 387 $ 387
(Note 12)
CNGI Australia Pty Limited
(CNGI Australia)............... Special purpose subsidiary 100 100% $ 34,539 $ 38,318
(Note 12)
CNG Cayman Three Ltd.
(CNG Cayman Three)............... Special purpose subsidiary 100 100% $ -- $ --
(Note 13)
Consolidated System LNG Company
(Consolidated LNG or LNG) (Note
14)................................ Importer of liquefied 840 100% $ 15,340 $ 15,340
natural gas and gas
wholesaler
CNG Research Company
(CNG Research)..................... Administers research 1,579 100% $ 325 $ 325
activities
CNG Coal Company (CNG Coal).......... Holds System coal reserves 2,236 100% $ 6,366 $ 6,366
(Note 15)
CNG Financial Services, Inc.
(CNG Financial).................... Financing transactions 5 100% $ 40 $ 40
subsidiary
</TABLE>
- ---------------
Notes to ITEM 1 appear on page 3.
2
<PAGE> 5
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1997
(Concluded)
Notes:
(1) The Parent Company's investment in common stock of its subsidiaries is
stated at equity to comply with Securities and Exchange Commission (SEC)
rules. The chart of accounts used during 1997 by the Registrant and its
subsidiaries, except Service Company and CNG Power Services, was the
Uniform System of Accounts Prescribed for Natural Gas Companies by the
Federal Energy Regulatory Commission (FERC). The Service Company used the
Uniform System of Accounts for Subsidiary Service Companies prescribed by
the SEC. CNG Power Services used the FERC's Uniform System of Accounts
Prescribed for Public Utilities and Licensees.
(2) CNG Iroquois holds a 16% general partnership interest in Iroquois Gas
Transmission System, L.P.
(3) Effective January 1, 1997, West Ohio Gas Company, a wholly owned subsidiary
of the Registrant, was merged into East Ohio Gas.
(4) CNG Main Pass holds a 13.6% interest in Dauphin Island Gathering Partners.
(5) CNG Oil Gathering holds a 33.3% general partnership interest in Main Pass
Oil Gathering Company which operates an oil gathering pipeline system in
the Main Pass and Viosca Knoll areas of the Gulf of Mexico.
(6) CNG Retail Services Corporation was incorporated in Delaware on January 30,
1997, to market natural gas, electricity, and related products and services
to residential, commercial and small industrial customers.
(7) Unsecured debt held by the Parent Company.
(8) CNG Market Center Services holds a 50% general partnership interest in the
CNG/Sabine Center gas marketing hub.
(9) CNG Bear Mountain holds a 1% general partnership interest in Bear Mountain
Limited, which owns an independent power project that is a qualifying
cogeneration facility under the Public Utility Regulatory Policies Act of
1978. Also, CNG Power, the parent company of CNG Bear Mountain, holds a 49%
limited partnership interest in Bear Mountain Limited.
(10) Granite Road holds a 50% general partnership interest in Granite Road
Limited, a partnership planning the development of a cogeneration facility.
(11) CNG Lakewood holds a 1% general partnership interest in Lakewood
Cogeneration, L.P. Also, CNG Power, an affiliate, holds a 34% limited
partnership interest in Lakewood Cogeneration, L.P.
(12) CNG Cayman One and CNG Cayman Two hold 99% and 1%, respectively, of the
outstanding voting common stock of CNGI Australia. CNGI Australia holds a
30% interest in Epic Energy Pty Ltd., an Australian entity that owns and
operates natural gas pipelines in Australia.
(13) CNG Cayman Three was incorporated in the Cayman Islands on December 15,
1997. CNG Cayman Three will hold CNG International's interests in two
Argentine gas utility holding companies, Sodigas Pampeana S.A. and Sodigas
Sur S.A.
(14) Consolidated LNG ended its involvement in liquefied natural gas operations
in 1982 and as of February 28, 1998, has recovered its undepreciated
investment in related facilities, plus carrying charges and taxes, through
a FERC-approved amortization surcharge.
(15) CNG Coal formerly owned coal reserves and a related plant site. In July
1996, CNG Coal completed the sale of its properties to a subsidiary of
Cyprus Amax Minerals Company.
3
<PAGE> 6
ITEM 2. ACQUISITIONS OR SALES OF UTILITY ASSETS
Peoples Natural Gas exchanged production properties having a net book value of
$582,620 with an unaffiliated gas producer. The transaction was exempt pursuant
to Rule 44(b).
ITEM 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM SECURITIES
During 1997, Virginia Natural Gas provided security in the form of surety bonds
in connection with performance guarantees related to erosion and sediment
control. The balance remaining outstanding at December 31, 1997 was $53,000,
which is the approximate maximum amount outstanding during the year. Virginia
Natural Gas also guarantees a worker's compensation self-insured surety bond in
favor of the Commonwealth of Virginia in the amount of $750,000.
CNG Transmission has obtained several letters of credit to provide security to
the Commonwealth of Pennsylvania for the company's obligation to plug and
reclaim gas wells as part of the process of abandonment of such property.
One-half of the cost of one letter of credit on which CNG Transmission has
liability, having a face amount of $3,000,000, is shared by two nonaffiliated
pipeline companies. The maximum balance on CNG Transmission's portion of all
letters of credit during 1997 was $8,250,000, with $8,000,000 remaining
outstanding as of December 31, 1997.
CNG Energy Services has obtained a letter of credit in favor of TransCanada
Pipeline to secure the payment of demand charges for pipeline capacity under
contract until 2005. The original amount of the letter of credit was $4,414,900,
but was reduced on November 11, 1997 to $3,611,395.
CNG Retail has obtained a letter of credit in the amount of $120,000 in favor of
Columbia Gas of Pennsylvania to participate in that company's pilot program. The
term of the letter of credit is from November 1, 1997 to October 31, 1998.
The Company has issued guarantees to the states of Pennsylvania, Virginia and
West Virginia to maintain worker's compensation self-insured status for CNG
Transmission, Virginia Natural Gas and Hope Gas. Self-insured status means that
the subsidiary pays the worker's compensation claims directly instead of paying
into the state maintained fund. In recent years these states have revised their
worker's compensation programs and now require parent company guarantees--in
addition to surety bonds--for subsidiary companies to maintain self-insured
status.
All of the above transactions are exempt pursuant to Rule 45(b)(6).
4
<PAGE> 7
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
5
<PAGE> 8
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Name of Company Number of Shares or
Acquiring, Redeeming Principal Amount
Name of Issuer and Title of Issue or Retiring Securities Acquired
- ------------------------------------------------------ ---------------------- --------------------
<S> <C> <C>
REGISTERED HOLDING COMPANY:
Parent Company:
Common stock, par value $2.75 per share............. Parent Company 220,462 shares
(Note 3)
Service Company:
Non-negotiable note................................. Parent Company $ 1,612
CNG Transmission:
Non-negotiable notes................................ Parent Company $27,958
East Ohio Gas:
Non-negotiable notes................................ Parent Company $44,640
Peoples Natural Gas:
Capital stock, par value $100 per share............. Parent Company 180,000 shares
Non-negotiable notes................................ Parent Company $12,437
Virginia Natural Gas:
Capital stock, no par value......................... Parent Company 875 shares
Hope Gas:
Non-negotiable notes................................ Parent Company $ 4,505
CNG Producing:
Non-negotiable notes................................ Parent Company $80,000
CNG Energy Services:
Capital stock, par value $1 per share............... Parent Company 601 shares
CNG Power:
Non-negotiable note................................. Parent Company $ 223
CNG International:
Capital stock, par value $10,000 per share.......... Parent Company 4,061 shares
Non-negotiable note................................. Parent Company $40,000
Total Registrant...............................
</TABLE>
- ---------------
Notes to ITEM 4 appear on page 8.
6
<PAGE> 9
<TABLE>
<CAPTION>
Number of Shares or
Principal Amount
Redeemed or Retired (Note 1) Consideration Commission Authorization (Note 2)
- --------------------------------------- ------------- ---------------------------------
<S> <C> <C>
$ 12,286 Rule 42 (Note 3)
$ 1,612 Rule 52
$ 27,958 Rule 52
$ 44,640 Rule 52
$ 18,000 Rule 52
$ 12,437 Rule 52
$ 35,000 Rule 52
$ 4,505 Rule 52
$ 80,000 Rule 52
$ 17,000 Rule 52
$ 223 Rule 52
$ 40,610 Rule 52
$ 40,000 Rule 52
--------
$334,271
========
</TABLE>
7
<PAGE> 10
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES (Concluded)
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Name of Company Number of Shares or
Acquiring, Redeeming Principal Amount
Name of Issuer and Title of Issue or Retiring Securities Acquired
- --------------------------------------------------- ---------------------- --------------------
<S> <C> <C>
SUBSIDIARIES OF REGISTERED HOLDING COMPANY:
Service Company:
Non-negotiable notes............................. Service Company
CNG Transmission:
Non-negotiable notes............................. CNG Transmission
East Ohio Gas:
Non-negotiable notes............................. East Ohio Gas
Peoples Natural Gas:
Non-negotiable notes............................. Peoples Natural Gas
Virginia Natural Gas:
Unsecured loan................................... Virginia Natural Gas
Hope Gas:
Non-negotiable notes............................. Hope Gas
CNG Producing:
Capital stock, par value $10,000 per share....... CNG Producing
Non-negotiable notes............................. CNG Producing
CNG Power:
Non-negotiable notes............................. CNG Power
Consolidated LNG:
Capital stock, par value $10,000 per share....... Consolidated LNG
Total subsidiaries..........................
CNG ENERGY SERVICES:
CNG Products & Services:
Capital stock, par value $10,000 per share....... CNG Energy Services 94 shares
CNG Retail:
Capital stock, par value $10,000 per share....... CNG Energy Services 600 shares
Total CNG Energy Services...................
CNG INTERNATIONAL:
CNG Cayman Three:
Capital stock, par value $.01 per share.......... CNG International 100 shares
</TABLE>
- ---------------
Notes:
(1) All securities redeemed or retired have been cancelled.
(2) Public Utility Holding Company Act of 1935.
(3) The Parent Company acquired 220,462 shares during 1997 at a cost of
$12,286,000, or an average price of $55.73 a share. During 1997, 219,803
shares were sold to the System's employee incentive plans at an average
price of $55.72, which amounted to $12,248,000. At December 31, 1997, a
total of 659 shares were being held as treasury stock.
8
<PAGE> 11
<TABLE>
<CAPTION>
Number of Shares or
Principal Amount
Redeemed or Retired (Note 1) Consideration Commission Authorization (Note 2)
- --------------------------------------- ------------- ------------------------------------------
<S> <C> <C>
$ 1,852 $ 1,852 Rule 42
$16,035 $ 16,035 Rule 42
$ 5,330 $ 5,330 Rule 42
$13,948 $ 13,948 Rule 42
$ 4,000 $ 4,000 Rule 42
$ 1,729 $ 1,729 Rule 42
4,500 shares $ 45,000 Rule 42
$90,000 $ 90,000 Rule 42
$ 613 $ 613 Rule 42
2,000 shares $ 20,000 Rule 42
--------
$198,507
========
$ 940 Rule 52
$ 6,000 Release No. 26647 (File No. 70-8883)
--------
$ 6,940
========
$ --
========
</TABLE>
9
<PAGE> 12
ITEM 5. INVESTMENTS IN SECURITIES OF NON-SYSTEM COMPANIES
The aggregate amounts of investments at December 31, 1997, in persons operating
in the system's retail service area are shown below.
<TABLE>
<CAPTION>
Number of Aggregate
Name of Owner Persons Business of Persons Investment
- ---------------------------------- ---------- ------------------------------------------ ----------
<S> <C> <C> <C>
CNG Transmission.................. One State Development Fund $ 100,000
Hope Gas.......................... One State Development Fund $ 100,000
Hope Gas.......................... One Economic Development Small $2,475,000
Business Investment Company (Note)
Virginia Natural Gas.............. One State Development Fund $ 56,228
</TABLE>
- ---------------
Note: Investment made pursuant to the West Virginia Capital Companies Act and
under Rule 40(a)(5).
The above do not include investments in securities of non-system companies which
have been authorized by Commission order under the Public Utility Holding
Company Act of 1935 and which are subject to Rule 24 Certificate filing
requirements.
10
<PAGE> 13
ITEM 6. OFFICERS AND DIRECTORS
Part I. Names, principal business address and positions held as of December 31,
1997
The names, principal business address and positions held as of December 31,
1997, of the officers and directors of system companies is presented in the
tables on pages 12 through 15. The principal business address of each officer
and director is indicated in such tables by the numbers (1) through (20). The
addresses associated with these number designations are shown in the following
address key. The symbols used to indicate the positions held by officers and
directors are shown in the position symbol key below.
Changes effective May 1, 1998
The following changes to the Parent Company officers were made effective May 1,
1998: D. M. Westfall was elected Senior Vice President, Non-Regulated Business
and Chief Financial Officer and R. L. Adams was elected Senior Vice President,
Regulated Business. These officers will also serve in the same capacity with the
Service Company.
ADDRESS KEY
-----------------
(1) CNG Tower, Pittsburgh, PA 15222
(2) 625 Liberty Avenue, Pittsburgh, PA 15222
(3) 445 West Main Street, Clarksburg, WV 26301
(4) 1717 East Ninth Street, Cleveland, OH 44114
(5) 1450 Poydras Street, New Orleans, LA 70112
(6) 5100 East Virginia Beach Boulevard, Norfolk, VA 23502
(7) Bank One Center West, Clarksburg, WV 26302
(8) 4 Derham Parc, Houston, TX 77024
(9) 12 Kirkland Place, Cambridge, MA 02138
(10) 1819 L Street, N.W., Washington, DC 20036
(11) One Park Ridge Center, Pittsburgh, PA 15244
(12) 11921 Freedom Drive, Reston, VA 22090
(13) 157 Backbone Road, Sewickley, PA 15143
(14) One PPG Place, Suite 2210, Pittsburgh, PA 15222
(15) 1422 Euclid Avenue, Suite 1400, Cleveland, OH 44115
(16) 1000 Six PPG Place, Pittsburgh, PA 15222
(17) 781 Weed Street, New Canaan, CT 06840
(18) 500 J. Clyde Morris Boulevard, Newport News, VA 23601
(19) 787 Seventh Avenue, New York, NY 10019
(20) 1258 Alanton Drive, Virginia Beach, VA 23454
POSITION SYMBOL KEY
----------------------------
<TABLE>
<S> <C> <C>
CB -- Chairman of the Board
P -- President
SVP -- Senior Vice President
VP -- Vice President
S -- Secretary
T -- Treasurer
Cn -- Controller
D -- Director
CFO -- Chief Financial Officer
GC -- General Counsel
SAVP -- Senior Assistant Vice President
AVP -- Assistant Vice President
AS -- Assistant Secretary
AT -- Assistant Treasurer
ACn -- Assistant Controller
AtGC -- Assistant General Counsel
GM -- General Manager
r -- Remuneration
df -- Directors' fees
</TABLE>
11
<PAGE> 14
ITEM 6. OFFICERS AND DIRECTORS (Continued)
Part I. Names, principal business address and positions held as of December 31,
1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Parent Service CNG Hope East Peoples Virginia
Company Company Transmission Gas Ohio Gas Natural Gas Natural Gas
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Adams, R. L. Clarksburg, WV (3) D P-D-r
Atkinson, S. L. Clarksburg, WV (3) S-r
Baril, D. C. New Orleans, LA (5)
- ------------------------------------------------------------------------------------------------------------------------------
Barrack, W. S., Jr. New Canaan, CT (17) D-df
Bartels, M. G. Cleveland, OH (4) VP-S-T-D-r
Borneman, D. W. Pittsburgh, PA (1) SAVP-r
- ------------------------------------------------------------------------------------------------------------------------------
Boswell, W. P. Pittsburgh, PA (2) VP-GC-S-D-r
Brakeman, B. F. Cleveland, OH (4) VP-D-r
Brink, G. R. Newport News, VA (18) D-df
- ------------------------------------------------------------------------------------------------------------------------------
Brown, H. E. Clarksburg, WV (3) VP-GC-AS-D-r
Butera, J. E. Pittsburgh, PA (1) AVP-r
Carrington, J. W.,
Jr. New Orleans, LA (5)
- ------------------------------------------------------------------------------------------------------------------------------
Carter, G. B. Clarksburg, WV (3) VP-D-r
Causey, J. L. Norfolk, VA (6) D P-D-r
Chamberlain, A. R. Norfolk, VA (6) VP-r
- ------------------------------------------------------------------------------------------------------------------------------
Chandler, N. F. Pittsburgh, PA (1) AS AS-r
Chase, D. S. Reston, VA (12)
Connell, D. W. Pittsburgh, PA (1) VP-r
- ------------------------------------------------------------------------------------------------------------------------------
Connolly, J. W. Pittsburgh, PA (13) D-df
Corbett, F. J. Norfolk, VA (6) VP-r
Crittenden, J. A. Pittsburgh, PA (11)
- ------------------------------------------------------------------------------------------------------------------------------
Dailey, J. C. Pittsburgh, PA (2) AS-r
Davidson, G. A., Jr. Pittsburgh, PA (1) CB-D CB-D-r
Deschamps, G. W. Pittsburgh, PA (1) VP-r
- ------------------------------------------------------------------------------------------------------------------------------
Dodd, T. E. Pittsburgh, PA (11)
Dortmans, J. H. Pittsburgh, PA (11)
Doyle, D. J. Pittsburgh, PA (11)
- ------------------------------------------------------------------------------------------------------------------------------
Elliott, R. S. Clarksburg, WV (7) AS-r
Fickenscher, D. A. Norfolk, VA (6) VP-GC-S-r
Fleming, A. D. New Orleans, LA (5)
- ------------------------------------------------------------------------------------------------------------------------------
Flinn, J. A. Pittsburgh, PA (2) D-r
Fox, W. A. Pittsburgh, PA (2) D P-D P-D-r
Fratangelo, R. D. Pittsburgh, PA (1) VP-r
- ------------------------------------------------------------------------------------------------------------------------------
Fritsche, W. F., Jr. Virginia Beach, VA (20) D-df
Funk, C. T., Jr. Pittsburgh, PA (1) VP-r
Galvin, R. E.* Houston, TX (8) D-df
- ------------------------------------------------------------------------------------------------------------------------------
Garbe, T. F. Pittsburgh, PA (1) Cn Cn-r
Garrett, J. W. Pittsburgh, PA (1) VP-r
Greer, M. D. Clarksburg, WV (3) VP-r
- ------------------------------------------------------------------------------------------------------------------------------
Gregg, P. P. New Orleans, LA (5)
Groves, R. J. New York, NY (19) D-df
Halbritter, M. A. Clarksburg, WV (7) GC-S-D-r
- ------------------------------------------------------------------------------------------------------------------------------
Hunter, W. R. Norfolk, VA (6) Cn-T-r
Jacobs, R. L. Clarksburg, WV (3) r
Jacquet, T. J. New Orleans, LA (5)
- ------------------------------------------------------------------------------------------------------------------------------
Jeffries, G. A. Pittsburgh, PA (11)
Johns, D. M., Jr. New Orleans, LA (5)
Johnson, J. W. Pittsburgh, PA (11)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Mr. Galvin became a director effective February 17, 1998.
Address key and position symbol key are located on page 11.
12
<PAGE> 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of System Companies with Which Connected
- -----------------------------------------------------------------------------------------------
CNG CNG Energy CNG Power CNG Consolidated CNG CNG CNG
Producing Services Services International LNG Research Coal Financial
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
AS
AS-r S
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
VP-r
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
S S-D
VP-r
- -----------------------------------------------------------------------------------------------
S-r S
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
VP-r VP
VP-r
VP-r
- -----------------------------------------------------------------------------------------------
VP-r
- -----------------------------------------------------------------------------------------------
D
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SVP-CFO-D-r VP-T-D
- -----------------------------------------------------------------------------------------------
AS
AS-r
- -----------------------------------------------------------------------------------------------
AS-r AS
VP-GC-S-r GC-AS-D
SVP-D-r
- -----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
ITEM 6. OFFICERS AND DIRECTORS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Parent Service CNG Hope East Peoples Virginia
Company Company Transmission Gas Ohio Gas Natural Gas Natural Gas
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Jones, B. E. Washington, DC (10) VP-r
Klink, B. C. Cleveland, OH (4) VP-D-r
Koeppel, H. K. Reston, VA (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Kovach, R. A. Cleveland, OH (4) VP-D-r
Lego, P. E. Pittsburgh, PA (14) D-df
Lewis, J. New Orleans, LA (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Lordi, M. J. Pittsburgh, PA (11)
Magnuson, M. G. Washington, DC (10) VP-AtGC-r
Marks, E. J., III Pittsburgh, PA (1) r
- -----------------------------------------------------------------------------------------------------------------------------------
Mayernick, C. S. Pittsburgh, PA (2) D-r
McGreevy, S. R. Pittsburgh, PA (1) VP VP-r
McKean, T. D. Reston, VA (12)
- -----------------------------------------------------------------------------------------------------------------------------------
McKenna, M. A. Cambridge, MA (9) D-df
McKeown, L. J. Pittsburgh, PA (1) S S-r AS
Meyer, D. S. Pittsburgh, PA (2) VP-D-r
- -----------------------------------------------------------------------------------------------------------------------------------
Millet, D. G. New Orleans, LA (5)
Minter, S. A. Cleveland, OH (15) D-df
Mola, E. C. Reston, VA (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Moore, T. L. Clarksburg, WV (3) D-r
Nagle, R. M. Pittsburgh, PA (11)
Newland, T. D. Cleveland, OH (4) D P-D-r
- -----------------------------------------------------------------------------------------------------------------------------------
Nicholas, G. A. Clarksburg, WV (7) VP-GM-D-r
Nichols, C. J. New Orleans, LA (5)
Owens, R. M. Clarksburg, WV (7) T-D-r T
- -----------------------------------------------------------------------------------------------------------------------------------
Petrowski, J. H. Pittsburgh, PA (11) D
Reppert, S. L. Norfolk, VA (6) AS-AT-r
Riley, H. P. New Orleans, LA (5) D
- -----------------------------------------------------------------------------------------------------------------------------------
Rutledge, D. B. New Orleans, LA (5)
Sable, R. M., Jr. Pittsburgh, PA (11)
Scammon, S. D. Pittsburgh, PA (11)
- -----------------------------------------------------------------------------------------------------------------------------------
Schwartz, E. S. Pittsburgh, PA (2) r
Simmons, R. P. Pittsburgh, PA (16) D-df
Skoog, J. H. Pittsburgh, PA (11)
- -----------------------------------------------------------------------------------------------------------------------------------
Spigelmyer, D. J. Clarksburg, WV (3) D-r
Staton, J. D. Clarksburg, WV (3) VP-T-D-r
Strickland, B. E. Pittsburgh, PA (2) D-r
- -----------------------------------------------------------------------------------------------------------------------------------
Stuver, D. K. Pittsburgh, PA (11)
Suttle, N. W., Jr. Clarksburg, WV (3) AT-r AT
Sypolt, G. L. Clarksburg, WV (3) VP-D-r
- -----------------------------------------------------------------------------------------------------------------------------------
Taaffe, G. A., Jr. Pittsburgh, PA (1) AS VP-AtGC-r GC
Taylor, R. D. Pittsburgh, PA (1) AVP-r
Thomson, J. S. Reston, VA (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Usaj, J. S. Pittsburgh, PA (1) VP-r
Wahl, W. F., III Pittsburgh, PA (11)
Wester, T. E. Pittsburgh, PA (2) VP-D-r
- -----------------------------------------------------------------------------------------------------------------------------------
Westfall, D. M. Pittsburgh, PA (1) SVP-CFO SVP-CFO-D-r D
Whitlinger, M. M. Pittsburgh, PA (1) AT AT-r
Williams, S. E. Pittsburgh, PA (1) SVP-GC SVP-GC-r
- -----------------------------------------------------------------------------------------------------------------------------------
Wright, R. E. Pittsburgh, PA (1) VP-r
Yoho, M. L. Clarksburg, WV (3) SVP-D-r
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Address key and position symbol key are located on page 11.
14
<PAGE> 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of System Companies with Which Connected
- ------------------------------------------------------------------------------------------------
CNG CNG Energy CNG Power CNG Consolidated CNG CNG CNG
Producing Services Services International LNG Research Coal Financial
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
VP-r
- ------------------------------------------------------------------------------------------------
SVP-D-r
- ------------------------------------------------------------------------------------------------
SVP-D-r
AS AS AS AS
- ------------------------------------------------------------------------------------------------
D
VP-Cn-T-r
- ------------------------------------------------------------------------------------------------
AS AS AS S
- ------------------------------------------------------------------------------------------------
AT
AT-r
VP-r
- ------------------------------------------------------------------------------------------------
SVP-D-r
- ------------------------------------------------------------------------------------------------
AT-r
AT
- ------------------------------------------------------------------------------------------------
P-D-r P-D
P-D-r D
- ------------------------------------------------------------------------------------------------
r AS
SVP-CFO-D-r D
SVP-D-r
- ------------------------------------------------------------------------------------------------
VP-GM-D
VP-r
- ------------------------------------------------------------------------------------------------
T
- ------------------------------------------------------------------------------------------------
T-ACn-r T
- ------------------------------------------------------------------------------------------------
GC AS
P-D-r
- ------------------------------------------------------------------------------------------------
Cn-AT-r AT
- ------------------------------------------------------------------------------------------------
D P.D P
AT AT AT VP-T
D GC-S-D D
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
ITEM 6. OFFICERS AND DIRECTORS (Continued)
Part II. Banking connections
Information concerning all officers and Directors of each system company who
have financial connections within the provisions of Section 17(c) of the Public
Utility Holding Company Act of 1935 as of December 31, 1997, follows:
<TABLE>
<CAPTION>
Position Held Applicable
Name of Officer Name and Location in Financial Exemption
or Director of Financial Institution Institution Rule
- ------------------------ ----------------------------------------------- ------------- ------------
<S> <C> <C> <C>
R. L. Adams One Valley Bank Director 70
Clarksburg, West Virginia (c)(f)
J. W. Connolly Mellon Bank Corporation* and Director 70
Mellon Bank, N.A. (a)
Pittsburgh, Pennsylvania
G. A. Davidson, Jr. PNC Bank Corp. Director 70
Pittsburgh, Pennsylvania (a)(c)(e)(f)
S. A. Minter KeyCorp Director 70
Cleveland, Ohio (a)
R. P. Simmons PNC Bank Corp. Director 70
Pittsburgh, Pennsylvania (a)
R. E. Wright Dollar Bank Director 70
Pittsburgh, Pennsylvania (c)(f)
</TABLE>
- ---------------
* Bank holding company.
Part III. Compensation and other related information
(a) The compensation of Directors and executive officers of system companies:
Information concerning the compensation of the five highest paid Directors and
executive officers of the system (with all subsidiaries treated as divisions)
for the year 1997 is included in the Registrant's "1998 Notice of Annual Meeting
and Proxy Statement" which is filed as Exhibit F.(3) to this Form U5S.
Information presented under the captions "COMPENSATION OF EXECUTIVE
OFFICERS--SUMMARY COMPENSATION TABLE" on page 10, and "NON-EMPLOYEE DIRECTORS'
COMPENSATION" on page 15, in such proxy statement is hereby incorporated by
reference.
(b) Their interest in the securities of system companies including options or
other rights to acquire securities:
Information concerning the interest of Directors and executive officers in the
securities of system companies, including options or other rights to acquire
securities, is included in the Registrant's "1998 Notice of Annual Meeting and
Proxy Statement" which is filed as Exhibit F.(3) to this Form U5S. Information
presented under the following captions in such proxy statement is hereby
incorporated by reference: "SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS" on
page 9; "OPTION GRANTS IN LAST FISCAL YEAR" on page 10; "AGGREGATED
NON-QUALIFIED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1997,
YEAR-END NON-QUALIFIED STOCK OPTION VALUES" on page 11; and "LONG-TERM INCENTIVE
PLAN AWARDS IN THE LAST FISCAL YEAR" on page 11.
16
<PAGE> 19
ITEM 6. OFFICERS AND DIRECTORS (Concluded)
(c) Their contracts and transactions with system companies:
Information concerning the contracts and transactions by Directors and executive
officers with system companies is included in the Registrant's "1998 Notice of
Annual Meeting and Proxy Statement" which is filed as Exhibit F.(3) to this Form
U5S. Information presented under the caption "HUMAN RESOURCES COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" on page 15 in such proxy statement is
hereby incorporated by reference.
(d) Their indebtedness to system companies:
None.
(e) Their participation in bonus and profit-sharing arrangements and other
benefits:
Information concerning the participation by Directors and executive officers in
other benefits is included in the Registrant's "1998 Notice of Annual Meeting
and Proxy Statement" which is filed as Exhibit F.(3) to this Form U5S.
Information presented under the captions "LIFE INSURANCE AND RELATED BENEFIT
PLANS" on page 16, and "RETIREMENT PROGRAMS" on page 16, in such proxy statement
is hereby incorporated by reference.
(f) Their rights to indemnification:
Pursuant to Section 145 of the General Corporation Law of the State of Delaware,
in which the Company is incorporated, the Company's by-laws indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a Director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as a
Director, officer, employee or agent, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Company also purchases directors and officers liability insurance with
limits of $150 million, and, in recognition of the scope of the foregoing by-law
indemnification, certain other errors and omissions and general liability
insurance coverages which are applicable to all employees as insureds, including
Directors and officers.
17
<PAGE> 20
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS
Tabulated below for each system company are the expenditures, disbursements, or
payments made during the year 1997, directly or indirectly, to or for the
account of any citizens group, or public relations counsel. There were no
payments made to any political party, candidate for public office or holder of
such office, or any committee or agent therefor by the system companies during
the year 1997.
<TABLE>
<CAPTION>
Accounts Charged
Name or Number of Per Books of
Name of Company Beneficiary(ies) Purpose Disbursing Company Amount
- ------------------------------- ------------------------- ------- ----------------------- --------
<S> <C> <C> <C> <C>
Parent Company Community Alliance for Civic Other income deductions $200,000
Economic
Development(Note 1)
Parent Company Democratic Leadership Civic Other income deductions $10,000
Council(Note 1)
East Ohio Gas Keep Ohio Working Civic Other income deductions $25,000
East Ohio Gas Nine beneficiaries Civic Other income deductions $12,700
CNG Producing One beneficiary Civic Operating expenses $1,000
CNG Energy Services Three beneficiaries Civic Operating expenses $2,500
</TABLE>
- ------------
Notes:
(1) All beneficiaries are nonprofit and nonpartisan civic organizations
tax-exempt under Section 501(c)(4) of the Internal Revenue Code.
(2) The information set forth above with respect to the subsidiary companies of
the Parent Company is based upon memoranda submitted to the Parent Company
for such purpose by each of its subsidiary companies, which memoranda are in
the certified form required by Instruction 2 to ITEM 7. The Parent Company
is preserving such memoranda.
ITEM 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS
Part I. Contracts for services, including engineering or construction services,
or goods supplied or sold between system companies during the year 1997
are as follows:
<TABLE>
<CAPTION>
Date of Contract(s)
Transaction (Note 1) Serving Company Receiving Company Compensation (Note 2)
- ---------------------- ------------------- ------------------- ------------- ---------------------------
<S> <C> <C> <C> <C>
Aircraft services CNG Transmission Hope Gas $ 513 Note 3
Management services CNG Transmission Hope Gas $3,793,516 January 1, 1984
Management services CNG Transmission CNG Power $ 125,474 August 15, 1983
Management services CNG Producing CNG Energy Services $ 218,637 October 1, 1990 (Note 4)
Management services CNG Energy Services CNG Power $1,087,707 January 1, 1995
Management services CNG Energy Services CNG Power Services $6,444,517 November 1, 1994
Management services CNG Energy Services CNG Retail $ 389,928 February 12, 1997
Management services CNG Energy Services CNG Producing $ 239,640 September 24, 1987
Management services East Ohio Gas Peoples Natural Gas $ 325,225 December 1, 1995
Management services Peoples Natural Gas East Ohio Gas $1,047,167 August 18, 1995
Management services Peoples Natural Gas Virginia Natural $ 329,226 Note 5
Gas
Management services Peoples Natural Gas CNG Retail $ 103,704 July 8, 1996
</TABLE>
- ---------------
18
<PAGE> 21
Notes:
(1) Contracts for aircraft and management services with aggregate consideration
passing between the same companies of less than $100,000 have been omitted.
(2) All contracts were in effect at December 31, 1997, except as noted.
(3) Aircraft service contracts are dated May 1, 1984 and February 17, 1992.
Aircraft owned by CNG Transmission were sold to non-affiliated parties in
1995. The remaining aircraft services consist of the use of helicopters.
(4) Of this amount, $125,606 relates to an Information Services and Special
Services Agreement dated July 17, 1996.
(5) Approval of contract pending.
Part II. Contracts to purchase services or goods between any system company and
any affiliate (other than a system company) or any company in which any
officer or director of the receiving company is a partner or owns 5
percent or more of any class of equity securities:
None.
Part III. Employment of any person by any system company for the performance on
a continuing basis of management, supervisory or financial advisory
services:
None.
19
<PAGE> 22
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES
Part I. Information concerning the interests held by system companies in exempt
wholesale generators or foreign utility companies:
1. Information concerning the interests held by system companies in an exempt
wholesale generator (EWG) follows.
<TABLE>
<S> <C> <C>
(a) Company Name: Lakewood Cogeneration, L.P.
Location of Facility: Lakewood, New Jersey
Business Address: c/o CMS Generation
Fairlane Plaza South
330 Town Center Drive, Suite 900
Dearborn, MI 48126-2712
</TABLE>
The Lakewood EWG facility (Facility) is a 237-megawatt combined-cycle, gas-fired
facility, dispatchable by General Public Utilities (GPU) (formerly Jersey
Central Power & Light Company) via the Pennsylvania-Jersey-Maryland grid. The
Facility uses 2 gas turbines, 2 heat recovery steam generators, and 1 steam
turbine generator. Fuel oil is used as a back-up fuel. The Facility is directly
connected to a GPU switchyard, which is the point of sale for the electricity.
The Facility commenced commercial operations in November 1994.
CNG Power, a wholly owned subsidiary of CNG Energy Services, holds a 34% limited
partnership interest in Lakewood Cogeneration, L.P. (Lakewood Partnership). CNG
Lakewood, a wholly owned subsidiary of CNG Power Services, owns a 1% general
partnership interest in the Lakewood Partnership.
(b) At December 31, 1997, CNG's total investment in the Lakewood Partnership was
$14,608,000.
The Lakewood Partnership has term loans with a group of banks that total $196.9
million at December 31, 1997. These loans are nonrecourse to the partners.
CNG's cumulative equity contributions to the Lakewood Partnership total
$17,850,000 at December 31, 1997.
There have been no transfers of assets from a CNG affiliate to the Facility.
(c) The capital structure of the Lakewood Partnership is 83% debt and 17% equity
at December 31, 1997. The Lakewood Partnership had earnings of $5,423,642 for
the year ended December 31, 1997.
(d) The Lakewood Partnership has an agreement with CNG Energy Services whereby
CNG Energy Services provides all fuel management services for the Facility,
including fuel procurement, transportation and administering the contracts for
the purchase, transportation and storage of the fuels for the Facility. In
addition to tolling fees based on the volumes of fuel used in the Facility, CNG
Energy Services receives a monthly administration fee. This fee, originally set
at $6,250 per month, is adjusted by the Gross Domestic Product Deflator Ratio
effective January 1 of each calendar year.
2. Information concerning the interests held by system companies in a foreign
utility company (FUCO) follows.
(a) Latin America Fund
CNG International holds a 16.5% limited partnership interest in The Latin
America Energy and Electricity Fund I, L.P. (Latin America Fund), a Cayman
Islands exempted limited partnership, and an 8.29% general partnership interest
in FondElec General Partner, L.P. (FondElec). FondElec holds a 1% general
partnership interest in the Latin America Fund. The Latin America Fund's
business is limited to investing in FUCOs in Latin America. As part of the
transaction, CNG International obtains an ownership interest, equal to its
percentage ownership interest in the partnership, in each of the Latin America
Fund's investments. The Latin America Fund had investments in three FUCOs as of
December 31, 1997.
20
<PAGE> 23
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES (Continued)
The name and business address of the Latin America Fund are as follows:
The Latin America Energy and Electricity Fund I, L.P.
Stamford Harbor Park
333 Ludlow Street
Stamford, CT 06902
(b) At December 31, 1997, CNG International's investment in the Latin America
Fund totaled $7,143,000. CNG International's total commitment for investment in
the Latin America Fund is $10,000,000, with future payments expected to be made
in the next two years as future individual investment proposals are made to CNG
International for its decision as to whether to participate. There have been no
transfers of assets from a CNG affiliate to any FUCO in which the Latin America
Fund has an interest.
(c) The Latin America Fund is an equity investment fund and as such has a
capital structure consisting of equity funds contributed by its partners.
Accordingly, there is no meaningful debt to equity ratio for the Latin America
Fund. The Latin America Fund had a net loss of $14,941 for the year ended
December 31, 1997.
(d) There are no service, sales or construction contracts between the Latin
America Fund, or any FUCOs in which the Latin America Fund has an interest, and
a CNG system company.
3. Information concerning the interests held by system companies in a FUCO
follows.
(a) Argentine FUCOs
In December 1997, CNG International acquired 12.5% ownership interests in two
gas utility holding companies, Sodigas Pampeana S.A. and Sodigas Sur S.A., and a
20% ownership interest in an electric utility holding company, Buenos Aires
Energy Company (BAECO), from CEI Citicorp Holdings S.A. in Argentina. The gas
utility holding companies have ownership interests in two gas distribution
companies, Camuzzi Gas Pampeana S.A. (Camuzzi Pampeana) and Camuzzi Gas del Sur
S.A. (Camuzzi del Sur), and BAECO has an ownership interest in an electric
distribution company, Empresa Distribuidora de Energia Atlantica S.A. (EDEA).
Camuzzi Pampeana, Camuzzi del Sur and EDEA are FUCOs.
Camuzzi Pampeana serves approximately 770,000 customers in Buenos Aires province
(but not in the city of Buenos Aires itself). Camuzzi del Sur serves
approximately 354,000 customers in Argentina to the south of Buenos Aires.
Camuzzi Pampeana and Camuzzi del Sur own, in the aggregate, approximately 3,600
miles of natural gas pipelines, 14,500 miles of natural gas distribution mains
and networks, and 540,000 service line connections. Camuzzi Pampeana and Camuzzi
del Sur together sell approximately 335 Bcf of natural gas per year.
EDEA serves approximately 398,000 electric customers in the province of Buenos
Aires, delivering about 1,800 gigawatt-hours a year. EDEA's electrical
distribution network consists of approximately 5,900 miles of high-, medium-,
and low-tension power lines with approximately 3,000 supporting substations
which transform energy to lower tensions for connection to many of EDEA's
customers.
The name and business address of the Argentine FUCOs are as follows:
<TABLE>
<S> <C>
Camuzzi Pampeana
and Camuzzi del Sur: Av. Alicia Moreau de Justo 240
3rd Floor
(1107) Buenos Aires
Argentina
EDEA: Av. Pedro Luro 2937
7th Floor
(7600) Mar del Plata
Buenos Aires
Argentina
</TABLE>
21
<PAGE> 24
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES (Concluded)
(b) At December 31, 1997, CNG International's investment in the Argentine
holding companies was as follows:
<TABLE>
<S> <C>
Sodigas Pampeana............................................ $30,419,000
Sodigas Sur................................................. 20,278,000
BAECO....................................................... 28,390,000
-----------
Total....................................................... $79,087,000
===========
</TABLE>
There have been no transfers of assets from a CNG affiliate to any of the FUCOs
in which Sodigas Pampeana, Sodigas Sur or BAECO has an interest.
(c) The approximate capital structure and earnings for the Argentine holding
companies as of and for the year ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL STRUCTURE
-----------------
DEBT EQUITY EARNINGS (LOSS)
---- ------ ---------------
<S> <C> <C> <C>
Sodigas Pampeana.......................... 44% 56% $(4,369,133)
Sodigas Sur............................... 41% 59% $ 6,285,141
BAECO..................................... 64% 36% $(4,827,041)*
</TABLE>
*For 315-day period ended December 31, 1997.
(d) There are no service, sales or construction contracts between the Argentine
holding companies, or any FUCOs in which they hold an interest, and a CNG system
company.
Part II. Relationship of exempt wholesale generators and foreign utility
companies to system companies, and financial data:
Organization charts showing the relationship of the EWG and FUCOs to other
system companies are filed as Exhibits H.(1) and H.(2), respectively, to this
Form U5S. Financial statements of the EWG and FUCOs are filed as Exhibits I.(1)
and I.(2), respectively, to this Form U5S.
Part III. Investment in exempt wholesale generators and foreign utility
companies:
At December 31, 1997, the Company's aggregate investment in the Lakewood
Partnership amounted to $14,608,000. The Company's aggregate investment in the
Latin America Fund and the Argentine holding companies totaled $86,230,000, at
December 31, 1997. The ratio of the Registrant's aggregate investment in the EWG
and FUCOs to the Registrant's aggregate capital investment in its domestic
public utility subsidiaries was 7.2% at December 31, 1997.
22
<PAGE> 25
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
23
<PAGE> 26
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants........................... 25
Consolidating Balance Sheet................................. 26
Consolidating Income Statement.............................. 30
Consolidating Statement of Retained Earnings................ 32
Consolidating Statement of Cash Flows....................... 34
Consolidating Balance Sheet Supplement...................... 36
Consolidating Income Statement Supplement................... 38
Consolidating Statement of Retained Earnings Supplement..... 39
Consolidating Statement of Cash Flows Supplement............ 40
CNG TRANSMISSION CORPORATION:
Consolidating Balance Sheet............................... 42
Consolidating Income Statement............................ 44
Consolidating Statement of Retained Earnings.............. 45
Consolidating Statement of Cash Flows..................... 46
CNG PRODUCING COMPANY:
Consolidating Balance Sheet............................... 48
Consolidating Income Statement............................ 50
Consolidating Statement of Retained Earnings.............. 51
Consolidating Statement of Cash Flows..................... 52
CNG ENERGY SERVICES CORPORATION:
Consolidating Balance Sheet............................... 54
Consolidating Income Statement............................ 56
Consolidating Statement of Retained Earnings.............. 57
Consolidating Statement of Cash Flows..................... 58
CNG POWER COMPANY:
Consolidating Balance Sheet............................... 60
Consolidating Income Statement............................ 62
Consolidating Statement of Retained Earnings.............. 63
Consolidating Statement of Cash Flows..................... 64
CNG PRODUCTS AND SERVICES, INC.:
Consolidating Balance Sheet............................... 66
Consolidating Income Statement............................ 68
Consolidating Statement of Retained Earnings.............. 69
Consolidating Statement of Cash Flows..................... 70
CNG POWER SERVICES CORPORATION:
Consolidating Balance Sheet............................... 72
Consolidating Income Statement............................ 74
Consolidating Statement of Retained Earnings.............. 75
Consolidating Statement of Cash Flows..................... 76
CNG INTERNATIONAL CORPORATION:
Consolidating Balance Sheet............................... 78
Consolidating Income Statement............................ 80
Consolidating Statement of Retained Earnings.............. 81
Consolidating Statement of Cash Flows..................... 82
Notes to Consolidated Financial Statements.................. Note
</TABLE>
- ---------------
Note: The Notes to Consolidated Financial Statements appearing on pages 25 to 52
of Exhibit 99 to Consolidated Natural Gas Company's Annual Report on Form
10-K for the year ended December 31, 1997, are incorporated herein by
reference.
EXHIBITS
A list of the exhibits is on page 83.
24
<PAGE> 27
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Consolidated Natural Gas Company
In our opinion, the financial statements listed in the accompanying index on
page 24 present fairly, in all material respects, the consolidated financial
position of Consolidated Natural Gas Company and its subsidiaries at December
31, 1997, and the results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information on pages 26
through 82 is presented for purposes of complying with the requirements of the
Public Utility Holding Company Act of 1935 rather than to present financial
position, results of operations, and cash flows of the individual companies.
Accordingly, we do not express an opinion on the financial position, results of
operations and cash flows of the individual companies. However, the
consolidating information on pages 26 through 82 has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
PRICE WATERHOUSE LLP
600 Grant Street
Pittsburgh, Pennsylvania 15219-9954
February 17, 1998
25
<PAGE> 28
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
----------------- ---------------------
Eliminations
CNG and Combined CNGT
Assets and Subsidiaries Adjustments* Total CNG CNGSvc (Page 42)
- ------ ----------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
(Note 4)
Gas utility and other plant......... $ 5,004,139 $ (2,228) $ 5,006,367 $ -- $ 39,994 $2,064,963
Accumulated depreciation and
amortization...................... (1,949,483) 376 (1,949,859) -- (20,307) (855,759)
----------- ----------- ----------- ---------- -------- ----------
Net gas utility and other
plant........................ 3,054,656 (1,852) 3,056,508 -- 19,687 1,209,204
----------- ----------- ----------- ---------- -------- ----------
Exploration and production
properties........................ 3,710,619 -- 3,710,619 -- -- 226,810
Accumulated depreciation and
amortization...................... (2,542,472) 25,436 (2,567,908) -- -- (201,260)
----------- ----------- ----------- ---------- -------- ----------
Net exploration and production
properties................... 1,168,147 25,436 1,142,711 -- -- 25,550
----------- ----------- ----------- ---------- -------- ----------
Net property, plant and
equipment.................... 4,222,803 23,584 4,199,219 -- 19,687 1,234,754
----------- ----------- ----------- ---------- -------- ----------
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated............ -- (2,364,466) 2,364,466 2,364,466 -- --
Notes of subsidiary companies --
consolidated...................... -- (1,115,371) 1,115,371 1,115,371 -- --
----------- ----------- ----------- ---------- -------- ----------
Total investments............ -- (3,479,837) 3,479,837 3,479,837 -- --
----------- ----------- ----------- ---------- -------- ----------
CURRENT ASSETS
Cash and temporary cash
investments....................... 65,035 -- 65,035 2,279 26,418 6,634
Accounts receivable
Customers......................... 804,015 -- 804,015 -- -- 40,914
Unbilled revenues and other....... 176,787 -- 176,787 10 800 3,650
Allowance for doubtful accounts... (29,590) -- (29,590) -- -- (2,088)
Receivables from affiliated
companies -- consolidated......... -- (1,760,888) 1,760,888 851,022 591,627 32,158
Inventories, at cost
Gas stored -- current portion
(Note 9)........................ 139,157 (2,089) 141,246 -- -- --
Materials and supplies (average
cost method).................... 30,256 -- 30,256 -- -- 11,706
Unrecovered gas costs (Note 3)...... 55,062 -- 55,062 -- -- 36,828
Deferred income taxes -- current
(net)............................. -- (6,617) 6,617 -- -- --
Prepayments and other current
assets............................ 212,919 -- 212,919 50,000 1,111 31,342
----------- ----------- ----------- ---------- -------- ----------
Total current assets......... 1,453,641 (1,769,594) 3,223,235 903,311 619,956 161,144
----------- ----------- ----------- ---------- -------- ----------
REGULATORY AND OTHER ASSETS
Other investments................... 223,900 -- 223,900 500 -- 34,518
Deferred charges and other assets
(Notes 3, 5, 6, 7, 8, 10 and
17)............................... 413,350 (109,279) 522,629 41,157 17,194 77,786
----------- ----------- ----------- ---------- -------- ----------
Total regulatory and other
assets..................... 637,250 (109,279) 746,529 41,657 17,194 112,304
----------- ----------- ----------- ---------- -------- ----------
Total assets................. $ 6,313,694 $(5,335,126) $11,648,820 $4,424,805 $656,837 $1,508,202
=========== =========== =========== ========== ======== ==========
</TABLE>
- ---------------
* The elimination journal entries pertaining to this consolidating financial
statement are prepared in detail form, showing the amounts pertaining to the
Registrant and each subsidiary company, and are preserved with the
Registrant's copy of this Form U5S.
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
26
<PAGE> 29
<TABLE>
<CAPTION>
SUBSIDIARIES
-------------------------------------------------------------------------------------------------------------------------
Other
CNGP CNGESC CNGPSC CNGI Subsidiaries
EOG PNG VNG HGI (Page 48) (Page 54) (Page 72) (Page 78) LNG (Page 36)
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,450,024 $ 708,769 $ 501,948 $180,157 $ -- $ 56,518 $ 3,288 $ 706 $ -- $ --
(601,755) (255,762) (135,308) (70,067) -- (10,176) (561) (164) -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
848,269 453,007 366,640 110,090 -- 46,342 2,727 542 -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
-- -- -- -- 3,483,809 -- -- -- -- --
-- -- -- -- (2,366,648) -- -- -- -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
-- -- -- -- 1,117,161 -- -- -- -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
848,269 453,007 366,640 110,090 1,117,161 46,342 2,727 542 -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
-- -- -- -- -- -- -- -- -- --
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
5,600 6,444 825 1,752 2,627 8,633 8 3,708 25 82
224,717 82,860 25,389 16,196 8,234 377,648 28,057 -- -- --
67,043 8,519 24,753 9,095 60,885 1,944 -- 46 -- 42
(2,640) (5,416) (291) (1,283) (1,000) (16,872) -- -- -- --
1,657 770 -- 8,431 64,748 108,819 6,542 78,000 13,648 3,466
69,236 20,055 19,570 8,510 -- 23,875 -- -- -- --
13,241 1,844 726 827 1,910 2 -- -- -- --
-- 16,044 2,190 -- -- -- -- -- -- --
3,798 -- 2,536 242 41 -- -- -- -- --
84,138 7,972 355 2,745 3,798 30,860 510 1 3 84
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
466,790 139,092 76,053 46,515 141,243 534,909 35,117 81,755 13,676 3,674
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
1,025 -- 52 2,125 -- 68,172 417 117,091 -- --
192,524 152,950 8,555 16,273 5,078 4,325 -- 314 2,503 3,970
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
193,549 152,950 8,607 18,398 5,078 72,497 417 117,405 2,503 3,970
---------- --------- --------- -------- ----------- -------- ------- -------- ------- ------
$1,508,608 $ 745,049 $ 451,300 $175,003 $ 1,263,482 $653,748 $38,261 $199,702 $16,179 $7,644
========== ========= ========= ======== =========== ======== ======= ======== ======= ======
</TABLE>
27
<PAGE> 30
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- ---------------------
Eliminations
CNG and Combined CNGT
Stockholders' Equity and Liabilities and Subsidiaries Adjustments* Total CNG CNGSvc (Page 43)
- ------------------------------------ ---------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholders' equity
(Note 11)
Common stock, par value $2.75 per
share
Authorized -- 400,000,000 shares
Issued -- 95,623,281 shares..... $ 262,964 $(1,670,784) $ 1,933,748 $ 262,964 $ 10 $ 590,000
Capital in excess of par value.... 566,755 (136,033) 702,788 526,790 -- 2,254
Retained earnings, per
accompanying statement (Note
13)............................. 1,539,587 (547,161) 2,086,748 1,543,753 -- 147,251
Treasury stock, at cost (659
shares)......................... (38) -- (38) (38) -- --
Unearned compensation............. (10,950) (10,950) -- -- -- --
---------- ----------- ----------- ---------- -------- ----------
Total common stockholders'
equity....................... 2,358,318 (2,364,928) 4,723,246 2,333,469 10 739,505
---------- ----------- ----------- ---------- -------- ----------
Long-term debt (Note 14)
Debentures........................ 1,304,306 -- 1,304,306 1,304,306 -- --
Convertible subordinated
debentures...................... 244,584 -- 244,584 244,584 -- --
Unsecured loan.................... 4,000 -- 4,000 -- -- --
Notes payable to
Registrant -- consolidated...... -- (1,115,371) 1,115,371 -- 8,912 295,328
---------- ----------- ----------- ---------- -------- ----------
Total long-term debt............ 1,552,890 (1,115,371) 2,668,261 1,548,890 8,912 295,328
---------- ----------- ----------- ---------- -------- ----------
Total capitalization............ 3,911,208 (3,480,299) 7,391,507 3,882,359 8,922 1,034,833
---------- ----------- ----------- ---------- -------- ----------
CURRENT LIABILITIES
Current maturities on long-term
debt.............................. 154,000 -- 154,000 150,000 -- --
Commercial paper (Note 15).......... 238,700 -- 238,700 238,700 -- --
Accounts payable.................... 651,365 -- 651,365 378 26,735 22,265
Payables to affiliated companies --
consolidated...................... -- (1,760,888) 1,760,888 79,005 605,791 157,654
Estimated rate contingencies and
refunds (Note 3).................. 29,112 -- 29,112 -- -- 6,650
Amounts payable to customers........ 880 -- 880 -- -- --
Taxes accrued....................... 125,056 -- 125,056 (52) (299) 29,648
Deferred income taxes -- current
(net) (Note 8).................... 13,735 (6,617) 20,352 -- -- 11,650
Dividends declared.................. 46,377 -- 46,377 46,377 -- --
Other current liabilities........... 127,016 -- 127,016 21,142 5,219 17,942
---------- ----------- ----------- ---------- -------- ----------
Total current liabilities....... 1,386,241 (1,767,505) 3,153,746 535,550 637,446 245,809
---------- ----------- ----------- ---------- -------- ----------
DEFERRED CREDITS
Deferred income taxes (Note 8)...... 712,118 8,406 703,712 (3,703) (2,785) 159,345
Accumulated deferred investment tax
credits........................... 26,658 -- 26,658 -- -- 142
Deferred credits and other
liabilities (Notes 3, 6, 7 and
8)................................ 277,469 (95,728) 373,197 10,599 13,254 68,073
---------- ----------- ----------- ---------- -------- ----------
Total deferred credits.......... 1,016,245 (87,322) 1,103,567 6,896 10,469 227,560
---------- ----------- ----------- ---------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Note
18)...............................
---------- ----------- ----------- ---------- -------- ----------
Total stockholders' equity and
liabilities.................. $6,313,694 $(5,335,126) $11,648,820 $4,424,805 $656,837 $1,508,202
========== =========== =========== ========== ======== ==========
</TABLE>
- ---------------
* The elimination journal entries pertaining to this consolidating financial
statement are prepared in detail form, showing the amounts pertaining to the
Registrant and each subsidiary company, and are preserved with the
Registrant's copy of this Form U5S.
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
28
<PAGE> 31
<TABLE>
<CAPTION>
SUBSIDIARIES
---------------------------------------------------------------------------------------------------------------------
Other
CNGP CNGESC CNGPSC CNGI Subsidiaries
EOG PNG VNG HGI (Page 49) (Page 55) (Page 73) (Page 79) LNG (Page 37)
---------- -------- -------- -------- ---------- --------- --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 237,968 $183,535 $144,697 $ 40,900 $ 326,000 $ 4 $15,520 $ 85,550 $ 8,400 $ 38,200
19,975 -- 57,603 -- -- 96,166 -- -- -- --
201,035 74,065 4,034 14,644 157,793 (11,480) (9,190) (10,628) 6,940 (31,469)
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
458,978 257,600 206,334 55,544 483,793 84,690 6,330 74,922 15,340 6,731
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- 4,000 -- -- -- -- -- -- --
181,390 143,117 57,318 33,428 343,575 12,303 -- 40,000 -- --
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
181,390 143,117 61,318 33,428 343,575 12,303 -- 40,000 -- --
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
640,368 400,717 267,652 88,972 827,368 96,993 6,330 114,922 15,340 6,731
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
-- -- 4,000 -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
89,578 33,744 22,639 3,747 118,704 302,030 30,241 1,304 -- --
390,430 81,396 103,472 29,575 14,215 215,632 398 83,319 -- 1
8,527 2,498 10,649 788 -- -- -- -- -- --
880 -- -- -- -- -- -- -- -- --
75,183 9,271 826 5,255 3,037 1,834 (35) 60 (39) 367
-- 8,702 -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
18,348 10,723 11,482 3,168 20,022 18,762 203 3 2 --
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
582,946 146,334 153,068 42,533 155,978 538,258 30,807 84,686 (37) 368
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
159,349 123,845 4,058 11,409 238,224 11,645 1,130 (226) 876 545
12,329 8,746 3,001 2,440 -- -- -- -- -- --
113,616 65,407 23,521 29,649 41,912 6,852 (6) 320 -- --
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
285,294 197,998 30,580 43,498 280,136 18,497 1,124 94 876 545
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
---------- -------- -------- -------- ---------- -------- ------- -------- ------- --------
$1,508,608 $745,049 $451,300 $175,003 $1,263,482 $653,748 $38,261 $199,702 $16,179 $ 7,644
========== ======== ======== ======== ========== ======== ======= ======== ======= ========
</TABLE>
29
<PAGE> 32
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- --------------------
Eliminations
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 44)
---------------- ------------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales.................. $1,851,001 $ (13,122) $1,864,123 $ -- $ -- $ --
Nonregulated gas sales............... 2,339,157 (493,605) 2,832,762 -- -- 36,291
---------- --------- ---------- -------- -------- --------
Total gas sales............... 4,190,158 (506,727) 4,696,885 -- -- 36,291
Gas transportation and storage....... 479,505 (120,629) 600,134 -- -- 438,238
Electricity sales.................... 594,532 (272) 594,804 -- -- --
Other................................ 445,825 (117,363) 563,188 -- 104,211 50,550
---------- --------- ---------- -------- -------- --------
Total operating revenues (Note
3).......................... 5,710,020 (744,991) 6,455,011 -- 104,211 525,079
---------- --------- ---------- -------- -------- --------
OPERATING EXPENSES
Purchased gas........................ 2,960,204 (625,436) 3,585,640 -- -- 8,592
Electricity, liquids and capacity
purchased.......................... 869,670 (8,818) 878,488 -- -- 43,755
Operation expense (Note 5)........... 708,012 (110,761) 818,773 14,942 94,497 144,223
Maintenance.......................... 90,608 -- 90,608 -- 1,998 28,837
Depreciation and amortization (Note
4)................................. 330,144 (200) 330,344 -- 3,229 67,022
Impairment of gas and oil producing
properties (Note 4)................ 10,351 -- 10,351 -- -- --
Taxes, other than income taxes....... 195,845 -- 195,845 2,875 2,984 33,878
---------- --------- ---------- -------- -------- --------
Subtotal...................... 5,164,834 (745,215) 5,910,049 17,817 102,708 326,307
---------- --------- ---------- -------- -------- --------
Operating income before income
taxes....................... 545,186 224 544,962 (17,817) 1,503 198,772
Income taxes (Note 8)................ 147,053 73 146,980 (11,688) -- 66,046
---------- --------- ---------- -------- -------- --------
Operating income.............. 398,133 151 397,982 (6,129) 1,503 132,726
---------- --------- ---------- -------- -------- --------
OTHER INCOME (DEDUCTIONS)
Interest revenues.................... 2,178 (6,628) 8,806 36 -- 1,302
Other -- net......................... 11,338 -- 11,338 2,197 (67) 8,843
Equity in earnings of subsidiary
companies -- consolidated.......... -- (319,126) 319,126 319,126 -- --
Interest revenues from affiliated
companies -- consolidated.......... -- (111,629) 111,629 106,247 15 1,305
---------- --------- ---------- -------- -------- --------
Total other income
(deductions)................ 13,516 (437,383) 450,899 427,606 (52) 11,450
---------- --------- ---------- -------- -------- --------
Income before interest
charges..................... 411,649 (437,232) 848,881 421,477 1,451 144,176
---------- --------- ---------- -------- -------- --------
INTEREST CHARGES
Interest on long-term debt........... 104,927 (88,902) 193,829 104,107 1,103 27,397
Other interest expense............... 9,116 (29,331) 38,447 12,990 348 144
Allowance for funds used during
construction....................... (6,774) -- (6,774) -- -- (821)
---------- --------- ---------- -------- -------- --------
Total interest charges........ 107,269 (118,233) 225,502 117,097 1,451 26,720
---------- --------- ---------- -------- -------- --------
NET INCOME........................... $ 304,380 $(318,999) $ 623,379 $304,380 $ -- $117,456
========== ========= ========== ======== ======== ========
Earnings per common share -- basic
(Note 2)........................... $3.21
Earnings per common share -- diluted
(Note 2)........................... $3.15
</TABLE>
- ---------------
* The elimination journal entries pertaining to this consolidating financial
statement are prepared in detail form, showing the amounts pertaining to the
Registrant and each subsidiary company, and are preserved with the
Registrant's copy of this Form U5S.
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
30
<PAGE> 33
<TABLE>
<CAPTION>
SUBSIDIARIES
---------------------------------------------------------------------------------------------------------------------
Other
CNGP CNGESC CNGPSC CNGI Subsidiaries
EOG PNG VNG HGI (Page 50) (Page 56) (Page 74) (Page 80) LNG (Page 38)
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,200,493 $329,329 $209,691 $108,333 $ -- $ -- $ -- $ -- $16,277 $ --
-- -- -- -- 365,499 2,430,972 -- -- -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
1,200,493 329,329 209,691 108,333 365,499 2,430,972 -- -- 16,277 --
85,222 56,762 4,044 7,952 701 7,215 -- -- -- --
-- -- -- -- -- 279 594,525 -- -- --
9,226 6,808 6,499 2,325 301,377 81,796 -- 396 -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
1,294,941 392,899 220,234 118,610 667,577 2,520,262 594,525 396 16,277 --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
800,695 184,174 116,764 57,211 31,535 2,386,669 -- -- -- --
-- -- -- -- 157,101 82,599 595,033 -- -- --
189,275 73,164 36,628 25,083 156,533 54,882 7,702 6,907 14,914 23
25,057 15,768 4,805 4,903 9,193 18 -- 29 -- --
35,963 19,538 16,817 5,071 176,454 5,536 561 153 -- --
-- -- -- -- 10,351 -- -- -- -- --
104,058 24,982 10,429 9,729 4,094 2,318 392 106 -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
1,155,048 317,626 185,443 101,997 545,261 2,532,022 603,688 7,195 14,914 23
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
139,893 75,273 34,791 16,613 122,316 (11,760) (9,163) (6,799) 1,363 (23)
40,490 21,484 8,243 4,482 28,221 (6,190) (2,957) (2,513) 1,218 144
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
99,403 53,789 26,548 12,131 94,095 (5,570) (6,206) (4,286) 145 (167)
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
6,347 2 3 1 192 579 10 163 1 170
503 (481) (561) (1,613) 100 1,767 125 525 -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- 157 1,138 1,454 91 -- 1,012 210
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
6,850 (479) (558) (1,455) 1,430 3,800 226 688 1,013 380
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
106,253 53,310 25,990 10,676 95,525 (1,770) (5,980) (3,598) 1,158 213
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
15,530 10,417 7,915 2,716 23,071 1,573 -- -- -- --
11,794 3,082 3,578 199 957 5,110 12 233 -- --
(868) (358) -- (248) (4,479) -- -- -- -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
26,456 13,141 11,493 2,667 19,549 6,683 12 233 -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- -----
$ 79,797 $ 40,169 $ 14,497 $ 8,009 $ 75,976 $ (8,453) $ (5,992) $(3,831) $ 1,158 $ 213
========== ======== ======== ======== ======== ========== ======== ======= ======= =====
</TABLE>
31
<PAGE> 34
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- --------------------
Eliminations
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 45)
---------------- ------------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996...... $1,424,624 $(479,605) $1,904,229 $1,424,624 $ -- $ 150,846
Adjustment:
Merger of West Ohio Gas Company
with The East Ohio Gas Company
effective January 1, 1997..... -- -- -- -- -- --
Net income for the year 1997 per
accompanying income statement... 304,380 (318,999) 623,379 304,380 -- 117,456
---------- --------- ---------- ---------- -------- ---------
Total.................... 1,729,004 (798,604) 2,527,608 1,729,004 -- 268,302
Dividends declared on common
stock -- cash (Note 11)......... (184,942) 251,443 (436,385) (184,942) -- (121,051)
Pension liability adjustment
(Note 6)........................ (309) -- (309) (309) -- --
Cumulative translation
adjustment...................... (4,166) -- (4,166) -- -- --
---------- --------- ---------- ---------- -------- ---------
Balance at December 31, 1997
(Note 13)....................... $1,539,587 $(547,161) $2,086,748 $1,543,753 $ -- $ 147,251
========== ========= ========== ========== ======== =========
</TABLE>
- ---------------
* The elimination journal entries pertaining to this consolidating financial
statement are prepared in detail form, showing the amounts pertaining to the
Registrant and each subsidiary company, and are preserved with the
Registrant's copy of this Form U5S.
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
32
<PAGE> 35
<TABLE>
<CAPTION>
SUBSIDIARIES
--------------------------------------------------------------------------------------------------------------------------
Other
CNGP CNGESC CNGPSC CNGI Subsidiaries
EOG PNG VNG HGI WOG (Page 51) (Page 57) (Page 75) (Page 81) LNG (Page 39)
-------- -------- -------- ------- ------- -------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$183,845 $ 72,175 $ 3,042 $14,852 $ 7,784 $ 81,817 $ (3,027) (3,198) $ (2,631) $5,782 $(31,682)
7,784 -- -- -- (7,784) -- -- -- -- -- --
79,797 40,169 14,497 8,009 -- 75,976 (8,453) (5,992) (3,831) 1,158 213
-------- -------- -------- ------- ------- -------- -------- ------- -------- ------ --------
271,426 112,344 17,539 22,861 -- 157,793 (11,480) (9,190) (6,462) 6,940 (31,469)
(70,391) (38,279) (13,505) (8,217) -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- (4,166) -- --
-------- -------- -------- ------- ------- -------- -------- ------- -------- ------ --------
$201,035 $ 74,065 $ 4,034 $14,644 $ -- $157,793 $(11,480) $(9,190) $(10,628) $6,940 $(31,469)
======== ======== ======== ======= ======= ======== ======== ======= ======== ====== ========
</TABLE>
33
<PAGE> 36
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- --------------------
Eliminations
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 46)
---------------- ------------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 304,380 $(318,999) $623,379 304,380 $ -- $ 117,456
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization................. 330,144 (200) 330,344 -- 3,229 67,022
Impairment of gas and oil producing
properties.................................. 10,351 -- 10,351 -- -- --
Pension cost (credit)......................... (49,841) -- (49,841) -- (3,628) (13,585)
Stock award amortization...................... 9,620 -- 9,620 3,309 736 836
Deferred income taxes-net..................... 1,881 73 1,808 (3,078) 1,065 11,182
Investment tax credit......................... (2,193) -- (2,193) -- -- (22)
Changes in current assets and current
liabilities
Accounts receivable -- net.................. (160,887) -- (160,887) 32 (242) 2,964
Receivables from affiliated
companies -- consolidated................. -- 139,728 (139,728) 863 (25,308) (2,244)
Inventories................................. 34,170 -- 34,170 -- -- 1,226
Unrecovered gas costs....................... 52,954 -- 52,954 -- -- (24,801)
Accounts payable............................ 119,625 -- 119,625 162 13,596 (2,188)
Payables to affiliated
companies -- consolidated................. -- (139,728) 139,728 76,480 16,194 10,680
Estimated rate contingencies and refunds.... 7,510 -- 7,510 -- -- 1,661
Amounts payable to customers................ 880 -- 880 -- -- --
Taxes accrued............................... 27,720 -- 27,720 1,317 (1,479) (1,348)
Other-net................................... 6,984 -- 6,984 (634) 1,827 (2,583)
Changes in other assets and other
liabilities................................. 48,880 -- 48,880 (11,241) 2,985 29,638
Excess of equity in earnings of subsidiary
companies over their cash dividends
paid -- consolidated........................ -- 67,191 (67,191) (67,191) -- --
Other -- net.................................. (70) -- (70) 105 (14) 9
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) operating
activities............................ 742,108 (251,935) 994,043 304,504 8,961 195,903
--------- --------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions..................................... (520,961) -- (520,961) -- (7,800) (60,475)
Proceeds from dispositions of prop., plant and
equip.--net................................... 1,056 -- 1,056 -- 14 1,180
Cost of other investments--net.................. (86,763) -- (86,763) -- -- (1,212)
Intrasystem long-term financing--net............ -- 127,478 (127,478) (127,478) -- --
Intrasystem money pool investments--net......... -- 88,128 (88,128) (66,272) (32,346) (11,220)
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) investing
activities............................ (606,668) 215,606 (822,274) (193,750) (40,132) (71,727)
--------- --------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- Registrant.......... 28,722 -- 28,722 28,722 -- --
Issuance of debentures -- Registrant............ 294,945 -- 294,945 294,945 -- --
Repayments of long-term debt.................... (119,625) -- (119,625) (115,625) -- --
Commercial paper--net........................... (134,368) -- (134,368) (134,368) -- --
Dividends paid -- Registrant.................... (184,608) -- (184,608) (184,608) -- --
Intrasystem long-term financing--net............ -- (127,478) 127,478 -- (240) 11,923
Intrasystem money pool borrowings
(repayments)--net............................. -- (88,128) 88,128 -- 57,262 (5,705)
Dividends paid--subsidiary
companies--consolidated....................... -- 251,935 (251,935) -- -- (124,251)
Other -- net.................................... 5 -- 5 5 -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) financing
activities............................ (114,929) 36,329 (151,258) (110,929) 57,022 (118,033)
--------- --------- --------- --------- -------- ---------
Net increase (decrease) in cash and
TCIs.................................. 20,511 -- 20,511 (175) 25,851 6,143
CASH AND TCIS AT JANUARY 1, 1997................ 44,524 -- 44,524 2,454 567 491
--------- --------- --------- --------- -------- ---------
CASH AND TCIS AT DECEMBER 31, 1997.............. $ 65,035 $ -- $ 65,035 $ 2,279 $ 26,418 $ 6,634
========= ========= ========= ========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)......... $ 114,314 $(113,733) $228,047 $ 118,130 $ 1,452 $ 26,920
Income taxes (net of refunds)................. $ 126,372 $ -- $126,372 $ (9,555) $ 500 $ 59,143
Non-cash financing activities
Issuance of common stock under benefit
plans....................................... $ 2,742 $ -- $ 2,742 $ 2,742 $ -- $ --
Conversion of 7 1/4% Convertible Subordinated
Debentures.................................. $ 40 $ -- $ 40 $ 40 $ -- $ --
</TABLE>
- ---------------
* The eliminations and adjustments are those required to eliminate
transactions among affiliated companies and otherwise give effect to the
adjusting and reclassifying entries to the consolidating balance sheets,
income statements and statements of retained earnings of the Registrant and
its subsidiaries.
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
34
<PAGE> 37
<TABLE>
<CAPTION>
SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------
Other
CNGP CNGESC CNGPSC CNGI Subsidiaries
EOG PNG VNG HGI (Page 52) (Page 58) (Page 76) (Page 82) LNG (Page 40)
- -------- -------- -------- -------- --------- --------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 79,797 $ 40,169 $ 14,497 $ 8,009 $ 75,976 $ (8,453) $ (5,992) $ (3,831) $ 1,158 $ 213
35,963 19,538 16,817 5,071 176,454 5,536 561 153 -- --
-- -- -- -- 10,351 -- -- -- -- --
(24,441) (10,189) 2,707 (2,687) 1,064 866 -- 52 -- --
480 382 318 22 1,847 1,411 -- 279 -- --
(3,256) (4,472) (4,442) 568 11,737 (2,995) 943 (233) (5,217) 6
(1,380) (502) (152) (137) -- -- -- -- -- --
13,326 1,206 (7,688) 3,291 (25,504) (136,678) (12,928) 1,105 -- 229
(427) (81) -- (1,564) 25,916 (59,271) 275 (78,000) 87 26
24,329 14,046 (1,640) 112 403 (4,320) 14 -- -- --
47,956 18,667 11,132 -- -- -- -- -- -- --
(68,266) (11,870) (9,486) (6,754) 33,396 153,009 17,502 526 -- (2)
11,951 (1,721) 357 1,014 (4,157) 31,161 (2,369) 158 6 (26)
(2,148) 1,553 7,888 (1,444) -- -- -- -- -- --
880 -- -- -- -- -- -- -- -- --
14,727 6,750 (466) 1,237 2,240 3,971 507 300 30 (66)
(6,003) (680) 141 (511) 12,996 3,113 (687) 3 -- 2
9,130 1,487 (1,153) 6,432 1,819 (4,424) (22) (666) 14,906 (11)
-- -- -- -- -- -- -- -- -- --
-- (187) -- -- 17 -- -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
132,618 74,096 28,830 12,659 324,555 (17,074) (2,196) (80,154) 10,970 371
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
(78,348) (26,175) (29,673) (9,887) (289,724) (17,460) (948) (471) -- --
(2,322) (155) (725) (173) 3,225 12 -- -- -- --
-- -- -- -- -- (6,810) -- (78,741) -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- 18,580 -- (5,530) -- 9,025 (365)
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
(80,670) (26,330) (30,398) (10,060) (267,919) (24,258) (6,478) (79,212) 9,025 (365)
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- (4,000) -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
39,310 16,489 35,000 2,776 (55,000) 16,610 -- 80,610 (20,000) --
(27,352) (23,300) (16,530) 600 -- 20,910 -- 82,243 -- --
(68,249) (39,746) (12,605) (7,084) -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
(56,291) (46,557) 1,865 (3,708) (55,000) 37,520 -- 162,853 (20,000) --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
(4,343) 1,209 297 (1,109) 1,636 (3,812) (8,674) 3,487 (5) 6
9,943 5,235 528 2,861 991 12,445 8,682 221 30 76
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -----
$ 5,600 $ 6,444 $ 825 $ 1,752 $ 2,627 $ 8,633 $ 8 $ 3,708 $ 25 $ 82
======== ======== ======== ======== ========= ========= ======== ======== ======== =====
$ 26,119 $ 13,329 $ 10,739 $ 2,713 $ 22,388 $ 6,159 $ 11 $ 87 $ -- $ --
$ 35,006 $ 20,039 $ 12,849 $ 2,969 $ 12,406 $ (6,551) $ (4,490) $ (2,580) $ 6,405 $ 231
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
35
<PAGE> 38
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET SUPPLEMENT
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other
Subsidiaries CNG CNG CNG
Assets Total Research Coal Financial
------ ------------ -------- ------ ---------
<S> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT (Note 4)
Gas utility and other plant........................... $ -- $ -- $ -- $--
Accumulated depreciation and amortization............. -- -- -- --
------ ---- ------ ---
Net gas utility and other plant............. -- -- -- --
------ ---- ------ ---
Exploration and production properties................. -- -- -- --
Accumulated depreciation and amortization............. -- -- -- --
------ ---- ------ ---
Net exploration and production properties... -- -- -- --
------ ---- ------ ---
Net property, plant and equipment........... -- -- -- --
------ ---- ------ ---
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated.............................. -- -- -- --
Notes of subsidiary companies -- consolidated......... -- -- -- --
------ ---- ------ ---
Total investments........................... -- -- -- --
------ ---- ------ ---
CURRENT ASSETS
Cash and temporary cash investments................... 82 5 32 45
Accounts receivable
Customers........................................... -- -- -- --
Unbilled revenues and other......................... 42 -- 42 --
Allowance for doubtful accounts..................... -- -- -- --
Receivables from affiliated
companies -- consolidated........................... 3,466 266 3,200 --
Inventories, at cost
Gas stored -- current portion (Note 9).............. -- -- -- --
Materials and supplies (average cost method)........ -- -- -- --
Unrecovered gas costs (Note 3)........................ -- -- -- --
Deferred income taxes -- current (net)................ -- -- -- --
Prepayments and other current assets.................. 84 -- 84 --
------ ---- ------ ---
Total current assets........................ 3,674 271 3,358 45
------ ---- ------ ---
REGULATORY AND OTHER ASSETS
Other investments..................................... -- -- -- --
Deferred charges and other assets
(Notes 3, 5, 6, 7, 8, 10 and 17).................... 3,970 66 3,904 --
------ ---- ------ ---
Total regulatory and other assets........... 3,970 66 3,904 --
------ ---- ------ ---
Total assets................................ $7,644 $337 $7,262 $45
====== ==== ====== ===
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
36
<PAGE> 39
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET SUPPLEMENT
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other
Subsidiaries CNG CNG CNG
STOCKHOLDERS' EQUITY AND LIABILITIES Total Research Coal Financial
- ------------------------------------ ------------ -------- -------- ---------
<S> <C> <C> <C> <C>
CAPITALIZATION
Common stockholders' equity (Note 11)
Common stock, par value $2.75 per share
Authorized -- 400,000,000 shares
Issued -- 95,623,281 shares..................... $ 38,200 $15,790 $ 22,360 $ 50
Capital in excess of par value.................... -- -- -- --
Retained earnings, per accompanying statement
(Note 13)...................................... (31,469) (15,465) (15,994) (10)
Treasury stock, at cost (659 shares).............. -- -- -- --
Unearned compensation............................. -- -- -- --
-------- -------- -------- ----
Total common stockholders' equity......... 6,731 325 6,366 40
-------- -------- -------- ----
Long-term debt (Note 14)
Debentures........................................ -- -- -- --
Convertible subordinated debentures............... -- -- -- --
Unsecured loan.................................... -- -- -- --
Notes payable to Registrant -- consolidated....... -- -- -- --
-------- -------- -------- ----
Total long-term debt...................... -- -- -- --
-------- -------- -------- ----
Total capitalization...................... 6,731 325 6,366 40
-------- -------- -------- ----
CURRENT LIABILITIES
Current maturities on long-term debt................ -- -- -- --
Commercial paper (Note 15).......................... -- -- -- --
Accounts payable.................................... -- -- -- --
Payables to affiliated companies -- consolidated.... 1 -- 1 --
Estimated rate contingencies and refunds (Note 3)... -- -- -- --
Amounts payable to customers........................ -- -- -- --
Taxes accrued....................................... 367 11 351 5
Deferred income taxes -- current (net) (Note 8)..... -- -- -- --
Dividends declared.................................. -- -- -- --
Other current liabilities........................... -- 1 (1) --
-------- -------- -------- ----
Total current liabilities................. 368 12 351 5
-------- -------- -------- ----
DEFERRED CREDITS
Deferred income taxes (Note 8)...................... 545 -- 545 --
Accumulated deferred investment tax credits......... -- -- -- --
Deferred credits and other liabilities (Notes 3, 6,
7 and 8).......................................... -- -- -- --
-------- -------- -------- ----
Total deferred credits.................... 545 -- 545 --
-------- -------- -------- ----
COMMITMENTS AND CONTINGENCIES (Note 18)
-------- -------- -------- ----
Total stockholders' equity and
liabilities............................. $ 7,644 $ 337 $ 7,262 $ 45
======== ======== ======== ====
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
37
<PAGE> 40
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING INCOME STATEMENT SUPPLEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other
Subsidiaries CNG CNG CNG
Total Research Coal Financial
------------ -------- ----- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales................................... $ -- $ -- $ -- $ --
Nonregulated gas sales................................ -- -- -- --
----- ---- ----- ----
Total gas sales............................. -- -- -- --
Gas transportation and storage........................ -- -- -- --
Electricity sales..................................... -- -- -- --
Other................................................. -- -- -- --
----- ---- ----- ----
Total operating revenues (Note 3)........... -- -- -- --
----- ---- ----- ----
OPERATING EXPENSES
Purchased gas......................................... -- -- -- --
Electricity, liquids and capacity purchased........... -- -- -- --
Operation expense (Note 5)............................ 23 12 11 --
Maintenance........................................... -- -- -- --
Depreciation and amortization (Note 4)................ -- -- -- --
Impairment of gas and oil producing properties
(Note 4)............................................ -- -- -- --
Taxes, other than income taxes........................ -- -- -- --
----- ---- ----- ----
Subtotal.................................... 23 12 11 --
----- ---- ----- ----
Operating income before income taxes........ (23) (12) (11) --
Income taxes (Note 8)................................. 144 -- 144 --
----- ---- ----- ----
Operating income............................ (167) (12) (155) --
----- ---- ----- ----
OTHER INCOME (DEDUCTIONS)
Interest revenues..................................... 170 -- 170 --
Other -- net.......................................... -- -- -- --
Equity in earnings of subsidiary
companies -- consolidated........................... -- -- -- --
Interest revenues from affiliated
companies -- consolidated........................... 210 12 198 --
----- ---- ----- ----
Total other income (deductions)............. 380 12 368 --
----- ---- ----- ----
Income before interest charges.............. 213 -- 213 --
----- ---- ----- ----
INTEREST CHARGES
Interest on long-term debt............................ -- -- -- --
Other interest expense................................ -- -- -- --
Allowance for funds used during construction.......... -- -- -- --
----- ---- ----- ----
Total interest charges...................... -- -- -- --
----- ---- ----- ----
NET INCOME............................................ $ 213 $ -- $ 213 $ --
===== ==== ===== ====
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (See Note on page 24).
38
<PAGE> 41
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS SUPPLEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other
Subsidiaries CNG CNG CNG
Total Research Coal Financial
------------ -------- -------- ---------
<S> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996..................... $(31,682) $(15,465) $(16,207) $(10)
Adjustment:
Merger of West Ohio Gas Company with
The East Ohio Gas Company effective
January 1, 1997.............................. -- -- -- --
Net income for the year 1997 per accompanying
income statement............................... 213 -- 213 --
-------- -------- -------- ----
Total.................................. (31,469) (15,465) (15,994) (10)
Dividends declared on common stock -- cash
(Note 11)...................................... -- -- -- --
Pension liability adjustment (Note 6)............ -- -- -- --
Cumulative translation adjustment................ -- -- -- --
-------- -------- -------- ----
Balance at December 31, 1997 (Note 13)........... $(31,469) $(15,465) $(15,994) $(10)
======== ======== ======== ====
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
39
<PAGE> 42
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS SUPPLEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other
Subsidiaries CNG CNG CNG
Total Research Coal Financial
------------ -------- ----- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 213 $ -- $ 213 $ --
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation and amortization............................. -- -- -- --
Impairment of gas and oil producing properties............ -- -- -- --
Pension cost (credit)..................................... -- -- -- --
Stock award amortization.................................. -- -- -- --
Deferred income taxes -- net.............................. 6 -- 6 --
Investment tax credit..................................... -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net.............................. 229 229 -- --
Receivables from affiliated companies -- consolidated... 26 (1) 27 --
Inventories............................................. -- -- -- --
Unrecovered gas costs................................... -- -- -- --
Accounts payable........................................ (2) (1) (1) --
Payables to affiliated companies -- consolidated........ (26) (1) (25) --
Estimated rate contingencies and refunds................ -- -- -- --
Amounts payable to customers............................ -- -- -- --
Taxes accrued........................................... (66) -- (71) 5
Other -- net............................................ 2 2 -- --
Changes in other assets and other liabilities............. (11) (53) 42 --
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated............... -- -- -- --
Other -- net.............................................. -- -- -- --
----- ----- ----- ----
Net cash provided by (used in) operating activities... 371 175 191 5
----- ----- ----- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions............. -- -- -- --
Proceeds from dispositions of prop., plant and
equip. -- net............................................. -- -- -- --
Cost of other investments -- net............................ -- -- -- --
Intrasystem long-term financing -- net...................... -- -- -- --
Intrasystem money pool investments -- net................... (365) (175) (190) --
----- ----- ----- ----
Net cash provided by (used in) investing activities... (365) (175) (190) --
----- ----- ----- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- Registrant...................... -- -- -- --
Issuance of debentures -- Registrant........................ -- -- -- --
Repayments of long-term debt................................ -- -- -- --
Commercial paper -- net..................................... -- -- -- --
Dividends paid -- Registrant................................ -- -- -- --
Intrasystem long-term financing -- net...................... -- -- -- --
Intrasystem money pool borrowings (repayments) -- net....... -- -- -- --
Dividends paid -- subsidiary companies -- consolidated...... -- -- -- --
Other -- net................................................ -- -- -- --
----- ----- ----- ----
Net cash provided by (used in) financing activities... -- -- -- --
----- ----- ----- ----
Net increase (decrease) in cash and TCIs.............. 6 -- 1 5
CASH AND TCIS AT JANUARY 1, 1997............................ 76 5 31 40
----- ----- ----- ----
CASH AND TCIS AT DECEMBER 31, 1997.......................... $ 82 $ 5 $ 32 $ 45
===== ===== ===== ====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)..................... $ -- $ -- $ -- $ --
Income taxes (net of refunds)............................. $ 231 $ -- $ 236 $ (5)
Non-cash financing activities
Issuance of common stock under benefit plans.............. $ -- $ -- $ -- $ --
Conversion of 7 1/4% Convertible Subordinated
Debentures.............................................. $ -- $ -- $ -- $ --
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
40
<PAGE> 43
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
41
<PAGE> 44
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGT Eliminations
and and Combined CNG
Assets Subsidiary Adjustments Total CNGT Iroquois
------ ---------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant........... $2,064,963 $ -- $2,064,963 $2,064,963 $ --
Accumulated depreciation and
amortization........................ (855,759) -- (855,759) (855,759) --
---------- -------- ---------- ---------- -------
Net gas utility and other
plant..................... 1,209,204 -- 1,209,204 1,209,204 --
---------- -------- ---------- ---------- -------
Exploration and production
properties.......................... 226,810 -- 226,810 226,810 --
Accumulated depreciation and
amortization........................ (201,260) -- (201,260) (201,260) --
---------- -------- ---------- ---------- -------
Net exploration and
production properties..... 25,550 -- 25,550 25,550 --
---------- -------- ---------- ---------- -------
Net property, plant and
equipment................. 1,234,754 -- 1,234,754 1,234,754 --
---------- -------- ---------- ---------- -------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated.............. -- (33,416) 33,416 33,416 --
Notes of subsidiary
company -- consolidated............. -- -- -- -- --
---------- -------- ---------- ---------- -------
Total investments........... -- (33,416) 33,416 33,416 --
---------- -------- ---------- ---------- -------
CURRENT ASSETS
Cash and temporary cash investments... 6,634 -- 6,634 6,611 23
Accounts receivable
Customers........................... 40,914 -- 40,914 40,914 --
Unbilled revenues and other......... 3,650 -- 3,650 3,650 --
Allowance for doubtful accounts..... (2,088) -- (2,088) (2,088) --
Receivables from affiliated
companies -- consolidated........... 32,158 (1,412) 33,570 27,472 6,098
Inventories, at cost
Gas stored -- current portion....... -- -- -- -- --
Materials and supplies (average cost
method).......................... 11,706 -- 11,706 11,706 --
Unrecovered gas costs................. 36,828 -- 36,828 36,828 --
Deferred income taxes -- current...... -- -- -- -- --
Prepayments and other current
assets.............................. 31,342 -- 31,342 31,342 --
---------- -------- ---------- ---------- -------
Total current assets........ 161,144 (1,412) 162,556 156,435 6,121
---------- -------- ---------- ---------- -------
REGULATORY AND OTHER ASSETS
Other investments..................... 34,518 -- 34,518 -- 34,518
Deferred charges and other assets..... 77,786 -- 77,786 77,786 --
---------- -------- ---------- ---------- -------
Total regulatory and other
assets.................... 112,304 -- 112,304 77,786 34,518
---------- -------- ---------- ---------- -------
Total assets................ $1,508,202 $(34,828) $1,543,030 $1,502,391 $40,639
========== ======== ========== ========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
42
<PAGE> 45
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGT Eliminations
and and Combined CNG
STOCKHOLDER'S EQUITY AND LIABILITIES Subsidiary Adjustments Total CNGT Iroquois
- ------------------------------------ ---------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock....................... $ 590,000 $(23,940) $ 613,940 $ 590,000 $23,940
Capital in excess of par value..... 2,254 -- 2,254 2,254 --
Retained earnings, per accompanying
statement....................... 147,251 (9,476) 156,727 147,251 9,476
Treasury stock, at cost............ -- -- -- -- --
Unearned compensation.............. -- -- -- -- --
---------- -------- ---------- ---------- -------
Total common stockholder's
equity................... 739,505 (33,416) 772,921 739,505 33,416
---------- -------- ---------- ---------- -------
Long-term debt
Debentures......................... -- -- -- -- --
Convertible subordinated
debentures...................... -- -- -- -- --
Unsecured loan..................... -- -- -- -- --
Notes payable to Parent Company.... 295,328 -- 295,328 295,328 --
---------- -------- ---------- ---------- -------
Total long-term debt....... 295,328 -- 295,328 295,328 --
---------- -------- ---------- ---------- -------
Total capitalization....... 1,034,833 (33,416) 1,068,249 1,034,833 33,416
---------- -------- ---------- ---------- -------
CURRENT LIABILITIES
Current maturities on long-term
debt............................... -- -- -- -- --
Commercial paper..................... -- -- -- -- --
Accounts payable..................... 22,265 -- 22,265 22,265 --
Payables to affiliated companies --
consolidated....................... 157,654 (1,412) 159,066 157,654 1,412
Estimated rate contingencies and
refunds............................ 6,650 -- 6,650 6,650 --
Amounts payable to customers......... -- -- -- -- --
Taxes accrued........................ 29,648 -- 29,648 29,705 (57)
Deferred income taxes -- current..... 11,650 -- 11,650 11,650 --
Dividends declared................... -- -- -- -- --
Other current liabilities............ 17,942 -- 17,942 17,942 --
---------- -------- ---------- ---------- -------
Total current
liabilities.............. 245,809 (1,412) 247,221 245,866 1,355
---------- -------- ---------- ---------- -------
DEFERRED CREDITS
Deferred income taxes................ 159,345 -- 159,345 153,477 5,868
Accumulated deferred investment tax
credits............................ 142 -- 142 142 --
Deferred credits and other
liabilities........................ 68,073 -- 68,073 68,073 --
---------- -------- ---------- ---------- -------
Total deferred credits..... 227,560 -- 227,560 221,692 5,868
---------- -------- ---------- ---------- -------
COMMITMENTS AND CONTINGENCIES
---------- -------- ---------- ---------- -------
Total stockholder's equity
and liabilities.......... $1,508,202 $(34,828) $1,543,030 $1,502,391 $40,639
========== ======== ========== ========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
43
<PAGE> 46
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGT Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGT Iroquois
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales..................... $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales.................. 36,291 -- 36,291 36,291 --
-------- ------- -------- -------- -------
Total gas sales............... 36,291 -- 36,291 36,291 --
Gas transportation and storage.......... 438,238 -- 438,238 438,238 --
Electricity sales....................... -- -- -- -- --
Other................................... 50,550 -- 50,550 50,550 --
-------- ------- -------- -------- -------
Total operating revenues...... 525,079 -- 525,079 525,079 --
-------- ------- -------- -------- -------
OPERATING EXPENSES
Purchased gas........................... 8,592 -- 8,592 8,592 --
Electricity, liquids and capacity
purchased............................. 43,755 -- 43,755 43,755 --
Operation expense....................... 144,223 -- 144,223 144,222 1
Maintenance............................. 28,837 -- 28,837 28,837 --
Depreciation and amortization........... 67,022 -- 67,022 67,022 --
Impairment of gas and oil producing
properties............................ -- -- -- -- --
Taxes, other than income taxes.......... 33,878 -- 33,878 33,628 250
-------- ------- -------- -------- -------
Subtotal...................... 326,307 -- 326,307 326,056 251
-------- ------- -------- -------- -------
Operating income before income
taxes....................... 198,772 -- 198,772 199,023 (251)
Income taxes............................ 66,046 -- 66,046 62,726 3,320
-------- ------- -------- -------- -------
Operating income.............. 132,726 -- 132,726 136,297 (3,571)
-------- ------- -------- -------- -------
OTHER INCOME (DEDUCTIONS)
Interest revenues....................... 1,302 -- 1,302 1,302 --
Other-net............................... 8,843 -- 8,843 (86) 8,929
Equity in earnings of subsidiary
company--consolidated................. -- (5,469) 5,469 5,469 --
Interest revenues from affiliated
companies--consolidated............... 1,305 -- 1,305 1,181 124
-------- ------- -------- -------- -------
Total other income
(deductions)................ 11,450 (5,469) 16,919 7,866 9,053
-------- ------- -------- -------- -------
Income before interest
charges..................... 144,176 (5,469) 149,645 144,163 5,482
-------- ------- -------- -------- -------
INTEREST CHARGES
Interest on long-term debt.............. 27,397 -- 27,397 27,397 --
Other interest expense.................. 144 -- 144 131 13
Allowance for funds used during
construction.......................... (821) -- (821) (821) --
-------- ------- -------- -------- -------
Total interest charges........ 26,720 -- 26,720 26,707 13
-------- ------- -------- -------- -------
NET INCOME.............................. $117,456 $(5,469) $122,925 $117,456 $ 5,469
======== ======= ======== ======== =======
</TABLE>
- ---------------
( ) denotes negative amount.
44
<PAGE> 47
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGT Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGT Iroquois
---------- ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996.......... $ 150,846 $ (5,419) $156,265 $ 150,846 $ 5,419
Net income for the year 1997 per
accompanying income statement....... 117,456 (5,469) 122,925 117,456 5,469
--------- -------- --------- --------- -------
Total............................ 268,302 (10,888) 279,190 268,302 10,888
Dividends declared on common
stock -- cash....................... (121,051) 1,412 (122,463) (121,051) (1,412)
--------- -------- --------- --------- -------
Balance at December 31, 1997.......... $ 147,251 $ (9,476) $156,727 $ 147,251 $ 9,476
========= ======== ========= ========= =======
</TABLE>
- ---------------
( ) denotes negative amount.
45
<PAGE> 48
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGT Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGT Iroquois
---------- ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 117,456 $(5,469) $122,925 $ 117,456 $ 5,469
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization........................ 67,022 -- 67,022 67,022 --
Impairment of gas and oil producing properties....... -- -- -- -- --
Pension cost (credit)................................ (13,585) -- (13,585) (13,585) --
Stock award amortization............................. 836 -- 836 836 --
Deferred income taxes-net............................ 11,182 -- 11,182 10,029 1,153
Investment tax credit................................ (22) -- (22) (22) --
Changes in current assets and current liabilities
Accounts receivable-net............................ 2,964 -- 2,964 2,964 --
Receivables from affiliated
companies--consolidated.......................... (2,244) -- (2,244) (2,223) (21)
Inventories........................................ 1,226 -- 1,226 1,226 --
Unrecovered gas costs.............................. (24,801) -- (24,801) (24,801) --
Accounts payable................................... (2,188) -- (2,188) (2,188) --
Payables to affiliated companies--consolidated..... 10,680 -- 10,680 10,680 --
Estimated rate contingencies and refunds........... 1,661 -- 1,661 1,661 --
Amounts payable to customers....................... -- -- -- -- --
Taxes accrued...................................... (1,348) -- (1,348) (863) (485)
Other-net.......................................... (2,583) -- (2,583) (2,583) --
Changes in other assets and other liabilities........ 29,638 -- 29,638 28,555 1,083
Excess of equity in earnings of subsidiary companies
over their cash dividends paid -- consolidated..... -- 4,057 (4,057) (4,057) --
Other-net............................................ 9 -- 9 9 --
--------- ------- --------- --------- -------
Net cash provided by (used in) operating
activities..................................... 195,903 (1,412) 197,315 190,116 7,199
--------- ------- --------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions........ (60,475) -- (60,475) (60,475) --
Proceeds from dispositions of prop., plant and
equip.-net........................................... 1,180 -- 1,180 1,180 --
Cost of other investments-net.......................... (1,212) -- (1,212) -- (1,212)
Intrasystem long-term financing-net.................... -- -- -- -- --
Intrasystem money pool investments-net................. (11,220) -- (11,220) (6,630) (4,590)
--------- ------- --------- --------- -------
Net cash provided by (used in) investing
activities..................................... (71,727) -- (71,727) (65,925) (5,802)
--------- ------- --------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock............................... -- -- -- -- --
Issuance of debentures................................. -- -- -- -- --
Repayments of long-term debt........................... -- -- -- -- --
Commercial paper-net................................... -- -- -- -- --
Dividends paid......................................... -- -- -- -- --
Intrasystem long-term financing-net.................... 11,923 -- 11,923 11,923 --
Intrasystem money pool borrowings (repayments)-net..... (5,705) -- (5,705) (5,705) --
Dividends paid--subsidiary companies--consolidated..... (124,251) 1,412 (125,663) (124,251) (1,412)
Other-net.............................................. -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) financing
activities..................................... (118,033) 1,412 (119,445) (118,033) (1,412)
--------- ------- --------- --------- -------
Net increase (decrease) in cash and TCIs......... 6,143 -- 6,143 6,158 (15)
CASH AND TCIS AT JANUARY 1, 1997....................... 491 -- 491 453 38
--------- ------- --------- --------- -------
CASH AND TCIS AT DECEMBER 31, 1997..................... $ 6,634 $ -- $ 6,634 $ 6,611 $ 23
========= ======= ========= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)................ $ 26,920 $ -- $ 26,920 $ 26,907 $ 13
Income taxes (net of refunds)........................ $ 59,143 $ -- $ 59,143 $ 56,491 $ 2,652
</TABLE>
- ---------------
( ) denotes negative amount.
46
<PAGE> 49
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
47
<PAGE> 50
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGP Eliminations
and and Combined CNG
ASSETS Subsidiary Adjustments Total CNGP Pipeline
- ------ ----------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant......... $ -- $ -- $ -- $ -- $ --
Accumulated depreciation and
amortization...................... -- -- -- -- --
----------- ------- ----------- ----------- -------
Net gas utility and other
plant................... -- -- -- -- --
----------- ------- ----------- ----------- -------
Exploration and production
properties........................ 3,483,809 -- 3,483,809 3,479,282 4,527
Accumulated depreciation and
amortization...................... (2,366,648) -- (2,366,648) (2,362,650) (3,998)
----------- ------- ----------- ----------- -------
Net exploration and
production properties... 1,117,161 -- 1,117,161 1,116,632 529
----------- ------- ----------- ----------- -------
Net property, plant and
equipment............... 1,117,161 -- 1,117,161 1,116,632 529
----------- ------- ----------- ----------- -------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated............ -- (1,488) 1,488 1,488 --
Notes of subsidiary company --
consolidated...................... -- -- -- -- --
----------- ------- ----------- ----------- -------
Total investments......... -- (1,488) 1,488 1,488 --
----------- ------- ----------- ----------- -------
CURRENT ASSETS
Cash and temporary cash
investments....................... 2,627 -- 2,627 2,581 46
Accounts receivable
Customers......................... 8,234 -- 8,234 8,234 --
Unbilled revenues and other....... 60,885 -- 60,885 60,845 40
Allowance for doubtful accounts... (1,000) -- (1,000) (1,000) --
Receivables from affiliated
companies -- consolidated......... 64,748 (179) 64,927 63,688 1,239
Inventories, at cost
Gas stored -- current portion..... -- -- -- -- --
Materials and supplies (average
cost method)................... 1,910 -- 1,910 1,910 --
Unrecovered gas costs............... -- -- -- -- --
Deferred income taxes--current...... 41 -- 41 41 --
Prepayments and other current
assets............................ 3,798 -- 3,798 3,782 16
----------- ------- ----------- ----------- -------
Total current assets...... 141,243 (179) 141,422 140,081 1,341
----------- ------- ----------- ----------- -------
REGULATORY AND OTHER ASSETS
Other investments................... -- -- -- -- --
Deferred charges and other assets... 5,078 -- 5,078 5,079 (1)
----------- ------- ----------- ----------- -------
Total regulatory and other
assets.................. 5,078 -- 5,078 5,079 (1)
----------- ------- ----------- ----------- -------
Total assets.............. $ 1,263,482 $(1,667) $ 1,265,149 $ 1,263,280 $ 1,869
=========== ======= =========== =========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
48
<PAGE> 51
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGP Eliminations
and and Combined CNG
STOCKHOLDER'S EQUITY AND LIABILITIES Subsidiary Adjustments Total CNGP Pipeline
- ------------------------------------ ---------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock........................ $ 326,000 $(1,200) $ 327,200 $ 326,000 $1,200
Capital in excess of par value...... -- -- -- -- --
Retained earnings, per accompanying
statement........................ 157,793 (288) 158,081 157,793 288
Treasury stock, at cost............. -- -- -- -- --
Unearned compensation............... -- -- -- -- --
---------- ------- ---------- ---------- ------
Total common stockholder's
equity.................... 483,793 (1,488) 485,281 483,793 1,488
---------- ------- ---------- ---------- ------
Long-term debt
Debentures.......................... -- -- -- -- --
Convertible subordinated
debentures....................... -- -- -- -- --
Unsecured loan...................... -- -- -- -- --
Notes payable to Parent Company..... 343,575 -- 343,575 343,575 --
---------- ------- ---------- ---------- ------
Total long-term debt........ 343,575 -- 343,575 343,575 --
---------- ------- ---------- ---------- ------
Total capitalization........ 827,368 (1,488) 828,856 827,368 1,488
---------- ------- ---------- ---------- ------
CURRENT LIABILITIES
Current maturities on long-term
debt................................ -- -- -- -- --
Commercial paper...................... -- -- -- -- --
Accounts payable...................... 118,704 -- 118,704 118,679 25
Payables to affiliated
companies--consolidated............. 14,215 (179) 14,394 14,262 132
Estimated rate contingencies and
refunds............................. -- -- -- -- --
Amounts payable to customers.......... -- -- -- -- --
Taxes accrued......................... 3,037 -- 3,037 3,004 33
Deferred income taxes--current........ -- -- -- -- --
Dividends declared.................... -- -- -- -- --
Other current liabilities............. 20,022 -- 20,022 20,022 --
---------- ------- ---------- ---------- ------
Total current liabilities... 155,978 (179) 156,157 155,967 190
---------- ------- ---------- ---------- ------
DEFERRED CREDITS
Deferred income taxes................. 238,224 -- 238,224 238,033 191
Accumulated deferred investment tax
credits............................. -- -- -- -- --
Deferred credits and other
liabilities......................... 41,912 -- 41,912 41,912 --
---------- ------- ---------- ---------- ------
Total deferred credits...... 280,136 -- 280,136 279,945 191
---------- ------- ---------- ---------- ------
COMMITMENTS AND CONTINGENCIES
---------- ------- ---------- ---------- ------
Total stockholder's equity
and liabilities........... $1,263,482 $(1,667) $1,265,149 $1,263,280 $1,869
========== ======= ========== ========== ======
</TABLE>
- ---------------
( ) denotes negative amount.
49
<PAGE> 52
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGP Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGP Pipeline
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales...................... $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales................... 365,499 -- 365,499 365,499 --
-------- ----- -------- -------- ----
Total gas sales................ 365,499 -- 365,499 365,499 --
Gas transportation and storage........... 701 (421) 1,122 701 421
Electricity sales........................ -- -- -- -- --
Other.................................... 301,377 -- 301,377 300,911 466
-------- ----- -------- -------- ----
Total operating revenues....... 667,577 (421) 667,998 667,111 887
-------- ----- -------- -------- ----
OPERATING EXPENSES
Purchased gas............................ 31,535 -- 31,535 31,535 --
Electricity, liquids and capacity
purchased.............................. 157,101 (421) 157,522 157,522 --
Operation expense........................ 156,533 -- 156,533 156,193 340
Maintenance.............................. 9,193 -- 9,193 9,193 --
Depreciation and amortization............ 176,454 -- 176,454 176,366 88
Impairment of gas and oil producing
properties............................. 10,351 -- 10,351 10,351 --
Taxes, other than income taxes........... 4,094 -- 4,094 4,088 6
-------- ----- -------- -------- ----
Subtotal....................... 545,261 (421) 545,682 545,248 434
-------- ----- -------- -------- ----
Operating income before income
taxes........................ 122,316 -- 122,316 121,863 453
Income taxes............................. 28,221 -- 28,221 28,038 183
-------- ----- -------- -------- ----
Operating income............... 94,095 -- 94,095 93,825 270
-------- ----- -------- -------- ----
OTHER INCOME (DEDUCTIONS)
Interest revenues........................ 192 -- 192 192 --
Other -- net............................. 100 -- 100 100 --
Equity in earnings of subsidiary
company -- consolidated................ -- (334) 334 334 --
Interest revenues from affiliated
companies--consolidated................ 1,138 -- 1,138 1,074 64
-------- ----- -------- -------- ----
Total other income
(deductions)................. 1,430 (334) 1,764 1,700 64
-------- ----- -------- -------- ----
Income before interest
charges...................... 95,525 (334) 95,859 95,525 334
-------- ----- -------- -------- ----
INTEREST CHARGES
Interest on long-term debt............... 23,071 -- 23,071 23,071 --
Other interest expense................... 957 -- 957 957 --
Allowance for funds used during
construction........................... (4,479) -- (4,479) (4,479) --
-------- ----- -------- -------- ----
Total interest charges......... 19,549 -- 19,549 19,549 --
-------- ----- -------- -------- ----
NET INCOME............................... $ 75,976 $(334) $ 76,310 $ 75,976 $334
======== ===== ======== ======== ====
</TABLE>
- ---------------
( ) denotes negative amount.
50
<PAGE> 53
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGP Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGP Pipeline
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996........... $ 81,817 $ (235) $ 82,052 $ 81,817 $ 235
Net income for the year 1997 per
accompanying income statement........ 75,976 (334) 76,310 75,976 334
-------- ------- -------- -------- -----
Total........................ 157,793 (569) 158,362 157,793 569
Dividends declared on common
stock -- cash........................ -- 281 (281) -- (281)
-------- ------- -------- -------- -----
Balance at December 31, 1997........... $157,793 $ (288) $158,081 $157,793 $ 288
======== ======= ======== ======== =====
</TABLE>
- ---------------
( ) denotes negative amount.
51
<PAGE> 54
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGP Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGP Pipeline
---------- ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 75,976 $(334) $ 76,310 $ 75,976 $ 334
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation and amortization............................ 176,454 -- 176,454 176,366 88
Impairment of gas and oil producing properties........... 10,351 -- 10,351 10,351 --
Pension cost (credit).................................... 1,064 -- 1,064 1,064 --
Stock award amortization................................. 1,847 -- 1,847 1,847 --
Deferred income taxes-net................................ 11,737 -- 11,737 11,769 (32)
Investment tax credit.................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable-net................................ (25,504) -- (25,504) (25,467) (37)
Receivables from affiliated
companies -- consolidated............................ 25,916 4 25,912 25,929 (17)
Inventories............................................ 403 -- 403 403 --
Unrecovered gas costs.................................. -- -- -- -- --
Accounts payable....................................... 33,396 -- 33,396 33,418 (22)
Payables to affiliated companies--consolidated......... (4,157) (4) (4,153) (4,141) (12)
Estimated rate contingencies and refunds............... -- -- -- -- --
Amounts payable to customers........................... -- -- -- -- --
Taxes accrued.......................................... 2,240 -- 2,240 2,210 30
Other-net.............................................. 12,996 -- 12,996 12,995 1
Changes in other assets and other liabilities............ 1,819 -- 1,819 1,819 --
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated.............. -- 43 (43) (43) --
Other -- net............................................. 17 -- 17 17 --
--------- ----- -------- --------- -----
Net cash provided by (used in) operating
activities....................................... 324,555 (291) 324,846 324,513 333
--------- ----- -------- --------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions............ (289,724) -- (289,724) (289,724) --
Proceeds from dispositions of prop., plant and
equip. -- net............................................ 3,225 -- 3,225 3,225 --
Cost of other investments -- net........................... -- -- -- -- --
Intrasystem long-term financing -- net..................... -- -- -- -- --
Intrasystem money pool investments -- net.................. 18,580 -- 18,580 18,610 (30)
--------- ----- -------- --------- -----
Net cash provided by (used in) investing
activities....................................... (267,919) -- (267,919) (267,889) (30)
--------- ----- -------- --------- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock................................... -- -- -- -- --
Issuance of debentures..................................... -- -- -- -- --
Repayments of long-term debt............................... -- -- -- -- --
Commercial paper -- net.................................... -- -- -- -- --
Dividends paid............................................. -- -- -- -- --
Intrasystem long-term financing-net........................ (55,000) -- (55,000) (55,000) --
Intrasystem money pool borrowings (repayments) -- net...... -- -- -- -- --
Dividends paid--subsidiary companies--consolidated......... -- 291 (291) -- (291)
Other -- net............................................... -- -- -- -- --
--------- ----- -------- --------- -----
Net cash provided by (used in) financing
activities....................................... (55,000) 291 (55,291) (55,000) (291)
--------- ----- -------- --------- -----
Net increase (decrease) in cash and TCIs........... 1,636 -- 1,636 1,624 12
CASH AND TCIS AT JANUARY 1, 1997........................... 991 -- 991 957 34
--------- ----- -------- --------- -----
CASH AND TCIS AT DECEMBER 31, 1997......................... $ 2,627 $ -- $ 2,627 $ 2,581 $ 46
========= ===== ======== ========= =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).................... $ 22,388 $ -- $ 22,388 $ 22,388 $ --
Income taxes (net of refunds)............................ $ 12,406 $ -- $ 12,406 $ 12,221 $ 185
</TABLE>
- ---------------
( ) denotes negative amount.
52
<PAGE> 55
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
53
<PAGE> 56
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and CNG
and and Combined Power Services CNG Main
ASSETS Subsidiaries Adjustments Total CNGESC (Page 60) (Page 66) Storage Pass
- ------ ------------ ------------ -------- -------- --------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other
plant....................... $ 56,518 $ -- $ 56,518 $ 16,661 $ 6,534 $ 77 $21,063 $ --
Accumulated depreciation and
amortization................ (10,176) -- (10,176) (7,213) (2,707) (12) -- --
-------- --------- -------- -------- ------- ------- ------- -------
Net gas utility and
other plant........... 46,342 -- 46,342 9,448 3,827 65 21,063 --
-------- --------- -------- -------- ------- ------- ------- -------
Exploration and production
properties.................. -- -- -- -- -- -- -- --
Accumulated depreciation and
amortization................ -- -- -- -- -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Net exploration and
production
properties............ -- -- -- -- -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Net property, plant and
equipment............. 46,342 -- 46,342 9,448 3,827 65 21,063 --
-------- --------- -------- -------- ------- ------- ------- -------
INVESTMENTS
Stocks of subsidiary
companies, at
equity -- consolidated...... -- (51,292) 51,292 51,292 -- -- -- --
Notes of subsidiary
companies -- consolidated... -- -- -- -- -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total investments....... -- (51,292) 51,292 51,292 -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
CURRENT ASSETS
Cash and temporary cash
investments................. 8,633 -- 8,633 8,529 35 52 9 --
Accounts receivable
Customers................... 377,648 -- 377,648 372,940 1,104 -- -- --
Unbilled revenues and
other..................... 1,944 -- 1,944 1,629 -- 315 -- --
Allowance for doubtful
accounts.................. (16,872) -- (16,872) (16,872) -- -- -- --
Receivables from affiliated
companies -- consolidated... 108,819 (78,209) 187,028 106,366 25,524 14,401 3,552 3,051
Inventories, at cost
Gas stored -- current
portion................... 23,875 -- 23,875 23,875 -- -- -- --
Materials and supplies
(average cost method)..... 2 -- 2 (460) 462 -- -- --
Unrecovered gas costs........ -- -- -- -- -- -- -- --
Deferred income
taxes -- current............ -- -- -- -- -- -- -- --
Prepayments and other current
assets...................... 30,860 -- 30,860 30,847 -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total current assets.... 534,909 (78,209) 613,118 526,854 27,125 14,768 3,561 3,051
-------- --------- -------- -------- ------- ------- ------- -------
REGULATORY AND OTHER ASSETS
Other investments............ 68,172 -- 68,172 -- 27,364 2,250 -- 24,235
Deferred charges and other
assets...................... 4,325 -- 4,325 2,634 -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total regulatory and
other assets.......... 72,497 -- 72,497 2,634 27,364 2,250 -- 24,235
-------- --------- -------- -------- ------- ------- ------- -------
Total assets............ $653,748 $(129,501) $783,249 $590,228 $58,316 $17,083 $24,624 $27,286
======== ========= ======== ======== ======= ======= ======= =======
<CAPTION>
CNG
Oil CNG
ASSETS Gathering Retail
- ------ --------- -------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other
plant....................... $ -- $12,183
Accumulated depreciation and
amortization................ -- (244)
------- -------
Net gas utility and
other plant........... -- 11,939
------- -------
Exploration and production
properties.................. -- --
Accumulated depreciation and
amortization................ -- --
------- -------
Net exploration and
production
properties............ -- --
------- -------
Net property, plant and
equipment............. -- 11,939
------- -------
INVESTMENTS
Stocks of subsidiary
companies, at
equity -- consolidated...... -- --
Notes of subsidiary
companies -- consolidated... -- --
------- -------
Total investments....... -- --
------- -------
CURRENT ASSETS
Cash and temporary cash
investments................. -- 8
Accounts receivable
Customers................... -- 3,604
Unbilled revenues and
other..................... -- --
Allowance for doubtful
accounts.................. -- --
Receivables from affiliated
companies -- consolidated... 3,991 30,143
Inventories, at cost
Gas stored -- current
portion................... -- --
Materials and supplies
(average cost method)..... -- --
Unrecovered gas costs........ -- --
Deferred income
taxes -- current............ -- --
Prepayments and other current
assets...................... -- 13
------- -------
Total current assets.... 3,991 33,768
------- -------
REGULATORY AND OTHER ASSETS
Other investments............ 14,323 --
Deferred charges and other
assets...................... -- 1,691
------- -------
Total regulatory and
other assets........ 14,323 1,691
------- -------
Total assets.......... $18,314 $47,398
======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
54
<PAGE> 57
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and CNG
STOCKHOLDER'S EQUITY and and Combined Power Services CNG Main
AND LIABILITIES SUBSIDIARIES Adjustments Total CNGESC (Page 61) (Page 67) Storage Pass
- --------------- ------------ ------------ -------- -------- --------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock................ $ 4 $ (46,110) $46,114 $ 4 $22,460 $ 3,990 $13,660 $ --
Capital in excess of par
value..................... 96,166 (20) 96,186 96,166 -- -- -- 10
Retained earnings, per
accompanying statement.... (11,480) (5,162) (6,318) (18,180) 9,556 (1,075) 3,472 1,730
Treasury stock, at cost..... -- -- -- -- -- -- -- --
Unearned compensation....... -- -- -- -- -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total common
stockholder's
equity................ 84,690 (51,292) 135,982 77,990 32,016 2,915 17,132 1,740
-------- --------- -------- -------- ------- ------- ------- -------
Long-term debt
Debentures.................. -- -- -- -- -- -- -- --
Convertible subordinated
debentures................ -- -- -- -- -- -- -- --
Unsecured loan.............. -- -- -- -- -- -- -- --
Notes payable to Parent
Company................... 12,303 -- 12,303 -- 12,303 -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total long-term debt.... 12,303 -- 12,303 -- 12,303 -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total capitalization.... 96,993 (51,292) 148,285 77,990 44,319 2,915 17,132 1,740
-------- --------- -------- -------- ------- ------- ------- -------
CURRENT LIABILITIES
Current maturities on
long-term debt.............. -- -- -- -- -- -- -- --
Commercial paper............. -- -- -- -- -- -- -- --
Accounts payable............. 302,030 -- 302,030 299,418 479 1,980 -- --
Payables to affiliated
companies--consolidated..... 215,632 (78,209) 293,841 188,669 1,758 12,688 7,465 23,822
Estimated rate contingencies
and refunds................. -- -- -- -- -- -- -- --
Amounts payable to
customers................... -- -- -- -- -- -- -- --
Taxes accrued................ 1,834 -- 1,834 1,642 152 (554) 28 (175)
Deferred income
taxes--current.............. -- -- -- -- -- -- -- --
Dividends declared........... -- -- -- -- -- -- -- --
Other current liabilities.... 18,762 -- 18,762 18,477 (5) -- (1) --
-------- --------- -------- -------- ------- ------- ------- -------
Total current
liabilities........... 538,258 (78,209) 616,467 508,206 2,384 14,114 7,492 23,647
-------- --------- -------- -------- ------- ------- ------- -------
DEFERRED CREDITS
Deferred income taxes........ 11,645 -- 11,645 (2,820) 11,613 54 -- 1,899
Accumulated deferred
investment tax credits...... -- -- -- -- -- -- -- --
Deferred credits and other
liabilities................. 6,852 -- 6,852 6,852 -- -- -- --
-------- --------- -------- -------- ------- ------- ------- -------
Total deferred
credits............... 18,497 -- 18,497 4,032 11,613 54 -- 1,899
-------- --------- -------- -------- ------- ------- ------- -------
COMMITMENTS AND CONTINGENCIES
-------- --------- -------- -------- ------- ------- ------- -------
Total stockholder's
equity and
liabilities........... $653,748 $(129,501) $783,249 $590,228 $58,316 $17,083 $24,624 $27,286
======== ========= ======== ======== ======= ======= ======= =======
<CAPTION>
CNG
Stockholder's Equity Oil CNG
and Liabilities Gathering Retail
--------------- --------- -------
<S> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock................ $ -- $ 6,000
Capital in excess of par
value..................... 10 --
Retained earnings, per
accompanying statement.... 535 (2,356)
Treasury stock, at cost..... -- --
Unearned compensation....... -- --
------- -------
Total common
stockholder's
equity................ 545 3,644
------- -------
Long-term debt
Debentures.................. -- --
Convertible subordinated
debentures................ -- --
Unsecured loan.............. -- --
Notes payable to Parent
Company................... -- --
------- -------
Total long-term debt.... -- --
------- -------
Total capitalization.... 545 3,644
------- -------
CURRENT LIABILITIES
Current maturities on
long-term debt.............. -- --
Commercial paper............. -- --
Accounts payable............. -- 153
Payables to affiliated
companies--consolidated..... 16,836 42,603
Estimated rate contingencies
and refunds................. -- --
Amounts payable to
customers................... -- --
Taxes accrued................ (280) 1,021
Deferred income
taxes--current.............. -- --
Dividends declared........... -- --
Other current liabilities.... (1) 292
------- -------
Total current
liabilities........... 16,555 44,069
------- -------
DEFERRED CREDITS
Deferred income taxes........ 1,214 (315)
Accumulated deferred
investment tax credits...... -- --
Deferred credits and other
liabilities................. -- --
------- -------
Total deferred
credits............... 1,214 (315)
------- -------
COMMITMENTS AND CONTINGENCIES
------- -------
Total stockholder's
equity and
liabilities........... $18,314 $47,398
======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
55
<PAGE> 58
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and CNG
and and Combined Power Services CNG Main
Subsidiaries Adjustments Total CNGESC (Page 62) (Page 68) Storage Pass
------------ ------------ ---------- ---------- --------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales...... 2,430,972 (33,472) 2,464,444 2,427,343 -- -- -- --
---------- -------- ---------- ---------- ------- ------ ------ ------
Total gas sales..... 2,430,972 (33,472) 2,464,444 2,427,343 -- -- -- --
Gas transportation and
storage................... 7,215 -- 7,215 7,215 -- -- -- --
Electricity sales........... 279 -- 279 -- -- -- -- --
Other....................... 81,796 -- 81,796 59,563 13,656 5,112 3,465 --
---------- -------- ---------- ---------- ------- ------ ------ ------
Total operating
revenues.......... 2,520,262 (33,472) 2,553,734 2,494,121 13,656 5,112 3,465 --
---------- -------- ---------- ---------- ------- ------ ------ ------
OPERATING EXPENSES
Purchased gas............... 2,386,669 (33,472) 2,420,141 2,385,324 -- -- -- --
Electricity, liquids and
capacity purchased........ 82,599 -- 82,599 72,880 9,448 -- -- --
Operation expense........... 54,882 -- 54,882 41,434 2,425 5,171 14 22
Maintenance................. 18 -- 18 -- -- 18 -- --
Depreciation and
amortization.............. 5,536 -- 5,536 4,945 378 -- -- --
Impairment of gas and oil
producing properties...... -- -- -- -- -- -- -- --
Taxes, other than income
taxes..................... 2,318 -- 2,318 1,870 213 27 206 1
---------- -------- ---------- ---------- ------- ------ ------ ------
Subtotal............ 2,532,022 (33,472) 2,565,494 2,506,453 12,464 5,216 220 23
---------- -------- ---------- ---------- ------- ------ ------ ------
Operating income
before income
taxes............. (11,760) -- (11,760) (12,332) 1,192 (104) 3,245 (23)
Income taxes................ (6,190) -- (6,190) (6,170) (470) (132) 1,212 410
---------- -------- ---------- ---------- ------- ------ ------ ------
Operating income.... (5,570) -- (5,570) (6,162) 1,662 28 2,033 (433)
---------- -------- ---------- ---------- ------- ------ ------ ------
OTHER INCOME (DEDUCTIONS)
Interest revenues........... 579 (1,700) 2,279 2,279 -- -- -- --
Other -- net................ 1,767 -- 1,767 484 (2,114) 5 -- 1,942
Equity in earnings of
subsidiary
companies -- consolidated. -- (135) 135 135 -- -- -- --
Interest revenues from
affiliated
companies -- consolidated. 1,454 -- 1,454 -- 1,242 -- 137 --
---------- -------- ---------- ---------- ------- ------ ------ ------
Total other income
(deductions)...... 3,800 (1,835) 5,635 2,898 (872) 5 137 1,942
---------- -------- ---------- ---------- ------- ------ ------ ------
Income before
interest
charges........... (1,770) (1,835) 65 (3,264) 790 33 2,170 1,509
---------- -------- ---------- ---------- ------- ------ ------ ------
INTEREST CHARGES
Interest on long-term
debt...................... 1,573 -- 1,573 -- 1,117 -- 456 --
Other interest expense...... 5,110 (1,700) 6,810 5,189 81 113 -- 781
Allowance for funds used
during construction....... -- -- -- -- -- -- -- --
---------- -------- ---------- ---------- ------- ------ ------ ------
Total interest
charges........... 6,683 (1,700) 8,383 5,189 1,198 113 456 781
---------- -------- ---------- ---------- ------- ------ ------ ------
NET INCOME.................. $ (8,453) $ (135) $ (8,318) $ (8,453) $ (408) $ (80) $1,714 $ 728
========== ======== ========== ========== ======= ====== ====== ======
<CAPTION>
CNG
Oil CNG
Gathering Retail
--------- -------
<S> <C> <C>
OPERATING REVENUES
Regulated gas sales......... $ -- $ --
Nonregulated gas sales...... -- 37,101
------ -------
Total gas sales..... -- 37,101
Gas transportation and
storage................... -- --
Electricity sales........... -- 279
Other....................... -- --
------ -------
Total operating
revenues.......... -- 37,380
------ -------
OPERATING EXPENSES
Purchased gas............... -- 34,817
Electricity, liquids and
capacity purchased........ -- 271
Operation expense........... (1) 5,817
Maintenance................. -- --
Depreciation and
amortization.............. -- 213
Impairment of gas and oil
producing properties...... -- --
Taxes, other than income
taxes..................... 1 --
------ -------
Subtotal............ -- 41,118
------ -------
Operating income
before income
taxes............. -- (3,738)
Income taxes................ 290 (1,330)
------ -------
Operating income.... (290) (2,408)
------ -------
OTHER INCOME (DEDUCTIONS)
Interest revenues........... -- --
Other -- net................ 1,450 --
Equity in earnings of
subsidiary
companies -- consolidated... -- --
Interest revenues from
affiliated
companies -- consolidated... -- 75
------ -------
Total other income
(deductions)...... 1,450 75
------ -------
Income before
interest
charges........... 1,160 (2,333)
------ -------
INTEREST CHARGES
Interest on long-term
debt...................... -- --
Other interest expense...... 623 23
Allowance for funds used
during construction....... -- --
------ -------
Total interest
charges........... 623 23
------ -------
NET INCOME.................. $ 537 $(2,356)
====== =======
</TABLE>
- ---------------
( ) denotes negative amount.
56
<PAGE> 59
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and
and and Combined Power Services CNG
Subsidiaries Adjustments Total CNGESC (Page 63) (Page 69) Storage
------------ ------------ -------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996.............. $ (3,027) $(5,027) $ 2,000 $ (9,727) $9,964 $ (995) $1,758
Net income for the year 1997 per
accompanying income statement........... (8,453) (135) (8,318) (8,453) (408) (80) 1,714
-------- ------- ------- -------- ------ ------- ------
Total............................. (11,480) (5,162) (6,318) (18,180) 9,556 (1,075) 3,472
Dividends declared on common
stock -- cash........................... -- -- -- -- -- -- --
-------- ------- ------- -------- ------ ------- ------
Balance at December 31, 1997.............. $(11,480) $(5,162) $(6,318) $(18,180) $9,556 $(1,075) $3,472
======== ======= ======= ======== ====== ======= ======
<CAPTION>
CNG CNG
Main Oil CNG
Pass Gathering Retail
------ --------- -------
<S> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996.............. $1,002 $ (2) $ --
Net income for the year 1997 per
accompanying income statement........... 728 537 (2,356)
------ ---- -------
Total............................. 1,730 535 (2,356)
Dividends declared on common
stock -- cash........................... -- -- --
------ ---- -------
Balance at December 31, 1997.............. $1,730 $535 $(2,356)
====== ==== =======
</TABLE>
- ---------------
( ) denotes negative amount.
57
<PAGE> 60
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNG Products
CNGESC Eliminations Power and
and and Combined (Page Services CNG
Subsidiaries Adjustments Total CNGESC 64) (Page 70) Storage
------------ ------------ --------- --------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income......................... $ (8,453) $ (135) $ (8,318) $ (8,453) $ (408) $ (80) $ 1,714
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation and amortization..... 5,536 -- 5,536 4,945 378 -- --
Impairment of gas and oil
producing properties............ -- -- -- -- -- -- --
Pension cost (credit)............. 866 -- 866 866 -- -- --
Stock award amortization.......... 1,411 -- 1,411 1,411 -- -- --
Deferred income taxes -- net...... (2,995) -- (2,995) (3,224) (1,929) (142) --
Investment tax credit............. -- -- -- -- -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net...... (136,678) -- (136,678) (132,985) 226 (315) --
Receivables from affiliated
cos. -- consolidated.......... (59,271) 18,831 (78,102) (37,908) 183 (13,699) (296)
Inventories..................... (4,320) -- (4,320) (3,969) (351) -- --
Unrecovered gas costs........... -- -- -- -- -- -- --
Accounts payable................ 153,009 -- 153,009 150,027 1,313 1,541 --
Payables to affiliated
cos. -- consolidated.......... 31,161 (18,831) 49,992 (6,386) (379) 4,555 (13)
Estimated rate contingencies and
refunds....................... -- -- -- -- -- -- --
Amounts payable to customers.... -- -- -- -- -- -- --
Taxes accrued................... 3,971 -- 3,971 3,434 (16) (731) 23
Other -- net.................... 3,113 -- 3,113 2,836 -- -- (1)
Changes in other assets and other
liabilities..................... (4,424) -- (4,424) (10,242) 8,046 -- --
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ -- 135 (135) (135) -- -- --
Other -- net...................... -- -- -- -- -- -- --
--------- -------- -------- --------- ------- -------- -------
Net cash provided by (used
in) operating activities... (17,074) -- (17,074) (39,783) 7,063 (8,871) 1,427
--------- -------- -------- --------- ------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Plant construction and other
property additions................ (17,460) -- (17,460) (5,308) (49) -- --
Proceeds from dispositions of
prop., plant and equip. -- net.... 12 -- 12 -- -- 12 --
Cost of other investments -- net... (6,810) -- (6,810) -- -- (250) --
Intrasystem long-term
financing -- net.................. -- 6,940 (6,940) (6,940) -- -- --
Intrasystem money pool
investments -- net................ -- 19,005 (19,005) -- (7,215) -- (1,420)
Property transfers to (from)
affiliates........................ -- -- -- -- -- 49 --
--------- -------- -------- --------- ------- -------- -------
Net cash provided by (used
in) investing activities... (24,258) 25,945 (50,203) (12,248) (7,264) (189) (1,420)
--------- -------- -------- --------- ------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock........... -- -- -- -- -- -- --
Issuance of debentures............. -- -- -- -- -- -- --
Repayments of long-term debt....... -- -- -- -- -- -- --
Commercial paper -- net............ -- -- -- -- -- -- --
Dividends paid..................... -- -- -- -- -- -- --
Intrasystem long-term
financing -- net.................. 16,610 (6,940) 23,550 17,000 (390) 940 --
Intrasystem money pool borrowings
(repayments) -- net............... 20,910 (19,005) 39,915 32,070 -- 7,845 --
Dividends paid -- subsidiary
companies -- consolidated......... -- -- -- -- -- -- --
Other -- net....................... -- -- -- -- -- -- --
--------- -------- -------- --------- ------- -------- -------
Net cash provided by (used
in) financing activities... 37,520 (25,945) 63,465 49,070 (390) 8,785 --
--------- -------- -------- --------- ------- -------- -------
Net increase (decrease) in
cash and TCIs.............. (3,812) -- (3,812) (2,961) (591) (275) 7
CASH AND TCIS AT JANUARY 1, 1997... 12,445 -- 12,445 11,490 626 327 2
--------- -------- -------- --------- ------- -------- -------
CASH AND TCIS AT DECEMBER 31,
1997.............................. $ 8,633 $ -- $ 8,633 $ 8,529 $ 35 $ 52 $ 9
========= ======== ======== ========= ======= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts
capitalized).................... $ 6,159 $ -- $ 6,159 $ 2,965 $ 1,198 $ 113 $ 456
Income taxes (net of refunds)..... $ (6,551) $ -- $ (6,551) $ (5,659) $ 1,302 $ 789 $ 1,208
<CAPTION>
CNG CNG
Main Oil CNG
Pass Gathering Retail
------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income......................... $ 728 $ 537 $ (2,356)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation and amortization..... -- -- 213
Impairment of gas and oil
producing properties............ -- -- --
Pension cost (credit)............. -- -- --
Stock award amortization.......... -- -- --
Deferred income taxes -- net...... 1,400 1,215 (315)
Investment tax credit............. -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net...... -- -- (3,604)
Receivables from affiliated
cos. -- consolidated.......... (2,628) (3,981) (19,773)
Inventories..................... -- -- --
Unrecovered gas costs........... -- -- --
Accounts payable................ (25) -- 153
Payables to affiliated
cos. -- consolidated.......... 8,642 970 42,603
Estimated rate contingencies and
refunds....................... -- -- --
Amounts payable to customers.... -- -- --
Taxes accrued................... 520 (280) 1,021
Other -- net.................... -- (1) 279
Changes in other assets and other
liabilities..................... (837) 300 (1,691)
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ -- -- --
Other -- net...................... -- -- --
------- ------- --------
Net cash provided by (used
in) operating activities... 7,800 (1,240) 16,530
------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Plant construction and other
property additions................ -- -- (12,103)
Proceeds from dispositions of
prop., plant and equip. -- net.... -- -- --
Cost of other investments -- net... (4,840) (1,720) --
Intrasystem long-term
financing -- net.................. -- -- --
Intrasystem money pool
investments -- net................ -- -- (10,370)
Property transfers to (from)
affiliates........................ (2,960) 2,960 (49)
------- ------- --------
Net cash provided by (used
in) investing activities... (7,800) 1,240 (22,522)
------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock........... -- -- --
Issuance of debentures............. -- -- --
Repayments of long-term debt....... -- -- --
Commercial paper -- net............ -- -- --
Dividends paid..................... -- -- --
Intrasystem long-term
financing -- net.................. -- -- 6,000
Intrasystem money pool borrowings
(repayments) -- net............... -- -- --
Dividends paid -- subsidiary
companies -- consolidated......... -- -- --
Other -- net....................... -- -- --
------- ------- --------
Net cash provided by (used
in) financing activities... -- -- 6,000
------- ------- --------
Net increase (decrease) in
cash and TCIs.............. -- -- 8
CASH AND TCIS AT JANUARY 1, 1997... -- -- --
------- ------- --------
CASH AND TCIS AT DECEMBER 31,
1997.............................. $ -- $ -- $ 8
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts
capitalized).................... $ 781 $ 623 $ 23
Income taxes (net of refunds)..... $(1,510) $ (645) $ (2,036)
</TABLE>
- ---------------
( ) denotes negative amount.
58
<PAGE> 61
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
59
<PAGE> 62
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG Power Eliminations CNG
and and Combined CNG Granite Bear
Assets Subsidiaries Adjustments Total Power Road Mountain CNGMCS
------ ------------ ------------ -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant............... $ 6,534 $ -- $ 6,534 $ 6,534 $-- $ -- $ --
Accumulated depreciation and
amortization............................ (2,707) -- (2,707) (2,707) -- -- --
------- -------- ------- ------- --- ---- ------
Net gas utility and other
plant.......................... 3,827 -- 3,827 3,827 -- -- --
------- -------- ------- ------- --- ---- ------
Exploration and production properties..... -- -- -- -- -- --
Accumulated depreciation and
amortization............................ -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Net exploration and production
properties..................... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Net property, plant and
equipment...................... 3,827 -- 3,827 3,827 -- -- --
------- -------- ------- ------- --- ---- ------
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated.................. -- (818) 818 818 -- -- --
Notes of subsidiary
companies -- consolidated............... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Total investments................ -- (818) 818 818 -- -- --
------- -------- ------- ------- --- ---- ------
CURRENT ASSETS
Cash and temporary cash investments....... 35 -- 35 23 -- -- 12
Accounts receivable
Customers............................... 1,104 -- 1,104 1,104 -- -- --
Unbilled revenues and other............. -- -- -- -- -- -- --
Allowance for doubtful accounts......... -- -- -- -- -- -- --
Receivables from affiliated
companies --consolidated................ 25,524 (11,152) 36,676 36,265 -- 59 352
Inventories, at cost
Gas stored -- current portion........... -- -- -- -- -- -- --
Materials and supplies (average cost
method)............................... 462 -- 462 462 -- -- --
Unrecovered gas costs..................... -- -- -- -- -- -- --
Deferred income taxes -- current.......... -- -- -- -- -- -- --
Prepayments and other current assets...... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Total current assets............. 27,125 (11,152) 38,277 37,854 -- 59 364
------- -------- ------- ------- --- ---- ------
REGULATORY AND OTHER ASSETS
Other investments......................... 27,364 -- 27,364 26,104 1 122 1,137
Deferred charges and other assets......... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Total regulatory and other
assets......................... 27,364 -- 27,364 26,104 1 122 1,137
------- -------- ------- ------- --- ---- ------
Total assets..................... $58,316 $(11,970) $70,286 $68,603 $ 1 $181 $1,501
======= ======== ======= ======= === ==== ======
</TABLE>
- ---------------
( ) denotes negative amount.
60
<PAGE> 63
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG Power Eliminations CNG
and and Combined CNG Granite Bear
STOCKHOLDER'S EQUITY AND LIABILITIES Subsidiaries Adjustments Total Power Road Mountain CNGMCS
- ------------------------------------ ------------ ------------ -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock............................... $22,460 $ (111) $22,571 $22,460 $ 1 $ 10 $ 100
Capital in excess of par value............. -- -- -- -- -- -- --
Retained earnings, per accompanying
statement................................ 9,556 (707) 10,263 9,556 -- 6 701
Treasury stock, at cost.................... -- -- -- -- -- -- --
Unearned compensation...................... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Total common stockholder's equity... 32,016 (818) 32,834 32,016 1 16 801
------- -------- ------- ------- --- ---- ------
Long-term debt
Debentures................................. -- -- -- -- -- -- --
Convertible subordinated debentures........ -- -- -- -- -- -- --
Unsecured loan............................. -- -- -- -- -- -- --
Notes payable to Parent Company............ 12,303 -- 12,303 12,303 -- -- --
------- -------- ------- ------- --- ---- ------
Total long-term debt................ 12,303 -- 12,303 12,303 -- -- --
------- -------- ------- ------- --- ---- ------
Total capitalization................ 44,319 (818) 45,137 44,319 1 16 801
------- -------- ------- ------- --- ---- ------
CURRENT LIABILITIES
Current maturities on long-term debt......... -- -- -- -- -- -- --
Commercial paper............................. -- -- -- -- -- -- --
Accounts payable............................. 479 -- 479 479 -- -- --
Payables to affiliated
companies -- consolidated.................. 1,758 (11,152) 12,910 12,216 -- 123 571
Estimated rate contingencies and refunds..... -- -- -- -- -- -- --
Amounts payable to customers................. -- -- -- -- -- -- --
Taxes accrued................................ 152 -- 152 23 -- 5 124
Deferred income taxes -- current............. -- -- -- -- -- -- --
Dividends declared........................... -- -- -- -- -- -- --
Other current liabilities.................... (5) -- (5) (3) -- -- (2)
------- -------- ------- ------- --- ---- ------
Total current liabilities........... 2,384 (11,152) 13,536 12,715 -- 128 693
------- -------- ------- ------- --- ---- ------
DEFERRED CREDITS
Deferred income taxes........................ 11,613 -- 11,613 11,569 -- 37 7
Accumulated deferred investment tax
credits.................................... -- -- -- -- -- -- --
Deferred credits and other liabilities....... -- -- -- -- -- -- --
------- -------- ------- ------- --- ---- ------
Total deferred credits.............. 11,613 -- 11,613 11,569 -- 37 7
------- -------- ------- ------- --- ---- ------
COMMITMENTS AND CONTINGENCIES
------- -------- ------- ------- --- ---- ------
Total stockholder's equity and
liabilities....................... $58,316 $(11,970) $70,286 $68,603 $ 1 $181 $1,501
======= ======== ======= ======= === ==== ======
</TABLE>
- ---------------
( ) denotes negative amount.
61
<PAGE> 64
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG Power Eliminations CNG
and and Combined CNG Granite Bear
Subsidiaries Adjustments Total Power Road Mountain CNGMCS
------------ ------------ -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales........... $ -- $ -- $ -- $ -- $-- $ -- $ --
Nonregulated gas sales........ -- -- -- -- -- -- --
------- ----- ------- ------- --- ---- -----
Total gas sales...... -- -- -- -- -- -- --
Gas transportation and
storage..................... -- -- -- -- -- -- --
Electricity sales............. -- -- -- -- -- -- --
Other......................... 13,656 -- 13,656 13,656 -- -- --
------- ----- ------- ------- --- ---- -----
Total operating
revenues........... 13,656 -- 13,656 13,656 -- -- --
------- ----- ------- ------- --- ---- -----
OPERATING EXPENSES
Purchased gas................. -- -- -- -- -- -- --
Electricity, liquids and
capacity purchased.......... 9,448 -- 9,448 9,448 -- -- --
Operation expense............. 2,425 -- 2,425 2,401 -- -- 24
Maintenance................... -- -- -- -- -- -- --
Depreciation and
amortization................ 378 -- 378 378 -- -- --
Impairment of gas and oil
producing properties........ -- -- -- -- -- -- --
Taxes, other than income
taxes....................... 213 -- 213 211 -- 2 --
------- ----- ------- ------- --- ---- -----
Subtotal............. 12,464 -- 12,464 12,438 -- 2 24
------- ----- ------- ------- --- ---- -----
Operating income
before income
taxes.............. 1,192 -- 1,192 1,218 -- (2) (24)
Income taxes.................. (470) -- (470) (784) -- 9 305
------- ----- ------- ------- --- ---- -----
Operating income..... 1,662 -- 1,662 2,002 -- (11) (329)
------- ----- ------- ------- --- ---- -----
OTHER INCOME (DEDUCTIONS)
Interest revenues............. -- -- -- -- -- -- --
Other -- net.................. (2,114) -- (2,114) (2,911) -- 21 776
Equity in earnings of
subsidiary
companies -- consolidated... -- (461) 461 461 -- -- --
Interest revenues from
affiliated
companies -- consolidated... 1,242 -- 1,242 1,238 -- -- 4
------- ----- ------- ------- --- ---- -----
Total other income
(deductions)....... (872) (461) (411) (1,212) -- 21 780
------- ----- ------- ------- --- ---- -----
Income before
interest charges... 790 (461) 1,251 790 -- 10 451
------- ----- ------- ------- --- ---- -----
INTEREST CHARGES
Interest on long-term debt.... 1,117 -- 1,117 1,117 -- -- --
Other interest expense........ 81 -- 81 81 -- -- --
Allowance for funds used
during construction......... -- -- -- -- -- -- --
------- ----- ------- ------- --- ---- -----
Total interest charges...... 1,198 -- 1,198 1,198 -- -- --
------- ----- ------- ------- --- ---- -----
NET INCOME.................... $ (408) $(461) $ 53 $ (408) $-- $ 10 $ 451
======= ===== ======= ======= === ==== =====
</TABLE>
- ---------------
( ) denotes negative amount.
62
<PAGE> 65
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG Power Eliminations CNG
and and Combined CNG Granite Bear
Subsidiaries Adjustments Total Power Road Mountain CNGMCS
------------ ------------ -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996.............. $9,964 $(246) $10,210 $9,964 $ -- $(4) $250
Net income for the year 1997 per
accompanying income statement........... (408) (461) 53 (408) -- 10 451
------ ----- ------- ------ ---- --- ----
Total............................ 9,556 (707) 10,263 9,556 -- 6 701
Dividends declared on common
stock -- cash........................... -- -- -- -- -- -- --
------ ----- ------- ------ ---- --- ----
Balance at December 31, 1997.............. $9,556 $(707) $10,263 $9,556 $ -- $ 6 $701
====== ===== ======= ====== ==== === ====
</TABLE>
- ---------------
( ) denotes negative amount.
63
<PAGE> 66
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG Power Eliminations CNG
and and Combined CNG Granite Bear
Subsidiaries Adjustments Total Power Road Mountain CNGMCS
------------ ------------ -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................... $ (408) $ (461) $ 53 $ (408) $ -- $ 10 $ 451
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization.................. 378 -- 378 378 -- -- --
Impairment of gas and oil producing
properties................................... -- -- -- -- -- -- --
Pension cost (credit).......................... -- -- -- -- -- -- --
Stock award amortization....................... -- -- -- -- -- -- --
Deferred income taxes -- net................... (1,929) -- (1,929) (1,944) -- 14 1
Investment tax credit.......................... -- -- -- -- -- -- --
Changes in current assets and current
liabilities
Accounts receivable -- net................... 226 -- 226 226 -- -- --
Receivables from affiliated
companies -- consolidated.................. 183 8,281 (8,098) (7,897) -- (49) (152)
Inventories.................................. (351) -- (351) (351) -- -- --
Unrecovered gas costs........................ -- -- -- -- -- -- --
Accounts payable............................. 1,313 -- 1,313 1,313 -- -- --
Payables to affiliated
companies -- consolidated.................. (379) (8,281) 7,902 7,732 -- 2 168
Estimated rate contingencies and refunds..... -- -- -- -- -- -- --
Amounts payable to customers................. -- -- -- -- -- -- --
Taxes accrued................................ (16) -- (16) (120) -- 5 99
Other -- net................................. -- -- -- 2 -- -- (2)
Changes in other assets and other
liabilities.................................. 8,046 -- 8,046 8,804 -- 18 (776)
Excess of equity in earnings of subsidiary
companies over their cash dividends
paid -- consolidated......................... -- 461 (461) (461) -- -- --
Other -- net................................... -- -- -- -- -- -- --
------- ------- ------- ------- ---- ---- -----
Net cash provided by (used in) operating
activities............................. 7,063 -- 7,063 7,274 -- -- (211)
------- ------- ------- ------- ---- ---- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions...................................... (49) -- (49) (49) -- -- --
Proceeds from dispositions of prop., plant and
equip. -- net.................................. -- -- -- -- -- -- --
Cost of other investments -- net................. -- -- -- -- -- -- --
Intrasystem long-term financing -- net........... -- -- -- -- -- -- --
Intrasystem money pool investments -- net........ (7,215) -- (7,215) (7,015) -- -- (200)
------- ------- ------- ------- ---- ---- -----
Net cash provided by (used in) investing
activities............................. (7,264) -- (7,264) (7,064) -- -- (200)
------- ------- ------- ------- ---- ---- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock......................... -- -- -- -- -- -- --
Issuance of debentures........................... -- -- -- -- -- -- --
Repayments of long-term debt..................... -- -- -- -- -- -- --
Commercial paper -- net.......................... -- -- -- -- -- -- --
Dividends paid................................... -- -- -- -- -- -- --
Intrasystem long-term financing -- net........... (390) -- (390) (390) -- -- --
Intrasystem money pool borrowings
(repayments) -- net............................ -- -- -- -- -- -- --
Dividends paid -- subsidiary
companies -- consolidated...................... -- -- -- -- -- -- --
Other -- net..................................... -- -- -- -- -- -- --
------- ------- ------- ------- ---- ---- -----
Net cash provided by (used in) financing
activities............................. (390) -- (390) (390) -- -- --
------- ------- ------- ------- ---- ---- -----
Net increase (decrease) in cash and
TCIs................................... (591) -- (591) (180) -- -- (411)
CASH AND TCIS AT JANUARY 1, 1997................. 626 -- 626 203 -- -- 423
------- ------- ------- ------- ---- ---- -----
CASH AND TCIS AT DECEMBER 31, 1997............... $ 35 $ -- $ 35 $ 23 $ -- $ -- $ 12
======= ======= ======= ======= ==== ==== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 1,198 $ -- $ 1,198 $ 1,198 $ -- $ -- $ --
Income taxes (net of refunds).................. $ 1,302 $ -- $ 1,302 $ 1,107 $ -- $(10) $ 205
</TABLE>
- ---------------
( ) denotes negative amount.
64
<PAGE> 67
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
65
<PAGE> 68
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Products and
Services Eliminations CNG
and and Combined Products and CNG
ASSETS Subsidiary Adjustments Total Services Technologies
------ ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant......... $ 77 $ -- $ 77 $ 77 $ --
Accumulated depreciation and
amortization...................... (12) -- (12) (12) --
------- ------- ------- ------- ------
Net gas utility and other
plant.................... 65 -- 65 65 --
------- ------- ------- ------- ------
Exploration and production
properties........................ -- -- -- -- --
Accumulated depreciation and
amortization...................... -- -- -- -- --
------- ------- ------- ------- ------
Net exploration and
production properties.... -- -- -- -- --
------- ------- ------- ------- ------
Net property, plant and
equipment................ 65 -- 65 65 --
------- ------- ------- ------- ------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated............ -- (1,863) 1,863 1,863 --
Notes of subsidiary
company -- consolidated........... -- -- -- -- --
------- ------- ------- ------- ------
Total investments.......... -- (1,863) 1,863 1,863 --
------- ------- ------- ------- ------
CURRENT ASSETS
Cash and temporary cash
investments....................... 52 -- 52 52 --
Accounts receivable
Customers......................... -- -- -- -- --
Unbilled revenues and other....... 315 -- 315 315 --
Allowance for doubtful accounts... -- -- -- -- --
Receivables from affiliated
companies -- consolidated......... 14,401 (39) 14,440 14,401 39
Inventories, at cost
Gas stored -- current portion..... -- -- -- -- --
Materials and supplies (average
cost method).................... -- -- -- -- --
Unrecovered gas costs............... -- -- -- -- --
Deferred income taxes--current...... -- -- -- -- --
Prepayments and other current
assets............................ -- -- -- -- --
------- ------- ------- ------- ------
Total current assets....... 14,768 (39) 14,807 14,768 39
------- ------- ------- ------- ------
REGULATORY AND OTHER ASSETS
Other investments................... 2,250 -- 2,250 250 2,000
Deferred charges and other assets... -- (145) 145 229 (84)
------- ------- ------- ------- ------
Total regulatory and other
assets................... 2,250 (145) 2,395 479 1,916
------- ------- ------- ------- ------
Total assets............... $17,083 $(2,047) $19,130 $17,175 $1,955
======= ======= ======= ======= ======
</TABLE>
- ---------------
( ) denotes negative amount.
66
<PAGE> 69
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Products and
Services Eliminations CNG
and and Combined Products and CNG
Stockholder's Equity and Liabilities Subsidiary Adjustments Total Services Technologies
- ------------------------------------ ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock............................ $ 3,990 $(2,000) $ 5,990 $ 3,990 $2,000
Capital in excess of par value.......... -- -- -- -- --
Retained earnings, per
accompanying statement................ (1,075) 137 (1,212) (1,075) (137)
Treasury stock, at cost................. -- -- -- -- --
Unearned compensation................... -- -- -- -- --
------- ------- ------- ------- ------
Total common stockholder's
equity......................... 2,915 (1,863) 4,778 2,915 1,863
------- ------- ------- ------- ------
Long-term debt
Debentures.............................. -- -- -- -- --
Convertible subordinated
debentures............................ -- -- -- -- --
Unsecured loan.......................... -- -- -- -- --
Notes payable to Parent Company......... -- -- -- -- --
------- ------- ------- ------- ------
Total long-term debt............. -- -- -- -- --
------- ------- ------- ------- ------
Total capitalization............. 2,915 (1,863) 4,778 2,915 1,863
------- ------- ------- ------- ------
CURRENT LIABILITIES
Current maturities on long-term
debt.................................... -- -- -- -- --
Commercial paper.......................... -- -- -- -- --
Accounts payable.......................... 1,980 -- 1,980 1,980 --
Payables to affiliated
companies -- consolidated............... 12,688 (39) 12,727 12,727 --
Estimated rate contingencies and
refunds................................. -- -- -- -- --
Amounts payable to customers.............. -- -- -- -- --
Taxes accrued............................. (554) -- (554) (447) (107)
Deferred income taxes--current............ -- -- -- -- --
Dividends declared........................ -- -- -- -- --
Other current liabilities................. -- -- -- -- --
------- ------- ------- ------- ------
Total current
liabilities.................... 14,114 (39) 14,153 14,260 (107)
------- ------- ------- ------- ------
DEFERRED CREDITS
Deferred income taxes..................... 54 (145) 199 -- 199
Accumulated deferred investment tax
credits................................. -- -- -- -- --
Deferred credits and other
liabilities............................. -- -- -- -- --
------- ------- ------- ------- ------
Total deferred credits........... 54 (145) 199 -- 199
------- ------- ------- ------- ------
COMMITMENTS AND CONTINGENCIES
------- ------- ------- ------- ------
Total stockholder's equity
and liabilities................ $17,083 $(2,047) $19,130 $17,175 $1,955
======= ======= ======= ======= ======
</TABLE>
- ---------------
( ) denotes negative amount.
67
<PAGE> 70
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Products and
Services Eliminations CNG
and and Combined Products and CNG
Subsidiary Adjustments Total Services Technologies
------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales............ $ -- $-- $ -- $ -- $ --
Nonregulated gas sales......... -- -- -- -- --
------ --- ------ ------ ----
Total gas sales...... -- -- -- -- --
Gas transportation and
storage...................... -- -- -- -- --
Electricity sales.............. -- -- -- -- --
Other.......................... 5,112 -- 5,112 5,112 --
------ --- ------ ------ ----
Total operating
revenues........... 5,112 -- 5,112 5,112 --
------ --- ------ ------ ----
OPERATING EXPENSES
Purchased gas.................. -- -- -- -- --
Electricity, liquids and
capacity purchased........... -- -- -- -- --
Operation expense.............. 5,171 -- 5,171 5,171 --
Maintenance.................... 18 -- 18 18 --
Depreciation and
amortization................. -- -- -- -- --
Impairment of gas and oil
producing properties......... -- -- -- -- --
Taxes, other than income
taxes........................ 27 -- 27 19 8
------ --- ------ ------ ----
Subtotal............. 5,216 -- 5,216 5,208 8
------ --- ------ ------ ----
Operating income
before income
taxes.............. (104) -- (104) (96) (8)
Income taxes................... (132) -- (132) (141) 9
------ --- ------ ------ ----
Operating income..... 28 -- 28 45 (17)
------ --- ------ ------ ----
OTHER INCOME (DEDUCTIONS)
Interest revenues.............. -- -- -- -- --
Other -- net................... 5 -- 5 5 --
Equity in earnings of
subsidiary
company -- consolidated...... -- 17 (17) (17) --
Interest revenues from
affiliated
companies -- consolidated.... -- -- -- -- --
------ --- ------ ------ ----
Total other income
(deductions)....... 5 17 (12) (12) --
------ --- ------ ------ ----
Income before
interest charges... 33 17 16 33 (17)
------ --- ------ ------ ----
INTEREST CHARGES
Interest on long-term debt..... -- -- -- -- --
Other interest expense......... 113 -- 113 113 --
Allowance for funds used during
construction................. -- -- -- -- --
------ --- ------ ------ ----
Total interest
charges............ 113 -- 113 113 --
------ --- ------ ------ ----
NET INCOME..................... $ (80) $17 $ (97) $ (80) $(17)
====== === ====== ====== ====
</TABLE>
- ---------------
( ) denotes negative amount.
68
<PAGE> 71
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Products and
Services Eliminations CNG
and and Combined Products and CNG
Subsidiary Adjustments Total Services Technologies
------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31,
1996..................... $ (995) $120 $(1,115) $ (995) $(120)
Net income for the year
1997 per accompanying
income statement......... (80) 17 (97) (80) (17)
------- ---- ------- ------- -----
Total............ (1,075) 137 (1,212) (1,075) (137)
Dividends declared on
common stock -- cash..... -- -- -- -- --
------- ---- ------- ------- -----
Balance at December 31,
1997..................... $(1,075) $137 $(1,212) $(1,075) $(137)
======= ==== ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
69
<PAGE> 72
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Products
and CNG
Services Eliminations Products
and and Combined and CNG
Subsidiary Adjustments Total Services Technologies
----------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ (80) $ 17 $ (97) $ (80) $(17)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization............................. -- -- -- -- --
Impairment of gas and oil producing properties............ -- -- -- -- --
Pension cost (credit)..................................... -- -- -- -- --
Stock award amortization.................................. -- -- -- -- --
Deferred income taxes-net................................. (142) -- (142) (226) 84
Investment tax credit..................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable-net................................. (315) -- (315) (315) --
Receivables from affiliated companies--consolidated..... (13,699) 39 (13,738) (13,745) 7
Inventories............................................. -- -- -- -- --
Unrecovered gas costs................................... -- -- -- -- --
Accounts payable........................................ 1,541 -- 1,541 1,541 --
Payables to affiliated companies--consolidated.......... 4,555 (39) 4,594 4,594 --
Estimated rate contingencies and refunds................ -- -- -- -- --
Amounts payable to customers............................ -- -- -- -- --
Taxes accrued........................................... (731) -- (731) (657) (74)
Other-net............................................... -- -- -- -- --
Changes in other assets and other liabilities............. -- -- -- -- --
Excess of equity in earnings of subsidiary companies
over their cash dividends paid--consolidated............ -- (17) 17 17 --
Other-net................................................. -- -- -- -- --
-------- ---- ------- ------- ----
Net cash provided by (used in) operating
activities........................................ (8,871) -- (8,871) (8,871) --
-------- ---- ------- ------- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions............. -- -- -- -- --
Proceeds from dispositions of prop., plant and
equip. -- net............................................. 12 -- 12 12 --
Cost of other investments -- net............................ (250) -- (250) (250) --
Intrasystem long-term financing -- net...................... -- -- -- -- --
Intrasystem money pool investments -- net................... -- -- -- -- --
Property transfers to (from) affiliates..................... 49 -- 49 49 --
-------- ---- ------- ------- ----
Net cash provided by (used in) investing
activities........................................ (189) -- (189) (189) --
-------- ---- ------- ------- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................... -- -- -- -- --
Issuance of debentures...................................... -- -- -- --
Repayments of long-term debt................................ -- -- -- -- --
Commercial paper -- net..................................... -- -- -- --
Dividends paid.............................................. -- -- -- -- --
Intrasystem long-term financing -- net...................... 940 -- 940 940 --
Intrasystem money pool borrowings (repayments) -- net....... 7,845 -- 7,845 7,845 --
Dividends paid--subsidiary companies--consolidated.......... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
-------- ---- ------- ------- ----
Net cash provided by (used in) financing
activities........................................ 8,785 -- 8,785 8,785 --
-------- ---- ------- ------- ----
Net increase (decrease) in cash and TCIs............ (275) -- (275) (275) --
CASH AND TCIS AT JANUARY 1, 1997............................ 327 -- 327 327 --
-------- ---- ------- ------- ----
CASH AND TCIS AT DECEMBER 31, 1997.......................... $ 52 $ -- $ 52 $ 52 $ --
======== ==== ======= ======= ====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)..................... $ 113 $ -- $ 113 $ 113 $ --
Income taxes (net of refunds)............................. $ 789 $ -- $ 789 $ 816 $(27)
</TABLE>
- ---------------
( ) denotes negative amount.
70
<PAGE> 73
(THIS PAGE INTENTIONALLY LEFT BLANK)
71
<PAGE> 74
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Assets Subsidiary Adjustments Total CNGPSC Lakewood
------ ---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant........... $ 3,288 $ -- $ 3,288 $3,288 $ --
Accumulated depreciation and
amortization........................ (561) -- (561) (561) --
------- ------- ------- ------- ----
Net gas utility and other
plant..................... 2,727 -- 2,727 2,727 --
------- ------- ------- ------- ----
Exploration and production
properties.......................... -- -- -- -- --
Accumulated depreciation and
amortization........................ -- -- -- -- --
------- ------- ------- ------- ----
Net exploration and
production properties..... -- -- -- -- --
------- ------- ------- ------- ----
Net property, plant and
equipment................. 2,727 -- 2,727 2,727 --
------- ------- ------- ------- ----
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated.............. -- (529) 529 529 --
Notes of subsidiary
company -- consolidated............. -- -- -- -- --
------- ------- ------- ------- ----
Total investments........... -- (529) 529 529 --
------- ------- ------- ------- ----
CURRENT ASSETS
Cash and temporary cash investments... 8 -- 8 -- 8
Accounts receivable
Customers........................... 28,057 -- 28,057 28,057 --
Unbilled revenues and other......... -- -- -- -- --
Allowance for doubtful accounts..... -- -- -- -- --
Receivables from affiliated
companies -- consolidated........... 6,542 (526) 7,068 6,735 333
Inventories, at cost
Gas stored -- current portion....... -- -- -- -- --
Materials and supplies (average cost
method).......................... -- -- -- -- --
Unrecovered gas costs................. -- -- -- -- --
Deferred income taxes -- current...... -- -- -- -- --
Prepayments and other current
assets.............................. 510 -- 510 510 --
------- ------- ------- ------- ----
Total current assets........ 35,117 (526) 35,643 35,302 341
------- ------- ------- ------- ----
REGULATORY AND OTHER ASSETS
Other investments..................... 417 -- 417 -- 417
Deferred charges and other assets..... -- -- -- -- --
------- ------- ------- ------- ----
Total regulatory and other
assets.................... 417 -- 417 -- 417
------- ------- ------- ------- ----
Total assets................ $38,261 $(1,055) $39,316 $38,558 $758
======= ======= ======= ======= ====
</TABLE>
- ---------------
( ) denotes negative amount.
72
<PAGE> 75
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Stockholder's Equity and Liabilities Subsidiary Adjustments Total CNGPSC Lakewood
------------------------------------ ---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock........................ $15,520 $ (520) $16,040 $15,520 $ 520
Capital in excess of par value...... -- -- -- -- --
Retained earnings, per accompanying
statement........................ (9,190) (9) (9,181) (8,762) (419)
Treasury stock, at cost............. -- -- -- -- --
Unearned compensation............... -- -- -- -- --
------- ------- ------- ------- -----
Total common stockholder's
equity.................... 6,330 (529) 6,859 6,758 101
------- ------- ------- ------- -----
Long-term debt
Debentures.......................... -- -- -- -- --
Convertible subordinated
debentures....................... -- -- -- -- --
Unsecured loan...................... -- -- -- -- --
Notes payable to Parent Company..... -- -- -- -- --
------- ------- ------- ------- -----
Total long-term debt........ -- -- -- -- --
------- ------- ------- ------- -----
Total capitalization........ 6,330 (529) 6,859 6,758 101
------- ------- ------- ------- -----
CURRENT LIABILITIES
Current maturities on long-term
debt................................ -- -- -- -- --
Commercial paper...................... -- -- -- -- --
Accounts payable...................... 30,241 -- 30,241 30,241 --
Payables to affiliated
companies -- consolidated........... 398 (526) 924 398 526
Estimated rate contingencies and
refunds............................. -- -- -- -- --
Amounts payable to customers.......... -- -- -- -- --
Taxes accrued......................... (35) -- (35) (16) (19)
Deferred income taxes--current........ -- -- -- -- --
Dividends declared.................... -- -- -- -- --
Other current liabilities............. 203 -- 203 203 --
------- ------- ------- ------- -----
Total current liabilities... 30,807 (526) 31,333 30,826 507
------- ------- ------- ------- -----
DEFERRED CREDITS
Deferred income taxes................. 1,130 -- 1,130 980 150
Accumulated deferred investment tax
credits............................. -- -- -- -- --
Deferred credits and other
liabilities......................... (6) -- (6) (6) --
------- ------- ------- ------- -----
Total deferred credits...... 1,124 -- 1,124 974 150
------- ------- ------- ------- -----
COMMITMENTS AND CONTINGENCIES
------- ------- ------- ------- -----
Total stockholder's equity
and liabilities........... $38,261 $(1,055) $39,316 $38,558 $ 758
======= ======= ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
73
<PAGE> 76
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGPSC Lakewood
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales................... $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales................ -- -- -- -- --
-------- ---- ------- ------- -----
Total gas sales............. -- -- -- -- --
Gas transportation and storage........ -- -- -- -- --
Electricity sales..................... 594,525 -- 594,525 594,525 --
Other................................. -- -- -- -- --
-------- ---- ------- ------- -----
Total operating revenues.... 594,525 -- 594,525 594,525 --
-------- ---- ------- ------- -----
OPERATING EXPENSES
Purchased gas......................... -- -- -- -- --
Electricity, liquids and capacity
purchased........................... 595,033 -- 595,033 595,033 --
Operation expense..................... 7,702 -- 7,702 7,684 18
Maintenance........................... -- -- -- -- --
Depreciation and amortization......... 561 -- 561 561 --
Impairment of gas and oil producing
properties.......................... -- -- -- -- --
Taxes, other than income taxes........ 392 -- 392 391 1
-------- ---- ------- ------- -----
Subtotal.................... 603,688 -- 603,688 603,669 19
-------- ---- ------- ------- -----
Operating income before
income taxes.............. (9,163) -- (9,163) (9,144) (19)
Income taxes.......................... (2,957) -- (2,957) (3,046) 89
-------- ---- ------- ------- -----
Operating income............ (6,206) -- (6,206) (6,098) (108)
-------- ---- ------- ------- -----
OTHER INCOME (DEDUCTIONS)
Interest revenues..................... 10 -- 10 9 1
Other -- net.......................... 125 -- 125 75 50
Equity in earnings of subsidiary
company -- consolidated............. -- 52 (52) (52) --
Interest revenues from affiliated
companies -- consolidated........... 91 -- 91 86 5
-------- ---- ------- ------- -----
Total other income
(deductions).............. 226 52 174 118 56
-------- ---- ------- ------- -----
Income before interest
charges................... (5,980) 52 (6,032) (5,980) (52)
-------- ---- ------- ------- -----
INTEREST CHARGES
Interest on long-term debt............ -- -- -- -- --
Other interest expense................ 12 -- 12 12 --
Allowance for funds used during
construction........................ -- -- -- -- --
-------- ---- ------- ------- -----
Total interest charges...... 12 -- 12 12 --
-------- ---- ------- ------- -----
NET INCOME............................ $ (5,992) $ 52 $(6,044) $(5,992) $ (52)
======== ==== ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
74
<PAGE> 77
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGPSC Lakewood
---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996.......... $(3,198) $(61) $(3,137) $(2,770) $(367)
Net income for the year 1997 per
accompanying income statement....... (5,992) 52 (6,044) (5,992) (52)
------- ---- ------- ------- -----
Total....................... (9,190) (9) (9,181) (8,762) (419)
Dividends declared on common
stock -- cash....................... -- -- -- -- --
------- ---- ------- ------- -----
Balance at December 31, 1997.......... $(9,190) $ (9) $(9,181) $(8,762) $(419)
======= ==== ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
75
<PAGE> 78
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGPSC Lakewood
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ (5,992) $ 52 $ (6,044) $ (5,992) $ (52)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization........................ 561 -- 561 561 --
Impairment of gas and oil producing properties....... -- -- -- -- --
Pension cost (credit)................................ -- -- -- -- --
Stock award amortization............................. -- -- -- -- --
Deferred income taxes-net............................ 943 -- 943 919 24
Investment tax credit................................ -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable-net............................ (12,928) -- (12,928) (12,949) 21
Receivables from affiliated
companies--consolidated.......................... 275 518 (243) (240) (3)
Inventories........................................ 14 -- 14 14 --
Unrecovered gas costs.............................. -- -- -- -- --
Accounts payable................................... 17,502 -- 17,502 17,502 --
Payables to affiliated companies--consolidated..... (2,369) (518) (1,851) (1,859) 8
Estimated rate contingencies and refunds........... -- -- -- -- --
Amounts payable to customers....................... -- -- -- -- --
Taxes accrued...................................... 507 -- 507 452 55
Other--net......................................... (687) -- (687) (687) --
Changes in other assets and other liabilities........ (22) -- (22) (6) (16)
Excess of equity in earnings of subsidiary companies
over their cash dividends paid--consolidated....... -- (52) 52 52 --
Other--net........................................... -- -- -- -- --
-------- ----- -------- -------- -----
Net cash provided by (used in) operating
activities..................................... (2,196) -- (2,196) (2,233) 37
-------- ----- -------- -------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions........ (948) -- (948) (948) --
Proceeds from dispositions of prop., plant and
equip.--net.......................................... -- -- -- -- --
Cost of other investments--net......................... -- -- -- -- --
Intrasystem long-term financing--net................... -- -- -- --
Intrasystem money pool investments--net................ (5,530) -- (5,530) (5,200) (330)
-------- ----- -------- -------- -----
Net cash provided by (used in) investing
activities..................................... (6,478) -- (6,478) (6,148) (330)
-------- ----- -------- -------- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock............................... -- -- -- -- --
Issuance of debentures................................. -- -- -- -- --
Repayments of long-term debt........................... -- -- -- -- --
Commercial paper--net.................................. -- -- -- -- --
Dividends paid......................................... -- -- -- -- --
Intrasystem long-term financing--net................... -- -- -- -- --
Intrasystem money pool borrowings (repayments)--net.... -- -- -- -- --
Dividends paid--subsidiary companies--consolidated..... -- -- -- -- --
Other--net............................................. -- -- -- -- --
-------- ----- -------- -------- -----
Net cash provided by (used in) financing
activities..................................... -- -- -- -- --
-------- ----- -------- -------- -----
Net increase (decrease) in cash and TCIs......... (8,674) -- (8,674) (8,381) (293)
CASH AND TCIS AT JANUARY 1, 1997....................... 8,682 -- 8,682 8,381 301
-------- ----- -------- -------- -----
CASH AND TCIS AT DECEMBER 31, 1997..................... $ 8 $ -- $ 8 $ -- $ 8
======== ===== ======== ======== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)................ $ 11 $ -- $ 11 $ 11 $ --
Income taxes (net of refunds)........................ $ (4,490) $ -- $(4,490) $(4,500) $ 10
</TABLE>
- ---------------
( ) denotes negative amount.
76
<PAGE> 79
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
77
<PAGE> 80
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGI Eliminations CNG CNG Cayman One Eliminations
and and Combined Cayman Cayman and and
ASSETS Subsidiaries Adjustments Total CNGI Two Three Subsidiary Adjustments
------ ------------ ------------ -------- -------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND
EQUIPMENT
Gas utility and other
plant................. $ 706 $ -- $ 706 $ 706 $ -- $ -- $ -- $ --
Accumulated depreciation
and amortization...... (164) -- (164) (164) -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Net gas utility and
other plant......... 542 -- 542 542 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Exploration and
production
properties............ -- -- -- -- -- -- -- --
Accumulated depreciation
and amortization...... -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Net exploration and
production
properties.......... -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Net property, plant
and equipment....... 542 -- 542 542 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
INVESTMENTS
Stocks of subsidiary
companies, at
equity -- consolidated... -- (38,705) 38,705 38,705 -- -- -- (38,318)
Notes of subsidiary
companies -- consolidated.. -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total investments..... -- (38,705) 38,705 38,705 -- -- -- (38,318)
-------- -------- -------- -------- ---- ---- ------- --------
CURRENT ASSETS
Cash and temporary cash
investments........... 3,708 -- 3,708 12 -- -- 3,696 --
Accounts receivable
Customers............. -- -- -- -- -- -- -- --
Unbilled revenues and
other............... 46 -- 46 32 -- -- 14 --
Allowance for doubtful
accounts............ -- -- -- -- -- -- -- --
Receivables from
affiliated
companies -- consolidated.. 78,000 (32) 78,032 78,031 1 -- -- (31)
Inventories, at cost
Gas stored -- current
portion............. -- -- -- -- -- -- -- --
Materials and supplies
(average cost
method)............. -- -- -- -- -- -- -- --
Unrecovered gas costs... -- -- -- -- -- -- -- --
Deferred income
taxes -- current...... -- -- -- -- -- -- -- --
Prepayments and other
current assets........ 1 -- 1 1 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total current
assets............ 81,755 (32) 81,787 78,076 1 -- 3,710 (31)
-------- -------- -------- -------- ---- ---- ------- --------
REGULATORY AND OTHER
ASSETS
Other investments....... 117,091 (387) 117,478 86,230 387 -- 30,861 --
Deferred charges and
other assets.......... 314 -- 314 314 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total regulatory and
other assets...... 117,405 (387) 117,792 86,544 387 -- 30,861 --
-------- -------- -------- -------- ---- ---- ------- --------
Total assets........ $199,702 $(39,124) $238,826 $203,867 $388 $ -- $34,571 $(38,349)
======== ======== ======== ======== ==== ==== ======= ========
<CAPTION>
CNG CNGI
Combined Cayman Australia
ASSETS Total One Pty Ltd.
------ -------- ------- ---------
<S> <C> <C> <C>
PROPERTY, PLANT AND
EQUIPMENT
Gas utility and other
plant................. $ -- $ -- $ --
Accumulated depreciation
and amortization...... -- -- --
------- ------- -------
Net gas utility and
other plant......... -- -- --
------- ------- -------
Exploration and
production
properties............ -- -- --
Accumulated depreciation
and amortization...... -- -- --
------- ------- -------
Net exploration and
production
properties.......... -- -- --
------- ------- -------
Net property, plant
and equipment....... -- -- --
------- ------- -------
INVESTMENTS
Stocks of subsidiary
companies, at
equity -- consolidated 38,318 38,318 --
Notes of subsidiary
companies -- consolida -- -- --
------- ------- -------
Total investments..... 38,318 38,318 --
------- ------- -------
CURRENT ASSETS
Cash and temporary cash
investments........... 3,696 -- 3,696
Accounts receivable
Customers............. -- -- --
Unbilled revenues and
other............... 14 -- 14
Allowance for doubtful
accounts............ -- -- --
Receivables from
affiliated
companies -- consolida 31 31 --
Inventories, at cost
Gas stored -- current
portion............. -- -- --
Materials and supplies
(average cost
method)............. -- -- --
Unrecovered gas costs... -- -- --
Deferred income
taxes -- current...... -- -- --
Prepayments and other
current assets........ -- -- --
------- ------- -------
Total current
assets............ 3,741 31 3,710
------- ------- -------
REGULATORY AND OTHER
ASSETS
Other investments....... 30,861 -- 30,861
Deferred charges and
other assets.......... -- -- --
------- ------- -------
Total regulatory and
other assets...... 30,861 -- 30,861
------- ------- -------
Total assets........ $72,920 $38,349 $34,571
======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
78
<PAGE> 81
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGI Eliminations CNG CNG Cayman One Eliminations
STOCKHOLDER'S EQUITY and and Combined Cayman Cayman and and
AND LIABILITIES Subsidiaries Adjustments Total CNGI Two Three Subsidiary Adjustments
- --------------- ------------ ------------ -------- -------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's
equity
Common stock............ $ 85,550 $ -- $85,550 $ 85,550 $ -- $ -- $ -- $ --
Capital in excess of
par value........... -- (38,731) 38,731 -- 387 -- 38,344 (38,731)
Retained earnings, per
accompanying
statement........... (10,628) 26 (10,654) (6,462) -- -- (4,192) 26
Treasury stock, at
cost................ -- -- -- -- -- -- -- --
Unearned
compensation........ -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total common
stockholder's
equity............ 74,922 (38,705) 113,627 79,088 387 -- 34,152 (38,705)
-------- -------- -------- -------- ---- ---- ------- --------
Long-term debt
Debentures............ -- -- -- -- -- -- -- --
Convertible
subordinated
debentures.......... -- -- -- -- -- -- -- --
Unsecured loan........ -- -- -- -- -- -- -- --
Notes payable to
Parent Company...... 40,000 -- 40,000 40,000 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total long-term
debt.............. 40,000 -- 40,000 40,000 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total
capitalization.... 114,922 (38,705) 153,627 119,088 387 -- 34,152 (38,705)
-------- -------- -------- -------- ---- ---- ------- --------
Minority Interest in Net
Assets................ -- (387) 387 -- -- -- 387 387
-------- -------- -------- -------- ---- ---- ------- --------
CURRENT LIABILITIES
Current maturities on
long-term debt........ -- -- -- -- -- -- -- --
Commercial paper........ -- -- -- -- -- -- -- --
Accounts payable........ 1,304 -- 1,304 1,304 -- -- -- --
Payables to affiliated
companies--
consolidated.......... 83,319 (32) 83,351 83,318 1 -- 32 (31)
Estimated rate
contingencies and
refunds............... -- -- -- -- -- -- -- --
Amounts payable to
customers............. -- -- -- -- -- -- -- --
Taxes accrued........... 60 -- 60 60 -- -- -- --
Deferred income
taxes--current........ -- -- -- -- -- -- -- --
Dividends declared...... -- -- -- -- -- -- -- --
Other current
liabilities........... 3 -- 3 3 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total current
liabilities....... 84,686 (32) 84,718 84,685 1 -- 32 (31)
-------- -------- -------- -------- ---- ---- ------- --------
DEFERRED CREDITS
Deferred income taxes... (226) -- (226) (226) -- -- -- --
Accumulated deferred
investment tax
credits............... -- -- -- -- -- -- -- --
Deferred credits and
other liabilities..... 320 -- 320 320 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
Total deferred
credits........... 94 -- 94 94 -- -- -- --
-------- -------- -------- -------- ---- ---- ------- --------
COMMITMENTS AND
CONTINGENCIES
-------- -------- -------- -------- ---- ---- ------- --------
Total stockholder's
equity and
liabilities....... $199,702 $(39,124) $238,826 $203,867 $388 $ -- $34,571 $(38,349)
======== ======== ======== ======== ==== ==== ======= ========
<CAPTION>
CNG CNGI
STOCKHOLDER'S EQUITY Combined Cayman Australia
AND LIABILITIES Total One Pty Ltd.
- --------------- -------- ------- ---------
<S> <C> <C> <C>
CAPITALIZATION
Common stockholder's
equity
Common stock............ $ -- $ -- $ --
Capital in excess of
par value........... 77,075 38,344 38,731
Retained earnings, per
accompanying
statement........... (4,218) (26) (4,192)
Treasury stock, at
cost................ -- -- --
Unearned
compensation........ -- -- --
------- ------- -------
Total common
stockholder's
equity............ 72,857 38,318 34,539
------- ------- -------
Long-term debt
Debentures............ -- -- --
Convertible
subordinated
debentures.......... -- -- --
Unsecured loan........ -- -- --
Notes payable to
Parent Company...... -- -- --
------- ------- -------
Total long-term
debt.............. -- -- --
------- ------- -------
Total
capitalization.... 72,857 38,318 34,539
------- ------- -------
Minority Interest in Net
Assets................ -- -- --
------- ------- -------
CURRENT LIABILITIES
Current maturities on
long-term debt........ -- -- --
Commercial paper........ -- -- --
Accounts payable........ -- -- --
Payables to affiliated
companies--
consolidated.......... 63 31 32
Estimated rate
contingencies and
refunds............... -- -- --
Amounts payable to
customers............. -- -- --
Taxes accrued........... -- -- --
Deferred income
taxes--current........ -- -- --
Dividends declared...... -- -- --
Other current
liabilities........... -- -- --
------- ------- -------
Total current
liabilities....... 63 31 32
------- ------- -------
DEFERRED CREDITS
Deferred income taxes... -- -- --
Accumulated deferred
investment tax
credits............... -- -- --
Deferred credits and
other liabilities..... -- -- --
------- ------- -------
Total deferred
credits........... -- -- --
------- ------- -------
COMMITMENTS AND
CONTINGENCIES
------- ------- -------
Total stockholder's
equity and
liabilities....... $72,920 $38,349 $34,571
======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
79
<PAGE> 82
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGI Eliminations CNG CNG Cayman One Eliminations
and and Combined Cayman Cayman and and
Subsidiaries Adjustments Total CNGI Two Three Subsidiary Adjustments
------------ ------------ -------- ------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales........... $ -- $ -- $ -- $ -- $-- $-- $ -- $ --
Nonregulated gas sales........ -- -- -- -- -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Total gas sales........ -- -- -- -- -- -- -- --
Gas transportation and
storage...................... -- -- -- -- -- -- -- --
Electricity sales............. -- -- -- -- -- -- -- --
Other......................... 396 -- 396 396 -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Total operating
revenues.............. 396 -- 396 396 -- -- -- --
------- ---- ------- ------- --- --- ----- ----
OPERATING EXPENSES
Purchased gas................. -- -- -- -- -- -- -- --
Electricity, liquids and
capacity purchased........... -- -- -- -- -- -- -- --
Operation expense............. 6,907 -- 6,907 6,201 -- -- 706 --
Maintenance................... 29 -- 29 29 -- -- -- --
Depreciation and
amortization................. 153 -- 153 153 -- -- -- --
Impairment of gas and oil
producing properties......... -- -- -- -- -- -- -- --
Taxes, other than income
taxes........................ 106 -- 106 106 -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Subtotal............... 7,195 -- 7,195 6,489 -- -- 706 --
------- ---- ------- ------- --- --- ----- ----
Operating income before
income taxes.......... (6,799) -- (6,799) (6,093) -- -- (706) --
Income taxes.................. (2,513) -- (2,513) (2,513) -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Operating income....... (4,286) -- (4,286) (3,580) -- -- (706) --
------- ---- ------- ------- --- --- ----- ----
OTHER INCOME (DEDUCTIONS)
Interest revenues............. 163 -- 163 4 -- -- 159 --
Other -- net.................. 525 -- 525 4 -- -- 521 --
Equity in earnings of
subsidiary
companies -- consolidated.... -- 26 (26) (26) -- -- -- 26
Interest revenues from
affiliated
companies -- consolidated.... -- -- -- -- -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Total other income
(deductions).......... 688 26 662 (18) -- -- 680 26
------- ---- ------- ------- --- --- ----- ----
Income before interest
charges............... (3,598) 26 (3,624) (3,598) -- -- (26) 26
------- ---- ------- ------- --- --- ----- ----
INTEREST CHARGES
Interest on long-term debt.... -- -- -- -- -- -- -- --
Other interest expense........ 233 -- 233 233 -- -- -- --
Allowance for funds used
during construction.......... -- -- -- -- -- -- -- --
------- ---- ------- ------- --- --- ----- ----
Total interest
charges............... 233 -- 233 233 -- -- -- --
------- ---- ------- ------- --- --- ----- ----
NET INCOME.................... $(3,831) $ 26 $(3,857) $(3,831) $-- $-- $ (26) $ 26
======= ==== ======= ======= === === ===== ====
<CAPTION>
CNG CNGI
Combined Cayman Australia
Total One Pty Ltd.
-------- ------ ---------
<S> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales........... $ -- $ -- $ --
Nonregulated gas sales........ -- -- --
----- ---- ----
Total gas sales........ -- -- --
Gas transportation and
storage...................... -- -- --
Electricity sales............. -- -- --
Other......................... -- -- --
----- ---- ----
Total operating
revenues.............. -- -- --
----- ---- ----
OPERATING EXPENSES
Purchased gas................. -- -- --
Electricity, liquids and
capacity purchased........... -- -- --
Operation expense............. 706 -- 706
Maintenance................... -- -- --
Depreciation and
amortization................. -- -- --
Impairment of gas and oil
producing properties......... -- -- --
Taxes, other than income
taxes........................ -- -- --
----- ---- ----
Subtotal............... 706 -- 706
----- ---- ----
Operating income before
income taxes.......... (706) -- (706)
Income taxes.................. -- -- --
----- ---- ----
Operating income....... (706) -- (706)
----- ---- ----
OTHER INCOME (DEDUCTIONS)
Interest revenues............. 159 -- 159
Other -- net.................. 521 -- 521
Equity in earnings of
subsidiary
companies -- consolidated.... (26) (26) --
Interest revenues from
affiliated
companies -- consolidated.... -- -- --
----- ---- ----
Total other income
(deductions).......... 654 (26) 680
----- ---- ----
Income before interest
charges............... (52) (26) (26)
----- ---- ----
INTEREST CHARGES
Interest on long-term debt.... -- -- --
Other interest expense........ -- -- --
Allowance for funds used
during construction.......... -- -- --
----- ---- ----
Total interest
charges............... -- -- --
----- ---- ----
NET INCOME.................... $ (52) $(26) $(26)
===== ==== ====
</TABLE>
- ---------------
( ) denotes negative amount.
80
<PAGE> 83
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGI Eliminations CNG CNG Cayman One
and and Combined Cayman Cayman and
Subsidiaries Adjustments Total CNGI Two Three Subsidiary
------------ ------------ -------- ------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996........ $ (2,631) $ -- $(2,631) $(2,631) $ -- $ -- $ --
Net income for the year 1997 per
accompanying income statement..... (3,831) 26 (3,857) (3,831) -- -- (26)
-------- ---- -------- ------- ---- ---- -------
Total....................... (6,462) 26 (6,488) (6,462) -- -- (26)
Dividends declared on common
stock -- cash..................... -- -- -- -- -- -- --
Cumulative translation adjustment... (4,166) -- (4,166) -- -- -- (4,166)
-------- ---- -------- ------- ---- ---- -------
Balance at December 31, 1997........ $(10,628) $ 26 $(10,654) $(6,462) $ -- $ -- $(4,192)
======== ==== ======== ======= ==== ==== =======
<CAPTION>
Eliminations CNG CNGI
and Combined Cayman Australia
Adjustments Total One Pty Ltd.
------------ -------- ------ ---------
<S> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1996........ $ -- $ -- $ -- $ --
Net income for the year 1997 per
accompanying income statement..... 26 (52) (26) (26)
---- ------- ---- -------
Total....................... 26 (52) (26) (26)
Dividends declared on common
stock -- cash..................... -- -- -- --
Cumulative translation adjustment... -- (4,166) -- (4,166)
---- ------- ---- -------
Balance at December 31, 1997........ $ 26 $(4,218) $(26) $(4,192)
==== ======= ==== =======
</TABLE>
- ---------------
( ) denotes negative amount.
81
<PAGE> 84
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGI Eliminations CNG CNG Cayman One
and and Combined Cayman Cayman and
Subsidiaries Adjustments Total CNGI Two Three Subsidiary
------------ ------------ -------- -------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ (3,831) $ 26 $ (3,857) $ (3,831) $ -- $ -- $ (26)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities
Depreciation and amortization............ 153 -- 153 153 -- -- --
Impairment of gas and oil producing
properties............................. -- -- -- -- -- -- --
Pension cost (credit).................... 52 -- 52 52 -- -- --
Stock award amortization................. 279 -- 279 279 -- -- --
Deferred income taxes -- net............. (233) -- (233) (233) -- -- --
Investment tax credit.................... -- -- -- -- -- -- --
Changes in current assets and current
liabilities
Accounts receivable -- net............. 1,105 -- 1,105 1,119 -- -- (14)
Receivables from affiliated
cos.--consolidated................... (78,000) 32 (78,032) (78,031) (1) -- --
Inventories............................ -- -- -- -- -- -- --
Unrecovered gas costs.................. -- -- -- -- -- -- --
Accounts payable....................... 526 -- 526 526 -- -- --
Payables to affiliated
cos. -- consolidated................. 158 (32) 190 157 1 -- 32
Estimated rate contingencies and
refunds.............................. -- -- -- -- -- -- --
Amounts payable to customers........... -- -- -- -- -- -- --
Taxes accrued.......................... 300 -- 300 300 -- -- --
Other -- net........................... 3 -- 3 3 -- -- --
Changes in other assets and other
liabilities............................ (666) -- (666) (145) -- -- (521)
Excess of equity in earnings of
subsidiary companies over their cash
dividends paid -- consolidated......... -- (26) 26 26 -- -- --
Other -- net............................. -- -- -- -- -- -- --
-------- ---- -------- -------- ---- ---- ------
Net cash provided by (used in)
operating activities............... (80,154) -- (80,154) (79,625) -- -- (529)
-------- ---- -------- -------- ---- ---- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions................................ (471) -- (471) (471) -- -- --
Proceeds from dispositions of prop., plant
and equip. -- net........................ -- -- -- -- -- -- --
Cost of other investments -- net.......... (78,741) -- (78,741) (82,966) -- -- 4,225
Intrasystem long-term financing -- net.... -- -- -- -- -- -- --
Intrasystem money pool
investments -- net....................... -- -- -- -- -- -- --
-------- ---- -------- -------- ---- ---- ------
Net cash provided by (used in)
investing activities............... (79,212) -- (79,212) (83,437) -- -- 4,225
-------- ---- -------- -------- ---- ---- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................. -- -- -- -- -- -- --
Issuance of debentures.................... -- -- -- -- -- -- --
Repayments of long-term debt.............. -- -- -- -- -- -- --
Commercial paper -- net................... -- -- -- -- -- -- --
Dividends paid............................ -- -- -- -- -- -- --
Intrasystem long-term financing -- net.... 80,610 -- 80,610 80,610 -- -- --
Intrasystem money pool borrowings
(repayments) -- net...................... 82,243 -- 82,243 82,243 -- -- --
Dividends paid -- subsidiary
cos. -- consolidated..................... -- -- -- -- -- -- --
Other -- net.............................. -- -- -- -- -- -- --
-------- ---- -------- -------- ---- ---- ------
Net cash provided by (used in)
financing activities............... 162,853 -- 162,853 162,853 -- -- --
-------- ---- -------- -------- ---- ---- ------
Net increase (decrease) in cash and
TCIs............................... 3,487 -- 3,487 (209) -- -- 3,696
CASH AND TCIS AT JANUARY 1, 1997.......... 221 -- 221 221 -- -- --
-------- ---- -------- -------- ---- ---- ------
CASH AND TCIS AT DECEMBER 31, 1997........ $ 3,708 $ -- $ 3,708 $ 12 $ -- $ -- $3,696
======== ==== ======== ======== ==== ==== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).... $ 87 $ -- $ 87 $ 87 $ -- $ -- $ --
Income taxes (net of refunds)............ $ (2,580) $ -- $ (2,580) $ (2,580) $ -- $ -- $ --
<CAPTION>
Eliminations CNG CNGI
and Combined Cayman Australia
Adjustments Total One Pty Ltd.
------------ -------- ------ ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ 26 $ (52) $(26) $ (26)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities
Depreciation and amortization............ -- -- -- --
Impairment of gas and oil producing
properties............................. -- -- -- --
Pension cost (credit).................... -- -- -- --
Stock award amortization................. -- -- -- --
Deferred income taxes -- net............. -- -- -- --
Investment tax credit.................... -- -- -- --
Changes in current assets and current
liabilities
Accounts receivable -- net............. -- (14) -- (14)
Receivables from affiliated
cos.--consolidated................... 31 (31) (31) --
Inventories............................ -- -- -- --
Unrecovered gas costs.................. -- -- -- --
Accounts payable....................... -- -- -- --
Payables to affiliated
cos. -- consolidated................. (31) 63 31 32
Estimated rate contingencies and
refunds.............................. -- -- -- --
Amounts payable to customers........... -- -- -- --
Taxes accrued.......................... -- -- -- --
Other -- net........................... -- -- -- --
Changes in other assets and other
liabilities............................ -- (521) -- (521)
Excess of equity in earnings of
subsidiary companies over their cash
dividends paid -- consolidated......... (26) 26 26 --
Other -- net............................. -- -- -- --
---- ------ ---- ------
Net cash provided by (used in)
operating activities............... -- (529) -- (529)
---- ------ ---- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions................................ -- -- -- --
Proceeds from dispositions of prop., plant
and equip. -- net........................ -- -- -- --
Cost of other investments -- net.......... -- 4,225 -- 4,225
Intrasystem long-term financing -- net.... -- -- -- --
Intrasystem money pool
investments -- net....................... -- -- -- --
---- ------ ---- ------
Net cash provided by (used in)
investing activities............... -- 4,225 -- 4,225
---- ------ ---- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................. -- -- -- --
Issuance of debentures.................... -- -- -- --
Repayments of long-term debt.............. -- -- -- --
Commercial paper -- net................... -- -- -- --
Dividends paid............................ -- -- -- --
Intrasystem long-term financing -- net.... -- -- -- --
Intrasystem money pool borrowings
(repayments) -- net...................... -- -- -- --
Dividends paid -- subsidiary
cos. -- consolidated..................... -- -- -- --
Other -- net.............................. -- -- -- --
---- ------ ---- ------
Net cash provided by (used in)
financing activities............... -- -- -- --
---- ------ ---- ------
Net increase (decrease) in cash and
TCIs............................... -- 3,696 -- 3,696
CASH AND TCIS AT JANUARY 1, 1997.......... -- -- -- --
---- ------ ---- ------
CASH AND TCIS AT DECEMBER 31, 1997........ $ -- $3,696 $ -- $3,696
==== ====== ==== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).... $ -- $ -- $ -- $ --
Income taxes (net of refunds)............ $ -- $ -- $ -- $ --
</TABLE>
- ---------------
( ) denotes negative amount.
82
<PAGE> 85
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS (Concluded)
EXHIBITS
<TABLE>
<CAPTION>
SEC
Exhibit
Reference Description of Exhibit
- --------- -----------------------------------------------------------------
<S> <C> <C>
A. Consolidated Natural Gas Company's Form 10-K Annual Report for
the year ended December 31, 1997, is hereby incorporated by
reference to the filing made on March 19, 1998 under File No.
1-3196.
B. (1) A copy of the charter, as amended, and copy of the by-laws,
as amended, of Consolidated Natural Gas Company and each
subsidiary company thereof, unless otherwise indicated on
the list filed herewith, are incorporated in this report by
reference to previous filings with the Commission, as shown
on such list.
(2) Description of Consolidated Natural Gas Company Rights
Agreement, is hereby incorporated by reference to Exhibit 1
to the Current Report on Form 8-K filed on January 23, 1996
under File No. 1-3196.
C.(a) The indentures of Consolidated Natural Gas Company are hereby
incorporated by reference to previously filed material as
indicated on the list filed herewith.
(b) Not applicable.
D. Pursuant to Rule 45(c) under the Public Utility Holding Company
Act of 1935, the Agreement among system companies concerning the
allocation of current federal income taxes (Agreement) is
incorporated in this report by reference to Consolidated Natural
Gas Company's Annual Report on Form U5S for the year ended
December 31, 1995 (File No. 30-203). First Amendment to the
Agreement is incorporated in this report by reference to
Consolidated Natural Gas Company's Annual Report on Form U5S for
the year ended December 31, 1996 (File No. 30-203).
E. Pursuant to Rule 16(c) under the Public Utility Holding Company
Act of 1935, the annual report of the Iroquois Gas Transmission
System, L.P., for the year ended December 31, 1997, is filed
herewith.
F. Schedules supporting items of this report:
(1) ITEM 1--Schedule of Investments is filed herewith.
(2) ITEM 4--Schedule of Acquisitions, Redemptions, or
Retirements of System Securities is filed herewith.
(3) ITEM 6--Consolidated Natural Gas Company's "1998 Notice of
Annual Meeting and Proxy Statement" is hereby incorporated
by reference to the filing made on March 3, 1998.
(4) ITEM 10--Schedule of utility plant and related depreciation
or amortization accounts, together with schedules of other
property or investments, if applicable, for:
CNG Transmission
East Ohio Gas
Peoples Natural Gas
Virginia Natural Gas
Hope Gas
are filed herewith.
G. Financial Data Schedules have been filed electronically (Exhibit
27 for EDGAR purposes).
H. (1) Organization chart showing the relationship of the exempt
wholesale generator in which the system holds an interest to
other system companies, is filed herewith.
(2) Organization charts showing the relationship of the foreign
utility companies in which the system holds an interest to
other system companies, are filed herewith.
I. (1) Financial statements of the exempt wholesale generator are
filed herewith.
(2) Financial statements of the foreign utility companies are
filed herewith.
</TABLE>
83
<PAGE> 86
SIGNATURE
The registrant has duly caused this annual report to be signed on its behalf by
the undersigned thereunto duly authorized pursuant to the requirements of the
Public Utility Holding Company Act of 1935, such company being a registered
holding company.
CONSOLIDATED NATURAL GAS COMPANY
--------------------------------------
(Registrant)
D. M. WESTFALL
By
--------------------------------------
(D. M. Westfall)
Senior Vice President
and Chief Financial Officer
April 30, 1998
84
<PAGE> 87
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 88
(THIS PAGE INTENTIONALLY LEFT BLANK)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 10 OF CONSOLIDATED NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM U5S FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,054,656
<OTHER-PROPERTY-AND-INVEST> 1,168,147
<TOTAL-CURRENT-ASSETS> 1,453,641
<TOTAL-DEFERRED-CHARGES> 413,350
<OTHER-ASSETS> 223,900
<TOTAL-ASSETS> 6,313,694
<COMMON> 262,964
<CAPITAL-SURPLUS-PAID-IN> 526,475
<RETAINED-EARNINGS> 1,539,587
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,358,318
0
0
<LONG-TERM-DEBT-NET> 1,552,890
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 238,700
<LONG-TERM-DEBT-CURRENT-PORT> 154,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,039,078
<TOT-CAPITALIZATION-AND-LIAB> 6,313,694
<GROSS-OPERATING-REVENUE> 5,710,020
<INCOME-TAX-EXPENSE> 147,053
<OTHER-OPERATING-EXPENSES> 5,164,834
<TOTAL-OPERATING-EXPENSES> 5,311,887
<OPERATING-INCOME-LOSS> 398,133
<OTHER-INCOME-NET> 13,516
<INCOME-BEFORE-INTEREST-EXPEN> 411,649
<TOTAL-INTEREST-EXPENSE> 107,269
<NET-INCOME> 304,380
0
<EARNINGS-AVAILABLE-FOR-COMM> 304,380
<COMMON-STOCK-DIVIDENDS> 184,942
<TOTAL-INTEREST-ON-BONDS> 121,682
<CASH-FLOW-OPERATIONS> 742,108
<EPS-PRIMARY> 3.21
<EPS-DILUTED> 3.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 10 OF CONSOLIDATED NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM U5S FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 05
<NAME> EAST OHIO GAS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 848,269
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 466,790
<TOTAL-DEFERRED-CHARGES> 192,524
<OTHER-ASSETS> 1,025
<TOTAL-ASSETS> 1,508,608
<COMMON> 237,968
<CAPITAL-SURPLUS-PAID-IN> 435
<RETAINED-EARNINGS> 201,035
<TOTAL-COMMON-STOCKHOLDERS-EQ> 458,978
0
0
<LONG-TERM-DEBT-NET> 181,390
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 887,780
<TOT-CAPITALIZATION-AND-LIAB> 1,508,608
<GROSS-OPERATING-REVENUE> 1,294,941
<INCOME-TAX-EXPENSE> 40,490
<OTHER-OPERATING-EXPENSES> 1,155,048
<TOTAL-OPERATING-EXPENSES> 1,195,538
<OPERATING-INCOME-LOSS> 99,403
<OTHER-INCOME-NET> 6,850
<INCOME-BEFORE-INTEREST-EXPEN> 106,253
<TOTAL-INTEREST-EXPENSE> 26,456
<NET-INCOME> 79,797
0
<EARNINGS-AVAILABLE-FOR-COMM> 79,797
<COMMON-STOCK-DIVIDENDS> 70,391
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 132,618
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 10 OF CONSOLIDATED NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM U5S FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 06
<NAME> PEOPLES NATURAL GAS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 453,007
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 139,092
<TOTAL-DEFERRED-CHARGES> 152,950
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 745,049
<COMMON> 183,535
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 74,065
<TOTAL-COMMON-STOCKHOLDERS-EQ> 257,600
0
0
<LONG-TERM-DEBT-NET> 143,117
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 344,332
<TOT-CAPITALIZATION-AND-LIAB> 745,049
<GROSS-OPERATING-REVENUE> 392,899
<INCOME-TAX-EXPENSE> 21,484
<OTHER-OPERATING-EXPENSES> 317,626
<TOTAL-OPERATING-EXPENSES> 339,110
<OPERATING-INCOME-LOSS> 53,789
<OTHER-INCOME-NET> (479)
<INCOME-BEFORE-INTEREST-EXPEN> 53,310
<TOTAL-INTEREST-EXPENSE> 13,141
<NET-INCOME> 40,169
0
<EARNINGS-AVAILABLE-FOR-COMM> 40,169
<COMMON-STOCK-DIVIDENDS> 38,279
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 74,096
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 10 OF CONSOLIDATED NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM U5S FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 07
<NAME> VIRGINIA NATURAL GAS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 366,640
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 76,053
<TOTAL-DEFERRED-CHARGES> 8,555
<OTHER-ASSETS> 52
<TOTAL-ASSETS> 451,300
<COMMON> 144,697
<CAPITAL-SURPLUS-PAID-IN> 1,082
<RETAINED-EARNINGS> 4,034
<TOTAL-COMMON-STOCKHOLDERS-EQ> 206,334
0
0
<LONG-TERM-DEBT-NET> 61,318
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 236,169
<TOT-CAPITALIZATION-AND-LIAB> 451,300
<GROSS-OPERATING-REVENUE> 220,234
<INCOME-TAX-EXPENSE> 8,243
<OTHER-OPERATING-EXPENSES> 185,443
<TOTAL-OPERATING-EXPENSES> 193,686
<OPERATING-INCOME-LOSS> 26,548
<OTHER-INCOME-NET> (558)
<INCOME-BEFORE-INTEREST-EXPEN> 25,990
<TOTAL-INTEREST-EXPENSE> 11,493
<NET-INCOME> 14,497
0
<EARNINGS-AVAILABLE-FOR-COMM> 14,497
<COMMON-STOCK-DIVIDENDS> 13,505
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 28,830
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 10 OF CONSOLIDATED NATURAL
GAS COMPANY'S ANNUAL REPORT ON FORM U5S FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 08
<NAME> HOPE GAS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 110,090
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 46,515
<TOTAL-DEFERRED-CHARGES> 16,273
<OTHER-ASSETS> 2,125
<TOTAL-ASSETS> 175,003
<COMMON> 40,900
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 14,644
<TOTAL-COMMON-STOCKHOLDERS-EQ> 55,544
0
0
<LONG-TERM-DEBT-NET> 33,428
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 86,031
<TOT-CAPITALIZATION-AND-LIAB> 175,003
<GROSS-OPERATING-REVENUE> 118,610
<INCOME-TAX-EXPENSE> 4,482
<OTHER-OPERATING-EXPENSES> 101,997
<TOTAL-OPERATING-EXPENSES> 106,479
<OPERATING-INCOME-LOSS> 12,131
<OTHER-INCOME-NET> (1,455)
<INCOME-BEFORE-INTEREST-EXPEN> 10,676
<TOTAL-INTEREST-EXPENSE> 2,667
<NET-INCOME> 8,009
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,009
<COMMON-STOCK-DIVIDENDS> 8,217
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 12,659
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.1
CHARTERS AND BY-LAWS EXHIBIT B.(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Report
on Form U5S
(File No. 30-203)
Year Ended
December 31, Other Commission Filing
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSOLIDATED NATURAL GAS COMPANY
Certificate of Incorporation, restated
October 4, 1990 1990
Certificate of Incorporation, as amended
May 31, 1996 Form S-3 Registration
Statement, Registration
No. 333-10869
By-Laws as last amended February 17, 1998 Exhibit (3B) to the Company's
Form 10-K Annual Report
for the year ended
December 31, 1997,
File No. 1-3196
CONSOLIDATED NATURAL GAS SERVICE COMPANY, INC.
(Charter) 1961
Charter Amendment dated November 24, 1961 1961
Charter Amendment dated January 3, 1966 1965
Charter Amendment dated November 30, 1982 1982
By-Laws as last amended March 1, 1993 1992
CNG TRANSMISSION CORPORATION
Charter-Composite Certificate of Incorporation
as last amended December 30, 1992 1992
Charter Amendment dated November 8, 1994 1994
By-Laws as last amended April 7, 1997 Filed Herewith
HOPE GAS, INC.
Charter-Agreement and Plan of Merger which sets
forth in Article III the Certificate of Incorporation
of Consolidated Gas Supply Corporation as
amended and restated on April 1, 1965,
effective date of the merger 1965
Charter Amendment dated April 28, 1971 1971
Charter Amendment dated June 30, 1975 1975
Charter Amendment dated August 26, 1977 1977
Charter Amendment dated May 11, 1981 1981
Charter Amendment dated June 6, 1984 1984
Charter Amendment dated August 9, 1990 1990 (Form SE dated April 25, 1991)
Charter Amendment dated March 10, 1993 1996
Charter Amendment dated October 13, 1994 1996
By-Laws as last amended June 4, 1990 1990 (Form SE dated April 25, 1991)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
CHARTERS AND BY-LAWS (Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Report
on Form U5S
(File No. 30-203)
Year Ended
December 31, Other Commission Filing
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE EAST OHIO GAS COMPANY
Articles of Incorporation as amended
effective June 17, 1993 Exhibit A-1 to the
Application-Declaration
on Form U-1, File No.
70-8387
Charter Amendment dated December 30, 1996 1996
Certificate of Merger of West Ohio Gas 1996
Company merging with and into The
East Ohio Gas Company dated
December 30, 1996
By-Laws as last amended March 12, 1991 Exhibit A-2 to the
Application-Declaration
on Form U-1, File No.
70-8387
THE PEOPLES NATURAL GAS COMPANY
Charter-Composite Amended and Restated
Certificate of Incorporation as last
amended effective April 26, 1990 1992
Charter Amendment dated September 2, 1993 1996
By-Laws as last amended March 15, 1990 1990 (Form SE dated April 25, 1991)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
CHARTERS AND BY-LAWS (Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Report
on Form U5S
(File No. 30-203)
Year Ended
December 31, Other Commission Filing
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CNG PRODUCING COMPANY
Certificate of Incorporation dated February 29, 1972 1972
Certificate of Amendment of Certificate of
Incorporation of CNG Development Company
of Alberta before payment of capital
dated March 8, 1972 1972
Charter Amendment dated July 8, 1974 1974
Charter Amendment dated January 23, 1975 1975
Charter Amendment dated July 7, 1980 1980
Charter Amendment dated July 13, 1982 1982
Charter Amendment dated December 7, 1984 1984
Charter Amendment dated January 4, 1985 1985
Charter Amendment dated November 25, 1987 1987 (Form SE dated April 26, 1988)
Charter Amendment dated November 15, 1989 1989 (Form SE dated April 25, 1990)
Certificate of Agreement of Merger of CNG
Development Company merging with
and into CNG Producing Company dated
December 20, 1990 1990 (Form SE dated April 25, 1991)
By-Laws as last amended June 6, 1996 1996
CONSOLIDATED SYSTEM LNG COMPANY
Charter - Composite Certificate of Incorporation
as last amended July 27, 1993 1993
By-Laws as last amended March 17, 1997 Filed Herewith
CNG RESEARCH COMPANY
Certificate of Incorporation dated June 26, 1975 1975
Charter Amendment dated May 25, 1982 1982
Charter Amendment effective August 23, 1991 1991 (Form SE dated April 24, 1992)
By-Laws as last amended May 19, 1997 Filed Herewith
CNG COAL COMPANY
Certificate of Incorporation dated October 4, 1976 1977
Charter Amendment dated July 20, 1990 1990 (Form SE dated April 25, 1991)
Charter Amendment effective August 23, 1991 1991 (Form SE dated April 24, 1992)
By-Laws as last amended June 11, 1990 1990 (Form SE dated April 25, 1991)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
CHARTERS AND BY-LAWS (Continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Report
on Form U5S
(File No. 30-203)
Year Ended
December 31, Other Commission Filing
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CNG ENERGY SERVICES CORPORATION
Certificate of Incorporation as amended
December 9, 1996 1996
By-Laws as last amended June 20, 1991 1991 (Form SE dated April 24, 1992)
CNG FINANCIAL SERVICES, INC.
Certificate of Incorporation dated March 1, 1989 1989 (Form SE dated April 25, 1990)
By-Laws as adopted May 26, 1989 1989 (Form SE dated April 25, 1990)
VIRGINIA NATURAL GAS, INC.
Amended and Restated Articles of Incorporation
dated December 26, 1990 1990 (Form SE dated April 25, 1991)
By-Laws as last amended April 26, 1991 1996
CNG POWER SERVICES CORPORATION
Certificate of Incorporation as amended
December 30, 1996 1996
By-Laws as adopted August 8, 1994 1994
CNG INTERNATIONAL CORPORATION
Certificate of Incorporation dated
January 22, 1996 1996
By-Laws as adopted August 1, 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
- 1 -
CNG TRANSMISSION CORPORATION
BYLAWS
Adopted April 30, 1980
As Amended
Date Sections
December 23, 1982 3.2
December 1, 1986 9.4
March 5, 19903.2
March 15, 1990 3.11
December 2, 1991 (Effective January 1, 1992) 3.2
May 17, 1993 3.2
May 31, 1995 (Effective June 1, 1995) 3.2
September 3, 1996 (Effective August 1, 1996) 3.2
March 3, 1997 3.2
<PAGE> 6
CONTENTS
1. OFFICES
1.1 Registered Office
1.2 Principal Office
1.3 Other Offices
2. MEETING OF STOCKHOLDERS
2.1 Annual Meetings
2.2 Special Meetings
2.3 Place of Meetings
2.4 Notice of Meetings
2.5 Adjourned Meetings
2.6 Voting Lists
2.7 Quorum
2.8 Proxies
2.9 Voting Rights
2.10 Required Vote
2.11 Election of Directors
2.12 Consent of Stockholders in Lieu of Meeting
3. BOARD OF DIRECTORS
3.1 General Powers
3.2 Number and Qualifications
3.3 Term of Office
3.4 Removal
3.5 Vacancies
3.6 First Meetings
3.7 Regular Meetings
3.8 Special Meetings
3.9 Quorum, Required Vote, and Adjournment
3.10 Consent of Directors in Lieu of Meeting
3.11 Limitation on Liability
4. COMMITTEES
4.1 Powers; Duties
5. OFFICERS
5.1 Number
5.2 Election, Term of Office, and Qualifications
5.3 Subordinate Officers
5.4 Removal
5.5 Vacancies
5.6 The President
<PAGE> 7
5.7 The Vice Presidents
5.8 The Secretary and Assistant Secretaries
5.9 The Treasurer and Assistant Treasurers
6. EXECUTION OF INSTRUMENTS
6.1 Execution of Instruments Generally
6.2 Checks, Drafts, Etc.
6.3 Proxies
7. CAPITAL STOCK
7.1 Stock Certificates
7.2 Transfer of Stock
7.3 Rights of Corporation with Respect to Registered Owners
7.4 Transfer Agents and Registrars
7.5 Record Date
7.6 Lost, Destroyed and Stolen Certificates
8. DIVIDENDS
8.1 Sources of Dividends
8.2 Reserves
8.3 Reliance on Corporate Records
8.4 Manner of Payment
9. GENERAL PROVISIONS
9.1 Waiver of Notice
9.2 Seal
9.3 Fiscal Year
9.4 Indemnification
10. AMENDMENTS
10.1 By the Stockholders
10.2 By the Directors
<PAGE> 8
BYLAWS
OF
CNG TRANSMISSION CORPORATION
A Delaware Corporation
1. OFFICES
1.1 Registered Office. The registered office of the Corporation is
located at 100 Tenth Street, Wilmington, Delaware. The Corporation
may by resolution of the Board of Directors, change the location to
any other place in Delaware.
1.2 Principal Office. The principal office of the Corporation shall be
at 445 West Main Street, Clarksburg, Harrison County, West Virginia.
1.3 Other Offices. The Corporation may have such other offices, within
or without the State of Delaware, as the Board of Directors may from
time to time establish.
2. MEETINGS OF STOCKHOLDERS
2.1 Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of any other proper
business, notice of which was given in the notice of the meeting,
shall be held at nine o'clock in the morning on the first Monday of
June in each year, if not a legal holiday, or if a legal holiday,
then on the next succeeding business day not a legal holiday.
<PAGE> 9
2.2 Special Meetings. A special meeting of the stockholders may be
called at any time by the Board of Directors or by the President,
and shall be called by the President upon the written request of
stockholders of record holding in the aggregate one-fifth or more of
the outstanding shares of stock of the Corporation entitled to vote,
such written request to state the purpose or purposes of the meeting
and to be delivered to the President.
2.3 Place of Meetings. The Board of Directors may designate any place,
either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by
the Board of Directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the
principal office of the Corporation.
2.4 Notice of Meetings. Written notice stating the place, date and hour
of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given by or under
the direction of the Secretary, to each stockholder entitled to vote
at such meeting. Except as otherwise required by statute, the
written notice shall be given not less than ten nor more than sixty
days before the date of the meeting. If mailed, such notice shall be
deemed
<PAGE> 10
to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on
the records of the Corporation. Attendance of a person at a meeting
of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
2.5 Adjourned Meetings. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
2.6 Voting Lists. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in
<PAGE> 11
alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours,
for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any
stockholder who is present.
2.7 Quorum. Except as otherwise required by statute, the presence at any
meeting, in person or by proxy, of the holders of record of a
majority of the shares then issued and outstanding and entitled to
vote shall be necessary and sufficient to constitute a quorum for
the transaction of business. In the absence of a quorum, the
stockholders entitled to vote, present in person or by proxy, may
adjourn the meeting from time to time until a quorum is present.
2.8 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize
<PAGE> 12
another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
2.9 Voting Rights. Except as otherwise provided by statute or by the
Certificate of Incorporation, and subject to the provisions of
Paragraph 7.5 of these Bylaws, each stockholder shall at every
meeting of the stockholders be entitled to one vote for each share
of the capital stock having voting power held by such stockholder.
2.10 Required Vote. Except as otherwise required by statute or by the
Certificate of Incorporation, the holders of a majority of the
capital stock having voting power, present in person or by proxy,
shall decide any question brought before a meeting of the
stockholders at which a quorum is present.
2.11 Elections of Directors. Elections of directors need not be by
written ballot.
2.12 Consent of Stockholders in Lieu of Meeting. Any action required or
permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting,
<PAGE> 13
without prior notice and without a vote, if consent in writing,
setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present
and voted.
3. BOARD OF DIRECTORS
3.1 General Powers. The business of the Corporation shall be managed by
the Board of Directors, except as otherwise provided by statute or
by the Certificate of Incorporation.
3.2 Number and Qualifications. The number of directors which shall
constitute the whole board shall be nine. By amendment of this bylaw
the number may be increased or decreased from time to time by the
Board of Directors within the limits permitted by law. Directors
need not be stockholders.
3.3 Term of Office. Each director shall hold office until the next
annual meeting of stockholders and until his successor is elected
and qualified or until his death, resignation or removal.
3.4 Removal. The stockholders may at any time, at a meeting expressly
called for that purpose, remove any or all of the directors, with or
without cause, by a vote of the holders
<PAGE> 14
of a majority of the shares then entitled to vote at an election of
directors.
3.5 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by
a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
3.6 First Meetings. The first meeting of each newly elected Board of
Directors shall be held without notice immediately after, and at the
same place as, the annual meeting of the stockholders for the
purpose of the organization of the Board, the election of officers,
and the transaction of such other business as may properly come
before the meeting.
3.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times and at such places, within or
without the State of Delaware, as shall from time to time be
determined by the Board.
3.8 Special Meetings. Special meetings of the Board of Directors may be
called by the President and shall be called by the Secretary on the
written request of two directors. Such meetings shall be held at
such times and at such places, within or without the State of
Delaware, as shall be determined by the
<PAGE> 15
President or by the directors requesting the meeting. Notice of the
time and place thereof shall be mailed to each director, addressed
to him at his address as it appears on the records of the
Corporation, at least two days before the day on which the meeting
is to be held, or sent to him at such place by telegraph, radio or
cable, or telephoned or delivered to him personally, not later than
the day before the day on which the meeting is to be held. Such
notice need not state the purposes of the meeting. Attendance of a
director at a meeting shall constitute a waiver of notice of such
meeting, except when the director attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
3.9 Quorum, Required Vote, and Adjournment. The presence, at any
meeting, of one-third of the total number of directors shall be
necessary and sufficient to constitute a quorum for the transaction
of business. Except as otherwise required by statute or by the
Certificate of Incorporation, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. In the absence of a quorum, a
majority of the directors present at the time and place of any
meeting may adjourn such meeting from time to time until a quorum be
present.
<PAGE> 16
3.10 Consent of Directors in Lieu of Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or
any committee thereof, may be taken without a meeting if all the
members of the Board or committee, as the case may be, consent
thereto in writing. The Secretary shall file the written consents
with the minutes of the Board or committee.
3.11 Limitation on Liability
(a) To the full extent that the General Corporation Law of the State
of Delaware, as the same now exists, permits elimination or
limitation of the liability of directors, no director of the
Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involves intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
(b) To the full extent permitted by law,
<PAGE> 17
all directors of the Corporation shall be afforded any exemption
from liability or limitation of liability permitted by any
subsequent enactment, modification or amendment of the General
Corporation Law of the State of Delaware.
(c) Any repeal or modification of either or both of the foregoing
paragraphs by the stockholders of the Corporation shall not
adversely affect any exemption from liability, limitation of
liability or other right of a director of the Corporation with
respect to any matter occurring prior to such repeal or
modification.
4. COMMITTEES
4.1 Powers; Duties. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees,
each committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in the resolution, shall
have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers
which may require it. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting
<PAGE> 18
and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board to act
at the meeting in place of any absent or disqualified member. Each
committee shall have such name and duties as may be determined from
time to time by resolution adopted by the Board of Directors. The
committees of the Board of Directors shall keep regular minutes of
their proceedings and report the same to the Board of Directors when
required.
5. OFFICERS
5.1 Number. The officers of the Corporation shall be a President, a Vice
President, a Secretary, a Treasurer, and such other officers as the
Board shall specify from time to time, each of whom shall be elected
by the Board of Directors. Any number of offices may be held by the
same person.
5.2 Election, Term of Office, and Qualifications. The officers of the
Corporation to be elected by the Board of Directors shall be elected
annually at the first meeting of the Board held after each annual
meeting of stockholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter
as conveniently may be. Each officer shall hold office until his
successor is
<PAGE> 19
elected and qualified or until his death, resignation or removal. No
officer need be a director or stockholder of the Corporation.
5.3 Subordinate Officers. The Board of Directors from time to time may
appoint other officers and agents, including one or more Assistant
Secretaries and one or more Assistant Treasurers, each of whom shall
hold office for such period, have such authority and perform such
duties as the Board of Directors from time to time may determine.
The Board of Directors may delegate the power to appoint any such
subordinate officers and agents and to prescribe their respective
authorities and duties.
5.4 Removal. Any officer or agent may be removed at any time, with or
without cause, by the affirmative vote of a majority of the
directors then in office.
5.5 Vacancies. Any vacancy occurring in any office of the Corporation
shall be filled for the unexpired term in the manner prescribed by
these Bylaws for the regular election or appointment to the office.
5.6 The President. The President shall be the chief executive officer of
the Corporation and, subject to the direction and under the
supervision of the Board of Directors, shall have general charge of
the business, affairs and property of the Corporation, and control
over its officers, agents and
<PAGE> 20
employees. He shall preside at all meetings of the stockholders and
of the Board of Directors at which he is present. He shall, in
general, perform all duties and have all powers incident to the
office of President and shall perform such other duties and have
such other powers as from time to time may be assigned to him by
these Bylaws or by the Board of Directors. The President shall be
chosen from among the directors.
5.7 The Vice Presidents. At the request of the President or in the event
of his absence or disability, the Vice President, or in case there
shall be more than one Vice President, the Vice President designated
by the President, or in the absence of such designation, the Vice
President or other officer designated by the Board of Directors,
shall perform all the duties of the President, and when so acting,
shall have all the powers of, and be subject to all the restrictions
upon, the President. Any Vice President shall perform such other
duties and have such other powers as from time to time may be
assigned to him by these Bylaws or by the Board of Directors or by
the President.
5.8 The Secretary and Assistant Secretaries. The Secretary shall keep
the minutes of the proceedings of the stockholders and of the Board
of Directors in one or more books
<PAGE> 21
to be kept for that purpose. He shall have custody of the seal of
the Corporation and shall have authority to cause such seal to be
affixed to, or impressed or otherwise reproduced upon, all documents
the execution and delivery of which on behalf of the Corporation
shall have been duly authorized. The seal also may be affixed,
impressed and attested by the Treasurer or any Assistant Secretary
or Assistant Treasurer. He shall, in general, perform all duties and
have all powers incident to the office of Secretary and shall
perform such other duties and have such other powers as may from
time to time be assigned to him by these Bylaws, by the Board of
Directors or by the President. The Assistant Secretaries, in the
order determined by the Board, shall, in the absence of the
Secretary, perform the duties and exercise the powers of the
Secretary. Any Assistant Secretary shall perform such other duties
and have such other powers as the Board may prescribe.
5.9 The Treasurer and Assistant Treasurers. The Treasurer shall have
custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books
belonging to the Corporation. He shall cause all moneys and other
valuable effects to be deposited in the name and to the credit of
the Corporation in such depositories as may be designated by the
Board of
<PAGE> 22
Directors. He shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking
proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, whenever requested, an account
of all his transactions as Treasurer and of the financial condition
of the Corporation. He shall, in general, perform all duties and
have all powers incident to the office of Treasurer and shall
perform such other duties and have such other powers as may from
time to time be assigned to him by these Bylaws, by the Board of
Directors or by the President. The Assistant Treasurers, in the
order determined by the Board, shall, in the absence of the
Treasurer, perform the duties and exercise the powers of the
Treasurer. Any Assistant Treasurer shall perform such other duties
and have such other powers as the Board may prescribe.
6. EXECUTION OF INSTRUMENTS
6.1 Execution of Instruments Generally. All documents, instruments or
writings of any nature shall be signed, executed, verified,
acknowledged and delivered by such officer or officers or such agent
or agents of the Corporation and in such manner as the Board of
Directors from time to time may determine.
<PAGE> 23
6.2 Checks, Drafts, Etc. All notes, drafts, acceptances, checks,
endorsements, and all evidence of indebtedness of the Corporation
whatsoever, shall be signed by such officer or officers or such
agent or agents of the Corporation and in such manner as the Board
of Directors from time to time may determine. Endorsements for
deposit to the credit of the Corporation in any of its duly
authorized depositories shall be made in such manner as the Board of
Directors from time to time may determine.
6.3 Proxies. Proxies to vote with respect to shares of stock of other
corporations owned by or standing in the name of the Corporation may
be executed and delivered from time to time on behalf of the
Corporation by the President or a Vice President and the Secretary
or an Assistant Secretary of the Corporation or by any other person
or persons duly authorized by the Board of Directors.
7. CAPITAL STOCK
7.1 Stock Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of the
Corporation by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation
<PAGE> 24
certifying the number of shares owned by him in the Corporation. Any
or all of the signatures on the certificate may be by a facsimile.
In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the
date of issue.
7.2 Transfer of Stock. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record
thereof or by his attorney duly authorized in writing, upon
surrender to the Corporation of the certificates for such shares
endorsed by the appropriate person or persons, with such evidence of
the authenticity of such endorsement, transfer, authorization and
other matters as the Corporation may reasonably require, and
accompanied by all necessary stock transfer tax stamps. In that
event it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old
certificate, and record the transaction on its books.
7.3 Rights of Corporation with Respect to Registered Owners. Prior to
the surrender to the Corporation of the certificates for shares of
stock with a request to record the
<PAGE> 25
transfer of such shares, the Corporation may treat the registered
owner as the person entitled to receive dividends, to vote, to
receive notifications, and otherwise to exercise all the rights and
powers of an owner.
7.4 Transfer Agents and Registrars. The Board of Directors may make such
rules and regulations as it may deem expedient concerning the
issuance and transfer of certificates for shares of the stock of the
Corporation and may appoint transfer agents or registrars or both,
and may require all certificates of stock to bear the signature of
either or both. Nothing herein shall be construed to prohibit the
Corporation from acting as its own transfer agent at any of its
offices.
7.5 Record Dates. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior
to any other
<PAGE> 26
action. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on which
the meeting is held. If no record date is fixed, the record date for
determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first
written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
7.6 Lost, Destroyed and Stolen Certificates. Where the owner of a
certificate for shares claims that such certificate has been lost,
destroyed or wrongfully taken, the Corporation shall issue a new
certificate in place of the original
<PAGE> 27
certificate if the owner (a) so requests before the Corporation has
notice that the shares have been acquired by a bona fide purchaser;
(b) files with the Corporation a sufficient indemnity bond; and (c)
satisfies such other reasonable requirements, including evidence of
such loss, destruction, or wrongful taking, as may be imposed by the
Corporation.
8. DIVIDENDS
8.1 Sources of Dividends. The directors of the Corporation, subject to
any restrictions contained in the statutes and Certificate of
Incorporation, may declare and pay dividends upon the shares of the
capital stock of the Corporation either (a) out of its surplus as
defined and computed in accordance with the General Corporation Law
of Delaware, as amended from time to time, or (b) in case there
shall be no such surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or preceding fiscal year.
8.2 Reserves. Before the payment of any dividend, the directors of the
Corporation may set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper
purpose, and the directors may abolish any such reserve in the
manner in which it was created.
<PAGE> 28
8.3 Reliance on Corporate Records. A director shall be fully protected
in relying in good faith upon the books of account of the
Corporation or statements prepared by any of its officials or by
independent public accountants as to the value and amount of the
assets, liabilities and net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other
funds from which dividends might properly be declared and paid, or
with which the Corporation's stock might properly be redeemed or
purchased.
8.4 Manner of Payment. Dividends may be paid in cash, in property, or in
shares of the capital stock of the Corporation at par.
9. GENERAL PROVISIONS
9.1 Waiver of Notice. Whenever notice is required to be given under any
provision of the statutes or of the Certificate of Incorporation or
Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of that meeting, except where
the person attends a meeting for the express purpose of objecting,
at the beginning
<PAGE> 29
of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
9.2 Seal. The corporate seal, subject to alteration by the Board of
Directors, shall be in the form of a circle and shall bear the name
of the Corporation and the year of its incorporation and shall
indicate its formation under the laws of the State of Delaware. Such
seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
9.3 Fiscal Year. The fiscal year shall be the calendar year except as
otherwise provided by the Board of Directors.
9.4 Indemnification.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the written request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually
<PAGE> 30
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the written request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including
<PAGE> 31
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to
the extent that the court of Chancery of the State of Delaware
or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subparagraphs (a) and (b) of this Paragraph 9.4, or in defense
of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subparagraphs (a) and (b) of this
Paragraph 9.4 (unless ordered by a court) shall be
<PAGE> 32
made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth
therein. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon the
receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Paragraph
9.4.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to the other subparagraphs of this Paragraph
9.4 shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of
<PAGE> 33
expenses may be entitled under any statute, by-law, agreement,
vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in
another capacity while holding such office.
(g) By action of its Board of Directors, notwithstanding any
interest of the directors in the action, the Corporation may
purchase and maintain insurance, in such amounts as of the Board
of Directors deems appropriate, on behalf of any person who is
or was a director, officer, employee or agent of the
Corporation, or is or was serving at the written request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the
power or would be required to indemnify him against such
liability under the provisions of this Paragraph 9.4 of the
General Corporation Law of the State of Delaware.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Paragraph shall, unless otherwise
provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
<PAGE> 34
10. AMENDMENTS
10.1 By the Stockholders. These Bylaws may be amended or repealed, or new
Bylaws may be made and adopted, by a majority vote of all the stock
of the Corporation issued and outstanding and entitled to vote at
any annual or special meeting of the stockholders, provided that
notice of intention to amend shall have been contained in the notice
of meeting.
10.2 By the Directors. These Bylaws, including amendments adopted by the
stockholders, may be amended or repealed by a majority vote of the
whole Board of Directors at any regular or special meeting of the
Board, provided that the stockholders may from time to time specify
particular provisions of the bylaws which shall not be amended by
the Board of Directors.
<PAGE> 35
CNG RESEARCH COMPANY
Action Taken by the Unanimous Written Consent
of the Directors of CNG Research Company
In Lieu of the Annual Organizational Meeting
Effective May 19, 1997
Pursuant to the authority contained in Section 141.(F) of the General
Corporation Law of the State of Delaware, the undersigned, being all of the
directors of CNG Research Company, a Delaware Corporation, do hereby take,
consent to and adopt the following Resolutions in writing, without meeting:
IT IS UNANIMOUSLY RESOLVED, the following persons are hereby elected as
officers of the Company, to serve until their respective successors are
duly designated or elected:
Stephen E. Williams President
N. F. Chandler Secretary
James M. Hostetler Assistant Secretary
Mark M. Whitlinger Assistant Treasurer, Finance
FURTHER RESOLVED, That Section 5.01 of the Bylaws be, and it hereby is,
amended, effective May 19, 1997, to provide as follows:
"5.01 The number of directors which shall constitute the whole board
shall be not less than one nor more than fifteen. Thereafter, within
the limits above specified, the number of directors shall be
determined by resolution of the board of directors or by the
stockholders at the annual meeting. Directors need not be
stockholders."
By: /s/ STEPHEN E. WILLIAMS
-----------------------
Stephen E. Williams
Director
<PAGE> 36
CNG RESEARCH COMPANY
BYLAWS
------
As Amended
Effective September 10, 1976
<PAGE> 37
CNG RESEARCH COMPANY
BYLAWS
------
1. OFFICES OF THE COMPANY
1.01 The principal office of the Company shall be in the City of
Pittsburgh, County of Allegheny, State of Pennsylvania.
1.02 The Company may also have offices at such other places
as the board of directors may from time to time determine or the business of
the Company may require.
2. ANNUAL MEETINGS OF STOCKHOLDERS
2.01 The annual meetings of stockholders for the election of
directors shall be held at the principal office of the Company or at such other
place within or without the State of Pennsylvania as the board may designate
from time to time.
2.02 The annual meeting of stockholders shall be held on the
secular day, not a legal holiday, immediately preceding the third Tuesday of May
in each year, at such time as shall be designated by the Secretary and set forth
in the notice of the meeting. The stockholders shall elect a Board of Directors
and transact such other business as may properly come before the meeting.
3. SPECIAL MEETINGS OF STOCKHOLDERS
3.01 Special meetings of stockholders for any purpose or purposes
may be held at the time and place that shall be stated in the notice of the
meeting or in a duly executed waiver of notice.
<PAGE> 38
-1a-
3.02 Special meetings of stockholders may be called by the board,
the president and secretary, or the holders of not less than ten per cent of all
the shares entitled to vote at such meetings, unless otherwise prescribed by
statute or by the charter.
<PAGE> 39
-2-
3.03 The business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
4. QUORUM AND VOTING AT MEETINGS
4.01 The holders of a majority of the stock issued and outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of stockholders for the transaction of
business, except as otherwise provided by statute or the charter or these by
laws. If, however, such quorum shall not be present or represented at any
meeting of stockholders, the stockholders entitled to vote, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting, at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
4.02 When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which a different vote is required by express
provision of a statute or the charter or these by laws, in which case such
express provision shall control the decision of such question.
4.03 At any meeting of stockholders every stockholder having the right
to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such stockholder or authorized agent and
<PAGE> 40
-3-
bearing a date not more than one year prior to said meeting, unless such
instrument provides for a longer period. Each stockholder shall have one vote
for each share of stock having voting power and registered in the stockholder's
name on the books of the Company. Except where a date shall have been fixed as a
record date for the determination of stockholders entitled to vote at any
meeting, no share of stock which shall have been transferred on the books of the
Company within ten days next preceding such meeting shall be voted.
4.04 The person presiding at any meeting of stockholders may
appoint one or more inspectors to determine the vote on any question or election
of directors.
5. THE BOARD OF DIRECTORS
5.01 The number of directors which shall constitute the whole
board shall be six.
5.02 Except as otherwise provided herein, the directors shall be
elected at the annual meeting of stockholders, and each director shall hold
office until his successor shall be elected and qualified; provided, however,
that the term of office of a director who is an employee of the Company shall
expire simultaneously with his retirement from active service with the Company.
Directors need not be stockholders.
5.03 Newly created directorships resulting from an increase in the
number of directors constituting the whole board and all vacancies occurring in
the membership of the board may be filled by the affirmative vote of a majority
<PAGE> 41
-4-
of the remaining directors, though less than a quorum. A director elected to
fill a newly created directorship or to fill a vacancy shall hold office until
his successor shall be elected and qualified.
5.04 The business of the Company shall be managed by the board
which may exercise all of the powers of the Company except those that are by
statute or the charter or these by laws conferred upon or reserved to the
stockholders.
6. MEETINGS OF THE BOARD
6.01 Meetings of the Board may be held at such times and places
that the board may from time to time designate by resolution, or any such
meeting may be held at the time and place which shall be stated in the notice
thereof as herein provided.
6.02 Notice of the time, place, or purpose of any meeting of the
board may be dispensed with if every director shall attend in person, or if
every absent director shall, in writing, filed with the records of the meeting
either before or after the holding thereof, waive such notice.
6.03 The notice or waiver of notice of a meeting of the board need
not specify the purpose thereof.
6.04 The majority of directors shall constitute a quorum for the
transaction of business, unless otherwise required by statute or the charter or
these by laws. The act of a majority of the directors at any meeting at which a
quorum is present shall be the act of the board, unless otherwise required by
statute or the charter or these by laws.
<PAGE> 42
- 5-
6.05 If a quorum shall not be present at a meeting of the board,
the directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
7. THE COMMITTEES OF DIRECTORS
7.01 The board may, by resolution or resolutions adopted by a
majority of the whole board, designate one or more committees. Each committee
shall consist of two or more of the directors which, to the extent provided in
the resolution or resolutions, shall have and may exercise the powers of the
board in the management of the business and affairs of the Company. Each
committee shall have such name and duties that may be determined from time to
time by resolution adopted by the board.
7.02 The committees shall keep regular minutes of their proceedings
and report the same to the board when required.
8. NOTICES
8.01 Whenever any notice required by statute or the charter or
these by laws must be given to a stockholder or a director or an officer, other
than notices elsewhere herein provided for, such notice may be given in writing
and mailed to such person at the address thereof appearing on the books of the
Company; and such notice shall be deemed to be given at the time the same is
deposited in the United States mail. Any such notice to a director or officer
may be given by telephone or telegram in lieu of mailing.
<PAGE> 43
-6-
8.02 A waiver of the notice provided for in Section 8.01, signed
either before or after the time stated in the notice by the person entitled
thereto, shall be deemed equivalent to giving such notice.
9. ACTION BY STOCKHOLDERS AND DIRECTORS WITHOUT MEETING
9.01 Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action, the
meeting and vote of stockholders may be dispensed with if all the stockholders
who would have been entitled to vote upon the action, if such meeting were held,
shall agree in writing to such corporate action being taken.
9.02 Whenever the vote of directors at a meeting thereof is
required or permitted to be taken in connection with any Company action, the
meeting and vote of directors may be dispensed with if all the directors agree
in writing to such Company action being taken.
10. THE OFFICERS
10.01 The officers of the Company shall be chosen by the board and
they shall be a chairman of the board, a president, one or more vice presidents,
a secretary, a treasurer, and such other officers as the board and the
organization of the Company may require. The chairman and president shall be
chosen from among the directors.
10.02 The board may appoint such officials of the Company as the
board may deem expedient or necessary.
<PAGE> 44
-7-
10.03 The board shall choose the officers and appoint the officials
of the Company at the board's first meeting after the annual meeting of
stockholders.
10.04 The same person may hold two offices except those of chairman,
president and vice president.
10.05 The board may at any time, by affirmative vote of a majority
of the board, create and fill new offices, fill vacancies in existing offices,
or vacate and discontinue offices then existing.
10.06 The officers and officials of the Company shall hold their
offices until their respective successors are chosen or appointed.
11. THE CHAIRMAN OF THE BOARD AND THE PRESIDENT
11.01 The chairman of the board shall be in general charge of the
business of the Company and shall have the duty to see that all orders and
resolutions of the board are carried into effect. He shall preside at all
meetings of the stockholders and directors and shall perform such other duties
as the by laws or the board of directors shall prescribe.
11.02 The President shall have executive direction of the affairs of
the company subject to the chairman of the board and the board of directors. In
the absence or disability of the chairman of the board, the president shall
preside at meetings of the stockholders and directors and exercise the powers
and duties of the chairman of the board.
<PAGE> 45
-8-
11.03 The chairman of the board or the president shall execute
deeds, mortgages, deeds of trust, bonds, and other instruments, except where
required or permitted by law to be otherwise executed and except where the
execution thereof shall be expressly delegated by the board to some other
officer or official of the Company.
12. THE VICE PRESIDENTS
12.01 In the absence of the chairman of the board and the president,
a vice president or other officer selected by the board shall perform the duties
and exercise the powers of the president. Each vice president shall perform such
other duties as the board or president shall prescribe.
13. THE SECRETARY AND ASSISTANT SECRETARIES
13.01 The secretary shall attend all meetings of the board and all
meetings of the stockholders, shall record the proceedings of the meetings in a
book kept for that purpose, and shall perform like duties for committees of
directors when required. The secretary shall perform such other duties as may be
prescribed by the board or the president.
13.02 The secretary shall have custody of the seal of the Company.
The secretary, an assistant secretary, the treasurer or an assistant treasurer
shall have authority to affix the seal to any instrument requiring it and when
so affixed, the seal may be attested by the signature of the secretary,
assistant secretary, treasurer, or assistant treasurer.
13.03 The assistant secretaries, in the order determined by the
board, shall, in the absence of the secretary, perform the duties and exercise
the powers
<PAGE> 46
-9-
of the secretary. Any assistant secretary shall perform such other powers as
the board may prescribe.
14. THE TREASURER AND ASSISTANT TREASURERS
14.01 The treasurer shall have the custody of the Company's funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company. He shall deposit all moneys
and other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the board.
14.02 The treasurer shall disburse the funds of the Company, taking
proper vouchers for such disbursements, and shall render to the president and
directors, whenever they may require it, accounts of all his transactions as
treasurer and of the financial condition of the Company.
14.03 If required by the board, the treasurer shall give the Company
a bond, in such sum and with such surety as shall be satisfactory to the board,
for the faithful performance of the duties of his office and for the restoration
to the Company, in case of his death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in his possession or under his control and belonging to the Company.
14.04 The assistant treasurers, in the order determined by the
board, shall, in the absence of the treasurer, perform the duties and exercise
the powers of the treasurer. Any assistant treasurer shall perform such other
duties and have such other powers as the board may prescribe.
<PAGE> 47
-10-
15. INDEMNIFICATION
15.01 Each person who at any time is, or shall have been, a
director, officer, employee, or agent of the Company, and is threatened to be or
is made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company, or served at the request of the Company as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, shall be indemnified against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with any such action, suit, or proceeding to the
full extent provided under the General Corporation Law of the State of Delaware.
The foregoing right of indemnification shall in no way be exclusive of any other
rights of indemnification to which any such director, officer, employee or agent
may be entitled, under any by law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person.
15.02 The Company shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
<PAGE> 48
-11-
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of this article.
16. CERTIFICATES OF STOCK
16.01 The shares of the Company shall be represented by numbered
certificates, and they shall be entered on the books of the Company as they are
issued. Each certificate shall exhibit the holder's name and the number of
shares and shall be signed by the chairman of the board, the president or a vice
president and the secretary, an assistant secretary, the treasurer, or assistant
treasurer. The seal of the Company or a facsimile thereof may be affixed to each
certificate.
16.02 The signatures of the officers of the Company upon a
certificate of stock may be facsimiles.
16.03 In the event an officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate shall have been issued, the certificate may be
issued with the sue effect as if he were such officer at the date of the
certificate's issue.
17. DIVIDENDS
17.01 Dividends upon the capital stock of the Company, subject to
the provisions of the charter, may be declared by the board at any meeting,
<PAGE> 49
-12-
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the charter and the applicable
laws.
18. FISCAL YEAR
18.01 The fiscal year shall be the calendar year.
19. SEAL
19.01 The corporate seal shall have inscribed thereon the name of
the Company and such other words and symbols as the board may by resolution
determine. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, or reproduced.
20. EMERGENCY BY LAWS
20.01 The board may adopt emergency by laws, subject to repeal or
change by action of the stockholders, which shall be operative during any
emergency resulting from an attack on the United States of America or any
nuclear or atomic disaster. The emergency by laws may make any provision that
may be practical or necessary for the circumstances of the emergency and in
conformity with the laws of the State of Delaware.
20.02 To the extent not inconsistent with the emergency by laws so
adopted, these by laws shall remain in effect during any such emergency and upon
its termination the emergency by laws shall cease to be operative.
<PAGE> 50
-13-
21. AMENDMENTS
21.01 These by laws may be amended by the stockholders or by the
board. Any amendment to these by laws made by the board may be altered or
repealed by the stockholders.
<PAGE> 51
CONSOLIDATED SYSTEM LNG COMPANY
Shareholder Action Taken by the Written Consent
of the Consolidated Natural Gas Company, Sole Shareholder of
Consolidated System LNG Company
Effective March 17, 1997
Pursuant to the authority contained in Section 228 of the General
Corporation Law of the State of Delaware and Paragraph 9.01 of the by laws of
the Company, the undersigned, Consolidated Natural Gas Company, a Delaware
Corporation and the holder of all the outstanding stock of Consolidated System
LNG Company, does hereby take, consent to and adopt the following actions and
Resolutions in writing, without meeting:
IT IS RESOLVED, That the resignation of Jon B. Slaby as Director and
Treasurer of the Company is hereby accepted.
FURTHER RESOLVED, That Section 5.01 of the Bylaws be, and it hereby is,
amended, effective March 17, 1997, to provide as follows:
"5.01 The number of directors which shall constitute the whole board
shall be not less than one nor more than fifteen. Thereafter, within
the limits above specified, the number of directors shall be
determined by resolution of the board of directors or by the
stockholders at the annual meeting. Directors need not be
stockholders."
Giving effect to the above resignation, the following are the directors
of the Company:
Edward S. Schwartz
Stephen E. Williams
CONSOLIDATED NATURAL GAS COMPANY
by /s/ GEORGE A. DAVIDSON, JR.
---------------------------
George A Davidson, Jr.
Its Chairman of the Board
<PAGE> 52
CONSOLIDATED SYSTEM LNG COMPANY
BYLAWS
Adopted June 2, 1971
As Amended
Date Sections
---- --------
April 21, 1972 5.01
January 1, 1973 5.01
June 2, 1975 5.01
December 3, 1976 6.05
June 2, 1980 5.01
September 5, 1980 22.01
July 1, 1981 5.01
August 1, 1982 All
March 1, 1984 5.01
June 1, 1987 5.01
<PAGE> 53
C O N T E N T S
- - - - - - - -
1. OFFICES OF THE COMPANY
2. ANNUAL MEETINGS OF STOCKHOLDERS
3. SPECIAL MEETINGS OF STOCKHOLDERS
4. QUORUM AND VOTING AT MEETINGS
5. THE BOARD OF DIRECTORS
6. MEETINGS OF THE BOARD
7. THE COMMITTEES OF DIRECTORS
8. NOTICES
9. ACTION BY STOCKHOLDERS AND DIRECTORS WITHOUT MEETING
10. THE OFFICERS
11. CHAIRMAN OF THE BOARD
12. THE PRESIDENT
13. THE VICE PRESIDENTS
14. THE SECRETARY AND ASSISTANT SECRETARIES
15. THE TREASURER AND ASSISTANT TREASURERS
16. INDEMNIFICATION
17. CERTIFICATES OF STOCK
18. TRANSFERS OF STOCK
19. LOST OR DESTROYED CERTIFICATES
20. RECORD DATES
21. REGISTERED STOCKHOLDERS
22. DIVIDENDS
23. CHECKS
24. FISCAL YEAR
25. SEAL
26. EMERGENCY BYLAWS
27. AMENDMENTS
<PAGE> 54
CONSOLIDATED SYSTEM LNG COMPANY
BYLAWS
------
1. OFFICES OF THE COMPANY
1.01 The principal office of the Company shall be in the City of
Clarksburg, County of Harrison, State of West Virginia.
1.02 The Company may also have offices at such other places as the
board of directors may from time to time determine or the business of the
Company may require.
2. ANNUAL MEETINGS OF STOCKHOLDERS
2.01 Annual meetings of stockholders shall be held at the principal
office of the Company or at such other place as the board may designate.
2.02 Annual meetings of stockholders, commencing with the year
1972, shall be held at 9:00 a.m. on the first Monday in June if that day is not
a legal holiday, and if a legal holiday, then on the next business day
following. At each annual meeting the stockholders shall elect by a plurality
vote a board of directors and transact such other business that may properly be
brought before the meeting.
2.03 Written notice of the time, date, and the place of the annual
meeting shall be mailed to each stockholder entitled to vote, at the address of
the stockholder appearing on the books of the Company, not less than ten nor
more than forty days prior to the meeting. The notice shall be mailed by the
secretary or by any other person the board may so designate.
<PAGE> 55
3. SPECIAL MEETINGS OF STOCKHOLDERS
3.01 Special meetings of stockholders for any purpose or purposes
may be held at the time and place that shall be stated in the notice of the
meeting or in a duly executed waiver of notice.
3.02 Special meetings of stockholders may be called by the board,
the chairman of the board, or the holders of not less than ten percent of all
the shares entitled to vote at such meetings, unless otherwise prescribed by
statute or by the charter.
3.03 Written notice of the time, date, place, and purpose of each
special meeting of stockholders shall be mailed to each stockholder entitled to
vote, at the address of the stockholder appearing on the books of the Company,
not less than ten nor more than forty days prior to the meeting. The notice
shall be mailed by the chairman of the board, the board, or the stockholders
calling the meeting, or by the secretary or some other person at the direction
of the chairman, the board, or such stockholders.
3.04 The business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
4. QUORUM AND VOTING AT MEETINGS
4.01 The holders of a majority of the stock issued and outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of stockholders for the transaction of
business, except as otherwise provided by statute or the charter of these
bylaws. If however, such quorum shall not be present or represented at any
meeting of stockholders,
<PAGE> 56
the stockholders entitled to vote, present in person or represented by proxy,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meetings, at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
4.02 When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power, present in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which a different vote is required by express
provision of a statute or the charter or these bylaws, in which case such
express provision shall control the decision of such question.
4.03 At any meeting of stockholders every stockholder having the
right to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such stockholder or authorized agent and
bearing a date not more than three years prior to said meeting, unless such
instrument provides for a longer period. Each stockholder shall have one vote
for each share of stock having voting power and registered in the stockholder's
name on the books of the Company. Except where a date shall have been fixed as a
record date for the determination of stockholders entitled to vote at any
meeting, no share of stock which shall have been transferred on the books of the
Company within ten days next preceding such meeting shall be voted.
<PAGE> 57
4.04 The person presiding at any meeting of stockholders may
appoint one or more inspectors to determine the vote on any question or any
election of directors.
5. THE BOARD OF DIRECTORS
5.01 The number of directors which shall constitute the whole board
shall be four.
5.02 Except as otherwise provided herein, the directors shall be
elected at the annual meeting of stockholders, and each director shall hold
office until his successor shall be elected and qualified, provided, however,
that the term of office of a director who is an employee of the Company shall
expire simultaneously with his retirement from active service with the Company.
5.03 Newly created directorships resulting from an increase in the
number of directors constituting the whole board and all vacancies occurring in
the membership of the board may be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum. A director elected to
fill a newly created directorship or to fill a vacancy shall hold office until
his successor shall be elected and qualified.
5.04 The business of the Company shall be managed by board which
may exercise all of the powers of the Company except those that are by statute
or the charter or these bylaws conferred upon or reserved to the stockholders.
6. MEETINGS OF THE BOARD
6.01 Meetings of the board may be held at such times and places
that the board may from time to time designate by
<PAGE> 58
resolution, or any such meeting may be held at the time and place which shall be
stated in the notice thereof as herein provided.
6.02 All meetings of the board shall be called by the chairman of
the board, by the president or a vice president when the chairman is absent, or
by any two directors on one-day's notice of the time and place thereof which
shall be given by the secretary or assistant secretary to each director by mail,
telephone, or personally.
6.03 Notice of the time, place, or purpose of any meeting of the
board may be dispensed with if every director shall attend in person, or if
every absent director shall, in writing, filed with the records of the meeting
either before or after the holding thereof, waive such notice.
6.04 The notice or waiver of notice of a meeting of the board need
not specify the purpose thereof.
6.05 One-third of the directors but in no event less than two (2)
directors shall constitute a quorum for the transaction of business, unless
otherwise required by statute or the charter or these bylaws. The act of a
majority of the directors at any meeting at which a quorum is present shall be
the act of the board, unless otherwise required by statute or the charter or
these bylaws.
6.05 If a quorum shall not be present at a meeting of the board,
the directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
7. THE COMMITTEES OF DIRECTORS
7.01 The board may, by resolution or resolutions adopted by a
majority of the whole board, designate one or more committees.
<PAGE> 59
Each committee shall consist of two or more of the directors which, to the
extent provided in the resolution or resolutions, shall have and may exercise
the powers of the board in the management of the business and affairs of the
Company. Each committee shall have such name and duties that may be determined
from time to time by resolution adopted by the board.
7.02 The committees shall keep regular minutes of their proceedings
and report the same to the board when required.
8. NOTICES
8.01 Whenever any notice required by statute or the charter or
these bylaws must be given to a stockholder or a director or an officer, other
than notices elsewhere herein provided for, such notice may be given in writing
and mailed to such person at the address thereof appearing on the books of the
Company; and such notice shall be deemed to be given at the time the same is
deposited in the United States mail. Any such notice to a director or officer
may be given by telephone or telegram in lieu of mailing.
8.02 A waiver of the notice provided for in section 8.01, signed
either before or after the time stated in the notice by the person entitled
thereto, shall be deemed equivalent to giving such notice.
9. ACTION BY STOCKHOLDERS AND DIRECTORS WITHOUT MEETING
9.01 Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action, the
meeting and vote of stockholders may be
<PAGE> 60
dispensed with if all the stockholders who would have been entitled to vote upon
the action, if such meeting were held, shall agree in writing to such corporate
action being taken.
9.01 Whenever the vote of directors at a meeting thereof is
required or permitted to be taken in connection with any Company action, the
meeting and vote of directors may be dispensed with if all the directors agree
in writing to such Company action being taken.
10. THE OFFICERS
10.01 The officers of the Company shall be chosen by the board and
they shall be a chairman of the board, a president, a vice president, a
secretary, a treasurer, and such other officers as the board and the
organization of the Company may require. The president shall be chosen from
among the directors.
10.02 The board may appoint such officials of the Company as the
board may deem expedient or necessary.
10.03 The board shall choose the officers and appoint the officials
of the Company at the board's first meeting after the annual meeting of
stockholders.
10.04 The same person may hold two offices except those of
president and secretary.
10.05 The board may at any time, by affirmative vote of a majority
of the board, create and fill new offices, fill vacancies in existing offices,
or vacate and discontinue offices then existing.
<PAGE> 61
10.06 The officers and officials of the Company shall hold their
offices until their respective successors are chosen or appointed.
11. THE CHAIRMAN OF THE BOARD
11.01 The chairman of the board shall be the chief executive officer
of the corporation, shall preside at all meetings of the stockholders and the
directors, and shall see that all orders and resolutions of the board are
carried into effect.
11.02 The chairman of the board shall execute deeds, mortgages,
deeds of trust, bonds, and other instruments, except where required or permitted
by law to be otherwise executed and except where the execution thereof shall be
expressly delegated by the board to some other officer or official of the
corporation.
12. THE PRESIDENT
12.01 The President shall be the chief operating officer of the
corporation, and shall have final responsibility for such matters as are
delegated to him by the chairman of the board.
13. THE VICE PRESIDENTS
13.01 Each vice president shall perform such duties as the board,
the chairman of the board, or the president shall prescribe.
14. THE SECRETARY AND ASSISTANT SECRETARIES
14.01 The secretary shall attend all meetings of the board and all
meetings of the stockholders, shall record the proceedings of the meetings in a
book kept for that purpose, and shall perform like duties for committees of
directors when required. The secretary shall perform such other duties as may be
prescribed by the board or the chairman.
<PAGE> 62
14.02 The secretary shall have custody of the seal of the Company.
The secretary, an assistant secretary, the treasurer, or an assistant treasurer,
shall have authority to affix the seal to any instrument requiring it and when
so affixed, the seal may be attested by the signature of the secretary,
assistant secretary, treasurer, or assistant treasurer.
14.03 The assistant secretaries, in that order determined by the
board, shall, in the absence of the secretary, perform the duties and exercise
the powers of the secretary. Any assistant secretary shall perform such other
powers as the board may prescribe.
15. THE TREASURER AND ASSISTANT TREASURERS
15.01 The treasurer shall have the custody of the Company's funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company. He shall deposit all moneys and
other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the board.
15.02 The treasurer shall disburse the funds of the Company, taking
proper vouchers for such disbursements, and shall render to the chairman and
directors, whenever they may require it, accounts of all his transactions as
treasurer and of the financial condition of the Company.
15.03 If required by the board, the treasurer shall give the Company
a bond, in such sum and with such surety as shall be satisfactory to the board,
for the faithful performance of the
<PAGE> 63
duties of his office and for the restoration to the Company, in case of his
death, resignation, retirement, or removal from office, of all books, papers,
vouchers, money, and other property of whatever kind in his possession or under
his control and belonging to the Company.
15.04 The assistant treasurers, in the order determined by the
board, shall, in the absence of the treasurer, perform the duties and exercise
the powers of the treasurer. Any assistant treasurer shall perform such other
duties and have such other powers as the boards may prescribe.
16. INDEMNIFICATION
16.01 Each person who at any time is, or shall have been, a
director, officer, employee, or agent of the Company, and is threatened to be or
is made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Company) by reason of the fact that he
is or was a director, officer, employee, or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise,
shall be indemnified against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him in
connection with any such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to
<PAGE> 64
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
16.02 Each person who at any time, is, or shall have been, a
director, officer, employee, or agent of the Company, and is threatened to be or
is made a party to any threatened, pending, or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made in respect of any claim, issue,
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Company unless
and only to
<PAGE> 65
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
16.03 To the extent that a director, officer, employee, or agent of
the Company has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in sections 15.01 and 15.02, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
16.04 Any indemnification under sections 15.01 and 15.02 (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee, or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in sections 15.01 and 15.02. Such
determination shall be made (1) by the board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
16.05 Expenses incurred in defending a civil or criminal action,
suit, or proceeding may be paid by the Company in advance of the final
disposition of such action, suit, or proceeding as
<PAGE> 66
authorized by the board in the specific case upon receipt of an undertaking by
or on behalf of the director, officer, employee, or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Company as authorized in these bylaws.
16.06 The rights of indemnification provided in this article shall
in no way be exclusive of any other rights or indemnification to which any such
director, officer, employee, or agent may be entitled, under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
16.07 The Company shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of this article.
17. CERTIFICATES OF STOCK
17.01 The shares of the Company shall be represented by numbered
certificates, and they shall be entered on the books of
<PAGE> 67
the Company as they are issued. Each certificate shall exhibit the holder's name
and the number of shares and shall be signed by the chairman of the board, the
president or a vice president and the secretary, an assistant secretary, the
treasurer, or assistant treasurer. The seal of the Company or a facsimile
thereof may be affixed to each certificate.
17.02 The signatures of the officers of the Company upon a
certificate of stock may be facsimiles.
17.03 In the event an officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate shall have been issued, the certificate may be
issued with the same effect as if he were such officer at the date of the
certificate's issue.
18. TRANSFERS OF STOCK
18.01 Upon surrender to the Company or the transfer agent of a
certificate of stock, duly endorsed or accompanied by sufficient evidence of
succession, assignment, or authority to transfer, a new certificate shall be
issued to the person entitled thereto. The old certificate shall be canceled,
and the transaction shall be recorded on the books of the Company.
19. LOST OR DESTROYED CERTIFICATES
19.01 The board may direct a new certificate to be issued in place
of any certificate theretofore issued by the Company and alleged to have been
lost or destroyed. Upon authorizing such issue of a new certificate, the board
may prescribe such terms and conditions as it deems expedient to protect the
Company.
<PAGE> 68
20. RECORD DATES
20.01 For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or to consider agreement
upon any proposed action without a meeting, or to receive payment of any
dividend or the allotment of rights, or to consider any other action, the board
may fix in advance a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty nor less than ten days
before the date of any meeting nor more than sixty days prior to any other
proposed action. When such determination of stockholders shall have been made as
provided in this section, such determination shall apply to any adjournment of a
meeting, unless the board fixes a new record date for the adjourned meeting.
21. REGISTERED STOCKHOLDERS
21.01 The Company shall be entitled to treat the holder of record
of any share of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not the Company shall have express
or other notice thereof, except as otherwise provided by the laws of West
Virginia.
22. DIVIDENDS
22.01 Dividends upon the capital stock of the Company, subject to
the provisions of the charter, may be declared by the board at any meeting,
pursuant to the law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the charter and the applicable
laws.
<PAGE> 69
23. CHECKS
23.01 All checks, drafts or other orders for the payment or
transfer of money, notes or other evidences of indebtedness issued in the name
of the Company, shall be signed by such officer or officers, agent or agents of
the Company and in such manner as shall from time to time be determined by
resolution of the board of directors.
24. FISCAL YEAR
24.01 The fiscal year shall be the calendar year.
25. SEAL
25.O1 The corporate seal shall have inscribed thereon the name of
the Company and such other words and symbols as the board may by resolution
determine. The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, or reproduced.
26. EMERGENCY BYLAWS
26.01 The board may adopt emergency bylaws, subject to repeal or
change by action of the stockholders, which shall be operative during any
emergency resulting from an attack on the United States of America or any
nuclear or atomic disaster. The emergency bylaws may make any provision that may
be practical or necessary for the circumstances of the emergency and in
conformity with the laws of the State of Delaware.
26.02 To the extent not inconsistent with the emergency bylaws so
adopted, these bylaws shall remain in effect during any such emergency and upon
its termination the emergency bylaws shall cease to be operative.
<PAGE> 70
27. AMENDMENTS
27.01 These bylaws may be amended by the stockholders or by the
board. Any amendment to these bylaws made by the board may be altered or
repealed by the Stockholders.
<PAGE> 1
Exhibit 99.2
EXHIBIT C(a)
INDENTURES OF CONSOLIDATED NATURAL GAS COMPANY
----------------------------------------------
The Indentures, Supplemental Indentures and Securities Resolutions between
Consolidated Natural Gas Company and its debenture Trustees, as listed below,
are incorporated by reference to material previously filed with the Commission
as indicated:
Manufacturers Hanover Trust Company (now The Chase Manhattan Bank)
Indenture dated as of May 1, 1971 (Exhibit (5) to Certificate of
Notification at Commission File No. 70-5012)
Eleventh Supplemental Indenture thereto dated as of December 1, 1986
(Exhibit (5) to Certificate of Notification at Commission File
No. 70-7079)
Thirteenth Supplemental Indenture thereto dated as of February 1,
1989 (Exhibit (5) to Certificate of Notification at Commission
File No. 70-7336)
Fourteenth Supplemental Indenture thereto dated as of June 1, 1989
(Exhibit (5) to Certificate of Notification at Commission File
No. 70-7336)
Fifteenth Supplemental Indenture thereto dated as of October 1, 1989
(Exhibit (5) to Certificate of Notification at Commission File
No. 70-7651)
Sixteenth Supplemental Indenture thereto dated as of October 1, 1992
(Exhibit (4) to Certificate of Notification at Commission File
No. 70-7651)
Seventeenth Supplemental Indenture thereto dated as of August 1,
1993 (Exhibit (4) to Certificate of Notification at Commission
File No. 70-8167)
Eighteenth Supplemental Indenture thereto dated as of December 1,
1993 (Exhibit (4) to Certificate of Notification at Commission
File No. 70-8167)
United States Trust Company of New York
Indenture dated as of April 1, 1995 (Exhibit (4) to Certificate of
Notification at Commission File No. 70-8107)
Securities Resolution No. 1 effective as of April 12, 1995 (Exhibit 2
to Form 8-A filed April 21, 1995 under file No. 1-3196 and relating
to the 7-3/8% Debentures Due April 1, 2005)
Securities Resolution No. 2 effective as of October 16, 1996 (Exhibit 2
to Form 8-A filed October 18, 1996 under file No. 1-3196 and
relating to the 6-7/8% Debentures Due October 15, 2026)
Securities Resolution No. 3 effective as of December 10, 1996
(Exhibit 2 to Form 8-A filed December 12, 1996 under file No. 1-3196
and relating to the 6-5/8% Debentures Due December 1, 2008)
Securities Resolution No. 4 effective as of December 9, 1997 (Exhibit 2
to Form 8-A filed December 12, 1997 under file No. 1-3196 and
relating to the 6.80% Debentures Due December 15, 2027)
The Chase Manhattan Bank (National Association)
Indenture dated as of December 15, 1990 (Exhibit (4A)(1) to
Consolidated Natural Gas Company's Form 10-K for the year ended
December 31, 1990, File No. 1-3196)
<PAGE> 1
Exhibit 99.3
EXHIBIT E
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Iroquois Gas Transmission System, L.P.:
We have audited the accompanying consolidated balance sheets of Iroquois Gas
Transmission System, L.P. and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in partners' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Iroquois Gas Transmission System, L.P. and Subsidiaries as of December 31, 1997
and 1996, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 11, 1998
<PAGE> 2
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
AT DECEMBER 31 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 26,352 $ 38,661
Accounts receivable--trade 8,905 9,350
Accounts receivable--affiliates 5,397 5,796
Other current assets 2,167 2,512
--------- ---------
TOTAL CURRENT ASSETS 42,821 56,319
--------- ---------
NATURAL GAS TRANSMISSION PLANT:
Natural gas plant in service 745,529 741,011
Construction work in progress 14,450 4,438
--------- ---------
759,979 745,449
Accumulated depreciation and amortization (196,213) (164,857)
--------- ---------
NET NATURAL GAS TRANSMISSION PLANT 563,766 580,592
--------- ---------
DEFERRED CHARGES:
Regulatory assets--income tax related 14,386 15,050
Regulatory assets--other 2,602 2,790
Other deferred charges 930 848
--------- ---------
TOTAL DEFERRED CHARGES 17,918 18,688
--------- ---------
TOTAL ASSETS $ 624,505 $ 655,599
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY (THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------------------------------
AT DECEMBER 31 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable 4,907 $ 4,202
Accrued interest 5,613 6,423
Current portion of long-term debt 28,724 29,705
Other current liabilities 5,533 7,464
--------- --------
TOTAL CURRENT LIABILITIES 44,777 47,794
--------- --------
LONG-TERM DEBT 365,387 394,112
OTHER NON-CURRENT LIABILITIES 90 272
--------- --------
365,477 394,384
--------- --------
AMOUNTS EQUIVALENT TO DEFERRED INCOME TAXES:
Generated by Partnership 53,959 45,196
Payable by Partners (39,573) (30,146)
--------- --------
TOTAL AMOUNTS EQUIVALENT TO
DEFERRED INCOME TAXES 14,386 15,050
--------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 6) -- --
TOTAL LIABILITIES 424,640 457,228
--------- --------
PARTNERS' EQUITY 199,865 198,371
--------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 624,505 $655,599
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET OPERATING REVENUES $153,652 $154,379
OPERATING EXPENSES:
Operations 23,988 22,538
Depreciation and amortization 32,094 31,243
Taxes other than income taxes 10,266 9,607
-------- --------
TOTAL OPERATING EXPENSES 66,348 63,388
-------- --------
OPERATING INCOME 87,304 90,991
-------- --------
OTHER INCOME & (EXPENSES):
Interest income 2,105 2,194
Allowance for equity funds used during construction 245 35
Other, net 1,830 (1,098)
-------- --------
4,180 1,131
-------- --------
INCOME BEFORE INTEREST CHARGES AND TAXES 91,484 92,122
INTEREST EXPENSE:
Interest expense 35,409 37,922
Allowance for borrowed funds used during construction (419) (67)
-------- --------
NET INTEREST EXPENSE 34,990 37,855
-------- --------
INCOME BEFORE TAXES 56,494 54,267
PROVISION FOR TAXES 22,408 22,163
-------- --------
NET INCOME $ 34,086 $ 32,104
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,086 $ 32,104
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 32,094 31,243
Allowance for equity funds used during construction (245) (35)
Decrease in deferred regulatory asset-income tax related 664 751
Decrease in amounts equivalent to deferred income taxes (664) (751)
Income and other taxes payable by Partners 22,408 22,163
Decrease (increase) in other deferred charges (197) (351)
Changes in working capital:
Decrease (increase) in accounts receivable 844 (484)
Decrease (increase) in other assets 345 (231)
Increase (decrease) in accounts payable 705 (272)
Decrease in accrued interest (810) (441)
Decrease in other liabilities (2,114) (23,107)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,116 60,589
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,719) (4,358)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (14,719) (4,358)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions -- 4,616
Partner distributions (55,000) (40,000)
Repayments of long-term debt (29,706) (30,669)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (84,706) (66,053)
-------- --------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (12,309) (9,822)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 38,661 48,483
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 26,352 $ 38,661
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 35,898 $ 38,364
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
- ----------------------------------------------------------------
PARTNERS' EQUITY,
<S> <C>
BALANCE AT DECEMBER 31, 1995 $ 179,488
Net Income 1996 32,104
Contributions by Partners 4,616
Taxes payable by Partners:
Federal income taxes 18,598
State income taxes 2,259
Other state taxes 1,306
---------
22,163
Equity distributions to Partners (40,000)
---------
PARTNERS' EQUITY,
BALANCE AT DECEMBER 31, 1996 198,371
Net Income 1997 34,086
Taxes payable by Partners:
Federal income taxes 18,802
State income taxes 2,309
Other state taxes 1,297
---------
22,408
Equity distributions to Partners (55,000)
---------
PARTNERS' EQUITY,
BALANCE AT DECEMBER 31, 1997 $ 199,865
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF PARTNERSHIP:
Iroquois Gas Transmission System, L.P., ("Iroquois" or "Company") is a Delaware
limited partnership formed for the purpose of constructing, owning and operating
a natural gas transmission pipeline from the Canada-United States border near
Waddington, N.Y., to South Commack, Long Island, N.Y. In accordance with the
limited partnership agreement, the Partnership shall continue in existence until
October 31, 2089, and from year to year thereafter, until the Partners elect to
dissolve the Partnership and terminate the limited partnership agreement.
The Partners consist of TransCanada Iroquois Ltd. (29.0%), North East
Transmission Co. (19.4%), CNG Iroquois, Inc. (16.0%), ANR Iroquois, Inc. (9.4%),
ANR New England Pipeline Co. (6.6%), ALENCO Iroquois Pipelines, Inc. (6.0%),
JMC-Iroquois, Inc. (4.93%), TEN Transmission Company (4.87%), NJNR Pipeline
Company (2.8%), and LILCO Energy Systems, Inc. (1.0%). In April 1996, Housatonic
Corporation and the New York Power Authority sold their partnership interest to
North East Transmission Co., TEN Transmission Company and JMC-Iroquois, Inc.,
whose interests were increased by 8%, 2.47% and 2.13%, respectively. In July
1996, ANR Iroquois, Inc. acquired all of the capital stock of Tennessee/New
England Pipeline Company and changed the acquired company's name to ANR New
England Pipeline Company. CNG Iroquois, Inc. purchased 50% of the partnership
interest held by ANR New England Pipeline Company, thereby increasing its
partnership share by 6.6% to 16%. In total, ANR's partnership share has also
increased to 16%. The Iroquois Pipeline Operating Company, a wholly-owned
subsidiary, is the administrative operator of the pipeline.
Income and expenses are allocated to the Partners and credited to their
respective equity accounts in accordance with the partnership agreements and
their respective percentage interests.
Distributions to Partners are made concurrently to all Partners in
proportion to their respective partnership interests. Total cash distributions
of $55.0 million and $40.0 million were made during 1997 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements of the Company are prepared in accordance with
generally accepted accounting principles and with accounting for regulated
public utilities prescribed by the Federal Energy Regulatory Commission
("FERC"). Generally accepted accounting principles for regulated entities allow
the Company to give accounting recognition to the actions of regulatory
authorities in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain
Types of Regulation." In accordance with SFAS No. 71, the Company has deferred
recognition of costs (a regulatory asset) or has recognized obligations (a
regulatory liability) if it is probable that such costs will be recovered or
obligation relieved in the future through the rate-making process.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
Iroquois Pipeline Operating Company, a wholly-owned subsidiary. Intercompany
transactions have been eliminated in consolidation.
CASH AND TEMPORARY CASH INVESTMENTS
Iroquois considers all highly liquid temporary cash investments purchased with
an original maturity date of three months or less to be cash equivalents. Cash
and temporary cash investments of $26.4 million, consisting primarily of low
risk mutual funds, are carried at cost, which approximates market. At December
31, 1997 and 1996, $10.6 million and $11.0 million, respectively, of cash and
temporary cash investments were held to satisfy the terms of the Loan Agreement
(refer to Note 3).
NATURAL GAS PLANT IN SERVICE
Natural gas plant in service is carried at original cost. The majority of the
natural gas plant in service is categorized as natural gas transmission plant
which was depreciated over 20 years on a straight line basis from the in-service
date through January 31, 1995. Commencing February 1, 1995, transmission plant
is depreciated over 25 years on a straight-line basis as a result of the rate
case settlement. The general plant is depreciated on a straight-line basis over
various useful lives averaging five years.
CONSTRUCTION WORK IN PROGRESS
At December 31, 1997, construction work in progress included preliminary
construction costs relating to the proposed Athens compressor station and
on-going minor capital projects.
ALLOWANCE FOR FUNDS
USED DURING CONSTRUCTION
The allowance for funds used during construction ("AFUDC") represents the cost
of funds used to finance natural gas transmission plant under construction. The
AFUDC rate includes a component for borrowed funds as well as equity. The AFUDC
is capitalized as an element of natural gas plant in service.
PROVISION FOR TAXES
The payment of income taxes is the responsibility of the Partners and such taxes
are not normally reflected in the financial statements of partnerships.
Iroquois' approved rates, however, include an allowance for taxes (calculated as
if it were a corporation) and the FERC requires Iroquois to record such taxes in
the Partnership records to reflect the taxes payable by the Partners as a result
of Iroquois' operations. These taxes are recorded without regard as to whether
each Partner can utilize its share of the Iroquois tax deductions. Iroquois'
rate base, for rate-making purposes, is reduced by the amount equivalent to
accumulated deferred income taxes in calculating the required return.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred taxes are provided based upon, among other factors, enacted
tax rates which would apply in the period that the taxes become payable, and by
adjusting deferred tax assets or liabilities for known changes in future tax
rates. SFAS No. 109 requires recognition of a deferred income tax liability for
the equity component of AFUDC.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
classifications.
<PAGE> 8
3. FINANCING:
On June 11, 1991, Iroquois entered into a loan agreement which provided a loan
facility totaling $522.6 million to be amortized over a 14-year period
commencing November 1, 1992.
On August 30, 1992, the total amount of the loan became non-recourse to the
Partners. However, the Partners' equity interest remained pledged until December
7, 1993, at which time the required conditions were met and the liens were
extinguished.
During 1993, Iroquois entered into Expansion Loan Agreement No. 1 in the
amount of $17.6 million to construct the Wright Compressor Station. The
expansion loan conditions are substantially the same as those of the base loan
and are non-recourse with respect to the Partners. The loan will mature in
November 2007.
During 1995, Iroquois entered into Expansion Loan Agreement No. 2 in the
amount of $13.4 million to finance the Croghan Compressor Station. This loan is
subject to similar provisions as the above noted loans. The loan will mature in
November 2008.
As of December 31, 1997, Iroquois was party to interest rate swap
transactions for aggregate notional principal amounts of $550.7 million. The
interest rate swaps relating to the original loan and Expansion Loan No. 1 are
$537.6 million which are being amortized over 14 years in accordance with the
principal repayment schedule provided in the Loan Agreement. The interest rate
and margin over the term of the swaps average 7.615% and 1.159%, respectively.
The interest rate swap relating to Expansion Loan No. 2 is $13.2 million with an
average interest rate and margin of 6.0% and 1.066%, respectively. The interest
rate swap for Expansion Loan No. 2 expires November 2, 1998 at which time the
interest rate, unless a new interest rate swap is undertaken, will be based upon
daily LIBOR plus an average margin of 1.153% over the term of the loan. The
Original Loan Agreement requires that at least 50% of the original debt is
hedged by interest rate swaps. The fair value of interest rate swaps is the
estimated amount that Iroquois would receive or pay to terminate the swap
agreements at the reporting date, taking into account current interest rates and
current credit worthiness of the swap counterparties. The fair value of the
interest rate swaps were ($29.1) million and ($23.1) million at December 31,
1997 and 1996, respectively.
Iroquois is subject to risk from non-performance of the counterparties of
the swap agreements. In the event of non-performance, the Company would be
required to pay interest subject to the original terms of the loan agreement.
This risk is substantially mitigated by the fact that the counterparties are
large, highly-rated financial institutions. At December 31, 1997 the largest
single swap agreement subject to exposure was $10.7 million.
At December 31, 1997, the outstanding principal was $367.9 million on the
base loan, $13.9 million on Expansion Loan Agreement No. 1 and $12.3 million on
Expansion Loan No. 2 for total long-term debt of $394.1 million. The combined
schedule of repayments is as follows (in millions):
<TABLE>
<CAPTION>
Year Scheduled Repayment
---- -------------------
<S> <C>
1998 $ 28.7
1999 $ 28.7
2000 $ 28.8
2001 $ 26.7
2002 $ 26.7
Thereafter $254.4
</TABLE>
The loan agreements are collateralized by all the assets of the Partnership and
subject Iroquois to certain restrictions and covenants related to, among other
things, indebtedness, investments, certain expenditures, financial ratios, and
limitations on distributions to Partners. At December 31, 1997, the Company had
an outstanding letter of credit in the amount of $31.3 million, which is
guaranteed by the Partners.
The Company has an unsecured line of credit which permits borrowings up to
a maximum of $10 million at a rate equal to the lower of the lenders' alternate
base rate or one, two or three month LIBOR plus 3/8% per annum. This facility is
reviewed on an annual basis with the current agreement expiring in May 1998. The
line of credit contains a subjective acceleration clause as its most restrictive
covenant.
4. CONCENTRATIONS OF CREDIT RISK:
Iroquois' cash and temporary cash investments and trade accounts receivable
represent concentrations of credit risk. Management believes that the credit
risk associated with cash and temporary cash investments is mitigated by its
practice of limiting its investments to low risk mutual funds, rated Aaa by
Moody's Investor Services and AAA by Standard and Poor's, and its cash deposits
to large, highly-rated financial institutions. Management also believes that the
credit risk associated with trade accounts receivable is mitigated by the
restrictive terms of the FERC gas tariff which requires customers to pay for
service within 20 days after the end of the month of service delivery.
5. GAS TRANSPORTATION CONTRACTS:
As of December 31, 1997, Iroquois was providing multi-year firm reserved
transportation service to 32 shippers of 876.8 MMcf/d of natural gas which
breaks down as follows:
<TABLE>
<CAPTION>
Remaining Term in Years Quantity in MMcf/d
----------------------- ------------------
<S> <C>
3-10 85.0
11-15 489.6
16-20 302.2
-----
Total 876.8
=====
</TABLE>
The long-term firm service gas transportation contracts expire between
November 1, 2011 and October 1, 2014.
6. COMMITMENTS AND CONTINGENCIES:
REGULATORY PROCEEDINGS
On November 29, 1996, Iroquois submitted a general rate change application to
the Federal Energy Regulatory Commission ("FERC" or "Commission") in Docket No.
RP97-126-000. That rate change application represented a reduction in Iroquois'
test-period revenues of approximately $4.6 million compared to Iroquois'
then-effective rates. In an order issued on December 31, 1996 ("Suspension
Order"), the Commission accepted and suspended the rates, permitted them to
become effective (with one exception noted below) on January 1, 1997, and
established a hearing. The order also required the Presiding Administrative Law
Judge to issue a decision in this proceeding by December 31, 1997. Pursuant to
that Suspension Order, the Presiding Administrative Law Judge conducted a
hearing on all issues raised by Iroquois' filing, which was concluded on August
28, 1997.
Following the submission of initial, reply and supplemental briefs, the
Presiding Administrative Law Judge issued his Initial Decision on December 31,
1997. While the Presiding Administrative Law Judge ruled in Iroquois' favor on
certain issues, on others (such as reducing the depreciation rate from 4% to
2.77%; reducing Iroquois' equity ratio from 35% to
<PAGE> 9
27%; and reducing the authorized rate of return from the currently effective 15%
to 10.97%) he ruled against Iroquois. That Initial Decision, if adopted by the
Commission without changes, would result in an additional significant reduction
in Iroquois' revenues on a prospective basis. Iroquois filed a brief on
exceptions vigorously opposing certain aspects of the Administrative Law Judge's
findings on January 30, 1998; briefs opposing exceptions were submitted to the
Commission on February 27, 1998. The Commission's order establishing Iroquois'
future rates is not expected to be issued until mid-to-late 1998. Iroquois'
existing rates will continue to apply until such time.
The Suspension Order granted summary disposition on one issue: as a result
of the Commission's December 20 Opinion in Docket No. RP94-72 (discussed below),
Iroquois was ordered to remove approximately $11.7 million in plant and
associated costs from its proposed rate base. This results in an additional
reduction in Iroquois' test-period revenues of approximately $2.0 million from
those set forth in the filing. On January 15, 1997, Iroquois submitted its
filing in compliance with the Suspension Order. This compliance filing was
accepted by the Commission on February 12, 1997. Iroquois also sought rehearing
(on January 30, 1997) of the Suspension Order; this was denied by the Commission
by an order issued August 5, 1997. On September 3, 1997, Iroquois filed a
Petition for Review of the Commission's Suspension and August 5 Orders in the
United States Court of Appeals for the District of Columbia Circuit, docketed as
D.C. Cir. No. 97-1533, which was consolidated with D.C. Cir. No. 97-1276
(discussed below).
The Commission, on June 19, 1995, approved a Stipulation and Consent
Agreement in Iroquois' prior rate proceeding in Docket No. RP94-72, which
resolved all issues except for the accounting and recovery of legal defense
costs incurred in connection with certain criminal and civil investigations into
the initial construction of the Iroquois facility. A hearing was held on this
reserved issue on April 5, 1995. On July 19, 1995, the Presiding Administrative
Law Judge issued an Initial Decision which would have permitted Iroquois to
capitalize those legal defense costs and recover $4.1 million (the dollar amount
of such costs which Iroquois filed to recover in Docket No. RP94-72) from its
customers. Various participants, including the Commission Staff, filed
exceptions to the Initial Decision with the Commission (which were opposed by
Iroquois on September 7, 1995). On December 20, 1996, the Commission issued an
order reversing the Initial Decision and disallowing recovery of the legal
defense costs at issue. Iroquois filed a request for rehearing of the
Commission's December 20 Order on January 21, 1997. By Order issued March 3,
1997, the Commission denied rehearing. Iroquois filed a petition for review of
the December 20 and March 3 Orders in the United States Court of Appeals for the
District of Columbia Circuit on April 18, 1997 in D.C. Cir. No. 97-1276.
Iroquois submitted its initial brief in that case (and the consolidated D.C.
Cir. No. 97-1533) on January 7, 1998; briefs of the Commission and intervenors
supporting the Commission were filed in February 1998, and Iroquois' reply brief
was filed on March 9, 1998. Oral argument will be held on May 14, 1998, with the
court's decision being issued sometime thereafter.
LEGAL PROCEEDINGS-OTHER
Iroquois is party to various other legal actions incident to its business;
however, management believes that no material losses will result from such
proceedings.
LEASES
Iroquois leases its office space under operating lease arrangements. The leases
expire at various dates through 2003 and are renewable at Iroquois' option.
Iroquois also leases a right-of-way easement on Long Island, New York, from the
Long Island Lighting Company ("LILCO"), a general partner, which requires annual
payments escalating 5% a year over the 39-year term of the lease. In addition,
Iroquois leases various equipment under non-cancelable operating leases. During
the years ended December 31, 1997, and 1996, Iroquois made payments of $1.0
million and $0.9 million respectively, under operating leases which were
recorded as rental expense. Future minimum rental payments under operating lease
arrangements are as follows (millions of dollars):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $ 0.8
1999 $ 0.7
2000 $ 0.7
2001 $ 0.7
2002 $ 0.7
Thereafter $ 6.0
</TABLE>
7. INCOME TAXES:
Deferred income taxes which are the result of operations will become the
obligation of the Partners when the temporary differences related to those items
reverse. The Company recognizes a decrease in the Amounts Equivalent to Deferred
Income Taxes account for these amounts and records a corresponding increase to
Partners' equity. Deferred income taxes with respect to the equity component of
AFUDC remain on the accounts of the Partnership until the related deferred
regulatory asset is recognized.
Total income tax expense includes the following components (thousands of
dollars):
<TABLE>
<CAPTION>
U.S. STATE-
FEDERAL STATE OTHER TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Current $ 9,812 $ 1,872 $ 1,297 $12,981
Deferred 8,990 437 -- 9,427
------- ------- ------- -------
Total $18,802 $ 2,309 $ 1,297 $22,408
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
U.S. STATE-
FEDERAL STATE OTHER TOTAL
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Current $ 9,451 $1,643 $1,306 $12,400
Deferred 9,147 616 -- 9,763
------- ------ ------ -------
Total $18,598 $2,259 $1,306 $22,163
======= ====== ====== =======
</TABLE>
For the years ended December 31, 1997 and 1996, the effective tax rate differs
from the Federal statutory rate due principally to the impact of state taxes,
and the prior year non-deductible portion of the provision for the Federal
investigations.
Deferred income taxes included in the income statement relate to the
following (thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Depreciation $ 4,882 $ 7,236
Deferred regulatory asset (71) (72)
Property taxes 21 (19)
Legal costs (43) 570
Accrued expenses 613 (142)
Alternative minimum tax credit 3,872 2,078
Other 153 112
------- -------
Total deferred taxes $ 9,427 $ 9,763
======= =======
</TABLE>
<PAGE> 10
The components of the net deferred tax liability are as follows (thousands of
dollars):
<TABLE>
<CAPTION>
AT DECEMBER 31 1997 1996
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
<S> <C> <C>
Alternative minimum tax credit $ 5,894 $ 9,766
Accrued expenses 5,386 5,999
-------- --------
Total deferred tax assets $ 11,280 $ 15,765
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation & related items $(44,647) $(39,800)
Deferred regulatory asset (1,024) (1,095)
Property taxes (829) (808)
Legal costs (4,573) (4,616)
Other (523) (370)
-------- --------
Total deferred tax liabilities $(51,596) $(46,689)
-------- --------
Net deferred tax liabilities $(40,316) $(30,924)
Less deferral of tax rate change 743 778
-------- --------
Deferred taxes-operations (39,573) (30,146)
-------- --------
Deferred tax related
to Equity AFUDC (13,643) (14,272)
Deferred tax related
to change in tax rate (743) (778)
-------- --------
Total deferred taxes $(53,959) $(45,196)
======== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS:
Operating revenues and amounts due from related parties were primarily for gas
transportation services.
The following table summarizes Iroquois' related party transactions
(millions of dollars):
<TABLE>
<CAPTION>
PAYMENTS TO DUE FROM (TO) REVENUE FROM
RELATED RELATED RELATED
1997 PARTIES PARTIES PARTIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TransCanada Iroquois Ltd. $0.6 $(0.2) $ 1.8
Tennessee Gas Pipeline -- -- --
North East Transmission Co. -- 1.4 16.6
Housatonic Corp. -- -- --
ANR Iroquois -- 0.3 0.7
CNG Iroquois -- 0.9 6.2
JMC Iroquois -- -- --
NJNR Pipeline Company -- 0.8 9.5
TEN Transmission Company -- 0.5 5.9
LILCO Energy Systems 0.1 1.3 15.4
---- ---- -----
Totals $0.7 $5.0 $56.1
==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
PAYMENTS TO DUE FROM REVENUE FROM
RELATED RELATED RELATED
1996 PARTIES PARTIES PARTIES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TransCanada Iroquois Ltd. $2.3 $0.4 $1.6
Tennessee Gas Pipeline 3.3 -- --
North East Transmission Co. -- 1.5 17.9
Housatonic Corp. -- -- 4.7
ANR Iroquois -- 0.2 2.5
CNG Iroquois -- 0.9 4.7
JMC Iroquois -- -- --
NJNR Pipeline Company -- 0.9 10.2
TEN Transmission Company -- 0.5 6.4
LILCO Energy Systems 0.1 1.4 16.4
---- ---- -----
Totals $5.7 $5.8 $64.4
==== ==== =====
</TABLE>
9. RETIREMENT BENEFIT PLANS:
During 1997, the Company established a non-contributory retirement plan ("Plan")
covering substantially all employees. Pension benefits are based on years of
credited service and employees' career earnings, as defined in the Plan. The
Company's funding policy is to contribute, annually, an amount at least equal to
that which will satisfy the minimum funding requirements of the Employee
Retirement Income Security Act plus such additional amounts, if any, as the
Company may determine to be appropriate from time to time.
During 1997, the Company also adopted an excess benefit plan (EBP) that
provides retirement benefits to executive officers and other key management
staff. The EBP recognizes total compensation and service that would otherwise be
disregarded due to Internal Revenue Code limitations on compensation in
determining benefits under the regular retirement plan. The EBP is not funded
and benefits are paid when due from general corporate assets.
The following table represents the two plans' combined funded status and
amounts included in the balance sheet at December 31, 1997 (thousands of
dollars):
<TABLE>
<CAPTION>
PLAN/EBP
COMBINED
FUNDED STATUS
- -------------------------------------------------------
<S> <C>
Accumulated benefit obligation,
including $(220) of vested benefits $(323)
-----
Projected benefit obligation $(323)
Less: Market value of assets --
-----
Funded Status $(323)
Unrecognized (gain)/loss --
Unrecognized transition amount --
Unrecognized prior service cost --
-----
Accrued pension liability $(323)
=====
- -------------------------------------------------------
</TABLE>
Net Pension costs for the two plans included in the statement of income for the
year ending December 31, 1997, include the following components (thousands of
dollars):
<TABLE>
<CAPTION>
<S> <C>
Service cost $(323)
Interest cost --
Actual return on assets --
Net amortization and deferral --
-----
Net pension cost $(323)
=====
- -------------------------------------------------------
</TABLE>
The assumptions used in determining the pension obligation were:
<TABLE>
<CAPTION>
<S> <C>
Discount rate 7.00%
Compensation progression rate 5.00%
Expected long-term rate of return N/A
</TABLE>
The Company offers a defined contribution retirement plan with a 401(k)
provision to its full-time salaried employees with over one year of service. The
employees' contributions are matched dollar for dollar by Iroquois up to 5% of
base pay. These costs are recognized on a monthly basis and funding is made on a
pay-as-you-go basis. The Company's matching contributions to the 401(k) plan
during 1997 and 1996 were $191.1 thousand and $359.4 thousand, respectively.
Iroquois does not provide post-retirement health or life insurance benefits.
<PAGE> 1
EXHIBIT 99.4
EXHIBIT F(1)
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Company Non-negotiable notes:
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . $ 1,612
9.5% - maturing serially November 30, 1998 to 2005 . . . . . 1,745
8.90% - maturing May 31, 1999 . . . . . . . . . . . . . . . . 5,000
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 5,000
6.10% - maturing July 31, 2003. . . . . . . . . . . . . . . . 795
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $ 14,152
========
CNG Transmission Non-negotiable notes:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . $ 14,000
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . 13,958
9.5% - maturing serially November 30, 1998 to 2005 . . . . . 15,113
7.40% - maturing serially November 30, 2000 to 2015 . . . . . 75,000
8.95% - maturing serially September 30, 2004 to 2014 . . . . 35,000
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 100,800
6.10% - maturing July 31, 2003. . . . . . . . . . . . . . . . 59,541
6.80% - maturing November 30, 2013. . . . . . . . . . . . . . 57,793
8.75% - maturing December 31, 2014. . . . . . . . . . . . . . 27,000
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $398,205
========
East Ohio Gas Non-negotiable notes:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . $ 40,000
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . 4,640
9.5% - maturing serially November 30, 1998 to 2005 . . . . . 5,024
8.90% - maturing May 31, 1999 . . . . . . . . . . . . . . . . 15,000
7.40% - maturing serially November 30, 2000 to 2015 . . . . . 35,000
8.95% - maturing serially September 30, 2009 to 2019 . . . . 20,000
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 78,900
6.10% - maturing July 31, 2003. . . . . . . . . . . . . . . . 30,220
6.80% - maturing November 30, 2013. . . . . . . . . . . . . . 29,946
8.75% - maturing December 31, 2014. . . . . . . . . . . . . . 2,250
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $260,980
========
</TABLE>
<PAGE> 2
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peoples Natural
Gas Non-negotiable notes:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . $ 9,000
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . 3,437
9.5% - maturing serially November 30, 1998 to 2005 . . . . . 3,722
8.90% - maturing May 31, 1999 . . . . . . . . . . . . . . . . 10,000
8.95% - maturing serially September 30, 2009 to 2019 . . . . 14,000
7.40% - maturing serially November 30, 2000 to 2015 . . . . . 15,000
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 10,000
6.80% - maturing November 30, 2013. . . . . . . . . . . . . . 37,430
6.10% - maturing July 31, 2003. . . . . . . . . . . . . . . . 26,039
6.85% - maturing September 30, 2026 . . . . . . . . . . . . . 25,000
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $153,628
========
Virginia Natural
Gas Non-negotiable notes:
8.90% - maturing May 31, 1999 . . . . . . . . . . . . . . . . $ 33,318
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 40,100
6.85% - maturing September 30, 2026 . . . . . . . . . . . . . 24,000
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $ 97,418
========
</TABLE>
<PAGE> 3
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hope Gas Non-negotiable notes:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . $ 3,000
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . 1,505
9.5% - maturing serially November 30, 1998 to 2005 . . . . . 1,630
7.40% - maturing serially November 30, 2000 to 2015 . . . . . 5,000
8.95% - maturing serially September 30, 2009 to 2019 . . . . 3,000
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 8,400
6.10% - maturing July 31, 2003. . . . . . . . . . . . . . . . 6,420
6.80% - maturing November 30, 2013. . . . . . . . . . . . . . 12,097
6.85% - maturing September 30, 2026 . . . . . . . . . . . . . 1,000
-------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . $42,052
=======
</TABLE>
<PAGE> 4
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CNG Producing Non-negotiable notes:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . . $ 30,000
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . . 50,000
8.90% - maturing May 31, 1999. . . . . . . . . . . . . . . . . 35,000
8.95% - maturing serially September 30, 1999 to 2009 . . . . . 49,000
6.10% - maturing July 31, 2003 . . . . . . . . . . . . . . . . 71,075
6.80% - maturing November 30, 2013 . . . . . . . . . . . . . . 8,500
6.85% - maturing September 30, 2026. . . . . . . . . . . . . . 100,000
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . . $343,575
========
CNG Energy Services Non-negotiable notes:
6.75% - maturing November 30, 2008 . . . . . . . . . . . . . . $ 223
9.5% - maturing serially November 30, 1998 to 2005. . . . . . 241
8.95% - maturing serially September 30, 2009 to 2019 . . . . . 4,000
7.40% - maturing serially November 30, 2000 to 2015. . . . . . 2,160
6.20% - maturing September 30, 1998 . . . . . . . . . . . . . 7,350
8.75% - maturing serially November 30, 1998 to 2014. . . . . . 6,069
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . . $ 20,043
========
CNG International Non-negotiable note:
6.95% - maturing December 15, 2027 . . . . . . . . . . . . . . $ 40,000
--------
Total unsecured debt . . . . . . . . . . . . . . . . . . . . . $ 40,000
========
</TABLE>
<PAGE> 1
EXHIBIT 99.5
EXHIBIT F(2)
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Number of Shares or
Shares or Principal
Principal Amount
Amount Redeemed or Commission
Name of Issuer and Title of Issue Acquired Retired Consideration Authorization
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Registered Holding Company:
Parent Company:
Common stock, par value $2.75 per share 220,462 shares $ 12,286 Rule 42
======== ========
Service Company:
Non-negotiable note
6.75% Non-negotiable note due 11/30/08 $ 1,612 $ 1,612 Rule 52
======== ========
CNG Transmission:
Non-negotiable notes
6.75% Non-negotiable note due 11/30/08 $ 13,958 $ 13,958 Rule 52
6.95% Non-negotiable note due 11/30/27 $ 14,000 $ 14,000 Rule 52
-------- --------
$ 27,958 $ 27,958
======== ========
East Ohio Gas:
Non-negotiable notes
6.75% Non-negotiable note due 11/30/08 $ 4,640 $ 4,640 Rule 52
6.95% Non-negotiable note due 11/30/27 $ 40,000 $ 40,000 Rule 52
-------- --------
$ 44,640 $ 44,640
======== ========
</TABLE>
<PAGE> 2
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Number of Shares or
Shares or Principal
Principal Amount
Amount Redeemed or Commission
Name of Issuer and Title of Issue Acquired Retired Consideration Authorization
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peoples Natural Gas:
Non-negotiable notes
6.75% Non-negotiable note due 11/30/08 $ 3,437 $ 3,437 Rule 52
6.95% Non-negotiable note due 11/30/27 $ 9,000 $ 9,000 Rule 52
-------- --------
$ 12,437 $ 12,437
======== ========
Hope Gas:
Non-negotiable notes
6.75% Non-negotiable note due 11/30/08 $ 1,505 $ 1,505 Rule 52
6.95% Non-negotiable note due 11/30/27 $ 3,000 $ 3,000 Rule 52
-------- --------
$ 4,505 $ 4,505
======== ========
CNG Producing:
Non-negotiable notes
6.75% Non-negotiable note due 11/30/08 $ 50,000 $ 50,000 Rule 52
6.95% Non-negotiable note due 11/30/27 $ 30,000 $ 30,000 Rule 52
-------- --------
$ 80,000 $ 80,000
======== ========
CNG Power:
Non-negotiable note
6.75% Non-negotiable note due 11/30/08 $ 223 $ 223 Rule 52
======== ========
</TABLE>
<PAGE> 3
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Number of Shares or
Shares or Principal
Principal Amount
Amount Redeemed or Commission
Name of Issuer and Title of Issue Acquired Retired Consideration Authorization
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CNG International:
Non-negotiable note
6.95% Non-negotiable note due 11/30/27 $ 40,000 $ 40,000 Rule 52
======== ========
Subsidiaries of Registered Holding Company:
Service Company:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/97 $ 240 $ 240 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 1,612 $ 1,612 Rule 42
-------- --------
$ 1,852 $ 1,852
======== ========
CNG Transmission:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/97 $ 2,077 $ 2,077 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 13,958 $ 13,958 Rule 42
-------- --------
$ 16,035 $ 16,035
======== ========
</TABLE>
<PAGE> 4
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Number of Shares or
Shares or Principal
Principal Amount
Amount Redeemed or Commission
Name of Issuer and Title of Issue Acquired Retired Consideration Authorization
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
East Ohio Gas:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/97 $ 690 $ 690 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 4,640 $ 4,640 Rule 42
-------- --------
$ 5,330 $ 5,330
======== ========
Peoples Natural Gas:
Non-negotiable notes
9.5% Non-negotiable note due
1/31/97 $ 10,000 $ 10,000 Rule 42
9.5% Non-negotiable note due
11/30/97 $ 511 $ 511 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 3,437 $ 3,437 Rule 42
-------- --------
$ 13,948 $ 13,948
======== ========
Virginia Natural Gas Company:
Unsecured loan
9.94% Unsecured loan due 1/1/97 $ 4,000 $ 4,000 Rule 42
======== ========
</TABLE>
<PAGE> 5
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Concluded)
Calendar Year 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of
Number of Shares or
Shares or Principal
Principal Amount
Amount Redeemed or Commission
Name of Issuer and Title of Issue Acquired Retired Consideration Authorization
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hope Gas:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/97 $ 224 $ 224 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 1,505 $ 1,505 Rule 42
-------- --------
$ 1,729 $ 1,729
======== ========
CNG Producing:
Non-negotiable note
9.5% Non-negotiable note due
1/31/97 $ 90,000 $ 90,000 Rule 42
======== ========
CNG Power:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/97 $ 33 $ 33 Rule 42
9.5% Non-negotiable notes due
11/30/05 through 11/30/11 $ 223 $ 223 Rule 42
8.75% Non-negotiable note due
11/30/97 $ 357 $ 357 Rule 42
-------- --------
$ 613 $ 613
======== ========
</TABLE>
<PAGE> 1
Exhibit 99.6
EXHIBIT H.(1)
CONSOLIDATED NATURAL GAS COMPANY
RELATIONSHIP OF EXEMPT WHOLESALE GENERATOR
TO OTHER SYSTEM COMPANIES
CONSOLIDATED NATURAL GAS COMPANY
|
|
|
-----------------------------------------
(Wholly owned | | (Wholly owned
subsidiary) | | subsidiary)
| |
CNG POWER SERVICES CNG ENERGY SERVICES
CORPORATION CORPORATION
| | (Fuel Manager)
| |
(Wholly owned | | (Wholly owned
subsidiary) | | subsidiary)
| |
CNG LAKEWOOD, INC. CNG POWER COMPANY
\ /
\ /
\ /
\ /
\ /
\ /
\ /
(1% General \ / (34% Limited
Partnership \ / Partnership
Interest) \ / Interest)
\ /
\ /
\ /
\ /
\ /
\ /
\ /
\ /
\ /
LAKEWOOD COGENERATION, L.P.
<PAGE> 1
Exhibit 99.7
EXHIBIT H.(2)
CONSOLIDATED NATURAL GAS COMPANY
RELATIONSHIP OF LATIN AMERICA FOREIGN UTILITY COMPANY
TO OTHER SYSTEM COMPANIES
CONSOLIDATED NATURAL GAS COMPANY
|
|
|
|
| (Wholly owned
| subsidiary)
|
|
|
CNG INTERNATIONAL CORPORATION
/ |
/ |
/ |
(8.3% General / | (16.5% Limited
Partnership / | Partnership
Interest) / | Interest)
/ |
/ |
/ |
FONDELEC GENERAL |
PARTNER, L.P. |
\ |
\ |
\ |
(1% General \ |
Partnership \ |
Interest) \ |
\ |
\ |
THE LATIN AMERICA ENERGY AND
ELECTRICITY FUND I, L.P.
<PAGE> 2
EXHIBIT H.(2)
CONSOLIDATED NATURAL GAS COMPANY
RELATIONSHIP OF ARGENTINE FOREIGN UTILITY COMPANIES
TO OTHER SYSTEM COMPANIES
CONSOLIDATED NATURAL GAS COMPANY
|
|
|
|
| (Wholly owned
| subsidiary)
|
|
|
CNG INTERNATIONAL CORPORATION
/ | \
/ | \
/ | \
(12.5% Ownership (12.5% Ownership (20% Ownership
Interest) Interest) Interest)
/ | \
/ | \
SODIGAS PAMPEANA S.A. SODIGAS SUR S.A. BUENOS AIRES
| | ENERGY COMPANY S.A.
| | |
| | |
(70% Ownership (90% Ownership (55% Ownership
Interest) Interest) Interest)
| | |
| | |
CAMUZZI GAS CAMUZZI GAS INVERSORA ELECTRIA
PAMPEANA S.A. DEL SUR S.A. DE BUENOS AIRES S.A.
|
|
(90% Ownership
Interest)
|
|
EMPRESA DISTRIBUIDORA
DE ENERGIA ATLANTICA S.A.
<PAGE> 1
Exhibit 99.8
EXHIBIT I(1)
ARTHUR ANDERSEN LLP
LAKEWOOD COGENERATION, L.P.
Financial Statements for the
Years Ended December 31, 1997 and 1996
Together with Independent Auditors' Report
<PAGE> 2
[ARTHUR ANDERSEN LLP LETTERHEAD]
Report of Independent Public Accountants
To the Partners of
Lakewood Cogeneration, L.P.:
We have audited the accompanying balance sheets of Lakewood Cogeneration, L.P.
(a Delaware Limited Partnership) as of December 31, 1997 and 1996, and the
related statements of income, changes in partners' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Lakewood Cogeneration, L.P.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 20, 1998.
<PAGE> 3
LAKEWOOD COGENERATION, L.P.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Assets
------
Cash and cash equivalents $ 777,166 $ 354,888
Accounts receivable 5,602,499 5,171,140
Prepaid expenses 943,529 2,358,903
Inventory 622,931 580,135
------------ ------------
Total current assets 7,946,125 8,465,066
Net property, plant and equipment 212,073,680 219,257,565
Restricted cash 16,356,831 18,873,898
Deferred charges, net 5,223,646 6,694,521
Accounts receivable 2,000,000 2,000,000
------------ ------------
Total assets $243,600,282 $255,291,050
============ ============
Liabilities and Partners' Equity
--------------------------------
Accounts payable and accrued liabilities $ 508,007 $ 2,359,211
Accounts payable to affiliates 4,379,532 4,838,491
Current portion of long term debt 6,870,000 5,510,000
Accrued interest 22,005 --
------------ ------------
Total current liabilities 11,779,544 12,707,702
Retainage payable 64,508 130,760
Long term debt 190,015,001 196,885,001
------------ ------------
Total non-current liabilities 190,079,509 197,015,761
Partners' equity 41,741,229 45,567,587
Commitments and contingencies (Note 4)
------------ ------------
Total liabilities and partners' equity $243,600,282 $255,291,050
============ ============
The accompanying notes are an integral
part of these financial statements.
2
<PAGE> 4
LAKEWOOD COGENERATION, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Revenues:
Electric sales $ 58,722,416 $ 58,970,794
Operating expenses:
Operating and maintenance 6,796,762 6,687,016
Fuel 16,654,625 17,053,528
Depreciation and amortization 9,174,649 9,044,022
Administrative and general 3,286,232 2,229,602
------------ ------------
Total operating expenses 35,912,268 35,014,168
------------ ------------
Operating income 22,810,148 23,956,626
Interest income and expense:
Interest income 841,610 1,008,636
Interest expense (18,228,116) (18,564,285)
------------ ------------
Net interest expense (17,386,506) (17,555,649)
------------ ------------
Earnings $ 5,423,642 $ 6,400,977
============ ============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE> 5
LAKEWOOD COGENERATION, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
HCE CNG CNG POWER HYDRA-CO TPC TOTAL
--- --- --------- -------- --- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $ 487,666 $ 487,666 $ 16,580,648 $ 21,457,308 $ 9,753,322 $ 48,766,610
Distributions (96,000) (96,000) (3,264,000) (4,224,000) (1,920,000) (9,600,000)
Earnings 64,010 64,010 2,176,332 2,816,430 1,280,195 6,400,977
--------- --------- ------------ ------------ ----------- ------------
Balance at
December 31, 1996 455,676 455,676 15,492,980 20,049,738 9,113,517 45,567,587
Distributions (92,500) (92,500) (3,145,000) (4,070,000) (1,850,000) (9,250,000)
Earnings 54,236 54,236 1,844,038 2,386,404 1,084,728 5,423,642
--------- --------- ------------ ------------ ----------- ------------
Balance at
December 31, 1997 $ 417,412 $ 417,412 $ 14,192,018 $ 18,366,142 $ 8,348,245 $ 41,741,229
========= ========= ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE> 6
LAKEWOOD COGENERATION, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Earnings $ 5,423,642 $ 6,400,977
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 9,174,649 9,044,022
Net change in:
Accounts receivable (431,359) (910,601)
Inventory (42,796) (149,633)
Prepaid expenses 1,415,374 (1,997,993)
Accounts payable and accrued liabilities (1,851,204) (459,439)
Accounts payable to affiliates (458,959) 1,079,856
Accrued interest 22,005 (639,444)
------------ ------------
Total adjustments 7,827,710 5,966,768
------------ ------------
Net cash provided by operating activities 13,251,352 12,367,745
------------ ------------
Cash flows from investing activities:
Property, plant & equipment additions (519,889) (1,714,346)
Change in restricted cash 2,517,067 (1,397,348)
Retainage payable (66,252) (1,091,890)
------------ ------------
Net cash provided by (used in) investing activities 1,930,926 (4,203,584)
------------ ------------
Cash flows from financing activities:
Repayments of loans payable (5,510,000) (4,830,000)
Distributions to partners (9,250,000) (9,600,000)
------------ ------------
Net cash used in financing activities (14,760,000) (14,430,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 422,278 (6,265,839)
Cash and cash equivalents at beginning of period 354,888 6,620,727
------------ ------------
Cash and cash equivalents at end of period $ 777,166 $ 354,888
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 17,882,901 $ 18,861,729
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE> 7
LAKEWOOD COGENERATION, L.P.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
General - Lakewood Cogeneration, L.P. (the Partnership) was formed to develop,
construct, own and operate a 237 megawatt power production facility (the
Facility) located in Lakewood, New Jersey. The Facility generates electric power
for sale to General Public Utilities (GPU), formerly Jersey Central Power &
Light, primarily by burning natural gas with oil as a backup fuel. Although
originally a Qualifying Facility under Federal laws, in September 1993 the
Federal Energy Regulatory Commission approved the Partnership's application for
Exempt Wholesale Generator (EWG) status. Commercial operations commenced in
November 1994.
Ownership interests of the partners are:
General Partners
- ----------------
HCE Lakewood, Inc. (HCE) 1%
CNG Lakewood, Inc. (CNG) 1%
Limited Partners
- ----------------
Hydra-Co Enterprises, Inc. (HYDRA-CO) 44%
CNG Power Company (CNG Power) 34%
TPC Lakewood, Inc. (TPC) 20%
HCE is a wholly owned affiliate of HYDRA-CO, which is a wholly owned subsidiary
of CMS Generation Co. (CMS). CNG is a wholly owned subsidiary of CNG Power,
which is a wholly owned subsidiary of CNG Energy Services Corporation (ESC).
Profits, losses and cash distributions are allocated among the partners in
proportion to their respective ownership interest.
Basis of Presentation - The financial statements are prepared in conformity with
generally accepted accounting principles and include the use of management
estimates.
Cash Equivalents - The Partnership considers all highly liquid investments
purchased within three months of their maturity to be cash equivalents.
Restricted Cash - Restricted cash represents amounts consisting primarily of
disbursement, major maintenance, and debt service, bank litigation, and
punchlist and warranty funds which are restricted as to their use.
Plant and Equipment - Plant and equipment are stated at cost. Depreciation is
generally provided over estimated useful lives ranging from three to thirty
years. The composite depreciation rate for the Facility in 1997 and 1996 was
3.3%.
Inventories - Fuel inventories are stated at cost using the first in first out
method.
Deferred Charges - Costs associated with the formation of the Partnership
aggregating approximately $5,419,000 were deferred and are being amortized using
the straight-line method over a five-year period commencing with the commercial
operation of the Facility. Amortization expense of such costs amounted to
approximately $1,084,000 and $1,108,000 in 1997 and 1996, respectively.
Costs incurred in negotiating and securing the construction and term financing
amounted to $4,103,000. These costs
6
<PAGE> 8
have been deferred and are being amortized using the effective interest method
over the term of the related debt. Amortization of such costs amounted to
approximately $383,000 and $294,000 in 1997 and 1996, respectively.
Income Taxes - The Partnership has no liability for income taxes. Income is
taxed to the partners based on their allocated share of taxable income (loss).
Therefore, no provision or liability for income taxes has been included in the
accompanying financial statements.
Fair Value of Financial Instruments - The carrying amount of cash, cash
equivalents and restricted cash approximates fair value because of the short
maturities of these instruments. The Partnership's notes payable and
short-term debt approximate fair value because their interest rates are based
upon variable reference rates. The fair value of the Partnership's interest
rate swaps (used for hedging purposes) is the estimated amount the Partnership
would have to pay to terminate the swap agreements, taking into account current
interest rates and the current creditworthiness of the swap counterparties. The
estimated termination cost associated with the interest rate swaps at December
31, 1997 and 1996 is approximately $3,347,000 and $511,000, respectively.
Reclassifications - Certain reclassifications have been made to prior years'
statements to conform with the 1997 presentation.
2. LONG-TERM DEBT
A consortium of banks had made available for construction Tranche A and Tranche
B Bank Loans in the amount of $136,000,000 and $51,000,000, respectively. Total
Tranche A Bank Loans in the amount of $136,000,000 were converted into the
Continuing Bank Term Loans (the Term Loan(s)) on June 8, 1995 (the Conversion
Date). Tranche B Loans were unused. In order to convert the construction loans
to term loans, each of the partners contributed cash or converted their then
outstanding subordinated loans to equity. The Term Loans are being repaid in
semi-annual installments over a fourteen year period which commenced June 30,
1995. The Partnership may select the interest rate for the Term Loans from three
alternatives: a Base Rate option, a CD Rate option and a LIBOR Rate option. Each
of these rates is equivalent to the corresponding Mellon Bank interest rate
option plus a credit spread which varies depending on the type of Term Loan, and
the interest period and option chosen. As of December 31, 1997 and 1996,
$123,760,000 and $128,520,000, respectively, was outstanding under the Term
Loans.
The Partnership also has a $2,000,000 Working Capital Loan available. The
Partnership pays a standby fee on the average daily unused portion of the
Working Capital Loan. Fees totaled $8,600 and $7,700 in 1997 and 1996,
respectively. This loan commitment matures on the fifth anniversary of the
Conversion Date with one year extensions through the final maturity date of the
Term Loans.
The Partnership has agreed to pay an Administrative Agent's Fee to Mellon of
$75,000 per year. The Partnership paid fees of $75,000 in 1997 and 1996,
respectively.
The Partnership has obtained a $75,000,000 institutional loan from John Hancock
Mutual Life Insurance Company (the Institutional Loan). Outstanding balances as
of December 31, 1997 and 1996 were $73,125,001 and S73,875,001, respectively.
The Institutional Loan is being repaid in semi-annual installments over an
eighteen and one-half year period which began June 30, 1995 and bears a fixed
interest rate of 10.66 percent.
7
<PAGE> 9
Obligations under the Term Loans and Institutional Loan mature as follows:
Year Term Loans Institutional Loan
1998 $ 6,120,000 $ 750,000
1999 6,800,000 750,000
2000 7,480,000 750,000
2001 8,840,000 750,000
2002 10,200,000 750,000
Thereafter 84,320,000 69,375,001
------------ -----------
Total $123,760,000 $73,125,001
The Partnership has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on the Term Loans. At December 31, 1997 and
1996, the Partnership had two interest rate swap agreements outstanding with
total notional principal amounts of $113,750,000 and $120,000,000, respectively.
Those agreements effectively change the Partnership's interest rate exposure on
a portion of the Term Loans through 2008 to an average all-in borrowing cost of
6.68 percent. The Partnership is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Partnership does not anticipate nonperformance by the
counterparties who are affiliated with Mellon Bank and ABN-AMRO.
3. RELATED PARTY TRANSACTIONS
The Partnership has entered into an Operation and Maintenance Agreement (the
O&M Agreement) with CMS Generation Operating Company II, Lakewood Division
(CMSG II), a wholly-owned subsidiary of HYDRA-CO. The O&M Agreement expires on
the twenty-first anniversary of the commercial operations date and may be
renewed annually thereafter. Under the terms of the O&M Agreement, CMSG II is
reimbursed for all direct costs incurred, receives an overhead fee of $200,000
and a base fee of $60 per hour multiplied by the number of hours the Facility is
actually dispatched. CMSG II can also earn a bonus if certain performance
factors are achieved. Fees and bonuses earned by CMSG II were $461,000 and
$473,000 in 1997 and 1996, respectively. CMSG II was also reimbursed for direct
costs incurred on behalf of the Partnership of $3,675,000 and $3,663,000 in
1997 and 1996, respectively.
The Partnership has entered into a Fuel Management Agreement (the FMA) with
ESC, to develop, implement and administer a comprehensive fuel supply and
transportation strategy. The FMA terminates December 31, 2001 and will be
automatically renewed for additional one-year terms unless terminated by either
party. ESC was reimbursed for fees and direct costs incurred on behalf of the
Partnership of $14,367,000 and $13,109,000 in 1997 and 1996, respectively.
CNG Power was reimbursed $3,000 and $13,000 in 1997 and 1996, respectively, for
direct costs incurred on behalf of the Partnership.
The Partnership has entered into an Administrative Services Agreement with
HYDRA-CO which expires in November 2012 and may be renewed annually upon mutual
agreement. Administrative fees of $243,000 and $304,200 were paid in 1997 and
1996, respectively. HYDRA-CO was also reimbursed $99,000 and $234,000 in 1997
and 1996, respectively, for direct costs incurred on behalf of the Partnership.
Under the terms of the Partnership Agreement, HCE is entitled to a treasury fee
of up to $400,000 per year if certain interest cost savings, as defined, are
realized by the Partnership. The treasury fee commenced on June 8, 1995. Total
interest cost savings earned by HCE were $323,000 and $342,000 in 1997 and
1996, respectively.
The Partnership has entered into a Project Management Services Agreement with
Lakewood Project Management, Inc. (LPMI), a wholly-owned subsidiary of HYDRA-CO
for an aggregate sum of $2,765,000 which expires at the end of
8
<PAGE> 10
the Warranty Period, as defined. Total project management fees charged by LPMI
for project management services in 1997 and 1996 were $12,000 and $156,000,
respectively, and are included as a component of property, plant and equipment.
Under the terms of the Partnership Agreement and the loan agreements, certain
construction cost underruns have been paid to the general partners. As of
December 31, 1997 and 1996, $15,574,000 and $15,258,000, respectively, have been
paid to the partners for these cost underruns, including $316,000 and $2,000,000
during 1997 and 1996, respectively. These cost underrun distributions were
capitalized in the accompanying financial statements.
4. COMMITMENTS AND CONTINGENCIES
Electricity from the Facility is sold under a 20-year Power Purchase Agreement
(the PPA) whereby GPU will purchase the contract capacity, as defined, at
specified rates under a dispatchable arrangement. The PPA expires twenty years
from November 8, 1994 and may be extended for successive periods of five years.
The Facility also generates steam for sale to three customers under a 5-year
agreement commencing in 1996.
The Partnership entered into an Amended and Restated Performance Construction
Contract (the EPC Contract) with CRS Sirrine Engineers, Inc. (CRSS) for a total
contract price of $151,900,000. In accordance with the EPC Contract, the
Partnership withheld 10% of the amounts payable to CRSS as retainage until
Substantial Completion, as defined, was achieved. The EPC Contract called for
the Facility to be substantially complete by September 1, 1994 at which time
certain performance tests were required to be met. The EPC Contract also
provided for CRSS to pay certain liquidated damages to the extent that these
performance tests or certain other milestones were not met by September 1, 1994.
In February 1995, CRSS and the Partnership entered into a Settlement Agreement
whereby the date of Substantial Completion was designated November 9, 1994.
Furthermore, the balance of retainage held prior to the Settlement Agreement
($15,445,000) was reduced by $5,200,000 in full satisfaction of liquidated
damages. This amount has been recorded as a reduction to property, plant and
equipment in the accompanying balance sheets. The Settlement Agreement also
allowed the Partnership to hold from retainage, otherwise due and payable, an
amount of $3,000,000 as security for the performance of final punchlist items
and an amount of $2,000,000 in an interest bearing escrow account for a
specified amount of time as security for potential warranty claims. The
remaining retainage of $5,245,000 due to CRSS was paid in March 1995. CRSS has
indemnified the Partnership against any liabilities or costs incurred as a
result of any disputes between CRSS and its subcontractors and unconditionally
guaranteed the performance of warranty obligations of CRSS. At the Final
Completion Date (November 20, 1995), it was determined that punchlist items
valuing $511,688 remained to be completed. As such $1,488,312 plus $28,500 of
accrued interest was returned to CRSS. This escrow account was closed during
1996. At December 31, 1997 and 1996, $64,508 and $112,121 of retainage remains
due and payable to CRSS.
The Partnership entered into various agreements with New Jersey Natural Gas
Company (NJNG), whereby NJNG constructed natural gas pipelines interconnecting
the Facility with two interstate pipeline systems; the Partnership purchased
these pipeline assets for $6,850,000 which is included as a component of
property, plant and equipment. The Partnership pays NJNG an annual charge of
$2,616,000 in capacity reservation charges. This agreement expires in April 2014
and provides for early termination payments to NJNG under certain circumstances.
NJNG also has the right to repurchase the assets at the termination of the
agreement.
Currently the Facility has two steam customers. Each agreement has an initial
term of five years and can be automatically extended annually with agreement of
both parties for up to twenty years. The Partnership was required to construct
the steam distribution system to deliver steam to the customers and is included
as a component of property, plant, and equipment in the accompanying balance
sheets.
9
<PAGE> 11
Pursuant to an amended Agreement of Grant and Reservation with the Lakewood
Township Municipal Utilities Authority (LTMUA), the Partnership has agreed to
construct and maintain certain water facilities whose title will transfer to
LTMUA upon their completion. In addition, the Partnership has agreed to make
non-refundable contributions to LTMUA toward the construction, permitting, and
operation of wells needed to provide water to the Facility.
In October 1995, the Partnership entered into a Long Term Maintenance Agreement
with ABB Power Generation, Inc. (ABB) for its two combustion turbines. The
contract value of $16,051,000 is to be paid over a 61 month period. Contract
payments of $3,380,000 and $2,880,000 were paid to ABB in 1997 and 1996,
respectively.
The Partnership has entered into an Environmental Preservation Trust Fund
Agreement with the Township of Lakewood (the Township). On the financial closing
date, the Partnership paid the Township $2,000,000 for the creation of an
Environmental Preservation Trust Fund (the Fund) in order to insure that the
Partnership will promptly respond to cure any Facility related environmental
impacts. The Township has the right to receive all interest earned on amounts
invested in the Fund which terminates after twenty years when the $2,000,000
principal will be returned to the Partnership. This amount has been reflected as
a receivable from the Township in the accompanying balance sheets.
The Partnership has also entered into a Host Benefits Agreement with the
Township to make minimum annual payments in the amount of $600,000 or the
actual amount of real estate taxes assessed on the Facility, whichever is
greater. In September 1994, the Township assessed the Facility approximately
$1,900,000 in annual property taxes, a level which the Partnership appealed. In
August 1996, a settlement agreement was reached providing for annual property
taxes of approximately $1,200,000. Cash payments in excess of the $1,200,000
made from 1994 though 1996 are to be credited against future payments through
1998. As of December 31, 1997 and 1996, the outstanding settlement amount which
the Partnership can deduct from future tax payments is approximately $801,000
and $1,900,000, respectively, and is reflected as prepaid expenses in the
accompanying balance sheet. In 1996, this settlement reduced administrative and
general expenses in the accompanying statement of income by $930,000.
In accordance with an agreement between the Partnership and the Ocean County
Prosecutor in Toms River, New Jersey, the Partnership has agreed to cooperate
with any ongoing investigation into certain activities surrounding the
development of the Facility and to perform community service in exchange for
acceptance by the Prosecutor's office of no admission of guilt by the
Partnership and certain of its affiliates. This agreement expired in August
1997.
Until the completion of all construction and warranty phases, the Partnership is
required to maintain a Punchlist and Warranty Escrow. Funds may be withdrawn to
pay construction costs with prior approval of both Mellon Bank and its
Independent Engineers. The excess funds of the Punchlist and Warranty Escrow not
used for construction items will be distributed to the partners as either a
management fee or a return of capital. As of December 31, 1997 the account has
been closed. As of December 31, 1996, the balance in the Punchlist and Warranty
Escrow was $361,232.
10
<PAGE> 1
Exhibit 99.9(1)
EXHIBIT I(2)(a)
ARTHUR ANDERSEN LLP
THE LATIN AMERICA ENERGY
AND ELECTRICITY FUND I, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE> 2
ARTHUR ANDERSEN LLP
-------------------------
Harbour Centre
P.O. Box 1929
Grand Cayman
Cayman Islands BWI
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
The Latin America Energy and Electricity Fund I, L.P.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of The Latin America Energy and Electricity Fund
I, L.P. (a Cayman Islands exempted limited partnership) as of December 31, 1997
and 1996, and the related statements of operations, changes in partners' capital
and cash flows for the years then ended. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include securities valued at
$41,920,297 (97 percent of net assets) and $19,673,684 (94 percent of net
assets) as of December 31, 1997 and 1996, respectively, whose values have been
estimated by the Fund Manager in the absence of readily ascertainable market
values. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the differences could be
material.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Latin America Energy and
Electricity Fund I, L.P. as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
Grand Cayman, B.W.I.
February 24, 1998
<PAGE> 3
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
INVESTMENTS IN SECURITIES, at fair value (cost $39,436,269 and $18,135,656 at
December 31, 1997 and 1996, respectively) $41,920,297 $19,673,684
CASH 346,465 780,469
DUE FROM FUND MANAGER (Note 5) 246,716 250,000
DIVIDEND RECEIVABLE 245,018 --
DUE FROM CONSORTIUM MEMBERS -- 41,219
ORGANIZATIONAL COSTS, net of accumulated amortization of $270,000 and $150,000
at December 31, 1997 and 1996, respectively (Note 2)
330,000 450,000
OTHER ASSETS 382,953 551,674
----------- -----------
Total assets $43,471,449 $21,747,046
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued liabilities $ 139,054 $ 200,064
Due to Fund Manager (Note 5) 134,447 307,844
Due to Limited Partners - 255,961
----------- -----------
Total liabilities 273,501 763,869
----------- -----------
PARTNERS' CAPITAL:
General Partner 431,979 209,832
Limited Partners 42,765,969 20,773,345
----------- -----------
Total partners' capital 43,197,948 20,983,177
----------- -----------
Total liabilities and partners' capital $43,471,449 $21,747,046
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 99,978 $ 58,573
Dividends 1,115,564 585,440
---------- ----------
Total investment income 1,215,542 644,013
---------- ----------
EXPENSES:
Management and financial advisory fees (Note 5) 866,856 929,420
Administrative expenses (Note 5) 319,998 373,059
Expenses related to investments not consummated 869,629 200,234
Amortization of organization costs 120,000 125,000
---------- ----------
Total expenses 2,176,483 1,627,713
---------- ----------
Net investment loss (960,941) (983,700)
NET CHANGE IN UNREALIZED APPRECIATION IN VALUE OF INVESTMENTS 946,000 1,538,028
---------- ----------
Net (decrease) increase in net assets resulting
from operations $ (14,941) $ 554,328
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1995 $ 67,992 $ 6,731,176 $ 6,799,168
Capital contributions 138,728 16,911,277 17,050,005
Distributions (2,431) (3,417,893) (3,420,324)
Net increase in net assets resulting from operations 5,543 548,785 554,328
-------- ----------- -----------
BALANCE, December 31, 1996 209,832 20,773,345 20,983,177
Capital contributions 398,619 39,197,874 39,596,493
Distributions (176,323) (17,190,458) (17,366,781)
Net decrease in net assets resulting from operations (149) (14,792) (14,941)
-------- ----------- -----------
BALANCE, December 31, 1997 $431,979 $42,765,969 $43,197,948
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (14,941) $ 554,328
Adjustments to reconcile net (decrease) increase in net assets resulting
from operations to net cash used in operating activities-
Net change in unrealized appreciation in value of investments (946,000) (1,538,028)
Amortization of organization costs 120,000 125,000
Purchase of securities (21,300,615) (12,219,684)
Decrease (increase) in due from consortium members 41,221 (41,219)
Decrease (increase) in other assets 168,721 (531,949)
(Decrease) increase in accrued liabilities (61,010) 94,699
(Decrease) increase in due to Fund Manager (173,397) 111,271
Increase in dividend receivable (245,018) -
(Decrease) increase in due to Limited Partners (255,961) 255,961
------------ ------------
Net cash used in operating activities (22,667,000) (13,189,621)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 39,596,493 17,050,005
Distributions (17,366,781) (3,420,324)
Loan to Fund Manager 3,284 -
Organizational costs - (100,000)
------------ ------------
Net cash provided by financing activities 22,232,996 13,529,681
------------ ------------
Net (decrease) increase in cash (434,004) 340,060
CASH, beginning of period 780,469 440,409
------------ ------------
CASH, end of period $ 346,465 $ 780,469
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------------------------
Current Value
Number of at December 31, Percent of Geographic
Security Units Cost Basis 1997 Net Assets Region Industry
-------- ----- ---------- ---- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V. 5,000,000 $ 5,915,972 $ 8,400,000 20% South America Utilities
Inversora en Distribucion
de Entre Rios S.A. 900 12,219,684 12,219,684 28 South America Utilities
Cataguazes 7,607,731,582 21,300,613 21,300,613 49 South America Utilities
----------- ----------- --
$39,436,269 $41,920,297 97%
=========== =========== ==
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------------------------------
Current Value
Number of at December 31, Percent of Geographic
Security Units Cost Basis 1996 Net Assets Region Industry
-------- ----- ---------- ---- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V. 5,000,000 $ 5,915,972 $ 7,454,000 36% South America Utilities
Inversora en Distribucion
de Entre Rios S.A. 900 12,219,684 12,219,684 58 South America Utilities
----------- ----------- --
$18,135,656 $19,673,684 94%
=========== =========== ==
</TABLE>
The accompanying notes are an integral part of these schedules.
<PAGE> 8
THE LATIN AMERICA ENERGY AND
ELECTRICITY FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
The Latin America Energy and Electricity Fund I, L.P. (the "Fund"), a Cayman
Islands exempted limited partnership, was formed on July 17, 1995, and commenced
operations on October 31, 1995, pursuant to an amended and restated partnership
agreement (the "Partnership Agreement") as of that date. The Fund was organized
to invest in companies whose primary business is generating, transmitting and
distributing electric power in Latin or South America. The General Partner of
the Fund is FondElec General Partner, L.P. (the "General Partner"), a Cayman
Islands exempted limited partnership. The Fund shall terminate on October 31,
2003. Its term may be extended for an additional period of up to two years by
the General Partner with the approval of the investment committee, or it may be
terminated earlier under certain circumstances, as described in the Partnership
Agreement. The Fund is managed by FondElec Group, Inc. (the "Fund Manager").
The General Partner of the Fund, subject to certain conditions, has the power to
carry out any and all of the objectives and purposes of the Fund. The General
Partner must receive approval from the investment committee (consisting of
representatives of the strategic limited partners of the Fund) prior to taking
certain investment and administrative actions for the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment Valuation
Unquoted securities are stated at their estimated fair value at December 31,
1997 and 1996, as determined by the Fund Manager.
Investment Transactions
The cost of securities sold is determined on the first-in, first-out basis.
<PAGE> 9
-2-
Deferred Investment Costs
Expenses incurred in connection with the due diligence investigations of
potential investments and related costs incurred are capitalized and are
included in other assets on the accompanying balance sheets. Such costs are
either added to the cost of the investment when consummated or expensed when the
decision is made not to pursue the opportunity any further.
Foreign Currency Transactions
The functional currency of the Fund is the U.S. dollar. Assets and liabilities
denominated in foreign currencies, if any, are translated into U.S. dollar
equivalents using the prevailing year-end spot exchange rate with the resulting
gains and losses included in net unrealized gain on investment.
Organization Costs
Costs incurred in the organization of the Fund totaling $600,000 have been
capitalized and are being amortized on a straight-line basis over a period of
five years.
Income Taxes
No provision is made for United States federal income or excise taxes as the
Fund is organized in the Cayman Islands and does not operate in the United
States. Presently, there is no direct taxation in the Cayman Islands. As such,
interest, distributions and gains received by the Fund are free of all Cayman
Islands taxes.
3. PARTNERS' CAPITAL
Capital Contributions
Cumulative capital contributions were $63,715,187 and $24,117,894 at December
31, 1997 and 1996, respectively. However, there was a $15,900,000 return of
capital for an unconsummated investment during 1997. Total capital commitments
of the partners were $60,303,030. The balance is payable upon call by the
General Partner. The Partnership Agreement provides each limited partner the
option not to participate in any specific investment. In such case, the required
contributions of the other limited partners for such investment shall be
proportionally increased.
Distributions
Distributions shall be made to the partners in proportion to the allocation of
investment proceeds no more than 60 days after the end of the fiscal quarter in
which such investment proceeds were received by the Fund.
On May 30, 1996, the Fund distributed $2,431 and $240,742 to the General Partner
and to the Limited Partners, respectively. The distribution was comprised of
interest income and dividends received from the Fund's investment in
Ontario-Quinta A.V.V. ("Ontario-Quinta") (Note 4).
<PAGE> 10
-3-
During 1997, the distributions to General Partner and Limited Partners
represented distributions of earnings on investments, in accordance with the
Partnership Agreement, as well as a return of capital for an unconsummated
investment.
Allocations of Proceeds
Pursuant to the terms of the Partnership Agreement, investment proceeds (as
defined in the Partnership Agreement) as to each investment are allocated
proportionately among the partners participating in such investment. Such
proceeds are further allocated between each limited partner and the General
Partner as follows:
a. The amount necessary to return the limited partner's required
contribution in such investment and to return any realized or
unrealized losses that partner has incurred on other investments will
be allocated to the limited partner.
b. Any investment proceeds in excess of the amount in a. above will be
allocated to the limited partner to provide a preferred return at the
rate of 9% per annum on net cash investment made in such investment
or any unpaid preferred return on other investments.
c. Any remaining investment proceeds will be allocated to the General
Partner until the General Partner receives 25% of the amount
allocated in b.
d. Any remaining investment proceeds will be allocated 80% to the
limited partner and 20% to the General Partner.
The Partnership Agreement provides for a final allocation at the termination of
the Fund related to all investments of each limited partner. To the extent that
the final allocation to any limited partner exceeds the amounts previously
allocated, the General Partner shall, subject to certain limitations, refund
such amount to the Fund for distribution to the limited partner.
Profits and losses shall be allocated so that the capital account of each
partner is as equal as possible to the distribution that would be made if the
Fund were dissolved immediately after making such allocation.
Withdrawal and Admission of Partners
A limited partner shall not have the right to withdraw any of his capital from
the Fund except with the prior written consent of the General Partner. The
General Partner may, at its sole and absolute discretion, admit new limited
partners to the Fund before October 31, 1996. If admitted to the Fund prior to
October 31, 1996, a new limited partner shall remit to the Fund its initial
capital contribution, together with an additional amount (the "Subsequent
Admission Payment") computed from the date the Fund received each contribution,
until the date such payment is remitted to the Fund at an annual rate of 10%.
Any new limited partner admitted to the Fund after October 31, 1996 may only
participate and invest in investments made prior to admission with the approval
of the investment committee.
<PAGE> 11
-4-
In October 1996, a new limited partner was admitted to the Fund under the
circumstances of the Partnership Agreement described above, participating and
investing in investments made since inception. The new limited partner paid
approximately $3,600,000 to the Fund, representing approximately $3,400,000 of
capital contributions (inclusive of incremental organizational costs and
management fees in accordance with the Partnership Agreement totaling $250,000)
and a Subsequent Admission Payment of approximately $200,000. The payment made
to the Fund by the new limited partner as well as the payments made by the Fund
pursuant to the Partnership Agreement to the initial limited partners are
included in contributions and distributions, respectively, in the statements of
changes in partners' capital.
4. INVESTMENTS
The Fund is permitted to invest in privately placed securities. These securities
may be resold in transactions exempt, under certain conditions, from U.S. or
local security registration. However, prompt sale of such securities at an
acceptable price may be difficult. As of December 31, 1997 and 1996, 97% and 94%
of the Fund's net assets were invested in such securities, respectively.
Ontario-Quinta A.V.V.
The investment in Ontario-Quinta represents an equity interest in a holding
company which controls Luz del Sur, a Peruvian utility company that was
privatized in 1994 and went public in 1996, and TechnoSur, a services company
that was spun out of Luz del Sur and is publicly traded. The investment was
purchased on December 29, 1995. At December 31, 1996, the Fund valued the
investment based upon, among other factors, the prospects of the company, the
underlying market value of the shares of Luz del Sur and TechnoSur, comparable
utility companies and utility holding companies and the liquidity of the
investment. At December 31, 1997, the asset was valued at the underlying pro
rata market value of Luz del Sur and TechnoSur, and the sale of a portion of the
Ontario-Quinta investment subsequent to year-end.
Entre Rios S.A.
In May 1996, the Fund invested in Entre Rios, the private holding company of
Empresa Distribuidora de Entre Rios S.A. ("EDEER"). EDEER is a distributor and
transmitter of electric power in Argentina. At December 31, 1997 and 1996, the
investment was valued at cost based on, among other factors, the consideration
that the shares are not publicly traded, no further transactions have occurred
between the entities and other outside parties and no other matters have come to
the attention of management that would create a better estimate of current value
than the original cost.
Cataguazes-Leopoldina
On October 2, 1997, the Fund invested in Companhia Forca Luz,
Cataguazes-Leopoldina, a Brazilian Energy and Utility company. The Fund paid
$20,860,021 for the shares and capitalized $440,577 of costs involved in
researching and consummating the investment. Although the company is publicly
traded on Brazilian stock exchanges, it is not traded actively. As such, the
investment is currently considered nonmarketable by the Fund, and is carried at
cost at December 31, 1997.
<PAGE> 12
-5-
5. RELATED-PARTY TRANSACTIONS
Note Receivable
During 1995, the Fund received a note from the Fund Manager for $250,000. The
note is payable any time without penalty or upon termination of the management
agreement between the Fund and the Fund Manager. The note bears interest at the
rate of the three-month LIBOR. At December 31, 1997 and 1996, the balance
outstanding under this note was $246,716 and $250,000, respectively.
Management Fee
Effective October 31, 1995, the Fund Manager receives 1.25% of the Fund's
committed capital payable quarterly in advance as a basic management fee. For
the years ended December 31, 1997 and 1996, basic management fees of $741,856
and $774,621 respectively, have been recorded in the statements of operations.
Regional Advisor
In 1996, the Fund entered into an advisory agreement with FondElec America
Latina, Inc. (the "Regional Advisor"), an affiliate of the Fund Manager. The
advisory agreement provides that the Fund shall pay the Regional Advisor
$125,000 per annum plus reasonable out-of-pocket costs for a period of three
years. For the years ended December 31, 1997 and 1996, advisory fees of $125,000
have been paid to the Regional Advisor and are included in administrative
expenses in the statements of operations.
Financial Advisor
The Fund entered into a financial advisory agreement with an affiliate of a
limited partner pursuant to which the financial advisor shall advise the Fund of
financing options for each of the Fund's investments. The financial advisory
agreement provided that the Fund shall annually pay the financial advisor .25%
of the Fund's committed capital quarterly in advance. The Fund terminated the
financial advisor agreement at the end of the third quarter of 1997, and the
Fund Manager entered into a new agreement with the Financial Advisor on revised
terms. Such new agreement will not be paid for by the Partnership. For the years
ended December 31, 1997 and 1996, financial advisory fees of $113,068 and
$154,799, respectively, have been recorded in the statements of operations.
Technical Advisor
The Fund has entered into a technical advisory agreement with a limited partner
pursuant to which the technical advisor shall assist the Fund in evaluating
proposed investments. The technical advisory agreement provides that the Fund
shall annually pay the technical advisor reasonable employee overhead and
out-of-pocket expenses. There were no technical advisory fees incurred for the
years ended December 31, 1997 and 1996.
<PAGE> 13
Due to Fund Manager
In 1997 and 1996, the Fund Manager incurred certain administrative and
organizational costs on behalf of the Fund. At December 31, 1997 and 1996,
amounts remaining to be reimbursed to the Fund Manager were $134,447 and
$307,844, respectively.
Due to Limited Partners
In connection with the admittance of a new limited partner in 1996, amounts paid
in to the Fund by the new limited partner were to be paid to the initial limited
partners. As of December 31, 1996, $255,961 of such amounts remained to be paid
to the limited partners, which were paid during 1997.
<PAGE> 1
Exhibit 99.9(2)
EXHIBIT I(2)(b)
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended December 31, 1997 and 1996
<PAGE> 2
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND 1996 (NOTES 1 AND 2)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
-------------- ---------------
(PESOS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks (Schedule G)........................................... 5,059,195 1,933,249
Investments (Schedules C and D)...................................... 11,906,291 19,439,970
Trade accounts receivable (Note 4.a).................................. 65,736,374 60,583,577
Intercompany receivables (Note 5)..................................... 2,772,267 803,211
Other accounts receivable (Note 4.b).................................. 4,010,559 3,908,465
Inventories (Schedule F).............................................. 1,028,741 428,975
-------------- ---------------
TOTAL CURRENT ASSETS.................................................. 90,513,427 87,097,447
-------------- ---------------
NON-CURRENT ASSETS
Other accounts receivable (Note 4.b).................................. 112,468 78,121
Investments (Schedule C).............................................. -- 115,000
Fixed assets (Schedule A)............................................. 242,800,760 245,336,746
Intangible assets (Schedule B)........................................ 1,665,075 1,986,956
-------------- ---------------
TOTAL NON-CURRENT ASSETS.............................................. 244,578,303 247,516,823
-------------- ---------------
TOTAL ASSETS.......................................................... 335,091,730 334,614,270
============== ===============
LIABILITIES
CURRENT LIABILITIES
Suppliers (Schedule G)................................................ 11,029,566 17,761,199
Loans (Schedule G).................................................... 5,424,268 6,160,201
Intercompany payable (Note 5)......................................... 1,903,976 2,151,020
Salaries and social security liabilities ............................. 1,703,935 1,271,631
Taxes payable (Notes 10 and 11)....................................... 7,033,526 5,808,241
Other liabilities (Note 4.c).......................................... 1,903,883 3,134,788
Provisions (Schedule E)............................................... 2,239,954 163,116
-------------- ---------------
TOTAL CURRENT LIABILITIES............................................. 31,239,108 36,450,196
-------------- ---------------
NON-CURRENT LIABILITIES
Loans (Schedule G).................................................... 110,557,000 110,557,000
Taxes payable (Notes 10 and 11)....................................... 29,878 124,627
Other liabilities (Note 4.c).......................................... 7,543,019 4,963,706
-------------- ---------------
TOTAL NON-CURRENT LIABILITIES......................................... 118,129,897 115,645,333
-------------- ---------------
TOTAL LIABILITIES..................................................... 149,369,005 152,095,529
-------------- ---------------
Minority interests in subsidiaries.................................... 24,648,968 23,233,248
-------------- ---------------
SHAREHOLDERS' EQUITY.................................................. 161,073,757 159,285,493
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ 335,091,730 334,614,270
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 3
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the fiscal years ended December 31, 1997 and 1996 (Notes 1 and 2)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996
--------------- ---------------
(PESOS)
<S> <C> <C>
Net sales (Note 4.d)................................................. 206,015,203 204,043,725
Cost of sales (Schedule F).......................................... (148,555,994) (153,793,594)
--------------- ---------------
GROSS PROFIT................................................ 57,459,209 50,250,131
--------------- ---------------
Marketing expenses (Schedule H)...................................... (6,101,718) (5,683,859)
Administrative expenses (Schedule H)................................. (12,946,111) (11,998,626)
--------------- ---------------
OPERATING PROFIT............................................ 38,411,380 32,567,646
--------------- ---------------
Other income and expenses (Note 4.f)................................. (1,228,769) 185,523
Financial and holding gain/(loss) (Note 4.e)
Generated by assets......................................... 2,774,308 3,764,981
Generated by liabilities.................................... (11,449,746) (10,585,358)
Income tax........................................................... (10,853,189) (8,201,916)
Minority interests in subsidiaries................................... (2,365,720) (2,391,437)
--------------- ---------------
ORDINARY INCOME 15,288,264 15,339,439
--------------- ---------------
Extraordinary loss (Note 4.g)........................................ -- (460,943)
Minority interests in subsidiaries................................... -- 46,094
--------------- ---------------
NET INCOME FOR THE YEAR..................................... 15,288,264 14,924,590
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended December 31, 1997 and 1996 (Notes 1 and 2)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
--------------- ----------------
(PESOS)
<S> <C> <C>
CHANGES IN FUNDS
Funds at beginning of year........................................... 21,146,648 4,852,315
(Decrease)/Increase in funds......................................... (4,241,162) 16,294,333
----------------
Funds at end of year................................................. 16,905,486 21,146,648
---------------- ---------------
SOURCES OF FUNDS
Ordinary income for the year......................................... 15,288,264 15,339,439
Plus: Items not entailing the use of funds
Decrease in inventories..................................... -- 264,359
Fixed asset depreciation.................................... 11,911,773 11,890,158
Write-off of fixed assets................................... 1,761,659 348,583
Intangible asset amortization............................... 653,196 429,325
Withdrawal of other receivables............................. -- 75,683
Accrued vacations and bonuses............................... 1,301,674 866,108
Accrued income tax.......................................... 10,853,189 8,201,916
Accrued gross sales tax..................................... 384,369 175,978
Accrued net financial loss pending payment.................. 3,300,035 3,343,049
Accrued purchases pending payment........................... 9,947,590 15,593,018
Intercompany fees and expenses.............................. 760,607 814,316
Technical Assistance Agreement.............................. 350,825 --
Other liabilities and fees pending payment.................. 8,294 30,921
Provision for lawsuits...................................... 1,601,838 163,116
Increase in allowance for defaulting debtors................ 1,044,122 828,765
---------------- ---------------
43,879,171 43,025,295
Less: Items not entailing the sources of funds
Accrued sales pending collection............................ (58,938,836) (53,366,120)
Intercompany sales.......................................... (2,443,495) (803,211)
---------------- ---------------
(61,382,331) (54,169,331)
Minority interests in subsidiaries................................... 2,365,720 2,391,437
---------------- ---------------
Funds originated in ordinary operations ............................. 150,824 6,586,840
---------------- ---------------
Extraordinary loss for the year...................................... -- (414,849)
Plus: items not entailing applications of funds
Loss per Schedule XXI....................................... -- 75,000
Less: items not entailing sources of funds
Tax benefit................................................. -- (227,032)
Minority interests in subsidiaries................................... -- (46,094)
---------------- ---------------
Funds applied to extraordinary operations............................ -- (612,975)
---------------- ---------------
Funds applied to operations - Carried forward........................ 150,824 5,973,865
--------------- ----------------
</TABLE>
<PAGE> 5
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
--------------- ---------------
(PESOS)
<S> <C> <C>
Funds applied to operations - Brought forward....................... 150,824 5,973,865
OTHER SOURCES OF FUNDS
Changes in intercompany receivables and payables........... 803,211 2,224,101
Changes in tax credits and payables........................ 15,894 --
Increase in bank loans..................................... 2,124,233 11,383,533
Decrease in investments.................................... 281,571 154,429
Decrease in trade accounts receivable...................... 54,839,142 56,904,029
--------------- ---------------
Total other sources of funds........................................ 58,064,051 70,666,092
--------------- ---------------
Total sources of funds.............................................. 58,214,875 76,639,957
--------------- ---------------
APPLICATIONS OF FUNDS
Acquisition of fixed assets................................ (9,056,558) (11,668,173)
Increase in other receivables.............................. (153,257) (511,430)
Increase in inventories.................................... (599,766) --
Increase in intangible assets.............................. (255,194) (1,020,429)
Changes in tax credits and debts........................... (10,849,846) (7,974,400)
Payment of intercompany liabilities........................ (1,569,947) --
Decrease in salaries and social security liabilities....... (869,370) (1,554,336)
Payment of bank and financial loans........................ (6,160,201) (6,383,150)
Dividends paid............................................. (14,450,000) (14,730,000)
Decrease in other accounts payable and other liabilities... (755,621) (603,040)
Decrease in suppliers...................................... (17,736,277) (15,900,666)
--------------- ---------------
Total applications of funds......................................... (62,456,037) (60,345,624)
=============== ===============
(Decrease)/Increase in funds........................................ (4,241,162) 16,294,333
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended December 31, 1997 and 1996
NOTE 1: FINANCIAL STATEMENT PRESENTATION
As required by General Resolution No.290/97 of the Comision
Nacional de Valores (the "CNV"), which establishes that
consolidated financial statements must be submitted following
the procedure outlined in Technical Resolution No. 4 of the
Argentine Federation of Professional Councils of Economic
Sciences, the December 31, 1997 and 1996, Balance Sheets of
the Company and the Statements of Income and Cash Flows for
the fiscal years then ended have been consolidated on a
line-by-line basis with the financial statements of the
subsidiary.
Non-monetary items included in the financial statements at
December 31, 1997 and 1996, have been restated in current
Pesos up to August 31, 1995. No adjustments have been applied
since such date.
The financial information at December 31, 1996, has been
reclassified, for comparative purpose, in order to be
consistent with that of the current year.
The December 31, 1997 financial statements of the subsidiary,
Camuzzi Gas del Sur S.A., which cover the same period as that
of its controlled company, Sodigas Sur S.A., have been used in
order to determine the equity value and carry out the
consolidation.
NOTE 2: VALUATION CRITERIA
The financial statements of the subsidiary have been prepared
based on criteria consistent with those applied for preparing
the financial statements of Sodigas Sur S.A.
In addition, the principal valuation and disclosure criteria
used for preparing the consolidated financial statements are
described below:
a. Local currency assets and liabilities
The local currency assets and liabilities have been
stated at their face value at the balance sheet date,
including accrued interest.
The implicit cost of financing contained in the
monetary assets and liabilities has not been
segregated as it is not deemed significant.
b. Foreign currency assets and liabilities
Foreign currency assets and liabilities were
translated at the exchange rate prevailing at the
balance sheet date, including accrued interest.
c. Investments
Current
These are the following:
- Fixed-term deposits, which have been valued
at their original amount, plus interest
accrued up to the closing date.
- Shares, which have been valued at their
market value at the balance sheet date.
- Argentina Government Bond, which has been
valued at cost, plus accrued interest as of
the end of the year.
Non-current
The non-current investments as of December 31, 1996
correspond to the Argentina Government Bond, which
has been valued at cost, plus accrued interest as of
the end of the year.
<PAGE> 7
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
d. Receivables to be recovered from users
Such receivables arise from agreements entered into
with Provinces, Municipalities and other entities,
and are to be recovered from users currently
incorporated to the network and those to be
incorporated in the future to the networks installed
under the terms of those agreements, and are agreed
upon in cubic meters of gas. Said receivables have
been valued at the average tariff of the distributed
gas.
e. Inventories
These have been valued at their replacement cost at
the end of the year; the values thereof do not exceed
their recoverable value.
f. Fixed assets
The fixed assets transferred by Gas del Estado at the
beginning of operations of Camuzzi Gas del Sur S.A.
on December 28, 1992, have been valued in an overall
manner, according to the Contract for the Transfer of
the Company's shares of Gas del Estado. This value
has been restated in current Pesos at August 31,
1995.
The aforementioned value was recalculated for each
individual fixed asset, based on the inventory and
valuation carried out during the fiscal year ended
December 31, 1993 by independent consultants.
Additions carried out after such date and up to
August 31, 1995, were valued at their acquisition
cost, restated in current Pesos at such date. As from
September 1, 1995, additions have been valued at
their acquisition cost in current Pesos of the
corresponding period.
Up to September 30, 1995, additions of gas
distribution networks made free of charge were
recorded at their replacement cost at the time of the
transfer under the item "Other Income".
According to resolutions of the CNV adopted in the
meetings held on July 28 and August 16, 1995, the gas
distribution networks transferred after September 30,
1995, by users free of charge or partially funded by
third parties, shall be recorded at the lower of
their construction cost or the cost fixed for
transfer, or the cost of their value to the business.
In the case that the value of the asset added exceeds
the value of the consideration assumed by the
Licensee, or if such consideration does not exist
(free of charge), a cross-entry shall be recorded in
an adjustment account, which is shown deducted from
the Fixed Assets, whose depreciation criteria is
equivalent to that of the asset added.
The obligation to partially or totally compensate
third parties is recorded as a liability of the
Company.
The values thus determined are disclosed net of the
corresponding accumulated depreciation, calculated
using the straight-line method, based on the
estimated useful lives of the assets.
The value of the Fixed Assets, taken as a whole, does
not exceed their recoverable value.
g. Intangible assets
This caption includes the acquisition of software and
expenses in relation to the programs for the issuance
of the Notes by Sodigas Sur S.A. and its subsidiary,
to be amortized over a five-year period.
Intangible assets added up to August 31, 1995 are
recorded at their acquisition cost restated in
current Pesos at such date, while additions carried
out after September 1, 1995 are disclosed at their
acquisition cost in current Pesos of the
corresponding period, in both cases net of their
corresponding cumulative amortization, calculated
according to the straight-line method.
h. Shareholders' equity
The Capital Stock has been stated at its nominal
value. The Capital Stock Adjustment represents the
difference between the nominal value of the capital
stock and its value adjusted, based on the
fluctuation in the general wholesale price index up
to August 31, 1995.
Changes in net worth prior to August 31, 1995 are
restated as of that date, while subsequent changes
are stated in the currency value of the corresponding
period.
<PAGE> 8
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
i. Profit/(loss) accounts
Profit/(loss) for the year is disclosed at historical
values, except for the charges for assets consumed
(fixed asset depreciation and intangible asset
amortization), which were determined according to the
values of such assets.
j. Accounting recognition of income
The income stemming from gas distribution activities
is recognized when the service is rendered and
charged to the "Unbilled gas consumption" account.
k. Statement of Cash Flows
The Consolidated Statement of Cash Flows is presented
using the Indirect Method of Alternative D of
Technical Resolution No. 9 of the Argentine
Federation of Professional Councils of Economic
Sciences, considering Cash and Banks and Short-Term
Investments as funds.
NOTE 3: CORPORATE CONTROL
At December 31, 1997 Sodigas Sur S.A. owned 90% of the shares
of Camuzzi Gas del Sur S.A.
NOTE 4: BREAKDOWN OF ITEMS
Consolidated Balance Sheet
a. Trade accounts receivable
<TABLE>
<CAPTION>
Fiscal years ended December 31,
-----------------------------------------------------
1997 1996
----------------------- -----------------------
(Pesos)
<S> <C> <C>
Trade debtors............................................. 11,536,173 14,189,053
Subsidies receivable...................................... 49,879,982 39,412,138
Unbilled gas consumption.................................. 9,139,801 10,832,846
----------------------- -----------------------
SUBTOTAL.................................................. 70,555,956 64,434,037
Less: Allowance for defaulting debtors (Schedule E)...... (4,819,582) (3,850,460)
----------------------- -----------------------
TOTAL..................................................... 65,736,374 60,583,577
======================= =======================
</TABLE>
<PAGE> 9
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
b. Other accounts receivable
<TABLE>
<CAPTION>
Fiscal years ended December 31,
----------------------- ----- -----------------------
1997 1996
----------------------- -----------------------
(Pesos)
CURRENT
<S> <C> <C>
Receivables to be recovered from users (Note 2.d)......... 159,288 157,425
Miscellaneous advance payments............................ 40,622 81,707
Prepaid expenses.......................................... 53,492 115,614
Tax credits............................................... 3,143,438 3,054,836
Guarantee deposits........................................ 68,990 127,787
Receivables to be recovered per Section 41
Law 24.076 (Note 11).................................... 4,140 --
Receivables to be recovered for additional transportation
charges................................................... 233,311 --
Miscellaneous............................................. 307,278 371,096
----------------------- -----------------------
TOTAL..................................................... 4,010,559 3,908,465
======================= =======================
NON-CURRENT
Receivables to be recovered per Section 41
Law 24.076 (Note 11).................................... 109,903 75,642
Miscellaneous............................................. 2,565 2,479
----------------------- -----------------------
TOTAL .................................................... 112,468 78,121
======================= =======================
</TABLE>
<PAGE> 10
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
c. Other liabilities
<TABLE>
<CAPTION>
Fiscal years ended December 31,
----------------------------------------------------
1997 1996
---------------------- -----------------------
(Pesos)
CURRENT
<S> <C> <C>
Gas-in-kind payables....................................... 1,069,617 2,645,500
Consumers for guarantee deposits........................... 162,252 126,757
Reimbursements to be passed through for additional
transportation charges..................................... 310,295 --
Other accounts payable..................................... 361,719 362,531
---------------------- -----------------------
TOTAL...................................................... 1,903,883 3,134,788
====================== =======================
NON-CURRENT
Gas-in-kind payables....................................... 7,542,019 4,962,706
Other accounts payable..................................... 1,000 1,000
---------------------- -----------------------
TOTAL...................................................... 7,543,019 4,963,706
====================== =======================
</TABLE>
Statement of income
d. Net sales
<TABLE>
<CAPTION>
Fiscal years ended December 31,
----------------------------------------------------
1997 1996
---------------------- -----------------------
(Pesos)
<S> <C> <C>
Gas sales.................................................. 207,598,746 206,168,209
Sales of other items....................................... 1,208,012 1,130,979
Direct taxes on sales...................................... (2,791,555) (3,255,463)
---------------------- -----------------------
TOTAL...................................................... 206,015,203 204,043,725
====================== =======================
</TABLE>
<PAGE> 11
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
e. Financial and holding gain/(loss)
<TABLE>
<CAPTION>
Fiscal years ended December 31,
----------------------------------------------------
1997 1996
---------------------- -----------------------
(Pesos)
<S> <C> <C>
GENERATED BY ASSETS
Interest................................................... 2,653,644 3,711,092
Income from investments.................................... 48,633 39,496
Exchange differences....................................... 66,632 11,453
Discounts obtained......................................... 1,139 --
Miscellaneous.............................................. 4,260 2,940
---------------------- -----------------------
TOTAL...................................................... 2,774,308 3,764,981
---------------------- -----------------------
GENERATED BY LIABILITIES
Interest................................................... (11,444,901) (10,589,564)
Exchange differences....................................... (4,845) (16,723)
Miscellaneous.............................................. -- 20,929
---------------------- -----------------------
(11,449,746) (10,585,358)
---------------------- -----------------------
Financial and holding gain/(loss).......................... (8,675,438) (6,820,377)
====================== =======================
</TABLE>
<PAGE> 12
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
f. Other income and expenses, net
<TABLE>
<CAPTION>
Fiscal years ended December 31,
----------------------------------------------------
1997 1996
---------------------- -----------------------
(Pesos)
<S> <C> <C>
OTHER INCOME
Fees for collections on account of third parties........... 377 2,737
Leases..................................................... 645,852 687,852
Miscellaneous.............................................. 114,395 --
---------------------- -----------------------
TOTAL ..................................................... 760,624 690,589
---------------------- -----------------------
OTHER EXPENSES
Provision for labor lawsuits (Schedule E).................. (1,601,838) (179,347)
Miscellaneous.............................................. (387,555) (325,719)
---------------------- -----------------------
TOTAL...................................................... (1,989,393) (505,066)
---------------------- -----------------------
TOTAL OTHER INCOME AND EXPENSES, NET....................... (1,228,769) 185,523
====================== =======================
</TABLE>
g. Extraordinary (loss)
<TABLE>
<CAPTION>
<S> <C> <C>
Extraordinary gas loss (Note 16)........................... -- (612,975)
Loss per Schedule XXI - Gas del Estado S.E. Transfer Contract -- (75,000)
Tax benefit related to extraordinary (loss) ............... -- 227,032
---------------------- -----------------------
TOTAL EXTRAORDINARY LOSS................................... -- (460,943)
====================== =======================
</TABLE>
<PAGE> 13
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: INTERCOMPANY BALANCES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------------
Income/(loss) accounts 1997 1996
--------------------- ----------------------
(Pesos)
<S> <C> <C>
CAMUZZI GAS PAMPEANA S.A.
Gas sale and transportation................................... 8,549 22,602
Propane gas purchases (loss).................................. (1,033,325) (435,291)
Administrative and personnel services......................... (3,099,313) (3,010,048)
CAMUZZI ARGENTINA S.A.
Technical assistance and professional fees.................... (3,244,066) (2,880,142)
Maintenance service of computer systems....................... (413,088) (417,176)
LOMA NEGRA C.I.A.S.A.
Gas sales..................................................... 1,118,924 826,543
ENERGIA DEL SUR S.A.
Gas sales..................................................... 10,036,098 2,238,415
EDERSA S.A.
Gas sales..................................................... 332,195 69,234
Purchase of electricity....................................... (40,649) (21,032)
OTHER OPERATIONS
CAMUZZI ARGENTINA S.A.
Capitalized fees paid on account of work inspection services.. 141,320 --
Software acquisition.......................................... 76,121 --
RECEIVABLES
Energia del Sur S.A........................................... 2,772,267 802,584
Edersa S.A.................................................... -- 627
--------------------- ----------------------
2,772,267 803,211
===================== ======================
LIABILITIES
Camuzzi Gas Pampeana S.A...................................... 1,318,660 769,654
Camuzzi Argentina S.A......................................... 585,316 1,381,366
--------------------- ----------------------
1,903,976 2,151,020
===================== ======================
</TABLE>
<PAGE> 14
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: MANDATORY INVESTMENTS OF THE SUBSIDIARY
Chapter IV of the License states that the Subsidiary, Camuzzi
Gas del Sur S.A., must undertake a five-year plan from 1993 to
1997, which includes investments in network pipelines,
services, protection against rust and corrosion,
communications equipment and SCADA (centralized
telemeasurement and control equipment system). The amounts of
the investments, as set by the License for each year, are as
follows:
YEAR U.S.$
------------------ -----------------
1993 2,704,000
1994 2,704,000
1995 2,150,000
1996 1,925,000
1997 1,925,000
-----------------
Total 11,408,000
=================
The Licensee has fulfilled in due time and manner the
mandatory investments for 1993, 1994, 1995 and 1996, and was
notified of such fulfillment by ENARGAS following an operating
audit of such investments. Mandatory investments for the year
1997 are under examination by the ENARGAS.
NOTE 7: ISSUANCE OF NOTES BY THE SUBSIDIARY
On December 11, 1996, together with Camuzzi Gas Pampeana S.A.,
Camuzzi Gas del Sur S.A. issued Notes not convertible into
shares under a Medium-Term-Note Program which was approved by
Certificate No. 136 of the CNV dated December 6, 1996.
Such issue was approved by the Board of Directors of the
Licensee on November 12, 1996; the main purpose of this issue
was to provide Camuzzi Gas del Sur S.A. with an important flow
of funds in order to (i) refinance Series B Notes for an
amount of U.S.$90,000,000 co-issued between Camuzzi Gas
Pampeana S.A. and Camuzzi Gas del Sur S.A. under a short- and
medium-term note program created by the shareholders at the
Shareholders' Meeting dated October 25, 1993; (ii) develop its
investment plans; (iii) pay up working capital and (iv)
refinance other liabilities.
The conditions for the issuance are as follows:
o Aggregate principal amount: U.S.$130,000,000
o Percentage corresponding to Camuzzi Gas del Sur S.A.: 38.89%
o Interest rate: 9 1/4%, payable semiannually in arrears.
o Price: 99.80%
o Maturity of principal: December 15, 2001.
The aforementioned program was created under a joint issuance
with Camuzzi Gas Pampeana S.A., and the two companies will be
jointly and severally liable for the payment of interest and
principal.
On May 9, 1997, the issued Notes were registered before the
United States Securities and Exchange Commission (SEC).
The main restrictions under the offering circular for the
issuance of Notes are the following:
(a) Limitations on Liens: Neither of the Issuers shall,
nor shall either of the Issuers permit any of their
respective Subsidiaries to, incur, assume or suffer
the existence of, any Lien upon its property, assets
or revenues, whether now owned or hereinafter
acquired, securing any indebtedness of any other
person, unless the Notes are equally and ratably
secured by such liens, except for:
(i) Liens existing on the Issue Date of the
Notes:
(ii) Liens for taxes or other governmental
charges not yet due or which are being
contested in good faith by appropriate
proceedings; provided that adequate reserves
with respect thereto are maintained on the
books of such Issuer or such Subsidiary, as
the case may be, in conformity with
Argentine professional accounting standards;
<PAGE> 15
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iii) Liens on all or part of any property, assets
(including, without limitation, equity
interests) or revenues to secure
indebtedness incurred solely for purposes of
financing the acquisition, construction or
installation thereof incurred concurrently
with or within 120 days after the completion
of such acquisition, construction or
installation, or liens on any property,
assets (including, without limitation,
equity interests) or revenues existing on
the date of the acquisition thereof;
(iv) Liens arising in the ordinary course of
business which do not secure indebtedness
and which (A) are not in effect for a period
of more than 60 days, (B) are being
contested in good faith by appropriate
proceedings, which have the effect of
preventing the forfeiture or sale of the
property or assets subject to any such lien,
or (C) secure an obligation of less than
U.S.$1,000,000;
(v) Any attachment or judgment lien, unless (A)
within 60 days after the entry thereof, its
discharge has not been filed or execution
thereof stayed pending appeal, (B) shall not
have been discharged within 60 days after
the expiration of any such stay or (C) is
for an amount less than U.S.$1,000,000;
(vi) Liens created or deposits made to secure the
performance of bids, trade contracts,
leases, statutory obligations, surety and
appeal bonds and other obligations of a like
nature incurred in the ordinary course of
business;
(vii) Any liens imposed by operation of mandatory
provisions of applicable law that do not
materially affect the shareholders' equity
Issuer's ability to perform its respective
obligations under the Notes or Indenture;
(viii) Liens other than those described in the
foregoing clauses (i) through (vii) upon the
property, assets or revenues of either or
both of the Issuers or any of their
respective Subsidiaries securing
indebtedness in an aggregate principal
amount not in excess of U.S.$10,000,000 (or
its equivalent in other currencies) at any
time outstanding; and
(ix) Any extension, renewal or replacement, in
whole or in part, of any lien described in
the foregoing clauses (i) through (viii),
provided that (A) such extension, renewal or
replacement does not extend to any property
other than that originally subject to the
liens being extended, renewed or replaced
and (B) the principal amount of the
indebtedness secured by such lien is not
increased.
(b) Maintenance of the Net Worth to Consolidated Indebtedness
Ratio: Neither of the Issuers shall permit the ratio of its
Net Worth to its Consolidated Indebtedness to be less than 1
to 1.
(c) Restrictions on Sale and Lease-Back Agreement: Neither of the
Issuers shall, nor shall either of the Issuers permit any
Subsidiary to, enter into any Sale and Lease-Back Agreement
with respect to any property unless (i) such agreement
involves a lease for a term of no more than three years by the
end of which it is intended that the use of such property by
the lessee shall be discontinued, (ii) such agreement is
between the Issuers, or between either or both of the Issuers
and a Subsidiary, or between Subsidiaries, (iii) the Issuers
or any Subsidiary would not be entitled to incur indebtedness
secured by a mortgage on the property involved in such
agreement at least equal in amount to the Attributable Debt
with respect to such Sale and Lease-Back Agreement, without
equally and ratably securing the Notes, (iv) the proceeds of
such agreement are at least equal to the fair market value
thereof (as determined in good faith by the Board of Directors
of each of the Issuers) and the Issuers apply an amount equal
to the greater of the net proceeds of such sale or the
Attributable Debt with respect to such Sale and Lease-Back
Agreement within 180 days of such sale to either (or a
combination of) (A) the amortization (other than any mandatory
amortization, mandatory prepayment or sinking fund payment or
by payment at maturity) of debt for borrowed money of either
or both of the Issuers or a Subsidiary (other than debt that
is subordinated to the Notes or debt to either or both of the
Issuers or a Subsidiary) that matures more than 12 months
after the creation of such debt or (B) the purchase,
construction or development of other comparable property, or
(v) such agreement is entered into within 120 days after the
initial acquisition by such Issuer or the Subsidiary, as the
case may be, of the property subject to such agreement.
(d) Merger, Consolidation or Sale of Assets: Neither of the
Issuers will merge into or consolidate with any person or
sell, lease, transfer or otherwise convey or dispose of all or
substantially all of its assets, whether by one transaction or
a series of transactions, to any person, (a) unless, in the
case of any such merger or consolidation, (i) such Issuer is
the successor person and (ii) any Noteholder who elects to be
guaranteed or repaid upon such merger or consolidation
pursuant to Argentine law is so guaranteed or repaid by either
of the Issuers, or (b) unless, in the case of any such other
transaction, (i) immediately after giving effect to such
transaction or series of transactions, no Event of Default or
event which, after the giving of notice or the lapse of time
or both, would constitute an Event of Default, will have
occurred and be continuing, (ii) the successor person is a
corporation that will expressly assume the obligations of such
Issuer under the Notes and the Indenture, and (iii) such
Issuer shall have delivered to the Trustee an officer's
certificate and an opinion of counsel stating that such
merger, consolidation, sale, lease, transfer or other
conveyance or disposition complies with the Notes and that all
conditions precedent therein relating to such transaction have
been met. Upon the occurrence of any such merger,
consolidation, sale, lease, transfer or
<PAGE> 16
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
other conveyance or disposition of all or substantially all of
such Issuer's assets, the successor person will succeed to and
become substituted for the Issuer or both Issuers, as the case
may be, and may exercise every right and power of such Issuer
with the same effect as if it had been named in the Notes and
the Indenture and, thereafter, such Issuer will be released
from its liability as obligor on the Debt Securities and under
the Indenture.
NOTE 8: RESTRICTIONS ON THE SUBSIDIARY'S ASSETS
Pursuant to the provisions of the terms and conditions for the
privatization of the natural gas distribution service, Camuzzi
Gas del Sur S.A. must obtain ENARGAS' prior consent, without
which the License may be revoked, to sell, assign, encumber or
dispose of assets essential for the service.
NOTE 9: RECORDABLE ASSETS
As regards the real estate transferred under the Transfer
Contract, the Subsidiary Company has effected the
corresponding deeds with the Argentine General Notary Public,
and only isolated and irrelevant cases are pending.
Additionally, the Subsidiary completed the transfer of all the
vehicles.
NOTE 10:TAXES PAYABLE BY THE SUBSIDIARY
During the fiscal year ended December 31, 1995, the Licensee
availed itself of the installment payment plan established by
Decrees 314/95 and 316/95. The total amount refinanced is
Pesos 797,773, payable in equal monthly installments, the last
one falling due on May 16, 1999.
On January 30, 1998 the Subsidiary Company amended the Income
Tax Returns for the years 1993, 1994, 1995 and 1996 for a
total amount of Pesos 975,228. These amended tax returns are
attributable to the new tax determination related to the
amounts of the networks added by Camuzzi Gas del Sur S.A. up
to June 1995, by application of ENARGAS's Resolutions No. 269
and 389 dated February 8 and October 23, 1996.
NOTE 11: GROSS SALES TAX OF THE SUBSIDIARY COMPANY
The Subsidiary Company received several tax assessments issued
by the provincial tax authorities, which are as follows:
PROVINCE OF BUENOS AIRES: The Province of Buenos Aires Revenue
Board (DPRPBA) made assessments questioning the Subsidiary
Company's Gross Sales Tax returns, and claiming Pesos 27,027
and Pesos 16,003 for the periods from December 1992 through
February 1995, and from March 1995 to June 1996, respectively,
not including fines and accessory charges. This difference
arises mainly from the fact that the Tax Authority claims that
the tax base on which the tax rate should be applied for
computing gross sales taxes on gas sales should include all
revenue obtained, as gas prices are no longer regulated by the
State after the privatization; therefore, the tax base is no
longer regulated by the provisions of Section 141, Subsection
(a) of the Tax Code.
The Subsidiary Company's position since the beginning of
operations is that the tax basis is the difference between the
selling and the purchasing price, based on the following:
(i) The criterion used by the Subsidiary Company is based
on the fact that it has acted in compliance with the
provisions of Section 10, Subsection (a) of
decree-law 9006/78 compiled in 1985 restated text
-currently Section 141, Subsection (a) of the Fiscal
Code-, pursuant to the confirmation sent to Gas del
Estado S.E. by the Ministry of Economy and Public
Works and Services of the Province of Buenos Aires
through a notice dated February 27, 1986; such
provisions are deemed applicable since Camuzzi Gas
del Sur S.A. has taken over the activities of the
state company.
(ii) The auditors hired by the Privatization Committee
concluded in their report to the Ministry of Economy
and Public Works and Services of the Argentine
Republic, that this tax should be calculated
according to the difference between the selling and
purchasing prices of gas sales, in order to comply
with the provisions of Law 24,076, regulating the gas
industry and the Distribution License.
(iii) The documentation mentioned in (i) and (ii) was made
available to investors by the Government at the time
of the privatization of Gas del Estado S.E., in order
to provide them with all the information that could
affect their business and, accordingly, their bidding
prices in any manner whatsoever.
On May 26, 1996, the Licensee filed a motion to reconsider the
resolution of the Revenue Board of the Province of Buenos
Aires since it believed that it had acted, as stated before,
in compliance with the provisions of tax regulations. The
Company has cited the enforceability of the above-mentioned
regulation as the basis for its appeal for reversal.
<PAGE> 17
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 25, 1996, the General Revenue Board issued a Final
Opinion stating that, in its opinion, the Company must pay
gross sales tax on its total sales and not on its distribution
margin. On December 13, 1996, the General Revenue Board
further explained some points of the opinion indicating that,
according to such body is in representation, the change on the
tax criterion had derived from the fact that as from the
takeover of the natural gas distribution service by the
Licensees, the regulations set forth under the Fiscal Code
(Section 136, Subsection (e) and Section 141, Subsection (a))
are not valid, since the Government, upon withdrawing from the
business, no longer regulates the official selling prices.
Even though the Subsidiary Company's legal counsel considered
that the Company's defense was based on solid grounds, the
Final Opinion issued by the General Revenue Board
significantly changed the situation in that it explicitly
clarifies the tax criterion approved by the Province of Buenos
Aires and the change on the tax burden of the Licensee.
Therefore, because the Company is not legally required to
participate in a long judicial proceeding, the results of
which cannot be assured in spite of its sound defense, on
December 19, 1996, the Company availed itself of the Debt
Consolidation System pursuant to the provisions of the
provincial law 11,808. (Official Gazette, July 10, 1996).
The said regulations allow for the payment of the existing
debts corresponding to the period from December 29, 1992 to
January 31, 1996 in up to 48 installments, with a 1% monthly
interest on balances due for the extension granted. In
addition, default interest was reduced to 0.5% per month and
the penalties and fines were fully waived. Such regulations
further provide for an installment payment system for the
period between February 1, 1996 and August 31, 1996, and
allows for the settlement of all payments for the period
between September 1, 1996 and October 31, 1996, by means of
amended tax returns. The total balance included within these
Debt Consolidation Regulations amounted to Pesos 65,751 and
was accounted for by Camuzzi Gas del Sur S.A. under the "Taxes
Payable" caption.
Thus, as is evident from the above-mentioned conditions, the
Opinion of the General Revenue Board has modified the tax
system through the implementation of a new criterion which has
altered the Licensees tax burden generating a cost fluctuation
due to a "tax change", which was considered as a non-recurring
tariff adjustment by point 9.6.2. of the Distribution License
and by law 24,076.
In order to pass through this higher cost, pursuant to the
lawful right to which the Company is entitled, on December 20,
1996, Camuzzi Gas del Sur S.A. initiated formal proceedings by
filing a claim with ENARGAS to obtain the application of the
corresponding tariff adjustment. The claim for passing the tax
through to the tariffs was also filed before the Ministry of
Economy and Public Works and Services. In addition, the
Company, if deemed necessary shall exercise its right to
appeal to the Argentine Supreme Court of Justice, on the
grounds of a federal question regarding the indemnity rights
to which the Licensee is duly entitled.
Additionally, ENARGAS requested the opinion of the Revenue
Board of the Province of Buenos Aires. This Board ratified the
opinions mentioned above and requested some written
clarifications from the Ministry of Economy and Public Works
and Services, which had expressed its opinion through the
General Legal Affairs Board's opinion dated March 6, 1997 and
clarifying decision dated May 8, 1997, which confirmed the
Licensee's criterion. The answer to the aforementioned written
clarification dated July 18, 1997 ratified the previous
opinions.
Therefore, and as mentioned before, because a "change in tax
rules" generates a right for the Licensee to pass this change
on to the tariffs as envisaged in paragraph 9.6.2. of the
Distribution License and in Law No. 24,076, Camuzzi Gas del
Sur S.A. accounted for the amounts recognized as tax payable,
together with the payments made for the taxable basis of all
income from gas sales, with a balancing entry in the form of a
receivable to be collected from the users in future billings.
Through Resolution No. 544 dated November 17, 1997 and
pursuant to the regulatory framework of the activity, the
ENARGAS has authorized the pass-through to the tariffs of the
effects caused by the legal changes in the payment of the tax
in accordance with the methodology defined by that Regulatory
Authority in its note No. 108 dated January 12, 1998; the
decision on the pass-through to the tariffs related to the
effect on the sales to subdistributors and GNC stations is
still pending.
At December 31, 1997, the receivable to be recovered amounts
to Pesos 114,043 and has been recorded under "Other Current
Receivables" for the amount of Pesos 4,140 and under "Other
Non-Current Receivables" for the amount of Pesos 109,903.
PROVINCE OF CHUBUT: The Subsidiary Company filed a motion with
the General Revenue Board of the Province of Chubut to review
the case, answering a notice which questioned the Gross Sales
Tax Returns for the years 1993, 1994, 1995 through March,
1996, claiming differences in favor of the State amounting to
Pesos 1,775,289, without including interest or penalties.
In addition, the Subsidiary Company requested the annulment of
the service of a claim, for differences in the determination
of the gross sales tax returns amounting to Pesos 28,892, for
the period January-March 1993. As of the date hereof, the
amount claimed was deposited with the Court.
<PAGE> 18
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROVINCE OF TIERRA DEL FUEGO: The Subsidiary Company was
served a notice by the Provincial General Revenue Board
rejecting the remedy for reconsideration filed, and requesting
the payment of Pesos 962,748 in respect of principal, not
including interest and penalties for the difference in the
gross income tax corresponding to the period from 1993 to June
1996. In addition, the Ministry of Economy and Public Works
and Services has rejected the appeal against the Resolution by
the General Revenue Board, so the Subsidiary Company can file
a claim in this connection in the future. On December 5, 1997,
the Subsidiary Company filed a motion before the governor of
the Province of Tierra del Fuego.
During the fiscal year, Camuzzi Gas del Sur S.A. set up a
provision of Pesos 761,023 as principal and interest which is
included in the caption "Provisions".
PROVINCE OF RIO NEGRO: The Subsidiary Company filed an answer
to the notice for the beginning of Summary Proceedings made by
the General Revenue Board of the Province of Rio Negro,
questioning the Gross Sales Tax Returns for the years 1993,
1994, 1995 through February, 1996, and subsequent notices for
the period March-August 1996, claiming differences in favor of
the State amounting to Pesos 2,711,583, not including interest
or penalties.
As regards the amount due mentioned in the first paragraph, a
court action was filed against the Licensee Company compelling
it to pay Pesos 2,080,007 for the principal with respect to
the difference in the gross income tax but for the period 1993
up to February 1996. The Subsidiary Company contested the
proceeding.
The Municipality rejected the motions and upon a judgment
pronounced against the Company, the Company filed an appeal to
that judgment. The remedy was sustained and the Company
submitted the briefs of the case.
PROVINCE OF NEUQUEN: The General Revenue Board of the Province
of Neuquen filed a record to settle accounts claiming
differences in favor of the government for Pesos 1,078,484,
not including interest and penalties. The Subsidiary Company
has duly filed the applicable answer.
In the opinion of the Subsidiary Company and its legal
advisors, an adverse decision in relation to the claims of the
Provinces of Chubut, Rio Negro, and Neuquen, is considered not
probable.
NOTE 12: STAMP TAX OF THE SUBSIDIARY
Regards stamp tax, the situation is as follows:
PROVINCE OF RIO NEGRO: Camuzzi Gas del Sur S.A. filed a
motion, within such jurisdiction, asking for a preliminary
injunction with the Federal Judge in response to the
assessment of stamp tax under a Decree of the Executive Power,
whose amount has yet to be determined.
PROVINCE OF TIERRA DEL FUEGO: The Subsidiary Company filed an
answer to the Previous Notice made by the Revenue Board of the
Province of Tierra del Fuego, the Antarctic and South Atlantic
Islands, claiming the assessment of the stamp tax under a
Decree of the Executive Power, amounting to Pesos 140,000, not
including interest or penalties.
PROVINCE OF NEUQUEN: The General Revenue Board of that
province submitted an account claiming a difference favorable
to the Provincial Government for Pesos 1,656,205, not
including interests and penalties. Notice and decision on the
matter are expected so as to file the applicable answer.
Additionally, the General Revenue Board has made assessments
for a total of Pesos 1,827,518 on account of stamp tax on the
transfer of assets affected to the service. This claim was
filed jointly by Gas del Estado and the Subsidiary Company.
The Company has filed the applicable answer.
In the opinion of the Subsidiary Company and its legal
advisors, an adverse decision in relation to the
aforementioned claims is considered not probable.
NOTE 13: MUNICIPAL TAXES ON USE OF EASEMENTS BY THE SUBSIDIARY
Municipalities usually include a tax on easements in their tax
rules. Such rules are in conflict with federal regulations.
The distribution license grants the right to easements free of
charge to the Licensee and establishes that, if the
Municipalities levy any tax which is later ratified by a
court, the Subsidiary is authorized to pass through such cost
increase to the consumers.
Point 6.1 of the Distribution License reads as follows: "while
the Licensee is in charge of the service, it shall have the
right to use free of charge any street, avenue, square,
bridge, road and any other public place, including the
subjacent and air spaces, necessary for the installation of
facilities for the licensed service, including communication
lines and interconnections with
<PAGE> 19
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
third parties". "However, if any definitive sentence by a
court admits the validity of the provincial or municipal
rules, which levy a tax on such easement or use upon the
Licensee, the Licensee may pass through such additional cost
to the consumers residing within the jurisdiction in which
such tax is applicable, according to ENARGAS' procedures
provided for in point 9.6.2, without any right of claim
against the Licensee or Gas del Estado".
Furthermore, pursuant to National Budget Law No. 24,624/95
corresponding to the 1996 year, in order to enjoy the
subsidies described therein, municipal taxes on easements must
be repealed as from January 1, 1996.
Currently, the following are the most relevant disputes in
relation to taxes on rights to subjacent space (subsoil):
MUNICIPALITY OF VIEDMA, PROVINCE OF RIO NEGRO: This
municipality brought an action against the Licensee for the
payment of the tax on subsoil rights totalling Pesos 246,400,
not including penalties and other expenses. The decision of
the Court of Appeals confirmed the judgement of first instance
for which an appeal for nullification was filed; this remedy
was rejected by the Supreme Court of the Province of Rio
Negro. An extraordinary remedy was further filed and denied as
well; the Company finally filed an appeal before the Argentine
Supreme Court of Justice requesting that the appeal dismissed
by the trial court be sustained. The judicial deposits made
during the year 1996 for an aggregate amount of Pesos 263,352,
are maintained plus Pesos 62,720 in respect of interest and
legal costs. Camuzzi Gas del Sur S.A. has set up a provision
for the aggregate amount claimed.
In addition, the Municipality has brought an action against
the Subsidiary Company for Pesos 148,148 in respect of
principal corresponding to the payment of the tax on subsoil
rights due for the year 1995. Camuzzi Gas del Sur S.A. has
contested the proceeding. The Municipality has contested the
motions and the entering of a judgment is expected. Judgment
was pronounced against the Camuzzi Gas del Sur S.A., which has
therefore filed an appeal; the appeal was sustained and the
Subsidiary Company has submitted the briefs of the case.
Expecting the Municipality to comply with its procedural
duties, the Court of Appeals interrupted the period to enter
judgment. The Subsidiary Company has made a provision of Pesos
95,545, which is included under the item "Provisions".
MUNICIPALITY OF NEUQUEN, PROVINCE OF NEUQUEN: The amount
claimed totals Pesos 66,524, not including penalties and other
accessories. The Municipality appealed the decision of the
Court of Appeals, on the grounds of lack of jurisdiction of
the provincial court to hear the case. The decision of the
court of Appeals was declared valid and the Supreme Court
dismissed the Camuzzi Gas del Sur S.A.'s claim of lack of
jurisdiction and ordered that the case be sent to the Court of
Appeal for judgement on the substance of the case. The Court
of Appeals rejected the motion filed by the Company and a
motion for lack of jurisdiction was filed with the Supreme
Court of Justice of the Province, and was rejected.
The Subsidiary Company is analyzing the possibility of filing
an independent action requesting the unconstitutionality of
the rules under which the occupation of public spaces by gas
installations is taxed, and also an injunction until the
matter under consideration is settled.
In addition, the Municipality lodged a new claim for the
period April 1996 - May 1997 for an amount of Pesos 97,421,
without including interest and penalties.
The claim was contested by means of a certified letter whereby
the Subsidiary Company was required to abandon the claim for
payment under the warning of having the subsidies suspended.
The Subsidiary Company has set up a provision of Pesos 49,892,
which is included in the "Provisions" caption.
MUNICIPALITY OF COMODORO RIVADAVIA: The Municipality claimed
from Camuzzi Gas del Sur S.A. the payment of taxes on rights
to public space which amount to Pesos 56,032, corresponding to
the first half of 1996. The claim is currently pending with
the Administrative Court upon discharge filed by the
Subsidiary Company
MUNICIPALITY OF ZAPALA: the principal amount claimed totals
Pesos 816,073 corresponding to the 1993, 1994, 1995 periods,
and January to November 1996.
The Subsidiary Company has filed a motion for reconsidering
such claim.
MUNICIPALITY OF VILLA REGINA: the amount claimed totals Pesos
1,939,343, not including penalties and accessory charges; the
Subsidiary Company has filed the relevant administrative
answer.
MUNICIPALITY OF CUTRAL-CO: the Municipality filed a claim for
the payment of Pesos 133,992, in respect of taxes on rights to
public space as from January 1993 through October 1996, net of
interest and legal costs. The Subsidiary Company contested the
proceeding. The judgment entered by the first instance court
rejected the motions and the Subsidiary Company appealed such
judgment and submitted the briefs of the case. The Subsidiary
Company has set up a provision of Pesos 71,296, which is
included in the "Provisions" caption.
<PAGE> 20
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the opinion of the Subsidiary Company and based on
judgmental elements obtained during the fiscal year, except
for the lawsuits with the Municipalities of Viedma, Cutral Co
and Neuquen, for which provisions were set up, an adverse
decision in relation to the aforementioned claims is
considered not probable.
NOTE 14: CONSTRUCTION FUNDED BY THIRD PARTIES
Construction funded by third parties, incorporated into the
Subsidiary Company's network during the fiscal years ended
December 31, 1997 and 1996, was the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
--------------- ---------------
(Pesos)
<S> <C> <C>
o For valuable consideration 2,272,827 5,014,639
</TABLE>
On February 8, 1996, ENARGAS issued Resolution No. 269/96,
which sets forth that regarding constructions fully or
partially funded by third party users, such users should
receive a discount based on the difference between the value
of the construction and the amount actually discounted for, if
any.
By means of ENARGAS' Resolution No. 389, dated October 23,
1996, the Regulatory Authority established the amounts to be
recognized to the users mentioned above, according to the
business value determined by such entity.
In compliance with this resolution, during the 1996 fiscal
year, the Subsidiary Company recorded a liability in an amount
estimated as the payment price in cubic meters of gas valued
according to the effective tariff rate charged to users, which
was debited from a reserve set up in previous fiscal years for
this purpose. In the case of those projects in which the
payments made by the Licensee differed from those set forth by
the Regulatory Authority, the liability corresponding to such
difference was accounted for. Both liabilities were valued at
current tariffs.
Furthermore, on February 3, 1997, by means of Resolution 422
the Regulatory Authority set the charges that the Gas
Distribution Companies shall have to recognize to third party
users financing network extension works; such amount results
from the business value set forth by ENARGAS. This Resolution
was only applicable to the works transferred to the Licensee
Companies during the year 1996.
As regards works to be financed by future customers, which may
be commenced and transferred to the network of the licensees
during the 1997 fiscal year, the Regulatory Authority issued
Rule No. 1877, dated May 23, 1997, whereby it established
provisionally a minimum bonus equivalent to 80% of the value
set forth in Exhibit I of ENARGAS' Resolution No. 422, in
accordance with the methodological guidelines included therein
and notwithstanding the further analysis to be made by the
Regulatory Authority, because it is the competent authority
regarding these matters.
As of the date hereof, the Subsidiary Company is taking the
necessary steps to implement the reimbursement of the cubic
meters duly suggested by the ENARGAS.
Subsequently, the ENARGAS, through Order No. 4,688 dated
December 30, 1997, modified the criterion previously
established by its Resolutions No. 389/96 and 422/96 and Order
No. 1877/96, in connection with the obligation of the
Distribution Service Licensees to grant provisions to third
party users who totally or partially paid undertakings related
to new networks or extensions thereof.
This amendment consists, basically, in the replacement of the
obligation of such users to file the documentation evidencing
their contribution, as called for by the above-mentioned
resolutions, by the execution of an affidavit in relation
thereof.
The above-mentioned order of ENARGAS has been challenged by
the Subsidiary Company on the grounds that it affects its
legitimate rights.
NOTE 15: FIVE-YEAR TARIFF REVIEW
On June 30, 1997, the Ente Nacional Regulador del Gas issued
Resolution No. 468 whereby it approved the five-year tariff
review and established new values for the K and X factors
corresponding to each tariff subsector; such values will be
applicable during the 1998-2002 five-year period.
<PAGE> 21
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Within the existing tariff scheme, the incorporation of these
two factors (Factor K of Investment and X of Efficiency) has
been contemplated; such factors will be added and subtracted
respectively from the distribution margin and, therefore, will
affect the final tariff for the next five-year period.
During the year, Camuzzi Gas del Sur S.A. submitted investment
projects for the determination of the K factor, which, once
reviewed by the ENARGAS, were approved at the end of October
for the Buenos Aires Sur, Tierra del Fuego, and Santa Cruz
subareas. Likewise, and due to the particularities of the
area, it has been decided the creation of the Cordillerana
subarea with a K factor related to support works in the
respective pipeline.
Simultaneously, the ENARGAS defined an efficiency factor (X)
of 4.6 % for Camuzzi Gas del Sur S.A. as from January 1, 1998,
which considers the improvements to be achieved in that
respect in the next five-year period, thus maintaining the
fair and reasonable profitability set forth by the Gas Law.
NOTE 16: EXTRAORDINARY LOSS
This item reflects the cost of the gas lost in the old network
of the General Mosconi neighborhood, in the city of Comodoro
Rivadavia, as of December 31, 1996.
This network was built by a local company with low quality
materials and without complying with the construction
standards in force for the construction of gas distribution
networks, resulting in several accidents. As a consequence of
this, a contract was entered into between the Municipality of
Comodoro Rivadavia, the above-mentioned company, and Camuzzi
Gas del Sur S.A., to renew the deteriorated network. As part
of this agreement, the customers would connect their inner
piping system to the new network.
Once the new network was built, the customers delayed their
connection citing economic difficulties. This situation led to
new negotiations with the Municipality, ENARGAS, the
construction company, and the customers who caused delays in
the discontinuance of the old network.
During the 1996 fiscal year, the operation of the damaged
network was discontinued, and gas is being supplied by the new
network for the benefit and safety of customers of the
above-mentioned neighborhood.
Furthermore, on December 31, 1996 the remainder balance
corresponding to claims arising from the collections of bills
due rendered by Camuzzi Gas del Sur S.A. as required by Gas
del Estado S.E. has been accounted for, pursuant to the
Transfer Contract Schedule XXI, net of the effect of such
items on the income tax.
<PAGE> 22
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED FIXED ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
SCHEDULE A
==========================================================================================================
VALUE AT
BEGINNING VALUE AT
OF YEAR ADDITIONS TRANSFERS WRITE-OFFS END OF YEAR
PRINCIPAL ACCOUNT (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land.................................... 486,716 10,834 1,060,465 (14,534) 1,543,481
Condominiums............................ 89,511 -- -- -- 89,511
Buildings............................... 12,220,752 -- (1,049,400) (141,503) 11,029,849
Facilities.............................. 8,237,946 2,734 -- -- 8,240,680
Gas pipelines........................... 67,538,831 -- 2,031,267 -- 69,570,098
Main and secondary pipelines............ 30,427,238 -- -- -- 30,427,238
Distribution networks................... 124,252,788 2,158,032 2,170,952 -- 128,581,772
Machinery and equipment................. 1,654,556 117,825 -- -- 1,772,381
Pressure reduction stations............. 4,963,236 -- 348,755 -- 5,311,991
Processing equipment.................... 6,077,442 -- (12,147) -- 6,065,295
Vehicles................................ 2,802,301 209,069 -- -- 3,011,370
Furniture and office equipment..........
Gas meters.............................. 713,453 25,929 -- -- 739,382
Gas cylinders........................... 17,373,164 70,235 955,019 (361,465) 18,036,953
Works in progress....................... 347,535 -- -- -- 347,535
Computer equipment...................... 4,480,233 5,676,677 (4,170,141) -- 5,986,769
Communications equipment................ 706,398 100,368 (253) -- 806,513
Material at warehouses.................. 2,969,262 20,177 (6,729) (20,740) 2,961,970
Advances to suppliers................... 2,348,711 2,580,549 (1,082,733) (1,352,540) 2,493,987
631,307 165,017 (245,055) -- 551,269
- ----------------------------------------------------------------------------------------------------------
Total at December 31, 1997.............. 288,321,380 11,137,446 -- (1,890,782) 297,568,044
- ----------------------------------------------------------------------------------------------------------
Total at December 31, 1996.............. 272,177,082 16,545,812 -- (401,514) 288,321,380
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE A
==================================================================================================================================
DEPRECIATION
-------------------------------------------------------------- NET CARRYING VALUE
CURRENT YEAR AT DECEMBER 31,
--------------------------------- -----------------------
ACCUMULATED ACCUMULATED
AT BEGINNING AT END
OF YEAR RATE(1) AMOUNT (2) WRITE-OFFS OF YEAR 1997 1996
PRINCIPAL ACCOUNT (PESOS) % (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Land.................................... -- -- -- -- -- 1,543,481 486,716
Condominiums............................ 12,771 2.00 3,376 -- 16,147 73,364 76,740
Buildings............................... 1,112,305 2.00 330,034 (11,320) 1,431,019 9,598,830 11,108,447
Facilities.............................. 773,794 3.00 293,608 -- 1,067,402 7,173,278 7,464,152
Gas pipelines........................... 12,801,153 3.00 3,293,767 -- 16,094,920 53,475,178 54,737,678
Main and secondary pipelines............ 4,499,352 3.00 1,120,843 -- 5,620,195 24,807,043 25,927,886
Distribution networks................... 15,549,261 3.00 4,432,225 -- 19,981,486 108,600,286 108,703,527
Machinery and equipment................. 413,369 4.00 116,458 -- 529,827 1,242,554 1,241,187
Pressure reduction stations............. 723,568 3.00 202,809 -- 926,377 4,385,614 4,239,668
Processing equipment.................... 1,013,135 3.00 274,510 -- 1,287,645 4,777,650 5,064,307
Vehicles................................ 1,048,852 10.00 346,724 -- 1,395,576 1,615,794 1,753,449
Furniture and office equipment..........
Gas meters.............................. 124,540 7.00 52,334 -- 176,874 562,508 588,913
Gas cylinders........................... 3,906,542 4.00 1,055,922 (117,803) 4,844,661 13,192,292 13,466,622
Works in progress....................... 61,410 3.00 16,859 -- 78,269 269,266 286,125
Computer equipment...................... 4,495 -- 911 -- 5,406 5,981,363 4,475,738
Communications equipment................ 443,288 20.00 165,933 -- 609,221 197,292 263,110
Material at warehouses.................. 496,799 3.33/20.00 205,460 -- 702,259 2,259,711 2,472,463
Advances to suppliers................... -- -- -- -- -- 2,493,987 2,348,711
-- -- -- -- -- 551,269 631,307
- ----------------------------------------------------------------------------------------------------------------------------------
Total at December 31, 1997........... 42,984,634 -- 11,911,773 (129,123) 54,767,284 242,800,760 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total at December 31, 1996........... 31,147,407 -- 11,890,158 (52,931) 42,984,634 -- 245,336,746
==================================================================================================================================
</TABLE>
- -------------------------
Note:
(1) Rate applied to additions for the year.
(2) The accounting allocation of depreciation charges for the year is described
in Schedule H.
<PAGE> 23
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INTANGIBLE ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
SCHEDULE B
===================================================================================
VALUE AT VALUE AT
PRINCIPAL ACCOUNT BEGINNING OF YEAR INCREASES END OF YEAR
(PESOS) (PESOS) (PESOS)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Organization and pre-operating
expenses and expenses relating
to the issuance of Notes........... 2,868,996 217,677 3,086,673
Software.............................. 62,564 113,638 176,202
---------------------------------------------
TOTAL AT DECEMBER 31, 1997............ 2,931,560 331,315 3,262,875
=============================================
TOTAL AT DECEMBER 31, 1996............ 1,911,131 1,020,429 2,931,560
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE B
==============================================================================================================================
AMORTIZATION
--------------------------------------------------------
NET CARRYING VALUE AT
CURRENT YEAR DECEMBER 31,
-------------------
ACCUMULATED AT ACCUMULATED AT
BEGINNING OF YEAR RATE AMOUNT(1) END OF YEAR 1997 1996
PRINCIPAL ACCOUNT (PESOS) % (PESOS) (PESOS) (PESOS) (PESOS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Organization and pre-operating
expenses and expenses relating
to the issuance of Notes...................... 936,994 20% 620,963 1,557,957 1,528,716 1,932,002
Software......................................... 7,610 20% 32,233 39,843 136,359 54,954
-----------------------------------------------------------------------------
TOTAL AT DECEMBER 31, 1997....................... 944,604 -- 653,196 1,597,800 1,665,075 --
=============================================================================
TOTAL AT DECEMBER 31, 1996....................... 515,279 -- 429,325 944,604 -- 1,986,956
==============================================================================================================================
</TABLE>
- ----------------------------------
Note:
(1) The accounting allocation of amortization charges for the year is described
in Schedule H.
<PAGE> 24
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
At December 31, 1997 and 1996
CONSOLIDATED INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE C
===========================================================================================================================
VALUE RECORDED AT DECEMBER 31,
------------------------------
NUMBER MARKET VALUE 1997 1996
ISSUER AND SECURITIES F.V. (PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT INVESTMENTS
Mutual investment funds
Provifondos......................................... -- -- -- 5,741,652
Superfondos Ahorro in Pesos Santander............... -- -- -- 5,515,630
Shares
INDUPA S.A.I.C...................................... 14,710 1.2000 17,652 16,917
Argentina Government Bond (Schedule G)................. -- -- 117,314 226,571
------------------------------
TOTAL CURRENT INVESTMENTS................................ 134,966 11,500,770
------------------------------
NON-CURRENT INVESTMENTS
Argentina Government Bond (Schedule G)................... -- 115,000
-- --
------------------------------
TOTAL NON-CURRENT INVESTMENTS............................ -- 115,000
------------------------------
TOTAL INVESTMENTS........................................ 134,966 11,615,770
===========================================================================================================================
</TABLE>
<PAGE> 25
SODIGAS SUR AND ITS SUBSIDIARY COMPANY
OTHER CONSOLIDATED INVESTMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
SCHEDULE D
==========================================================================================
VALUE RECORDED AT DECEMBER 31,
===============================
1997 1996
PRINCIPAL ACCOUNT AND CHARACTERISTICS (PESOS) (PESOS)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT INVESTMENTS
Fixed-term deposits in local currency (Schedule G)....... 11,771,325 7,939,200
---------- ---------
Total.................................................... 11,771,325 7,939,200
========================================================================================
</TABLE>
<PAGE> 26
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED ALLOWANCES
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
SCHEDULE E
=================================================================================================================================
BALANCES AT DECEMBER 31,
---------------------------
BALANCES AT
BEGINNING OF YEAR ADDITIONS DECREASES 1997 1996
ITEM (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
Allowance for defaulting debtors.......... 3,850,460 1,044,122(1) (75,000) 4,819,582 3,850,460
DEDUCTED FROM LIABILITIES
Provisions for legal actions.............. 163,116 2,076,838(2) -- 2,239,954 163,116
- ---------------------------------------------------------------------------------------------------------------------------------
Total......................................... 4,013,576 3,120,960 (75,000) 7,059,536 4,013,576
=================================================================================================================================
</TABLE>
- --------------------------
Notes:
(1) Pesos 1,044,122 are charged to Marketing Expenses (Schedule H).
(2) Pesos 1,601,838 are charged to Other Expenses (Note 4.f).
Pesos 400,000 arise from Tax Payables.
Pesos 75,000 correspond to the reclassification of Bad Debts.
<PAGE> 27
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED COST OF SALES
For the fiscal years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SCHEDULE F
=========================================================================================
DECEMBER 31,
============================
1997 1996
(PESOS) (PESOS)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Inventories at beginning of year........................... 428,975 693,334
Plus:
Gas purchases..................................... 100,466,674 104,720,179
Acquisition of transportation capacity............ 22,358,705 24,710,984
Expenses (per breakdown in Schedule H)............ 26,330,381 24,098,072
Less:
Inventories at end of year........................ 1,028,741 428,975
----------------------------
Cost of sales.............................................. 148,555,994 153,793,594
=========================================================================================
</TABLE>
<PAGE> 28
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
At December 31, 1997 and 1996
FOREIGN CURRENCY ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SCHEDULE G
====================================================================================================================================
TYPE AND AMOUNT AMOUNT IN ARGENTINE CURRENCY AT DECEMBER 31,
OF FOREIGN CURRENCY CURRENT
U.S.$ EXCHANGE RATE ---------------------------------------------
1997 1996
----------------------------------------------------------------------------------------
(Pesos) (Pesos)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and banks.................. 229,353 1.0000 229,353 900,006
Investments..................... 3,272,564 1.0000 3,272,564 3,379,196
----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS..................... 3,501,917 -- 3,501,917 4,279,202
----------------------------------------------------------------------------------------
NON-CURRENT ASSETS
Investments..................... -- -- -- 115,000
----------------------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS................. -- -- -- 115,000
----------------------------------------------------------------------------------------
TOTAL ASSETS............................. 3,501,917 -- 3,501,917 4,394,202
========================================================================================
CURRENT LIABILITIES
Suppliers....................... 1,077,156 1.0000 1,077,156 2,032,590
Bank loans...................... 2,171,423 1.0000 2,171,423 2,024,993
Notes - Interest payable........ 3,252,845 1.0000 3,252,845 3,304,807
Other........................... -- -- -- 830,401
----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES................ 6,501,424 -- 6,501,424 8,192,791
----------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Loans
Notes........................... 110,557,000 1.0000 110,557,000 110,557,000
----------------------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES............ 110,557,000 -- 110,557,000 110,557,000
----------------------------------------------------------------------------------------
TOTAL LIABILITIES........................ 117,058,424 -- 117,058,424 118,749,791
====================================================================================================================================
</TABLE>
<PAGE> 29
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
INFORMATION REQUIRED UNDER ART. 64, CLAUSE (b) OF LAW 19,550
At December 31, 1997 and 1996
<TABLE>
<CAPTION>
SCHEDULE H
====================================================================================================================================
TOTAL AT ADMINISTRATIVE MARKETING TOTAL AT
DECEMBER 31, 1997 COST OF SALES EXPENSES EXPENSES DECEMBER 31, 1996
ITEMS PS. PS. PS. PS. PS.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fees for services............................ 4,797,644 2,908,891 1,888,753 -- 4,216,349
Salaries and wages........................... 12,569,133 5,279,036 4,776,271 2,513,826 11,059,595
Contributions................................ 3,305,848 1,388,456 1,256,222 661,170 3,133,221
Transportation expenses...................... 629,276 264,296 239,125 125,855 746,548
Taxes and assessments........................ 1,777,395 452,370 1,098,840 226,185 1,217,607
Depreciation of fixed assets................. 11,911,773 11,249,457 441,544 220,772 11,890,158
Amortization of intangible assets............ 653,196 -- 653,196 -- 429,325
Hired services............................... 3,727,385 1,932,565 1,327,158 467,662 3,497,753
Postage, communications and data processing.. 1,089,984 353,250 560,109 176,625 1,443,559
Liquid processing............................ 240,722 240,722 -- -- --
Miscellaneous................................ 3,514,337 2,261,338 704,893 548,106 3,151,136
Defaulting debtors........................... 1,044,122 -- -- 1,044,122 828,765
Advertising.................................. 117,395 -- -- 117,395 166,541
-------------------------------------------------------------------------------
TOTAL AT DECEMBER 31, 1997................... 45,378,210 26,330,381 12,946,111 6,101,718 --
-------------------------------------------------------------------------------
TOTAL AT DECEMBER 31, 1996................... -- 24,098,072 11,998,626 5,683,859 41,780,557
====================================================================================================================================
</TABLE>
<PAGE> 30
ANNEX I
SODIGAS SUR S.A. AND SUBSIDIARY COMPANY
UNITED STATES GAAP RECONCILIATION
<TABLE>
<CAPTION>
As of
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP $ 161,073,757
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Initial carrying value of assets (18,508,860)
Contribution of gas networks (42,142,655)
Capitalization of interest 2,647,901
Depreciation expense 6,799,628
Intangible assets amortization (292,765)
Gross sales tax settlement (114,043)
Regulatory issues (685,831)
Deferred income taxes (1,465,358)
Technical assistance fee 3,493,253
Minority interest 5,049,467
-------------
Approximate total shareholders' equity under U.S. GAAP $ 115,854,494
=============
</TABLE>
<PAGE> 31
SODIGAS SUR S.A. AND SUBSIDIARY COMPANY
UNITED STATES GAAP RECONCILIATION
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF NET INCOME:
Net income under Argentine GAAP $ 15,288,264
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Depreciation expense 1,477,091
Capitalization of interest 142,626
Intangible assets amortization 172,155
Gross sales tax settlement (38,401)
Regulatory issues 361,849
Deferred income taxes (11,953,076)
Technical assistance fee (152,145)
Minority interest 986,778
------------
Approximate net income under U.S. GAAP $ 6,285,141
============
</TABLE>
<PAGE> 1
Exhibit 99.9(3)
EXHIBIT I(2)(c)
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended December 31, 1997 and 1996
<PAGE> 2
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND 1996 (NOTES 1 AND 2)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996
--------------- --------------
(PESOS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks (Schedule G).......................................... 5,232,747 5,777,047
Investments (Schedules C and D)...................................... 29,254,246 37,122,469
Trade accounts receivable (Note 4.a.)................................ 40,123,437 57,976,789
Intercompany receivables (Note 5).................................... 13,539,801 2,141,923
Other accounts receivable (Note 4.b.)................................ 5,439,677 2,394,678
Inventories (Schedule F)............................................. 37,142 54,000
--------------- --------------
TOTAL CURRENT ASSETS................................................. 93,627,050 105,466,906
--------------- --------------
NON-CURRENT ASSETS
Other accounts receivable (Note 4.b)................................. 27,981,507 26,012,932
Investments (Schedule C)............................................. -- 115,000
Fixed assets (Schedule A)............................................ 496,258,573 491,108,119
Intangible assets (Schedule B)....................................... 3,206,505 3,531,674
--------------- --------------
TOTAL NON-CURRENT ASSETS............................................. 527,446,585 520,767,725
--------------- --------------
TOTAL ASSETS......................................................... 621,073,635 626,234,631
=============== ==============
LIABILITIES
CURRENT LIABILITIES
Suppliers (Schedule G)............................................... 26,647,294 31,488,312
Loans (Note 7 and Schedule G)........................................ 13,219,071 12,170,138
Intercompany payable (Note 5)........................................ 664,253 1,586,435
Salaries and social security liabilities ............................ 2,761,026 2,350,735
Taxes payable (Notes 10 and 11)...................................... 22,930,115 19,245,309
Other liabilities (Note 4.c.)........................................ 5,531,005 13,966,576
Provisions (Schedule E).............................................. 843,566 245,601
--------------- --------------
TOTAL CURRENT LIABILITIES............................................ 72,596,330 81,053,106
--------------- --------------
NON-CURRENT LIABILITIES
Loans (Note 7 and Schedule G)........................................ 173,069,971 169,654,619
Taxes payable (Notes 10 and 11)...................................... 8,140,205 14,051,560
Other liabilities (Note 4.c)......................................... 7,808,234 5,794,775
--------------- --------------
TOTAL NON-CURRENT LIABILITIES........................................ 189,018,410 189,500,954
--------------- --------------
TOTAL LIABILITIES.................................................... 261,614,740 270,554,060
--------------- --------------
Minority interests in subsidiary companies........................... 134,880,630 130,983,430
SHAREHOLDERS' EQUITY................................................. 224,578,265 224,697,141
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... 621,073,635 626,234,631
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 3
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the fiscal years ended December 31, 1997 and 1996 (Notes 1 and 2)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- -----------------
(PESOS)
<S> <C> <C>
Net sales (Note 4.d)................................................. 372,421,725 350,785,621
Cost of sales (Schedule F)........................................... (291,380,493) (279,633,179)
----------------- -----------------
GROSS PROFIT................................................ 81,041,232 71,152,442
----------------- -----------------
Marketing expenses (Schedule H)...................................... (9,481,477) (7,488,667)
Administrative expenses (Schedule H)................................. (20,973,995) (21,401,358)
----------------- -----------------
OPERATING PROFIT............................................ 50,585,760 42,262,417
----------------- -----------------
Other income and expenses (Note 4.f)................................. (1,130,943) 899,697
Financial and holding gain/(loss)
Generated by assets (Note 4.e).............................. 6,039,444 4,013,021
Generated by liabilities (Note 4.e)......................... (20,050,265) (16,890,706)
Income tax........................................................... (18,161,373) (11,755,419)
Minority interests in subsidiary companies........................... (8,023,163) (8,138,695)
----------------- -----------------
ORDINARY INCOME............................................. 9,259,460 10,390,315
Extraordinary loss (Notes 4.g)....................................... (480,000) (80,400)
Minority interests in subsidiary companies........................... 141,664 23,729
----------------- -----------------
NET INCOME FOR THE YEAR..................................... 8,921,124 10,333,644
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended December 31, 1997 and 1996 (Notes 1 and 2)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
--------------- ---------------
(PESOS)
<S> <C> <C>
CHANGES IN FUNDS
Funds at beginning of year.......................................... 42,672,945 24,864,791
(Decrease)/Increase in funds........................................ (8,245,952) 17,808,154
--------------- ---------------
Funds at end of year................................................ 34,426,993 42,672,945
--------------- ---------------
SOURCES OF FUNDS
Income for the year................................................. 9,259,460 10,390,315
Plus: Items not entailing the use of funds
Decrease in inventories.................................... 16,858 115,000
Fixed asset depreciation................................... 22,937,071 22,406,722
Write-off of fixed assets.................................. 2,936,645 1,770,193
Intangible asset amortization.............................. 1,182,130 761,330
Changes in tax receivables ................................ -- 161,345
Allowance for vacations and bonuses........................ 1,864,624 1,337,539
Accrued gross income taxes................................. 1,858,849 331,463
Allowance for Income taxes................................. 18,161,373 11,755,419
Accrued net financial loss pending payment................. 5,058,722 5,612,083
Accrued purchases pending payment.......................... 24,740,989 28,190,015
Fees for services and financial advice..................... 282,014 99,938
Intercompany fees and expenses............................. 434,959 604,969
Other liabilities and fees pending payment................. 13,868 36,052
Increase in provision for lawsuits......................... 572,965 287,828
Increase in allowance for defaulting debtors............... 1,645,509 394,352
--------------- ---------------
81,706,576 73,864,248
Less: Items not entailing sources of funds
Accrued sales pending collection........................... (40,079,679) (56,871,845)
Intercompany sales......................................... (10,314,615) (1,300,000)
Recovery of intercompany expenses.......................... (1,486,105) (410,523)
Result from purchase of shares............................. -- (4,891)
--------------- ---------------
(51,880,399) (58,587,259)
Minority interests in subsidiary companies................. 8,023,163 8,138,695
--------------- ---------------
Funds generated by operations - Carried forward............ 47,108,800 33,805,999
--------------- ---------------
</TABLE>
<PAGE> 5
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the fiscal years ended December 31, 1997 and 1996 (Notes 1 and 2)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ----- ---------------
1997 1996
--------------- ---------------
(PESOS)
<S> <C> <C>
Funds generated by operations - Brought forward..................... 47,108,800 33,805,999
--------------- ---------------
Extraordinary loss of the year...................................... (338,336) (56,671)
Plus: Items not entailing the use of funds..........................
Loss per Schedule XXI - Transfer Contract.................. -- 120,000
Allowance for uncollectible funds deposited in Banco de 480,000 --
Credito Provincial S.A.....................................
Less: Items not entailing sources of funds
Tax benefit................................................ -- (39,600)
Minority interest in subsidiary companies.................. (141,664) (23,729)
--------------- ---------------
Funds originated from extraordinary operations...................... -- --
--------------- ---------------
Funds originated from operations.................................... 47,108,800 33,805,999
--------------- ---------------
OTHER SOURCES OF FUNDS
Changes in other receivables............................... 152,921 --
Increase in bank loans..................................... 8,075,000 31,096,990
Decrease in trade accounts receivable...................... 58,797,223 69,158,833
Decrease in investments.................................... 281,571 154,429
Increase in intercompany liabilities....................... 12,048 854,779
Decrease in intercompany receivables....................... 1,494,938 --
--------------- ---------------
Total other sources of funds........................................ 68,813,701 101,265,031
--------------- ---------------
Total sources of funds.............................................. 115,922,501 135,071,030
--------------- ---------------
APPLICATIONS OF FUNDS
Acquisition of fixed assets................................ (24,496,443) (20,498,690)
Increase in other receivables.............................. (6,150,600) (3,281,826)
Increase in intangible assets.............................. (613,598) (1,845,438)
Increase in intercompany receivables....................... -- (126,107)
Decrease in intercompany liabilities....................... (1,502,947) (1,169,618)
Decrease in tax payables................................... (24,040,201) (25,667,921)
Decrease in salaries and social security liabilities....... (1,454,333) (2,261,545)
Payment of lawsuits........................................ (95,000) --
Decrease in loans.......................................... (12,169,439) (9,575,196)
Dividends paid............................................. (12,979,297) (14,880,000)
Directors' fees paid....................................... (145,000) --
Changes in tax receivables................................. -- (210,296)
Decrease in other accounts payable and other liabilities... (9,063,336) (6,008,261)
Decrease in suppliers...................................... (31,458,259) (31,737,978)
--------------- ---------------
Total applications of funds......................................... (124,168,453) (117,262,876)
--------------- ---------------
(Decrease)/Increase in funds........................................ (8,245,952) 17,808,154
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended December 31, 1997 and 1996
NOTE 1: FINANCIAL STATEMENT PRESENTATION
As required by General Resolution No. 290/97 of the Comision
Nacional de Valores (the "CNV"), which establishes that
consolidated financial statements must be submitted following
the procedure outlined in Technical Resolution No. 4 of the
Argentine Federation of Professional Councils of Economic
Sciences, the Balance Sheets of the Company at December 31,
1997 and 1996, and the Statements of Income and Cash Flows for
the fiscal years then ended have been consolidated on a
line-by-line basis with the financial statements of the
subsidiary.
Non-monetary items included in the Financial Statements at
December 31, 1997 and 1996, have been restated in current
Pesos up to August 31, 1995. No adjustments have been applied
since such date.
The information at December 31, 1996, has been reclassified,
for comparative purposes, to be consistent with that of the
current fiscal year.
The December 31, 1997 financial statements of the Subsidiary,
Camuzzi Gas Pampeana S.A., which cover the same fiscal year as
that of its Controlling Company, Sodigas Pampeana S.A., have
been used in order to determine the equity value and carry out
the consolidation.
NOTE 2: VALUATION CRITERIA
The financial statements of the subsidiary have been prepared
based on criteria consistent with those applied for preparing
the financial statements of Sodigas Pampeana S.A.
In addition, the principal valuation and disclosure criteria
used for the preparation of the consolidated financial
statements at December 31, 1997 and 1996, are as follows:
a. Local currency assets and liabilities
The local currency assets and liabilities have been
stated at their face value at the balance sheet date,
including accrued interest.
The implicit cost of financing contained in the
monetary assets and liabilities has not been
segregated as it is not deemed significant.
b. Foreign currency assets and liabilities
Foreign currency assets and liabilities were
translated at the exchange rate prevailing on the
balance sheet date, including accrued interest.
c. Investments
Current
These are the following:
- Shares which have been valued at their market value
at balance sheet date.
- Participation in investment funds, which have been
valued at balance sheet date.
- Fixed-term deposits, which have been valued at
their original amount plus interest accrued up to the
closing date.
- Argentina Government Bond, which has been valued at
cost, plus interest accrued as of the end of the
fiscal year.
<PAGE> 7
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Non-current
Non-current investments as of December 31, 1996
correspond to the Argentina Bond, which has been
valued at cost, plus interest accrued as of the end
of the fiscal year.
d. Other assets to be recovered from customers
These assets stem from agreements signed by Camuzzi
Gas Pampeana S.A. with provinces, municipalities and
other entities, to be recovered from customers who
are currently connected, or will be connected in the
future, to the network pursuant to the agreements.
These were agreed upon in cubic meters of gas and
have been valued at the average tariff for gas
distributed.
e. Inventories
These have been valued at their replacement cost at
the end of the fiscal year; the value thereof does
not exceed their recoverable value.
f. Fixed assets
The fixed assets transferred by Gas del Estado at the
beginning of the operations of Camuzzi Gas Pampeana
S.A. have been valued in an overall manner, according
to the contract for the transfer of the Company's
shares by Gas del Estado. This value has been
restated in current Pesos as at August 31, 1995.
The aforementioned value was recalculated for each
individual fixed asset, based on the stocktaking and
valuation carried out during the fiscal year ended
December 31, 1993 by independent consultants.
Additions carried out after such date and up to
August 31, 1995, were valued at their acquisition
cost, restated in current Pesos at such date. As from
September 1, 1995, additions have been valued at
their acquisition cost in current Pesos of the
corresponding period.
Up to September 30, 1995, additions of gas
distribution networks in favor of the Licensee
Company made free of charge, were recorded at their
replacement cost at the time of the transfer under
the item "Other Income".
According to resolutions of the CNV adopted in the
meetings held on July 28 and August 16, 1995, the gas
distribution networks transferred free of charge or
partially funded by third parties after September 30,
1995, shall be recorded at the lower of their
construction cost or the cost set for the transfer
and their value to the business.
In the case that the value of the asset added exceeds
the value of the consideration assumed by the
Licensee, or if such consideration does not exist
(free of charge), a cross-entry shall be recorded in
an adjustment account, which is shown deducted from
the Fixed Assets, whose depreciation criteria is
equivalent to that of the asset added.
The obligation to partially or totally compensate
third parties is recorded as a liability of the
Company.
The values thus determined are disclosed net of the
corresponding accumulated depreciation, calculated
using the straight-line method, based on the
estimated useful lives of the assets.
The value of the Fixed Assets, taken as a whole, does
not exceed their recoverable value.
g. Intangible assets
This caption includes the purchase of computer
software and expenses in relation to the programs for
the issuance of the Notes by Sodigas Pampeana S.A.
and its subsidiary, to be amortized over a five-year
period.
Additions of Intangible Assets made up to August 31,
1995 are recorded at their acquisition cost restated
in current Pesos at such date, while additions
carried out after September 1, 1995 are disclosed at
their acquisition cost in current Pesos of the
corresponding period, in both cases net of their
corresponding cumulative amortization, calculated
according to the straight-line method.
<PAGE> 8
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
h. Shareholders' equity
The Capital Stock has been stated at its nominal
value. The Capital Stock Adjustment represents the
difference between the nominal value of the capital
stock and its value adjusted, based on the
fluctuation in the general wholesale price index up
to August 31, 1995.
Changes in net worth prior to August 31, 1995 are
restated as of that date, while subsequent changes
are stated in the currency value of the corresponding
period.
i. Profit/(loss) accounts
Profit/(loss) for the fiscal year is disclosed at
historical values, except for the charges for assets
consumed (fixed asset depreciation and intangible
asset amortization), which were determined according
to the values of such assets.
j. Accounting recognition of income
The income stemming from gas distribution activities
is recognized when the service is rendered and
charged to the "Unbilled gas consumption" account.
k. Statement of Cash Flows
The Statement of Cash Flows is presented using the
Indirect Method of Alternative D of Technical
Resolution No. 9 of the Argentine Federation of
Professional Councils of Economic Sciences,
considering Cash and Banks and Short-Term Investments
as funds.
NOTE 3: CORPORATE CONTROL
Sodigas Pampeana S.A. owns 70.486676% of the shares of Camuzzi
Gas Pampeana S.A.
NOTE 4: BREAKDOWN OF ITEMS
Consolidated Balance Sheet
a. Trade accounts receivable
<TABLE>
<CAPTION>
Fiscal years ended December 31,
--------------------------------------------------
1997 1996
--------------------- ----------------------
(Pesos)
<S> <C> <C>
Trade debtors................................................ 23,920,721 34,880,465
Subsidies receivable......................................... 4,222,990 7,154,079
Unbilled gas consumption..................................... 18,755,032 24,585,135
--------------------- ----------------------
SUBTOTAL..................................................... 46,898,743 66,619,679
Less: Allowance for defaulting debtors (Schedule E)......... (6,775,306) (8,642,890)
--------------------- ----------------------
TOTAL........................................................ 40,123,437 57,976,789
===================== ======================
</TABLE>
<PAGE> 9
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
b. Other accounts receivable
<TABLE>
<CAPTION>
Fiscal years ended December 31,
-------------------------------------------------
1997 1996
------------------- ----------------------
CURRENT (Pesos)
<S> <C> <C>
Receivables to be recovered from customers (Note 2.d).............. 301,552 466,128
Miscellaneous advance payments..................................... 166,081 47,032
Prepaid expenses................................................... 73,485 185,064
Tax receivables ................................................... 19,698 160,243
Guarantee deposits................................................. 79,775 1,075,834
Judicial deposits.................................................. 216,400 83,078
Receivables to be recovered for additional transportation
charges............................................................ 991,772 --
Receivables to be recovered per Section 41 Law 24,076 (Note 10).... 2,568,842 --
Miscellaneous (Schedule G)......................................... 377,142 377,299
Restricted funds (Note 8.b)........................................ 644,930 --
------------------- ----------------------
TOTAL.............................................................. 5,439,677 2,394,678
------------------- ----------------------
NON-CURRENT
Receivables to be recovered from customers (Note 2.d).............. 494,862 495,314
Receivables to be recovered per Section 41 Law 24,076 (Note 10).... 26,279,763 25,488,323
Miscellaneous...................................................... 182,044 29,295
Restricted funds (Note 8.b)........................................ 1,504,838 --
------------------- ----------------------
Subtotal........................................................... 28,461,507 26,012,932
------------------- ----------------------
Less: Allowances for uncollectible funds deposited in Banco
de Credito Provincial S.A. (Note 8.b. and Schedule E).............. (480,000) --
------------------- ----------------------
Total.............................................................. 27,981,507 26,012,932
=================== ======================
</TABLE>
<PAGE> 10
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
c. Other liabilities
<TABLE>
<CAPTION>
Fiscal years ended December 31,
--------------------------------------------------
1997 1996
--------------------- ---------------------
CURRENT (Pesos)
<S> <C> <C>
Gas-in-kind payable.......................................... 2,742,271 4,892,829
Reimbursements to be transferred for additional
transportation charges...................................... 203,519 --
Consumer secured deposits.................................... 245,465 212,815
Liability to YPF S.A. (Schedule G)........................... -- 4,183,687
Debt on account of purchase of shares........................ -- 2,238,360
Interim dividends on transferred shares...................... -- (95,389)
Other accounts payable....................................... 2,339,750 2,534,274
--------------------- ---------------------
TOTAL........................................................ 5,531,005 13,966,576
--------------------- ---------------------
NON-CURRENT
Gas-in-kind payable.......................................... 7,807,234 5,793,775
Other accounts payable....................................... 1,000 1,000
--------------------- ---------------------
TOTAL........................................................ 7,808,234 5,794,775
===================== =====================
</TABLE>
Statement of income
d. Net sales
<TABLE>
<CAPTION>
Fiscal years ended December 31,
--------------------------------------------------
1997 1996
---------------------- ---------------------
(Pesos)
<S> <C> <C>
Gas sales..................................................... 377,250,834 355,693,790
Sales of other items.......................................... 1,751,388 1,202,950
Direct taxes on sales......................................... (6,580,497) (6,111,119)
====================== =====================
TOTAL......................................................... 372,421,725 350,785,621
====================== =====================
</TABLE>
<PAGE> 11
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
e. Financial and holding gain/(loss)
<TABLE>
<CAPTION>
Fiscal years ended December 31,
--------------------------------------------------
1997 1996
--------------------- ----------------------
GENERATED BY ASSETS (Pesos)
<S> <C> <C>
Interest..................................................... 5,808,394 3,851,315
Income from securities and shares............................ 72,937 11,455
Exchange differences......................................... 145,873 103,540
Discounts obtained........................................... 12,240 46,711
--------------------- ----------------------
TOTAL........................................................ 6,039,444 4,013,021
--------------------- ----------------------
GENERATED BY LIABILITIES
Interest..................................................... (19,998,718) (16,855,950)
Exchange differences......................................... (3,988) (22,377)
Miscellaneous................................................ (47,559) (12,379)
---------------------- ---------------------
TOTAL........................................................ (20,050,265) (16,890,706)
---------------------- ---------------------
FINANCIAL AND HOLDING LOSS................................... (14,010,821) (12,877,685)
====================== =====================
</TABLE>
f. Other income and expenses
<TABLE>
<CAPTION>
Fiscal years ended December 31,
--------------------------------------------------
1997 1996
--------------------- ----------------------
OTHER INCOME (Pesos)
<S> <C> <C>
Commissions for collection charges on behalf of third parties 103,409 265,096
Result from purchase of shares............................... -- 4,891
Miscellaneous................................................ 48,905 16,787
Net fees for financial advice and management................. -- 1,120,167
--------------------- ----------------------
TOTAL........................................................ 152,314 1,406,941
--------------------- ----------------------
OTHER EXPENSES
Lawsuits Expenses............................................ (670,084) (287,828)
Miscellaneous................................................ (613,173) (219,416)
--------------------- ----------------------
TOTAL........................................................ (1,283,257) (507,244)
--------------------- ----------------------
TOTAL OTHER INCOME AND EXPENSES.............................. (1,130,943) 899,697
===================== ======================
</TABLE>
<PAGE> 12
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
g. Extraordinary income/(loss)
<TABLE>
<CAPTION>
<S> <C> <C>
Uncollectibility of funds deposited in Banco de Credito
Provincial S.A. (Schedule E).................................. (480,000) --
Loss per Schedule XXI - Gas del Estado S.E.
Transfer Contract ............................................ -- (120,000)
Tax benefit related to extraordinary loss .................... -- 39,600
------------------- ---------------------
Total extraordinary loss...................................... (480,000) (80,400)
=================== =====================
</TABLE>
<PAGE> 13
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: INTERCOMPANY OPERATIONS
<TABLE>
<CAPTION>
Fiscal years ended December 31,
-------------------------------------------------
Income/(loss) accounts 1997 1996
--------------------- ----------------------
(Pesos)
<S> <C> <C>
CAMUZZI GAS DEL SUR S.A.
Propane gas sales......................................... 1,033,325 435,291
Administrative and personnel services..................... 3,099,313 3,010,048
Purchase of gas and transportation........................ (8,549) (22,602)
CAMUZZI ARGENTINA S.A.
Loss from technical assistance and professional fees...... (4,567,874) (4,012,475)
Financial assistance and advice........................... -- 1,300,000
Maintenance service of computer systems................... (622,128) (361,958)
Recovery of expenses incurred for administrative
financial advice.......................................... 534,180 --
CAMUZZI GAZOMETRI S.P.A
Administrative expenses collected......................... -- 70,802
LOMA NEGRA C.I.A.S.A
Gas sales................................................. 13,736,910 11,661,640
AGUAS DE BALCARCE S.A.
Administrative and personnel expenses..................... 7,440 7,440
AGUAS DE LAPRIDA S.A.
Administrative and personnel services..................... 3,096 --
EMPRESA DISTRIBUIDORA DE ENERGIA ATLANTICA S.A.
Gas sales................................................. 15,687 --
Purchases of electricity.................................. (29,981) --
CENTRAL PIEDRABUENA S.A.
Gas sales................................................. 14,833,171 --
OTHER OPERATIONS
CAMUZZI ARGENTINA S.A.
Capitalized fees paid on account of management and work
direction and inspection services....................... 284,170 --
Software acquisition...................................... 390,802 --
Technical advisory services capitalized in works in
progress.................................................. 597,334 --
RECEIVABLES
Aguas de Balcarce S.A..................................... -- 1,467
Aguas de Laprida S.A...................................... 3,059 --
Camuzzi Gas del Sur S.A................................... 1,318,660 769,654
Camuzzi Argentina S.A..................................... -- 1,300,000
Camuzzi Gazometri S.p.A................................... -- 70,802
Central Piedrabuena S.A................................... 12,129,527 --
Empresa Distribuidora de Energia Atlantica S.A............ 88,555 --
--------------------- ----------------------
Total..................................................... 13,539,801 2,141,923
===================== ======================
PAYABLES
Aguas de Balcarce S.A..................................... 12,011 --
Camuzzi Argentina S.A..................................... 652,242 1,586,435
--------------------- ----------------------
Total..................................................... 664,253 1,586,435
===================== ======================
</TABLE>
<PAGE> 14
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: MANDATORY INVESTMENTS OF THE SUBSIDIARY
Chapter IV of the Distribution License states that the
Subsidiary, Camuzzi Gas Pampeana S.A., must undertake a
five-year plan from 1993 to 1997, which includes investments
in network pipelines, services, protection against rust and
corrosion, communications equipment and SCADA (centralized
telemeasurement and control equipment system).
The amounts of the investments, as set by the License for each
year, are the following:
YEAR U.S.$
------------- ---------------
1993 6,104,000
1994 7,793,000
1995 7,460,000
1996 7,074,000
1997 8,679,000
---------------
Total 37,110,000
===============
The Licensee has fulfilled in due time and manner the
mandatory investments for 1993, 1994, and 1996, and was
notified of such fulfillment by ENARGAS following an operating
audit of such investments. As a consequence of the differences
in criteria regarding the investments corresponding to the
year 1995, the Regulatory Authority has determined the
creation of a guarantee deposit by Camuzzi Pampeana S.A. for
an amount of U.S.$216,400 until the situation is settled.
Mandatory investments for the year 1997 are under examination
by the Regulatory Authority.
NOTE 7: ISSUANCE OF NOTES BY THE SUBSIDIARY
On December 11, 1996, together with Camuzzi Gas del Sur S.A.,
Camuzzi Gas Pampeana S.A. issued jointly and severally Notes
not convertible into shares under a Medium-Term-Note Program
which was approved by Resolution No. 136 of the CNV dated
December 6, 1996.
Such issue was approved by the Board of Directors of the
Licensee on November 12, 1996; the main purpose of this issue
was to provide Camuzzi Gas Pampeana S.A. with an important
availability of funds in order to (i) refinance Series B of
the Notes in an aggregate principal amount of U.S.$90,000,000
issued jointly and severally with Camuzzi Gas del Sur S.A.
under the Notes Program approved by the Company's
Shareholders' Meeting dated October 25, 1993; (ii) develop its
investment plans; (iii) pay up working capital and (iv)
refinance other liabilities.
The conditions for the issuance are as follows:
. Aggregate principal amount: U.S.$130,000,000
. Percentage corresponding to Camuzzi Gas Pampeana S.A.:
61.11%
. Interest rate: 9 1/4%, payable semi-annually in arrears.
. Price: 99.80 %.
. Maturity of principal: December 15, 2001.
The aforementioned program was created under a joint issuance
with Camuzzi Gas del Sur S.A., and the two companies will be
jointly and severally liable for the payment of interest and
principal.
On May 9, 1997, the issued Notes were registered before the
United States Securities and Exchange Commission (SEC).
The main restrictions under the offering circular for the
issuance of Notes are the following:
(a) Limitations on Liens: neither of the Issuers shall,
nor shall either of the Issuers permit any of their
respective Subsidiaries to, incur, assume or suffer
the existence of, any lien upon its property, assets
or revenues, whether now owned or hereafter acquired,
securing any indebtedness of any person, unless the
Notes are equally and ratably secured by such Liens,
except for:
(i) Liens existing on the Issue Date of the
Notes:
(ii) Liens for taxes or other governmental
charges not yet due or which are being
contested in good faith by appropriate
proceedings; provided that adequate reserves
with respect thereto are maintained on the
books of such Issuer or such Subsidiary, as
the case may be, in conformity with
Argentine professional accounting standards;
<PAGE> 15
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iii) Liens on all or part of any property, assets
(including, without limitation, equity
interests) or revenues to secure
indebtedness incurred solely for purposes of
financing the acquisition, construction or
installation thereof incurred concurrently
with or within 120 days after the completion
of such acquisition, construction or
installation, or liens on any property,
assets (including, without limitation,
equity interests) or revenues existing on
the date of the acquisition thereof;
(iv) Liens arising in the ordinary course of
business which do not secure indebtedness
and which (A) are not in effect for a period
of more than 60 days, (B) are being
contested in good faith by appropriate
proceedings, which have the effect of
preventing the forfeiture or sale of the
property or the assets subject to any such
lien, or (C) secure an obligation of less
than U.S.$1,000,000;
(v) Any attachment or judgment lien, unless (A)
within 60 days after the entry thereof, its
discharge has not been filed or execution
thereof stayed pending appeal, (B) shall not
have been discharged within 60 days after
the expiration of any such stay or (C) is
for an amount less than U.S.$1,000,000;
(vi) Liens created or deposits made to secure the
performance of bids, trade contracts,
leases, statutory obligations, surety and
appeal bonds and other obligations of a like
nature incurred in the ordinary course of
business;
(vii) Any lien imposed by operation of mandatory
provisions of applicable law that do not
materially affect the Shareholders' Equity
of the Issuers to perform their respective
obligations under the Notes or Indenture;
(viii) Liens other than those described in the
foregoing clauses (i) through (vii) upon the
property, assets or revenues of either or
both of the Issuers or any of their
respective Subsidiaries securing
indebtedness in an aggregate principal
amount not in excess of U.S.$10,000,000 (or
its equivalent in other currencies) at any
time outstanding; and
(ix) Any extension, renewal or replacement, in
whole or in part, of any lien described in
the foregoing clauses (i) through (viii),
provided that (A) such extension, renewal or
replacement does not extend to any property
other than that originally subject to the
liens being extended, renewed or replaced
and (B) the principal amount of the
indebtedness secured by such lien is not
increased.
(b) Maintenance of the Net Worth to Consolidated Indebtedness
Ratio: Neither of the Issuers shall permit the ratio of its
Net Worth to its Consolidated Indebtedness to be less than 1
to 1.
(c) Restrictions on Sale and Lease-Back Agreement: Neither of the
Issuers shall, nor shall either of the Issuers permit any
Subsidiary to, enter into any Sale and Lease-Back Agreement
with respect to any property unless (i) such agreement
involves a lease for a term of no more than three years by the
end of which it is intended that the use of such property by
the lessee shall be discontinued, (ii) such agreement is
between the Issuers, or between either or both of the Issuers
and a Subsidiary, or between Subsidiaries, (iii) the Issuers
or any Subsidiary would not be entitled to incur indebtedness
secured by a mortgage on the property involved in such
agreement at least equal in amount to the Attributable Debt
with respect to such Sale and Lease-Back Agreement, without
equally and ratably securing the Notes, (iv) the proceeds of
such agreement are at least equal to the fair market value
thereof (as determined in good faith by the Board of Directors
of each of the Issuers) and the Issuers apply an amount equal
to the greater of the net proceeds of such sale or the
Attributable Debt with respect to such Sale and Lease-Back
Agreement within 180 days of such sale to either (or a
combination of) (A) the amortization (other than any mandatory
amortization, mandatory prepayment or sinking fund payment or
by payment at maturity) of debt for borrowed money of either
or both of the Issuers or a Subsidiary (other than debt that
is subordinated to the Notes or debt to either or both of the
Issuers or a Subsidiary) that matures more than 12 months
after the creation of such debt or (B) the purchase,
construction or development of other comparable property, or
(v) such agreement is entered into within 120 days after the
initial acquisition by such Issuer or the Subsidiary, as the
case may be, of the property subject to such agreement.
(d) Merger, Consolidation or Sale of Assets: Neither of the
Issuers will merge into or consolidate with any person or
sell, lease, transfer or otherwise convey or dispose of all or
substantially all of its assets, whether by one transaction or
a series of transactions, to any person, (a) unless, in the
case of any such merger or consolidation, (i) such Issuer is
the successor person and (ii) any Noteholder who elects to be
guaranteed or repaid upon such merger or consolidation
pursuant to Argentine law is so guaranteed or repaid by either
of the Issuers, or (b) unless, in the case of any such other
transaction, (i) immediately after giving effect to such
transaction or series of transactions, no Event of Default or
event which, after the giving of notice or the lapse of time
or both, would constitute an Event of Default, will have
occurred and be continuing, (ii) the successor person is a
company that will expressly assume the obligations of such
Issuer under the Notes and the Indenture, and (iii) such
Issuer shall have delivered to the Trustee an officer's
certificate and an opinion of counsel stating that such
merger, consolidation, sale, lease, transfer or other
conveyance or disposition complies with the Notes and that all
conditions precedent therein relating to such transaction have
been met. Upon the occurrence of any such merger,
consolidation, sale, lease, transfer or other conveyance or
disposition of all or substantially all of such Issuer's
assets, the successor person will succeed to and become
substituted for the Issuer or both Issuers, as the case may
be, and may exercise every right and power of such Issuer
<PAGE> 16
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the same effect as if it had been named in the Notes and
the Indenture and, thereafter, such Issuer will be released
from its liability as obligor on the Debt Securities and under
the Indenture.
NOTE 8: RESTRICTIONS ON THE SUBSIDIARY'S ASSETS
(a) Assets essential for the service
Pursuant to the provisions of the terms and conditions for the
privatization of the natural gas distribution service, the
Subsidiary Company must obtain ENARGAS' prior consent, without
which the License may be revoked, to sell, assign, encumber or
dispose of assets essential for the service.
(b) Restriction on funds
The Central Bank of the Argentine Republic (the "Central
Bank"), through Resolution No. 365 dated August 20, 1997,
resolved the full suspension of the transactions of Banco
Credito Provincial S.A., except for those transactions related
to the Central Bank derived from monetary and/or exchange
regulation transactions; transactions related to purchase and
credit cards existing as at such date; credit collection
transactions, mere custody administrative transactions or
those related to the compliance with labor, social security or
fiscal obligations; and the payment of pensions with funds
provided for by the National Administration of Social
Security.
In addition, on December 18, 1997, the Central Bank through
Resolution No. 741 authorized the group of major depositors of
Banco Credito Provincial S.A. to create a retail commercial
bank called Mercobank S.A., pursuant to the provisions of
section 7 of the Argentine Financial Institutions Law.
As of December 31, 1997, the funds deposited by the Subsidiary
Company in that institution amounted to Pesos 2,149,768. Such
funds are composed of Pesos 1,380,551 for retained collections
and Pesos 769,217 for fixed-term deposits, and have been
accounted for under "Other Receivables" classified as Current
and Non-Current, in accordance with the time when that the
Company considers it will collect such amount. The Company
expects to collect approximately 30% in cash, 40% in shares of
the new bank, and the remainder in Class C Bonds representing
the credit portfolio of Banco de Credito Provincial S.A.
The Company has decided to set up an allowance for Pesos
480,000 to be cross-entered under Extraordinary Loss. This
allowance represents the portion of uncertain recovery of the
value of the Class C Bonds, that the Company expects to
receive in the future.
NOTE 9: RECORDABLE ASSETS
As regards the recordable real estate transferred under the
Transfer Contract, the Subsidiary Company has effected the
corresponding deeds with the Argentine General Notary Public,
and only isolated and irrelevant cases are pending.
Additionally, the Subsidiary completed the transfer of all the
vehicles.
NOTE 10: GROSS SALES TAX - PROVINCE OF BUENOS AIRES
The Province of Buenos Aires Revenue Board (DPRPBA) made
assessments questioning the Subsidiary Company's Gross Sales
Tax returns, and claiming Pesos 8,852,795 and Pesos 7,386,016
for the periods from December 1992 through February 1995, and
from March 1995 to June 1996, respectively, not including
fines and accessory charges. This difference arises mainly
from the fact that the Tax Authority claims that the tax base
on which the tax rate should be applied for computing gross
sales taxes on gas sales should include all revenue obtained,
as gas prices are no longer regulated by the State after the
privatization; therefore, the tax base is no longer regulated
by the provisions of Section 141, Subsection (a) of the Tax
Code.
<PAGE> 17
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's position since the beginning of operations is
that the tax basis is the difference between the selling and
the purchasing price, based on the following:
(i) The criterion used by the Subsidiary Company is based
on the fact that it has acted in compliance with the
provisions of Section 10, Subsection (a) of
decree-law 9006/78 compiled in 1985 -currently
Section 141, Subsection (a) of the Fiscal Code-,
pursuant to the confirmation sent to Gas del Estado
S.E. by the Ministry of Economy and Public Works and
Services of the Province of Buenos Aires through a
note dated February 27, 1986, whose provisions are
deemed applicable since Camuzzi Gas Pampeana has
taken over the activities of such state company.
(ii) The auditors hired by the Privatization Committee
concluded in their report to the Ministry of Economy
and Public Works and Services of the Argentine
Republic, that this tax should be calculated on the
difference between the selling and purchasing prices
of gas sales, in order to comply with the provisions
of Law 24,076, regulating the gas industry and the
Distribution License.
(iii) The documentation mentioned in (i) and (ii) was made
available to investors by the Government upon the
privatization of Gas del Estado S.E., in order to
provide them with all the information that could
affect their business and, accordingly, their bidding
prices in any manner whatsoever.
(iv) In addition, aiming at making a fairer business
management by the Subsidiary Company, it informed the
DPRPBA at the time it took over the business, through
a notice received by such body on January 15, 1993,
that it would continue to pay such tax following Gas
del Estado's practice, because it is the latter's
surviving company.
On May 26, 1996, the Licensee filed a motion to reconsider
DPRPBA's resolution since it believed that it had acted, as
stated before, in compliance with the provisions of tax
regulations. The Company has cited the enforceability of the
above-referenced regulation as the basis for its motion to
reconsider.
On November 25, 1996, the General Revenue Board issued a final
Opinion stating that, in its opinion, Camuzzi Gas Pampeana
S.A. must pay gross sales tax on its total sales and not on
the margin of distribution. On December 13, 1996, the General
Revenue Board further explained some points of the opinion
indicating that, according to such body, the change of
criterion had derived from the fact that as from the takeover
of the natural gas distribution service by the Licensees, the
regulations set forth under the Fiscal Code (Section 136,
Subsection (e) and Section 141, Subsection (a)) are not valid,
since the Government, upon withdrawing from the business, no
longer regulates the official selling prices.
Additionally, during the months of October and November 1996,
some properties belonging to the Licensee and located
throughout the Province of Buenos Aires were attached for the
amount of Pesos 30,000,000, which sum includes principal,
interest and fines. After several claims by the Company, the
attachment was discharged on the condition that the Company
availed itself of the Debt Consolidation Regulations ("Regimen
de Consolidacion de Deudas") under Law 11,808 and provided
that in the event that the Company fails to avail itself to
such Regulations, such attachments could be levied again over
such assets or bank accounts, thus having an adverse effect on
the subsidiary Company.
Even though the Subsidiary Company's legal counsel considered
that the Company's defense was based on solid grounds, the
Final Opinion issued by the General Revenue Board
significantly changed the situation in that it explicitly
clarifies the tax criterion approved by the Province of Buenos
Aires and the change in the tax burden of the Licensee.
Therefore, because the Company was not legally required to
participate in a long judicial proceeding, the results of
which could not be assured in spite of its sound defense, and
because its property would be subject to attachment during the
course of such proceeding, on December 19, 1996, the Company
availed to the Debt Consolidation Regulations pursuant to the
provisions of the provincial law 11,808. (Official Gazette,
July 10, 1996).
The said regulations allowed for the payment of the existing
debts corresponding to the period from December 29, 1992 to
January 31, 1996 in up to 48 installments, with a 1% monthly
interest on balances due for the extension granted. In
addition, default interest was reduced to 0.5% per month, and
the penalties and fines were fully waived. Such regulations
further provide for an installment payment system for the
period between February 1, 1996 and August 31, 1996, and
allows for the settlement of all payments for the period
between September 1, 1996 and October 31, 1996, by means of
amended tax returns. The total balance included within these
Debt Consolidation Regulations amounted to Pesos 23,164,958
and was accounted for by Camuzzi Gas Pampeana S.A. under the
caption "Tax Payable".
Thus, as is evident from the above-mentioned conditions, the
Opinion of the General Revenue Board modified the tax system
through the implementation of a new criterion which altered
the Licensee's tax burden, generating a cost fluctuation due
to a "tax change" which was considered as a non-recurring
tariff adjustment by point 9.6.2. of the Distribution License
and by law 24,076.
In order to pass through this higher cost, pursuant to the
lawful right to which the Company is entitled, on December 20,
1996, Camuzzi Gas Pampeana S.A. initiated formal proceedings
by filing a claim with ENARGAS to obtain the application of
the corresponding tariff adjustment. The claim for passing the
tax through to the tariffs was also filed before the Ministry
<PAGE> 18
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of Economy and Public Works and Services. In addition, the
Company shall exercise its right to appeal to the Argentine
Supreme Court of Justice, if necessary, on the grounds of a
federal question regarding the indemnity rights to which the
Licensee is duly entitled.
Additionally, ENARGAS requested the opinion of the Revenue
Board of the Province of Buenos Aires, which ratified the
opinions mentioned above and requested some written
clarifications from the Ministry of Economy and Public Works
and Services, which had expressed its opinion through the
General Legal Affairs Board's opinion dated March 6, 1997 and
clarifying decision dated May 8, 1997, which confirmed the
Company's criterion. The answer to the aforementioned written
clarification dated July 18, 1997 ratified the previous
opinions.
Therefore, and as mentioned before, because a "change of tax
rules" generates a right for the Company to pass this change
on to the tariffs as envisaged in paragraph 9.6.2. of the
Distribution License and in Law No. 24,076, Camuzzi Gas
Pampeana S.A. accounted for the amounts recognized as tax
payable, together with the payments made for the taxable basis
of all income from gas sales, with a balancing entry in the
form of a receivable to be collected from the users in future
billings.
Through Resolution No. 544 dated November 17, 1997 and
pursuant to the regulatory framework of the activity, the
ENARGAS has authorized the pass-through to the tariffs of the
effects caused by the legal changes in the payment of the tax
in accordance with the methodology defined by that Regulatory
Authority in its note No. 108 dated January 12, 1998; the
decision on the pass-through the tariffs related to the effect
on sales to subdistributors and GNC stations is still pending,
and the amount totals Pesos 202,845.
At December 31, 1997, the receivable to be recovered amounts
to Pesos 28,848,605 and has been recorded under the caption
"Other Current Receivables" for the amount of Pesos 2,568,842
and in "Other Non-Current Receivables" for the amount of Pesos
26,279,763.
NOTE 11: TAXES PAYABLE BY THE SUBSIDIARY COMPANY
During the fiscal year ended December 31, 1995, Camuzzi Gas
Pampeana S.A. availed itself of the installment payment plan
established by Decrees 314/95 and 316/95. The total amount
refinanced is Pesos 1,389,277, payable in equal monthly
installments, the last one falling due on May 16, 1999.
On January 30, 1998 the Subsidiary Company corrected the
Affidavits of Income Taxes for the years 1993, 1994, 1995 and
1996 for a total amount of Pesos 1,590,639. These corrections
are attributable to the new tax determination related to the
amounts of the networks incorporated by the Camuzzi Gas
Pampeana S.A. up to June 1995, by application of ENARGAS's
Resolutions No. 268 and 356 dated February 8 and August 22,
1996.
NOTE 12: CONSTRUCTION FUNDED BY THIRD PARTIES
Construction funded by third parties, incorporated into the
Subsidiary Company's network during the fiscal years ended
December 31, 1997 and 1996, was the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
-------------- --------------
(Pesos)
<S> <C> <C>
o For valuable consideration 2,714,904 4,369,846
</TABLE>
On February 8, 1996, ENARGAS issued Resolution No. 268/96,
which sets forth that regarding construction fully or
partially financed by third party users, such users should
receive a discount based on the difference between the value
of the construction and the amount actually discounted, if
any.
By means of ENARGAS' Resolution No. 356, dated August 22,
1996, the Regulatory Authority established the amounts to be
recognized to the users mentioned above according to the
business value determined by such entity.
In compliance with this resolution, regarding networks
transferred free of charge, during the fiscal year 1996, the
Subsidiary Company recorded a liability in an amount estimated
as the payment price in m3 of gas which was debited from a
reserve set up in previous years for this purpose. In those
projects in which the payments made by the Licensee differed
from those set forth by the Regulatory Authority, the
liability corresponding to such difference was accounted for.
Both liabilities were valued at current tariffs.
<PAGE> 19
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Furthermore, on February 3, 1997, by means of Resolution 422
the Regulatory Authority set the charges that the Gas
Distribution Companies shall have to pay to third party users
financing network extension works; such amount results from
the business value set forth by ENARGAS. This Resolution was
only applicable to works transferred to the Licensee Companies
in 1996.
As regards works to be financed by future clients, commenced
and transferred to the net worth of the Licensees in 1997, the
Regulatory Authority issued Rule No. 1,877, dated May 23,
1997, whereby it established provisionally a minimum discount
equivalent to the 80% of the value set in Exhibit I of
ENARGAS' Resolution No. 422, in accordance with the
methodological guidelines included therein, and
notwithstanding the further analysis to be made by the
Regulatory Authority, because it is the competent authority
regarding these matters.
As of the date hereof the Subsidiary Company has taken the
necessary steps to implement the reimbursement of the cubic
meters duly suggested by the ENARGAS.
Subsequently, the ENARGAS, through Order No. 4,688 dated
December 30, 1997, modified the criteria previously
established by its Resolutions No. 356/96 and 422/96 and Order
No. 1877/96, in connection with the obligation of the
Distribution Service Licensees to grant provisions to third
party users who totally or partially paid undertakings related
to new networks or extensions thereof.
This amendment consists, basically, in the replacement of the
obligation of such users to file the documentation evidencing
their contribution, as called for by the above-mentioned
resolutions, by the execution of an affidavit in relation
thereof.
The above-mentioned order of ENARGAS has been challenged by
the Company on the grounds that it affects its legitimate
rights.
NOTE 13: MUNICIPAL TAXES ON USE OF EASEMENTS BY THE SUBSIDIARY
Municipalities usually include a tax on easements in their tax
rules. Such rules are in conflict with federal regulations.
The Distribution license grants the right to easements free of
charge to the Licensee and establishes that, if the
municipalities levy any tax which is later ratified by a
court, the Subsidiary is authorized to pass through such cost
increase to the consumers.
Point 6.1 of the Distribution License reads as follows: "while
the Licensee is in charge of the service, it shall have the
right to use free of charge any street, avenue, square,
bridge, road and any other public place, including the
subjacent and air spaces, necessary for the installation of
facilities for the licensed service, including communication
lines and interconnections with third parties".
However, if any definitive sentence by a court admits the
validity of the provincial or municipal rules, which levy a
tax on such easement or use upon the Licensee, the Licensee
may pass through such additional cost to the consumers
residing within the jurisdiction in which such tax is
applicable, and the Regulatory Entity shall act in accordance
with the procedures provided for in point 9.6.2, without any
right of claim against the Licensee or Gas del Estado.
Furthermore, pursuant to National Budget Law No. 24,624/95
corresponding to the 1996 year, in order to enjoy the
subsidies described therein, municipal taxes on easements must
be repealed as from January 1, 1996.
Currently, the following are the most relevant disputes in
relation to taxes on rights to subjacent space (subsoil):
MUNICIPALITY OF ENSENADA, PROVINCE OF BUENOS AIRES: This
Municipality brought an action for the payment of the tax on
subsoil rights for Pesos 6,265,513, in respect of principal,
and obtained a favorable judgment by the Lower Court. The
Licensee filed an appeal with the Court of Appeals of La
Plata, which revoked the Lower Court's decision, and
acknowledged the national exemption granted to the Subsidiary
for the use of public spaces. The Court of Appeals of La Plata
rejected the extraordinary remedy filed by the Municipality of
Ensenada and, as a result of which, the Municipality submitted
a claim for Reconsideration to the Supreme Court of the
Argentine Republic, which was rejected on October 3, 1997,
thus, ending the controversy brought forward by the
Municipality.
MUNICIPALITY OF LA PLATA, PROVINCE OF BUENOS AIRES: On October
19, 1995, the licensee company was served an official
assessment from the Municipality of La Plata for the payment
of Pesos 2,730,141 not including penalties and other expenses.
The Subsidiary Company contested the claim before the
administrative authorities within the terms authorized by such
Municipality.
MUNICIPALITY OF SANTA ROSA, PROVINCE OF LA PAMPA: The amount
claimed totals approximately Pesos 69,078, without interest
and penalties.
<PAGE> 20
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Lower Court sustained the claim and rejected the
objections filed by the Company. Camuzzi Gas Pampeana S.A.
appealed to the Court of Appeals which also sustained the
decision.
The Licensee filed an appeal against the judgment and obtained
a favorable resolution from the competent court. Thereafter,
the appeal was rejected based on a motion to reverse the
judgment filed by the Municipality. The Supreme Court of the
Province rejected our Provincial extraordinary motion. An
extraordinary motion was filed with the Federal courts against
such decision, which proceedings will be held before the
Supreme Court of the Argentine Republic. The Supreme Court of
the Argentine Republic has rejected the Extraordinary Remedy
filed by the Subsidiary Company and this Company has further
submitted a Claim for Reconsideration to the Supreme Court of
the Argentine Republic, which claim was rejected.
The amount claimed has been deposited with the court. As of
the date hereof, the Subsidiary Company has set up an
allowance for the total amount claimed.
MUNICIPALITY OF SALADILLO, PROVINCE OF BUENOS AIRES: The
principal amount claimed totals Pesos 55,542.
The claim was submitted and is pending consideration by the
administrative court with an answer filed by Camuzzi Gas
Pampeana S.A.
MUNICIPALITY OF REALICO, PROVINCE OF LA PAMPA: The principal
amount claimed totals Pesos 4,137. The Licensee has answered
the complaint contesting the action. Thereafter, a judgment
rejecting our objections was entered.
MUNICIPALITY OF CORONEL SUAREZ, PROVINCE OF BUENOS AIRES: The
principal amount claimed totals Pesos 6,300. The Subsidiary
Company has filed a remedy for reconsideration.
MUNICIPALITY OF LAS FLORES, PROVINCE OF BUENOS AIRES: The
principal amount claimed totals Pesos 9,736. The Subsidiary
Company has filed a remedy for reconsideration which was
rejected by the Municipality.
In the opinion of the Licensee and based on judgmental
elements obtained during the year, and except for the lawsuits
with the Municipality of Santa Rosa, for which provisions have
been set up, an adverse decision in relation to the
aforementioned claims is considered not probable.
NOTE 14: FIVE-YEAR TARIFF REVIEW
On June 30, 1997, the Ente Nacional Regulador del Gas issued
Resolution No. 468 whereby it approved the five-year tariff
review and established new values for the factors K and X per
tariff subzone for the 1998-2002 five-year period.
Within the tariff scheme set forth in the Resolution, the
incorporation of these two factors (Factor K of Investment and
X of Efficiency) has been contemplated; such factors will be
added and subtracted respectively from the margin of
distribution and, therefore, will affect the final tariff for
the next five-year period.
During the year, the Subsidiary Company submitted investment
projects for the determination of the K factor, which, once
reviewed by the ENARGAS, were approved at the end of October
for the La Pampa Norte subarea, and which will be in force as
from the second semester of 1998.
Simultaneously, the ENARGAS defined an efficiency factor (X)
of 4.5% for the Subsidiary Company as from January 1, 1998,
which considers the improvements to be achieved in that
respect in the next five-year period.
NOTE 15: EXTRAORDINARY INCOME/LOSS
At December 31, 1996 the remainder balance corresponding to
claims arising from the collection of bills due rendered by
the Camuzzi Gas Pampeana S.A. as required by Gas del Estado
S.E. has been accounted for pursuant to the Transfer Contract
Schedule XXI, net of the effect of such items on the income
tax.
<PAGE> 21
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Consolidated Fixed Assets
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE A
<TABLE>
<CAPTION>
==============================================================================================
Value at Value at
beginning end of
of year Additions Transfers Write-offs year
Principal account (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
===============================================================================================
<S> <C> <C> <C> <C> <C>
Land.................... 4,710,764 -- -- -- 4,710,764
Condominiums............ 816,147 -- -- -- 816,147
Buildings............... 14,263,215 -- -- -- 14,263,215
Facilities.............. 7,652,560 1,032 12,174 -- 7,665,766
Gas pipelines........... 151,808,897 -- 10,351,151 -- 162,160,048
Main and secondary
pipelines............... 37,612,648 -- -- -- 37,612,648
Distribution networks... 273,552,429 2,728,066 4,847,786 -- 281,128,281
Machinery and
equipment............... 2,902,543 169,614 32,154 -- 3,104,311
Pressure reduction
stations................ 11,582,952 -- 285,656 -- 11,868,608
Processing equipment.... 217,341 -- (1,980) -- 215,361
Vehicles................ 4,769,156 285,039 208 (29,824) 5,024,579
Furniture and
office equipment........ 1,785,876 33,897 -- -- 1,819,773
Gas meters.............. 40,932,091 143,349 2,376,464 (687,009) 42,764,895
Gas cylinders........... 1,189 -- -- -- 1,189
Works in progress....... 5,481,924 20,910,069 (15,200,216) -- 11,191,777
Computer equipment...... 5,050,373 502,108 4,911 -- 5,557,392
Communications
equipment............... 3,708,019 57,822 (41,120) (3,684) 3,721,037
Material at warehouses.. 3,122,300 4,637,679 (2,114,605) (2,489,137) 3,156,237
Vehicles without title.. -- 1,025,200 -- -- 1,025,200
Advances to suppliers... 793,068 530,295 (552,583) -- 770,780
- -----------------------------------------------------------------------------------------------
Total at
December 31, 1997....... 570,763,492 31,024,170 -- (3,209,654) 598,578,008
- -----------------------------------------------------------------------------------------------
Total at
December 31, 1996....... 547,728,157 24,868,536 -- (1,833,201) 570,763,492
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================
DEPRECIATION
------------------------------------------------------------------
Net carrying value
Current year at December 31,
-------------------------------- -------------------------
Accumulated at
beginning of Accumulated at
year Rate(1) Amount(2) Write-offs end of year 1997 1996
Principal account (Pesos) % (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Land..................... -- -- -- -- -- 4,710,764 4,710,764
Condominiums............. 79,182 2.00 21,916 -- 101,098 715,049 736,965
Buildings................ 1,196,009 2.00 385,124 -- 1,581,133 12,682,082 13,067,206
Facilities............... 601,619 3.33 263,626 -- 865,245 6,800,521 7,050,941
Gas pipelines............ 19,730,420 2.50 5,722,915 -- 25,453,335 136,706,713 132,078,477
Main and secondary
pipelines................ 5,526,020 2.50 1,378,882 -- 6,904,902 30,707,746 32,086,628
Distribution networks 35,947,423 2.50 9,976,125 -- 45,923,548 235,204,733 237,605,006
Machinery and equipment.. 623,585 4.00 146,934 -- 770,519 2,333,792 2,278,958
Pressure reduction
stations................. 1,429,051 2.86 417,056 -- 1,846,107 10,022,501 10,153,901
Processing equipment..... 15,356 3.33 7,985 -- 23,341 192,020 201,985
Vehicles................. 1,761,114 10.00 601,299 (9,689) 2,352,724 2,671,855 3,008,042
Furniture and office
equipment................ 294,202 6.66 124,369 -- 418,571 1,401,202 1,491,674
Gas meters............... 8,768,874 4.00 2,421,215 (263,320) 10,926,769 31,838,126 32,163,217
Gas cylinders............ 239 3.33 60 -- 299 890 950
Works in progress........ -- -- -- -- -- 11,191,777 5,481,924
Computer equipment....... 2,993,332 20.00 1,112,187 -- 4,105,519 1,451,873 2,057,041
Communications
equipment................ 688,947 3.33/20.00 254,858 -- 943,805 2,777,232 3,019,072
Material at warehouses... -- -- -- -- -- 3,156,237 3,122,300
Vehicles without title... -- 10 102,520 -- 102,520 922,680 --
Advances to suppliers.... -- -- -- -- -- 770,780 793,068
- -----------------------------------------------------------------------------------------------------------------
Total at
December 31, 1997........ 79,655,373 -- 22,937,071 (273,009) 102,319,435 496,258,573 --
- -----------------------------------------------------------------------------------------------------------------
Total at
December 31, 1996........ 57,311,659 -- 22,406,722 (63,008) 79,655,373 -- 491,108,119
=================================================================================================================
</TABLE>
- ----------
Notes:
(1) Rate applied to additions for the year.
(2) The accounting allocation of depreciation charges for the year is described
in Schedule H.
<PAGE> 22
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Consolidated Intangible Assets
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE B
<TABLE>
<CAPTION>
==================================================================================
Value at Value at
beginning end of
of year Additions Write-offs year
Principal account (Pesos) (Pesos) (Pesos) (Pesos)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Organization and pre-operating
expenses and expenses
relating to the issuance
Notes..................... 4,864,365 442,460 -- 5,306,825
Software..................... 330,774 414,501 -- 745,275
- ----------------------------------------------------------------------------------
Total at December 31, 1997... 5,195,139 856,961 -- 6,052,100
- ----------------------------------------------------------------------------------
Total at December 31, 1996... 3,349,701 1,845,438 -- 5,195,139
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================
AMORTIZATION
--------------------------------------------------------
Net carrying value at
Current year December 31,
-------------------- ----------------------------
Accumulated
at Accumulated
beginning Rate per at end of
of year annum Amount(1) Write-offs year 1997 1996
Principal account (Pesos) % (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Organization and pre-operating
expenses and expenses
relating to the issuance of
Notes..................... 1,626,412 20% 1,070,402 -- 2,696,814 2,610,011 3,237,953
Software..................... 37,053 20% 111,728 -- 148,781 596,494 293,721
- ------------------------------------------------------------------------------------------------------------------
Total at December 31, 1997... 1,663,465 -- 1,182,130 -- 2,845,595 3,206,505 --
- ------------------------------------------------------------------------------------------------------------------
Total at December 31, 1996... 902,135 -- 761,330 -- 1,663,465 -- 3,531,674
==================================================================================================================
</TABLE>
- ----------
Notes:
(1) The accounting allocation of depreciation charges for the year is described
in Schedule H.
<PAGE> 23
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Consolidated Investments
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE C
<TABLE>
<CAPTION>
=================================================================================================================================
Value Recorded at December 31,
-----------------------------------------
Number of 1997 1996
Issuer and securities shares/Interests Market Value (Pesos) (Pesos)
=================================================================================================================================
<S> <C> <C> <C> <C>
CURRENT INVESTMENTS
Mutual investment funds
Provifondos.............................. -- -- -- 5,926,432
Superfondos Ahorro in Pesos Santander.... -- -- -- 4,410,054
Banca Nazionale del Lavoro............... 3,160,519 1.112807 3,517,048 --
Shares
INDUPA S.A.I.C........................... 90,881 1.200000 109,057 104,498
Argentina Government Bond (Schedule G)... -- -- 117,314 226,571
-------------------------------------
TOTAL CURRENT INVESTMENTS..................... -- -- 3,743,419 10,667,555
-------------------------------------
NON-CURRENT INVESTMENTS....................... -- --
Argentina Government Bond (Schedule G).... -- -- -- 115,000
-------------------------------------
TOTAL NON-CURRENT INVESTMENTS................. -- -- -- 115,000
-------------------------------------
TOTAL INVESTMENTS............................. -- -- 3,743,419 10,782,555
=============================================================================================================================
</TABLE>
<PAGE> 24
SODIGAS PAMPEANA S.A.AND ITS SUBSIDIARY COMPANY
Other Consolidated Investments
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE D
<TABLE>
<CAPTION>
================================================================================================================
Value Recorded at December 31,
-----------------------------------------------
1997 1996
Principal account (Pesos) (Pesos)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT INVESTMENTS
Fixed-term deposits in Argentine and foreign currencies
(Schedule G)................................................... 25,510,827 26,454,914
-----------------------------------------------
Total.......................................................... 25,510,827 26,454,914
================================================================================================================
</TABLE>
<PAGE> 25
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Consolidated Allowances
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE E
<TABLE>
<CAPTION>
===========================================================================================================================
Balances at December 31,
---------------------------
Balances at
beginning of year Additions Decreases 1997 1996
Item (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
Allowance for defaulting debtors.. 8,642,890 2,004,641(1) (3,872,225) 6,775,306 8,642,890
Allowances for uncollectible funds
deposited in Banco de Crdito
Provincial S.A................. -- 480,000(2) -- 480,000 --
DEDUCTED FROM LIABILITIES
Provisions for legal actions...... 245,601 692,965(3) (95,000) 843,566 245,601
-----------------------------------------------------------------------------------
Total................................. 8,888,491 3,177,606 (3,967,225) 8,098,872 8,888,491
===========================================================================================================================
</TABLE>
- ----------
Notes:
(1) Pesos 1,645,509 are charged to Marketing Expenses in Schedule H. Pesos
359,132 arise from unbilled gas consumption.
(2) Charged to Extraordinary Income (Note 4.g.).
(3) Pesos 572,965 charged to Other Income (Note 4.f.). Reclassification of
the Allowance for Defaulting Debtors, Pesos 120,000.
<PAGE> 26
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Consolidated Cost of Sales
For the fiscal years ended December 31, 1997 and 1996
SCHEDULE F
<TABLE>
<CAPTION>
===============================================================================================================
December 31,
----------------------------------------------
1997 1996
(Pesos) (Pesos)
----------------------------------------------
<S> <C> <C>
Inventories at beginning of year............................ 54,000 169,000
Plus:
Gas purchases...................................... 158,067,447 149,601,917
Acquisition of transportation capacity............. 84,739,458 85,307,876
Expenses per breakdown in Schedule H............... 48,556,730 44,608,386
Less:
Inventories at end of year......................... 37,142 54,000
-----------------------------------------------
COST OF SALES...................................... 291,380,493 279,633,179
================================================================================================================
</TABLE>
<PAGE> 27
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Foreign Currency Consolidated Assets and Liabilities
At December 31, 1997 and 1996
SCHEDULE G
<TABLE>
<CAPTION>
================================================================================================================================
Amount in Argentine currency
at December 31,
------------------------------
Type and amount of 1997 1996
foreign currency Current exchange rate (Pesos) (Pesos)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and banks....................... U$S 248,841 1.0000 248,841 1,210,878
Investments.......................... U$S 4,850,189 1.0000 4,850,189 4,955,509
Other Receivables - Miscellaneous.... U$S 151,090 1.0000 151,090 --
-----------------------------------------------------------------------------
Total current assets.......................... 5,250,120 -- 5,250,120 6,166,387
-----------------------------------------------------------------------------
NON-CURRENT ASSETS
Investments.......................... U$S -- -- -- 115,000
-----------------------------------------------------------------------------
Total non-current assets...................... -- -- -- 115,000
-----------------------------------------------------------------------------
Total assets.................................. 5,250,120 -- 5,250,120 6,281,387
-----------------------------------------------------------------------------
CURRENT LIABILITIES
Suppliers............................ U$S 838,924 1.0000 838,924 1,469,176
Bank Loans
Loan from Riobank Internacional... U$S 7,489,296 1.0000 7,489,296 5,391,544
Loan from Banca Nazionale del Lavoro U$S 750,329 1.0000 750,329 1,717,263
Loan from Bank Boston............. U$S 85,347 1.0000 85,347 --
Financial Loans
Notes - Interest payable........... U$S 4,567,500 1.0000 4,567,500 4,567,500
Notes.............................. U$S 326,599 1.0000 326,599 408,249
Other.............................. U$S -- -- 85,582
Other liabilities - Liability to YPF. U$S -- -- 4,183,687
-----------------------------------------------------------------------------
Total current liabilities..................... 14,057,995 -- 14,057,995 17,823,001
-----------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Financial Loans
Notes.............................. U$S 169,443,000 1.0000 169,443,000 169,443,000
Loans from Bank Boston............. U$S 126,971 1.0000 126,971 --
Banca Nazionale del Lavoro - Letters
of Credit........................ U$S 3,500,000 1.0000 3,500,000 211,619
-----------------------------------------------------------------------------
Total non-current liabilities................. 173,069,971 -- 173,069,971 169,654,619
-----------------------------------------------------------------------------
Total liabilities............................. 187,127,966 -- 187,127,966 187,477,620
================================================================================================================================
</TABLE>
<PAGE> 28
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
Information required under Art. 64, clause (b) of Law 19,550
At December 31, 1997 and 1996
SCHEDULE H
<TABLE>
<CAPTION>
====================================================================================================================================
Total at Administrative Total at
December 31, 1997 Sales Cost Expenses Marketing Expenses December 31, 1996
Items Pesos Pesos Pesos Pesos Pesos
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fees for services..................... 5,633,361 3,878,311 1,755,050 -- 5,692,970
Salaries and wages.................... 17,806,466 7,495,516 6,741,657 3,569,293 14,738,312
Contributions......................... 5,563,206 2,336,547 2,114,018 1,112,641 4,747,976
Transportation expenses............... 1,448,274 608,275 550,344 289,655 1,499,178
Taxes and assessments................. 2,764,990 691,789 1,727,306 345,895 3,583,817
Depreciation of fixed assets.......... 22,937,071 21,375,706 1,040,910 520,455 22,406,722
Amortization of intangible assets..... 1,182,130 -- 1,182,130 -- 761,330
Hired services........................ 7,535,352 3,947,399 2,908,025 679,928 7,283,280
Postage, communications and data 1,865,631 480,617 1,144,705 240,309 2,105,515
processing............................ 4,578,405 4,578,405 -- -- 4,446,954
Processing of liquids................. 5,728,383 3,164,165 1,809,850 754,368 5,482,521
Overheads............................. 1,645,509 -- -- 1,645,509 394,352
Defaulting debtors.................... 323,424 -- -- 323,424 355,484
Advertising...........................
-------------------------------------------------------------------------------------------
Total at December 31, 1997............ 79,012,202 48,556,730 20,973,995 9,481,477
------------------------------------------------------------------------------------------
Total at December 31, 1996............ -- 44,608,386 21,401,358 7,488,667 73,498,411
====================================================================================================================================
</TABLE>
<PAGE> 29
ANNEX I
SODIGAS PAMPEANA S.A. AND SUBSIDIARY COMPANY
UNITED STATES GAAP RECONCILIATION
<TABLE>
<CAPTION>
As of
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP $ 224,578,265
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Initial carrying value of assets (38,565,393)
Contribution of gas networks (79,610,531)
Capitalization of interest 4,019,596
Depreciation expense 12,419,196
Intangible assets amortization (587,124)
Gross sales tax settlement (28,848,605)
Regulatory issues 485,088
Deferred income taxes 6,418,597
Technical assistance fee 8,101,192
Minority interest 34,356,132
-------------
Approximate total shareholders' equity under U.S. GAAP $ 142,766,413
=============
</TABLE>
<PAGE> 30
SODIGAS PAMPEANA S.A. AND SUBSIDIARY COMPANY
UNITED STATES GAAP RECONCILIATION
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF NET INCOME:
Net income under Argentine GAAP $ 8,921,124
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Depreciation expense 2,915,523
Capitalization of interest 708,775
Intangible assets amortization 342,546
Gross sales tax settlement (3,360,282)
Regulatory issues 1,612,903
Deferred income taxes (20,903,446)
Technical assistance fee (119,063)
Minority interest 5,512,787
------------
Approximate net loss under U.S. GAAP $ (4,369,133)
============
</TABLE>
<PAGE> 1
EXHIBIT 99.9.4
ANNEX I
BUENOS AIRES ENERGY COMPANY S.A.
AND SUBSIDIARY COMPANY
UNITED STATES GAAP RECONCILIATION
<TABLE>
<CAPTION>
As of
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP $ 101,251,829
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Deferral of expenses (6,712,173)
Depreciation of fixed assets 66,828
Income taxes (1,762,114)
Minority interest 4,014,689
-------------
Approximate total shareholders' equity under U.S. GAAP $ 96,859,059
=============
</TABLE>
<TABLE>
<CAPTION>
315-day period ended
December 31, 1997
-----------------
<S> <C>
RECONCILIATION OF NET LOSS:
Net loss under Argentine GAAP $ (434,271)
APPROXIMATE U.S. GAAP ADJUSTMENTS:
Deferral of expenses (6,712,173)
Depreciation of fixed assets 66,828
Income taxes (1,762,114)
Minority interest 4,014,689
------------
Approximate net loss under U.S. GAAP $ (4,827,041)
============
</TABLE>
