<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, 1998
------------------------
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, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF
DECEMBER 31, 1998........................................... 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........... 12
ITEM 6. OFFICERS AND DIRECTORS
Part I. Names, principal business address and positions
held as of December 31, 1998...................... 13
Part II. Banking connections.............................. 18
Part III. Compensation and other related information....... 18
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS.......................... 19
ITEM 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS
Part I. Contracts for services or goods between system
companies......................................... 20
Part II. Contracts to purchase services or goods between
any system company and any affiliate........................ 20
Part III. Employment of any person by any system company
for the performance on a continuing basis of management
services......................................... 20
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......................................... 21
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)................................ 23
Exhibits.................................................... 107
SIGNATURE.............................................................. 108
</TABLE>
<PAGE> 3
CONSOLIDATED NATURAL GAS COMPANY
FORM U5S--ANNUAL REPORT
For the Year Ended December 31, 1998
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1998
<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................... -- -- $ 8,912 $ 8,912
CNG Transmission Corporation
(CNG Transmission or CNGT)......... Gas transmission 60,100 100% $745,395 $743,158
Unsecured debt................... -- -- $345,329 $345,329
CNG Iroquois, Inc. (CNG
Iroquois)........................ Special purpose subsidiary 2,394 100% $ 38,865 $ 38,865
(Note 2)
The East Ohio Gas Company
(East Ohio Gas or EOG)............. Gas utility 4,759,353 100% $451,273 $430,504
Unsecured debt................... -- -- $181,390 $181,390
The Peoples Natural Gas Company
(Peoples Natural Gas or PNG)....... Gas utility 1,835,350 100% $259,311 $249,298
Unsecured debt................... -- -- $143,116 $143,116
Virginia Natural Gas, Inc.
(Virginia Natural Gas or VNG)...... Gas utility 5,273 100% $209,498 $209,858
Unsecured debt................... -- -- $112,318 $112,318
Hope Gas, Inc. (Hope Gas or HGI)..... Gas utility 409,000 100% $ 53,703 $ 52,494
Unsecured debt................... -- -- $ 33,428 $ 33,428
CNG Producing Company
(CNG Producing or CNGP)............ Exploration and production 32,600 100% $527,664 $531,774
Unsecured debt................... -- -- $368,575 $368,575
CNG Pipeline Company (CNG
Pipeline)........................ Oil pipeline 12,000 100% $ 1,496 $ 1,496
CNG Main Pass Gas Gathering
Corporation
(CNG Main Pass).................... Special purpose subsidiary 1 100% $ 2,408 $ 2,408
(Note 3)
CNG Oil Gathering Corporation
(CNG Oil Gathering)................ Special purpose subsidiary 1 100% $ 1,747 $ 1,747
(Note 4)
CNG Retail Services Corporation
(CNG Retail)....................... Retail energy marketing 600 100% $ 112 $ 112
CNG Power Company (CNG Power)........ Nonutility energy ventures 22,460 100% $ 36,406 $ 36,406
Unsecured debt (Note 5)............ (Note 10) -- -- $ 12,303 $ 12,303
CNG Market Center Services, Inc.
(CNG Market Center Services or
CNGMCS).......................... Special purpose subsidiary 10 100% $ 1,007 $ 1,007
(Note 6)
CNG Bear Mountain, Inc.
(CNG Bear Mountain).............. Special purpose subsidiary 1 100% $ 22 $ 22
(Note 7)
</TABLE>
- ---------------
Notes to ITEM 1 appear on page 3.
1
<PAGE> 4
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1998
(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 Power Company (Continued)
Granite Road CoGen, Inc.
(Granite Road)................... Special purpose subsidiary 1,000 100% $ 1 $ 1
(Note 8)
CNG Products and Services, Inc.
(CNG Products and Services)........ Nonutility energy business 399 100% $ 2,444 $ 2,444
CNG Technologies, Inc.
(CNG Technologies)............... Development of new 200 100% $ 1,961 $ 1,961
gas-related technologies
CNG Field Services Company
(CNG Field Services or CNGFS)...... Gas storage and supply 1,367 100% $ 22,179 $ 21,995
services (Note 9)
CNG Power Services Corporation
(CNG Power Services or CNGPSC)..... Electric power marketing 1,552 100% $ (2,667) $ (2,667)
(Note 10)
CNG International Corporation
(CNG International or CNGI)........ Energy-related activities 21,555 100% $211,597 $211,597
Unsecured debt................... outside of the United States -- -- $ 15,000 $ 15,000
CNG Cayman One Ltd.
(CNG Cayman One)................. Special purpose subsidiary 990 100% $ 40,203 $ 40,203
(Note 11)
CNGI Australia Pty Limited
(CNGI Australia)............... Special purpose subsidiary 100 100% $ 34,925 $ 40,203
(Note 11)
CNG Cayman Three Ltd.
(CNG Cayman Three)............... Special purpose subsidiary 100 100% $ 96,281 $ 96,281
(Note 12)
CNG Argentina S.A.
(CNG Argentina)................ Special purpose subsidiary 12,000 100% $ 568 $ 568
(Note 13)
Consolidated System LNG Company
(Consolidated LNG or LNG).......... Liquefied natural gas (Note 100 100% $ 8,661 $ 8,661
14)
CNG Research Company
(CNG Research)..................... Administers research 1,558 100% $ 80 $ 80
activities
CNG Coal Company (CNG Coal).......... Owns coal royalty interests 2,236 100% $ 6,651 $ 6,651
CNG Financial Services, Inc.
(CNG Financial).................... Financing transactions 5 100% $ 39 $ 39
subsidiary
</TABLE>
- ---------------
Notes to ITEM 1 appear on page 3.
2
<PAGE> 5
ITEM 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1998
(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 1998 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) CNG Main Pass holds a 13.6% interest in Dauphin Island Gathering Partners.
(4) 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.
(5) Unsecured debt held by the Parent Company.
(6) CNG Market Center Services holds a 50% general partnership interest in the
CNG/Sabine Center gas marketing hub.
(7) CNG Bear Mountain sold its 1% general partnership interest in Bear Mountain
Limited during 1998. Also, CNG Power, the parent company of CNG Bear
Mountain, sold its 49% limited partnership interest in Bear Mountain
Limited during 1998.
(8) Granite Road holds a 50% general partnership interest in Granite Road
Limited, a partnership planning the development of a cogeneration facility.
(9) CNG Field Services (formerly CNG Storage Service Company) provides natural
gas storage facilities and services and other activities of a full service
gas storage business, and also engages in activities related to Appalachian
area natural gas supply, including the administration of supply contracts
transferred from CNG Energy Services Corporation, a former subsidiary of
the Parent Company.
(10) Effective November 20, 1998, CNG Power sold its 34% limited partnership
interest in Lakewood Cogeneration, L.P. (Lakewood Partnership) to Hydra-Co
Enterprises, Inc. On the same date, CNG Power Services sold all of the
outstanding capital stock of CNG Lakewood to HCE Lakewood, Inc. CNG
Lakewood, a former wholly owned subsidiary of CNG Power Services, owned a
1% general partnership interest in the Lakewood Partnership.
(11) CNG Cayman One holds all 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.
(12) CNG Cayman Three holds 21.55% interests in each of two Argentine gas
utility holding companies, Sodigas Pampeana S.A. and Sodigas Sur S.A.
(13) CNG Argentina S.A. was incorporated in Argentina in October 1998 in
connection with CNGI's Argentine investments.
(14) Consolidated LNG ended its involvement in liquefied natural gas operations
in 1982 and as of February 28, 1998, had recovered its undepreciated
investment in related facilities, plus carrying charges and taxes, through
a FERC-approved amortization surcharge.
3
<PAGE> 6
ITEM 2. ACQUISITIONS OR SALES OF UTILITY ASSETS
By SEC order dated December 18, 1998, Release No. 35-26954, (File No. 70-9379)
Peoples Natural Gas was authorized to sell all of its gas producing production
properties to CNG Producing for approximately $14.5 million. The sale was
consummated as of December 31, 1998, subject to final price adjustment. A Rule
24 certificate has not yet been filed in the proceeding pending determination of
the final adjusted price, which is expected to occur by April 30, 1999.
ITEM 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM SECURITIES
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 $4,000,000, is shared by two nonaffiliated
pipeline companies. The maximum balance on CNG Transmission's portion of all
letters of credit during 1998 was $8,250,000 with $8,000,000 remaining
outstanding as of December 31, 1998.
CNG Retail has obtained a letter of credit in the amount of $250,000 in favor of
Columbia Gas of Pennsylvania to participate in that company's pilot program. The
letter of credit is in effect through September 1999.
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 INTENTIONALLY LEFT BLANK)
5
<PAGE> 8
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES
Calendar Year 1998
(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 5,081,743 shares
(Note 3)
CNG Transmission:
Capital stock, par value $10,000 per share... Parent Company 1,100 shares
Non-negotiable note.......................... Parent Company $50,000
Virginia Natural Gas:
Capital stock, no par value.................. Parent Company 100 shares
Non-negotiable note.......................... Parent Company $55,000
CNG Producing:
Non-negotiable note.......................... Parent Company $25,000
CNG International:
Capital stock, par value $10,000 per share... Parent Company 13,000 shares
Non-negotiable notes......................... Parent Company $30,150
CNG Energy Services:
Capital stock, par value $1 per share........ Parent Company
CNG Field Services:
Capital stock, par value $10,000 per share... Parent Company 1,366 shares (Note 5)
Capital stock, par value $10,000 per share... Parent Company 1 share
CNG Retail:
Capital stock, par value $10,000 per share... Parent Company 600 shares (Note 5)
CNG Power:
Capital stock, par value $1,000 per share.... Parent Company 22,460 shares (Note 5)
CNG Products and Services:
Capital stock, par value $10,000 per share... Parent Company 399 shares (Note 5)
CNG Main Pass:
Capital stock, par value $1 per share........ Parent Company 1 share (Note 5)
CNG Oil Gathering:
Capital stock, par value $1 per share........ Parent Company 1 share (Note 5)
Total Registrant........................
</TABLE>
- ---------------
Notes to ITEM 4 appear on page 10.
6
<PAGE> 9
<TABLE>
<CAPTION>
Number of Shares or
Principal Amount
Redeemed or Retired (Note 1) Consideration Commission Authorization (Note 2)
- ------------------------------------- ------------- ------------------------------------
<S> <C> <C>
$280,326 Rule 42 (Note 3)
$ 11,000 Rule 52
$ 50,000 Rule 52
$ 4,000 Rule 52
$ 55,000 Rule 52
$ 25,000 Rule 52
$130,000 Rule 52
$ 30,150 Rule 52
3,906 shares (Note 4) $ -- Non-jurisdictional
$ -- Release No. 26900 (File No. 70-9203)
$ 10 Rule 58
$ -- Release No. 26900 (File No. 70-9203)
$ -- Release No. 26900 (File No. 70-9203)
$ -- Release No. 26900 (File No. 70-9203)
$ -- Release No. 26900 (File No. 70-9203)
$ -- Release No. 26900 (File No. 70-9203)
--------
$585,486
========
</TABLE>
7
<PAGE> 10
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES (Continued)
Calendar Year 1998
(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
Non-negotiable note.............................. Virginia Natural Gas
Hope Gas:
Non-negotiable notes............................. Hope Gas
CNG Field Services:
Non-negotiable note.............................. CNG Field Services
CNG Power:
Non-negotiable notes............................. CNG Power
CNG International:
Non-negotiable note.............................. CNG International
CNG Research:
Capital stock, par value $10,000 per share....... CNG Research
Total subsidiaries..........................
</TABLE>
- ---------------
Notes to ITEM 4 appear on page 10.
8
<PAGE> 11
<TABLE>
<CAPTION>
Number of Shares or
Principal Amount
Redeemed or Retired (Note 1) Consideration Commission Authorization (Note 2)
- --------------------------------------- ------------- ------------------------------------------
<S> <C> <C>
$ 5,240 $ 5,240 Rule 42
$102,876 $102,876 Rule 42
$ 79,590 $ 79,590 Rule 42
$ 10,512 $ 10,512 Rule 42
$ 4,000 $ 4,000 Rule 42
$ 40,100 $ 40,100 Rule 42
$ 8,624 $ 8,624 Rule 42
$ 7,350 $ 7,350 Rule 42
$ 390 $ 390 Rule 42
$ 55,150 $ 55,150 Rule 42
21 shares $ 210 Rule 42
--------
$314,042
========
</TABLE>
9
<PAGE> 12
ITEM 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES (Concluded)
Calendar Year 1998
(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>
CNG ENERGY SERVICES:
CNG Field Services:
Capital stock, par value $10,000 per share................ CNG Energy Services
CNG Retail:
Capital stock, par value $10,000 per share................ CNG Energy Services
CNG Power:
Capital stock, par value $10,000 per share................ CNG Energy Services
CNG Products and Services:
Capital stock, par value $10,000 per share................ CNG Energy Services
CNG Main Pass:
Capital stock, par value $1 per share..................... CNG Energy Services
CNG Oil Gathering:
Capital stock, par value $1 per share..................... CNG Energy Services
Total CNG Energy Services.............................
CNG POWER SERVICES:
CNG Lakewood:
Capital stock, par value $10,000 per share................ CNG Power Services
CNG INTERNATIONAL:
CNG Cayman One:
CNGI Australia Pty Limited:
Capital stock, par value $1 per share................... CNG Cayman One 1 share (Note 7)
CNG Cayman Two:
Capital stock, par value $.01 per share................... CNG International
CNG Laubuan One Limited:
Capital stock, par value $1 per share................... CNG Cayman Two
Promissory Note......................................... CNG Cayman Two
Total CNG Laubuan One Limited...........................
CNGI Australia Pty Limited:
Capital stock, par value AUD $1 per share............... CNG Cayman Two
CNG Cayman Three:
CNG Argentina S.A.:
Capital stock, par value ARP $1 per share............... CNG Cayman Three 11,999 shares
CNG Argentina S.A.:
Capital stock, par value ARP $1 per share................. CNG International 1 share
</TABLE>
- ---------------
Notes:
(1) Except as noted, all securities redeemed or retired have been cancelled.
(2) Public Utility Holding Company Act of 1935.
(3) In January 1998, the Parent Company purchased 4,558,500 shares at a cost of
$252,427,000, or $55.375 a share, in a private transaction to satisfy the
potential conversion obligation related to the call of its convertible
subordinated debentures. Of these shares, 1,638,185 were issued on
conversion. The remaining 2,920,315 shares were sold in two underwritten
offerings in February and March, 1998. Also during 1998, the Parent Company
acquired an additional 523,243 shares at a cost of $27,899,000, or an
average price of $53.32 a share. During 1998, 28,779 shares were reissued
in connection with stock awards under the System's employee incentive
plans.
(4) Effective July 31, 1998, the Parent Company sold the capital stock of CNG
Energy Services to Sempra Energy Trading, a subsidiary of Sempra Energy,
for a consideration of $37,379,000.
(5) Prior to the sale of CNG Energy Services, all of the common stock of its
subsidiaries was transferred to the Parent Company through a liquidating
distribution. Subsequent to the distribution, each of the subsidiaries
became a direct subsidiary of the Parent Company.
(6) Effective November 20, 1998, CNG Power Services sold the capital stock of
CNG Lakewood to HCE Lakewood, Inc. for a consideration of $486,000.
(7) In February 1998, CNG Cayman Two transferred its interest in CNGI Australia
to CNG International through a dividend out of paid-in capital. Subsequent
to the transfer, CNG International transferred the interest in CNGI
Australia to CNG Cayman One as a capital contribution.
(8) In October 1998, CNG International transferred its interest in CNG Cayman
Two and its subsidiary, CNG Laubuan, to DBNGP Finance Co. LLC in exchange
for a 50% interest in DBNGP Finance.
10
<PAGE> 13
<TABLE>
<CAPTION>
Number of Shares or
Principal Amount
Redeemed or Retired (Note 1) Consideration Commission Authorization (Note 2)
- --------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
1,366 shares (Note 5) $ -- Release No. 26900 (File No. 70-9203)
600 shares (Note 5) $ -- Release No. 26900 (File No. 70-9203)
22,460 shares (Note 5) $ -- Release No. 26900 (File No. 70-9203)
399 shares (Note 5) $ -- Release No. 26900 (File No. 70-9203)
1 share (Note 5) $ -- Release No. 26900 (File No. 70-9203)
1 share (Note 5) $ -- Release No. 26900 (File No. 70-9203)
--------
$ --
========
52 shares (Note 6) $ -- Non-jurisdictional
========
$ -- Release No. 35-26824 (File No. 70-8759)
========
10 shares (Note 8) $ -- Release No. 35-26824 (File No. 70-8759)
47,705,387 shares (Note 8) $ 47,705 Release No. 35-26824 (File No. 70-8759)
$95,400 (Note 8) $ 95,400 Release No. 35-26824 (File No. 70-8759)
--------
$143,105
========
1 share (Note 7) $ -- Release No. 35-26824 (File No. 70-8759)
========
$ 12 Release No. 35-26523 (File No. 70-8759)
========
$ -- Release No. 35-26523 (File No. 70-8759)
========
</TABLE>
11
<PAGE> 14
ITEM 5. INVESTMENTS IN SECURITIES OF NON-SYSTEM COMPANIES
The aggregate amounts of investments at December 31, 1998, 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.
12
<PAGE> 15
ITEM 6. OFFICERS AND DIRECTORS
Part I. Names, principal business address and positions held as of December 31,
1998
The names, principal business address and positions held as of December 31,
1998, of the officers and directors of system companies is presented in the
tables on pages 14 through 17. The principal business address of each officer
and director is indicated in such tables by the numbers (1) through (18). 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 subsequent to December 31, 1998
The following changes to the Parent Company officers were made effective January
1, 1999: E. J. Marks, III was elected Secretary and J. A. Crittenden was elected
Assistant Secretary. 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) One Chatham Center, Pittsburgh, PA 15219
(11) 1819 L Street, N.W., Washington, DC 20036
(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) 787 Seventh Avenue, New York, NY 10019
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
CC -- Chief Counsel
AGC -- Associate 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>
13
<PAGE> 16
ITEM 6. OFFICERS AND DIRECTORS (Continued)
Part I. Names, principal business address and positions held as of December 31,
1998
- --------------------------------------------------------------------------------
<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. Pittsburgh, PA (1) SVP SVP-D-r P-D
Atkinson, S.L. Clarksburg, WV (3) S-r
Bamburg, T. J. Pittsburgh, PA (10)
- -------------------------------------------------------------------------------------------------------------------------------
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) GC VP-GC-S-D-r
Brakeman, B. F. Cleveland, OH (4) VP-D-r
- -------------------------------------------------------------------------------------------------------------------------------
Brown, H. E. Clarksburg, WV (3) VP-GC-AS-D-r
Butera, J. E. Pittsburgh, PA (1) AVP-r
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-D-r
Crittenden, J. A. Pittsburgh, PA (1) r
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 (10) r
- -------------------------------------------------------------------------------------------------------------------------------
Elliott, R. S. Clarksburg, WV (7) AS-r
Fickenscher, D. A. Norfolk, VA (6) VP-GC-S-D-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
- -------------------------------------------------------------------------------------------------------------------------------
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
George, S. G. Pittsburgh, PA (2) CC-S-D ASG-AS-r
Greer, M. D. Clarksburg, WV (3) VP-D-r
- -------------------------------------------------------------------------------------------------------------------------------
Gregg, P. P. New Orleans, LA (5)
Groves, R. J. New York, NY (18) D-df
Haas, R. A., Jr. Pittsburgh, PA (1) VP-r
- -------------------------------------------------------------------------------------------------------------------------------
Halbritter, M. A. Cleveland, OH (4) VP-GC-D-r
Hunter, W. R. Norfolk, VA (6) Cn-T-D-r
Jacquet, T. J. New Orleans, LA (5)
- -------------------------------------------------------------------------------------------------------------------------------
Jeffries, G. A. Pittsburgh, PA (10)
Johns, D. M., Jr. New Orleans, LA (5)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Address key and position symbol key are located on page 13.
14
<PAGE> 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of System Companies with Which Connected
- ----------------------------------------------------------------------------------------------------------------------------------
CNG CNG Power CNG Power CNG Products CNG CNG CNG Consolidated CNG CNG CNG
Producing Services Company and Services International Retail Field Services LNG Research Coal Financial
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
- ----------------------------------------------------------------------------------------------------------------------------------
AS
VP-r
- ----------------------------------------------------------------------------------------------------------------------------------
AS-r S
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
GC-S
- ----------------------------------------------------------------------------------------------------------------------------------
S S-D
- ----------------------------------------------------------------------------------------------------------------------------------
VP-r
- ----------------------------------------------------------------------------------------------------------------------------------
S S S S
- ----------------------------------------------------------------------------------------------------------------------------------
VP VP-GM VP VP
- ----------------------------------------------------------------------------------------------------------------------------------
VP-r
- ----------------------------------------------------------------------------------------------------------------------------------
D
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
SVP-CFO-D-r VP-T-D
- ----------------------------------------------------------------------------------------------------------------------------------
AS-r
- ----------------------------------------------------------------------------------------------------------------------------------
AS AS AS AS-r
VP-GC-S-r GC-AS-D
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
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 (11) 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)
- -----------------------------------------------------------------------------------------------------------------------------------
Magnuson, M. G. Washington, DC (11) VP-AtGC-r
Marks, E. J., III Pittsburgh, PA (1) AS-r AS
Mayernick, C. S. Pittsburgh, PA (2) D-r
- -----------------------------------------------------------------------------------------------------------------------------------
McGreevy, S. R. Pittsburgh, PA (1) VP VP-r D
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
- -----------------------------------------------------------------------------------------------------------------------------------
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-D
Reppert, S. L. Norfolk, VA (6) AS-AT-r
Riley, H. P. New Orleans, LA (5) D
- -----------------------------------------------------------------------------------------------------------------------------------
Riley, P. E. Pittsburgh, PA (10)
Roberts, C. E. Clarksburg, WV (3) r
Rutledge, D. B. New Orleans, LA (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Sable, R. M., Jr. Pittsburgh, PA (1) VP-T-r
Schwartz, E. S. Pittsburgh, PA (2) r
Simmons, R. P. Pittsburgh, PA (16) D-df
- -----------------------------------------------------------------------------------------------------------------------------------
Skoog, J. H. Pittsburgh, PA (10)
Staton, J. D. Clarksburg, WV (3) VP-T-D-r
Strickland, B. E. Pittsburgh, PA (2) D-r
- -----------------------------------------------------------------------------------------------------------------------------------
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)
Wahl, W. F., III Pittsburgh, PA (1) r
- -----------------------------------------------------------------------------------------------------------------------------------
Wester, T. E. Pittsburgh, PA (2) VP-D-r
Westfall, D. M. Pittsburgh, PA (1) SVP-CFO SVP-CFO-D-r
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 13.
16
<PAGE> 19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of System Companies with Which Connected
- -------------------------------------------------------------------------------------------------------------------------
CNG CNG Power CNG Power CNG Products CNG CNG CNG Consolidated CNG CNG
Producing Services Company and Services International Retail Field Services LNG Research Coal
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
VP-r
- ------------------------------------------------------------------------------------------------------------------------
SVP-D-r
- ------------------------------------------------------------------------------------------------------------------------
AS AS AS AS AS AS AS
- ------------------------------------------------------------------------------------------------------------------------
VP-Cn-T-r
- ------------------------------------------------------------------------------------------------------------------------
AS AS AS AS S AS AS
AT-r AT
- ------------------------------------------------------------------------------------------------------------------------
VP-r
- ------------------------------------------------------------------------------------------------------------------------
AT-r
- ------------------------------------------------------------------------------------------------------------------------
AT
P-D-r D
- ------------------------------------------------------------------------------------------------------------------------
VP-r
VP-D
r AS
- ------------------------------------------------------------------------------------------------------------------------
D D D D
VP-GM
- ------------------------------------------------------------------------------------------------------------------------
VP-r
T-D VP-T
- ------------------------------------------------------------------------------------------------------------------------
P-D
GC
- ------------------------------------------------------------------------------------------------------------------------
P-D-r
AT-D AT-D AT-D AT-D
- ------------------------------------------------------------------------------------------------------------------------
D P-D
T T T AT T D AT
- ------------------------------------------------------------------------------------------------------------------------
D GC-S-D P-D
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------
CNG
Financial
<S> <C>
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
- ------------
AS
- ------------
P
VP-T
- ------------
- ------------
</TABLE>
17
<PAGE> 20
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, 1998, 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>
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 1998 is included in the Registrant's "1999 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 12, and "NON-EMPLOYEE DIRECTORS'
COMPENSATION" on page 19, 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 "1999 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 11; "OPTION GRANTS IN LAST FISCAL YEAR" on page 13; "TRIANNUAL OPTION
GRANTS IN LAST FISCAL YEAR" on page 13; "AGGREGATED NON-QUALIFIED STOCK OPTION
EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1998, YEAR-END NON-QUALIFIED
STOCK OPTION VALUES" on page 14; and "LONG-TERM INCENTIVE PLAN AWARDS IN THE
LAST FISCAL YEAR" on page 14.
18
<PAGE> 21
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 "1999 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 20 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 "1999 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 20, and "RETIREMENT PROGRAMS" on page 21, 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.
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS
Tabulated below for each system company are the expenditures, disbursements, or
payments made during the year 1998, 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 1998.
<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 Allegheny 2000 Citizens' Civic Other income deductions $75,000
Committee
Parent Company One beneficiary Civic Other income deductions $5,000
East Ohio Gas Every Child Counts Civic Other income deductions $25,000
Committee (Note 1)
East Ohio Gas Four beneficiaries(Note Civic Other income deductions $3,835
1)
</TABLE>
19
<PAGE> 22
ITEM 7. CONTRIBUTIONS AND PUBLIC RELATIONS (Concluded)
- ------------
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 1998
are as follows:
<TABLE>
<CAPTION>
Date of Contract(s)
Transaction (Note 1) Serving Company Receiving Company Compensation (Note 2)
- ---------------------- ------------------- ------------------- ------------- ---------------------------
<S> <C> <C> <C> <C>
Management services CNG Transmission Hope Gas $2,154,011 January 1, 1984
Management services CNG Transmission Peoples Natural Gas $ 161,655 June 16, 1989
Management services CNG Transmission CNG Producing $ 220,649 December 17, 1981
Management services CNG Producing CNG Energy Services $ 115,474 October 1, 1990 (Note 3)
Management services CNG Energy Services CNG Power $ 155,693 January 1, 1995
Management services CNG Energy Services CNG Power Services $2,132,733 November 1, 1994
Management services CNG Energy Services CNG Retail $ 438,045 February 12, 1997
Management services Peoples Natural Gas Hope Gas $ 102,972 August 18, 1995
</TABLE>
- ---------------
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, 1998, except those involving
CNG Energy Services or as otherwise noted.
(3) Of this amount, $73,270 relates to an Information Services and Special
Services Agreement dated July 17, 1996.
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.
20
<PAGE> 23
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 exempt
wholesale generators follows.
On November 20, 1998, CNG Power, a wholly owned subsidiary of the Company, sold
its 34% limited partnership interest in Lakewood Cogeneration, L.P. (Lakewood
Partnership) to Hydra-Co Enterprises, Inc. for $16.5 million. On the same date,
CNG Power Services, a wholly owned subsidiary of the Company, sold all of the
outstanding capital stock of CNG Lakewood to HCE Lakewood, Inc. for $.5 million.
CNG Lakewood, a former wholly owned subsidiary of CNG Power Services, owned a 1%
general partnership interest in the Lakewood Partnership. As of December 31,
1998, the Company had no investment remaining in the Lakewood Partnership nor
did the Company have any other investments in exempt wholesale generators.
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. CNG International obtains an
indirect ownership interest, equal to its percentage ownership interest in the
partnership, in each of the Latin America Fund's investments. Until Mid-1998,
the Latin America Fund's business was limited to investing in FUCOs in Latin
America. The Latin America Fund had investments in three FUCOs and a foreign
pipeline as of December 31, 1998.
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, 1998, CNG International's investment in the Latin America
Fund totaled $9,158,000. CNG International's total commitment for investment in
the Latin America Fund is $10,000,000. The balance will fund additional
investments and operating costs. 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 $2,847,538 for the year ended
December 31, 1998.
(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 other interests held by system companies in FUCOs
follows.
(a) Argentine FUCOs
In December 1997, CNG International acquired ownership interests in two gas
utility holding companies, Sodigas Pampeana S.A. and Sodigas Sur S.A., and in an
electric utility holding company, Buenos Aires Energy Company (BAECO), from CEI
Citicorp Holdings S.A. in Argentina. In March 1998, CNG International purchased
additional interests in Sodigas Pampeana, S.A., Sodigas Sur S.A. and BAECO
bringing the Company's ownership interests in these entities to 21.55%, 21.55%,
and 25%, respectively. 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.
21
<PAGE> 24
ITEM 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES (Concluded)
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 358,000 customers in Argentina to the south of Buenos Aires.
Camuzzi Pampeana and Camuzzi del Sur own, in the aggregate, approximately 5,400
miles of natural gas pipelines and 19,000 miles of natural gas distribution
mains and networks. Camuzzi Pampeana and Camuzzi del Sur together sell
approximately 235 Bcf of natural gas per year.
EDEA serves approximately 400,000 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>
(b) At December 31, 1998, CNG International's investment in the Argentine
holding companies was as follows:
<TABLE>
<S> <C>
Sodigas Pampeana............................................ $ 54,289,000
Sodigas Sur................................................. 35,489,000
BAECO....................................................... 33,004,000
------------
Total....................................................... $122,782,000
============
</TABLE>
There have been no transfer of assets from a CNG affiliate to any of the FUCOs
in which Sodigas Pampeana, Sodigas Sur or BAECO has an interest.
(c) The capital structure and earnings for the Argentine holding companies as of
and for the year ended December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Capital Structure
-----------------
Debt Equity Earnings (Loss)
---- ------ ---------------
<S> <C> <C> <C>
Sodigas Pampeana.......................... 45% 55% $10,297,866
Sodigas Sur............................... 44% 56% $14,383,636
BAECO..................................... 73% 27% $(1,750,950)
</TABLE>
(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 FUCOs to system companies, and financial data:
Organization charts showing the relationship of the FUCOs to other system
companies are filed as Exhibit H to this Form U5S. Financial statements of the
FUCOs are filed as Exhibit I to this Form U5S.
Part III. Investment in FUCOs:
The Company's aggregate investment in the FUCOs totaled $129,958,000, at
December 31, 1998. The ratio of the Registrant's aggregate investment in the
FUCOs to the Registrant's aggregate capital investment in its domestic public
utility subsidiaries was 9.4% at December 31, 1998.
22
<PAGE> 25
ITEM 10. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants........................... 25
CONSOLIDATED NATURAL GAS COMPANY:
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................. 40
Consolidating Statement of Retained Earnings Supplement... 42
Consolidating Statement of Cash Flows Supplement.......... 44
CNG TRANSMISSION CORPORATION:
Consolidating Balance Sheet............................... 46
Consolidating Income Statement............................ 48
Consolidating Statement of Retained Earnings.............. 49
Consolidating Statement of Cash Flows..................... 50
CNG PRODUCING COMPANY:
Consolidating Balance Sheet............................... 52
Consolidating Income Statement............................ 54
Consolidating Statement of Retained Earnings.............. 55
Consolidating Statement of Cash Flows..................... 56
CNG ENERGY SERVICES CORPORATION:
Consolidating Income Statement............................ 58
Consolidating Statement of Retained Earnings.............. 59
Consolidating Statement of Cash Flows..................... 60
CNG POWER COMPANY (Note 2):
Consolidating Income Statement............................ 62
Consolidating Statement of Retained Earnings.............. 63
Consolidating Statement of Cash Flows..................... 64
CNG PRODUCTS AND SERVICES, INC. (Note 2):
Consolidating Income Statement............................ 66
Consolidating Statement of Retained Earnings.............. 67
Consolidating Statement of Cash Flows..................... 68
CNG POWER SERVICES CORPORATION:
Consolidating Balance Sheet............................... 70
Consolidating Income Statement............................ 72
Consolidating Statement of Retained Earnings.............. 73
Consolidating Statement of Cash Flows..................... 74
CNG INTERNATIONAL CORPORATION:
Consolidating Balance Sheet............................... 76
Consolidating Income Statement............................ 78
Consolidating Statement of Retained Earnings.............. 79
Consolidating Statement of Cash Flows..................... 80
CNG CAYMAN ONE LTD:
Consolidating Balance Sheet............................... 82
Consolidating Income Statement............................ 84
Consolidating Statement of Retained Earnings.............. 85
Consolidating Statement of Cash Flows..................... 86
</TABLE>
23
<PAGE> 26
ITEM 10. (Continued)
<TABLE>
<CAPTION>
Page
------
<S> <C>
CNG CAYMAN TWO LTD:
Consolidating Statement of Cash Flows..................... 88
CNG CAYMAN THREE LTD:
Consolidating Balance Sheet............................... 90
Consolidating Income Statement............................ 92
Consolidating Statement of Retained Earnings.............. 93
Consolidating Statement of Cash Flows..................... 94
CNG POWER COMPANY (Note 3):
Consolidating Balance Sheet............................... 96
Consolidating Income Statement............................ 98
Consolidating Statement of Retained Earnings.............. 99
Consolidating Statement of Cash Flows..................... 100
CNG PRODUCTS AND SERVICES, INC. (Note 3):
Consolidating Balance Sheet............................... 102
Consolidating Income Statement............................ 104
Consolidating Statement of Retained Earnings.............. 105
Consolidating Statement of Cash Flows..................... 106
Notes to Consolidated Financial Statements.................. Note 1
</TABLE>
- ---------------
Note 1: The Notes to Consolidated Financial Statements appearing on pages 28 to
58 of Exhibit 99 to Consolidated Natural Gas Company's Annual Report on
Form 10-K for the year ended December 31, 1998, are incorporated herein
by reference.
Note 2: For the period January 1 through July 31, 1998.
Note 3: For the period August 1 through December 31, 1998.
EXHIBITS
A list of the exhibits is on page 107.
24
<PAGE> 27
ITEM 10. (Continued)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Consolidated Natural Gas Company
In our opinion, the consolidating financial statements of Consolidated Natural
Gas Company listed in the accompanying index on page 23 together with the Notes
thereto incorporated by reference to Exhibit 99 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 present fairly, in all
material respects, the consolidated financial position of Consolidated Natural
Gas Company and its subsidiaries at December 31, 1998, 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 106 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 106 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.
PRICEWATERHOUSECOOPERS LLP
600 Grant Street
Pittsburgh, Pennsylvania 15219-9954
February 9, 1999, except for Note 19, which is as of February 22, 1999
25
<PAGE> 28
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
----------------- Eliminations ---------------------
CNG and Combined CNGT
Assets and Subsidiaries Adjustments* Total CNG CNGSvc (Page 46)
- ------ ----------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT (Note
5)
Gas utility and other plant......... $ 5,091,793 $ (2,228) $ 5,094,021 $ -- $ 40,975 $2,104,834
Accumulated depreciation and
amortization...................... (1,999,484) 376 (1,999,860) -- (13,961) (906,969)
----------- ----------- ----------- ---------- -------- ----------
Net gas utility and other
plant........................ 3,092,309 (1,852) 3,094,161 -- 27,014 1,197,865
----------- ----------- ----------- ---------- -------- ----------
Exploration and production
properties........................ 4,080,672 -- 4,080,672 -- -- 228,132
Accumulated depreciation and
amortization...................... (2,734,517) 24,565 (2,759,082) -- -- (202,987)
----------- ----------- ----------- ---------- -------- ----------
Net exploration and production
properties................... 1,346,155 24,565 1,321,590 -- -- 25,145
----------- ----------- ----------- ---------- -------- ----------
Net property, plant and
equipment.................... 4,438,464 22,713 4,415,751 -- 27,014 1,223,010
----------- ----------- ----------- ---------- -------- ----------
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated............ -- (2,506,555) 2,506,555 2,506,555 -- --
Notes of subsidiary companies --
consolidated...................... -- (1,113,471) 1,113,471 1,113,471 -- --
----------- ----------- ----------- ---------- -------- ----------
Total investments............ -- (3,620,026) 3,620,026 3,620,026 -- --
----------- ----------- ----------- ---------- -------- ----------
CURRENT ASSETS
Cash and temporary cash
investments....................... 135,453 -- 135,453 1,221 82,290 3,952
Accounts receivable
Customers......................... 363,503 -- 363,503 2,154 -- 53,198
Unbilled revenues and other....... 221,833 -- 221,833 116 6,640 (2,687)
Allowance for doubtful accounts... (23,039) -- (23,039) (978) -- (27)
Receivables from affiliated
companies -- consolidated......... -- (1,525,323) 1,525,323 772,163 598,149 41,648
Inventories, at cost
Gas stored -- current portion
(Note 9)........................ 120,665 (2,062) 122,727 -- -- --
Materials and supplies (average
cost method).................... 27,940 -- 27,940 -- 15 10,842
Unrecovered gas costs (Note 4)...... 34,860 -- 34,860 -- -- 30,516
Deferred income taxes -- current
(net) (Note 8).................... 21,786 (4,172) 25,958 -- -- 2,323
Prepayments and other current
assets............................ 258,899 -- 258,899 66,168 193 46,570
----------- ----------- ----------- ---------- -------- ----------
Total current assets......... 1,161,900 (1,531,557) 2,693,457 840,844 687,287 186,335
----------- ----------- ----------- ---------- -------- ----------
REGULATORY AND OTHER ASSETS
Other investments................... 302,307 -- 302,307 1,625 -- 36,785
Deferred charges and other assets
(Notes 4, 6, 7, 8, and 16)........ 459,229 (98,391) 557,620 38,895 17,795 86,635
----------- ----------- ----------- ---------- -------- ----------
Total regulatory and other
assets..................... 761,536 (98,391) 859,927 40,520 17,795 123,420
----------- ----------- ----------- ---------- -------- ----------
Total assets................. $ 6,361,900 $(5,227,261) $11,589,161 $4,501,390 $732,096 $1,532,765
=========== =========== =========== ========== ======== ==========
</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
------------------------------------------------------------------------------------------------------------------------
CNG Other
CNGP CNGPSC CNGI Field CNG Subsidiaries
EOG PNG VNG HGI (Page 52) (Page 70) (Page 76) Services Retail (Page 36)
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,519,051 $ 672,541 $ 530,866 $188,848 $ -- $ -- $ 1,969 $ 21,063 $ 8,011 $ 5,863
(625,678) (228,816) (145,539) (74,155) -- -- (340) -- (1,809) (2,593)
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
893,373 443,725 385,327 114,693 -- -- 1,629 21,063 6,202 3,270
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
-- -- -- -- 3,852,540 -- -- -- -- --
-- -- -- -- (2,556,095) -- -- -- -- --
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
-- -- -- -- 1,296,445 -- -- -- -- --
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
893,373 443,725 385,327 114,693 1,296,445 -- 1,629 21,063 6,202 3,270
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
-- -- -- -- -- -- -- -- -- --
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
16,932 5,780 2,018 4,899 6,872 -- 10,447 366 145 531
184,561 69,234 15,259 18,312 1,947 -- -- 11,946 5,065 1,827
73,441 8,499 14,184 20,227 100,973 -- 389 (11) 13 49
(2,640) (6,179) (601) (10,416) (1,000) -- -- (592) (501) (105)
5,946 5,622 1,196 2,645 4,399 -- 1,727 9,119 12,976 69,733
62,528 14,004 21,627 9,690 -- -- -- -- 14,878 --
10,390 2,179 623 689 1,592 -- -- -- 54 1,556
-- 4,344 -- -- -- -- -- -- -- --
17,710 -- 2,290 3,594 41 -- -- -- -- --
99,892 22,247 360 4,131 10,249 -- 3 3,743 5,258 85
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
468,760 125,730 56,956 53,771 125,073 -- 12,566 24,571 37,888 73,676
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
1,025 -- 55 2,125 -- -- 209,578 -- -- 51,114
204,206 171,213 7,065 20,715 4,693 -- 30 (129) 2,599 3,903
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
205,231 171,213 7,120 22,840 4,693 -- 209,608 (129) 2,599 55,017
---------- --------- --------- -------- ----------- -------- -------- -------- ------- --------
$1,567,364 $ 740,668 $ 449,403 $191,304 $ 1,426,211 $ -- $223,803 $ 45,505 $46,689 $131,963
========== ========= ========= ======== =========== ======== ======== ======== ======= ========
</TABLE>
27
<PAGE> 30
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- Eliminations ---------------------
CNG and Combined CNGT
Stockholders' Equity and Liabilities and Subsidiaries Adjustments* Total CNG CNGSvc (Page 47)
- ------------------------------------ ---------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholders' equity (Note
10)
Common stock, par value $2.75 per
share
Authorized -- 400,000,000 shares
Issued -- 95,944,551 shares..... $ 263,848 $(1,861,690) $ 2,125,538 $ 263,848 $ 10 $ 601,000
Capital in excess of par value.... 571,972 (39,887) 611,859 532,007 -- 2,254
Retained earnings, per
accompanying statement (Note
12)............................. 1,591,543 (594,969) 2,186,512 1,596,821 -- 142,141
Treasury stock, at cost (495,123
shares)......................... (26,359) -- (26,359) (26,359) -- --
Unearned compensation............. (1,396) (1,396) -- -- -- --
---------- ----------- ----------- ---------- -------- ----------
Total common stockholders'
equity....................... 2,399,608 (2,497,942) 4,897,550 2,366,317 10 745,395
---------- ----------- ----------- ---------- -------- ----------
Long-term debt (Note 13)
Debentures........................ 1,379,729 -- 1,379,729 1,379,729 -- --
Notes payable to
Registrant -- consolidated...... -- (1,113,471) 1,113,471 -- 3,672 343,252
---------- ----------- ----------- ---------- -------- ----------
Total long-term debt............ 1,379,729 (1,113,471) 2,493,200 1,379,729 3,672 343,252
---------- ----------- ----------- ---------- -------- ----------
Total capitalization............ 3,779,337 (3,611,413) 7,390,750 3,746,046 3,682 1,088,647
---------- ----------- ----------- ---------- -------- ----------
CURRENT LIABILITIES
Current maturities on long-term
debt.............................. 111,125 -- 111,125 107,125 -- --
Commercial paper (Note 14).......... 558,900 -- 558,900 558,900 -- --
Accounts payable.................... 423,695 (6,126) 429,821 1,751 15,498 54,971
Payables to affiliated companies --
consolidated...................... -- (1,519,197) 1,519,197 1,261 691,686 56,243
Estimated rate contingencies and
refunds (Note 4).................. 78,266 -- 78,266 -- -- 56,946
Amounts payable to customers (Note
4)................................ 48,339 -- 48,339 -- -- --
Taxes accrued....................... 122,788 9 122,779 587 (406) 28,208
Deferred income taxes -- current
(net) (Note 8).................... -- (4,172) 4,172 -- -- --
Dividends declared.................. 46,277 -- 46,277 46,277 -- --
Other current liabilities........... 154,947 5 154,942 25,562 5,108 35,262
---------- ----------- ----------- ---------- -------- ----------
Total current liabilities....... 1,544,337 (1,529,481) 3,073,818 741,463 711,886 231,630
---------- ----------- ----------- ---------- -------- ----------
DEFERRED CREDITS
Deferred income taxes (Note 8)...... 780,928 8,119 772,809 (8,279) (2,815) 184,029
Accumulated deferred investment tax
credits........................... 24,475 -- 24,475 -- -- 120
Deferred credits and other
liabilities (Notes 4, 7 and 8).... 232,823 (94,486) 327,309 22,160 19,343 28,339
---------- ----------- ----------- ---------- -------- ----------
Total deferred credits.......... 1,038,226 (86,367) 1,124,593 13,881 16,528 212,488
---------- ----------- ----------- ---------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Note
17)...............................
---------- ----------- ----------- ---------- -------- ----------
Total stockholders' equity and
liabilities.................. $6,361,900 $(5,227,261) $11,589,161 $4,501,390 $732,096 $1,532,765
========== =========== =========== ========== ======== ==========
</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
--------------------------------------------------------------------------------------------------------------------
CNG Other
CNGP CNGPSC CNGI Field CNG Subsidiaries
EOG PNG VNG HGI (Page 53) (Page 71) (Page 77) Services Retail (Page 38)
---------- -------- -------- -------- ---------- --------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 237,968 $183,535 $148,697 $ 40,900 $ 326,000 $ 15,520 $215,550 $ 13,670 $ 6,000 $ 72,840
19,975 -- 57,603 -- -- -- -- -- -- 20
193,330 75,776 3,198 12,803 201,664 (18,187) (9,231) 8,509 (5,888) (14,424)
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
451,273 259,311 209,498 53,703 527,664 (2,667) 206,319 22,179 112 58,436
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
-- -- -- -- -- -- -- -- -- --
165,700 132,605 79,000 33,204 329,125 -- 15,000 -- -- 11,913
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
165,700 132,605 79,000 33,204 329,125 -- 15,000 -- -- 11,913
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
616,973 391,916 288,498 86,907 856,789 (2,667) 221,319 22,179 112 70,349
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
-- -- 4,000 -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
109,440 31,159 21,478 15,626 156,415 -- 727 13,676 8,279 801
398,437 77,672 79,224 40,128 75,942 -- 734 7,856 37,041 52,973
16,121 3,122 2,077 -- -- -- -- -- -- --
42,424 -- 5,915 -- -- -- -- -- -- --
77,523 3,678 (2,190) 6,800 5,510 -- 270 991 1,297 511
-- 4,172 -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
13,611 24,059 11,397 4,155 30,493 2,667 437 488 873 830
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
657,556 143,862 121,901 66,709 268,360 2,667 2,168 23,011 47,490 55,115
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
180,423 134,195 9,542 13,192 257,178 -- (250) -- (905) 6,499
10,971 8,245 2,836 2,303 -- -- -- -- -- --
101,441 62,450 26,626 22,193 43,884 -- 566 315 (8) --
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
292,835 204,890 39,004 37,688 301,062 -- 316 315 (913) 6,499
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
---------- -------- -------- -------- ---------- -------- -------- -------- ------- --------
$1,567,364 $740,668 $449,403 $191,304 $1,426,211 $ -- $223,803 $ 45,505 $46,689 $131,963
========== ======== ======== ======== ========== ======== ======== ======== ======= ========
</TABLE>
29
<PAGE> 32
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- Eliminations --------------------
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 48)
---------------- ------------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales........................ $1,373,691 $ (5,395) $1,379,086 $ -- $ -- $ --
Nonregulated gas sales..................... 494,419 (40,071) 534,490 -- -- 32,766
---------- --------- ---------- -------- -------- --------
Total gas sales...................... 1,868,110 (45,466) 1,913,576 -- -- 32,766
Gas transportation and storage............. 545,933 (97,762) 643,695 -- -- 445,316
Other...................................... 346,363 (132,462) 478,825 -- 126,911 51,373
---------- --------- ---------- -------- -------- --------
Total operating revenues (Note 4).... 2,760,406 (275,690) 3,036,096 -- 126,911 529,455
---------- --------- ---------- -------- -------- --------
OPERATING EXPENSES
Purchased gas.............................. 900,401 (146,625) 1,047,026 -- -- 46,559
Liquids, capacity and other products
purchased................................ 145,277 -- 145,277 -- -- 18,754
Operation expense (Note 6)................. 618,010 (129,066) 747,076 9,523 114,991 136,807
Maintenance................................ 90,368 -- 90,368 -- 1,710 28,701
Depreciation and amortization (Note 5)..... 329,913 871 329,042 -- 4,835 62,665
Taxes, other than income taxes............. 179,299 -- 179,299 2,193 3,587 35,011
---------- --------- ---------- -------- -------- --------
Subtotal............................. 2,263,268 (274,820) 2,538,088 11,716 125,123 328,497
---------- --------- ---------- -------- -------- --------
Operating income before income
taxes............................. 497,138 (870) 498,008 (11,716) 1,788 200,958
Income taxes (Note 8)...................... 129,649 (319) 129,968 (12,190) -- 64,728
---------- --------- ---------- -------- -------- --------
Operating income..................... 367,489 (551) 368,040 474 1,788 136,230
---------- --------- ---------- -------- -------- --------
OTHER INCOME
Interest revenues.......................... 3,165 (4,674) 7,839 725 1 329
Other -- net............................... 31,535 -- 31,535 (3,569) (20) 9,788
Equity in earnings of subsidiary
companies -- consolidated................ -- (257,186) 257,186 257,186 -- --
Interest revenues from affiliated
companies -- consolidated................ -- (118,789) 118,789 112,619 15 2,740
---------- --------- ---------- -------- -------- --------
Total other income................... 34,700 (380,649) 415,349 366,961 (4) 12,857
---------- --------- ---------- -------- -------- --------
Income before interest charges....... 402,189 (381,200) 783,389 367,435 1,784 149,087
---------- --------- ---------- -------- -------- --------
INTEREST CHARGES
Interest on long-term debt................. 106,307 (93,522) 199,829 106,084 999 26,610
Other interest expense..................... 19,659 (29,940) 49,599 23,554 785 416
Allowance for funds used during
construction............................. (11,488) -- (11,488) -- -- (778)
---------- --------- ---------- -------- -------- --------
Total interest charges............... 114,478 (123,462) 237,940 129,638 1,784 26,248
---------- --------- ---------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS.......... 287,711 (257,738) 545,449 237,797 -- 122,839
DISCONTINUED OPERATIONS (NOTE 2)
Loss from discontinued energy marketing
services operations, net of applicable
tax benefit.............................. (17,238) (39) (17,199) -- -- --
Loss from disposal of energy marketing
services operations, including provision
for operating losses during the phase out
period, net of applicable tax benefit.... (31,707) 57 (31,764) 969 -- --
---------- --------- ---------- -------- -------- --------
NET INCOME................................. $ 238,766 $(257,720) $ 496,486 $238,766 $ -- $122,839
========== ========= ========== ======== ======== ========
Earnings per common share (Note 3) BASIC DILUTED
Income from continuing operations.......... $3.03 $3.00
Loss from discontinued operations........ (.18) (.18)
Loss from disposal of discontinued
operations............................. (.33) (.33)
---------- ---------
Net Income................................. $2.52 $2.49
========== =========
</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
-----------------------------------------------------------------------------------------------------------------
CNG Other
CNGP CNGESC CNGPSC CNGI Field CNG Subsidiaries
EOG PNG VNG HGI (Page 54) (Page 58) (Page 72) (Page 78) Services Retail (Page 40)
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 902,408 $204,725 $179,063 $ 90,193 $ -- $ -- $ -- $ -- $ -- $ -- $ 2,697
-- -- -- -- 359,596 54,810 -- -- 52,287 35,031 --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
902,408 204,725 179,063 90,193 359,596 54,810 -- -- 52,287 35,031 2,697
99,032 87,678 4,345 6,879 436 -- -- -- 9 -- --
17,539 10,403 6,395 3,199 236,223 14,341 -- 1,183 2,688 2,789 5,781
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
1,018,979 302,806 189,803 100,271 596,255 69,151 -- 1,183 54,984 37,820 8,478
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
577,632 117,930 93,405 46,305 39,972 49,538 -- -- 44,928 30,757 --
-- -- -- -- 115,397 6,512 -- -- 165 2,243 2,206
179,639 66,809 39,903 24,803 148,119 7,163 -- 5,507 3,015 4,701 6,096
23,235 16,213 5,336 5,795 9,133 33 -- 13 4 195 --
38,582 18,438 12,671 5,373 179,423 1,674 -- 176 -- 5,082 123
94,073 19,483 9,577 8,442 5,925 298 1 152 149 487 (79)
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
913,161 238,873 160,892 90,718 497,969 65,218 1 5,848 48,261 43,465 8,346
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
105,818 63,933 28,911 9,553 98,286 3,933 (1) (4,665) 6,723 (5,645) 132
29,663 19,772 6,992 1,887 17,239 2,803 35 (3,539) 2,735 (2,180) 2,023
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
76,155 44,161 21,919 7,666 81,047 1,130 (36) (1,126) 3,988 (3,465) (1,891)
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
5,028 284 -- 109 737 39 1 331 9 22 224
2,561 4,034 4 79 127 4,757 148 8,879 -- (14) 4,761
-- -- -- -- -- -- -- -- -- -- --
-- -- -- 1 381 1,145 21 19 52 -- 1,796
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
7,589 4,318 4 189 1,245 5,941 170 9,229 61 8 6,781
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
83,744 48,479 21,923 7,855 82,292 7,071 134 8,103 4,049 (3,457) 4,890
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
17,018 10,765 6,837 2,773 24,724 900 -- 2,593 76 -- 450
11,750 1,913 2,782 613 1,522 1,709 -- 3,001 54 543 957
(2,142) (432) (210) (101) (7,825) -- -- -- -- -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
26,626 12,246 9,409 3,285 18,421 2,609 -- 5,594 130 543 1,407
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
57,118 36,233 12,514 4,570 63,871 4,462 134 2,509 3,919 (4,000) 3,483
-- -- -- -- -- (12,885) (4,314) -- -- -- --
-- -- -- -- -- (27,916) (4,817) -- -- -- --
---------- -------- -------- -------- -------- ---------- -------- ------- ------- ------- -------
$ 57,118 $ 36,233 $ 12,514 $ 4,570 $ 63,871 $ (36,339) $ (8,997) $ 2,509 $ 3,919 $(4,000) $ 3,483
========== ======== ======== ======== ======== ========== ======== ======= ======= ======= =======
</TABLE>
31
<PAGE> 34
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- Eliminations --------------------
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 49)
---------------- ------------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997...... $1,539,587 $(547,161) $2,086,748 $1,543,753 $ -- $ 147,251
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company.................. -- (9,624) 9,624 -- -- --
Net income for the year 1998 per
accompanying income statement... 238,766 (257,720) 496,486 238,766 -- 122,839
---------- --------- ---------- ---------- -------- ---------
Total.................... 1,778,353 (814,505) 2,592,858 1,782,519 -- 270,090
Sale of CNG Energy Services common
stock by Parent Company and
assumption of remaining assets
and liabilities of CNG Energy
Services by Parent Company...... -- (54,519) 54,519 -- -- --
Dividends declared on common
stock -- cash (Note 10)......... (185,758) 274,055 (459,813) (185,758) -- (127,949)
Pension liability adjustment (Note
7).............................. 60 -- 60 60 -- --
Cumulative translation
adjustment...................... (1,112) -- (1,112) -- -- --
---------- --------- ---------- ---------- -------- ---------
Balance at December 31, 1998 (Note
12)............................. $1,591,543 $(594,969) $2,186,512 $1,596,821 $ -- $ 142,141
========== ========= ========== ========== ======== =========
</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
----------------------------------------------------------------------------------------------------------------------------
CNG Other
CNGP CNGESC CNGPSC CNGI Field CNG Subsidiaries
EOG PNG VNG HGI (Page 55) (Page 59) (Page 73) (Page 79) Services Retail (Page 42)
-------- -------- -------- ------- --------- --------- --------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$201,035 $ 74,065 $ 4,034 $14,644 $157,793 $(11,480) $ (9,190) $(10,628) $ -- $ -- $(24,529)
-- -- -- -- -- (6,700) -- -- 4,590 (1,888) 13,622
57,118 36,233 12,514 4,570 63,871 (36,339) (8,997) 2,509 3,919 (4,000) 3,483
-------- -------- -------- ------- -------- -------- -------- -------- ------ ------- --------
258,153 110,298 16,548 19,214 221,664 (54,519) (18,187) (8,119) 8,509 (5,888) (7,424)
-- -- -- -- -- 54,519 -- -- -- -- --
(64,823) (34,522) (13,350) (6,411) (20,000) -- -- -- -- -- (7,000)
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- (1,112) -- -- --
-------- -------- -------- ------- -------- -------- -------- -------- ------ ------- --------
$193,330 $ 75,776 $ 3,198 $12,803 $201,664 $ -- $(18,187) $ (9,231) $8,509 $(5,888) $(14,424)
======== ======== ======== ======= ======== ======== ======== ======== ====== ======= ========
</TABLE>
33
<PAGE> 36
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CONSOLIDATED
---------------- Eliminations --------------------
CNG and Combined CNGT
and Subsidiaries Adjustments* Total CNG CNGSvc (Page 50)
---------------- ------------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations............... $ 287,711 $(257,738) $545,449 $ 237,797 $ -- $ 122,839
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities
Depreciation and amortization.................. 329,913 871 329,042 -- 4,835 62,665
Pension cost (credit) -- net................... (56,496) -- (56,496) 1,355 (1,157) (15,801)
Stock award amortization....................... 7,460 -- 7,460 2,719 1,038 634
Deferred income taxes-net...................... 17,901 (319) 18,220 (270) (30) 151
Investment tax credit.......................... (2,171) -- (2,171) -- -- (22)
Changes in current assets and current
liabilities
Accounts receivable -- net................... 4,244 -- 4,244 (42) (5,840) (8,008)
Receivables from affiliated
companies -- consolidated.................. -- (73,828) 73,828 3,956 (14,703) 1,783
Inventories.................................. (2,584) -- (2,584) -- (15) 864
Unrecovered gas costs........................ 20,202 -- 20,202 -- -- 6,312
Accounts payable............................. 92,795 (14,854) 107,649 907 (11,237) 32,706
Payables to affiliated
companies -- consolidated.................. -- 88,682 (88,682) (78,455) 21,492 (10,105)
Estimated rate contingencies and refunds..... 49,154 -- 49,154 -- -- 50,296
Amounts payable to customers................. 47,459 -- 47,459 -- -- --
Taxes accrued................................ (614) -- (614) 640 (107) (1,440)
Other-net.................................... (40,282) -- (40,282) (19,308) 807 1,997
Changes in other assets and other
liabilities.................................. 14,716 -- 14,716 237 5,607 (13,514)
Excess of equity in earnings of subsidiary
companies over their cash dividends
paid -- consolidated......................... -- (18,536) 18,536 18,536 -- --
Other -- net................................... (2,015) -- (2,015) 1,663 (8) --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) continuing
operations............................. 767,393 (275,722) 1,043,115 169,735 682 231,357
Net cash provided by (used in) discontinued
operations..................................... 44,735 -- 44,735 35,445 -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) operating
activities............................. 812,128 (275,722) 1,087,850 205,180 682 231,357
--------- --------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions...................................... (561,654) -- (561,654) -- (10,777) (56,955)
Proceeds from dispositions of prop., plant and
equip. -- net.................................. (1,267) -- (1,267) -- -- (1,706)
Cost of other investments -- net................ (104,233) -- (104,233) (1,125) -- (3,773)
Intrasystem long-term financing -- net.......... -- (4,882) 4,882 4,882 -- --
Intrasystem money pool investments -- net....... -- 54,468 (54,468) (71,138) 8,181 (11,273)
Property transfers to (from) affiliates......... -- 1,396 (1,396) -- (1,377) --
Cash -- Liquidating distribution/assumption of
assets
and liabilities................................ -- -- -- 2,774 -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) continuing
operations............................... (667,154) 50,982 (718,136) (64,607) (3,973) (73,707)
Net cash provided by (used in) discontinued
operations..................................... 35,605 358 35,247 28,664 -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) investing
activities............................... (631,549) 51,340 (682,889) (35,943) (3,973) (73,707)
--------- --------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -- Registrant.......... 11,719 -- 11,719 11,719 -- --
Issuance of debentures -- Registrant............ 196,888 -- 196,888 196,888 -- --
Repayments of long-term debt.................... (327,323) -- (327,323) (323,323) -- --
Commercial paper -- net......................... 318,159 -- 318,159 318,159 -- --
Dividends paid -- Registrant.................... (185,858) -- (185,858) (185,858) -- --
Intrasystem long-term financing -- net.......... -- 4,882 (4,882) -- (5,240) (41,876)
Intrasystem money pool borrowings
(repayments) -- net............................ -- (142,070) 142,070 -- 64,403 --
Dividends paid -- subsidiary
companies -- consolidated...................... -- 275,722 (275,722) -- -- (118,456)
Purchase of treasury stock...................... (280,863) -- (280,863) (280,863) -- --
Sale of treasury stock.......................... 162,763 -- 162,763 162,763 -- --
Other -- net.................................... (2,987) -- (2,987) (2,987) -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) continuing
operations............................... (107,502) 138,534 (246,036) (103,502) 59,163 (160,332)
Net cash provided by (used in) discontinued
operations..................................... -- 85,848 (85,848) (66,793) -- --
--------- --------- --------- --------- -------- ---------
Net cash provided by (used in) financing
activities............................... (107,502) 224,382 (331,884) (170,295) 59,163 (160,332)
--------- --------- --------- --------- -------- ---------
Net increase (decrease) in cash and TCIs... 73,077 -- 73,077 (1,058) 55,872 (2,682)
CASH AND TCIS AT JANUARY 1, 1998................ 65,035 -- 65,035 2,279 26,418 6,634
--------- --------- --------- --------- -------- ---------
CASH AND TCIS AT DECEMBER 31, 1998.............. $ 138,112 $ -- $138,112 $ 1,221 $82,290 $ 3,952
========= ========= ========= ========= ======== =========
Continuing operations........................... $ 135,453 $ -- $135,453 $ 1,221 $82,290 $ 3,952
Discontinued operations......................... 2,659 -- 2,659 -- -- --
--------- --------- --------- --------- -------- ---------
Total cash and TCIs at December 31......... $ 138,112 $ -- $138,112 $ 1,221 $82,290 $ 3,952
========= ========= ========= ========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 121,924 $(124,572) $246,496 $ 128,094 $ 4,455 $ 27,751
Income taxes (net of refunds).................. $ 92,380 $ -- $ 92,380 $ (27,051) $ 76 $ 67,478
Non-cash investing activities
Transfer of subsidiaries by CNG Energy Services
through liquidating distribution to Parent
Company, net of cash......................... $ -- $ -- $ -- $ 61,238 $ -- $ --
Non-cash financing activities
Issuance of common stock under benefit plans... $ (240) $ -- $ (240) $ (240) $ -- $ --
Conversion of 7 1/4% Convertible Subordinated
Debentures................................... $ 88,467 $ -- $ 88,467 $ 88,467 $ -- $ --
</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
- ------------------------------------------------------------------------------------------------------------------------------
CNG Other
CNGP CNGESC CNGPSC CNGI Field CNG Subsidiaries
EOG PNG VNG HGI (Page 56) (Page 60) (Page 74) (Page 80) Services Retail (Page 44)
- -------- -------- -------- -------- --------- --------- --------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 57,118 $ 36,233 $ 12,514 $ 4,570 $ 63,871 $ 4,462 $ 134 $ 2,509 $ 3,919 $ (4,000) $ 3,483
38,582 18,438 12,671 5,373 179,423 1,674 -- 176 -- 5,082 123
(29,286) (12,681) 2,904 (3,466) 1,423 -- -- 213 -- -- --
603 231 205 -- 1,708 -- -- 319 -- 3 --
7,162 (1,098) 5,708 (1,890) 18,954 (861) (150) (24) -- (952) (8,480)
(1,358) (502) (152) (137) -- -- -- -- -- -- --
33,758 14,409 21,009 (4,115) (33,958) (2,290) -- (343) (11,607) 1,072 199
(4,289) (4,852) (1,196) 5,786 25,529 (6,367) 3 78,041 (8,523) (8,945) 7,605
9,559 5,716 (1,954) (1,042) 318 (8,503) (3) -- -- (6,053) (1,471)
-- 11,700 2,190 -- -- -- -- -- -- -- --
19,862 (2,585) (1,161) 11,879 37,711 (2,130) -- (577) 13,675 8,117 482
(18,164) (714) (1,131) 1,803 (803) 6,917 475 (342) 5,224 (7,266) (7,613)
7,594 624 (8,572) (788) -- -- -- -- -- -- --
41,544 -- 5,915 -- -- -- -- -- -- -- --
2,340 (5,593) (3,016) 1,545 2,473 (1,148) 55 210 864 760 1,803
(19,738) (1,014) (91) (414) 4,020 656 -- 432 (3,376) (4,576) 323
5,230 (1,600) 1,515 (7,830) (604) 10,060 117 (3,049) 444 (874) 18,977
-- -- -- -- -- -- -- -- -- -- --
-- (3,721) -- -- 6 -- (93) -- -- -- 138
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
150,517 52,991 47,358 11,274 300,071 2,470 538 77,565 620 (17,632) 15,569
-- -- -- -- -- 18,484 (9,194) -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
150,517 52,991 47,358 11,274 300,071 20,954 (8,656) 77,565 620 (17,632) 15,569
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
(81,657) (24,287) (30,636) (9,665) (345,676) (735) -- (1,246) -- (20) --
(3,187) 5,469 (744) (576) 157 -- -- (8) -- -- (672)
-- -- -- -- -- (5,934) -- (90,552) -- -- (2,849)
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- 34,820 470 (460) (1,768) 4,260 -- (17,560)
-- 13,207 -- -- (13,207) (10) -- (9) -- -- --
-- -- -- -- -- (3,989) -- -- 348 (128) 995
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
(84,844) (5,611) (31,380) (10,241) (323,906) (10,198) (460) (93,583) 4,608 (148) (20,086)
-- -- -- -- -- 841 5,742 -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
(84,844) (5,611) (31,380) (10,241) (323,906) (9,357) 5,282 (93,583) 4,608 (148) (20,086)
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
-- -- (4,000) -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
(79,590) (10,512) 18,900 (8,624) 25,000 -- -- 105,000 (7,340) -- (600)
101,256 790 (13,835) 17,825 23,080 4,850 -- (82,243) 2,478 17,925 5,541
(76,007) (38,322) (15,850) (7,087) (20,000) -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
(54,341) (48,044) (14,785) 2,114 28,080 4,850 -- 22,757 (4,862) 17,925 4,941
-- -- -- -- -- (25,080) 6,025 -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
(54,341) (48,044) (14,785) 2,114 28,080 (20,230) 6,025 22,757 (4,862) 17,925 4,941
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
11,332 (664) 1,193 3,147 4,245 (8,633) 2,651 6,739 366 145 424
5,600 6,444 825 1,752 2,627 8,633 8 3,708 -- -- 107
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
$ 16,932 $ 5,780 $ 2,018 $ 4,899 $ 6,872 $ -- $ 2,659 $ 10,447 $ 366 $ 145 $ 531
======== ======== ======== ======== ========= ========= ======== ======== ======== ======== =======
$ 16,932 $ 5,780 $ 2,018 $ 4,899 $ 6,872 $ -- $ -- $ 10,447 $ 366 $ 145 $ 531
-- -- -- -- -- -- 2,659 -- -- -- --
- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- -------
$ 16,932 $ 5,780 $ 2,018 $ 4,899 $ 6,872 $ -- $ 2,659 $ 10,447 $ 366 $ 145 $ 531
======== ======== ======== ======== ========= ========= ======== ======== ======== ======== =======
$ 27,232 $ 12,227 $ 10,885 $ 3,341 $ 20,224 $ 4,448 $ 114 $ 5,682 $ 257 $ 470 $ 1,316
$ 25,425 $ 22,059 $ 3,442 $ 2,439 $ (3,913) $ 948 $ (3,490) $ (3,735) $ 1,827 $ (1,725) $ 8,600
$ -- $ -- $ -- $ -- $ -- $(61,238) $ -- $ -- $ -- $ -- $ --
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
35
<PAGE> 38
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET SUPPLEMENT
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other CNG CNG
Subsidiaries Power Prod. and Serv.
Assets Total (Page 96) (Page 102)
- ------ ------------ --------- ---------------
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT (Note 5)
Gas utility and other plant.............................. $ 5,863 $ 5,863 $ --
Accumulated depreciation and amortization................ (2,593) (2,593) --
-------- ------- ------
Net gas utility and other plant................ 3,270 3,270 --
-------- ------- ------
Exploration and production properties.................... -- -- --
Accumulated depreciation and amortization................ -- -- --
-------- ------- ------
Net exploration and production properties...... -- -- --
-------- ------- ------
Net property, plant and equipment.............. 3,270 3,270 --
-------- ------- ------
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated................................. -- -- --
Notes of subsidiary companies -- consolidated............ -- -- --
-------- ------- ------
Total investments.............................. -- -- --
-------- ------- ------
CURRENT ASSETS
Cash and temporary cash investments...................... 531 123 58
Accounts receivable
Customers.............................................. 1,827 1,081 746
Unbilled revenues and other............................ 49 -- --
Allowance for doubtful accounts........................ (105) -- (105)
Receivables from affiliated companies -- consolidated.... 69,733 48,153 2,470
Inventories, at cost
Gas stored -- current portion (Note 9)................. -- -- --
Materials and supplies (average cost method)........... 1,556 1,556 --
Unrecovered gas costs (Note 4)........................... -- -- --
Deferred income taxes -- current (net) (Note 8).......... -- -- --
Prepayments and other current assets..................... 85 2 --
-------- ------- ------
Total current assets........................... 73,676 50,915 3,169
-------- ------- ------
REGULATORY AND OTHER ASSETS
Other investments........................................ 51,114 1,030 2,250
Deferred charges and other assets
(Notes 4, 6, 7, 8 and 16).............................. 3,903 72 (36)
-------- ------- ------
Total regulatory and other assets.............. 55,017 1,102 2,214
-------- ------- ------
Total assets................................... $131,963 $55,287 $5,383
======== ======= ======
</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
<TABLE>
<CAPTION>
CNG CNG
Main Oil CNG CNG CNG
Pass Gathering LNG Research Coal Financial
------- --------- ------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
92 90 51 38 35 44
-- -- -- -- -- --
-- -- -- -- 49 --
-- -- -- -- -- --
-- -- 15,610 40 3,460 --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- 1 -- 82 --
------- ------- ------- ---- ------ ----
92 90 15,662 78 3,626 44
------- ------- ------- ---- ------ ----
31,612 16,222 -- -- -- --
-- -- -- 13 3,854 --
------- ------- ------- ---- ------ ----
31,612 16,222 -- 13 3,854 --
------- ------- ------- ---- ------ ----
$31,704 $16,312 $15,662 $ 91 $7,480 $ 44
======= ======= ======= ==== ====== ====
</TABLE>
37
<PAGE> 40
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING BALANCE SHEET SUPPLEMENT
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
Other CNG CNG
Subsidiaries Power Prod. and Serv.
Stockholders' Equity and Liabilities Total (Page 97) (Page 103)
- ------------------------------------ ------------ --------- ---------------
<S> <C> <C> <C>
CAPITALIZATION
Common stockholders' equity (Note 10)
Common stock, par value $2.75 per share
Authorized -- 400,000,000 shares
Issued -- 95,944,551 shares................... $ 72,840 $22,460 $ 3,990
Capital in excess of par value................... 20 -- --
Retained earnings, per accompanying statement
(Note 12)........................................ (14,424) 13,946 (1,546)
Treasury stock, at cost (495,123 shares)......... -- -- --
Unearned compensation............................ -- -- --
-------- ------- -------
Total common stockholders' equity........ 58,436 36,406 2,444
-------- ------- -------
Long-term debt (Note 13)
Debentures....................................... -- -- --
Notes payable to Registrant -- consolidated...... 11,913 11,913 --
-------- ------- -------
Total long-term debt..................... 11,913 11,913 --
-------- ------- -------
Total capitalization..................... 70,349 48,319 2,444
-------- ------- -------
CURRENT LIABILITIES
Current maturities on long-term debt............... -- -- --
Commercial paper (Note 14)......................... -- -- --
Accounts payable................................... 801 536 261
Payables to affiliated companies -- consolidated... 52,973 4,520 2,551
Estimated rate contingencies and refunds (Note
4)............................................... -- -- --
Amounts payable to customers (Note 4).............. -- -- --
Taxes accrued...................................... 511 1,386 (565)
Deferred income taxes -- current (net) (Note 8).... -- -- --
Dividends declared................................. -- -- --
Other current liabilities.......................... 830 (4) 834
-------- ------- -------
Total current liabilities................ 55,115 6,438 3,081
-------- ------- -------
DEFERRED CREDITS
Deferred income taxes (Note 8)..................... 6,499 530 (142)
Accumulated deferred investment tax credits........ -- -- --
Deferred credits and other liabilities (Notes 4, 7
and 8)........................................... -- -- --
-------- ------- -------
Total deferred credits................... 6,499 530 (142)
-------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 17)............
-------- ------- -------
Total stockholders' equity and
liabilities............................ $131,963 $55,287 $ 5,383
======== ======= =======
</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
<TABLE>
<CAPTION>
CNG CNG
Main Oil CNG CNG CNG
Pass Gathering LNG Research Coal Financial
------- --------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 8,400 $ 15,580 $ 22,360 $ 50
10 10 -- -- -- --
2,398 1,737 261 (15,500) (15,709) (11)
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- -------- -------- ----
2,408 1,747 8,661 80 6,651 39
------- ------- ------- -------- -------- ----
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- -------- -------- ----
-- -- -- -- -- --
------- ------- ------- -------- -------- ----
2,408 1,747 8,661 80 6,651 39
------- ------- ------- -------- -------- ----
-- -- -- -- -- --
-- -- -- -- -- --
1 -- -- -- 3 --
25,918 12,982 7,000 -- 2 --
-- -- -- -- -- --
-- -- -- -- -- --
(190) (410) 1 11 273 5
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- -------- -------- ----
25,729 12,572 7,001 11 278 5
------- ------- ------- -------- -------- ----
3,567 1,993 -- -- 551 --
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- -------- -------- ----
3,567 1,993 -- -- 551 --
------- ------- ------- -------- -------- ----
------- ------- ------- -------- -------- ----
$31,704 $16,312 $15,662 $ 91 $ 7,480 $ 44
======= ======= ======= ======== ======== ====
</TABLE>
39
<PAGE> 42
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING INCOME STATEMENT SUPPLEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Other CNG Products and
Subsidiaries Power Services
Total (Page 98) (Page 104)
------------ --------- ------------
<S> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales........................................ $ 2,697 $ -- $ --
Nonregulated gas sales..................................... -- -- --
------- ------ ------
Total gas sales.................................. 2,697 -- --
Gas transportation and storage............................. -- -- --
Other...................................................... 5,781 3,499 2,282
------- ------ ------
Total operating revenues (Note 4)................ 8,478 3,499 2,282
------- ------ ------
OPERATING EXPENSES
Purchased gas.............................................. -- -- --
Liquids, capacity and other products purchased............. 2,206 2,206 --
Operation expense (Note 6)................................. 6,096 517 2,993
Maintenance................................................ -- -- --
Depreciation and amortization (Note 5)..................... 123 123 --
Taxes, other than income taxes............................. (79) 24 (1)
------- ------ ------
Subtotal......................................... 8,346 2,870 2,992
------- ------ ------
Operating income before income taxes............. 132 629 (710)
Income taxes (Note 8)...................................... 2,023 1,152 (442)
------- ------ ------
Operating income................................. (1,891) (523) (268)
------- ------ ------
OTHER INCOME
Interest revenues.......................................... 224 24 --
Other -- net............................................... 4,761 2,565 --
Equity in earnings of subsidiary
companies -- consolidated................................ -- -- --
Interest revenues from affiliated
companies -- consolidated................................ 1,796 795 2
------- ------ ------
Total other income............................... 6,781 3,384 2
------- ------ ------
Income before interest charges................... 4,890 2,861 (266)
------- ------ ------
INTEREST CHARGES
Interest on long-term debt................................. 450 450 --
Other interest expense..................................... 957 35 32
Allowance for funds used during construction............... -- -- --
------- ------ ------
Total interest charges........................... 1,407 485 32
------- ------ ------
INCOME FROM CONTINUING OPERATIONS.......................... 3,483 2,376 (298)
DISCONTINUED OPERATIONS (NOTE 2)
Loss from discontinued energy marketing services
operations, net of applicable tax benefit................ -- -- --
Loss from disposal of energy marketing services operations,
including provision for operating losses during the phase
out period, net of applicable tax benefit................ -- -- --
------- ------ ------
NET INCOME................................................. $ 3,483 $2,376 $ (298)
======= ====== ======
</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
<TABLE>
<CAPTION>
CNG CNG
Main Oil CNG CNG CNG
Pass Gathering LNG Research Coal Financial
------- --------- ------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 2,697 $ -- $ -- $ --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- 2,697 -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
-- -- 2,697 -- -- --
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
-- -- -- -- -- --
2 -- 2,509 63 12 --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- (103) 1
------- ------- ------- ---- ------ ----
2 -- 2,509 63 (91) 1
------- ------- ------- ---- ------ ----
(2) -- 188 (63) 91 (1)
205 266 709 (20) 153 --
------- ------- ------- ---- ------ ----
(207) (266) (521) (43) (62) (1)
------- ------- ------- ---- ------ ----
-- -- 27 -- 173 --
1,127 1,069 -- -- -- --
-- -- -- -- -- --
-- -- 817 8 174 --
------- ------- ------- ---- ------ ----
1,127 1,069 844 8 347 --
------- ------- ------- ---- ------ ----
920 803 323 (35) 285 (1)
------- ------- ------- ---- ------ ----
-- -- -- -- -- --
585 303 2 -- -- --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
585 303 2 -- -- --
------- ------- ------- ---- ------ ----
335 500 321 (35) 285 (1)
-- -- -- -- -- --
-- -- -- -- -- --
------- ------- ------- ---- ------ ----
$ 335 $ 500 $ 321 $(35) $ 285 $ (1)
======= ======= ======= ==== ====== ====
</TABLE>
41
<PAGE> 44
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS SUPPLEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Other CNG Products and
Subsidiaries Power Services
Total (Page 99) (Page 105)
------------ --------- ------------
<S> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997......................... $(24,529) $ -- $ --
Transfer of subsidiaries by CNG Energy Services
through
liquidating distribution to Parent Company......... 13,622 11,570 (1,248)
Net income for the year 1998 per accompanying
income statement................................... 3,483 2,376 (298)
-------- ------- -------
Total...................................... (7,424) 13,946 (1,546)
Sale of CNG Energy Services common stock by Parent
Company and assumption of remaining assets and
liabilities of CNG Energy Services by Parent
Company............................................ -- -- --
Dividends declared on common stock -- cash (Note
10)................................................ (7,000) -- --
Pension liability adjustment (Note 7)................ -- -- --
Cumulative translation adjustment.................... -- -- --
-------- ------- -------
Balance at December 31, 1998 (Note 12)............... $(14,424) $13,946 $(1,546)
======== ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
The Notes to Consolidated Financial Statements are an integral part of this
statement (see Note on page 24).
42
<PAGE> 45
<TABLE>
<CAPTION>
CNG CNG
Main Oil CNG CNG CNG
Pass Gathering LNG Research Coal Financial
------ --------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 6,940 $(15,465) $(15,994) $(10)
2,063 1,237 -- -- -- --
335 500 321 (35) 285 (1)
------ ------ ------- -------- -------- ----
2,398 1,737 7,261 (15,500) (15,709) (11)
-- -- -- -- -- --
-- -- (7,000) -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
------ ------ ------- -------- -------- ----
$2,398 $1,737 $ 261 $(15,500) $(15,709) $(11)
====== ====== ======= ======== ======== ====
</TABLE>
43
<PAGE> 46
ITEM 10. (Continued)
CONSOLIDATED NATURAL GAS COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS SUPPLEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Other CNG Products and CNG CNG
Subsidiaries Power Services Main Oil CNG CNG
Total (Page 100) (Page 106) Pass Gathering LNG Research Coal
------------ ---------- ------------ ------- --------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Income from continuing
operations........................ $ 3,483 $ 2,376 $ (298) $ 335 $ 500 $ 321 $ (35) $285
Adjustments to reconcile income
from continuing operations to net
cash provided by (used in)
operating activities
Depreciation and amortization..... 123 123 -- -- -- -- -- --
Pension cost (credit) -- net...... -- -- -- -- -- -- -- --
Stock award amortization.......... -- -- -- -- -- -- -- --
Deferred income taxes -- net...... (8,480) (8,272) (197) 654 205 (876) -- 6
Investment tax credit............. -- -- -- -- -- -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net...... 199 (453) 659 -- -- -- -- (7)
Receivables from affiliated
companies -- consolidated..... 7,605 736 533 3,322 1,675 1,338 1 --
Inventories..................... (1,471) (1,471) -- -- -- -- -- --
Unrecovered gas costs........... -- -- -- -- -- -- -- --
Accounts payable................ 482 307 172 -- -- -- -- 3
Payables to affiliated
companies -- consolidated..... (7,613) (1,214) 701 (6,697) (404) -- -- 1
Estimated rate contingencies and
refunds....................... -- -- -- -- -- -- -- --
Amounts payable to customers.... -- -- -- -- -- -- -- --
Taxes accrued................... 1,803 3,283 (1,519) 281 (204) 40 -- (78)
Other -- net.................... 323 88 234 -- (1) -- (1) 3
Changes in other assets and other
liabilities..................... 18,977 16,232 (235) 1,443 (1,069) 2,503 53 50
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ -- -- -- -- -- -- -- --
Other -- net...................... 138 138 -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
continuing operations....... 15,569 11,873 50 (662) 702 3,326 18 263
Net cash provided by (used in)
discontinued operations........... -- -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
operating activities........ 15,569 11,873 50 (662) 702 3,326 18 263
-------- -------- ------- ------- ------- ------- ----- -----
CASH FLOWS FROM INVESTING
ACTIVITIES
Plant construction and other
property additions................ -- -- -- -- -- -- -- --
Proceeds from dispositions of
prop., plant and equip. -- net.... (672) (672) -- -- -- -- -- --
Cost of other investments -- net... (2,849) -- -- (2,849) -- -- -- --
Intrasystem long-term
financing -- net.................. -- -- -- -- -- -- -- --
Intrasystem money pool
investments -- net................ (17,560) (14,225) -- -- -- (3,300) 225 (260)
Property transfers to (from)
affiliates........................ -- -- -- -- -- -- -- --
Cash-Liquidating
distribution/assumption of assets
and liabilities................... 995 982 13 -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
continuing operations....... (20,086) (13,915) 13 (2,849) -- (3,300) 225 (260)
Net cash provided by (used in)
discontinued operations........... -- -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
investing activities........ (20,086) (13,915) 13 (2,849) -- (3,300) 225 (260)
-------- -------- ------- ------- ------- ------- ----- -----
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.................. (600) (390) -- -- -- -- (210) --
Intrasystem money pool borrowings
(repayments) -- net............... 5,541 2,555 (5) 3,603 (612) -- -- --
Dividends paid -- subsidiary
companies -- consolidated......... -- -- -- -- -- -- -- --
Purchase of treasury stock......... -- -- -- -- -- -- -- --
Sale of treasury stock............. -- -- -- -- -- -- -- --
Other -- net....................... -- -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
continuing operations....... 4,941 2,165 (5) 3,603 (612) -- (210) --
Net cash provided by (used in)
discontinued operations........... -- -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Net cash provided by (used in)
financing activities........ 4,941 2,165 (5) 3,603 (612) -- (210) --
-------- -------- ------- ------- ------- ------- ----- -----
Net increase (decrease) in
cash and TCIs............... 424 123 58 92 90 26 33 3
CASH AND TCIS AT JANUARY 1, 1998... 107 -- -- -- -- 25 5 32
-------- -------- ------- ------- ------- ------- ----- -----
CASH AND TCIS AT DECEMBER 31,
1998.............................. $ 531 $ 123 $ 58 $ 92 $ 90 $ 51 $ 38 $ 35
======== ======== ======= ======= ======= ======= ===== =====
Continuing operations.............. $ 531 $ 123 $ 58 $ 92 $ 90 $ 51 $ 38 $ 35
Discontinued operations............ -- -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ----- -----
Total cash and TCIs at
December 31................. $ 531 $ 123 $ 58 $ 92 $ 90 $ 51 $ 38 $ 35
======== ======== ======= ======= ======= ======= ===== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts
capitalized).................... $ 1,316 $ 576 $ 31 $ 464 $ 243 $ 2 $ -- $ --
Income taxes (net of refunds)..... $ 8,600 $ 6,137 $ 1,290 $ (730) $ 265 $ 1,545 $ (20) $113
Non-cash investing activities
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company, net of cash..... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Non-cash financing activities
Issuance of common stock under
benefit plans................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Conversion of 7 1/4% Convertible
Subordinated Debentures......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
<CAPTION>
CNG
Financial
---------
<S> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Income from continuing
operations........................ $(1)
Adjustments to reconcile income
from continuing operations to net
cash provided by (used in)
operating activities
Depreciation and amortization..... --
Pension cost (credit) -- net...... --
Stock award amortization.......... --
Deferred income taxes -- net...... --
Investment tax credit............. --
Changes in current assets and
current liabilities
Accounts receivable -- net...... --
Receivables from affiliated
companies -- consolidated..... --
Inventories..................... --
Unrecovered gas costs........... --
Accounts payable................ --
Payables to affiliated
companies -- consolidated..... --
Estimated rate contingencies and
refunds....................... --
Amounts payable to customers.... --
Taxes accrued................... --
Other -- net.................... --
Changes in other assets and other
liabilities..................... --
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ --
Other -- net...................... --
---
Net cash provided by (used in)
continuing operations....... (1)
Net cash provided by (used in)
discontinued operations........... --
---
Net cash provided by (used in)
operating activities........ (1)
---
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................ --
Property transfers to (from)
affiliates........................ --
Cash-Liquidating
distribution/assumption of assets
and liabilities................... --
---
Net cash provided by (used in)
continuing operations....... --
Net cash provided by (used in)
discontinued operations........... --
---
Net cash provided by (used in)
investing activities........ --
---
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......... --
Purchase of treasury stock......... --
Sale of treasury stock............. --
Other -- net....................... --
---
Net cash provided by (used in)
continuing operations....... --
Net cash provided by (used in)
discontinued operations........... --
---
Net cash provided by (used in)
financing activities........ --
---
Net increase (decrease) in
cash and TCIs............... (1)
CASH AND TCIS AT JANUARY 1, 1998... 45
---
CASH AND TCIS AT DECEMBER 31,
1998.............................. $44
===
Continuing operations.............. $44
Discontinued operations............ --
---
Total cash and TCIs at
December 31................. $44
===
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts
capitalized).................... $--
Income taxes (net of refunds)..... $--
Non-cash investing activities
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company, net of cash..... $--
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).
44
<PAGE> 47
(THIS PAGE INTENTIONALLY LEFT BLANK)
45
<PAGE> 48
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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........... $2,104,834 $ -- $2,104,834 $2,104,834 $ --
Accumulated depreciation and
amortization........................ (906,969) -- (906,969) (906,969) --
---------- -------- ---------- ---------- -------
Net gas utility and other
plant..................... 1,197,865 -- 1,197,865 1,197,865 --
---------- -------- ---------- ---------- -------
Exploration and production
properties.......................... 228,132 -- 228,132 228,132 --
Accumulated depreciation and
amortization........................ (202,987) -- (202,987) (202,987) --
---------- -------- ---------- ---------- -------
Net exploration and
production properties..... 25,145 -- 25,145 25,145 --
---------- -------- ---------- ---------- -------
Net property, plant and
equipment................. 1,223,010 -- 1,223,010 1,223,010 --
---------- -------- ---------- ---------- -------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated.............. -- (38,865) 38,865 38,865 --
Notes of subsidiary
company -- consolidated............. -- -- -- -- --
---------- -------- ---------- ---------- -------
Total investments........... -- (38,865) 38,865 38,865 --
---------- -------- ---------- ---------- -------
CURRENT ASSETS
Cash and temporary cash investments... 3,952 -- 3,952 3,902 50
Accounts receivable
Customers........................... 53,198 -- 53,198 53,198 --
Unbilled revenues and other......... (2,687) -- (2,687) (2,687) --
Allowance for doubtful accounts..... (27) -- (27) (27) --
Receivables from affiliated
companies -- consolidated........... 41,648 -- 41,648 32,452 9,196
Inventories, at cost
Gas stored -- current portion....... -- -- -- -- --
Materials and supplies (average cost
method).......................... 10,842 -- 10,842 10,842 --
Unrecovered gas costs................. 30,516 -- 30,516 30,516 --
Deferred income taxes -- current...... 2,323 -- 2,323 2,323 --
Prepayments and other current
assets.............................. 46,570 -- 46,570 46,561 9
---------- -------- ---------- ---------- -------
Total current assets........ 186,335 -- 186,335 177,080 9,255
---------- -------- ---------- ---------- -------
REGULATORY AND OTHER ASSETS
Other investments..................... 36,785 -- 36,785 -- 36,785
Deferred charges and other assets..... 86,635 -- 86,635 86,635 --
---------- -------- ---------- ---------- -------
Total regulatory and other
assets.................... 123,420 -- 123,420 86,635 36,785
---------- -------- ---------- ---------- -------
Total assets................ $1,532,765 $(38,865) $1,571,630 $1,525,590 $46,040
========== ======== ========== ========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
46
<PAGE> 49
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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....................... $ 601,000 $(23,940) $ 624,940 $ 601,000 $23,940
Capital in excess of par value..... 2,254 -- 2,254 2,254 --
Retained earnings, per accompanying
statement....................... 142,141 (14,925) 157,066 142,141 14,925
Treasury stock, at cost............ -- -- -- -- --
Unearned compensation.............. -- -- -- -- --
---------- -------- ---------- ---------- -------
Total common stockholder's
equity................... 745,395 (38,865) 784,260 745,395 38,865
---------- -------- ---------- ---------- -------
Long-term debt
Debentures......................... -- -- -- -- --
Notes payable to Parent Company.... 343,252 -- 343,252 343,252 --
---------- -------- ---------- ---------- -------
Total long-term debt....... 343,252 -- 343,252 343,252 --
---------- -------- ---------- ---------- -------
Total capitalization....... 1,088,647 (38,865) 1,127,512 1,088,647 38,865
---------- -------- ---------- ---------- -------
CURRENT LIABILITIES
Current maturities on long-term
debt............................... -- -- -- -- --
Commercial paper..................... -- -- -- -- --
Accounts payable..................... 54,971 -- 54,971 54,971 --
Payables to affiliated companies --
consolidated....................... 56,243 -- 56,243 56,243 --
Estimated rate contingencies and
refunds............................ 56,946 -- 56,946 56,946 --
Amounts payable to customers......... -- -- -- -- --
Taxes accrued........................ 28,208 -- 28,208 27,885 323
Deferred income taxes -- current..... -- -- -- -- --
Dividends declared................... -- -- -- -- --
Other current liabilities............ 35,262 -- 35,262 35,262 --
---------- -------- ---------- ---------- -------
Total current
liabilities.............. 231,630 -- 231,630 231,307 323
---------- -------- ---------- ---------- -------
DEFERRED CREDITS
Deferred income taxes................ 184,029 -- 184,029 177,177 6,852
Accumulated deferred investment tax
credits............................ 120 -- 120 120 --
Deferred credits and other
liabilities........................ 28,339 -- 28,339 28,339 --
---------- -------- ---------- ---------- -------
Total deferred credits..... 212,488 -- 212,488 205,636 6,852
---------- -------- ---------- ---------- -------
COMMITMENTS AND CONTINGENCIES
---------- -------- ---------- ---------- -------
Total stockholder's equity
and liabilities.......... $1,532,765 $(38,865) $1,571,630 $1,525,590 $46,040
========== ======== ========== ========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
47
<PAGE> 50
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(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....................... 32,766 -- 32,766 32,766 --
-------- ------- -------- -------- -------
Total gas sales..................... 32,766 -- 32,766 32,766 --
Gas transportation and storage............... 445,316 -- 445,316 445,316 --
Other........................................ 51,373 -- 51,373 51,373 --
-------- ------- -------- -------- -------
Total operating revenues............ 529,455 -- 529,455 529,455 --
-------- ------- -------- -------- -------
OPERATING EXPENSES
Purchased gas................................ 46,559 -- 46,559 46,559 --
Liquids, capacity and other products
purchased.................................. 18,754 -- 18,754 18,754 --
Operation expense............................ 136,807 -- 136,807 136,808 (1)
Maintenance.................................. 28,701 -- 28,701 28,701 --
Depreciation and amortization................ 62,665 -- 62,665 62,665 --
Taxes, other than income taxes............... 35,011 -- 35,011 34,841 170
-------- ------- -------- -------- -------
Subtotal............................ 328,497 -- 328,497 328,328 169
-------- ------- -------- -------- -------
Operating income before income
taxes............................. 200,958 -- 200,958 201,127 (169)
Income taxes................................. 64,728 -- 64,728 61,338 3,390
-------- ------- -------- -------- -------
Operating income.................... 136,230 -- 136,230 139,789 (3,559)
-------- ------- -------- -------- -------
OTHER INCOME
Interest revenues............................ 329 -- 329 319 10
Other-net.................................... 9,788 -- 9,788 1,121 8,667
Equity in earnings of subsidiary
company -- consolidated.................... -- (5,449) 5,449 5,449 --
Interest revenues from affiliated
companies -- consolidated.................. 2,740 -- 2,740 2,409 331
-------- ------- -------- -------- -------
Total other income.................. 12,857 (5,449) 18,306 9,298 9,008
-------- ------- -------- -------- -------
Income before interest charges...... 149,087 (5,449) 154,536 149,087 5,449
-------- ------- -------- -------- -------
INTEREST CHARGES
Interest on long-term debt................... 26,610 -- 26,610 26,610 --
Other interest expense....................... 416 -- 416 416 --
Allowance for funds used during
construction............................... (778) -- (778) (778) --
-------- ------- -------- -------- -------
Total interest charges.............. 26,248 -- 26,248 26,248 --
-------- ------- -------- -------- -------
INCOME FROM CONTINUING OPERATIONS............ 122,839 (5,449) 128,288 122,839 5,449
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing
services operations, net of applicable tax
benefit.................................... -- -- -- -- --
Loss from disposal of energy marketing
services operations, including provision
for operating losses during the phase out
period, net of applicable tax benefit...... -- -- -- -- --
-------- ------- -------- -------- -------
NET INCOME................................... $122,839 $(5,449) $128,288 $122,839 $ 5,449
======== ======= ======== ======== =======
</TABLE>
- ---------------
( ) denotes negative amount.
48
<PAGE> 51
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(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, 1997.......... $ 147,251 $ (9,476) $156,727 $ 147,251 $ 9,476
Net income for the year 1998 per
accompanying income statement....... 122,839 (5,449) 128,288 122,839 5,449
--------- -------- --------- --------- -------
Total............................ 270,090 (14,925) 285,015 270,090 14,925
Dividends declared on common
stock -- cash....................... (127,949) -- (127,949) (127,949) --
--------- -------- --------- --------- -------
Balance at December 31, 1998.......... $ 142,141 $(14,925) $157,066 $ 142,141 $14,925
========= ======== ========= ========= =======
</TABLE>
- ---------------
( ) denotes negative amount.
49
<PAGE> 52
ITEM 10. (Continued)
CNG TRANSMISSION CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(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
Income from continuing operations........................... $ 122,839 $(5,449) $ 128,288 $ 122,839 $ 5,449
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. 62,665 -- 62,665 62,665 --
Pension cost (credit) -- net............................... (15,801) -- (15,801) (15,801) --
Stock award amortization................................... 634 -- 634 634 --
Deferred income taxes -- net............................... 151 -- 151 (833) 984
Investment tax credit...................................... (22) -- (22) (22) --
Changes in current assets and current liabilities
Accounts receivable -- net............................... (8,008) -- (8,008) (8,008) --
Receivables from affiliated companies -- consolidated.... 1,783 -- 1,783 1,793 (10)
Inventories.............................................. 864 -- 864 864 --
Unrecovered gas costs.................................... 6,312 -- 6,312 6,312 --
Accounts payable......................................... 32,706 -- 32,706 32,706 --
Payables to affiliated companies -- consolidated......... (10,105) -- (10,105) (10,105) --
Estimated rate contingencies and refunds................. 50,296 -- 50,296 50,296 --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ (1,440) -- (1,440) (1,820) 380
Other -- net............................................. 1,997 -- 1,997 2,006 (9)
Changes in other assets and other liabilities.............. (13,514) -- (13,514) (15,020) 1,506
Excess of equity in earnings of subsidiary companies over
their cash dividends
paid -- consolidated..................................... -- 4,037 (4,037) (4,037) --
Other -- net............................................... -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) continuing operations... 231,357 (1,412) 232,769 224,469 8,300
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) operating activities.... 231,357 (1,412) 232,769 224,469 8,300
--------- ------- --------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions............. (56,955) -- (56,955) (56,955) --
Proceeds from dispositions of prop., plant and
equip. -- net.............................................. (1,706) -- (1,706) (1,706) --
Cost of other investments -- net............................ (3,773) -- (3,773) -- (3,773)
Intrasystem long-term financing -- net...................... -- -- -- -- --
Intrasystem money pool investments -- net................... (11,273) -- (11,273) (8,185) (3,088)
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash -- liquidating distribution/assumption of assets and
liabilities................................................ -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) continuing operations... (73,707) -- (73,707) (66,846) (6,861)
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) investing activities.... (73,707) -- (73,707) (66,846) (6,861)
--------- ------- --------- --------- -------
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...................... (41,876) -- (41,876) (41,876) --
Intrasystem money pool borrowings (repayments) -- net....... -- -- -- -- --
Dividends paid -- subsidiary companies -- consolidated...... (118,456) 1,412 (119,868) (118,456) (1,412)
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) continuing operations... (160,332) 1,412 (161,744) (160,332) (1,412)
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -------
Net cash provided by (used in) financing activities.... (160,332) 1,412 (161,744) (160,332) (1,412)
--------- ------- --------- --------- -------
Net increase (decrease) in cash and TCIs............... (2,682) -- (2,682) (2,709) 27
CASH AND TCIS AT JANUARY 1, 1998............................ 6,634 -- 6,634 6,611 23
--------- ------- --------- --------- -------
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 3,952 $ -- $ 3,952 $ 3,902 $ 50
========= ======= ========= ========= =======
Continuing operations....................................... $ 3,952 $ -- $ 3,952 $ 3,902 $ 50
Discontinued operations..................................... -- -- -- -- --
--------- ------- --------- --------- -------
Total cash and TCIs at December 31..................... $ 3,952 $ -- $ 3,952 $ 3,902 $ 50
========= ======= ========= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ 27,751 $ -- $ 27,751 $ 27,751 $ --
Income taxes (net of refunds).............................. $ 67,478 $ -- $ 67,478 $ 65,314 $ 2,164
</TABLE>
- ---------------
( ) denotes negative amount.
50
<PAGE> 53
(THIS PAGE INTENTIONALLY LEFT BLANK)
51
<PAGE> 54
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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........................ 3,852,540 -- 3,852,540 3,848,012 4,528
Accumulated depreciation and
amortization...................... (2,556,095) -- (2,556,095) (2,552,009) (4,086)
----------- ------- ----------- ----------- -------
Net exploration and
production properties... 1,296,445 -- 1,296,445 1,296,003 442
----------- ------- ----------- ----------- -------
Net property, plant and
equipment............... 1,296,445 -- 1,296,445 1,296,003 442
----------- ------- ----------- ----------- -------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated............ -- (1,496) 1,496 1,496 --
Notes of subsidiary company --
consolidated...................... -- -- -- -- --
----------- ------- ----------- ----------- -------
Total investments......... -- (1,496) 1,496 1,496 --
----------- ------- ----------- ----------- -------
CURRENT ASSETS
Cash and temporary cash
investments....................... 6,872 -- 6,872 6,833 39
Accounts receivable
Customers......................... 1,947 -- 1,947 1,947 --
Unbilled revenues and other....... 100,973 -- 100,973 100,935 38
Allowance for doubtful accounts... (1,000) -- (1,000) (1,000) --
Receivables from affiliated
companies -- consolidated......... 4,399 (544) 4,943 3,509 1,434
Inventories, at cost
Gas stored -- current portion..... -- -- -- -- --
Materials and supplies (average
cost method)................... 1,592 -- 1,592 1,592 --
Unrecovered gas costs............... -- -- -- -- --
Deferred income taxes -- current.... 41 -- 41 41 --
Prepayments and other current
assets............................ 10,249 -- 10,249 10,144 105
----------- ------- ----------- ----------- -------
Total current assets...... 125,073 (544) 125,617 124,001 1,616
----------- ------- ----------- ----------- -------
REGULATORY AND OTHER ASSETS
Other investments................... -- -- -- -- --
Deferred charges and other assets... 4,693 -- 4,693 4,708 (15)
----------- ------- ----------- ----------- -------
Total regulatory and other
assets.................. 4,693 -- 4,693 4,708 (15)
----------- ------- ----------- ----------- -------
Total assets.............. $ 1,426,211 $(2,040) $ 1,428,251 $ 1,426,208 $ 2,043
=========== ======= =========== =========== =======
</TABLE>
- ---------------
( ) denotes negative amount.
52
<PAGE> 55
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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........................ 201,664 (296) 201,960 201,664 296
Treasury stock, at cost............. -- -- -- -- --
Unearned compensation............... -- -- -- -- --
---------- ------- ---------- ---------- ------
Total common stockholder's
equity.................... 527,664 (1,496) 529,160 527,664 1,496
---------- ------- ---------- ---------- ------
Long-term debt
Debentures.......................... -- -- -- -- --
Notes payable to Parent Company..... 329,125 -- 329,125 329,125 --
---------- ------- ---------- ---------- ------
Total long-term debt........ 329,125 -- 329,125 329,125 --
---------- ------- ---------- ---------- ------
Total capitalization........ 856,789 (1,496) 858,285 856,789 1,496
---------- ------- ---------- ---------- ------
CURRENT LIABILITIES
Current maturities on long-term
debt................................ -- -- -- -- --
Commercial paper...................... -- -- -- -- --
Accounts payable...................... 156,415 -- 156,415 156,346 69
Payables to affiliated
companies -- consolidated........... 75,942 (544) 76,486 76,217 269
Estimated rate contingencies and
refunds............................. -- -- -- -- --
Amounts payable to customers.......... -- -- -- -- --
Taxes accrued......................... 5,510 -- 5,510 5,457 53
Deferred income taxes -- current...... -- -- -- -- --
Dividends declared.................... -- -- -- -- --
Other current liabilities............. 30,493 -- 30,493 30,492 1
---------- ------- ---------- ---------- ------
Total current liabilities... 268,360 (544) 268,904 268,512 392
---------- ------- ---------- ---------- ------
DEFERRED CREDITS
Deferred income taxes................. 257,178 -- 257,178 257,023 155
Accumulated deferred investment tax
credits............................. -- -- -- -- --
Deferred credits and other
liabilities......................... 43,884 -- 43,884 43,884 --
---------- ------- ---------- ---------- ------
Total deferred credits...... 301,062 -- 301,062 300,907 155
---------- ------- ---------- ---------- ------
COMMITMENTS AND CONTINGENCIES
---------- ------- ---------- ---------- ------
Total stockholder's equity
and liabilities........... $1,426,211 $(2,040) $1,428,251 $1,426,208 $2,043
========== ======= ========== ========== ======
</TABLE>
- ---------------
( ) denotes negative amount.
53
<PAGE> 56
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(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................... 359,596 -- 359,596 359,596 --
-------- ----- -------- -------- ----
Total gas sales................ 359,596 -- 359,596 359,596 --
Gas transportation and storage........... 436 (724) 1,160 436 724
Other.................................... 236,223 -- 236,223 235,795 428
-------- ----- -------- -------- ----
Total operating revenues....... 596,255 (724) 596,979 595,827 1,152
-------- ----- -------- -------- ----
OPERATING EXPENSES
Purchased gas............................ 39,972 -- 39,972 39,972 --
Liquids, capacity and other products
purchased.............................. 115,397 (724) 116,121 116,121 --
Operation expense........................ 148,119 -- 148,119 147,725 394
Maintenance.............................. 9,133 -- 9,133 9,133 --
Depreciation and amortization............ 179,423 -- 179,423 179,335 88
Taxes, other than income taxes........... 5,925 -- 5,925 5,920 5
-------- ----- -------- -------- ----
Subtotal....................... 497,969 (724) 498,693 498,206 487
-------- ----- -------- -------- ----
Operating income before income
taxes........................ 98,286 -- 98,286 97,621 665
Income taxes............................. 17,239 -- 17,239 16,985 254
-------- ----- -------- -------- ----
Operating income............... 81,047 -- 81,047 80,636 411
-------- ----- -------- -------- ----
OTHER INCOME
Interest revenues........................ 737 -- 737 735 2
Other -- net............................. 127 -- 127 127 --
Equity in earnings of subsidiary
company -- consolidated................ -- (477) 477 477 --
Interest revenues from affiliated
companies -- consolidated.............. 381 -- 381 317 64
-------- ----- -------- -------- ----
Total other income............. 1,245 (477) 1,722 1,656 66
-------- ----- -------- -------- ----
Income before interest
charges...................... 82,292 (477) 82,769 82,292 477
-------- ----- -------- -------- ----
INTEREST CHARGES
Interest on long-term debt............... 24,724 -- 24,724 24,724 --
Other interest expense................... 1,522 -- 1,522 1,522 --
Allowance for funds used during
construction........................... (7,825) -- (7,825) (7,825) --
-------- ----- -------- -------- ----
Total interest charges......... 18,421 -- 18,421 18,421 --
-------- ----- -------- -------- ----
INCOME FROM CONTINUING OPERATIONS........ 63,871 (477) 64,348 63,871 477
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing
services operations, net of applicable
tax benefit............................ -- -- -- -- --
Loss from disposal of energy marketing
services operations, including
provision for operating losses during
the phase out period, net of applicable
tax benefit............................ -- -- -- -- --
-------- ----- -------- -------- ----
NET INCOME............................... $ 63,871 $(477) $64,348 $ 63,871 $477
======== ===== ======== ======== ====
</TABLE>
- ---------------
( ) denotes negative amount.
54
<PAGE> 57
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(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, 1997........... $157,793 $(288) $158,081 $157,793 $ 288
Net income for the year 1998 per
accompanying income statement........ 63,871 (477) 64,348 63,871 477
-------- ----- -------- -------- -----
Total........................ 221,664 (765) 222,429 221,664 765
Dividends declared on common
stock -- cash........................ (20,000) 469 (20,469) (20,000) (469)
-------- ----- -------- -------- -----
Balance at December 31, 1998........... $201,664 $(296) $201,960 $201,664 $ 296
======== ===== ======== ======== =====
</TABLE>
- ---------------
( ) denotes negative amount.
55
<PAGE> 58
ITEM 10. (Continued)
CNG PRODUCING COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(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
Income from continuing operations........................... $ 63,871 $ (477) $ 64,348 $ 63,871 $ 477
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. 179,423 -- 179,423 179,335 88
Pension cost (credit) -- net............................... 1,423 -- 1,423 1,423 --
Stock award amortization................................... 1,708 -- 1,708 1,708 --
Deferred income taxes -- net............................... 18,954 -- 18,954 18,990 (36)
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net............................... (33,958) -- (33,958) (33,960) 2
Receivables from affiliated companies -- consolidated.... 25,529 365 25,164 25,209 (45)
Inventories.............................................. 318 -- 318 318 --
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... 37,711 -- 37,711 37,667 44
Payables to affiliated companies -- consolidated......... (803) (365) (438) (511) 73
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ 2,473 -- 2,473 2,453 20
Other -- net............................................. 4,020 -- 4,020 4,108 (88)
Changes in other assets and other liabilities.............. (604) -- (604) (617) 13
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated................ -- 72 (72) (72) --
Other -- net............................................... 6 -- 6 6 --
--------- ------- --------- --------- -----
Net cash provided by (used in) continuing operations... 300,071 (405) 300,476 299,928 548
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -----
Net cash provided by (used in) operating activities.... 300,071 (405) 300,476 299,928 548
--------- ------- --------- --------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property additions............. (345,676) -- (345,676) (345,676) --
Proceeds from dispositions of prop., plant and
equip. -- net.............................................. 157 -- 157 157 --
Cost of other investments -- net............................ -- -- -- -- --
Intrasystem long-term financing -- net...................... -- -- -- -- --
Intrasystem money pool investments -- net................... 34,820 -- 34,820 34,970 (150)
Property transfers to (from) affiliates..................... (13,207) -- (13,207) (13,207) --
Cash -- Liquidating distribution/assumption of assets and
liabilities................................................ -- -- -- -- --
--------- ------- --------- --------- -----
Net cash provided by (used in) continuing operations... (323,906) -- (323,906) (323,756) (150)
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -----
Net cash provided by (used in) investing activities.... (323,906) -- (323,906) (323,756) (150)
--------- ------- --------- --------- -----
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...................... 25,000 -- 25,000 25,000 --
Intrasystem money pool borrowings (repayments) -- net....... 23,080 -- 23,080 23,080 --
Dividends paid -- subsidiary companies -- consolidated...... (20,000) 405 (20,405) (20,000) (405)
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
--------- ------- --------- --------- -----
Net cash provided by (used in) continuing operations... 28,080 405 27,675 28,080 (405)
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- ------- --------- --------- -----
Net cash provided by (used in) financing activities.... 28,080 405 27,675 28,080 (405)
--------- ------- --------- --------- -----
Net increase (decrease) in cash and TCIs............... 4,245 -- 4,245 4,252 (7)
CASH AND TCIS AT JANUARY 1, 1998............................ 2,627 -- 2,627 2,581 46
--------- ------- --------- --------- -----
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 6,872 $ -- $ 6,872 $ 6,833 $ 39
========= ======= ========= ========= =====
Continuing operations....................................... $ 6,872 $ -- $ 6,872 $ 6,833 $ 39
Discontinued operations..................................... -- -- -- -- --
--------- ------- --------- --------- -----
Total cash and TCIs at December 31................... $ 6,872 $ -- $ 6,872 $ 6,833 $ 39
========= ======= ========= ========= =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ 20,224 $ -- $ 20,224 $ 20,224 $ --
Income taxes (net of refunds).............................. $ (3,913) $ -- $ (3,913) $ (4,183) $ 270
</TABLE>
- ---------------
( ) denotes negative amount.
56
<PAGE> 59
(THIS PAGE INTENTIONALLY LEFT BLANK)
57
<PAGE> 60
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Period January 1 Through July 31, 1998*
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and
and and Combined Power Services CNG
Subsidiaries Adjustments Total CNGESC (Page 62) (Page 66) Storage
------------ ------------ -------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales.............. 54,810 -- 54,810 -- -- -- --
-------- ------- -------- -------- ------ ------ ------
Total gas sales............. 54,810 -- 54,810 -- -- -- --
Gas transportation and storage...... -- -- -- -- -- -- --
Other............................... 14,341 -- 14,341 -- 5,719 3,123 2,146
-------- ------- -------- -------- ------ ------ ------
Total operating revenues.... 69,151 -- 69,151 -- 5,719 3,123 2,146
-------- ------- -------- -------- ------ ------ ------
OPERATING EXPENSES
Purchased gas....................... 49,538 -- 49,538 -- -- -- --
Liquids, capacity and other products
purchased......................... 6,512 -- 6,512 -- 3,702 -- --
Operation expense................... 7,163 -- 7,163 -- 849 3,149 12
Maintenance......................... 33 -- 33 -- -- -- --
Depreciation and amortization....... 1,674 -- 1,674 -- 193 -- --
Taxes, other than income taxes...... 298 -- 298 -- 106 29 78
-------- ------- -------- -------- ------ ------ ------
Subtotal.................... 65,218 -- 65,218 -- 4,850 3,178 90
-------- ------- -------- -------- ------ ------ ------
Operating income before
income taxes.............. 3,933 -- 3,933 -- 869 (55) 2,056
Income taxes........................ 2,803 -- 2,803 -- 1,209 (100) 793
-------- ------- -------- -------- ------ ------ ------
Operating income............ 1,130 -- 1,130 -- (340) 45 1,263
-------- ------- -------- -------- ------ ------ ------
OTHER INCOME
Interest revenues................... 39 -- 39 -- 32 -- 4
Other -- net........................ 4,757 -- 4,757 -- 2,039 -- --
Equity in earnings of subsidiary
companies -- consolidated......... -- (4,462) 4,462 4,462 -- -- --
Interest revenues from affiliated
companies -- consolidated......... 1,145 -- 1,145 -- 986 -- 117
-------- ------- -------- -------- ------ ------ ------
Total other income.......... 5,941 (4,462) 10,403 4,462 3,057 -- 121
-------- ------- -------- -------- ------ ------ ------
Income before interest
charges................... 7,071 (4,462) 11,533 4,462 2,717 45 1,384
-------- ------- -------- -------- ------ ------ ------
INTEREST CHARGES
Interest on long-term debt.......... 900 -- 900 -- 634 -- 266
Other interest expense.............. 1,709 -- 1,709 -- 69 218 --
Allowance for funds used during
construction...................... -- -- -- -- -- -- --
-------- ------- -------- -------- ------ ------ ------
Total interest charges...... 2,609 -- 2,609 -- 703 218 266
-------- ------- -------- -------- ------ ------ ------
INCOME FROM CONTINUING OPERATIONS... 4,462 (4,462) 8,924 4,462 2,014 (173) 1,118
DISCONTINUED OPERATIONS
Loss from discontinued energy
marketing services operations, net
of applicable tax benefit......... (12,885) -- (12,885) (12,885) -- -- --
Loss from disposal of energy
marketing services operations,
including provision for operating
losses during the phase out
period, net of applicable tax
benefit........................... (27,916) -- (27,916) (27,916) -- -- --
-------- ------- -------- -------- ------ ------ ------
NET INCOME.......................... $(36,339) $(4,462) $(31,877) $(36,339) $2,014 $ (173) $1,118
======== ======= ======== ======== ====== ====== ======
<CAPTION>
CNG CNG
Main Oil CNG
Pass Gathering Retail
------ --------- -------
<S> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales................. $ -- $ -- $ --
Nonregulated gas sales.............. -- -- 54,810
------ ------ -------
Total gas sales............. -- -- 54,810
Gas transportation and storage...... -- -- --
Other............................... -- -- 3,353
------ ------ -------
Total operating revenues.... -- -- 58,163
------ ------ -------
OPERATING EXPENSES
Purchased gas....................... -- -- 49,538
Liquids, capacity and other products
purchased......................... -- -- 2,810
Operation expense................... 2 2 3,149
Maintenance......................... -- -- 33
Depreciation and amortization....... -- -- 1,481
Taxes, other than income taxes...... -- -- 85
------ ------ -------
Subtotal.................... 2 2 57,096
------ ------ -------
Operating income before
income taxes.............. (2) (2) 1,067
Income taxes........................ 193 378 330
------ ------ -------
Operating income............ (195) (380) 737
------ ------ -------
OTHER INCOME
Interest revenues................... -- -- 3
Other -- net........................ 1,208 1,510 --
Equity in earnings of subsidiary
companies -- consolidated......... -- -- --
Interest revenues from affiliated
companies -- consolidated......... -- -- 42
------ ------ -------
Total other income.......... 1,208 1,510 45
------ ------ -------
Income before interest
charges................... 1,013 1,130 782
------ ------ -------
INTEREST CHARGES
Interest on long-term debt.......... -- -- --
Other interest expense.............. 680 428 314
Allowance for funds used during
construction...................... -- -- --
------ ------ -------
Total interest charges...... 680 428 314
------ ------ -------
INCOME FROM CONTINUING OPERATIONS... 333 702 468
DISCONTINUED OPERATIONS
Loss from discontinued energy
marketing services operations, net
of applicable tax benefit......... -- -- --
Loss from disposal of energy
marketing services operations,
including provision for operating
losses during the phase out
period, net of applicable tax
benefit........................... -- -- --
------ ------ -------
NET INCOME.......................... $ 333 $ 702 $ 468
====== ====== =======
</TABLE>
- ---------------
( ) denotes negative amount.
* During April 1998, management approved a plan to discontinue the Company's
wholesale trading and marketing of natural gas and electricity, including
integrated energy management. The results of operations of these activities
are classified as "Discontinued Operations" in the Consolidating Income
Statement. Cash flows in connection with operating and investing activities
for discontinued operations are reported separately in the Consolidating
Statement of Cash Flows. On July 31, 1998, the Parent Company sold all of the
common stock of CNG Energy Services. Prior to the sale, CNG Energy Services
transferred all of the common stock of its subsidiaries to the Parent Company
through a liquidating distribution. Subsequent to the distribution, each of
the subsidiaries became a direct subsidiary of the Parent Company.
58
<PAGE> 61
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Period January 1 Through July 31, 1998*
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and
and and Combined Power Services CNG
Subsidiaries Adjustments Total CNGESC (Page 63) (Page 67) Storage
------------ ------------ -------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997............. $(11,480) $(5,162) $(6,318) $(18,180) $ 9,556 $(1,075) $ 3,472
Net income for the period January 1
through July 31, 1998 per accompanying
income statement....................... (36,339) (4,462) (31,877) (36,339) 2,014 (173) 1,118
-------- ------- -------- -------- -------- ------- -------
Total............................ (47,819) (9,624) (38,195) (54,519) 11,570 (1,248) 4,590
Transfer of subsidiaries by CNG Energy
Services through liquidating
distribution to Parent Company......... (6,700) 9,624 (16,324) -- (11,570) 1,248 (4,590)
Sale of CNG Energy Services common stock
by Parent Company and assumption of
remaining assets and liabilities of CNG
Energy Services by Parent Company...... 54,519 -- 54,519 54,519 -- -- --
Dividends declared on common
stock -- cash.......................... -- -- -- -- -- -- --
-------- ------- -------- -------- -------- ------- -------
Balance at July 31, 1998................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======= ======== ======== ======== ======= =======
<CAPTION>
CNG CNG
Main Oil CNG
Pass Gathering Retail
------- --------- -------
<S> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997............. $ 1,730 $ 535 $(2,356)
Net income for the period January 1
through July 31, 1998 per accompanying
income statement....................... 333 702 468
------- ------- -------
Total............................ 2,063 1,237 (1,888)
Transfer of subsidiaries by CNG Energy
Services through liquidating
distribution to Parent Company......... (2,063) (1,237) 1,888
Sale of CNG Energy Services common stock
by Parent Company and assumption of
remaining assets and liabilities of CNG
Energy Services by Parent Company...... -- -- --
Dividends declared on common
stock -- cash.......................... -- -- --
------- ------- -------
Balance at July 31, 1998................. $ -- $ -- $ --
======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
59
<PAGE> 62
ITEM 10. (Continued)
CNG ENERGY SERVICES CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period January 1 Through July 31, 1998*
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
CNGESC Eliminations CNG Products and
and and Combined Power Services CNG
Subsidiaries Adjustments Total CNGESC (Page 64) (Page 68) Storage
------------ ------------ -------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Income from continuing
operations........................ $ 4,462 $ (4,462) $ 8,924 $ 4,462 $ 2,014 $ (173) $ 1,118
Adjustments to reconcile income
from continuing operations to net
cash provided by (used in)
operating activities
Depreciation and amortization..... 1,674 -- 1,674 -- 193 -- --
Pension cost (credit) -- net...... -- -- -- -- -- -- --
Stock award amortization.......... -- -- -- -- -- -- --
Deferred income taxes -- net...... (861) -- (861) -- (2,811) -- --
Investment tax credit............. -- -- -- -- -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net...... (2,290) -- (2,290) -- 476 (985) 264
Receivables from affiliated
cos. -- consolidated.......... (6,367) (35,009) 28,642 -- (540) 11,398 (4)
Inventories..................... (8,503) -- (8,503) -- 377 -- --
Unrecovered gas costs........... -- -- -- -- -- -- --
Accounts payable................ (2,130) -- (2,130) -- (249) (1,891) 1
Payables to affiliated
cos. -- consolidated.......... 6,917 35,009 (28,092) -- 1,421 (4,303) 39
Estimated rate contingencies and
refunds....................... -- -- -- -- -- -- --
Amounts payable to customers.... -- -- -- -- -- -- --
Taxes accrued................... (1,148) -- (1,148) -- (2,049) 1,508 99
Other -- net.................... 656 -- 656 -- 14 601 122
Changes in other assets and other
liabilities..................... 10,060 -- 10,060 -- 10,701 271 --
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ -- 4,462 (4,462) (4,462) -- -- --
Other -- net...................... -- -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
continuing operations....... 2,470 -- 2,470 -- 9,547 6,426 1,639
Net cash provided by (used in)
discontinued operations........... 18,484 -- 18,484 18,484 -- -- --
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
operating activities........ 20,954 -- 20,954 18,484 9,547 6,426 1,639
-------- -------- -------- -------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Plant construction and other
property additions................ (735) -- (735) -- -- -- --
Proceeds from dispositions of
prop., plant and equip. -- net.... -- -- -- -- -- -- --
Cost of other investments -- net... (5,934) -- (5,934) -- -- -- --
Intrasystem long-term
financing -- net.................. -- -- -- -- -- -- --
Intrasystem money pool
investments -- net................ 470 -- 470 -- (8,600) -- (1,300)
Property transfers to (from)
affiliates........................ (10) -- (10) -- -- 65 --
Cash -- Liquidating
distribution/assumption of assets
and liabilities................... (3,989) -- (3,989) (2,774) (982) (13) (348)
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
continuing operations....... (10,198) -- (10,198) (2,774) (9,582) 52 (1,648)
Net cash provided by (used in)
discontinued operations........... 841 -- 841 841 -- -- --
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
investing activities........ (9,357) -- (9,357) (1,933) (9,582) 52 (1,648)
-------- -------- -------- -------- ------- ------- -------
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............... 4,850 -- 4,850 -- -- (6,530) --
Dividends paid -- subsidiary
companies -- consolidated......... -- -- -- -- -- -- --
Purchase of treasury stock......... -- -- -- -- -- -- --
Sale of treasury stock............. -- -- -- -- -- -- --
Other -- net....................... -- -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
continuing operations....... 4,850 -- 4,850 -- -- (6,530) --
Net cash provided by (used in)
discontinued operations........... (25,080) -- (25,080) (25,080) -- -- --
-------- -------- -------- -------- ------- ------- -------
Net cash provided by (used in)
financing activities........ (20,230) -- (20,230) (25,080) -- (6,530) --
-------- -------- -------- -------- ------- ------- -------
Net increase (decrease) in
cash and TCIs............... (8,633) -- (8,633) (8,529) (35) (52) (9)
CASH AND TCIS AT JANUARY 1, 1998... 8,633 -- 8,633 8,529 35 52 9
-------- -------- -------- -------- ------- ------- -------
CASH AND TCIS AT JULY 31, 1998..... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======= ======= =======
Continuing operations.............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Discontinued operations............ -- -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------
Total cash and TCIs at July
31.......................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for Interest (net of
amounts capitalized).............. $ 4,448 $ -- $ 4,448 $ 1,839 $ 703 $ 218 $ 266
Income taxes (net of refunds)..... $ 948 $ -- $ 948 $(3,863) $ 6,092 $(1,608) $ 622
Non-cash investing activities
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company, net of cash..... $(61,238) $ -- $(61,238) $(61,238) $ -- $ -- $ --
<CAPTION>
CNG CNG
Main Oil CNG
Pass Gathering Retail
------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Income from continuing
operations........................ $ 333 $ 702 $ 468
Adjustments to reconcile income
from continuing operations to net
cash provided by (used in)
operating activities
Depreciation and amortization..... -- -- 1,481
Pension cost (credit) -- net...... -- -- --
Stock award amortization.......... -- -- --
Deferred income taxes -- net...... 1,014 574 362
Investment tax credit............. -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net...... -- -- (2,045)
Receivables from affiliated
cos. -- consolidated.......... (271) 2,316 15,743
Inventories..................... -- -- (8,880)
Unrecovered gas costs........... -- -- --
Accounts payable................ -- -- 9
Payables to affiliated
cos. -- consolidated.......... 5,190 (2,838) (27,601)
Estimated rate contingencies and
refunds....................... -- -- --
Amounts payable to customers.... -- -- --
Taxes accrued................... (296) 74 (484)
Other -- net.................... 1 2 (84)
Changes in other assets and other
liabilities..................... (37) (830) (45)
Excess of equity in earnings of
subsidiary companies over their
cash dividends
paid -- consolidated............ -- -- --
Other -- net...................... -- -- --
------- ------- --------
Net cash provided by (used in)
continuing operations....... 5,934 -- (21,076)
Net cash provided by (used in)
discontinued operations........... -- -- --
------- ------- --------
Net cash provided by (used in)
operating activities........ 5,934 -- (21,076)
------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Plant construction and other
property additions................ -- -- (735)
Proceeds from dispositions of
prop., plant and equip. -- net.... -- -- --
Cost of other investments -- net... (5,934) -- --
Intrasystem long-term
financing -- net.................. -- -- --
Intrasystem money pool
investments -- net................ -- -- 10,370
Property transfers to (from)
affiliates........................ -- -- (75)
Cash -- Liquidating
distribution/assumption of assets
and liabilities................... -- -- 128
------- ------- --------
Net cash provided by (used in)
continuing operations....... (5,934) -- 9,688
Net cash provided by (used in)
discontinued operations........... -- -- --
------- ------- --------
Net cash provided by (used in)
investing activities........ (5,934) -- 9,688
------- ------- --------
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............... -- -- 11,380
Dividends paid -- subsidiary
companies -- consolidated......... -- -- --
Purchase of treasury stock......... -- -- --
Sale of treasury stock............. -- -- --
Other -- net....................... -- -- --
------- ------- --------
Net cash provided by (used in)
continuing operations....... -- -- 11,380
Net cash provided by (used in)
discontinued operations........... -- -- --
------- ------- --------
Net cash provided by (used in)
financing activities........ -- -- 11,380
------- ------- --------
Net increase (decrease) in
cash and TCIs............... -- -- (8)
CASH AND TCIS AT JANUARY 1, 1998... -- -- 8
------- ------- --------
CASH AND TCIS AT JULY 31, 1998..... $ -- $ -- $ --
======= ======= ========
Continuing operations.............. $ -- $ -- $ --
Discontinued operations............ -- -- --
------- ------- --------
Total cash and TCIs at July
31.......................... $ -- $ -- $ --
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for Interest (net of
amounts capitalized).............. $ 680 $ 428 $ 314
Income taxes (net of refunds)..... $ (525) $ (270) $ 500
Non-cash investing activities
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company, net of cash..... $ -- $ -- $ --
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
60
<PAGE> 63
(THIS PAGE INTENTIONALLY LEFT BLANK)
61
<PAGE> 64
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING INCOME STATEMENT
For the Period January 1 Through July 31, 1998*
(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...... -- -- -- -- -- -- --
Other............................... 5,719 -- 5,719 5,719 -- -- --
------ ---- ------ ------ --- --- ----
Total operating revenues... 5,719 -- 5,719 5,719 -- -- --
------ ---- ------ ------ --- --- ----
OPERATING EXPENSES
Purchased gas....................... -- -- -- -- -- -- --
Liquids, capacity and other products
purchased......................... 3,702 -- 3,702 3,702 -- -- --
Operation expense................... 849 -- 849 837 -- -- 12
Maintenance......................... -- -- -- -- -- -- --
Depreciation and amortization....... 193 -- 193 193 -- -- --
Taxes, other than income taxes...... 106 -- 106 93 -- 1 12
------ ---- ------ ------ --- --- ----
Subtotal................... 4,850 -- 4,850 4,825 -- 1 24
------ ---- ------ ------ --- --- ----
Operating income before
income taxes............. 869 -- 869 894 -- (1) (24)
Income taxes........................ 1,209 -- 1,209 1,186 -- 2 21
------ ---- ------ ------ --- --- ----
Operating income........... (340) -- (340) (292) -- (3) (45)
------ ---- ------ ------ --- --- ----
OTHER INCOME
Interest revenues................... 32 -- 32 32 -- -- --
Other -- net........................ 2,039 -- 2,039 1,939 -- 9 91
Equity in earnings of subsidiary
companies -- consolidated......... -- (45) 45 45 -- -- --
Interest revenues from affiliated
companies -- consolidated......... 986 -- 986 973 -- -- 13
------ ---- ------ ------ --- --- ----
Total other income......... 3,057 (45) 3,102 2,989 -- 9 104
------ ---- ------ ------ --- --- ----
Income before interest
charges.................. 2,717 (45) 2,762 2,697 -- 6 59
------ ---- ------ ------ --- --- ----
INTEREST CHARGES
Interest on long-term debt.......... 634 -- 634 634 -- -- --
Other interest expense.............. 69 -- 69 49 -- -- 20
Allowance for funds used during
construction...................... -- -- -- -- -- -- --
------ ---- ------ ------ --- --- ----
Total interest charges..... 703 -- 703 683 -- -- 20
------ ---- ------ ------ --- --- ----
INCOME FROM CONTINUING OPERATIONS... 2,014 (45) 2,059 2,014 -- 6 39
DISCONTINUED OPERATIONS
Loss from discontinued energy
marketing services operations, net
of applicable tax benefit......... -- -- -- -- -- -- --
Loss from disposal of energy
marketing services operations,
including provision for operating
losses during the phase out
period, net of applicable tax
benefit........................... -- -- -- -- -- -- --
------ ---- ------ ------ --- --- ----
NET INCOME.......................... $2,014 $(45) $2,059 $2,014 $-- $ 6 $ 39
====== ==== ====== ====== === === ====
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
62
<PAGE> 65
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Period January 1 Through July 31, 1998*
(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, 1997............ $ 9,556 $(707) $10,263 $ 9,556 $-- $ 6 $ 701
Net income for the period January 1
through July 31, 1998 per accompanying
income statement...................... 2,014 (45) 2,059 2,014 -- 6 39
-------- ----- -------- -------- --- ---- -----
Total.......................... 11,570 (752) 12,322 11,570 -- 12 740
Transfer of subsidiaries by CNG
Energy Services through liquidating
distribution to Parent Company...... (11,570) 752 (12,322) (11,570) -- (12) (740)
Dividends declared on common
stock -- cash......................... -- -- -- -- -- -- --
-------- ----- -------- -------- --- ---- -----
Balance at July 31, 1998................ $ -- $ -- $ -- $ -- $-- $ -- $ --
======== ===== ======== ======== === ==== =====
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
63
<PAGE> 66
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period January 1 Through July 31, 1998*
(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
Income from continuing operations................ $ 2,014 $ (45) $ 2,059 $ 2,014 $-- $ 6 $ 39
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities
Depreciation and amortization................... 193 -- 193 193 -- -- --
Pension cost (credit) -- net.................... -- -- -- -- -- -- --
Stock award amortization........................ -- -- -- -- -- -- --
Deferred income taxes -- net.................... (2,811) -- (2,811) (2,774) -- (37) --
Investment tax credit........................... -- -- -- -- -- -- --
Changes in current assets and current
liabilities
Accounts receivable -- net.................... 476 -- 476 476 -- -- --
Receivables from affiliated
companies -- consolidated................... (540) (10,495) 9,955 10,248 -- (72) (221)
Inventories................................... 377 -- 377 377 -- -- --
Unrecovered gas costs......................... -- -- -- -- -- -- --
Accounts payable.............................. (249) -- (249) (244) -- -- (5)
Payables to affiliated
companies -- consolidated................... 1,421 10,495 (9,074) (8,918) -- (32) (124)
Estimated rate contingencies and refunds...... -- -- -- -- -- -- --
Amounts payable to customers.................. -- -- -- -- -- -- --
Taxes accrued................................. (2,049) -- (2,049) (1,955) -- 14 (108)
Other -- net.................................. 14 -- 14 13 -- (1) 2
Changes in other assets and other liabilities... 10,701 -- 10,701 10,171 -- 122 408
Excess of equity in earnings of subsidiary
companies over their cash dividends
paid -- consolidated.......................... -- 45 (45) (45) -- -- --
Other -- net.................................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) continuing
operations................................ 9,547 -- 9,547 9,556 -- -- (9)
Net cash provided by (used in) discontinued
operations...................................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) operating
activities................................ 9,547 -- 9,547 9,556 -- -- (9)
------- ------- ------- ------- --- ---- -----
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........ (8,600) -- (8,600) (8,600) -- -- --
Property transfers to (from) affiliates.......... -- -- -- -- -- -- --
Cash -- Liquidating distribution/assumption of
assets and liabilities.......................... (982) -- (982) (979) -- -- (3)
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) continuing
operations................................ (9,582) -- (9,582) (9,579) -- -- (3)
Net cash provided by (used in) discontinued
operations...................................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) investing
activities................................ (9,582) -- (9,582) (9,579) -- -- (3)
------- ------- ------- ------- --- ---- -----
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....................... -- -- -- -- -- -- --
Purchase of treasury stock....................... -- -- -- -- -- -- --
Sale of treasury stock........................... -- -- -- -- -- -- --
Other -- net..................................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) continuing
operations................................ -- -- -- -- -- -- --
Net cash provided by (used in) discontinued
operations...................................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net cash provided by (used in) financing
activities................................ -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Net increase (decrease) in cash and TCIs.... (35) -- (35) (23) -- -- (12)
CASH AND TCIS AT JANUARY 1, 1998................. 35 -- 35 23 -- -- 12
------- ------- ------- ------- --- ---- -----
CASH AND TCIS AT JULY 31, 1998................... $ -- $ -- $ -- $ -- $-- $ -- $ --
======= ======= ======= ======= === ==== =====
Continuing operations............................ $ -- $ -- $ -- $ -- $-- $ -- $ --
Discontinued operations.......................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- -----
Total cash and TCIs at July 31................ $ -- $ -- $ -- $ -- $-- $ -- $ --
======= ======= ======= ======= === ==== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)........... $ 703 $ -- $ 703 $ 703 $-- $ -- $ --
Income taxes (net of refunds)................... $ 6,092 $ -- $ 6,092 $ 5,937 $-- $ 25 $ 130
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
64
<PAGE> 67
(THIS PAGE INTENTIONALLY LEFT BLANK)
65
<PAGE> 68
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING INCOME STATEMENT
For the Period January 1 Through July 31, 1998*
(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........... -- -- -- -- --
Other.................................... 3,123 -- 3,123 3,123 --
------ --- ------ ------ ---
Total operating revenues........ 3,123 -- 3,123 3,123 --
------ --- ------ ------ ---
OPERATING EXPENSES
Purchased gas............................ -- -- -- -- --
Liquids, capacity and other products
purchased.............................. -- -- -- -- --
Operation expense........................ 3,149 -- 3,149 3,149 --
Maintenance.............................. -- -- -- -- --
Depreciation and amortization............ -- -- -- -- --
Taxes, other than income taxes........... 29 -- 29 23 6
------ --- ------ ------ ---
Subtotal........................ 3,178 -- 3,178 3,172 6
------ --- ------ ------ ---
Operating income before income
taxes......................... (55) -- (55) (49) (6)
Income taxes............................. (100) -- (100) (102) 2
------ --- ------ ------ ---
Operating income................ 45 -- 45 53 (8)
------ --- ------ ------ ---
OTHER INCOME
Interest revenues........................ -- -- -- -- --
Other -- net............................. -- -- -- -- --
Equity in earnings of subsidiary
company -- consolidated................ -- 8 (8) (8) --
Interest revenues from affiliated
companies -- consolidated.............. -- -- -- -- --
------ --- ------ ------ ---
Total other income.............. -- 8 (8) (8) --
------ --- ------ ------ ---
Income before interest
charges....................... 45 8 37 45 (8)
------ --- ------ ------ ---
INTEREST CHARGES
Interest on long-term debt............... -- -- -- -- --
Other interest expense................... 218 -- 218 218 --
Allowance for funds used during
construction........................... -- -- -- -- --
------ --- ------ ------ ---
Total interest charges.......... 218 -- 218 218 --
------ --- ------ ------ ---
INCOME FROM CONTINUING OPERATIONS........ (173) 8 (181) (173) (8)
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing
services operations, net of applicable
tax benefit............................ -- -- -- -- --
Loss from disposal of energy marketing
services operations, including
provision for operating losses during
the phase out period, net of applicable
tax benefit............................ -- -- -- -- --
------ --- ------ ------ ---
NET INCOME............................... $ (173) $ 8 $ (181) $ (173) $(8)
====== === ====== ====== ===
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
66
<PAGE> 69
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Period January 1 Through July 31, 1998*
(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, 1997....... $(1,075) $ 137 $(1,212) $(1,075) $(137)
Net income for the period January 1
through July 31, 1998 per
accompanying income statement.... (173) 8 (181) (173) (8)
------- ----- ------- ------- -----
Total.................... (1,248) 145 (1,393) (1,248) (145)
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company................... 1,248 (145) 1,393 1,248 145
Dividends declared on common
stock -- cash.................... -- -- -- -- --
------- ----- ------- ------- -----
Balance at July 31, 1998........... $ -- $ -- $ -- $ -- $ --
======= ===== ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
67
<PAGE> 70
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period January 1 Through July 31, 1998*
(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>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations.......................... $ (173) $ 8 $ (181) $ (173) $ (8)
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization............................. -- -- -- -- --
Pension cost (credit) -- net.............................. -- -- -- -- --
Stock award amortization.................................. -- -- -- -- --
Deferred income taxes -- net.............................. -- -- -- (25) 25
Investment tax credit..................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net.............................. (985) -- (985) (985) --
Receivables from affiliated companies -- consolidated... 11,398 34 11,364 11,392 (28)
Inventories............................................. -- -- -- -- --
Unrecovered gas costs................................... -- -- -- -- --
Accounts payable........................................ (1,891) -- (1,891) (1,891) --
Payables to affiliated companies -- consolidated........ (4,303) (34) (4,269) (4,283) 14
Estimated rate contingencies and refunds................ -- -- -- -- --
Amounts payable to customers............................ -- -- -- -- --
Taxes accrued........................................... 1,508 -- 1,508 1,512 (4)
Other -- net............................................ 601 -- 601 601 --
Changes in other assets and other liabilities............. 271 -- 271 270 1
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated............... -- (8) 8 8 --
Other -- net.............................................. -- -- -- -- --
------- ---- ------- ------- ----
Net cash provided by (used in) continuing
operations.......................................... 6,426 -- 6,426 6,426 --
Net cash provided by (used in) discontinued operations..... -- -- -- -- --
------- ---- ------- ------- ----
Net cash provided by (used in) operating activities... 6,426 -- 6,426 6,426 --
------- ---- ------- ------- ----
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.................. -- -- -- -- --
Property transfers to (from) affiliates.................... 65 -- 65 65 --
Cash -- Liquidating distribution/assumption of assets and
liabilities............................................... (13) -- (13) (13) --
------- ---- ------- ------- ----
Net cash provided by (used in) continuing
operations.......................................... 52 -- 52 52 --
Net cash provided by (used in) discontinued operations..... -- -- -- -- --
------- ---- ------- ------- ----
Net cash provided by (used in) investing activities... 52 -- 52 52 --
------- ---- ------- ------- ----
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...... (6,530) -- (6,530) (6,530) --
Dividends paid -- subsidiary companies -- consolidated..... -- -- -- -- --
Purchase of treasury stock................................. -- -- -- -- --
Sale of treasury stock..................................... -- -- -- -- --
Other -- net............................................... -- -- -- -- --
------- ---- ------- ------- ----
Net cash provided by (used in) continuing
operations.......................................... (6,530) -- (6,530) (6,530) --
Net cash provided by (used in) discontinued operations..... -- -- -- -- --
------- ---- ------- ------- ----
Net cash provided by (used in) financing activities... (6,530) -- (6,530) (6,530) --
------- ---- ------- ------- ----
Net increase (decrease) in cash and TCIs.............. (52) -- (52) (52) --
CASH AND TCIS AT JANUARY 1, 1998........................... 52 -- 52 52 --
------- ---- ------- ------- ----
CASH AND TCIS AT JULY 31, 1998............................. $ -- $ -- $ -- $ -- $ --
======= ==== ======= ======= ====
Continuing operations...................................... $ -- $ -- $ -- $ -- $ --
Discontinued operations.................................... -- -- -- -- --
------- ---- ------- ------- ----
Total cash and TCIs at July 31........................ $ -- $ -- $ -- $ -- $ --
======= ==== ======= ======= ====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)..................... $ 218 $ -- $ 218 $ 218 $ --
Income taxes (net of refunds)............................. $(1,608) $ -- $(1,608) $(1,696) $ 88
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 58.
68
<PAGE> 71
(THIS PAGE INTENTIONALLY LEFT BLANK)
69
<PAGE> 72
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998*
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGPSC Lakewood
---------- ------------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
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
Stock of subsidiary company, at
equity -- consolidated........................... -- -- -- -- --
Notes of subsidiary company -- consolidated........ -- -- -- -- --
---- ---- ---- ---- ----
Total investments......................... -- -- -- -- --
---- ---- ---- ---- ----
CURRENT ASSETS
Cash and temporary cash investments................ -- -- -- -- --
Accounts receivable
Customers........................................ -- -- -- -- --
Unbilled revenues and other...................... -- -- -- -- --
Allowance for doubtful accounts.................. -- -- -- -- --
Receivables from affiliated companies --
consolidated..................................... -- -- -- -- --
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...................... -- -- -- -- --
---- ---- ---- ---- ----
REGULATORY AND OTHER ASSETS
Other investments.................................. -- -- -- -- --
Deferred charges and other assets.................. -- -- -- -- --
---- ---- ---- ---- ----
Total regulatory and other assets......... -- -- -- -- --
---- ---- ---- ---- ----
Total assets.............................. $ -- $ -- $ -- $ -- $ --
==== ==== ==== ==== ====
</TABLE>
- ---------------
( ) denotes negative amount.
* During April 1998, management approved a plan to discontinue the Company's
wholesale trading and marketing of natural gas and electricity, including
integrated energy management. The results of operations of these activities
are classified as "Discontinued Operations" in the Consolidating Income
Statement. The remaining net liabilities associated with discontinued
operations at December 31, 1998 are classified on one line item, Other current
liabilities, in the Consolidating Balance Sheet. Cash flows in connection with
operating and investing activities for discontinued operations are reported
separately in the Consolidating Statement of Cash Flows.
Reference is also made to page 21 regarding the sale of the capital stock of
CNG Lakewood in 1998.
70
<PAGE> 73
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNGPSC Eliminations
and and Combined CNG
Subsidiary Adjustments Total CNGPSC Lakewood
---------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
STOCKHOLDER'S EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholder's equity
Common stock.............................. $15,520 $ -- $ 15,520 $ 15,520 $ --
Capital in excess of par value............ -- -- -- -- --
Retained earnings, per accompanying
statement.............................. (18,187) -- (18,187) (18,187) --
Treasury stock, at cost................... -- -- -- -- --
Unearned compensation..................... -- -- -- -- --
------- ---- -------- -------- ----
Total common stockholder's
equity.......................... (2,667) -- (2,667) (2,667) --
------- ---- -------- -------- ----
Long-term debt
Debentures................................ -- -- -- -- --
Notes payable to Parent Company........... -- -- -- -- --
------- ---- -------- -------- ----
Total long-term debt.............. -- -- -- -- --
------- ---- -------- -------- ----
Total capitalization.............. (2,667) -- (2,667) (2,667) --
------- ---- -------- -------- ----
CURRENT LIABILITIES
Current maturities on long-term debt........ -- -- -- -- --
Commercial paper............................ -- -- -- -- --
Accounts payable............................ -- -- -- -- --
Payables to affiliated
companies -- consolidated................. -- -- -- -- --
Estimated rate contingencies and refunds.... -- -- -- -- --
Amounts payable to customers................ -- -- -- -- --
Taxes accrued............................... -- -- -- -- --
Deferred income taxes -- current............ -- -- -- -- --
Dividends declared.......................... -- -- -- -- --
Other current liabilities................... 2,667 -- 2,667 2,667 --
------- ---- -------- -------- ----
Total current liabilities......... 2,667 -- 2,667 2,667 --
------- ---- -------- -------- ----
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..................... $ -- $ -- $ -- $ -- $ --
======= ==== ======== ======== ====
</TABLE>
- ---------------
( ) denotes negative amount.
71
<PAGE> 74
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998*
(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............... -- -- -- -- --
Other........................................ -- -- -- -- --
------- ---- ------- ------- ---
Total operating revenues........... -- -- -- -- --
------- ---- ------- ------- ---
OPERATING EXPENSES
Purchased gas................................ -- -- -- -- --
Liquids, capacity and other products
purchased.................................. -- -- -- -- --
Operation expense............................ -- -- -- -- --
Maintenance.................................. -- -- -- -- --
Depreciation and amortization................ -- -- -- -- --
Taxes, other than income taxes............... 1 -- 1 -- 1
------- ---- ------- ------- ---
Subtotal........................... 1 -- 1 -- 1
------- ---- ------- ------- ---
Operating income before income
taxes............................ (1) -- (1) -- (1)
Income taxes................................. 35 -- 35 30 5
------- ---- ------- ------- ---
Operating income................... (36) -- (36) (30) (6)
------- ---- ------- ------- ---
OTHER INCOME
Interest revenues............................ 1 -- 1 -- 1
Other -- net................................. 148 -- 148 93 55
Equity in earnings of subsidiary company --
consolidated............................... -- (71) 71 71 --
Interest revenues from affiliated
companies -- consolidated.................. 21 -- 21 -- 21
------- ---- ------- ------- ---
Total other income................. 170 (71) 241 164 77
------- ---- ------- ------- ---
Income before interest charges..... 134 (71) 205 134 71
------- ---- ------- ------- ---
INTEREST CHARGES
Interest on long-term debt................... -- -- -- -- --
Other interest expense....................... -- -- -- -- --
Allowance for funds used during
construction............................... -- -- -- -- --
------- ---- ------- ------- ---
Total interest charges............. -- -- -- -- --
------- ---- ------- ------- ---
INCOME FROM CONTINUING OPERATIONS............ 134 (71) 205 134 71
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing
services operations, net of applicable tax
benefit.................................... (4,314) -- (4,314) (4,314) --
Loss from disposal of energy marketing
services operations, including provision
for operating losses during the phase out
period, net of applicable tax benefit...... (4,817) -- (4,817) (4,817) --
------- ---- ------- ------- ---
NET INCOME................................... $(8,997) $(71) $(8,926) $(8,997) $71
======= ==== ======= ======= ===
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 70.
72
<PAGE> 75
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(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, 1997................ $ (9,190) $ (9) $ (9,181) $ (8,762) $(419)
Net income for the year 1998 per
accompanying income statement............. (8,997) (71) (8,926) (8,997) 71
-------- ---- -------- -------- -----
Total............................. (18,187) (80) (18,107) (17,759) (348)
Sale of CNG Lakewood common stock by CNG
Power Services and assumption of remaining
assets and liabilities of CNG Lakewood by
CNG Power Services........................ -- 80 (80) (428) 348
Dividends declared on common
stock -- cash............................. -- -- -- -- --
-------- ---- -------- -------- -----
Balance at December 31, 1998................ $(18,187) $ -- $(18,187) $(18,187) $ --
======== ==== ======== ======== =====
</TABLE>
- ---------------
( ) denotes negative amount.
73
<PAGE> 76
ITEM 10. (Continued)
CNG POWER SERVICES CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998*
(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
Income from continuing operations........................... $ 134 $ (71) $ 205 $ 134 $ 71
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. -- -- -- -- --
Pension cost (credit) -- net............................... -- -- -- -- --
Stock award amortization................................... -- -- -- -- --
Deferred income taxes -- net............................... (150) -- (150) -- (150)
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net............................... -- -- -- -- --
Receivables from affiliated companies -- consolidated.... 3 -- 3 -- 3
Inventories.............................................. (3) -- (3) -- (3)
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... -- -- -- -- --
Payables to affiliated companies -- consolidated......... 475 -- 475 -- 475
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ 55 -- 55 -- 55
Other -- net............................................. -- -- -- -- --
Changes in other assets and other liabilities.............. 117 -- 117 94 23
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated................ -- 71 (71) (71) --
Other -- net............................................... (93) -- (93) (93) --
-------- ----- -------- -------- -----
Net cash provided by (used in) continuing operations... 538 -- 538 64 474
Net cash provided by (used in) discontinued operations...... (9,194) -- (9,194) (9,194) --
-------- ----- -------- -------- -----
Net cash provided by (used in) operating activities.... (8,656) -- (8,656) (9,130) 474
-------- ----- -------- -------- -----
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................... (460) -- (460) -- (460)
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash -- Liquidating distribution/assumption of assets and
liabilities................................................ -- 22 (22) -- (22)
-------- ----- -------- -------- -----
Net cash provided by (used in) continuing operations... (460) 22 (482) -- (482)
Net cash provided by (used in) discontinued operations...... 5,742 (22) 5,764 5,764 --
-------- ----- -------- -------- -----
Net cash provided by (used in) investing activities.... 5,282 -- 5,282 5,764 (482)
-------- ----- -------- -------- -----
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...... -- -- -- -- --
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
-------- ----- -------- -------- -----
Net cash provided by (used in) continuing operations... -- -- -- -- --
Net cash provided by (used in) discontinued operations...... 6,025 -- 6,025 6,025 --
-------- ----- -------- -------- -----
Net cash provided by (used in) financing activities.... 6,025 -- 6,025 6,025 --
-------- ----- -------- -------- -----
Net increase (decrease) in cash and TCIs............... 2,651 -- 2,651 2,659 (8)
CASH AND TCIS AT JANUARY 1, 1998............................ 8 -- 8 -- 8
-------- ----- -------- -------- -----
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 2,659 $ -- $ 2,659 $ 2,659 $ --
======== ===== ======== ======== =====
Continuing operations....................................... $ -- $ -- $ -- $ -- $ --
Discontinued operations..................................... 2,659 -- 2,659 2,659 --
-------- ----- -------- -------- -----
Total cash and TCIs at December 31..................... $ 2,659 $ -- $ 2,659 $ 2,659 $ --
======== ===== ======== ======== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ 114 $ -- $ 114 $ 114 $ --
Income taxes (net of refunds).............................. $ (3,490) $ -- $(3,490) $(3,626) $ 136
Non-cash investing activities
Assumption of remaining assets and liabilities of CNG
Lakewood, net of cash.................................... $ -- $ -- $ -- $ 150 $(150)
</TABLE>
- ---------------
( ) denotes negative amount.
* See note on page 70.
74
<PAGE> 77
(THIS PAGE INTENTIONALLY LEFT BLANK)
75
<PAGE> 78
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG
CNGI Eliminations Cayman CNG Cayman
and and Combined One Cayman Three
Subsidiaries Adjustments Total CNGI (Page 82) Two (Page 90)
------------ ------------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other
plant...................... $ 1,969 $ -- $ 1,969 $ 1,969 $ -- $ -- $ --
Accumulated depreciation and
amortization............... (340) -- (340) (340) -- -- --
-------- --------- -------- -------- -------- ------- -------
Net gas utility and other
plant................. 1,629 -- 1,629 1,629 -- -- --
-------- --------- -------- -------- -------- ------- -------
Exploration and production
properties................. -- -- -- -- -- -- --
Accumulated depreciation and
amortization............... -- -- -- -- -- -- --
-------- --------- -------- -------- -------- ------- -------
Net exploration and
production
properties............ -- -- -- -- -- -- --
-------- --------- -------- -------- -------- ------- -------
Net property, plant and
equipment............. 1,629 -- 1,629 1,629 -- -- --
-------- --------- -------- -------- -------- ------- -------
INVESTMENTS
Stocks of subsidiary
companies, at
equity -- consolidated..... -- (136,484) 136,484 136,484 -- -- --
Notes of subsidiary
companies --
consolidated............... -- -- -- -- -- -- --
-------- --------- -------- -------- -------- ------- -------
Total investments........ -- (136,484) 136,484 136,484 -- -- --
-------- --------- -------- -------- -------- ------- -------
CURRENT ASSETS
Cash and temporary cash
investments................ 10,447 -- 10,447 29 3,887 -- 6,531
Accounts receivable
Customers.................. -- -- -- -- -- -- --
Unbilled revenues and
other.................... 389 -- 389 184 -- -- 205
Allowance for doubtful
accounts................. -- -- -- -- -- -- --
Receivables from affiliated
companies -- consolidated... 1,727 (59) 1,786 1,786 -- -- --
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..................... 3 -- 3 3 -- -- --
-------- --------- -------- -------- -------- ------- -------
Total current assets..... 12,566 (59) 12,625 2,002 3,887 -- 6,736
-------- --------- -------- -------- -------- ------- -------
REGULATORY AND OTHER ASSETS
Other investments............ 209,578 -- 209,578 88,729 31,071 -- 89,778
Deferred charges and other
assets..................... 30 -- 30 30 -- -- --
-------- --------- -------- -------- -------- ------- -------
Total regulatory and
other assets.......... 209,608 -- 209,608 88,759 31,071 -- 89,778
-------- --------- -------- -------- -------- ------- -------
Total assets............. $223,803 $(136,543) $360,346 $228,874 $ 34,958 $ -- $96,514
======== ========= ======== ======== ======== ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
76
<PAGE> 79
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG
CNGI Eliminations Cayman CNG Cayman
and and Combined One Cayman Three
Subsidiaries Adjustments Total CNGI (Page 83) Two (Page 91)
------------ ------------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDER'S EQUITY AND
- ------------------------
LIABILITIES
-----------
CAPITALIZATION
Common stockholder's equity
Common stock.................... $215,550 $ -- $215,550 $215,550 $ -- $ -- $ --
Capital in excess of par
value......................... -- (129,679) 129,679 -- 38,731 -- 90,948
Retained earnings, per
accompanying statement........ (9,231) (6,805) (2,426) (3,953) (3,806) -- 5,333
Treasury stock, at cost......... -- -- -- -- -- -- --
Unearned compensation........... -- -- -- -- -- -- --
-------- --------- -------- -------- ------- ------- -------
Total common stockholder's
equity..................... 206,319 (136,484) 342,803 211,597 34,925 -- 96,281
-------- --------- -------- -------- ------- ------- -------
Long-term debt
Debentures...................... -- -- -- -- -- -- --
Notes payable to Parent
Company....................... 15,000 -- 15,000 15,000 -- -- --
-------- --------- -------- -------- ------- ------- -------
Total long-term debt.......... 15,000 -- 15,000 15,000 -- -- --
-------- --------- -------- -------- ------- ------- -------
Total capitalization.......... 221,319 (136,484) 357,803 226,597 34,925 -- 96,281
-------- --------- -------- -------- ------- ------- -------
CURRENT LIABILITIES
Current maturities on long-term
debt............................ -- -- -- -- -- -- --
Commercial paper.................. -- -- -- -- -- -- --
Accounts payable.................. 727 -- 727 519 -- -- 208
Payables to affiliated
companies -- consolidated....... 734 (59) 793 735 33 -- 25
Estimated rate contingencies and
refunds......................... -- -- -- -- -- -- --
Amounts payable to customers...... -- -- -- -- -- -- --
Taxes accrued..................... 270 -- 270 270 -- -- --
Deferred income
taxes -- current................ -- -- -- -- -- -- --
Dividends declared................ -- -- -- -- -- -- --
Other current liabilities......... 437 -- 437 437 -- -- --
-------- --------- -------- -------- ------- ------- -------
Total current liabilities..... 2,168 (59) 2,227 1,961 33 -- 233
-------- --------- -------- -------- ------- ------- -------
DEFERRED CREDITS
Deferred income taxes............. (250) -- (250) (250) -- -- --
Accumulated deferred investment
tax credits..................... -- -- -- -- -- -- --
Deferred credits and other
liabilities..................... 566 -- 566 566 -- -- --
-------- --------- -------- -------- ------- ------- -------
Total deferred credits........ 316 -- 316 316 -- -- --
-------- --------- -------- -------- ------- ------- -------
COMMITMENTS AND CONTINGENCIES
-------- --------- -------- -------- ------- ------- -------
Total stockholder's equity and
liabilities................ $223,803 $(136,543) $360,346 $228,874 $34,958 $ -- $96,514
======== ========= ======== ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
77
<PAGE> 80
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG
CNGI Eliminations Cayman CNG Cayman
and and Combined One Cayman Three
Subsidiaries Adjustments Total CNGI (Page 84) Two (Page 92)
------------ ------------- -------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales.................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales............... -- -- -- -- -- -- --
------- ------- ------- ------- ------ ---- ------
Total gas sales.................. -- -- -- -- -- -- --
Gas transportation and storage....... -- -- -- -- -- -- --
Other................................ 1,183 -- 1,183 343 -- -- 840
------- ------- ------- ------- ------ ---- ------
Total operating revenues......... 1,183 -- 1,183 343 -- -- 840
------- ------- ------- ------- ------ ---- ------
OPERATING EXPENSES
Purchased gas........................ -- -- -- -- -- -- --
Liquids, capacity and other products
purchased.......................... -- -- -- -- -- -- --
Operation expense.................... 5,507 -- 5,507 5,201 4 -- 302
Maintenance.......................... 13 -- 13 13 -- -- --
Depreciation and amortization........ 176 -- 176 176 -- -- --
Taxes, other than income taxes....... 152 -- 152 144 -- -- 8
------- ------- ------- ------- ------ ---- ------
Subtotal......................... 5,848 -- 5,848 5,534 4 -- 310
------- ------- ------- ------- ------ ---- ------
Operating income before income
taxes.......................... (4,665) -- (4,665) (5,191) (4) -- 530
Income taxes......................... (3,539) -- (3,539) (3,539) -- -- --
------- ------- ------- ------- ------ ---- ------
Operating income................. (1,126) -- (1,126) (1,652) (4) -- 530
------- ------- ------- ------- ------ ---- ------
OTHER INCOME
Interest revenues.................... 331 -- 331 81 150 -- 100
Other -- net......................... 8,879 -- 8,879 2,824 1,352 -- 4,703
Equity in earnings of subsidiary
companies -- consolidated.......... -- (6,831) 6,831 6,831 -- -- --
Interest revenues from affiliated
companies -- consolidated.......... 19 -- 19 19 -- -- --
------- ------- ------- ------- ------ ---- ------
Total other income............... 9,229 (6,831) 16,060 9,755 1,502 -- 4,803
------- ------- ------- ------- ------ ---- ------
Income before interest charges... 8,103 (6,831) 14,934 8,103 1,498 -- 5,333
------- ------- ------- ------- ------ ---- ------
INTEREST CHARGES
Interest on long-term debt........... 2,593 -- 2,593 2,593 -- -- --
Other interest expense............... 3,001 -- 3,001 3,001 -- -- --
Allowance for funds used during
construction....................... -- -- -- -- -- -- --
------- ------- ------- ------- ------ ---- ------
Total interest charges........... 5,594 -- 5,594 5,594 -- -- --
------- ------- ------- ------- ------ ---- ------
INCOME FROM CONTINUING OPERATIONS.... 2,509 (6,831) 9,340 2,509 1,498 -- 5,333
DISCONTINUED OPERATIONS
Loss from discontinued energy
marketing services operations, net
of applicable tax benefit.......... -- -- -- -- -- -- --
Loss from disposal of energy
marketing services operations,
including provision for operating
losses during the phase out period,
net of applicable tax benefit...... -- -- -- -- -- -- --
------- ------- ------- ------- ------ ---- ------
NET INCOME........................... $ 2,509 $(6,831) $ 9,340 $ 2,509 $1,498 $ -- $5,333
======= ======= ======= ======= ====== ==== ======
</TABLE>
- ---------------
( ) denotes negative amount.
78
<PAGE> 81
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG
CNGI Eliminations Cayman CNG Cayman
and and Combined One Cayman Three
Subsidiaries Adjustments Total CNGI (Page 85) Two (Page 93)
------------ ------------- -------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997.... $(10,628) $ 26 $(10,654) $(6,462) $(4,192) $-- $ --
Net income for the year 1998 per
accompanying income
statement..................... 2,509 (6,831) 9,340 2,509 1,498 -- 5,333
-------- ------- -------- ------- ------- -- ------
Total....................... (8,119) (6,805) (1,314) (3,953) (2,694) -- 5,333
Dividends declared on common
stock -- cash................. -- -- -- -- -- -- --
Cumulative translation
adjustment.................... (1,112) -- (1,112) -- (1,112) -- --
-------- ------- -------- ------- ------- -- ------
Balance at December 31, 1998.... $ (9,231) $(6,805) $(2,426) $(3,953) $(3,806) $-- $5,333
======== ======= ======== ======= ======= === ======
</TABLE>
- ---------------
( ) denotes negative amount.
79
<PAGE> 82
ITEM 10. (Continued)
CNG INTERNATIONAL CORPORATION
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG CNG
Cayman Cayman Cayman
CNGI Eliminations One Two Three
and and Combined and and and
Subsidiaries Adjustments Total CNGI Subsidiary Subsidiary Subsidiary
------------ ------------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations... $ 2,509 $ (6,831) $ 9,340 $ 2,509 $ 1,498 $ -- $ 5,333
Adjustments to reconcile income from
continuing operations to net cash
provided by (used in) operating
activities
Depreciation and amortization...... 176 -- 176 176 -- -- --
Pension cost (credit) -- net....... 213 -- 213 213 -- -- --
Stock award amortization........... 319 -- 319 319 -- -- --
Deferred income taxes -- net....... (24) -- (24) (24) -- -- --
Investment tax credit.............. -- -- -- -- -- -- --
Changes in current assets and
current liabilities
Accounts receivable -- net....... (343) -- (343) (152) 14 -- (205)
Receivables from affiliated
cos. -- consolidated........... 78,041 27 78,014 78,013 -- 1 --
Inventories...................... -- -- -- -- -- -- --
Unrecovered gas costs............ -- -- -- -- -- -- --
Accounts payable................. (577) -- (577) (785) -- -- 208
Payables to affiliated
cos. -- consolidated........... (342) (27) (315) (340) 1 (1) 25
Estimated rate contingencies and
refunds........................ -- -- -- -- -- -- --
Amounts payable to customers..... -- -- -- -- -- -- --
Taxes accrued.................... 210 -- 210 210 -- -- --
Other -- net..................... 432 -- 432 432 -- -- --
Changes in other assets and other
liabilities...................... (3,049) -- (3,049) (2,204) (1,322) -- 477
Excess of equity in earnings of
subsidiary companies over their
cash dividends paid --
consolidated..................... -- 6,831 (6,831) (6,831) -- -- --
Other -- net....................... -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
continuing operations........ 77,565 -- 77,565 71,536 191 -- 5,838
Net cash provided by (used in)
discontinued operations............ -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
operating activities......... 77,565 -- 77,565 71,536 191 -- 5,838
--------- --------- --------- --------- ------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other
property additions................. (1,246) -- (1,246) (1,246) -- -- --
Proceeds from dispositions of prop.,
plant and equip. -- net............ (8) -- (8) (8) -- -- --
Cost of other investments -- net.... (90,552) -- (90,552) 142,808 -- (143,105) (90,255)
Intrasystem long-term
financing -- net................... -- 234,053 (234,053) (234,053) -- -- --
Intrasystem money pool
investments -- net................. (1,768) -- (1,768) (1,768) -- -- --
Property transfers to (from)
affiliates......................... (9) -- (9) (9) -- -- --
Cash -- Liquidating
distribution/assumption of assets
and liabilities.................... -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
continuing operations........ (93,583) 234,053 (327,636) (94,276) -- (143,105) (90,255)
Net cash provided by (used in)
discontinued operations............ -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
investing activities......... (93,583) 234,053 (327,636) (94,276) -- (143,105) (90,255)
--------- --------- --------- --------- ------- --------- --------
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................... 105,000 (234,053) 339,053 105,000 -- 143,105 90,948
Intrasystem money pool borrowings
(repayments) -- net................ (82,243) -- (82,243) (82,243) -- -- --
Dividends paid -- subsidiary
cos. -- consolidated............... -- -- -- -- -- -- --
Purchase of treasury stock.......... -- -- -- -- -- -- --
Sale of treasury stock.............. -- -- -- -- --
Other -- net........................ -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
continuing operations........ 22,757 (234,053) 256,810 22,757 -- 143,105 90,948
Net cash provided by (used in)
discontinued operations............ -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Net cash provided by (used in)
financing activities......... 22,757 (234,053) 256,810 22,757 -- 143,105 90,948
--------- --------- --------- --------- ------- --------- --------
Net increase (decrease) in cash
and TCIs..................... 6,739 -- 6,739 17 191 -- 6,531
CASH AND TCIS AT JANUARY 1, 1998.... 3,708 -- 3,708 12 3,696 -- --
--------- --------- --------- --------- ------- --------- --------
CASH AND TCIS AT DECEMBER 31,
1998............................... $ 10,447 $ -- $ 10,447 $ 29 $ 3,887 $ -- $ 6,531
========= ========= ========= ========= ======= ========= ========
Continuing operations............... $ 10,447 $ -- $ 10,447 $ 29 $ 3,887 $ -- $ 6,531
Discontinued operations............. -- -- -- -- -- -- --
--------- --------- --------- --------- ------- --------- --------
Total cash and TCIs at December
31........................... $ 10,447 $ -- $ 10,447 $ 29 $ 3,887 $ -- $ 6,531
========= ========= ========= ========= ======= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts
capitalized)..................... $ 5,682 $ -- $ 5,682 $ 5,682 $ -- $ -- $ --
Income taxes (net of refunds)...... $ (3,735) $ -- $ (3,735) $ (3,735) $ -- $ -- $ --
Non-cash investing activities
Transfer of interest in CNGI
Australia from CNG Cayman Two to
CNG Cayman One................... $ -- $ -- $ -- $ -- $ 387 $ (387) $ --
Transfer of CNG Cayman Two to DBNGP
Finance.......................... $(143,227) $ -- $(143,227) $(143,227) $ -- $ -- $ --
Receive interest in DBNGP
Finance.......................... $ 143,227 $ -- $143,227 $ 143,227 $ -- $ -- $ --
Capital contribution from CNG
International to CNG Cayman
Two.............................. $ -- $ -- $ -- $ (122) $ -- $ 122 $ --
</TABLE>
- ---------------
( ) denotes negative amount.
80
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81
<PAGE> 84
ITEM 10. (Continued)
CNG CAYMAN ONE LTD.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman One Eliminations CNG CNGI
and and Combined Cayman Australia
Assets Subsidiary Adjustments Total One Pty Ltd.
- ------ ------------ ------------ -------- ------- ---------
<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........................... -- -- -- -- --
Accumulated depreciation and
amortization......................... -- -- -- -- --
------- -------- ------- ------- -------
Net exploration and
production properties...... -- -- -- -- --
------- -------- ------- ------- -------
Net property, plant and
equipment.................. -- -- -- -- --
------- -------- ------- ------- -------
INVESTMENTS
Stock of subsidiary company, at
equity -- consolidated............... -- (40,203) 40,203 40,203 --
Notes of subsidiary
company -- consolidated.............. -- -- -- -- --
------- -------- ------- ------- -------
Total investments............ -- (40,203) 40,203 40,203 --
------- -------- ------- ------- -------
CURRENT ASSETS
Cash and temporary cash investments.... 3,887 -- 3,887 -- 3,887
Accounts receivable
Customers............................ -- -- -- -- --
Unbilled revenues and other.......... -- -- -- -- --
Allowance for doubtful accounts...... -- -- -- -- --
Receivables from affiliated
companies -- consolidated............ -- (33) 33 33 --
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......... 3,887 (33) 3,920 33 3,887
------- -------- ------- ------- -------
REGULATORY AND OTHER ASSETS
Other investments...................... 31,071 -- 31,071 -- 31,071
Deferred charges and other assets...... -- -- -- -- --
------- -------- ------- ------- -------
Total regulatory and other
assets..................... 31,071 -- 31,071 -- 31,071
------- -------- ------- ------- -------
Total assets................. $34,958 $(40,236) $75,194 $40,236 $34,958
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
82
<PAGE> 85
ITEM 10. (Continued)
CNG CAYMAN ONE LTD.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman One Eliminations CNG CNGI
and and Combined Cayman Australia
Stockholder's Equity and Liabilities Subsidiary Adjustments Total One Pty Ltd.
------------------------------------ ---------- ------------ -------- ------- ---------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock........................ $ -- $ -- $ -- $ -- $ --
Capital in excess of par value...... 38,731 (38,731) 77,462 38,731 38,731
Retained earnings, per accompanying
statement........................ (3,806) (1,472) (2,334) 1,472 (3,806)
Treasury stock, at cost............. -- -- -- -- --
Unearned compensation............... -- -- -- -- --
------- -------- ------- ------- -------
Total common stockholder's
equity.................... 34,925 (40,203) 75,128 40,203 34,925
------- -------- ------- ------- -------
Long-term debt
Debentures.......................... -- -- -- -- --
Notes payable to Parent Company..... -- -- -- -- --
------- -------- ------- ------- -------
Total long-term debt........ -- -- -- -- --
------- -------- ------- ------- -------
Total capitalization........ 34,925 (40,203) 75,128 40,203 34,925
------- -------- ------- ------- -------
CURRENT LIABILITIES
Current maturities on long-term
debt................................ -- -- -- -- --
Commercial paper...................... -- -- -- -- --
Accounts payable...................... -- -- -- -- --
Payables to affiliated companies --
consolidated........................ 33 (33) 66 33 33
Estimated rate contingencies and
refunds............................. -- -- -- -- --
Amounts payable to customers.......... -- -- -- -- --
Taxes accrued......................... -- -- -- -- --
Deferred income taxes -- current...... -- -- -- -- --
Dividends declared.................... -- -- -- -- --
Other current liabilities............. -- -- -- -- --
------- -------- ------- ------- -------
Total current liabilities... 33 (33) 66 33 33
------- -------- ------- ------- -------
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........... $34,958 $(40,236) $75,194 $40,236 $34,958
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
83
<PAGE> 86
ITEM 10. (Continued)
CNG CAYMAN ONE LTD.
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman One Eliminations CNG CNGI
and and Combined Cayman Australia
Subsidiary Adjustments Total One Pty Ltd.
---------- ------------ -------- ------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales.............................. $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales........................... -- -- -- -- --
------- -------- ------- ------- -------
Total gas sales......................... -- -- -- -- --
Gas transportation and storage................... -- -- -- -- --
Other............................................ -- -- -- -- --
------- -------- ------- ------- -------
Total operating revenues................ -- -- -- -- --
------- -------- ------- ------- -------
OPERATING EXPENSES
Purchased gas.................................... -- -- -- -- --
Liquids, capacity and other products purchased... -- -- -- -- --
Operation expense................................ 4 -- 4 -- 4
Maintenance...................................... -- -- -- -- --
Depreciation and amortization.................... -- -- -- -- --
Taxes, other than income taxes................... -- -- -- -- --
------- -------- ------- ------- -------
Subtotal................................ 4 -- 4 -- 4
------- -------- ------- ------- -------
Operating income before income taxes.... (4) -- (4) -- (4)
Income taxes..................................... -- -- -- -- --
------- -------- ------- ------- -------
Operating income........................ (4) -- (4) -- (4)
------- -------- ------- ------- -------
OTHER INCOME
Interest revenues................................ 150 -- 150 -- 150
Other -- net..................................... 1,352 -- 1,352 -- 1,352
Equity in earnings of subsidiary
company -- consolidated........................ -- (1,498) 1,498 1,498 --
Interest revenues from affiliated companies --
consolidated................................... -- -- -- -- --
------- -------- ------- ------- -------
Total other income...................... 1,502 (1,498) 3,000 1,498 1,502
------- -------- ------- ------- -------
Income before interest charges.......... 1,498 (1,498) 2,996 1,498 1,498
------- -------- ------- ------- -------
INTEREST CHARGES
Interest on long-term debt....................... -- -- -- -- --
Other interest expense........................... -- -- -- -- --
Allowance for funds used during construction..... -- -- -- -- --
------- -------- ------- ------- -------
Total interest charges.................. -- -- -- -- --
------- -------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS................ 1,498 (1,498) 2,996 1,498 1,498
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing services
operations, net of applicable tax benefit...... -- -- -- -- --
Loss from disposal of energy marketing services
operations, including provision for operating
losses during the phase out period, net of
applicable tax benefit......................... -- -- -- -- --
------- -------- ------- ------- -------
NET INCOME....................................... $ 1,498 $ (1,498) $ 2,996 $1,498 $ 1,498
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
84
<PAGE> 87
ITEM 10. (Continued)
CNG CAYMAN ONE LTD.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman One Eliminations CNG CNGI
and and Combined Cayman Australia
Subsidiary Adjustments Total One Pty Ltd.
---------- ------------ -------- ------- ---------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997.......... $(4,192) $ 26 $(4,218) $ (26) $(4,192)
Net income for the year 1998 per
accompanying income statement....... 1,498 (1,498) 2,996 1,498 1,498
------- -------- ------- ------- -------
Total....................... (2,694) (1,472) (1,222) 1,472 (2,694)
Dividends declared on common
stock -- cash....................... -- -- -- -- --
Cumulative translation adjustment..... (1,112) -- (1,112) -- (1,112)
------- -------- ------- ------- -------
Balance at December 31, 1998.......... $(3,806) $ (1,472) $(2,334) $1,472 $(3,806)
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
85
<PAGE> 88
ITEM 10. (Continued)
CNG CAYMAN ONE LTD.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman One Eliminations CNG CNGI
and and Combined Cayman Australia
Subsidiary Adjustments Total One Pty Ltd.
----------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations........................... $ 1,498 $ (1,498) $ 2,996 $ 1,498 $ 1,498
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. -- -- -- -- --
Pension cost (credit) -- net............................... -- -- -- -- --
Stock award amortization................................... -- -- -- -- --
Deferred income taxes -- net............................... -- -- -- -- --
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net............................... 14 -- 14 -- 14
Receivables from affiliated companies -- consolidated.... -- 2 (2) (2) --
Inventories.............................................. -- -- -- -- --
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... -- -- -- -- --
Payables to affiliated companies -- consolidated......... 1 (2) 3 2 1
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ -- -- -- -- --
Other -- net............................................. -- -- -- -- --
Changes in other assets and other liabilities.............. (1,322) -- (1,322) -- (1,322)
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated................ -- 1,498 (1,498) (1,498) --
Other -- net............................................... -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) continuing operations... 191 -- 191 -- 191
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) operating activities.... 191 -- 191 -- 191
------- -------- ------- ------- -------
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................... -- -- -- -- --
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash-Liquidating distribution/assumption of assets and
liabilities................................................ -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) continuing operations... -- -- -- -- --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) investing activities.... -- -- -- -- --
------- -------- ------- ------- -------
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...... -- -- -- -- --
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) continuing operations... -- -- -- -- --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- -------- ------- ------- -------
Net cash provided by (used in) financing activities.... -- -- -- -- --
------- -------- ------- ------- -------
Net increase (decrease) in cash and TCIs............... 191 -- 191 -- 191
CASH AND TCIS AT JANUARY 1, 1998............................ 3,696 -- 3,696 -- 3,696
------- -------- ------- ------- -------
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 3,887 $ -- $ 3,887 $ -- $ 3,887
======= ======== ======= ======= =======
Continuing operations....................................... $ 3,887 $ -- $ 3,887 $ -- $ 3,887
Discontinued operations..................................... -- -- -- -- --
------- -------- ------- ------- -------
Total cash and TCIs at December 31..................... $ 3,887 $ -- $ 3,887 $ -- $ 3,887
======= ======== ======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ -- $ -- $ -- $ -- $ --
Income taxes (net of refunds).............................. $ -- $ -- $ -- $ -- $ --
Non-cash investing activities
Transfer of interest in CNGI Australia from CNG Cayman Two
to CNG Cayman One........................................ $ 387 $ -- $ 387 $ 387 $ --
</TABLE>
- ---------------
( ) denotes negative amount.
86
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(THIS PAGE INTENTIONALLY LEFT BLANK)
87
<PAGE> 90
ITEM 10. (Continued)
CNG CAYMAN TWO LTD.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG CNG
Cayman Eliminations CNG Laubuan
Two and and Combined Cayman One
Subsidiary Adjustments Total Two Limited
---------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations........................... $ -- $ -- $ -- $ -- $ --
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. -- -- -- -- --
Pension cost (credit) -- net............................... -- -- -- -- --
Stock award amortization................................... -- -- -- -- --
Deferred income taxes -- net............................... -- -- -- -- --
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net............................... -- -- -- -- --
Receivables from affiliated companies -- consolidated.... 1 -- 1 1 --
Inventories.............................................. -- -- -- -- --
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... -- -- -- -- --
Payables to affiliated companies -- consolidated......... (1) -- (1) (1) --
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ -- -- -- -- --
Other -- net............................................. -- -- -- -- --
Changes in other assets and other liabilities.............. -- -- -- -- --
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated................ -- -- -- -- --
Other -- net............................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) continuing operations... -- -- -- -- --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities.... -- -- -- -- --
--------- --------- --------- --------- ---------
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............................ (143,105) -- (143,105) -- (143,105)
Intrasystem long-term financing -- net...................... -- 143,105 (143,105) (143,105) --
Intrasystem money pool investments -- net................... -- -- -- -- --
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash -- Liquidating distribution/assumption of assets and
liabilities................................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) continuing operations... (143,105) 143,105 (286,210) (143,105) (143,105)
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities.... (143,105) 143,105 (286,210) (143,105) (143,105)
--------- --------- --------- --------- ---------
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...................... 143,105 (143,105) 286,210 143,105 143,105
Intrasystem money pool borrowings (repayments) -- net....... -- -- -- -- --
Dividends paid -- subsidiary companies -- consolidated...... -- -- -- -- --
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) continuing operations... 143,105 (143,105) 286,210 143,105 143,105
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.... 143,105 (143,105) 286,210 143,105 143,105
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and TCIs............... -- -- -- -- --
CASH AND TCIS AT JANUARY 1, 1998............................ -- -- -- -- --
--------- --------- --------- --------- ---------
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Continuing operations....................................... $ -- $ -- $ -- $ -- $ --
Discontinued operations..................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total cash and TCIs at December 31..................... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ -- $ -- $ -- $ -- $ --
Income taxes (net of refunds).............................. $ -- $ -- $ -- $ -- $ --
Non-cash investing activities
Transfer of interest in CNGI Australia from CNG Cayman Two
to CNG Cayman One........................................ $ (387) $ -- $ (387) $ (387) $ --
Capital contribution from CNG International to CNG Cayman
Two...................................................... $ 122 $ (122) $ 244 $ 122 $ 122
</TABLE>
- ---------------
( ) denotes negative amount.
88
<PAGE> 91
(THIS PAGE INTENTIONALLY LEFT BLANK)
89
<PAGE> 92
ITEM 10. (Continued)
CNG CAYMAN THREE LTD.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman Three Eliminations CNG CNG
and and Combined Cayman Argentina
Assets Subsidiary Adjustments Total Three S.A.
- ------ ------------ ------------ -------- ------- ---------
<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.... -- -- -- -- --
Accumulated depreciation and
amortization........................... -- -- -- -- --
------- -------- ------- ------- -------
Net exploration and production
properties.................... -- -- -- -- --
------- -------- ------- ------- -------
Net property, plant and
equipment..................... -- -- -- -- --
------- -------- ------- ------- -------
INVESTMENTS
Stock of subsidiary company, at equity --
consolidated........................... -- (568) 568 568 --
Notes of subsidiary
company -- consolidated................ -- -- -- -- --
------- -------- ------- ------- -------
Total investments............... -- (568) 568 568 --
------- -------- ------- ------- -------
CURRENT ASSETS
Cash and temporary cash investments...... 6,531 -- 6,531 5,767 764
Accounts receivable
Customers.............................. -- -- -- -- --
Unbilled revenues and other............ 205 -- 205 205 --
Allowance for doubtful accounts........ -- -- -- -- --
Receivables from affiliated companies --
consolidated........................... -- (12) 12 -- 12
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............ 6,736 (12) 6,748 5,972 776
------- -------- ------- ------- -------
REGULATORY AND OTHER ASSETS
Other investments........................ 89,778 -- 89,778 89,778 --
Deferred charges and other assets........ -- -- -- -- --
------- -------- ------- ------- -------
Total regulatory and other
assets........................ 89,778 -- 89,778 89,778 --
------- -------- ------- ------- -------
Total assets.................... $96,514 $ (580) $97,094 $96,318 $ 776
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
90
<PAGE> 93
ITEM 10. (Continued)
CNG CAYMAN THREE LTD.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman Three Eliminations CNG CNG
and and Combined Cayman Argentina
Stockholder's Equity and Liabilities Subsidiary Adjustments Total Three S.A.
- ------------------------------------ ------------ ------------ -------- ------- ---------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common stockholder's equity
Common stock...................... $ -- $ (12) $ 12 $ -- $ 12
Capital in excess of par value.... 90,948 -- 90,948 90,948 --
Retained earnings, per
accompanying statement......... 5,333 (556) 5,889 5,333 556
Treasury stock, at cost........... -- -- -- -- --
Unearned compensation............. -- -- -- -- --
------- -------- ------- ------- -------
Total common stockholder's
equity.................. 96,281 (568) 96,849 96,281 568
------- -------- ------- ------- -------
Long-term debt Debentures........... -- -- -- -- --
Notes payable to Parent Company... -- -- -- -- --
------- -------- ------- ------- -------
Total long-term debt...... -- -- -- -- --
------- -------- ------- ------- -------
Total capitalization...... 96,281 (568) 96,849 96,281 568
------- -------- ------- ------- -------
CURRENT LIABILITIES
Current maturities on long-term
debt.............................. -- -- -- -- --
Commercial paper.................... -- -- -- -- --
Accounts payable.................... 208 -- 208 -- 208
Payables to affiliated companies --
consolidated...................... 25 (12) 37 37 --
Estimated rate contingencies and
refunds........................... -- -- -- -- --
Amounts payable to customers........ -- -- -- -- --
Taxes accrued....................... -- -- -- -- --
Deferred income taxes -- current.... -- -- -- -- --
Dividends declared.................. -- -- -- -- --
Other current liabilities........... -- -- -- -- --
------- -------- ------- ------- -------
Total current
liabilities............. 233 (12) 245 37 208
------- -------- ------- ------- -------
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......... $96,514 $ (580) $97,094 $96,318 $ 776
======= ======== ======= ======= =======
</TABLE>
- ---------------
( ) denotes negative amount.
91
<PAGE> 94
ITEM 10. (Continued)
CNG CAYMAN THREE LTD.
CONSOLIDATING INCOME STATEMENT
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman Eliminations CNG CNG
Three and and Combined Cayman Argentina
Subsidiary Adjustments Total Three S.A.
---------- ------------ -------- ------ ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Regulated gas sales............................... $ -- $ -- $ -- $ -- $ --
Nonregulated gas sales............................ -- -- -- -- --
------ ----- ------ ------ ----
Total gas sales.......................... -- -- -- -- --
Gas transportation and storage.................... -- -- -- -- --
Other............................................. 840 -- 840 -- 840
------ ----- ------ ------ ----
Total operating revenues................. 840 -- 840 -- 840
------ ----- ------ ------ ----
OPERATING EXPENSES
Purchased gas..................................... -- -- -- -- --
Liquids, capacity and other products purchased.... -- -- -- -- --
Operation expense................................. 302 -- 302 26 276
Maintenance....................................... -- -- -- -- --
Depreciation and amortization..................... -- -- -- -- --
Taxes, other than income taxes.................... 8 -- 8 -- 8
------ ----- ------ ------ ----
Subtotal................................. 310 -- 310 26 284
------ ----- ------ ------ ----
Operating income before income taxes..... 530 -- 530 (26) 556
Income taxes...................................... -- -- -- -- --
------ ----- ------ ------ ----
Operating income......................... 530 -- 530 (26) 556
------ ----- ------ ------ ----
OTHER INCOME
Interest revenues................................. 100 -- 100 100 --
Other-net......................................... 4,703 -- 4,703 4,703 --
Equity in earnings of subsidiary
company -- consolidated......................... -- (556) 556 556 --
Interest revenues from affiliated
companies -- consolidated....................... -- -- -- -- --
------ ----- ------ ------ ----
Total other income....................... 4,803 (556) 5,359 5,359 --
------ ----- ------ ------ ----
Income before interest charges........... 5,333 (556) 5,889 5,333 556
------ ----- ------ ------ ----
INTEREST CHARGES
Interest on long-term debt........................ -- -- -- -- --
Other interest expense............................ -- -- -- -- --
Allowance for funds used during construction...... -- -- -- -- --
------ ----- ------ ------ ----
Total interest charges................... -- -- -- -- --
------ ----- ------ ------ ----
INCOME FROM CONTINUING OPERATIONS................. 5,333 (556) 5,889 5,333 556
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing services
operations, net of applicable tax benefit....... -- -- -- -- --
Loss from disposal of energy marketing services
operations, including provision for operating
losses during the phase out period, net of
applicable tax benefit.......................... -- -- -- -- --
------ ----- ------ ------ ----
NET INCOME........................................ $5,333 $(556) $5,889 $5,333 $556
====== ===== ====== ====== ====
</TABLE>
- ---------------
( ) denotes negative amount.
92
<PAGE> 95
ITEM 10. (Continued)
CNG CAYMAN THREE LTD.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman Eliminations CNG CNG
Three and and Combined Cayman Argentina
Subsidiary Adjustments Total Three S.A.
---------- ------------ -------- ------ ---------
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS
Balance at December 31, 1997.............. $ -- $ -- $ -- $ -- $ --
Net income for the year 1998 per
accompanying income statement........... 5,333 (556) 5,889 5,333 556
------ ----- ------ ------ ----
Total........................... 5,333 (556) 5,889 5,333 556
Dividends declared on common
stock -- cash........................... -- -- -- -- --
Cumulative translation adjustment......... -- -- -- -- --
------ ----- ------ ------ ----
Balance at December 31, 1998.............. $5,333 $(556) $5,889 $5,333 $556
====== ===== ====== ====== ====
</TABLE>
- ---------------
( ) denotes negative amount.
93
<PAGE> 96
ITEM 10. (Continued)
CNG CAYMAN THREE LTD.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
CNG
Cayman Eliminations CNG CNG
Three and and Combined Cayman Argentina
Subsidiary Adjustments Total Three S.A.
---------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations........................... $ 5,333 $(556) $ 5,889 $ 5,333 $556
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. -- -- -- -- --
Pension cost (credit) -- net............................... -- -- -- -- --
Stock award amortization................................... -- -- -- -- --
Deferred income taxes-net.................................. -- -- -- -- --
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable-net.................................. (205) -- (205) (205) --
Receivables from affiliated companies -- consolidated.... -- 12 (12) -- (12)
Inventories.............................................. -- -- -- -- --
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... 208 -- 208 -- 208
Payables to affiliated companies -- consolidated......... 25 (12) 37 37 --
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ -- -- -- -- --
Other-net................................................ -- -- -- -- --
Changes in other assets and other liabilities.............. 477 -- 477 477 --
Excess of equity in earnings of subsidiary companies over
their cash dividends paid -- consolidated................ -- 556 (556) (556) --
Other -- net............................................... -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) continuing operations... 5,838 -- 5,838 5,086 752
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) operating activities.... 5,838 -- 5,838 5,086 752
-------- ----- -------- -------- ----
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............................ (90,255) -- (90,255) (90,255) --
Intrasystem long-term financing -- net...................... -- 12 (12) (12) --
Intrasystem money pool investments -- net................... -- -- -- -- --
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash -- Liquidating distribution/assumption of assets and
liabilities................................................ -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) continuing operations... (90,255) 12 (90,267) (90,267) --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) investing activities.... (90,255) 12 (90,267) (90,267) --
-------- ----- -------- -------- ----
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...................... 90,948 (12) 90,960 90,948 12
Intrasystem money pool borrowings (repayments) -- net....... -- -- -- -- --
Dividends paid -- subsidiary companies -- consolidated...... -- -- -- -- --
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) continuing operations... 90,948 (12) 90,960 90,948 12
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
-------- ----- -------- -------- ----
Net cash provided by (used in) financing activities.... 90,948 (12) 90,960 90,948 12
-------- ----- -------- -------- ----
Net increase (decrease) in cash and TCIs............... 6,531 -- 6,531 5,767 764
CASH AND TCIS AT JANUARY 1, 1998............................ -- -- -- -- --
-------- ----- -------- -------- ----
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 6,531 $ -- $ 6,531 $ 5,767 $764
======== ===== ======== ======== ====
Continuing operations....................................... $ 6,531 $ -- $ 6,531 $ 5,767 $764
Discontinued operations..................................... -- -- -- -- --
-------- ----- -------- -------- ----
Total cash and TCIs at December 31..................... $ 6,531 $ -- $ 6,531 $ 5,767 $764
======== ===== ======== ======== ====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ -- $ -- $ -- $ -- $ --
Income taxes (net of refunds).............................. $ -- $ -- $ -- $ -- $ --
</TABLE>
- ---------------
( ) denotes negative amount.
94
<PAGE> 97
(THIS PAGE INTENTIONALLY LEFT BLANK)
95
<PAGE> 98
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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............... $ 5,863 $ -- $ 5,863 $ 5,863 $-- $ -- $ --
Accumulated depreciation and
amortization............................ (2,593) -- (2,593) (2,593) -- -- --
-------- ------- ------- ------- --- ---- ------
Net gas utility and other
plant.......................... 3,270 -- 3,270 3,270 -- -- --
-------- ------- ------- ------- --- ---- ------
Exploration and production properties..... -- -- -- -- -- -- --
Accumulated depreciation and
amortization............................ -- -- -- -- -- -- --
-------- ------- ------- ------- --- ---- ------
Net exploration and production
properties..................... -- -- -- -- -- -- --
-------- ------- ------- ------- --- ---- ------
Net property, plant and
equipment...................... 3,270 -- 3,270 3,270 -- -- --
-------- ------- ------- ------- --- ---- ------
INVESTMENTS
Stocks of subsidiary companies, at
equity -- consolidated.................. -- (1,030) 1,030 1,030 -- -- --
Notes of subsidiary
companies -- consolidated............... -- -- -- -- -- -- --
-------- ------- ------- ------- --- ---- ------
Total investments................ -- (1,030) 1,030 1,030 -- -- --
-------- ------- ------- ------- --- ---- ------
CURRENT ASSETS
Cash and temporary cash investments....... 123 -- 123 109 -- -- 14
Accounts receivable
Customers............................... 1,081 -- 1,081 1,081 -- -- --
Unbilled revenues and other............. -- -- -- -- -- -- --
Allowance for doubtful accounts......... -- -- -- -- -- -- --
Receivables from affiliated
companies -- consolidated............... 48,153 (225) 48,378 48,009 -- 131 238
Inventories, at cost
Gas stored -- current portion........... -- -- -- -- -- -- --
Materials and supplies (average cost
method)............................... 1,556 -- 1,556 1,556 -- -- --
Unrecovered gas costs..................... -- -- -- -- -- -- --
Deferred income taxes -- current.......... -- -- -- -- -- -- --
Prepayments and other current assets...... 2 -- 2 2 -- -- --
-------- ------- ------- ------- --- ---- ------
Total current assets............. 50,915 (225) 51,140 50,757 -- 131 252
-------- ------- ------- ------- --- ---- ------
REGULATORY AND OTHER ASSETS
Other investments......................... 1,030 -- 1,030 -- 1 -- 1,029
Deferred charges and other assets......... 72 -- 72 72 -- -- --
-------- ------- ------- ------- --- ---- ------
Total regulatory and other
assets......................... 1,102 -- 1,102 72 1 -- 1,029
-------- ------- ------- ------- --- ---- ------
Total assets..................... $ 55,287 $(1,255) $56,542 $55,129 $ 1 $131 $1,281
======== ======= ======= ======= === ==== ======
</TABLE>
- ---------------
( ) denotes negative amount.
96
<PAGE> 99
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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................................ 13,946 (919) 14,865 13,946 -- 12 907
Treasury stock, at cost.................... -- -- -- -- -- -- --
Unearned compensation...................... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- ------
Total common stockholder's equity... 36,406 (1,030) 37,436 36,406 1 22 1,007
------- ------- ------- ------- --- ---- ------
Long-term debt
Debentures................................. -- -- -- -- -- -- --
Notes payable to Parent Company............ 11,913 -- 11,913 11,913 -- -- --
------- ------- ------- ------- --- ---- ------
Total long-term debt................ 11,913 -- 11,913 11,913 -- -- --
------- ------- ------- ------- --- ---- ------
Total capitalization................ 48,319 (1,030) 49,349 48,319 1 22 1,007
------- ------- ------- ------- --- ---- ------
CURRENT LIABILITIES
Current maturities on long-term debt......... -- -- -- -- -- -- --
Commercial paper............................. -- -- -- -- -- -- --
Accounts payable............................. 536 -- 536 541 -- -- (5)
Payables to affiliated
companies -- consolidated.................. 4,520 (225) 4,745 4,649 -- 96 --
Estimated rate contingencies and refunds..... -- -- -- -- -- -- --
Amounts payable to customers................. -- -- -- -- -- -- --
Taxes accrued................................ 1,386 -- 1,386 1,094 -- 14 278
Deferred income taxes -- current............. -- -- -- -- -- -- --
Dividends declared........................... -- -- -- -- -- -- --
Other current liabilities.................... (4) -- (4) (3) -- (1) --
------- ------- ------- ------- --- ---- ------
Total current liabilities........... 6,438 (225) 6,663 6,281 -- 109 273
------- ------- ------- ------- --- ---- ------
DEFERRED CREDITS
Deferred income taxes........................ 530 -- 530 529 -- -- 1
Accumulated deferred investment tax
credits.................................... -- -- -- -- -- -- --
Deferred credits and other liabilities....... -- -- -- -- -- -- --
------- ------- ------- ------- --- ---- ------
Total deferred credits.............. 530 -- 530 529 -- -- 1
------- ------- ------- ------- --- ---- ------
COMMITMENTS AND CONTINGENCIES
------- ------- ------- ------- --- ---- ------
Total stockholder's equity and
liabilities....................... $55,287 $(1,255) $56,542 $55,129 $ 1 $131 $1,281
======= ======= ======= ======= === ==== ======
</TABLE>
- ---------------
( ) denotes negative amount.
97
<PAGE> 100
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING INCOME STATEMENT
For the Period August 1 Through December 31, 1998
(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....... -- -- -- -- -- -- --
Other................................ 3,499 -- 3,499 3,499 -- -- --
------ ----- ------ ------ --- ---- -----
Total operating revenues.... 3,499 -- 3,499 3,499 -- -- --
------ ----- ------ ------ --- ---- -----
OPERATING EXPENSES
Purchased gas........................ -- -- -- -- -- -- --
Liquids, capacity and other products
purchased.......................... 2,206 -- 2,206 2,206 -- -- --
Operation expense.................... 517 -- 517 492 -- -- 25
Maintenance.......................... -- -- -- -- -- -- --
Depreciation and amortization........ 123 -- 123 123 -- -- --
Taxes, other than income taxes....... 24 -- 24 24 -- -- --
------ ----- ------ ------ --- ---- -----
Subtotal.................... 2,870 -- 2,870 2,845 -- -- 25
------ ----- ------ ------ --- ---- -----
Operating income before
income taxes.............. 629 -- 629 654 -- -- (25)
Income taxes......................... 1,152 -- 1,152 1,031 -- -- 121
------ ----- ------ ------ --- ---- -----
Operating income............ (523) -- (523) (377) -- -- (146)
------ ----- ------ ------ --- ---- -----
OTHER INCOME
Interest revenues.................... 24 -- 24 24 -- -- --
Other -- net......................... 2,565 -- 2,565 2,265 -- -- 300
Equity in earnings of subsidiary
companies -- consolidated.......... -- (167) 167 167 -- -- --
Interest revenues from affiliated
companies -- consolidated.......... 795 -- 795 782 -- -- 13
------ ----- ------ ------ --- ---- -----
Total other income.......... 3,384 (167) 3,551 3,238 -- -- 313
------ ----- ------ ------ --- ---- -----
Income before interest
charges................... 2,861 (167) 3,028 2,861 -- -- 167
------ ----- ------ ------ --- ---- -----
INTEREST CHARGES
Interest on long-term debt........... 450 -- 450 450 -- -- --
Other interest expense............... 35 -- 35 35 -- -- --
Allowance for funds used during
construction....................... -- -- -- -- -- -- --
------ ----- ------ ------ --- ---- -----
Total interest charges............. 485 -- 485 485 -- -- --
------ ----- ------ ------ --- ---- -----
INCOME FROM CONTINUING OPERATIONS.... 2,376 (167) 2,543 2,376 -- -- 167
DISCONTINUED OPERATIONS
Loss from discontinued energy
marketing services operations, net
of applicable tax benefit.......... -- -- -- -- -- -- --
Loss from disposal of energy
marketing services operations,
including provision for operating
losses during the phase out period,
net of applicable tax benefit...... -- -- -- -- -- -- --
------ ----- ------ ------ --- ---- -----
NET INCOME........................... $2,376 $(167) $2,543 $2,376 $-- $ -- $ 167
====== ===== ====== ====== === ==== =====
</TABLE>
- ---------------
( ) denotes negative amount.
98
<PAGE> 101
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Period August 1 Through December 31, 1998
(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, 1997............. $ -- $ -- $ -- $ -- $-- $-- $ --
Transfer of subsidiaries by CNG Energy
Services through liquidating
distribution to Parent Company......... 11,570 (752) 12,322 11,570 -- 12 740
Net income for the period August 1
through December 31, 1998 per
accompanying income statement.......... 2,376 (167) 2,543 2,376 -- -- 167
------- ----- ------- ------- --- --- ----
Total........................... 13,946 (919) 14,865 13,946 -- 12 907
Dividends declared on common
stock -- cash.......................... -- -- -- -- -- -- --
------- ----- ------- ------- --- --- ----
Balance at December 31, 1998............. $13,946 $(919) $14,865 $13,946 $-- $12 $907
======= ===== ======= ======= === === ====
</TABLE>
- ---------------
( ) denotes negative amount.
99
<PAGE> 102
ITEM 10. (Continued)
CNG POWER COMPANY
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period August 1 Through December 31, 1998
(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
Income from continuing operations............... $ 2,376 $ (167) $ 2,543 $ 2,376 $ -- $ -- $ 167
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities
Depreciation and amortization.................. 123 -- 123 123 -- -- --
Pension cost (credit) -- net................... -- -- -- -- -- -- --
Stock award amortization....................... -- -- -- -- -- -- --
Deferred income taxes -- net................... (8,272) -- (8,272) (8,266) -- -- (6)
Investment tax credit.......................... -- -- -- -- -- -- --
Changes in current assets and current
liabilities
Accounts receivable -- net................... (453) -- (453) (453) -- -- --
Receivables from affiliated
companies -- consolidated.................. 736 (432) 1,168 833 -- -- 335
Inventories.................................. (1,471) -- (1,471) (1,471) -- -- --
Unrecovered gas costs........................ -- -- -- -- -- -- --
Accounts payable............................. 307 -- 307 307 -- -- --
Payables to affiliated
companies -- consolidated.................. (1,214) 432 (1,646) (1,204) -- 5 (447)
Estimated rate contingencies and refunds..... -- -- -- -- -- -- --
Amounts payable to customers................. -- -- -- -- -- -- --
Taxes accrued................................ 3,283 -- 3,283 3,026 -- (5) 262
Other -- net................................. 88 -- 88 88 -- -- --
Changes in other assets and other
liabilities.................................. 16,232 -- 16,232 16,532 -- -- (300)
Excess of equity in earnings of subsidiary
companies over their cash dividends paid --
consolidated................................. -- 167 (167) (167) -- -- --
Other -- net................................... 138 -- 138 138 -- -- --
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) continuing
operations............................... 11,873 -- 11,873 11,862 -- -- 11
Net cash provided by (used in) discontinued
operations..................................... -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) operating
activities............................... 11,873 -- 11,873 11,862 -- -- 11
-------- -------- -------- -------- ---- ---- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Plant construction and other property
additions...................................... -- -- -- -- -- -- --
Proceeds from dispositions of prop., plant and
equip. -- net.................................. (672) -- (672) (672) -- -- --
Cost of other investments -- net................ -- -- -- -- -- -- --
Intrasystem long-term financing -- net.......... -- -- -- -- -- -- --
Intrasystem money pool investments -- net....... (14,225) -- (14,225) (14,225) -- -- --
Property transfers to (from) affiliates......... -- -- -- -- -- -- --
Cash -- Liquidating distribution/assumption of
assets and liabilities.......................... 982 -- 982 979 -- -- 3
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) continuing
operations............................... (13,915) -- (13,915) (13,918) -- -- 3
Net cash provided by (used in) discontinued
operations..................................... -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) investing
activities............................... (13,915) -- (13,915) (13,918) -- -- 3
-------- -------- -------- -------- ---- ---- -----
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............................ 2,555 -- 2,555 2,555 -- -- --
Dividends paid -- subsidiary
companies -- consolidated...................... -- -- -- -- -- -- --
Purchase of treasury stock...................... -- -- -- -- -- -- --
Sale of treasury stock.......................... -- -- -- -- -- -- --
Other -- net.................................... -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) continuing
operations............................... 2,165 -- 2,165 2,165 -- -- --
Net cash provided by (used in) discontinued
operations..................................... -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
Net cash provided by (used in) financing
activities............................... 2,165 -- 2,165 2,165 -- -- --
-------- -------- -------- -------- ---- ---- -----
Net increase (decrease) in cash and TCIs... 123 -- 123 109 -- -- 14
CASH AND TCIS AT AUGUST 1, 1998................. -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
CASH AND TCIS AT DECEMBER 31, 1998.............. $ 123 $ -- $ 123 $ 109 $ -- $ -- $ 14
======== ======== ======== ======== ==== ==== =====
Continuing operations........................... $ 123 $ -- $ 123 $ 109 $ -- $ -- $ 14
Discontinued operations......................... -- -- -- -- -- -- --
-------- -------- -------- -------- ---- ---- -----
Total cash and TCIs at December 31......... $ 123 $ -- $ 123 $ 109 $ -- $ -- $ 14
======== ======== ======== ======== ==== ==== =====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized).......... $ 576 $ -- $ 576 $ 576 $ -- $ -- $ --
Income taxes (net of refunds).................. $ 6,137 $ -- $ 6,137 $ 6,267 $ -- $ 5 $(135)
</TABLE>
- ---------------
( ) denotes negative amount.
100
<PAGE> 103
(THIS PAGE INTENTIONALLY LEFT BLANK)
101
<PAGE> 104
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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......... $ -- $ -- $ -- $ -- $ --
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
Stock of subsidiary company, at
equity -- consolidated............ -- (1,961) 1,961 1,961 --
Notes of subsidiary
company -- consolidated........... -- -- -- -- --
------ ------- ------ ------ ------
Total investments.......... -- (1,961) 1,961 1,961 --
------ ------- ------ ------ ------
CURRENT ASSETS
Cash and temporary cash
investments....................... 58 -- 58 58 --
Accounts receivable
Customers......................... 746 -- 746 746 --
Unbilled revenues and other....... -- -- -- -- --
Allowance for doubtful accounts... (105) -- (105) (105) --
Receivables from affiliated
companies -- consolidated......... 2,470 (73) 2,543 2,391 152
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....... 3,169 (73) 3,242 3,090 152
------ ------- ------ ------ ------
REGULATORY AND OTHER ASSETS
Other investments................... 2,250 -- 2,250 250 2,000
Deferred charges and other assets... (36) -- (36) (31) (5)
------ ------- ------ ------ ------
Total regulatory and other
assets................... 2,214 -- 2,214 219 1,995
------ ------- ------ ------ ------
Total assets............... $5,383 $(2,034) $7,417 $5,270 $2,147
====== ======= ====== ====== ======
</TABLE>
- ---------------
( ) denotes negative amount.
102
<PAGE> 105
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING BALANCE SHEET
At December 31, 1998
(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.......... (1,546) 39 (1,585) (1,546) (39)
Treasury stock, at cost........... -- -- -- -- --
Unearned compensation............. -- -- -- -- --
------- ------- ------- ------- ------
Total common stockholder's
equity................... 2,444 (1,961) 4,405 2,444 1,961
------- ------- ------- ------- ------
Long-term debt
Debentures........................ -- -- -- -- --
Notes payable to Parent Company... -- -- -- -- --
------- ------- ------- ------- ------
Total long-term debt....... -- -- -- -- --
------- ------- ------- ------- ------
Total capitalization....... 2,444 (1,961) 4,405 2,444 1,961
------- ------- ------- ------- ------
CURRENT LIABILITIES
Current maturities on long-term
debt.............................. -- -- -- -- --
Commercial paper.................... -- -- -- -- --
Accounts payable.................... 261 -- 261 202 59
Payables to affiliated
companies -- consolidated......... 2,551 (73) 2,624 2,610 14
Estimated rate contingencies and
refunds........................... -- -- -- -- --
Amounts payable to customers........ -- -- -- -- --
Taxes accrued....................... (565) -- (565) (438) (127)
Deferred income taxes -- current.... -- -- -- -- --
Dividends declared.................. -- -- -- -- --
Other current liabilities........... 834 -- 834 834 --
------- ------- ------- ------- ------
Total current
liabilities.............. 3,081 (73) 3,154 3,208 (54)
------- ------- ------- ------- ------
DEFERRED CREDITS
Deferred income taxes............... (142) -- (142) (382) 240
Accumulated deferred investment tax
credits........................... -- -- -- -- --
Deferred credits and other
liabilities....................... -- -- -- -- --
------- ------- ------- ------- ------
Total deferred credits..... (142) -- (142) (382) 240
------- ------- ------- ------- ------
COMMITMENTS AND CONTINGENCIES
------- ------- ------- ------- ------
Total stockholder's equity
and liabilities.......... $ 5,383 $(2,034) $ 7,417 $ 5,270 $2,147
======= ======= ======= ======= ======
</TABLE>
- ---------------
( ) denotes negative amount.
103
<PAGE> 106
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING INCOME STATEMENT
For the Period August 1 Through December 31, 1998
(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........... -- -- -- -- --
Other.................................... 2,282 -- 2,282 2,282 --
------ ----- ------ ------ -----
Total operating revenues........ 2,282 -- 2,282 2,282 --
------ ----- ------ ------ -----
OPERATING EXPENSES
Purchased gas............................ -- -- -- -- --
Liquids, capacity and other products
purchased.............................. -- -- -- -- --
Operation expense........................ 2,993 -- 2,993 2,993 --
Maintenance.............................. -- -- -- -- --
Depreciation and amortization............ -- -- -- -- --
Taxes, other than income taxes........... (1) -- (1) (1) --
------ ----- ------ ------ -----
Subtotal........................ 2,992 -- 2,992 2,992 --
------ ----- ------ ------ -----
Operating income before income
taxes......................... (710) -- (710) (710) --
Income taxes............................. (442) -- (442) (336) (106)
------ ----- ------ ------ -----
Operating income................ (268) -- (268) (374) 106
------ ----- ------ ------ -----
OTHER INCOME
Interest revenues........................ -- -- -- -- --
Other -- net............................. -- -- -- -- --
Equity in earnings of subsidiary
company -- consolidated................ -- (106) 106 106 --
Interest revenues from affiliated
companies -- consolidated.............. 2 -- 2 2 --
------ ----- ------ ------ -----
Total other income.............. 2 (106) 108 108 --
------ ----- ------ ------ -----
Income before interest
charges....................... (266) (106) (160) (266) 106
------ ----- ------ ------ -----
INTEREST CHARGES
Interest on long-term debt............... -- -- -- -- --
Other interest expense................... 32 -- 32 32 --
Allowance for funds used during
construction........................... -- -- -- -- --
------ ----- ------ ------ -----
Total interest charges.......... 32 -- 32 32 --
------ ----- ------ ------ -----
INCOME FROM CONTINUING OPERATIONS........ (298) (106) (192) (298) 106
DISCONTINUED OPERATIONS
Loss from discontinued energy marketing
services operations, net of applicable
tax benefit............................ -- -- -- -- --
Loss from disposal of energy marketing
services operations, including
provision for operating losses during
the phase out period, net of applicable
tax benefit............................ -- -- -- -- --
------ ----- ------ ------ -----
NET INCOME............................... $ (298) $(106) $ (192) $ (298) $ 106
====== ===== ====== ====== =====
</TABLE>
- ---------------
( ) denotes negative amount.
104
<PAGE> 107
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
For the Period August 1 Through December 31, 1998
(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, 1997... $ -- $ -- $ -- $ -- $ --
Transfer of subsidiaries by CNG
Energy Services through
liquidating distribution to
Parent Company............... (1,248) 145 (1,393) (1,248) (145)
Net income for the period
August 1 through December 31,
1998 per accompanying income
statement.................... (298) (106) (192) (298) 106
------- ---- ------- ------- -----
Total................ (1,546) 39 (1,585) (1,546) (39)
Dividends declared on common
stock -- cash................ -- -- -- -- --
------- ---- ------- ------- -----
Balance at December 31, 1998... $(1,546) $ 39 $(1,585) $(1,546) $ (39)
======= ==== ======= ======= =====
</TABLE>
- ---------------
( ) denotes negative amount.
105
<PAGE> 108
ITEM 10. (Continued)
CNG PRODUCTS AND SERVICES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Period August 1 Through December 31, 1998
(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
Income from continuing operations........................... $ (298) $(106) $ (192) $ (298) $106
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities
Depreciation and amortization.............................. -- -- -- -- --
Pension cost (credit) -- net............................... -- -- -- -- --
Stock award amortization................................... -- -- -- -- --
Deferred income taxes -- net............................... (197) -- (197) (128) (69)
Investment tax credit...................................... -- -- -- -- --
Changes in current assets and current liabilities
Accounts receivable -- net............................... 659 -- 659 659 --
Receivables from affiliated companies -- consolidated.... 533 -- 533 618 (85)
Inventories.............................................. -- -- -- -- --
Unrecovered gas costs.................................... -- -- -- -- --
Accounts payable......................................... 172 -- 172 113 59
Payables to affiliated companies -- consolidated......... 701 -- 701 701 --
Estimated rate contingencies and refunds................. -- -- -- -- --
Amounts payable to customers............................. -- -- -- -- --
Taxes accrued............................................ (1,519) -- (1,519) (1,503) (16)
Other -- net............................................. 234 -- 234 234 --
Changes in other assets and other liabilities.............. (235) -- (235) (240) 5
Excess of equity in earnings of subsidiary companies over
their
cash dividends paid -- consolidated...................... -- 106 (106) (106) --
Other -- net............................................... -- -- -- -- --
------- ----- ------- ------- ----
Net cash provided by (used in) continuing operations... 50 -- 50 50 --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- ----- ------- ------- ----
Net cash provided by (used in) operating activities.... 50 -- 50 50 --
------- ----- ------- ------- ----
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................... -- -- -- -- --
Property transfers to (from) affiliates..................... -- -- -- -- --
Cash -- Liquidating distribution/assumption of assets and
liabilities................................................ 13 -- 13 13 --
------- ----- ------- ------- ----
Net cash provided by (used in) continuing operations... 13 -- 13 13 --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- ----- ------- ------- ----
Net cash provided by (used in) investing activities.... 13 -- 13 13 --
------- ----- ------- ------- ----
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....... (5) -- (5) (5) --
Dividends paid -- subsidiary companies -- consolidated...... -- -- -- -- --
Purchase of treasury stock.................................. -- -- -- -- --
Sale of treasury stock...................................... -- -- -- -- --
Other -- net................................................ -- -- -- -- --
------- ----- ------- ------- ----
Net cash provided by (used in) continuing operations... (5) -- (5) (5) --
Net cash provided by (used in) discontinued operations...... -- -- -- -- --
------- ----- ------- ------- ----
Net cash provided by (used in) financing activities.... (5) -- (5) (5) --
------- ----- ------- ------- ----
Net increase (decrease) in cash and TCIs............... 58 -- 58 58 --
CASH AND TCIS AT AUGUST 1, 1998............................. -- -- -- -- --
------- ----- ------- ------- ----
CASH AND TCIS AT DECEMBER 31, 1998.......................... $ 58 $ -- $ 58 $ 58 $ --
======= ===== ======= ======= ====
Continuing operations....................................... $ 58 $ -- $ 58 $ 58 $ --
Discontinued operations..................................... -- -- -- -- --
------- ----- ------- ------- ----
Total cash and TCIs at December 31..................... $ 58 $ -- $ 58 $ 58 $ --
======= ===== ======= ======= ====
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for
Interest (net of amounts capitalized)...................... $ 31 $ -- $ 31 $ 31 $ --
Income taxes (net of refunds).............................. $ 1,290 $ -- $ 1,290 $ 1,295 $ (5)
</TABLE>
- ---------------
( ) denotes negative amount.
106
<PAGE> 109
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, 1998, is hereby incorporated by reference to
the filing made on March 15, 1999 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)(i) 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.
(ii) First Amendment to the Rights Agreement, dated as of January
19, 1999, is hereby incorporated by reference to Exhibit 2
to the Registration Statement on Form 8-A/A filed on March
4, 1999.
(iii) Amendment No. 2 to the Rights Agreement, dated as of
February 19, 1999, is hereby incorporated by reference to
Exhibit 3 to the Registration Statement on Form 8-A/A filed
on March 4, 1999.
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) Agreement and Plan of Merger, dated as of February 19, 1999, by and
between Dominion Resources, Inc. and Consolidated Natural Gas
Company, is hereby incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K filed on March 1, 1999 under File No.
1-3196.
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). Second Amendment to the Agreement is filed
herewith.
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, 1998, 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 "1999 Notice of
Annual Meeting and Proxy Statement" is hereby incorporated
by reference to the filing made on March 5, 1999.
(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. 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. Financial statements of the foreign utility companies are filed
herewith.
</TABLE>
107
<PAGE> 110
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, Nonregulated
Business
and Chief Financial Officer
April 28, 1999
108
<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, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,092,309
<OTHER-PROPERTY-AND-INVEST> 1,346,155
<TOTAL-CURRENT-ASSETS> 1,161,900
<TOTAL-DEFERRED-CHARGES> 459,229
<OTHER-ASSETS> 302,307
<TOTAL-ASSETS> 6,361,900
<COMMON> 263,848
<CAPITAL-SURPLUS-PAID-IN> 531,692
<RETAINED-EARNINGS> 1,591,543
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,399,608
0
0
<LONG-TERM-DEBT-NET> 1,379,729
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 558,900
<LONG-TERM-DEBT-CURRENT-PORT> 111,125
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,925,063
<TOT-CAPITALIZATION-AND-LIAB> 6,361,900
<GROSS-OPERATING-REVENUE> 2,760,406
<INCOME-TAX-EXPENSE> 129,649
<OTHER-OPERATING-EXPENSES> 2,263,268
<TOTAL-OPERATING-EXPENSES> 2,392,917
<OPERATING-INCOME-LOSS> 367,489
<OTHER-INCOME-NET> 34,700
<INCOME-BEFORE-INTEREST-EXPEN> 402,189
<TOTAL-INTEREST-EXPENSE> 114,478
<NET-INCOME> 238,766
0
<EARNINGS-AVAILABLE-FOR-COMM> 238,766
<COMMON-STOCK-DIVIDENDS> 185,758
<TOTAL-INTEREST-ON-BONDS> 100,132
<CASH-FLOW-OPERATIONS> 812,128
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.49
</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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 893,373
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 468,760
<TOTAL-DEFERRED-CHARGES> 204,206
<OTHER-ASSETS> 1,025
<TOTAL-ASSETS> 1,567,364
<COMMON> 237,968
<CAPITAL-SURPLUS-PAID-IN> 435
<RETAINED-EARNINGS> 193,330
<TOTAL-COMMON-STOCKHOLDERS-EQ> 451,273
0
0
<LONG-TERM-DEBT-NET> 165,700
<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> 969,931
<TOT-CAPITALIZATION-AND-LIAB> 1,567,364
<GROSS-OPERATING-REVENUE> 1,018,979
<INCOME-TAX-EXPENSE> 29,663
<OTHER-OPERATING-EXPENSES> 913,161
<TOTAL-OPERATING-EXPENSES> 942,824
<OPERATING-INCOME-LOSS> 76,155
<OTHER-INCOME-NET> 7,589
<INCOME-BEFORE-INTEREST-EXPEN> 83,744
<TOTAL-INTEREST-EXPENSE> 26,626
<NET-INCOME> 57,118
0
<EARNINGS-AVAILABLE-FOR-COMM> 57,797
<COMMON-STOCK-DIVIDENDS> 64,823
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 150,517
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 443,725
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 125,730
<TOTAL-DEFERRED-CHARGES> 171,213
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 740,688
<COMMON> 183,535
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 75,776
<TOTAL-COMMON-STOCKHOLDERS-EQ> 259,311
0
0
<LONG-TERM-DEBT-NET> 132,605
<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> 348,752
<TOT-CAPITALIZATION-AND-LIAB> 740,668
<GROSS-OPERATING-REVENUE> 204,725
<INCOME-TAX-EXPENSE> 19,772
<OTHER-OPERATING-EXPENSES> 238,873
<TOTAL-OPERATING-EXPENSES> 258,645
<OPERATING-INCOME-LOSS> 44,161
<OTHER-INCOME-NET> 4,318
<INCOME-BEFORE-INTEREST-EXPEN> 48,479
<TOTAL-INTEREST-EXPENSE> 12,246
<NET-INCOME> 36,233
0
<EARNINGS-AVAILABLE-FOR-COMM> 36,233
<COMMON-STOCK-DIVIDENDS> 34,522
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 52,991
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 385,327
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 56,956
<TOTAL-DEFERRED-CHARGES> 7,065
<OTHER-ASSETS> 55
<TOTAL-ASSETS> 449,403
<COMMON> 148,697
<CAPITAL-SURPLUS-PAID-IN> 1,082
<RETAINED-EARNINGS> 3,198
<TOTAL-COMMON-STOCKHOLDERS-EQ> 209,498
0
0
<LONG-TERM-DEBT-NET> 79,000
<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> 213,426
<TOT-CAPITALIZATION-AND-LIAB> 449,403
<GROSS-OPERATING-REVENUE> 189,803
<INCOME-TAX-EXPENSE> 6,992
<OTHER-OPERATING-EXPENSES> 160,892
<TOTAL-OPERATING-EXPENSES> 167,884
<OPERATING-INCOME-LOSS> 21,919
<OTHER-INCOME-NET> 4
<INCOME-BEFORE-INTEREST-EXPEN> 21,923
<TOTAL-INTEREST-EXPENSE> 9,409
<NET-INCOME> 12,514
0
<EARNINGS-AVAILABLE-FOR-COMM> 12,514
<COMMON-STOCK-DIVIDENDS> 13,350
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 47,358
<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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 114,693
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 53,771
<TOTAL-DEFERRED-CHARGES> 20,715
<OTHER-ASSETS> 2,125
<TOTAL-ASSETS> 191,304
<COMMON> 40,900
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 12,803
<TOTAL-COMMON-STOCKHOLDERS-EQ> 53,703
0
0
<LONG-TERM-DEBT-NET> 33,204
<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> 104,397
<TOT-CAPITALIZATION-AND-LIAB> 191,304
<GROSS-OPERATING-REVENUE> 100,271
<INCOME-TAX-EXPENSE> 1,887
<OTHER-OPERATING-EXPENSES> 90,718
<TOTAL-OPERATING-EXPENSES> 92,605
<OPERATING-INCOME-LOSS> 7,666
<OTHER-INCOME-NET> 189
<INCOME-BEFORE-INTEREST-EXPEN> 7,855
<TOTAL-INTEREST-EXPENSE> 3,285
<NET-INCOME> 4,570
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,570
<COMMON-STOCK-DIVIDENDS> 6,411
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 11,274
<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 May 19, 1998 Exhibit (3B) to the Company's
Form 10-K Annual Report
for the year ended
December 31, 1998,
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 1997
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 1, 1998 Filed Herewith
- -------------------------------------------------------------------------------------------------------------------
</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 1997
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 1997
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
CNG FIELD SERVICES COMPANY
(formerly CNG Storage Service Company)
Certificate of Incorporation as amended
September 10, 1998 Filed Herewith
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
HOPE GAS, INC.
BY-LAWS
-------
1. OFFICES OF THE CORPORATION
1.01 The principal office of the corporation shall be in the City of
Clarksburg, County of Harrison, State of West Virginia.
1.02 The corporation may also have offices at such other places as the
board of directors may from time to time determine or the business of the
corporation may require.
2. ANNUAL MEETINGS OF STOCKHOLDERS
2.01 Annual meetings of stockholders shall be held at the principal
office of the corporation or at such other place as the board may designate.
2.02 Annual meetings of stockholders, commencing with the year 1970,
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 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 place, day, and hour of the annual meeting
shall be mailed to each stockholder entitled to vote, at the address of the
stockholder appearing on the records of the corporation, not less than ten nor
more than fifty days prior to the meeting. The notice shall be mailed by the
secretary or by any other person the board may so designate.
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
president and secretary, 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 place, day, hour, 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
corporation, not less than ten nor more than fifty days prior to the meeting.
The notice shall be mailed by the president, the board, or the stockholders
calling the meeting, or by the secretary or some other person at the direction
of the president, the board, or such stockholders.
<PAGE> 6
HOPE GAS, INC.
BY-LAWS
-------
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 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 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 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
bearing a date not more than eleven months 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 corporation. 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
corporation within ten days next preceding such meeting shall be voted.
4.04 In all elections of directors each stockholder may cast one vote
for each share of stock having voting power owned by such stockholder for as
many persons as there are directors to be elected, or such stockholder may
cumulate such votes and give one candidate as many votes as the number of
directors to be elected multiplied by the number of such shares of stock, or
such votes may be distributed on the same principle among as many candidates for
director as such stockholder may desire.
4.05 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
Page 2
<PAGE> 7
HOPE GAS, INC.
BY-LAWS
-------
5.01 The number of directors which shall constitute the whole board
shall be not more than five.
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 the next annual meeting and his successor shall be elected and
qualified.
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 shall hold office until the next election of
directors and his successor shall be elected and qualified. A director elected
to fill a vacancy shall hold office of the unexpired term of his predecessor in
office.
5.04 The business of the corporation shall be managed by the board
which may exercise all of the powers of the corporation 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 All meetings of the board shall be called by the president, or by
any two directors on a 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 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 3
<PAGE> 8
HOPE GAS, INC.
BY-LAWS
-------
6.06 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 COMMITTEE 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 corporation. 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
corporation; 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 given 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 corporate action, the meeting and
vote of directors may be dispensed with if all the directors agree in writing to
such corporate action being taken.
10. THE OFFICERS
Page 4
<PAGE> 9
HOPE GAS, INC.
BY-LAWS
-------
10.01 The officers of the corporation shall be elected by the board and
they shall be a president, a vice president, a secretary, a treasurer, and such
other officers as the board and the organization of the corporation may
required. The president shall be chosen from among the directors.
10.02 The board may appoint such officials of the corporation as the
board may deem expedient or necessary.
10.03 The board shall elect the officers and appoint the officials of
the corporation 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.
10.06 The officers and officials of the corporation shall hold their
offices until their respective successors are elected or appointed.
11. THE PRESIDENT
11.01 The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and directors,
and shall see that all orders and resolutions of the board are carried into
effect.
11.02 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 corporation.
12. THE VICE PRESIDENTS
12.01 Each vice president shall perform such duties as the board or the
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.
Page 5
<PAGE> 10
HOPE GAS, INC.
BY-LAWS
-------
13.02 The secretary shall have custody of the seal of the corporation.
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. THE TREASURER AND ASSISTANT TREASURERS
14.01 The treasurer shall have the custody of the corporation's funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation. He shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board.
14.02 The treasurer shall disburse the funds of the corporation, 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 corporation.
14.03 If required by the board, the treasurer shall give the
corporation 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 corporation, 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 corporation.
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.
15. INDEMNIFICATION
15.01 Each person who at any time is, or shall have been a director or
officer of the corporation, or serves or has served as a director, officer,
fiduciary, or other representative of another company, partnership, joint
venture, trust, association, or other enterprise (including any employee benefit
plan), where such service was specifically requested by the Corporation in
according with paragraph 15.04 below, or the established guidelines for
participation in outside positions (such service hereinafter being referred to
as "Outside Service"), and is threatened to be or is made a party to any
threatened, pending, or completed claim, action, suit, or proceeding, whether
civil, criminal, administrative, or investigative ("Proceeding"), by reason of
the fact that he is, or was, a director or officer of the Corporation or a
director, officer, fiduciary, or other representative of such other enterprise,
shall be indemnified against expenses (including attorney's fees), judgments,
fines, and amounts paid in settlement ("Loss") actually and reasonably incurred
by him in connection with any such Proceeding to the full extent permitted under
the Business and Nonprofit Corporation Law of the State of West Virginia, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extend that such amendment permits
Page 6
<PAGE> 11
HOPE GAS, INC.
BY-LAWS
-------
the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment). The Corporation
shall indemnify any person seeking indemnity in connection with any Proceeding
(or part thereof) initiated by such person only if such Proceeding (or part
thereof) initiated by such person was authorized by the Board of Directors of
the Corporation. With respect to any Loss arising from Outside Service, the
Corporation shall provide such indemnification only in and to the extent that
(a) such other company, partnership, joint venture, trust, association, or
enterprise is not legally permitted or financially able to provide such
indemnification, and (b) such Loss is not paid pursuant to any insurance policy
other than any insurance policy maintained by the Corporation.
15.02 The right to be indemnified pursuant hereto shall include the
right to be paid by the Corporation for expenses, including attorney's fees,
incurred in defending any such Proceeding in advance of its final disposition;
provided, however, that the payment of such expenses in advance of the final
disposition of such Proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director, officer,
fiduciary, or other representative, in which such director, officer, fiduciary,
or other representatives agrees to repay all amounts so advanced if it should be
determined ultimately that such director, officer, fiduciary, or other
representative is not entitled to be indemnified under applicable law.
15.03 The right to be indemnified or to the reimbursement or
advancement of expenses pursuant hereto shall in no way be exclusive of any
other rights of indemnification or advancement to which any such director or
officer, fiduciary, or other representative 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, fiduciary, or other representative and shall inure to the
benefit of the heirs, executors, and administrators of such person.
15.04 Any person who is serving or has served as a director, officer,
or fiduciary of (a) another corporation of which a majority of the shares
entitled to vote in the election of its directors is held by the Corporation at
the time of such service, or (b) any employee benefit plan of the Corporation or
of any corporation referred to in clause (a) of this paragraph 15.04, shall be
deemed to be doing or have done so at the request of the Corporation.
16. CERTIFICATES OF STOCK
16.01 The shares of the corporation shall be represented by numbered
certificates, and they shall be entered on the books of the corporation as they
are issued. Each certificate shall exhibit the holder's name and the number of
shares and shall be signed by the president or a vice president and the
secretary or assistant secretary. The seal of the corporation or a facsimile
thereof may be affixed to each certificate.
Page 7
<PAGE> 12
HOPE GAS, INC.
BY-LAWS
-------
16.02 The signatures of the officers of the corporation 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 same effect as if he were such officer at the date of the
certificate's issue.
17. TRANSFERS OF STOCK
17.01 Upon surrender to the corporation 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 corporation.
18. LOST OR DESTROYED CERTIFICATES
18.01 The board may direct a new certificate to be issued in place of
any certificate heretofore issued by the corporation 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
corporation.
19. RECORD DATES
19.01 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 fifty nor less than ten days before the date of
any meeting nor more than fifty 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.
20. REGISTERED STOCKHOLDERS
20.01 The corporation 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 corporation shall have
express or other notice thereof, except as otherwise provided by the laws of
West Virginia.
21. DIVIDENDS
Page 8
<PAGE> 13
HOPE GAS, INC.
BY-LAWS
-------
21.01 Dividends upon the capital stock of the corporation, subject to
the provisions of the charter, may be declared by the board at any meeting,
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.
22. ANNUAL STATEMENT
22.01 The president shall annually prepare a full and true statement of
the affairs of the corporation, which shall be submitted at the annual meeting
and filed within twenty days thereafter at the principal office of the
corporation where it shall, during the usual business hours, be open for
inspection by any stockholder.
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
corporation, shall be signed by such officer or officers, agent or agents of the
corporation 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
25.01 The corporate seal shall have inscribed thereon the name of the
corporation 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 BY-LAWS
26.01 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 State 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 West Virginia.
26.02 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 9
<PAGE> 14
HOPE GAS, INC.
BY-LAWS
-------
27. AMENDMENTS
27.01 These by-laws may be altered, amended, or repealed 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 10
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CNG STORAGE SERVICE COMPANY
CNG Storage Service Company, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST. The name of the corporation (hereinafter called the
"corporation") is CNG Storage Service Company.
SECOND. The certificate of incorporation of the corporation is hereby
amended by striking out Article First thereof and by substituting in
lieu of said Article the following new Article:
First: The name of the corporation is
CNG FIELD SERVICES COMPANY
THIRD. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
FOURTH. The effective date of the amendment herein certified shall be
September 28, 1998.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed on September 10, 1998.
CNG STORAGE SERVICE COMPANY
/s/ Gary L. Sypolt
------------------------------------
By: Gary L. Sypolt
Its: President
<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)
Securities Resolution No. 5 effective as of October 20, 1998 (Exhibit
2 to Form 8-A filed October 22, 1998 under file No. 1-3196 and
relating to the 6% Debentures Due October 15, 2010)
<PAGE> 1
EXHIBIT 99.3
EXHIBIT D.
Second Amendment to Agreement Pursuant to Rule 45 (c)
-----------------------------------------------------
Under the Public Utility Holding Company Act of 1935
----------------------------------------------------
WHEREAS, Consolidated Natural Gas Company (hereinafter referred to as "Parent"),
a corporation organized and existing under the laws of the State of Delaware,
and its wholly owned subsidiary corporations whose names and respective states
of incorporation are listed below, i.e.:
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
------------------ ----------------------
<S> <C>
Consolidated Natural Gas Service Co., Inc. Delaware
CNG Transmission Corporation Delaware
CNG Iroquois, Inc., a wholly-owned subsidiary of CNG Delaware
Transmission Corporation
The East Ohio Gas Company Ohio
The Peoples Natural Gas Company Pennsylvania
Virginia Natural Gas, Inc. Virginia
Hope Gas, Inc. West Virginia
CNG Producing Company Delaware
CNG Pipeline Company, a wholly-owned subsidiary of CNG Texas
Producing Company
CNG Energy Services Corporation Delaware
CNG Oil Gathering Corporation, a wholly-owned subsidiary Delaware
of CNG Energy Services Corporation
CNG Main Pass Gas Gathering Corporation, a wholly-owned Delaware
subsidiary of CNG Energy Services Corporation
CNG Storage Service Company, a wholly-owned subsidiary of Delaware
CNG Energy Services Corporation
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
------------------ ----------------------
<S> <C>
CNG Power Company, a wholly-owned subsidiary of CNG Delaware
Energy Services Corporation
CNG Kauai, Inc., a wholly-owned subsidiary of CNG Power Delaware
Company
Granite Road Cogen, Inc., a wholly-owned subsidiary of Texas
CNG Power Company
CNG Market Center Services, Inc., a wholly-owned Delaware
subsidiary of CNG Power Company
CNG Bear Mountain, Inc., a wholly-owned subsidiary of CNG Delaware
Power Company
CNG Retail Services Corporation, a wholly-owned Delaware
subsidiary of CNG Energy Services Corporation
CNG Products and Services, Inc., a wholly-owned Delaware
subsidiary of CNG Energy Services Corporation
CNG Technologies, Inc., a wholly-owned subsidiary of Delaware
CNG Products and Services, Inc.
CNG Power Services Corporation Delaware
CNG Lakewood, Inc., a wholly-owned subsidiary of CNG Delaware
Power Services Corporation
Consolidated System LNG Company Delaware
CNG Research Company Delaware
CNG Coal Company Delaware
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
------------------ ----------------------
<S> <C>
CNG Financial Services, Inc. Delaware
CNG International Corporation Delaware
CNG Telecom, Inc. Delaware
</TABLE>
have entered into an Agreement dated December 31, 1994 for the allocation of
current federal income taxes; and
WHEREAS, Parent and its subsidiaries (hereinafter collectively referred
to as the "Companies") are desirous of amending the agreement for the purpose of
giving recognition to ownership changes of certain subsidiaries within the
consolidated group as a result of the partial liquidation and sale of the stock
of one of the subsidiaries and a change in the name of one of the subsidiaries.
NOW, THEREFORE, the Companies, for the mutual benefit and valuable
considerations, do hereby covenant and agree with one another that, pursuant to
paragraph IV of the Agreement, it shall be amended as follows:
First: CNG Main Pass Gas Gathering Corporation and CNG Oil Gathering
Corporation, both incorporated in the State of Delaware on
July 21, 1995, CNG Products and Services, Inc., incorporated
in the state of Delaware on August 28, 1995, CNG Retail
Services Corporation, incorporated in the state of Delaware on
January 30, 1997, CNG Power Company, incorporated in the state
of Delaware on October 26, 1981, CNG Storage Services Company,
incorporated in the state of Delaware on July 19, 1977, all
wholly-owned subsidiaries of CNG Energy Services Corporation,
became wholly-owned subsidiaries of the Parent as a result of
a liquidation distribution made on July 30, 1998.
Second: CNG Storage Services Company was renamed as CNG Field Services
Company on September 28, 1998.
Third: The stock of CNG Energy Services Corporation, formerly a
wholly-owned subsidiary of the Parent, was sold to Sempra
Energy Trading Corporation, an outside party, effective July
1, 1998. As a result of this transaction, CNG Energy Services
Corporation is no longer a party to the Agreement, effective
as of that date.
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused this
agreement to be executed in its name and on its behalf by one of its officers
duly authorized, and its corporate seal to be affixed hereto by its Secretary or
one of its Assistant Secretaries as of the 16th day of April 1999 to be
effective as of December 31, 1998.
ATTEST: Consolidated Natural Gas Company
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: Consolidated Natural Gas Service Co., Inc.
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: The Peoples Natural Gas Company
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Kauai, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
- -------------------------- ------------------------------------------------
ATTEST: CNG Power Company
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: Granite Road Cogen, Inc.
/s/ Secretary /s/ Assistant Treasurer
- -------------------------- ------------------------------------------------
Secretary Assistant Treasurer
ATTEST: CNG Market Center Services, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Bear Mountain, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
<PAGE> 5
ATTEST: CNG Retail Services Corporation
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Products and Services, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Technologies, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Power Services Corporation
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Lakewood, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Research Company
/s/ Secretary /s/ Assistant Treasurer, Finance
- -------------------------- ------------------------------------------------
Secretary Assistant Treasurer, Finance
ATTEST: CNG Financial Services, Inc.
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: CNG Telecom, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
<PAGE> 6
<TABLE>
<S> <C>
ATTEST: CNG Transmission Corporation
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: CNG Iroquois, Inc.
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: Hope Gas, Inc.
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Field Services Company
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: Consolidated System LNG Company
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: The East Ohio Gas Company
/s/ Assistant Secretary /s/ Vice President, Treasurer, and Secretary
- -------------------------- ------------------------------------------------
Assistant Secretary Vice President, Treasurer, and Secretary
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
ATTEST: Virginia Natural Gas, Inc.
/s/ Secretary /s/ Controller and Treasurer
- -------------------------- ------------------------------------------------
Secretary Controller and Treasurer
ATTEST: CNG Producing Company
/s/ Secretary /s/ Senior Vice President and Chief Executive Officer
- -------------------------- ------------------------------------------------
Secretary Senior Vice President and Chief Executive Officer
ATTEST: CNG Pipeline Company
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: CNG Oil Gathering Corporation
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Main Pass Gas Gathering Corporation
/s/ Secretary /s/ Treasurer
- -------------------------- ------------------------------------------------
Secretary Treasurer
ATTEST: CNG Coal Company
/s/ Secretary /s/ Vice President and Treasurer
- -------------------------- ------------------------------------------------
Secretary Vice President and Treasurer
ATTEST: CNG International Corporation
/s/ Secretary /s/ Vice President, Treasurer, and Controller
- -------------------------- ------------------------------------------------
Secretary Vice President, Treasurer, and Controller
</TABLE>
<PAGE> 1
Exhibit 99.4
Report of Exhibit E
- --------------------------------------------------------------------------------
Independent
Accountants
TO THE PARTNERS OF
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, changes in partners' equity and of cash flows
present fairly, in all material respects, the financial position of Iroquois Gas
Transmission System, L.P. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 11, 1999
<PAGE> 2
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- ------------------------------------------------------------------------------------------------
(thousands of dollars)
<S> <C> <C>
NET OPERATING REVENUES $140,371 $153,652
OPERATING EXPENSES:
Operations 21,979 23,988
Depreciation and amortization 29,795 32,094
Taxes other than income taxes 10,390 10,266
-------- --------
TOTAL OPERATING EXPENSES 62,164 66,348
-------- --------
OPERATING INCOME 78,207 87,304
-------- --------
OTHER INCOME AND (EXPENSES):
Interest income 1,908 2,105
Allowance for equity funds used during construction 457 245
Other, net 4,669 1,830
-------- --------
7,034 4,180
-------- --------
INCOME BEFORE INTEREST CHARGES AND TAXES 85,241 91,484
INTEREST EXPENSE:
Interest expense 33,169 35,409
Allowance for borrowed funds used during construction (693) (419)
-------- --------
NET INTEREST EXPENSE 32,476 34,990
-------- --------
INCOME BEFORE TAXES 52,765 56,494
PROVISION FOR TAXES 20,788 22,408
-------- --------
NET INCOME $31,977 $34,086
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System
<PAGE> 3
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------------------
AT DECEMBER 31 1998 1997
- -----------------------------------------------------------------------------------------
(thousands of dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 27,356 $ 26,352
Accounts receivable--trade 8,093 8,905
Accounts receivable--affiliates 2,933 5,397
Other current assets 2,490 2,167
--------- ---------
TOTAL CURRENT ASSETS 40,872 42,821
--------- ---------
NATURAL GAS TRANSMISSION PLANT:
Natural gas plant in service 770,118 745,529
Construction work in progress 1,868 14,450
--------- ---------
771,986 759,979
Accumulated depreciation and amortization (223,154) (196,213)
--------- ---------
NET NATURAL GAS TRANSMISSION PLANT 548,832 563,766
--------- ---------
DEFERRED CHARGES:
Regulatory assets--income tax related 13,838 14,386
Regulatory assets--other 2,414 2,602
Other deferred charges 914 930
--------- ---------
TOTAL DEFERRED CHARGES 17,166 17,918
--------- ---------
TOTAL ASSETS $ 606,870 $ 624,505
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
- ---------------------------------------------------------------------------------------
AT DECEMBER 31 1998 1997
- ---------------------------------------------------------------------------------------
(thousands of dollars)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,529 $ 4,907
Accrued interest 5,211 5,613
Current portion of long-term debt 28,723 28,724
Other current liabilities 5,177 5,533
--------- ---------
TOTAL CURRENT LIABILITIES 43,640 44,777
--------- ---------
LONG-TERM DEBT 336,665 365,387
OTHER NON CURRENT LIABILITIES 97 90
--------- ---------
336,762 365,477
--------- ---------
AMOUNTS EQUIVALENT TO DEFERRED INCOME TAXES:
Generated by Partnership 62,274 53,959
Payable by Partners (48,436) (39,573)
--------- ---------
TOTAL AMOUNTS EQUIVALENT TO
DEFERRED INCOME TAXES 13,838 14,386
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 6) -- --
TOTAL LIABILITIES 394,240 424,640
--------- ---------
PARTNERS' EQUITY 212,630 199,865
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 606,870 $ 624,505
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System
<PAGE> 5
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- -----------------------------------------------------------------------------------------------------------
(thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 31,977 $ 34,086
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 29,795 32,094
Allowance for equity funds used during construction (457) (245)
Decrease in deferred regulatory asset--income tax related 548 664
Decrease in amounts equivalent to deferred income taxes (548) (664)
Income and other taxes payable by Partners 20,788 22,408
Increase in other deferred charges (28) (197)
Changes in working capital:
Decrease in accounts receivable 3,276 844
Increase (decrease) in other assets (323) 345
Decrease (increase) in accounts payable (378) 705
Decrease in accrued interest (402) (810)
Decrease in other liabilities (349) (2,114)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 83,899 87,116
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,172) (14,719)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (14,172) (14,719)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (40,000) (55,000)
Repayments of long-term debt (28,723) (29,706)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (68,723) (84,706)
-------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS 1,004 (12,309)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 26,352 38,661
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 27,356 $ 26,352
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 33,571 $ 35,898
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(thousands of dollars)
- ------------------------------------------------------------------------------------------
<S> <C>
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
Net income 1998 31,977
Taxes payable by Partners:
Federal income taxes 17,440
State income taxes 2,127
Other state taxes 1,221
--------
20,788
Equity distributions to Partners (40,000)
--------
PARTNERS' EQUITY
BALANCE AT DECEMBER 31, 1998 $212,630
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Iroquois Gas Transmission System
<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, NY to South Commack, Long Island, NY. 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.
Subsequent to December 31, 1998, Alenco Iroquois Pipeline, Inc. sold its
interest in the Company to TCPL Northeast Ltd. 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%), TCPL Northeast Ltd. (6.0%), JMC-Iroquois, Inc. (4.93%), TEN Transmission
Company (4.87%), NJNR Pipeline Company (2.8%), and LILCO Energy Systems, Inc.
(1.0%). Iroquois Pipeline Operating Company, a wholly-owned subsidiary of
Iroquois, 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 $40.0 million and $55.0 million were made during 1998 and 1997, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The consolidated 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 of Iroquois.
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 $27.4 million in 1998, consisting primarily of
low risk mutual funds, are carried at cost, which approximates market. At
December 31, 1998 and 1997, $11.0 million and $10.6 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
was depreciated over 25 years on a straight-line basis as a result of the rate
case settlement. Effective August 31, 1998 the depreciation rate was changed to
2.77% (36 years average life) in accordance with the FERC rate order issued July
29, 1998. The general plant is depreciated on a straight-line basis over five
years.
CONSTRUCTION WORK IN PROGRESS
At December 31, 1998, construction work in progress included on-going minor
capital projects. At December 31, 1997, construction work in progress included
construction costs relating to the Athens Compressor Station, which was placed
into service in November 1998.
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.
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, 1998, Iroquois was party to interest rate swap
transactions for aggregate notional principal amounts of $537.6 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 for Expansion Loan No. 2 expired November 2, 1998 at
which time the interest rate became 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 ($39.2) million
and ($29.1) million at December 31, 1998 and 1997, 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, 1998 the largest
single swap agreement subject to exposure was $13.1 million.
<PAGE> 8
At December 31, 1998, the outstanding principal was $340.7 million on the base
loan, $12.9 million on Expansion Loan Agreement No. 1 and $11.7 million on
Expansion Loan No. 2 for total long-term debt of $365.4 million. The combined
schedule of repayments is as follows (in millions):
<TABLE>
<CAPTION>
Year Scheduled Repayment
---- -------------------
<S> <C>
1999 $28.7
2000 $28.8
2001 $26.7
2002 $26.7
2003 $26.7
Thereafter $227.8
</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, 1998, the Company
had an outstanding letter of credit in the amount of $30.1 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 lendor's 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 1999. 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, 1998, Iroquois was providing multi-year firm reserved
transportation service to 34 shippers of 987.5 MDth/d of natural gas which
breaks down as follows:
<TABLE>
<CAPTION>
REMAINING TERM IN YEARS QUANTITY IN MDth/d
----------------------- ------------------
<S> <C>
3-10 109.2
11-15 758.8
16-20 119.5
Total 987.5
</TABLE>
The long-term firm service gas transportation contracts expire between October
31, 2011 and August 1, 2018.
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 ("ALJ") to issue a decision in this proceeding by December 31, 1997.
Pursuant to that Suspension Order, the Presiding ALJ conducted a hearing on all
issues raised by Iroquois' filing, which was concluded on August 28, 1997.
Following the December 31, 1997 issuance of the Initial Decision by the
Presiding ALJ, on January 30, 1998, Iroquois filed its brief on exceptions
vigorously opposing certain aspects of the Initial Decision. Briefs opposing
exceptions were filed by Iroquois and the other participants on February 27,
1998. On July 29, 1998, the Commission issued its "Order Affirming in Part and
Reversing in Part Initial Decision" ("July 29 Order"), which modified
significant portions of the Initial Decision. That July 29 Order provided, in
part, for a reduction in the depreciation rate from 4% to 2.77%; a reduction in
Iroquois' equity ratio from 35% to 31.85%; a reduction in the rate of return on
equity from the then-effective 15% to 12.38%; and the elimination of certain
discounts provided under certain long-term contracts. The net result of the
Commission's order was to reduce, prospectively, Iroquois' 100% load-factor
interzone rate (the rate charged for transportation along the entire length of
the Iroquois pipeline) from $0.65(1) per dth to $0.47(1) per dth. Iroquois'
filing, in compliance with the July 29 Order, was accepted and the lower rates
became effective on August 31, 1998. In addition, on August 28, 1998 Iroquois
filed a request for rehearing of the July 29 Order, which (as well as a request
filed by other parties to the proceeding) is still pending.
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 ALJ 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. Following oral argument on May 14, 1998, the
court on July 21, 1998 issued a decision reversing the Commission's December 20
and March 3 Orders and remanded the matter to the agency for further
proceedings. The court subsequently denied rehearing of its opinion on November
13, 1998 and issued its mandate. Iroquois had filed on August 13, 1998 to begin
recovering those legal defense costs; this filing was rejected by the Commission
on August 31 as premature. Iroquois subsequently (on January 14, 1999) filed a
motion with the Commission asking that the agency take action on the court's
remand of the issue; that motion is pending.
(1) Figures rounded to the nearest hundredth
Iroquois Gas Transmission System
<PAGE> 9
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, 1998, and 1997, Iroquois made payments of $0.9
million and $1.0 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>
1999 $0.8
2000 $0.8
2001 $0.7
2002 $0.7
2003 $0.4
Thereafter $4.7
</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- U.S. STATE-
FEDERAL STATE OTHER TOTAL FEDERAL STATE OTHER TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998: 1997:
Current $ 8,910 $ 1,793 $ 1,221 $ 11,924 Current $ 9,812 $ 1,872 $ 1,297 $ 12,981
Deferred 8,530 334 -- 8,864 Deferred 8,990 437 -- 9,427
- ----------------------------------------------------------------------------------------------------------
Total $ 17,440 $ 2,127 $ 1,221 $ 20,788 Total $ 18,802 $ 2,309 $ 1,297 $ 22,408
</TABLE>
For the years ended December 31, 1998 and 1997, the effective tax rate differs
from the Federal statutory rate due principally to the impact of state taxes.
Deferred income taxes included in the income statement relate to the
following (thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Depreciation $ 4,224 $ 4,882
Deferred regulatory asset (71) (71)
Property taxes 27 21
Legal costs 104 (43)
Accrued expenses (104) 613
Alternative minimum tax credit 4,487 3,872
Other 197 153
- ---------------------------------------------------------------------
Total deferred taxes $ 8,864 $ 9,427
======= =======
</TABLE>
The components of the net deferred tax liability at December 31, 1998 and
1997 are as follows (thousands of dollars):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1998 1997
---- ----
<S> <C> <C>
Alternative minimum tax credit $ 1,407 $ 5,894
Accrued expenses 5,490 5,386
- -----------------------------------------------------------------------------------
Total deferred tax assets 6,897 11,280
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation and related items (48,834) (44,647)
Deferred regulatory asset (953) (1,024)
Property taxes (856) (829)
Legal costs (4,678) (4,573)
Other (719) (523)
- -----------------------------------------------------------------------------------
Total deferred tax liabilities (56,040) (51,596)
-------- --------
Net deferred tax liabilities (49,143) (40,316)
Less deferral of tax rate change 707 743
-------- --------
Deferred taxes-operations (48,436) (39,573)
-------- --------
Deferred tax related to Equity AFUDC (13,131) (13,643)
Deferred tax related to change in tax rate (707) (743)
-------- --------
Total deferred taxes $(62,274) $(53,959)
======== ========
</TABLE>
<PAGE> 10
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 REVENUE FROM
1998 RELATED PARTIES RELATED PARTIES RELATED PARTIES
- ---- --------------- --------------- ---------------
<S> <C> <C> <C>
TransCanada Iroquois Ltd. $0.5 $0.2 $0.5
North East Transmission Co. - 0.4 15.0
ANR Iroquois - - 2.8
CNG Iroquois - - 2.7
NJNR Pipeline Company - 0.6 8.6
TEN Transmission Company - 0.4 5.4
LILCO Energy Systems 0.1 1.0 14.5
- ---------------------------------------------------------------------------------
Totals $0.6 $2.6 $49.5
==== ==== =====
<CAPTION>
PAYMENTS TO DUE (TO) FROM REVENUE FROM
1997 RELATED PARTIES RELATED PARTIES RELATED PARTIES
- ---- --------------- --------------- ---------------
<S> <C> <C> <C>
TransCanada Iroquois Ltd. $0.6 $(0.2) $1.8
North East Transmission Co. - 1.4 16.6
ANR Iroquois - 0.3 0.7
CNG Iroquois - 0.9 6.2
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>
9. RETIREMENT BENEFIT PLANS:
- --------------------------------------------------------------------------------
During 1997, the Company established a noncontributory 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 and 1998, the Company also adopted excess benefit plans (EBPs)
that provide retirement benefits to executive officers and other key management
staff. The EBPs recognize 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 EBPs are 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 consolidated balance sheets (thousands of dollars):
<TABLE>
<CAPTION>
AT DECEMBER 31 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Benefit obligation $ 926 $ 323
Less: fair value of plan asset 315 0
----- -----
Funded status $(611) $(323)
- -----------------------------------------------------------------
Accrued benefit cost $(323) $(323)
----- -----
</TABLE>
Net Pension costs for the two plans included in the consolidated statement
of income contain the following components (thousands of dollars):
<TABLE>
<CAPTION>
AT DECEMBER 31 1998 1997
- -----------------------------------------------------
<S> <C> <C>
Benefit cost $367 $323
Employer contribution $323 $ 0
Benefits paid $ 33 $ 0
</TABLE>
The assumptions used in determining the pension obligation at December 31,
1998 and 1997 were:
<TABLE>
<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 employees working over 1,000 hours, 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 1998 and 1997 were $236.5 thousand and
$191.1 thousand, respectively. Iroquois does not provide post-retirement health
or life insurance benefits.
Iroquois Gas Transmission System
<PAGE> 1
EXHIBIT 99.5
EXHIBIT F.(1)
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1998
(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, 1999 to 2005......... 1,505
8.90% - maturing May 31, 1999............................... 5,000
6.10% - maturing July 31, 2003.............................. 795
--------
Total unsecured debt........................................ $ 8,912
========
CNG Transmission Non-negotiable notes:
6.20% - maturing September 30, 2010......................... $ 50,000
6.95% - maturing November 30, 2027.......................... 14,000
6.75% - maturing November 30, 2008.......................... 13,958
9.5% - maturing serially November 30, 1999 to 2005......... 13,037
7.40% - maturing serially November 30, 2000 to 2015......... 75,000
8.95% - maturing serially September 30, 2004 to 2014........ 35,000
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........................................ $345,329
========
East Ohio Gas Non-negotiable notes:
6.95% - maturing November 30, 2027.......................... $ 40,000
6.75% - maturing November 30, 2008.......................... 4,640
9.5% - maturing serially November 30, 1999 to 2005......... 4,334
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
6.10% - 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........................................ $181,390
========
</TABLE>
<PAGE> 2
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1998
(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 November 30, 2027 ......................... $ 9,000
6.75% - maturing November 30, 2008.......................... 3,437
9.5% - maturing serially November 30, 1999 to 2005......... 3,210
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
6.80% - 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........................................ $143,116
========
Virginia Natural
Gas Non-negotiable notes:
6.20% - maturing September 30, 2010......................... $ 55,000
8.90% - maturing May 31, 1999............................... 33,318
6.85% - maturing September 30, 2026......................... 24,000
--------
Total unsecured debt........................................ $112,318
========
</TABLE>
<PAGE> 3
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Hope Gas Non-negotiable notes:
6.95% - maturing November 30, 2027 .......................... $ 3,000
6.75% - maturing November 30, 2008 .......................... 1,505
9.5% - maturing serially November 30, 1999 to 2005 ......... 1,406
7.40% - maturing serially November 30, 2000 to 2015 ......... 5,000
8.95% - maturing serially September 30, 2009 to 2019 ........ 3,000
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 ........................................ $33,428
=======
</TABLE>
<PAGE> 4
ITEM 1 - SCHEDULE OF INVESTMENTS
--------------------------------
At December 31, 1998
(Thousands of Dollars)
<TABLE>
<CAPTION>
Principal
Name of Issuer Title of Issue Amount
- ----------------------------------------------------------------------------------- --------------
<S> <C> <C>
CNG Producing Non-negotiable notes:
6.20% - maturing September 30, 2010 ......................... $ 25,000
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 ........................................ $368,575
========
CNG Power Company Non-negotiable notes:
6.75% - maturing November 30, 2008 .......................... $ 223
9.5% - maturing serially November 30, 1999 to 2005 ......... 208
8.95% - maturing serially September 30, 2009 to 2019 ........ 4,000
7.40% - maturing serially November 30, 2000 to 2015 ......... 2,160
8.75% - maturing serially November 30, 1998 to 2014 ......... 5,712
--------
Total unsecured debt ........................................ $ 12,303
========
CNG International Non-negotiable note:
6.20% - maturing September 30, 2010 ......................... $ 15,000
--------
Total unsecured debt ........................................ $ 15,000
========
</TABLE>
<PAGE> 1
EXHIBIT 99.6
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES
EXHIBIT F.(2)
<TABLE>
<CAPTION>
Calendar Year 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------
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:
CNG Transmission:
Non-negotiable note
6.2% Non-negotiable note due 9/30/10 $ 50,000 $ 50,000 Rule 52
======== ========
Virginia Natural Gas:
Non-negotiable note
6.2% Non-negotiable note due 9/30/10 $ 55,000 $ 55,000 Rule 52
======== ========
CNG Producing:
Non-negotiable note
6.2% Non-negotiable note due 9/30/10 $ 25,000 $ 25,000 Rule 52
======== ========
</TABLE>
<PAGE> 2
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
<TABLE>
<CAPTION>
Calendar Year 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------
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 notes
6.2% Non-negotiable note due 9/30/10 $ 15,000 $ 15,000 Rule 52
6.95% Non-negotiable note due 12/15/27 $ 15,150 $ 15,150
-------- --------
$ 30,150 $ 30,150
======== ========
Subsidiaries of Registered Holding Company:
Service Company:
Non-negotiable notes
6.2% Non-negotiable note due
9/30/98 $ 5,000 $ 5,000 Rule 42
9.5% Non-negotiable note due
11/30/98 $ 240 $ 240 Rule 42
-------- --------
$ 5,240 $ 5,240
======== ========
CNG Transmission:
Non-negotiable notes
6.2% Non-negotiable note due
9/30/98 $100,800 $100,800 Rule 42
9.5% Non-negotiable note due
11/30/98 $ 2,076 $ 2,076 Rule 42
-------- --------
$102,876 $102,876
======== ========
</TABLE>
<PAGE> 3
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
<TABLE>
<CAPTION>
Calendar Year 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------
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
6.2% Non-negotiable note due
9/30/98 $ 78,900 $ 78,900 Rule 42
9.5% Non-negotiable note due
11/30/98 $ 690 $ 690 Rule 42
-------- --------
$ 79,590 $ 79,590
======== ========
Peoples Natural Gas:
Non-negotiable notes
6.2% Non-negotiable note due
9/30/98 $ 10,000 $ 10,000 Rule 42
9.5% Non-negotiable note due
11/30/98 $ 512 $ 512 Rule 42
-------- --------
$ 10,512 $ 10,512
======== ========
Virginia Natural Gas Company:
Non-negotiable note
6.2% Non-negotiable note due
9/30/98 $ 40,100 $ 40,100 Rule 42
Unsecured loan
9.94% Unsecured loan due 1/1/98 $ 4,000 $ 4,000 Rule 42
-------- --------
$ 44,100 $ 44,100
======== ========
</TABLE>
<PAGE> 4
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Continued)
<TABLE>
<CAPTION>
Calendar Year 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------
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
6.2% Non-negotiable note due
9/30/98 $ 8,400 $ 8,400 Rule 42
9.5% Non-negotiable note due
11/30/98 $ 224 $ 224 Rule 42
-------- --------
$ 8,624 $ 8,624
======== ========
CNG Field Services:
Non-negotiable note
6.2% Non-negotiable note due
9/30/98 $ 7,350 $ 7,350 Rule 42
======== ========
CNG Power:
Non-negotiable notes
9.5% Non-negotiable note due
11/30/98 $ 33 $ 33 Rule 42
8.75% Non-negotiable note due
11/30/98 $ 357 $ 357 Rule 42
-------- --------
$ 390 $ 390
======== ========
</TABLE>
<PAGE> 5
ITEM 4 - SCHEDULE OF ACQUISITIONS, REDEMPTIONS, OR RETIREMENTS OF SYSTEM
SECURITIES (Concluded)
<TABLE>
<CAPTION>
Calendar Year 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------
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
12/15/27 $ 55,150 $ 55,150 Rule 42
======== ========
</TABLE>
<PAGE> 1
Exhibit 99.7
EXHIBIT H.
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
/ |
/ |
/ |
(8.29% 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.
CONSOLIDATED NATURAL GAS COMPANY
RELATIONSHIP OF ARGENTINE FOREIGN UTILITY COMPANIES
TO OTHER SYSTEM COMPANIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED NATURAL GAS COMPANY
|
|
|
|
| (Wholly owned
| subsidiary)
|
|
|
CNG INTERNATIONAL CORPORATION
| \
| \
CNG CAYMAN THREE LTD \
/ | \
/ | \
/ | \
(21.55% Ownership (21.55% Ownership (25% 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.
</TABLE>
<PAGE> 1
EXHIBIT 99.8.1
EXHIBIT I.
THE LATIN AMERICA ENERGY
AND ELECTRICITY FUND I, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE> 2
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, liabilities and partners'
capital, 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, 1998 and 1997, 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
$50,126,986 (96 percent of net assets) and $41,920,297 (97 percent of net
assets) as of December 31, 1998 and 1997, 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, 1998 and 1997, 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
Grand Cayman, B.W.I.
March 11, 1999
<PAGE> 3
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
INVESTMENTS IN SECURITIES, at fair value (cost $50,854,467 and $39,436,269 at December
31, 1998 and 1997, respectively) $50,126,986 $41,920,297
CASH AND CASH EQUIVALENTS 2,010,018 346,465
DUE FROM FUND MANAGER (Note 5) 223,878 246,716
DIVIDEND RECEIVABLE -- 245,018
ORGANIZATIONAL COSTS, net of accumulated amortization of $390,000 and $270,000 at
December 31, 1998 and 1997, respectively (Note 2) 210,000 330,000
OTHER ASSETS -- 382,953
----------- -----------
Total assets $52,570,882 $43,471,449
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Accrued liabilities $ 72,141 $ 139,054
Due to Fund Manager (Note 5) 237,367 134,447
----------- -----------
Total liabilities 309,508 273,501
----------- -----------
PARTNERS' CAPITAL:
General Partner 522,614 431,979
Limited Partners 51,738,760 42,765,969
----------- -----------
Total partners' capital 52,261,374 43,197,948
----------- -----------
Total liabilities and partners' capital $52,570,882 $43,471,449
=========== ===========
</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, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 155,708 $ 99,978
Dividends 817,833 1,115,564
----------- -----------
Total investment income 973,541 1,215,542
----------- -----------
EXPENSES:
Management and financial advisory fees (Note 5) 753,788 866,856
Administrative expenses (Note 5) 399,490 319,998
Expenses related to investments not consummated 392,893 869,629
Amortization of organization costs 120,000 120,000
----------- -----------
Total expenses 1,666,171 2,176,483
----------- -----------
Net investment loss (692,630) (960,941)
----------- -----------
NET (LOSS) GAIN ON INVESTMENTS:
Net realized gain on investments 1,056,601 --
Net change in unrealized (depreciation) appreciation in value of investments (3,211,509) 946,000
----------- -----------
Net (loss) gain on investments (2,154,908) 946,000
----------- -----------
Net decrease in net assets resulting
from operations $(2,847,538) $ (14,941)
=========== ===========
</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, 1998 AND 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
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
Capital contributions 159,025 15,743,523 15,902,548
Distributions (39,915) (3,951,669) (3,991,584)
Net decrease in net assets resulting from operations (28,475) (2,819,063) (2,847,538)
------------ ------------ ------------
BALANCE, December 31, 1998 $ 522,614 $ 51,738,760 $ 52,261,374
============ ============ ============
</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, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (2,847,538) $ (14,941)
Adjustments to reconcile net decrease in net assets resulting from operations to
net cash used in operating activities-
Net realized (gain) on sale of securities (1,056,601) --
Net change in unrealized depreciation (appreciation) in value of
investments 3,211,509 (946,000)
Amortization of organization costs 120,000 120,000
Purchases of securities (13,934,603) (21,300,615)
Sales of securities 3,573,006 --
Decrease in due from consortium members -- 41,221
Decrease (increase) in dividend and interest receivable 245,018 (245,018)
Decrease in other assets 382,953 168,721
(Decrease) in accrued liabilities (66,913) (61,010)
Increase (decrease) in due to Fund Manager 102,920 (173,397)
(Decrease) in due to Limited Partners -- (255,961)
------------ ------------
Net cash used in operating activities (10,270,249) (22,667,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 15,902,548 39,596,493
Distributions (3,991,584) (17,366,781)
Loan to Fund Manager 22,838 3,284
------------ ------------
Net cash provided by financing activities 11,933,802 22,232,996
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,663,553 (434,004)
CASH AND CASH EQUIVALENTS, beginning of year 346,465 780,469
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,010,018 $ 346,465
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
THE LATIN AMERICA ENERGY AND
ELECTRICITY FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
<PAGE> 8
-2-
Investment Risks
- ----------------
A significant portion of the Partnership's assets are invested in nonmarketable
securities. Because of the absence of any liquid trading market for these
investments, the Partnership may take longer to liquidate these positions than
would be the case for marketable securities. These securities may be resold in
privately negotiated or public sale transactions, and the prices realized on
such sales could be less than those originally paid by the Fund. Further,
companies whose securities are not marketable may not be subject to the
disclosure and other investor-protection requirements applicable to companies
whose securities are publicly traded. The value of nonmarketable securities,
totaling $50,126,986 (96 percent of net assets) and $41,920,297 (97 percent of
net assets) at December 31, 1998 and 1997, respectively, 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.
Additionally, a significant portion of the net assets of the Partnership is
invested in companies whose principal operations are located outside the United
States, including South and Central America. Such investments are subject to the
risks associated with, among other factors, the economic and political
environments of those countries, which can change rapidly and have a significant
impact on the ability of the Partnership to realize the value of its
investments.
Investment Valuation
- --------------------
Unquoted securities are stated at their estimated fair value at December 31,
1998 and 1997, as determined by the Fund Manager.
Investment Transactions
- -----------------------
The cost of securities sold is determined on the first-in, first-out basis.
During 1998, the Partnership realized a net gain from the partial sale of
Ontario-Quinta which had a cost basis of approximately $2,516,000. This sale
generated net proceeds of approximately $3,573,000 and a net realized gain of
approximately $1,057,000.
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 statements of assets, liabilities
and partners' capital and totaled $382,953 as of December 31, 1997. No such
costs are capitalized as of December 31, 1998. 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.
<PAGE> 9
-3-
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
- ---------------------
Capital contributions were $60,303,030 and $44,403,057 at December 31, 1998 and
1997, respectively, net of capital drawn for unconsummated investments
subsequently returned and capital drawn by the admission of additional limited
partners and reimbursed to the original limited partners. Total capital
commitments of the partners were fully drawn in the amount of $60,303,030.
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.
During 1998, the distributions to General Partner and Limited Partners
represented distributions of earnings on investments as well as a return of
invested capital and proceeds from the partial sale of an asset. During 1997,
the distributions to the 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
<PAGE> 10
-4-
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.
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, 1998 and 1997, 96% and 97%
of the Fund's net assets, respectively, were invested in such securities.
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. Under the terms of the Shareholders Agreement of
Ontario-Quinta, in August of 1999, Ontario-Quinta will liquidate itself and
distribute the pro rata holdings of Luz del Sur and TechnoSur to each
Ontario-Quinta shareholder.
In January 1998, the Fund sold 43% of its investment in Ontario-Quinta for
$3,573,005, or $1.68 per share. At December 31, 1998, the asset was valued at
the underlying publicly traded pro rata market value of Luz del Sur and
TechnoSur, an aggregate of $2,672,086 or $0.93 per Ontario-Quinta share. In
1997, the investment was valued at the January 1998 sales price of $1.68 per
share.
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, 1998 and 1997, the
investment was valued at cost. The valuations were based on, among other
factors, the consideration that the shares are not publicly traded, transactions
that have occurred between other shareholders have been consummated at prices
above the current cost for the Fund, and no other matters have come to the
attention of the Fund Manager 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 e Luz
Cataguazes-Leopoldina ("Cataguazes"), a Brazilian energy and utility company.
The Fund paid $20,860,036 for preferred and common shares and capitalized
$440,577 of costs involved in consummating the investment. During 1998, the Fund
invested an additional $1,986,101 to purchase 1,092,500,000 preferred shares.
The investment was carried at cost at December 31, 1998 and 1997. The average
cost per share of the investment is $2.68 (per 1,000 shares) and the Fund's
investment represents approximately 5.99% of the common voting shares of
Cataguazes and 7.37% of the preferred nonvoting shares as of December 31, 1998.
At the time of this investment, the Fund and an affiliated
<PAGE> 11
-5-
fund entered into a Shareholders Agreement with the other main shareholders of
Cataguazes, whereby the Fund may unilaterally exercise a significant number of
control provisions over the affairs of Cataguazes; in addition, the Fund and the
affiliated fund nominated a Director to the Board.
Although Cataguazes is publicly traded on Brazilian stock exchanges, it is
traded infrequently. As such, based on the significance of the holdings of the
Fund, the investment is currently considered nonmarketable. The determination to
value the investment at cost was based on, among other factors, the
consideration that the shares are infrequently traded and that the public market
price, in any event, does not represent a price at which the control provisions
exercised by the Fund would be valued; no transactions have occurred between
other shareholders; the Fund Manager's belief that the present value of the
investment is significantly in excess of cost; and no other matters have come to
the attention of the Fund Manager that would create a better estimate of current
value than the original cost. In its calculation of the present value, the Fund
Manager considered, among many factors, the financial results of Cataguazes for
the year ended December 31, 1998, the January 1999 devaluation of the Brazilian
Real, continued high interest rates in Brazil, an increase in Brazilian
inflation as a result of the devaluation, a potential slowdown in the growth
rate of electricity sales, and the future prospects of Cataguazes, including the
expected evolution of electricity tariffs in response to recent events.
Transredes S.A.
- ---------------
In two transactions in July 1998 and December 1998, the Fund purchased 302,736
common shares of Transredes S.A. ("Transredes") for $11,948,502, including
capitalized expenses of $943,501, or a total cost of $39.47 per share.
Transredes is a Bolivian pipeline and petroleum products transportation company
which was privatized in May 1997 at a price of $52.00 per share. As of December
31, 1998, the investment was carried at cost. The investment represents
approximately 3% of the outstanding common shares.
<PAGE> 12
-6-
Transredes is currently owned by Bolivian pension funds, current and former
workers, Enron Corp. and Shell Oil Company. The shares are not listed on any
exchange, although listing is anticipated within the next few years. The 1998
valuation was based on, among other factors, the consideration that the shares
are not publicly traded, few transactions have occurred among other shareholders
and no other matters have come to the attention of the Fund Manager that would
create a better estimate of current value than the original cost.
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, 1998 and 1997, the balance
outstanding under this note was $223,878 and $246,716, 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, 1998 and 1997, basic management fees of $753,788
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, 1998 and 1997, advisory fees of $125,000
have been paid to the Regional Advisor and are included in administrative
expenses in the statements of operations. The Advisory Agreement was terminated
as of January 1, 1999.
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 advisory agreement at the end of the third quarter of 1997. For the
year ended December 31, 1997, financial advisory fees of $113,068 were recorded
in the statements of operations. For the year ended December 31, 1998, no
financial advisory fees were incurred by the Fund.
<PAGE> 13
-7-
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, 1998 and 1997.
Due to Fund Manager
- -------------------
In 1998 and 1997, the Fund Manager incurred certain administrative costs on
behalf of the Fund. At December 31, 1998 and 1997, amounts remaining to be
reimbursed to the Fund Manager were $237,367 and $134,447, respectively.
<PAGE> 14
THE LATIN AMERICA ENERGY AND ELECTRICITY FUND I, L.P.
SCHEDULES OF INVESTMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------------
Current Value at
Number of December 31, Percent of
Security Units Cost Basis 1998 Net Assets
-------- ------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V. 2,873,211 $ 3,399,567 $ 2,672,086 5%
Inversora en Distribucion de Entre Rios S.A. 900 12,219,684 12,219,684 23
Cataguazes 8,704,949,248 23,286,714 23,286,714 45
Transredes 302,736 11,948,502 11,948,502 23
------------- -------------- -------------- --
$ 50,854,467 $ 50,126,986 96%
============== ============== ==
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------
Geographic
Security Region Industry
-------- ------ --------
<S> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V South America Electric Distribution Utility
Inversora en Distribucion de Entre Rios S.A. South America Electric Distribution Utility
Cataguazes South America Electric Distribution Utility
Transredes South America Gas Pipeline
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------
Current Value at
Number of December 31, Percent of
Security Units Cost Basis 1997 Net Assets
-------- ------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V 5,000,000 $ 5,915,972 $ 8,400,000 20%
Inversora en Distribucion de Entre Rios S.A. 900 12,219,684 12,219,684 28
Cataguazes 7,612,449,248 21,300,613 21,300,613 49
------------- -------------- -------------- --
$ 39,436,269 $ 41,920,297 97%
============== ============== ==
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Geographic
Security Region Industry
-------- ------ --------
<S> <C> <C>
NONMARKETABLE SECURITIES:
Ontario-Quinta A.V.V South America Electric Distribution Utility
Inversora en Distribucion de Entre Rios S.A. South America Electric Distribution Utility
Cataguazes South America Electric Distribution Utility
</TABLE>
The accompanying notes are an integral part of these schedules.
<PAGE> 1
EXHIBIT 99.8.2
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND 1997 (NOTES 1 AND 2)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(PESOS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks (Schedule G) .................................................. 3,636,582 5,059,195
Investments (Schedule C and D) ............................................... 424,574 11,906,291
Trade accounts receivable (Note 4.a) ......................................... 63,130,284 65,736,374
Intercompany receivables (Note 5) ............................................ 2,734,130 2,772,267
Other accounts receivable (Note 4.b) ......................................... 3,491,567 4,010,559
Inventories (Schedule F) ..................................................... 655,120 1,028,741
----------- -----------
TOTAL CURRENT ASSETS ......................................................... 74,072,257 90,513,427
----------- -----------
Non-current assets
Trade receivables (Note 4.a) ................................................. 1,954,721 --
Other accounts receivable (Note 4.b) ......................................... 6,246,249 112,468
Fixed assets (Schedule A) .................................................... 251,639,202 242,800,760
Intangible assets (Schedule B) ............................................... 1,075,778 1,665,075
----------- -----------
TOTAL NON-CURRENT ASSETS ..................................................... 260,915,950 244,578,303
----------- -----------
TOTAL ASSETS ................................................................. 334,988,207 335,091,730
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Suppliers (Schedule G) ....................................................... 15,471,900 11,029,566
Loans (Note 7 and Schedule G) ................................................ 68,469,733 5,424,268
Intercompany payable (Note 5) ................................................ 1,794,525 1,903,976
Salaries and social security liabilities ..................................... 1,858,157 1,703,935
Taxes payable (Note 10) ...................................................... 5,621,745 7,033,526
Other liabilities (Note 4.c) ................................................. 3,756,206 1,903,883
Provisions (Schedule E) ...................................................... 3,781,802 2,239,954
----------- -----------
TOTAL CURRENT LIABILITIES .................................................... 100,754,068 31,239,108
----------- -----------
NON-CURRENT LIABILITIES
Loans (Note 7 and Schedule G) ................................................ 50,557,000 110,557,000
Taxes payable (Note 10) ...................................................... 10,807 29,878
Other liabilities (Note 4.c) ................................................. 8,339,888 7,543,019
----------- -----------
TOTAL NON-CURRENT LIABILITIES ................................................ 58,907,695 118,129,897
----------- -----------
TOTAL LIABILITIES ............................................................ 159,661,763 149,369,005
----------- -----------
Minority interests in subsidiaries ........................................... 23,510,969 24,648,968
----------- -----------
SHAREHOLDERS' EQUITY ......................................................... 151,815,475 161,073,757
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... 334,988,207 335,091,730
=========== ===========
</TABLE>
The accompanying notes and schedules are an integral part of these
consolidated financial statements.
<PAGE> 2
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended December 31, 1998 and 1997 (Notes 1 and 2)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(PESOS)
<S> <C> <C>
Net sales (Note 4.d) ........................................................... 201,362,284 206,015,203
Cost of sales (Schedule F) ..................................................... (144,050,684) (148,555,994)
------------ ------------
GROSS PROFIT .......................................................... 57,311,600 57,459,209
------------ ------------
Marketing expenses (Schedule H) ................................................ (6,499,126) (6,101,718)
Administrative expenses (Schedule H) ........................................... (13,950,169) (12,946,111)
------------ ------------
OPERATING PROFIT ...................................................... 36,862,305 38,411,380
------------ ------------
Other income and expenses (Note 4.f) ........................................... (1,874,292) (1,228,769)
Financial and holding gain/(loss) (Note 4.e)
Generated by assets ................................................... 2,603,317 2,774,308
Generated by liabilities .............................................. (12,181,055) (11,449,746)
Income tax ..................................................................... (12,113,835) (10,853,189)
Minority interests in subsidiaries ............................................. (1,937,345) (2,365,720)
============ ============
INCOME FOR THE YEAR ................................................... 11,359,095 15,288,264
============ ============
</TABLE>
The accompanying notes and schedules are an integral part of these
consolidated financial statements.
<PAGE> 3
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended December 31, 1998 and 1997 (Notes 1 and 2)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(PESOS)
<S> <C> <C>
CHANGES IN FUNDS
Funds at beginning of year ......................................... 16,905,486 21,146,648
Decrease in funds .................................................. (12,844,330) (4,241,162)
----------- -----------
Funds at end of year ............................................... 4,061,156 16,905,486
=========== ===========
APPLICATIONS OF FUNDS
Income for the year ................................................ 11,359,095 15,288,264
Plus: Items not entailing the use of funds
Decrease in inventories ................................... 373,621 --
Fixed asset depreciation .................................. 8,731,519 11,911,773
Deductions of fixed assets ................................ 1,706,008 1,761,659
Intangible asset amortization ............................. 653,140 653,196
Accrued vacations and bonuses ............................. 1,386,073 1,301,674
Accrued gross sales tax ................................... 1,232,307 384,369
Accrued income tax ........................................ 10,831,650 10,853,189
Accrued net financial loss pending payment ................ 250,117 3,300,035
Accrued purchases pending payment ......................... 13,890,515 9,947,590
Intercompany accrued purchases pending payment ............ 23,766 --
Intercompany fees and expenses ............................ 1,214,794 760,607
Subsidiaries' personnel services fees ..................... 147,510 --
Technical assistance agreement ............................ 330,300 350,825
Other liabilities and fees pending payment ................ 31,249 8,294
Increase in the provision for lawsuits .................... 2,169,041 1,601,838
Increase in allowance for defaulting debtors .............. 1,173,346 1,044,122
Intercompany payables pending payment ..................... 100,000 --
----------- -----------
44,244,956 43,879,171
Less: Items not entailing the sources of funds
Accrued administrative services pending collection ........ (357,764) --
Other income .............................................. (250) --
Accrued sales pending collection .......................... (62,543,591) (58,938,836)
Intercompany sales ........................................ (2,410,867) (2,443,495)
----------- -----------
(65,312,472) (61,382,331)
Minority interests in subsidiaries ................................. 1,937,345 2,365,720
----------- -----------
Funds applied to operations ........................................ (7,771,076) 150,824
----------- -----------
OTHER APPLICATIONS OF FUNDS
Acquisition of fixed assets ............................... (21,338,001) (9,056,558)
Increase in other accounts receivable ..................... (5,659,591) (153,257)
Increase in fixed assets .................................. -- (599,766)
Increase in intangible assets ............................. (4,296) (255,194)
Changes in tax credits and debts .......................... (14,533,750) (10,849,846)
Decrease in intercompany liabilities ...................... (2,488,385) (1,569,947)
Decrease in salaries and social security liabilities ...... (1,231,851) (869,370)
Payment of bank and financial loans ....................... (5,216,423) (6,160,201)
Dividends paid ............................................ (18,172,414) (14,450,000)
Interest paid in advance .................................. (105,000) --
Decrease in other accounts payable and other liabilities... (529,474) (755,621)
Decrease in allowances .................................... (627,193) --
Decrease in suppliers ..................................... (10,551,270) (17,736,277)
----------- -----------
Total other applications of funds .................................. (80,457,648) (62,456,037)
----------- -----------
Total applications of funds - Carried forward ...................... (88,228,724) (62,305,213)
----------- -----------
</TABLE>
<PAGE> 4
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(PESOS)
<S> <C> <C>
Total applications of funds - Brought forward ................... (88,228,724) (62,305,213)
----------- -----------
SOURCES OF FUNDS
Decrease in intercompany receivables ................... 3,356,675 803,211
Changes in tax credits and debts ....................... -- 15,894
Increase in loans ...................................... 8,011,771 2,124,233
Decrease in investments ................................ 60,000 281,571
Decrease in trade accounts receivable .................. 63,955,948 54,839,142
----------- -----------
Total sources of funds .......................................... 75,384,394 58,064,051
----------- -----------
DECREASE IN FUNDS ............................................... (12,844,330) (4,241,162)
=========== ===========
OPERATIONS NOT ENTAILING SOURCES NOR APPLICATIONS OF FUNDS
Withdrawal of fixed assets ............................. 5,520,304 --
Withdrawal of the Subsidiary Company's voluntary reserve (5,520,304) --
----------- -----------
Total operations not entailing sources nor applications of funds -- --
----------- -----------
</TABLE>
The accompanying notes and schedules are an integral part of these
financial statements.
<PAGE> 5
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended December 31, 1998 and 1997
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, 1998 and 1997, 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 Company.
Non-monetary items included in the financial statements at
December 31, 1998 and 1997, 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, 1997, has been
reclassified, for comparative purpose, in order to be
consistent with that of the current year.
The December 31, 1998 financial statements of the Subsidiary
Company, 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 Company 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. Current Investments
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.
- As of December 31, 1997, the Argentina
Government Bond has been valued at cost plus
interest accrued as of the end of the fiscal
year.
<PAGE> 6
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 August 31, 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.
Having concluded the five-year mandatory investment
plan and other investments made in order to adapt the
safety and reliability of the system to international
standards, the Subsidiary Company has conducted a
review of the useful lives based upon the inventory
as of December 31, 1997. To such effects, independent
technical experts were hired in order to evaluate the
condition of the assets used in the provision of gas
distribution services. The impact of the extension of
the useful life upon the net profit for the 1998
fiscal year amounts to approximately Ps. 2.1 million.
The Subsidiary Company defers the net costs derived
from the financing with third party capitals of
construction works which extends in time until they
are in start-up conditions. The amount capitalized in
fixed assets was Ps. 468,085 during the fiscal year
ended December 31, 1998.
The value of the Fixed Assets, taken as a whole, does
not exceed their recoverable value.
<PAGE> 7
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
Company, 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.
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.
l. Accounting estimates
The preparation of these financial statements as of a
specified date requires that the Subsidiary Company's
management performs estimates and assessments that
affect the amount of the recorded assets and
liabilities and the contingent assets and liabilities
disclosed as of the date of these financial
statements, as well as the income and expenses
recorded during the fiscal year. The Subsidiary
Company's management makes estimates so as to
calculate, among other things, the income tax charge,
the unbilled gas consumptions, the discounts to be
made to users and the provisions for contingencies,
as of a certain date. The actual future results may
differ from the estimates and assessments made as of
the date of the financial statements.
NOTE 3: CORPORATE CONTROL
Sodigas Sur S.A. owns 90% of the shares of Camuzzi Gas del Sur
S.A.
<PAGE> 8
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: BREAKDOWN OF ITEMS
Consolidated general balance sheet
a. Trade accounts receivable
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
----------- -----------
(Pesos)
<S> <C> <C>
Current
Trade debtors ...................................... 13,443,865 11,536,173
Subsidies receivable ............................... 47,895,944 49,879,982
Unbilled gas consumption ........................... 7,761,292 9,139,801
----------- -----------
SUBTOTAL ........................................... 69,101,101 70,555,956
Less: Allowance for defaulting debtors (Schedule E) (5,970,817) (4,819,582)
----------- -----------
TOTAL .............................................. 63,130,284 65,736,374
=========== ===========
Non-current
Subsidies receivable ............................... 1,954,721 --
----------- -----------
Total .............................................. 1,954,721 --
----------- -----------
TOTAL TRADE ACCOUNT RECEIVABLES .................... 65,085,005 65,736,374
=========== ===========
</TABLE>
<PAGE> 9
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
b. Other accounts receivable
<TABLE>
<CAPTION>
As of December 31,
---------------------
1998 1997
--------- ---------
(Pesos)
<S> <C> <C>
CURRENT
Receivables to be recovered from users (Note 2.d) .................. -- 159,288
Miscellaneous advances ............................................. 4,966 40,622
Prepaid expenses and interest (Schedule G) ......................... 164,758 53,492
Tax credits ........................................................ 3,168,967 3,143,438
Guarantee deposits ................................................. 63,690 68,990
Receivables to be recovered for additional transportation charges... -- 233,311
Receivables to be recovered as per Section 41 Law 24.076
(Note 10.c.2) .................................................... 24,191 4,140
Miscellaneous ...................................................... 64,995 307,278
--------- ---------
TOTAL .............................................................. 3,491,567 4,010,559
--------- ---------
NON-CURRENT
Receivables to be recovered as per Section 41 Law 24.076
(Note 10.c.2) .................................................... 903,598 109,903
Judicial deposits .................................................. 5,296,417 --
Prepaid expenses ................................................... 30,845 --
Miscellaneous ...................................................... 15,389 2,565
--------- ---------
TOTAL .............................................................. 6,246,249 112,468
--------- ---------
TOTAL OTHER ACCOUNTS RECEIVABLE .................................... 9,737,816 4,123,027
========= =========
</TABLE>
<PAGE> 10
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
c. Other liabilities
<TABLE>
<CAPTION>
As of December 31,
------------------------------------
1998 1997
---------- ----------
(Pesos)
<S> <C> <C>
CURRENT
Gas-in-kind payables ....................................... 2,080,856 1,069,617
Consumer reconnection deposits ............................. 161,689 162,252
Reimbursements to be passed through on account of additional
transportation charges ..................................... 653,678 310,295
Other accounts payable ..................................... 859,983 361,719
---------- ----------
TOTAL ...................................................... 3,756,206 1,903,883
---------- ----------
NON-CURRENT
Gas-in-kind payables ....................................... 8,338,888 7,542,019
Other accounts payable ..................................... 1,000 1,000
---------- ----------
TOTAL ...................................................... 8,339,888 7,543,019
---------- ----------
TOTAL OTHER LIABILITIES .................................... 12,096,094 9,446,902
========== ==========
</TABLE>
Statement of income
d. Net sales
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
------------ ------------
(Pesos)
<S> <C> <C>
Gas sales .............................................. 203,196,225 207,598,746
Sales of other items ................................... 1,825,996 1,208,012
Direct taxes on sales .................................. (3,659,937) (2,791,555)
============ ============
TOTAL .................................................. 201,362,284 206,015,203
============ ============
</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>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
----------- -----------
(Pesos)
<S> <C> <C>
GENERATED BY ASSETS
Interest ............................. 2,418,054 2,653,644
Income from investments .............. 157,119 48,633
Exchange differences ................. 24,761 66,632
Miscellaneous ........................ 3,383 5,399
----------- -----------
TOTAL ................................ 2,603,317 2,744,308
----------- -----------
GENERATED BY LIABILITIES
Financial and banking interest ....... (10,970,077) (11,444,901)
Interest on tax debts ................ (1,198,889) --
Exchange differences ................. (1,508) (4,845)
Miscellaneous ........................ (10,581) --
----------- -----------
TOTAL ................................ (12,181,055) (11,449,746)
----------- -----------
Financial and holding gain/(loss), net (9,577,738) (8,705,438)
=========== ===========
</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>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
---------- ----------
(Pesos)
<S> <C> <C>
OTHER INCOME
Fees for collections on account of third parties .... 156 377
Leases .............................................. 715,122 645,852
Miscellaneous ....................................... 998,815 114,395
---------- ----------
TOTAL ............................................... 1,714,093 760,624
---------- ----------
OTHER EXPENSES
Provisions for lawsuits (Schedule E) ................ (1,886,609) (1,601,838)
Miscellaneous expenses (Schedule H) ................. (1,701,776) (387,555)
---------- ----------
TOTAL ............................................... (3,588,385) (1,989,393)
---------- ----------
TOTAL OTHER INCOME AND EXPENSES (LOSS)/INCOME, NET... (1,874,292) (1,228,769)
========== ==========
</TABLE>
NOTE 5: INTERCOMPANY BALANCES AND OPERATIONS
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
RECEIVABLES (Pesos)
Energia del Sur S.A.................................. 2,704,977 2,772,267
Edersa S.A........................................... 29,153 --
--------- ---------
2,734,130 2,772,267
========= =========
LIABILITIES
Sodigas Pampeana S.A................................. 147,510 --
Camuzzi Gas Pampeana S.A............................. 732,219 1,318,660
Camuzzi Argentina S.A................................ 864,796 585,316
Sempra Energy International S.L...................... 25,000 --
Consolidated Natural Gas Cayman Three Limited........ 25,000 --
--------- ---------
1,794,525 1,903,976
========= =========
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
INCOME/(LOSS) ACCOUNTS (Pesos)
CAMUZZI GAS PAMPEANA S.A.
Gas sale and transportation ......................... -- 8,549
Propane gas purchases ............................... (204,325) (1,033,325)
Administrative and personnel services................ (3,304,509) (3,099,313)
SODIGAS PAMPEANA S.A.
Personnel services .................................. (147,510) --
</TABLE>
<PAGE> 13
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
CAMUZZI ARGENTINA S.A.
Technical assistance and professional fees........... (2,777,147) (3,244,066)
Fees paid on account of work inspection services..... (58,380) --
Maintenance service of computer systems.............. (414,390) (413,088)
Administrative expenses recovery..................... 3,560 --
Expenses reimbursement............................... (50,000) --
LOMA NEGRA C.I.A.S.A.
Gas sales(1)......................................... 315,123 1,118,924
ENERGIA DEL SUR S.A.
Gas sales............................................ 9,828,542 10,036,098
EDERSA S.A.
Gas sales............................................ 306,016 332,195
Purchase of electricity.............................. (34,996) (40,649)
General expenses..................................... (7,500) --
SEMPRA ENERGY INTERNATIONAL S.L.
Expenses reimbursement............................... 25,000 --
CONSOLIDATED NATURAL GAS CAYMAN THREE LIMITED
Expenses reimbursement............................... 25,000 --
OTHER OPERATIONS
CAMUZZI ARGENTINA S.A.
Capitalized fees paid on account of work inspection
services........................................... 410,164 141,320
Purchase of software................................. 59,547 76,121
CAMUZZI GAS PAMPEANA S.A.
Miscellaneous........................................ 127,222 --
</TABLE>
(1) On March 26, 1998, Loma Negra C.I.A.S.A. sold its interest in Sodigas
Sur S.A.
Explanatory notes:
The Subsidiary Company, together with Camuzzi Gas Pampeana S.A. has a
dispute with Camuzzi Argentina S.A., as regards the ownership of the
invoicing and collection system (AG system) and others. As of the date
hereof, the parties are negotiating in order to resolve the dispute.
The parties have agreed that if they cannot solve the dispute, the same
shall be submitted to arbitration by an independent expert.
In the opinion of the Subsidiary Company and its legal counsel, an
adverse decision in relation to the aforementioned dispute is
considered not probable.
<PAGE> 14
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: MANDATORY INVESTMENTS OF THE SUBSIDIARY COMPANY
Chapter IV of the License states that the Subsidiary Company,
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:
<TABLE>
<CAPTION>
YEAR U.S.$
------------- ----------
<S> <C>
1993 2,704,000
1994 2,704,000
1995 2,150,000
1996 1,925,000
1997 1,925,000
----------
Total 11,408,000
==========
</TABLE>
Furthermore, 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 COMPANY
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:
<PAGE> 15
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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
Company, as the case may be, in conformity
with Argentine professional accounting
standards;
(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 Company 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 Company, or between Subsidiaries,
(iii) the Issuers or any Subsidiary Company 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 Company (other than debt that is subordinated to
the Notes or debt to either or both of the Issuers or a
Subsidiary Company) 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 Company, as the
case may be, of the property subject to such agreement.
<PAGE> 16
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 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 COMPANY'S ASSETS
(a) Assets essential for the rendering of service
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 which are essential for the rendering of
service.
(b) Restriction on funds
As set forth in Note 10.c.1 and 10.c.2 as of December 31 1998,
Ps. 4,509,391 regarding the attachment levied by the Direccion
General de Rentas de la Provincia de Rio Negro (the General
Revenue Board of the Province of Rio Negro) Ps. 787,025
corresponding mainly to the attachments levied by several
municipalities in connection with the lawsuits related to
municipal taxes on use of the easements (Note 10.b.).
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 Company completed the transfer of
all the vehicles.
NOTE 10: LEGAL AND TAX MATTERS
a. Income tax
On January 30, 1998 and May 28, 1998, the Subsidiary Company
amended the tax returns, paying the difference generated by
the deduction of the tax on assets and amending the
depreciation of fixed assets received free of charge as a
consequence of the new tax determination of the amounts
corresponding to networks added by the Company as of June
1995, by application of the ENARGAS's Resolutions governing
the transfer of networks funded, in whole or in part, by third
parties.
On June 22, 1998, the Argentine Tax Authority ("AFIP") gave
notice of the adjustments proposed by the inspections which
amount to Ps. 1,282,185 for the deduction of the tax on assets
applicable in 1993 and 1994, and to Ps. 11,759,623
corresponding to computation differences originated in the
treatment as non-assessable income granted by the Subsidiary
Company to the networks received free of charge during 1993,
1994 and 1995, which was answered on July 14, 1998.
Furthermore, on August 23, 1998, a copy of the amended tax
returns requested by the Division Determinacion de Oficio of
the AFIP was attached to the answer.
Said amendments were not considered by the AFIP at the time of
serving the notice.
<PAGE> 17
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 15, 1999, an order from the Division Determinacion
de Oficio (Official Assessment Division) was received,
requesting the Division Fiscalizadora Externa II (External
Control Division II) to attach within a 30-business day term,
a technical report as regards the different aspects included
in the Subsidiary Company's answer. As of the date hereof, the
Subsidiary Company is preparing the answer to the requirement
made by the Division Fiscalizadora Externa II.
In the opinion of the Subsidiary Company and its legal
counsel, the filing of the amended tax returns applying the
criteria of the ENARGAS for tax purposes, and the inclusion of
the adjusted amounts in the Installment Payment System
(Regimen de Facilidades de Pago) would settle the matter,
since the interests of the Tax Authority would be satisfied,
and therefore any attempt by it to re-open the case would not
be successful.
b. Municipal taxes
Municipalities usually include a tax on the use of the
easements in their tax rules. Such rules are in conflict with
federal regulations.
The distribution license grants the Company the right to use
the subsoil free of charge and establishes that, if the
municipalities levy any tax which is later ratified by a
court, the Company is authorized to pass through such cost
increase to the consumers.
Point 6.1 of the License reads as follows: "while the licensee
is in charge of the service, the licensee 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 the use of subjacent rights upon the Company, the licensee
Company may pass through such additional cost to consumers
residing within the jurisdiction in which such tax is
applicable, and the Regulatory Entity shall act in accordance
with the procedures described in point 9.6.2, without any
right of claim against the Company or Gas del Estado".
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 Ps. 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 Subsidiary Company finally filed an appeal before
the Argentine Supreme Court of Justice requesting that the
appeal dismissed by the trial court be sustained, which motion
is currently pending resolution. The National Supreme Court
requested the main file from Viedma, thus admitting it is
dealing with the appeal for nullification. The judicial
deposits made during the year 1996 for an aggregate amount of
Ps. 263,362, are maintained plus Ps. 62,720 in respect of
interest and legal costs. The Subsidiary Company has set up a
provision for the aggregate amount claimed.
In addition, the Municipality has brought an action against
Camuzzi Gas del Sur S.A. for Ps. 148,148 in respect of
principal corresponding to the payment of the tax on subsoil
rights due for the year 1995.
The Subsidiary Company has contested the proceeding. The
Municipality has answered the plea. Judgment was pronounced
against the Subsidiary Company which has therefore filed an
appeal; the appeal was sustained and the Subsidiary Company
submitted the briefs of the case. The Court of Appeals
confirmed the first instance judgment and the Subsidiary
Company filed an appeal for nullification. The Supreme Court
of Justice of the Province sustained such appeal only as far
as it relates to a motion based on the jurisdiction of the
court.
In connection with the other prejudices caused by the
judgement of the Court, Camuzzi Gas del Sur S.A. filed an
extraordinary motion with the Federal courts against such
decision.
The Licensee set up a provision of Ps. 95,545, which is
included under the item "Provisions".
Municipality of Neuquen: The amount claimed totals Ps. 66,524,
not including penalties and other expenses. The Municipality
appealed the decision of the Court of Appeals, on the grounds
of lack of jurisdiction of the provincial court
<PAGE> 18
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to hear the case. The lack of jurisdiction 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 judgment. The Court of Appeals
rejected the motion filed by the Subsidiary Company and a
motion for lack of jurisdiction was filed with the Supreme
Court of Justice of the Province, and was rejected. The
plaintiff filed a table describing the debt service, including
payment of principal, interest and court fees, for an amount
of Ps. 150,746. The plaintiff's counsel continues taking the
steps to judicially collect the debt.
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 made a new claim for the period
April 1996 - May 1997 for an amount of Ps. 97,421, without
including interest and penalties. The claim was answered by
means of a letter document whereby the Subsidiary Company was
required to abandon the claim for payment under the warning of
having the subsidies suspended. As of December 31, 1998, Ps.
99,774 have been deposited with the court. The Municipality
decided to suspend any further proceeding until the Supreme
Court of Justice of the Province decides the case of the
Licensee Company against said Municipality in connection with
taxes imposed on the occupancy of public places. The
Subsidiary Company has set up a provision for the aggregate
amount claimed, and included it in the "Provisions" caption.
Municipality of Comodoro Rivadavia: The Municipality has
claimed against Camuzzi Gas del Sur S.A. the payment of taxes
on rights to public space which amount to a principal amount
of Ps. 56,032. The claim is currently pending with the
Administrative Court upon discharge filed by the Subsidiary
Company.
Municipality of Zapala: the amount claimed totals a principal
amount of Ps. 816,073 corresponding to the periods between
1993, 1994, 1995 and January to November 1996. The Subsidiary
Company has filed a motion for reconsidering such claim.
Municipality of Villa Regina: the amount claimed totals the
principal amount Ps. 1,939,343, not including penalties and
other expenses; the Subsidiary Company has filed the relevant
administrative answer.
Municipality of Cutral-Co: the Municipality filed a claim for
the payment of Ps. 133,992, in respect of taxes on rights to
public space as from January 1993 through October 1996, net of
interest and legal costs. Camuzzi Gas del Sur S.A. contested
the proceeding. The judgment entered by the first instance
court rejected the motions and the Company appealed such
judgment and submitted the briefs of the case. The judgment
entered by the Court of Appeals confirmed the previous
judgment, and, consequently, an extraordinary motion has been
filed. The Subsidiary Company set up a provision of Ps.
71,296, which is included in the "Provisions" caption.
Municipality of Piedra del Aguila: the amount claimed totals
Ps. 1,900. The Subsidiary Company filed a motion for
reconsidering such claim.
In the opinion of the Subsidiary Company, 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.
c. Gross sales tax
c.1 Camuzzi Gas del Sur S.A. has received several claims
from some provincial tax authorities regarding the
taxability of income deriving from subsidies, in
connection with Gross Income Tax. As of December 31,
1998, the maximum estimated principal amount of gross
income tax, would total approximately Ps. 10.4
million, assuming that all the provinces involved
decide to make a claim.
In the opinion of the Subsidiary Company and its
legal counsels, there are no grounds for this claim
as the subsidy is not subject to provincial taxes
since it was granted by the National Government.
The following claims have been received up to the
date hereof in connection with this item:
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
<PAGE> 19
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from 1993, 1994, 1995 through March, 1996, claiming
differences in favor of the State amounting to Ps.
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 Ps. 28,892, for the period January-March
1993. As of the date hereof, the amount claimed was
deposited with the Court.
The Subsidiary Company is currently preparing the
initial brief in order to file it with the courts.
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 Ps. 962,748, in respect
of principal, of which approximately Ps. 596,000
correspond to Gross Income tax on subsidies for the
period from 1993 to June 1996. Furthermore, the
Ministry of Economy and Public Works and Services
rejected the appeal against the Resolution issued 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, which was rejected. The Subsidiary Company
filed a claim as regards the Gross Income Tax on
subsidies, for the period from January 1993 to June
1996 for the amount of Ps. 897,608, of which Ps.
595,919 correspond to the tax amount and Ps. 301,689,
to interest thereon, in order to file such claim the
amounts claimed were paid, with the aim to obtain the
reimbursement thereof.
Province of Santa Cruz: The final inspection report
has been submitted assessing Ps. 1,209,457 for gross
income tax on subsidies, not including interest and
penalties.
On September 25, 1998, an appeal to reconsider the
judgement was filed to oppose Regulation No. 860/98
whereby the settlement carried out by the inspection
was approved.
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
Ps. 1,078,484, not including interests and penalties.
The Subsidiary Company has duly filed the applicable
answer.
Province of Rio Negro: Camuzzi Gas del Sur filed an
answer to a notice for the beginning of summary
proceeding made by the General Revenue Board of the
Province of Rio Negro, questioning the gross sales
tax returns for the years 1993 to 1995 through August
1996, claiming differences in favor of the Tax
Authority amounting to Ps. 2,691,781, of which
approximately Ps. 1,091,000 correspond to the claim
related to the tax on income deriving from subsidies,
not including interest or penalties.
As regards the period from January 1993 to February
1996, a tax collection proceeding was filed against
the Subsidiary Company for Ps. 3,250,539 for the
principal outstanding, which includes the tax owed
due to a difference in the tax basis described in
item c.2. The licensee answered the complaint
mentioning the State as a third party to the
proceeding, but this was rejected by the court of
first instance. The Subsidiary Company filed an
appeal with the same court requesting the revocation
of such resolution. The judge of first instance
issued a judgment favorable to the Revenue Board and
levied an attachment of up to Ps. 4,509,392, in
relation to the claim for gross income tax on
subsidies and the difference in the tax base
described in item c.2. as well as interest and court
fees. In return the Subsidiary filed an appeal with
the Court of Appeals, which appeal was rejected. In
return, the Subsidiary Company filed an appeal for
nullification before the Supreme Court of the
Province. The Province has withdrawn from the
attachment the amount in respect of principal, in
spite of the express opposition by the Subsidiary
Company. Subsequently, the Court denied the appeal
for nullification and so the Licensee filed an appeal
for the rejection of the nullification before the
Supreme Court of the Province of Rio Negro.
Thereafter, on November 12, 1998, the General Revenue
Board of the Province of Rio Negro notified the
Subsidiary Company as regards Resolution No. 093/98,
establishing a fine of Ps. 2,060,205, as a penalty
for the non-payment of the Gross Income Tax on
subsidies and the method for calculating the tax
basis. The Subsidiary Company filed on appeal for
reconsideration which was rejected on February 16,
1999. On March 4, 1999, the Subsidiary Company filed
an administrative appeal against such resolution.
On November 17, 1998, the General Revenue Board of
the Province of Rio Negro notified the Subsidiary
Company of Resolution No. 090/98, claiming an amount
of Ps. 890, 997 in respect of Income Tax on subsidies
<PAGE> 20
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the period from September 1996 to December 1997
and for the tax basis for the period from September
1996 to December 1996, plus a fine of Ps. 1,251,580,
for the non-payment of such items; thereafter, the
Company filed a reconsideration.
For the periods March 1996 to June 1996 and July 1996
to August 1996, the Subsidiary Company also filed
reconsiderations against the resolutions of the
General Revenue Board of the Province of Rio Negro.
On January 6, 1999, the Subsidiary Company was
notified of resolution 1355/98, rejecting the
reconsideration filed against Resolution No. 007/98,
setting forth an amount due of Ps. 313,916, in
respect of basis on the Gross Income Tax on subsidies
and calculation of the tax basis of the period from
March to June 1996, of which approximately Ps.
116,000 correspond to the claim for Gross Income Tax
on subsidies. Furthermore, the Subsidiary Company was
notified of Resolution No. 1356/98, of the same tenor
of the previous one, for Ps. 317,660, for the period
from July to August 1996, of which approximately Ps.
152,000 correspond to the claim for Gross Income Tax
on subsidies; the Subsidiary Company filed
administrative appeals.
c.2 Camuzzi Gas del Sur S.A. received several tax
assessments issued by the tax authorities of the
Province of Buenos Aires and the Province of Rio
Negro related to differences in the determination of
the tax base of Gross Income Tax. Such difference
arises mainly from the fact that the tax authorities
claim that the tax basis on which the tax rate is
applied for computing gross sales taxes on gas sales
includes all revenue obtained whereas the Subsidiary
Company's position, since the beginning of
operations, has been that the tax base is the
difference between the gas selling and purchasing
prices.
Below, there is a description of the situation with
each of the provinces involved:
Province of Buenos Aires: The Province of Buenos
Aires Revenue Board (the "DPRPBA") made assessments
questioning the Company's Gross Sales Tax returns,
and claiming Ps. 27,027 and Ps. 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.
On November 25, 1996, the General Revenue Board
issued a Final Opinion stating that, in its opinion,
Camuzzi Gas del Sur S.A. must pay gross sales tax on
its total sales and not on the distribution margin.
On December 13, 1996, the General Revenue Board
further explained some points of the opinion
indicating that, according to such body's
interpretation, 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 in 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 No. 11,808. (Official Gazette July 10, 1996).
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 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 No. 24,076.
Through Resolution No. 544 dated November 17, 1997
and pursuant to the regulatory framework of the
activity, the ENARGAS 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, which is
immaterial, related to the effect on the sales to
subdistributors and CNG stations is still pending.
Therefore, and as mentioned before, because a "change
in 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 del Sur S.A. accounted
for the amounts recognized as tax payable, together
with the
<PAGE> 21
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
payments made for the tax base 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.
At December 31, 1998, the receivable to be recovered
(which includes the amounts accrued during the first
semester of 1998) amounts to Ps. 108,201, of which,
Ps. 24,191 were recorded under "Other Current
Accounts Receivable" and Ps. 84,010 under "Other
Non-Current Accounts Receivable".
Province of Rio Negro: Provincial Law No. 3069,
promulgated by Decree No. 2198/96 dated December 30,
1996, amended the Tax Code by abrogating item (d) of
section 12 of Law No. 1301; according to the
interpretation of the Subsidiary Company and its
legal counsels, the tax base of the tax was formed by
the difference between the purchasing and selling
prices. Consequently, on April 14, 1998, the
Subsidiary Company paid Ps. 682,364 in respect of the
tax difference derived from the change in the tax
base for the January 1997 - February 1998 period.
Therefore, and as a "change in the tax rules"
generates a right for the Subsidiary 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 del Sur S.A. accounted
for the amounts recognized as a tax increase for the
period from January 1997 to February 1998, as well as
the tax increase accrued thereafter, considering the
tax base 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.
As of December 31, 1998, the receivables to be
recovered amount to Ps. 819,588, and has been
recorded under "Other Non-current Accounts
Receivable".
Furthermore, as mentioned in item c.1., the
provincial tax authority claimed Ps. 2,691,781,
including the Gross Revenue Tax on Subsidies, and
differences in the tax basis. The amount claimed for
differences in the tax basis totals approximately Ps.
1,601,000 and corresponds to the period from January
1993 through August 1996, which is prior to the
amendment of the Tax Code.
As mentioned in item c.1., the amounts related to
this claim are subject to an attachment levied by the
Provincial Revenue Board.
As regards the periods from March 1996 to June 1996
and July 1996 to August 1996, the amounts of the
claims as regards Gross Income Tax on tax basis are
approximately Ps. 198,000 and Ps. 165,000,
respectively, and the comments included in item c.1
for these periods are applicable hereto.
The same comments included in item c.1 are applicable
for the period from September 1996 to December 1997,
the amount of the claim as regards the tax basis
being estimated at Ps. 241,000 only for the period
from September 1996 to December 1996 (see first and
second paragraphs of this note).
In order to pass through this higher cost and
according to the legitimate right of the Subsidiary
Company, measures are being taken before the
Regulatory Authority to apply the relevant tariff
adjustment.
In the opinion of the Subsidiary Company and its
legal counsels, an adverse decision in relation to
the passing-through of such higher costs due to Gross
Revenue Tax is considered not probable. .
c.3 The Subsidiary Company accepted the claim of the
Province of Tierra del Fuego as regards differences
in the determination of the tax basis corresponding
to the tax on sales to industrial users ("0" rate),
entailing the payment of the Ps. 864,213, as regards
tax plus Ps. 233,543 in respect of interest,
totalling Ps. 1,097,756.
The Subsidiary Company set up a provision of Ps.
1,087,472 which includes all principal and interest
accrued as of December 31, 1998.
d. Stamp tax
Regards stamp tax the situation is as follows:
d.1 Province of Rio Negro: The Subsidiary Company 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.
<PAGE> 22
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
d.2 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,
Antartida and South Atlantic Islands, claiming the
assessment of stamp tax under a Decree of the
Executive Power, amounting to Ps. 140,000, not
including interest or penalties.
d.3 Province of Neuquen:
d.3.1 The Revenue Board of the Province of Neuquen
submitted a liquidation of the Stamp Tax on
the gas purchase agreements entered into
together with Camuzzi Gas Pampeana S.A., for
an amount of Ps. 1,656,205. Subsequently,
the Revenue Board of the Province of Neuquen
notified an amended amount of the
computation performed by the supervisors for
the amount of Ps. 10,400,134. The notice was
answered and the resolution was interrupted
on account of the moratorium decrees.
Subsequently, notes were filed with the
Argentine Ministry of Economy requesting an
opinion from the Minister. The province
issued a Special Decree No. 3534 for the
regulated companies to avail themselves of
the moratorium; the time to do so expired on
November 6, 1998, and was renewed until
January 11, 1999.
As of December 31, 1998, the Subsidiary
Company recorded an allowance of Ps. 597,548
in this respect.
On January 7, 1999, the ENARGAS submitted a
report to the Argentine Ministry of Economy,
expressing that "the taxes claimed by
Neuquen, shall unfailingly lead to in a
tariff increase, with a serious damage for
the users". The expiration occurred on
January 11, 1999 has not been renewed. The
Licensee Company is waiting for an opinion
from the Ministry of Economy as regards this
issue.
d.3.2 Additionally, the Revenue Board has made an
assessment for a total amount of Ps.
1,827,518 of stamp tax on the transfer of
assets affected to the service. This claim
was filed jointly against Gas del Estado and
the Subsidiary Company. Camuzzi Gas del Sur
S.A. has filed the applicable answer.
d.3.3 Finally, the Province of Neuquen's Revenue
Board has served notice to the Subsidiary
Company claiming a principal amount of
approximately Ps. 0.7 million. This amount
corresponds to the stamp tax derived from
the transport agreements entered into with
Transportadora de Gas del Sur S.A., before
take over when Gas del Estado S.E. was the
only shareholder of the Company. The Company
notified its position to Gas del Estado S.E.
Camuzzi Gas del Sur S.A. believes that these
agreements were not subject to provincial
stamp tax due to the fact that the parties
who entered into said agreements were
Argentine state-owned companies, owing to
the fact that the State is exempted from
such tax. Even though such agreements were
subject to stamp tax, the Company considers
that Gas del Estado S.E. would be the party
liable for the payment of this tax, in
accordance with the provisions of the
Transfer Agreement.
In the opinion of the Subsidiary Company and
its legal counsels, except for what is
mentioned in item d.3.1, an unfavorable
resolution with respect to such claims is
not considered probable.
e. Safety and health tax
The Municipality of Rio Colorado claimed the payment
of Ps. 132,225 as Safety and Health Tax, not
including interest and court fees. The Subsidiary
Company answered the claim from the Municipality.
Subsequently, a judgment was entered into admitting
the claim of the Municipality. Finally, on December
22, 1998, an Agreement was entered into with the
Municipality for an amount of Ps. 75,515, which was
paid fully in December 1998.
<PAGE> 23
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
f. Regulatory aspects
On March 24, 1998, the ENARGAS, through resolution
588/98, requested Camuzzi Gas del Sur S.A. to
reimburse approximately Ps. 4.5 million to the users
as regards "non-compliance with the gas quality set
forth by the License and Resolution 113/94, in the
terms of Chapter X of the License", for the period
from January 1996 to March 1997. The term and the
proceedings used by the Regulatory Authority for the
determination of the amount were objected by the
Subsidiary Company with the Secretariat of Energy.
Furthermore, on January 7, 1999, the Secretariat of
Energy issued a preliminary technical judgement,
whereby it construes that the requirements of the
ENARGAS are to be applied for the period from
September 1996 to March 1997. In accordance with the
foregoing, the Subsidiary Company made a provision of
approximately Ps. 0.9 million, calculated in
accordance with the methodology set forth in such
preliminary judgement.
As of the date hereof, the issue of the definitive
judgment by such entity is pending.
In the opinion of the Subsidiary Company and its
legal counsel the allowance made is sufficient to
cover such claim.
g. Others
g.1 On August 8, 1998, the Ministry of Economy
and Public Works and Services filed a claim
for Ps. 656,485 for differences in the
collection of overdue bills; Camuzzi Gas del
Sur S.A. was in charge of managing their
collection for the account of Gas del Estado
S.E., pursuant to Schedule XXI of the Share
Transfer Agreement.
The Subsidiary Company duly set up an
allowance to meet the claim for Ps. 175,000,
which is considered sufficient.
NOTE 11: SUBSIDIARY'S ESSENTIAL ASSETS INVENTORY
In compliance with ENARGAS' Resolution No. 60, the Subsidiary
Company made an inventory of the assets essential for the
service as of December 31, 1997. Such inventory was certified
by an independent expert specialized in that field on October
26, 1998.
As a result of said work, differences were detected between
the accounting inventory and the physical one, which reduce
the assets previously recorded in an amount of approximately
Ps. 5.5 million.
Due to the fact that the Subsidiary Company carries a
voluntary reserve consisting of earnings from gas distribution
networks financed by third parties and transferred free of
charge, the Subsidiary Company adjusted the aforementioned
differences against the voluntary reserve.
NOTE 12: CONSTRUCTION FUNDED BY THIRD PARTIES
Constructions funded by third parties, incorporated into the
Subsidiary Company's network during the fiscal years ended
December 31, 1998 and 1997, were the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
---------------- ----------------
(Pesos)
<S> <C> <C>
o For valuable consideration 3,324,866 2,272,827
</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.
<PAGE> 24
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, as regards networks
transferred without monetary consideration, during the 1996
fiscal year, the Subsidiary Company recorded a liability in an
amount estimated as the payment price in cubic meters of gas,
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. 587, dated March 16, 1998, whereby it established the
consideration to be given to the users in accordance with the
methodological guidelines included therein.
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 appealed by the
Subsidiary Company on the grounds that it affects its
legitimate rights. However, the Subsidiary Company made an
analysis to determine the amount to be discounted in
compliance with such order. As a result of such work, it was
established that in the event that the existing users and the
potential users to be included in the assets transferred to
the Subsidiary Company without monetary compensation are
entitled to the discounts set forth in the ENARGAS'
resolutions, the increase in the liabilities would amount to a
maximum of Ps. 7.6 million.
In addition, it should be noted that such liability may be
substantially lesser due to the fact that as of the date of
the financial statements the number of users entitled to such
discount cannot be determined, and so the liability shall be
acknowledge to the extent that the amount to be paid to users
is agreed with them.
Considering that the Subsidiary Company accountably keeps a
voluntary reserve which includes the new undertakings financed
by third party users and transferred free of charge, such
adjustment, if applicable, will be accounted as a withdrawal
from such reserve, in which case, the final balance thereof
would amount approximately to Ps. 13.5 million.
As regards the networks transferred for a valuable
consideration, the liability shall also be acknowledged to the
extent that the amount to be paid to users is agreed with
them.
NOTE 13: 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 sub-area; such values will be
applicable during the 1998-2002 five-year period.
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.
<PAGE> 25
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, 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
1997 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 Cordilleran
subarea with a K factor related to support works in the
respective pipeline.
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 14: INFORMATION SYSTEMS ADAPTATION PROCESS (UNAUDITED)
The Subsidiary Company began a process to update its
information systems and related technologies, which has been
given priority by the Board of Directors. The methodology of
work adopted allocates to different engagement teams the
finding of a solution for the administrative, invoicing, human
resources, hardware and software systems.
<PAGE> 26
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED FIXED ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE A
<TABLE>
<CAPTION>
======================================================================================
VALUE AS OF
BEGINNING VALUE AS OF
OF YEAR ADDITIONS TRANSFERS WRITE-OFFS END OF YEAR
PRINCIPAL ACCOUNT (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land.................... 1,543,481 11,693 -- (3,234) 1,551,940
Condominiums............ 89,511 10,373 -- (16,331) 83,553
Buildings............... 11,029,849 -- -- -- 11,029,849
Facilities.............. 8,240,680 14,120 -- -- 8,254,800
Gas pipelines........... 69,570,098 -- 11,803,282 -- 81,373,380
Main and secondary
pipelines............. 30,427,238 -- -- -- 30,427,238
Distribution networks... 128,581,772 3,792,951 1,636,336 (6,151,913) 127,859,146
Machinery and
equipment............. 1,772,381 228,431 -- -- 2,000,812
Pressure reduction
stations.............. 5,311,991 -- 3,883,904 -- 9,195,895
Processing equipment.... 6,065,295 -- 292,564 -- 6,357,859
Vehicles................ 3,011,370 606,708 -- (3,375) 3,614,703
Furniture and office
equipment............. 739,382 69,767 -- -- 809,149
Gas meters.............. 18,036,953 42,497 1,364,660 (147,891) 19,296,219
Gas cylinders........... 347,535 -- 63,618 -- 411,153
Works in progress....... 5,986,769 16,432,983 (18,513,353) -- 3,906,399
Computer equipment...... 806,513 78,360 -- (2,063) 882,810
Communications
equipment............. 2,961,970 8,974 1,306,946 -- 4,277,890
Material at warehouses.. 2,493,987 3,070,806 (1,419,136) (1,539,299) 2,606,358
Advances to suppliers... 551,269 428,610 (418,821) (33,445) 527,613
- --------------------------------------------------------------------------------------
Total as of December
31, 1998................ 297,568,044 24,796,273 -- (7,897,551) 314,466,766
- --------------------------------------------------------------------------------------
Total as of December
31, 1997................ 288,321,380 11,137,446 -- (1,890,782) 297,568,044
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================================
DEPRECIATION
----------------------------------------------------------------------
CURRENT YEAR NET CARRYING VALUE
AS OF DECEMBER 31,
ACCUMULATED -------------------------------------------- ------------------------
AS OF ACCUMULATED
BEGINNING WRITE- AS OF END
OF YEAR RATE(1) AMOUNT(2) TRANSFERS OFFS OF YEAR 1998 1997
PRINCIPAL ACCOUNT (PESOS) % (PESOS) (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Land.................... -- -- -- -- -- -- 1,551,940 1,543,481
Condominiums............ 16,147 2.00 7,590 17,370 (1,849) 39,258 44,295 73,364
Buildings............... 1,431,019 2.00 303,802 19,998 -- 1,754,819 9,275,030 9,598,830
Facilities.............. 1,067,402 3.33 287,563 4,728 -- 1,359,693 6,895,107 7,173,278
Gas pipelines........... 16,094,920 2.50 1,336,483 2,591,821 -- 20,023,224 61,350,156 53,475,178
Main and secondary
pipelines............. 5,620,195 2.50 831,071 (1,318,579) -- 5,132,687 25,294,551 24,807,043
Distribution networks... 19,981,486 2.50 3,520,162 (2,047,623) (631,609) 20,822,416 107,036,730 108,600,286
Machinery and
equipment............. 529,827 4.00 67,292 (40,509) -- 556,610 1,444,202 1,242,554
Pressure reduction
stations.............. 926,377 2.86 134,784 13,145 -- 1,074,306 8,121,589 4,385,614
Processing equipment.... 1,287,645 3.33 325,671 80,888 -- 1,694,204 4,663,655 4,777,650
Vehicles................ 1,395,576 20.00 509,301 620,046 -- 2,524,923 1,089,780 1,615,794
Furniture and office
equipment............. 176,874 6.66 56,864 (2,781) -- 230,957 578,192 562,508
Gas meters.............. 4,844,661 4.00 896,489 (286,705) -- 5,418,726 13,877,493 13,192,292
Gas cylinders........... 78,269 3.33 17,609 3,075 (35,719) 98,953 312,200 269,266
Works in progress....... 5,406 -- -- (5,406) -- -- 3,906,399 5,981,363
Computer equipment...... 609,221 33.33 76,748 60,945 -- 744,852 137,958 197,292
Communications
equipment............. 702,259 3.33/20.00 360,090 289,587 (2,062) 1,351,936 2,925,954 2,259,711
Material at warehouses.. -- -- -- -- -- -- 2,606,358 2,493,987
Advances to suppliers... -- -- -- -- -- -- 527,613 551,269
- -------------------------------------------------------------------------------------------------------------------------
Total as of December
31, 1998................ 54,767,284 -- 8,731,519 -- (671,239) 62,827,564 251,639,202 --
- -------------------------------------------------------------------------------------------------------------------------
Total as of December
31, 1997................ 42,984,634 -- 11,911,773 -- (129,123) 54,767,284 -- 242,800,760
=========================================================================================================================
</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> 27
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INTANGIBLE ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE B
<TABLE>
<CAPTION>
================================================================================
VALUE AS OF VALUE AS OF
BEGINNING OF YEAR INCREASES END OF YEAR
PRINCIPAL ACCOUNT (PESOS) (PESOS) (PESOS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Organization and pre-operating
expenses and expenses relating
to the issuance of Notes...... 3,086,673 1,355 3,088,028
Software......................... 176,202 62,488 238,690
----------------------------------------------
Total as of December 31, 1998.... 3,262,875 63,843 3,326,718
==============================================
Total as of December 31, 1997.... 2,931,560 331,315 3,262,875
================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================
AMORTIZATION
-----------------------------------------------------------
NET CARRYING VALUE
CURRENT YEAR AS OF DECEMBER 31,
------------------- --------------------
ACCUMULATED
AS OF ACCUMULATED
BEGINNING AS OF
OF YEAR RATE AMOUNT(1) END OF YEAR 1998 1997
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...... 1,557,957 20 617,899 2,175,856 912,172 1,528,716
Software......................... 39,843 20 35,241 75,084 163,606 136,359
-------------------------------------------------------------------------------
Total as of December 31, 1998.... 1,597,800 -- 653,140 2,250,940 1,075,778 --
===============================================================================
Total as of December 31, 1997.... 944,604 -- 653,196 1,597,800 -- 1,665,075
=================================================================================================================
</TABLE>
- ----------
Note:
(1) The accounting allocation of amortization charges for the year is
described in Schedule H.
<PAGE> 28
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
General Balance as of December 31, 1998 and 1997
CONSOLIDATED INVESTMENTS
SCHEDULE C
<TABLE>
<CAPTION>
=====================================================================================================================
VALUE RECORDED AS OF DECEMBER 31,
-------------------------------------
NUMBER 1998 1997
ISSUER AND SECURITIES F.V. MARKET VALUE (PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT INVESTMENTS
Shares
INDUPA S.A.I.C......................... 14,710 0.6500 9,562 17,652
Argentina Government Bond (Schedule G).... -- -- -- 117,314
------------ -----------
TOTAL CURRENT INVESTMENTS................... 9,562 134,966
------------ -----------
TOTAL INVESTMENTS........................... 9,562 134,966
=====================================================================================================================
</TABLE>
<PAGE> 29
SODIGAS SUR AND ITS SUBSIDIARY COMPANY
OTHER CONSOLIDATED INVESTMENTS
GENERAL BALANCE AS OF DECEMBER 31, 1998 AND 1997
SCHEDULE D
<TABLE>
<CAPTION>
=================================================================================================
VALUE RECORDED AS OF DECEMBER 31,
------------------------------------
1998 1997
PRINCIPAL ACCOUNT AND CHARACTERISTICS (PESOS) (PESOS)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT INVESTMENTS
Fixed-term deposits in local currency ....... 415,012 899,752
Fixed-term deposits in foreign
currency(Schedule G)....................... -- 10,871,573
------- ----------
Total........................................ 415,012 11,771,325
==================================================================================================
</TABLE>
<PAGE> 30
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED ALLOWANCES
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE E
<TABLE>
<CAPTION>
===================================================================================================================================
BALANCES AS OF DECEMBER 31,
-----------------------------
BALANCES AS OF
BEGINNING OF YEAR ADDITIONS DECREASES 1998 1997
ITEM (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
Allowance for bad debtors................. 4,819,582 (1) 1,151,235 5,970,817 4,819,582
DEDUCTED FROM LIABILITIES
Provisions for lawsuits................... 2,239,954 (2) 2,169,041 627,193 3,781,802 2,239,954
- -----------------------------------------------------------------------------------------------------------------------------------
Total......................................... 7,059,536 3,320,276 627,193 9,752,619 7,059,536
===================================================================================================================================
</TABLE>
- ----------
Notes:
(1) Amount charged to Marketing Expenses (Schedule H).
(2) Pesos 1,886,609 are charged to Other Expenses (Note 4.f).
<PAGE> 31
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED COST OF SALES
For the Fiscal Years Ended December 31, 1998 and 1997
SCHEDULE F
<TABLE>
<CAPTION>
=================================================================================================
FOR THE FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997
(PESOS) (PESOS)
--------------------------------------
<S> <C> <C>
Inventories as of beginning of year................ 1,028,741 428,975
Plus:
Gas purchases............................. 98,808,203 100,466,674
Acquisition of transportation capacity 20,435,568 22,358,705
Expenses (per breakdown in Schedule H).... 24,433,292 26,330,381
Less:
Inventories as of end of year............. 655,120 1,028,741
----------- -----------
Cost of sales...................................... 144,050,684 148,555,994
=================================================================================================
</TABLE>
<PAGE> 32
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
General Balance as of December 31, 1998 and 1997
FOREIGN CURRENCY ASSETS AND LIABILITIES
SCHEDULE G
<TABLE>
<CAPTION>
====================================================================================================================================
TYPE AND AMOUNT AMOUNT IN ARGENTINE CURRENCY AS OF DECEMBER 31,
OF FOREIGN CURRENCY CURRENT -----------------------------------------------
U.S.$ EXCHANGE RATE 1998 1997
--------------------------------------------------------------------------------------
(PESOS) (PESOS)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and banks.................. 200,810 1.0000 200,810 229,353
Investments..................... -- -- -- 3,272,564
Other receivables............... 105,000 1.0000 105,000 --
----------- ------ ------------ ------------
TOTAL CURRENT ASSETS..................... 305,810 305,810 3,501,917
----------- ------ ------------ ------------
TOTAL ASSETS............................. 305,810 -- 305,810 3,501,917
=========== ====== ============ ============
CURRENT LIABILITIES
Suppliers....................... 527,785 1.0000 527,785 1,077,156
Bank loans...................... 8,261,888 1.0000 8,261,888 2,171,423
Notes........................... 60,000,000 1.0000 60,000,000 --
Notes - Interest payable........ 207,845 1.0000 207,845 3,252,845
Other........................... -- -- -- --
----------- ------ ------------ ------------
TOTAL CURRENT LIABILITIES................ 68,997,518 -- 68,997,518 6,501,424
----------- ------ ------------ ------------
NON-CURRENT LIABILITIES
Loans
Notes........................... 50,557,000 1.0000 50,557,000 110,557,000
----------- ------ ------------ ------------
TOTAL NON-CURRENT LIABILITIES............ 50,557,000 -- 50,557,000 110,557,000
----------- ------ ------------ ------------
TOTAL LIABILITIES........................ 119,554,518 -- 119,554,518 117,058,424
===================================================================================================================================
</TABLE>
<PAGE> 33
SODIGAS SUR S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INFORMATION REQUIRED UNDER ART. 64, CLAUSE (b) OF LAW 19,550
For the Fiscal Years Ended December 31, 1998 and 1997
SCHEDULE H
<TABLE>
<CAPTION>
============================================================================================================
TOTAL AS OF
DECEMBER 31, 1998 COSTS OF COST OF SALES
ITEMS (PESOS) SERVICES(1) (PESOS)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees for services.............................. 3,854,515 -- 2,777,147
Salaries and wages............................. 12,857,027 152,550 5,335,880
Contributions.................................. 3,566,656 -- 1,497,996
Transportation expenses........................ 799,973 -- 335,989
Taxes and assessments.......................... 2,354,513 -- 407,057
Depreciation of fixed assets................... 8,731,519 -- 7,942,882
Amortization of intangible assets.............. 653,140 -- --
Hired services................................. 4,193,046 -- 2,294,229
Postage, communications and data processing.... 1,278,182 -- 414,672
Liquid processing.............................. 1,222,537 -- 1,222,537
Bad debtors.................................... 1,173,346 -- --
Advertising.................................... 175,356 -- --
Miscellaneous.................................. 4,175,327 -- 2,204,903
---------- ------- ----------
TOTAL AS OF DECEMBER 31, 1998.................. 45,035,137 152,550 24,433,292
---------- ------- ----------
TOTAL AS OF DECEMBER 31, 1997.................. -- 114,194 26,330,381
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================
ADMINISTRATIVE MARKETING TOTAL AS OF
EXPENSES EXPENSES DECEMBER 31, 1997
ITEMS (PESOS) (PESOS) (PESOS)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees for services.............................. 1,077,368 -- 4,911,838
Salaries and wages............................. 4,827,701 2,540,896 12,569,133
Contributions.................................. 1,355,329 713,331 3,305,848
Transportation expenses........................ 303,990 159,994 629,276
Taxes and assessments.......................... 1,743,928 203,528 1,777,395
Depreciation of fixed assets................... 525,758 262,879 11,911,773
Amortization of intangible assets.............. 653,140 -- 653,196
Hired services................................. 1,404,698 494,119 3,727,385
Postage, communications and data processing.... 656,174 207,336 1,089,984
Liquid processing.............................. -- -- 240,722
Bad debtors.................................... -- 1,173,346 1,044,122
Advertising.................................... -- 175,356 117,395
Miscellaneous.................................. 1,402,083 568,341 3,514,337
---------- --------- ----------
TOTAL AS OF DECEMBER 31, 1998.................. 13,950,169 6,499,126 --
---------- --------- ----------
TOTAL AS OF DECEMBER 31, 1997.................. 12,946,111 6,101,718 45,492,404
==============================================================================================================
</TABLE>
- ----------
Note:
(1) Amount charged to "Miscellaneous" under the caption "Other income"
(Note 4.f.)
<PAGE> 34
SODIGAS SUR S.A.
US GAAP RECONCILIATION
ANNEX I
<TABLE>
<CAPTION>
As of
December 31, 1998
$
---------------------------------------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP 151,815,475
U.S. GAAP ADJUSTMENTS:
Initial carrying value of assets (18,508,860)
Contribution of gas networks (35,990,741)
Capitalization of interest 2,647,901
Depreciation expense 7,703,795
Intangible assets amortization (120,612)
Gross sales tax settlement (928,689)
Regulatory issues (124,167)
Deferred income taxes 602,398
Technical assistance fee 3,385,846
Minority interest 4,147,808
Deferred expenses (41,127)
=============================================
Total Shareholders' Equity under U.S. GAAP 114,589,027
=============================================
</TABLE>
<PAGE> 35
SODIGAS SUR S.A.
US GAAP RECONCILIATION
ANNEX I (CONT.)
<TABLE>
<CAPTION>
Year ended
December 31, 1998
$
-----------------------------------------
<S> <C>
RECONCILIATION OF NET INCOME:
Net income under Argentine GAAP 11,359,095
U.S. GAAP ADJUSTMENTS:
Depreciation expense 1,535,777
Intangible assets amortization 172,153
Gross sales tax settlement (814,646)
Regulatory issues 561,664
Deferred income taxes 2,067,756
Technical assistance fee (107,407)
Minority interest (349,629)
Deferred expenses (41,127)
-----------------------------------------
Net income under U.S. GAAP 14,383,636
=========================================
</TABLE>
<PAGE> 1
EXHIBIT 99.8.3
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND 1997 (NOTES 1 AND 2)
<TABLE>
<CAPTION>
1998 1997
---- ----
(PESOS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and banks (Schedule G) .............. 1,881,096 5,232,747
Investments (Schedule C and D) ........... 13,237,019 29,254,246
Trade accounts receivable (Note 4.a) ..... 34,151,480 40,123,437
Intercompany receivables (Note 5) ........ 24,292,347 13,539,801
Other accounts receivable (Note 4.b) ..... 6,269,382 4,794,747
Inventories (Schedule F) ................. 161,545 37,142
Other assets (note 4.c) .................. -- 644,930
----------- -----------
TOTAL CURRENT ASSETS ..................... 79,992,869 93,627,050
----------- -----------
NON-CURRENT ASSETS
Trade receivables (Note 4.a) ............. 426,000 --
Other accounts receivable (Note 4.b) ..... 25,780,764 26,956,669
Other assets (Note 4.c) .................. 1,217,472 1,024,838
Fixed assets (Schedule A) ................ 487,639,816 496,258,573
Intangible assets (Schedule B) ........... 2,243,504 3,206,505
----------- -----------
TOTAL NON-CURRENT ASSETS ................. 517,307,556 527,446,585
----------- -----------
TOTAL ASSETS ............................. 597,300,425 621,073,635
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Suppliers (Schedule G) ................... 32,744,490 26,647,294
Loans (Note 7 and Schedule G) ............ 96,311,373 13,219,071
Intercompany payables (Note 5) ........... 1,163,309 664,253
Salaries and social security liabilities . 3,946,835 2,761,026
Taxes payable (Note 12) .................. 20,187,126 22,930,115
Other liabilities (Note 4.d) ............. 6,018,736 5,531,005
Provisions (Schedule E) .................. 2,914,472 843,566
----------- -----------
TOTAL CURRENT LIABILITIES ................ 163,286,341 72,596,330
----------- -----------
NON-CURRENT LIABILITIES
Loans (Note 7 and Schedule G) ............ 79,485,324 173,069,971
Taxes payable (Note 12) .................. 4,119,816 8,140,205
Other liabilities (Note 4.d) ............. 8,969,626 7,808,234
----------- -----------
TOTAL NON-CURRENT LIABILITIES ............ 92,574,766 189,018,410
----------- -----------
TOTAL LIABILITIES ........................ 255,861,107 261,614,740
----------- -----------
Minority interests in subsidiary companies 127,442,886 134,880,630
SHAREHOLDERS' EQUITY ..................... 213,996,432 224,578,265
=========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 597,300,425 621,073,635
=========== ===========
</TABLE>
The accompanying notes and schedules are an integral part of these
consolidated financial statements.
<PAGE> 2
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Years Ended December 31, 1998 and 1997 (Notes 1 and 2)
<TABLE>
<CAPTION>
1998 1997
---- ----
(Pesos)
<S> <C> <C>
Net sales (Note 4.e) ....................... 367,730,669 372,421,725
Cost of sales (Schedule F) ................. (282,239,494) (291,380,493)
------------ ------------
GROSS PROFIT ...................... 85,491,175 81,041,232
------------ ------------
Marketing expenses (Schedule H) ............ (10,810,689) (9,481,477)
Administrative expenses (Schedule H) ....... (21,693,788) (20,973,995)
------------ ------------
OPERATING PROFIT .................. 52,986,698 50,585,760
------------ ------------
Other income and expenses, net (Note 4.g) .. (1,857,769) (1,130,943)
Financial and holding gain/(loss) (Note 4.f)
Generated by assets ............... 4,743,357 6,039,444
Generated by liabilities .......... (19,455,575) (20,050,265)
Income tax ................................. (22,129,579) (18,161,373)
Minority interests in subsidiary companies . (7,240,946) (8,023,163)
------------ ------------
ORDINARY INCOME ................... 7,046,186 9,259,460
Extraordinary loss (Note 4.h) .............. (327,434) (480,000)
Minority interests in subsidiary companies . 96,637 141,664
============ ============
NET INCOME FOR THE YEAR ........... 6,815,389 8,921,124
============ ============
</TABLE>
The accompanying notes and schedules are an integral part of these
consolidated financial statements.
<PAGE> 3
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended December 31, 1998 and 1997 (Notes 1 and 2)
<TABLE>
<CAPTION>
1998 1997
---- ----
(Pesos)
<S> <C> <C>
CHANGES IN FUNDS
Funds as of beginning of year ........................................... 34,426,993 42,672,945
Decrease in funds ....................................................... (19,308,878) (8,245,952)
=========== ===========
Funds as of end of year ................................................. 15,118,115 34,426,993
=========== ===========
SOURCES OF FUNDS
Ordinary income for the year ............................................ 7,046,186 9,259,460
Plus: Items not entailing the use of funds
Fixed assets depreciation ...................................... 19,380,111 22,937,071
Fixed assets decrease .......................................... -- 16,858
Residuary value of deductions of fixed assets .................. 2,663,351 2,936,645
Intangible asset amortization .................................. 1,238,434 1,182,130
Allowance for vacations and bonuses ............................ 2,682,875 2,562,626
Accrued gross income tax ....................................... 2,056,436 1,858,849
Allowance for income tax ....................................... 19,519,597 18,161,373
Accrued net financial loss pending payment ..................... 576,726 5,058,722
Accrued purchases pending payment .............................. 29,248,888 24,740,989
Intercompany fees and expenses ................................. 1,412,566 434,959
Fees for financial advice and services ......................... -- 282,014
Technical assistance agreement ................................. 678,051 --
Other liabilities and fees pending payment ..................... 41,595 13,868
Increase in provision for lawsuits ............................. 2,912,052 572,965
Increase in allowance for defaulting debtors ................... 2,898,836 1,645,509
Social security payables ....................................... 12,557 --
----------- -----------
85,322,075 82,404,578
Less: Items not entailing sources of funds
Accrued sales pending collection ............................... (29,552,793) (40,079,679)
Intercompany sales ............................................. (20,182,698) (10,314,615)
Accrued administrative services pending collection ............. (3,217,221) (1,486,105)
Other income ................................................... (250) --
----------- -----------
(52,952,962) (51,880,399)
Minority interests in subsidiary companies ..................... 7,240,946 8,023,163
----------- -----------
Funds generated by ordinary operations ......................... 46,656,245 47,806,802
----------- -----------
Extraordinary loss of the fiscal year ................................... (230,797) (338,336)
Plus: Items not entailing the use of funds
Net income for uncollectible funds deposited in Banco de Credito
Provincial S.A.................................................. 36,000 480,000
Depreciation of Mercobank S.A.'s shares ........................ 291,434 --
Minority interests in subsidiary companies ..................... (96,637) (141,664)
----------- -----------
Funds originated from extraordinary operations .......................... -- --
----------- -----------
Funds originated from operations - Carried forward ...................... 46,656,245 47,806,802
----------- -----------
</TABLE>
<PAGE> 4
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Fiscal Years Ended December 31, 1998 and 1997 (Notes 1 and 2)
<TABLE>
<CAPTION>
1998 1997
---- ----
(Pesos)
<S> <C> <C>
Funds originated from operations - Brought forward .............. 46,656,245 47,806,802
------------ ------------
OTHER SOURCES OF FUNDS
Changes in other receivables ........................... -- 152,921
Decrease in intercompany receivables ................... 15,141,821 1,494,938
Increase in intercompany payables ...................... -- 12,048
Increase in loans ...................................... 1,738,054 8,075,000
Decrease in other assets ............................... 124,862 --
Decrease in investments ................................ 60,000 281,571
Decrease in trade accounts receivable .................. 34,968,692 58,797,223
------------ ------------
Total other sources of funds .................................... 52,033,429 68,813,701
------------ ------------
Total sources of funds .......................................... 98,689,674 116,620,503
------------ ------------
APPLICATIONS OF FUNDS
Acquisition of fixed assets ............................ (22,731,329) (24,496,443)
Increase in other accounts receivable .................. (133,779) (6,150,600)
Changes in inventories ................................. (124,403) --
Additions of intangible assets ......................... (145,809) (613,598)
Changes in taxes payables and receivables .............. (31,770,721) (24,040,201)
Decrease in intercompany payables ...................... (1,861,227) (1,502,947)
Decrease in salaries and social security liabilities ... (1,509,623) (2,152,335)
Payment of financial and bank loans .................... (12,807,125) (12,169,439)
Lawsuits paid .......................................... -- (95,000)
Dividends paid ......................................... (19,214,837) (12,979,297)
Interest paid in advance ............................... (157,500) --
Directors' fees paid ................................... (750) (145,000)
Decrease in other accounts payable and other liabilities (1,654,002) (9,063,336)
Decrease in allowances ................................. (841,146) --
Decrease in suppliers .................................. (25,046,301) (31,458,259)
------------ ------------
Total applications of funds ..................................... (117,998,552) (124,866,455)
------------ ------------
DECREASE IN FUNDS ............................................... (19,308,878) (8,245,952)
============ ============
OPERATIONS NOT ENTAILING SOURCES NOR APPLICATIONS OF FUNDS
Withdrawal of fixed assets ............................. 12,764,430 --
Withdrawal of the Subsidiary Company's voluntary reserve (12,764,430) --
------------ ------------
Total operations not entailing sources nor applications of funds -- --
------------ ------------
</TABLE>
The accompanying notes and schedules are an integral part of these
consolidated financial statements.
<PAGE> 5
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended December 31, 1998 and 1997
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,
1998 and 1997, 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 Company.
Non-monetary items included in the Financial Statements at
December 31, 1998 and 1997, have been restated in current
Pesos up to August 31, 1995. No adjustments have been applied
since such date.
The information at December 31, 1997, has been reclassified,
for comparative purposes, to be consistent with that of the
current year.
The December 31, 1998 financial statements of the Subsidiary
Company, Camuzzi Gas Pampeana S.A., which cover the same
period 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 Company 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, 1998 and 1997, 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. Current investments
-------------------
These are the following:
- Shares and participation in investment funds
which have been valued at their market value
at balance sheet date.
- Fixed-term deposits, which have been valued
at their original amount plus interest
accrued up to the closing date.
- As of December 31, 1997, the Argentina
Government Bond has been valued at cost plus
interest accrued as of the end of the year.
d. Receivables 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,
<PAGE> 6
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 year; the value thereof does not
exceed their recoverable value.
f. Other assets
------------
This item includes a fixed-term deposit with
Mercobank S.A. maturing on 2001, as well as Class C
shares and bonds of said entity to repay the funds
deposited with Banco de Credito Provincial S.A., at
the time of its suspension, as mentioned in Note 9 to
the Financial Statements. Such assets were valued at
their estimated recovery value.
g. 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 August 31, 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
Subsidiary 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.
Having concluded the five-year mandatory investment
plan and other investments made in order to adapt the
safety and reliability of the system to international
standards, the Subsidiary Company has conducted a
review of the useful lives based upon the inventory
as of December 31, 1997. To such effects, independent
technical experts were hired in order to evaluate the
condition of the assets used in the provision of gas
distribution services. The impact of the extension of
the useful life upon the net profit for the 1998
fiscal year amounts to approximately Ps. 2.3 million.
The Subsidiary Company defers the net costs derived
from the financing with third party capitals of
construction works which extends in time until they
are in start-up conditions. The amount capitalized in
fixed assets amounted to Ps. 633,608 during the
fiscal year ended December 31, 1998.
<PAGE> 7
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The value of the Fixed Assets, taken as a whole, does
not exceed their recoverable value.
h. 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 Company, 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.
i. 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.
j. 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.
k. 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.
l. 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.
m. Accounting estimates
--------------------
<PAGE> 8
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The preparation of these financial statements as of a
specified date requires that the Subsidiary Company's
management performs estimates and assessments that
affect the amount of the recorded assets and
liabilities and the contingent assets and liabilities
disclosed as of the date of these financial
statements, as well as the income and expenses
recorded during the fiscal year. The Subsidiary
Company's management makes estimates so as to
calculate, among other things, the income tax charge,
the unbilled gas consumptions, the discounts to be
made to users and the provisions for contingencies,
as of a certain date. The actual future results may
differ from the estimates and assessments made as of
the date of the financial statements.
NOTE 3: CORPORATE CONTROL
Sodigas Pampeana S.A. owns 70.486676% of the shares of Camuzzi
Gas Pampeana S.A.
<PAGE> 9
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: BREAKDOWN OF ITEMS
Consolidated general balance sheet
----------------------------------
a. Trade accounts receivable
-------------------------
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
CURRENT (Pesos)
Trade debtors ...................................... 22,312,546 23,920,721
Subsidies receivable ............................... 3,869,186 4,222,990
Unbilled gas consumption ........................... 17,543,890 18,755,032
----------- -----------
SUBTOTAL ........................................... 43,725,622 46,898,743
Less: Allowance for defaulting debtors (Schedule E) (9,574,142) (6,775,306)
----------- -----------
TOTAL .............................................. 34,151,480 40,123,437
----------- -----------
NON CURRENT
Subsidies receivable ............................... 426,000 --
----------- -----------
TOTAL .............................................. 426,000 --
=========== ===========
TOTAL TRADE ACCOUNTS RECEIVABLE .................... 34,577,480 40,123,437
=========== ===========
</TABLE>
<PAGE> 10
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
b. Other accounts receivable
-------------------------
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
CURRENT (Pesos)
Receivables to be recovered from customers (Note 2.d) .............. 584,852 301,552
Miscellaneous advance payments ..................................... 172,059 166,081
Prepaid expenses and interest (Schedule G) ......................... 249,136 73,485
Guarantee deposits ................................................. 293,775 296,175
Receivables to be recovered for additional transportation charges... -- 991,772
Receivables to be recovered as per Section 41 Law 24,076 (Note 12.b) 4,509,822 2,568,842
Miscellaneous (Schedule G) ......................................... 459,738 396,840
---------- ----------
TOTAL .............................................................. 6,269,382 4,794,747
---------- ----------
NON-CURRENT
Receivables to be recovered from customers (Note 2.d) .............. 117,140 494,862
Receivables to be recovered as per Section 41 Law 24,076 (Note 12.b) 25,402,907 26,279,763
Judicial deposits .................................................. 159,215 --
Prepaid expenses ................................................... 64,155 --
Miscellaneous ...................................................... 37,347 182,044
---------- ----------
Total .............................................................. 25,780,764 26,956,669
========== ==========
Total other accounts receivable .................................... 32,050,146 31,751,416
========== ==========
</TABLE>
<PAGE> 11
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
c. Other assets
------------
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
CURRENT (Pesos)
Restricted availability funds (Note 9) .............. -- 644,930
---------- ----------
Total ............................................... -- 644,930
---------- ----------
NON-CURRENT
Series C Certificates (Note 9) ...................... 667,325 --
Fixed-term deposits with Mercobank S.A. (Note 9) .... 517,455 --
Mercobank S.A.'s shares (Note 9) .................... 840,126 --
Restricted availability funds (Note 9) .............. -- 1,504,838
---------- ----------
Subtotal ............................................ 2,024,906 1,504,838
less:
Allowance for depreciation of Mercobank S.A.'s shares (291,434) --
Allowance for uncollectible Series "C" Certificates . (516,000) (480,000)
---------- ----------
Subtotal (Note 9 and Schedule E) .................... (807,434) (480,000)
---------- ----------
Total ............................................... 1,217,472 1,024,838
---------- ----------
Total other assets .................................. 1,217,472 1,669,768
========== ==========
</TABLE>
<PAGE> 12
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
d. Other liabilities
-----------------
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CURRENT (Pesos)
Gas-in-kind payables ....................................... 2,548,780 2,742,271
Reimbursements to be passed through on account of additional
transportation charges ..................................... 1,032,802 203,519
Consumer secured deposits .................................. 184,743 245,465
Other accounts payable ..................................... 2,252,411 2,339,750
---------- ----------
TOTAL ...................................................... 6,018,736 5,531,005
---------- ----------
NON-CURRENT
Gas-in-kind payables ....................................... 8,968,626 7,807,234
Other accounts payable ..................................... 1,000 1,000
---------- ----------
TOTAL ...................................................... 8,969,626 7,808,234
========== ==========
Total other liabilities .................................... 14,988,362 13,339,239
========== ==========
</TABLE>
Statement of income
-------------------
e. Net sales
---------
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
---------- ----------
(Pesos)
<S> <C> <C>
Gas sales .................................................. 375,138,727 377,250,834
Sales of other items ....................................... 2,243,917 1,751,388
Direct taxes on sales ...................................... (9,651,975) (6,580,497)
============ ============
TOTAL ...................................................... 367,730,669 372,421,725
============ ============
</TABLE>
<PAGE> 13
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
f. Financial and holding gain/(loss)
---------------------------------
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
GENERATED BY ASSETS (Pesos)
Interest ............................... 4,341,758 5,808,394
Income from investments ................ 391,747 72,937
Exchange differences ................... 720 145,873
Listing differences .................... 1,953 --
Discounts obtained ..................... 7,179 12,240
----------- -----------
TOTAL .................................. 4,743,357 6,039,444
----------- -----------
GENERATED BY LIABILITIES
Financial interest ..................... (17,282,651) (19,998,718)
Interest on tax debts .................. (2,151,331) --
Exchange difference .................... (8,517) (3,988)
Miscellaneous .......................... (13,076) (47,559)
----------- -----------
TOTAL .................................. (19,455,575) (20,050,265)
----------- -----------
FINANCIAL AND HOLDING GAIN/(LOSS) ...... (14,712,218) (14,010,821)
=========== ===========
</TABLE>
<PAGE> 14
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
g. Other income and expenses, net
------------------------------
<TABLE>
<CAPTION>
For the fiscal years ended December 31,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
OTHER INCOME (Pesos)
Leases income ............................................... 255,900 --
Commissions for collection charges on behalf of third parties 85,767 103,409
Miscellaneous ............................................... 1,457,075 48,905
---------- ----------
TOTAL ....................................................... 1,798,742 152,314
---------- ----------
OTHER EXPENSES
Provision for lawsuits (Schedule E) ......................... (2,843,200) (670,084)
Miscellaneous (Schedule H) .................................. (813,311) (613,173)
---------- ----------
TOTAL ....................................................... (3,656,511) (1,283,257)
---------- ----------
TOTAL OTHER INCOME AND EXPENSES (LOSS), NET ................. (1,857,769) (1,130,943)
========== ==========
</TABLE>
h. Extraordinary loss
------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Uncollectibility of Series C Certificates (Schedule E) ...... (36,000) (480,000)
Depreciation of Mercobank S.A.'s shares (Schedule E) ........ (291,434) --
---------- ----------
TOTAL ....................................................... (327,434) (480,000)
========== ==========
</TABLE>
NOTE 5: INTERCOMPANY BALANCES AND OPERATIONS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
RECEIVABLES (Pesos)
Aguas de Balcarce S.A .............................. 1,449 --
Aguas de Laprida S.A ............................... 6,155 3,059
Camuzzi Gas del Sur S.A ............................ 732,219 1,318,660
Sodigas Sur S.A .................................... 147,510 --
Empresa Distribuidora de Energia Atlantica S.A ..... 83,341 88,555
Inversora Electrica de Buenos Aires S.A ............ 590,000 --
Central Piedrabuena S.A.(2) ........................ 22,731,673 12,129,527
---------- ----------
Total .............................................. 24,292,347 13,539,801
========== ==========
PAYABLES
Aguas de Balcarce S.A .............................. -- 12,011
Camuzzi Argentina S.A .............................. 1,113,309 652,242
Consolidated Natural Gas Cayman Three Limited ..... 25,000 --
Sempra Energy International S.L .................... 25,000 --
---------- ----------
Total .............................................. 1,163,309 664,253
========== ==========
</TABLE>
<PAGE> 15
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
INCOME/(LOSS) ACCOUNTS (Pesos)
CAMUZZI GAS DEL SUR S.A.
Propane gas sales ..................................... 187,454 1,033,325
Administrative and personnel services ................. 3,304,509 3,099,313
Purchase of gas and transportation .................... -- (8,459)
CAMUZZI ARGENTINA S.A.
Technical assistance and professional fees ............ (4,067,930) (4,567,874)
Fees paid on account of work inspection services ...... (339,209) --
Maintenance service of computer systems ............... (626,662) (622,128)
Recovery of expenses incurred for administrative
financial advice ...................................... 986,890 534,180
Financial and administrative advisory services ........ (499,704) --
Lease income .......................................... 255,900 --
Administrative expenses recovery ...................... 272,412 --
Expenses recovery ..................................... (50,000) --
LOMA NEGRA C.I.A.S.A.
Gas sales(1) .......................................... 4,180,508 13,736,910
AGUAS DE BALCARCE S.A.
Administrative and personnel services ................. 7,440 7,440
AGUAS DE LAPRIDA S.A.
Administrative and personnel services ................. 3,096 3,096
EMPRESA DISTRIBUIDORA DE ENERGIA ATLANTICA S.A.
Gas sales ............................................. 10,559 15,687
Purchases of electricity .............................. (55,121) (29,981)
Administrative expenses recovery ...................... 133,730 --
CENTRAL PIEDRABUENA S.A.
Gas sales ............................................. 52,271,752 14,833,171
Sempra Energy International S.L.
Expenses recovery ..................................... (25,000) --
Consolidated Natural Gas Cayman Three Limited
Expenses recovery ..................................... (25,000) --
SODIGAS SUR S.A.
Personnel services .................................... 147,510 --
INVERSORA ELECTRICA DE BUENOS AIRES S.A.
Recovery of expenses incurred for administrative advice 100,000 --
Administrative services ............................... 490,000 --
OTHER OPERATIONS
CAMUZZI ARGENTINA S.A.
Technical advisory services capitalized in works in
progress .............................................. 181,396 597,334
Fees paid on account of work inspection services ...... 161,293 284,170
Purchase of software .................................. 129,624 390,802
Sale of vehicles ...................................... 45,125 --
Miscellaneous ......................................... 40,782 --
CAMUZZI GAS DEL SUR S.A.
Miscellaneous ......................................... 127,222 --
CENTRAL PIEDRABUENA S.A.
Miscellaneous ......................................... 3,420 --
EMPRESA DISTRIBUIDORA DE ENERGIA ATLANTICA S.A.
Miscellaneous ......................................... 38,244 --
</TABLE>
(Notes appear on the following page)
<PAGE> 16
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) On March 26, 1998, Loma Negra C.I.A.S.A. sold its
interest in Sodigas Pampeana S.A.
(2) Central Piedrabuena S.A. made payments under protest
for approximately Ps. 2.0 million and additionally,
it has not recorded approximately Ps. 1.9 million,
which was originated by differences in the
construction of gas purchase agreement currently in
force. As of the date hereof, the dispute has been
submitted to arbitration by the Regulatory Authority.
Furthermore, the payment condition currently in force
is pending approval by the Board of Directors. In the
opinion of the Subsidiary Company and its legal
counsel, an adverse decision in relation to the
aforementioned dispute is considered not probable.
Clarifying notes:
-----------------
(a) The Subsidiary Company, together with Camuzzi Gas del
Sur S.A. has a dispute with Camuzzi Argentina S.A.,
as regards the ownership of the invoicing and
collection system (AG system) and others. As of the
date hereof, the parties are negotiating in order to
resolve the dispute. The parties have agreed that if
they cannot solve the dispute, the same shall be
submitted to arbitration by an independent expert.
(b) Camuzzi Gas Pampeana S.A. has not recognized higher
costs claimed by Camuzzi Argentina S.A. in relation
to the work inspection services for the gas pipeline
of the coast for Ps. 840,809. The Subsidiary Company
understands that such costs are not applicable since
they are not considered in the respective agreement.
As of the date hereof, the Companies are negotiating
in order to resolve the dispute. In the opinion of
the Subsidiary Company and its legal counsel, an
adverse decision in relation to the aforementioned
dispute is considered not probable.
NOTE 6: MANDATORY INVESTMENTS OF THE SUBSIDIARY COMPANY
Chapter IV of the Distribution License states that the
Subsidiary Company, 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:
<TABLE>
<CAPTION>
YEAR U.S.$
---- -----
<S> <C>
1993 6,104,000
1994 7,793,000
1995 7,460,000
1996 7,074,000
1997 8,679,000
----------
Total 37,110,000
==========
</TABLE>
Furthermore, 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 COMPANY
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 Note 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:
o Aggregate principal amount: U.S.$130,000,000
o Percentage corresponding to Camuzzi Gas Pampeana S.A.:
61.11%
o Interest rate: 9 1/4%, payable semi-annually 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 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).
<PAGE> 17
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
Company, as the case may be, in conformity
with Argentine professional accounting
standards;
(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.
<PAGE> 18
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Restrictions on Sale and Lease-Back Agreement:
Neither of the Issuers shall, nor shall either of the
Issuers permit any Subsidiary Company 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 Company, or between
Subsidiaries, (iii) the Issuers or any Subsidiary
Company 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 Company (other than debt that is
subordinated to the Notes or debt to either or both
of the Issuers or a Subsidiary Company) 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 Company,
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 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 COMPANY'S ASSETS
Assets essential for the rendering of the service
-------------------------------------------------
Pursuant to the provisions of the terms and conditions for the
privatization of the natural gas distribution service, Camuzzi
Gas Pampeana S.A. must obtain ENARGAS' prior consent, without
which the License may be revoked, to sell, assign, encumber or
dispose of assets which are essential for rendering the
service.
NOTE 9: AMOUNTS TO BE RECOVERED BY THE SUBSIDIARY COMPANY FROM BANCO
MERCOBANK
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 Argentine 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.
Mercobank S.A. acknowledged deposits of Camuzzi Gas Pampeana
S.A. totalling Ps. 1,297,075, equal to 60% of the aggregate
amount due from Banco Credito Provincial, and Camuzzi Gas
Pampeana S.A. as major depositor, instructed the entity to
apply such deposits up to the amount of Ps. 646,050 to the
subscription of 646,050 shares of common stock, nominal value
Ps. 1 (Pesos one) each, as irrevocable contribution. As
regards the remaining balance, on June 3, 1998 the
<PAGE> 19
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Subsidiary Company received a payment in cash of Ps. 133,570,
while for the remaining Ps. 517,455 a fixed-term deposit
maturing on May 14, 2001 was made.
For the balance of preferred liabilities for deposits not
assumed by Mercobank S.A., Camuzzi Gas Pampeana S.A. received
Ps. 861,401 in Series C Certificates of the trust created by
Mercobank S.A., of which Promotora Fiduciaria S.A. is a
trustee; such amount equals to 40% of the aggregate amount due
from Banco Credito Provincial S.A.
On August 25, 1998, Mercobank S.A. capitalized 22.53% of the
values expressed as Series C Certificates in shares.
In that sense, 194,076 ordinary shares, NV Ps. 1 (Peso One)
each, have been subscribed. Consequently, as of December 31,
1998, the amount of the shares and Series C Certificates total
Ps. 840,126 and Ps 667,325, respectively.
The Subsidiary Company set up an allowance of Ps. 516,000,
which represents the portion of uncertain recovery of the
value of the Series C Certificates received by Camuzzi Gas
Pampeana S.A. Regarding the shares held by the Subsidiary
Company, as mentioned in Note 2.f., the same were valued at
their estimated recovery value, and, consequently, an
allowance for depreciation amounting to Ps. 291,434 has been
set up.
NOTE 10: RECORDABLE ASSETS OF THE SUBSIDIARY COMPANY
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 Company completed the transfer of
all the vehicles.
NOTE 11: CONSTRUCTION FUNDED BY THIRD PARTIES
Constructions funded by third parties, incorporated into the
Subsidiary Company's network during the fiscal years ended
December 31, 1998 and 1997, were the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
---- ----
(Pesos)
<S> <C> <C>
o For valuable consideration 3,188,972 2,714,904
</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.
Furthermore, on February 3, 1997, by means of Resolution No.
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 resulted 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 Resolution No. 587, dated March
16, 1998, whereby it established the consideration to be
granted to the clients, in accordance with the methodological
guidelines included therein.
<PAGE> 20
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Subsidiary Company on the grounds that it affects its
legitimate rights. However, the Subsidiary Company made an
analysis to determine the amount to be discounted in
compliance with such order. As a result of such work, it was
established that in the event that the existing users and the
potential users to be included in the assets transferred
without monetary compensation to the Subsidiary Company are
entitled to the discounts set forth in the ENARGAS'
resolutions, the increase in the liabilities would amount to a
maximum of Ps. 1.7 million. In addition, it should be noted
that such liability may be substantially lesser due to the
fact that as of the date of the financial statements the
number of users entitled to such discount cannot be
determined, and so the liability shall be acknowledged to the
extent that the amount to be paid to users is agreed.
Considering that the Subsidiary Company accountably keeps a
voluntary reserve which includes the undertakings financed by
third parties users and transferred free of charge, the
above-mentioned adjustment, if any, shall be accounted as a
withdrawal of said reserve, in which case the final balance of
the same would amount approximately to Ps. 42.8 million.
As regards the networks transferred without monetary
compensation, the liability shall also be acknowledged to the
extent that the amount to be paid to users.
NOTE 12: LEGAL AND TAX MATTERS OF THE SUBSIDIARY COMPANY
a. Income tax
----------
On January 30, 1998 and May 28, 1998, the Subsidiary Company
amended its tax returns by changing the depreciation of the
fixed assets received free of charge, as a consequence of the
new tax determination corresponding to the amounts of the
networks added by the Licensee up to June 1995, by application
of the ENARGAS' Resolutions governing the transfer of networks
funded, in whole or in part, by third parties; and fully paid
the difference originated in the deduction of the tax on
assets.
On June 22, 1998, the Argentine Tax Authority ("AFIP") gave
notice of the adjustments proposed by the inspections which
amount to Ps. 2,609,982 for the deduction of the tax on assets
applicable in 1993 and 1994, and to Ps. 22,654,073
corresponding to computation differences originated in the
treatment as non-assessable income granted by Camuzzi Gas
Pampeana to the networks received free of charge, which was
answered by the Company on July 14, 1998.
Furthermore, on August 23, 1998, a copy of the amended tax
returns requested by the Division Determinacion de Oficio of
the AFIP was attached to the answer.
Said amendments were not considered by the AFIP at the time of
serving the notice.
On January 15, 1999, an order from the Division Determinacion
de Oficio (Official Assessment Division) was received,
requesting the Division Fiscalizadora Externa II (External
Control Division II) to attach within a 30-business day term,
a technical report as regards the different aspects included
in the Subsidiary Company's answer. As of the date hereof, the
Company is preparing the answer to the requirement made by the
Division Fiscalizadora Externa II.
In the opinion of the Subsidiary Company and its legal
counsel, the filing of the amended tax returns applying the
criteria of the ENARGAS for tax purposes, and the inclusion of
the adjusted amounts in the Installment Payment System
(Regimen de Facilidades de Pago) would settle the matter,
since interests of the tax authority would be satisfied, and
therefore any attempt by it to re-open the case would not be
successful.
b. Gross sales tax - Province of Buenos Aires
------------------------------------------
<PAGE> 21
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Province of Buenos Aires Revenue Board (the "DPRPBA") made
assessments questioning the Subsidiary Company's Gross Sales
Tax returns, and claiming Ps. 8,853,585 and Ps. 7,386,021 for
the periods from December 1992 through February 1995, and from
March 1995 to June 1996, respectively, not including fines and
accessory charges. Such 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.
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.
Even though the Subsidiary Company's legal counsel considered
that the Subsidiary Company's defense was based on solid
grounds, the Final Opinion issued by the General Revenue Board
significantly changes 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 Subsidiary 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, and because its property would be subject to
attachment during the course of such proceeding, on December
19, 1996, the Subsidiary Company availed itself of the Debt
Consolidation Regulations pursuant to the provisions of the
provincial law 11,808. (Official Gazette July 10, 1996).
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 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.
Through Resolution No. 544 dated November 17, 1997 and
pursuant to the regulatory framework of the activity, the
ENARGAS 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.
Therefore, and as mentioned before, because a "change of tax
rules" generates a right for the Subsidiary 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.
At December 31, 1998, the receivable to be recovered (which
includes accrued interest) amounts to Ps. 29,912,729, of
which, Ps. 4,509,822 were recorded under "Other Current
Accounts Receivable" and Ps. 25,402,907 under "Other
Non-Current Accounts Receivable".
c. Municipal taxes on use of easements
-----------------------------------
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 Company 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
<PAGE> 22
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Currently, the following are the most relevant disputes in
relation to taxes on rights to subjacent space (subsoil):
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 Ps. 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 Ps. 69,078, without interest and
penalties.
The Lower Court sustained the complaint and rejected the
defenses filed by the Company. Camuzzi Gas Pampeana S.A.
appealed to the Court of Appeals, which upheld the decision. A
Provincial Extraordinary Motion was filed.
The Supreme Court of the Province rejected our Provincial
extraordinary motion. An extraordinary motion was filed with
the Federal courts against such decision. The Supreme Court of
the Province rejected the Extraordinary Remedy filed by the
Subsidiary Company and this Company further submitted a Claim
for Reconsideration to the Supreme Court of the Argentine
Republic, which was rejected.
The amount claimed by the Municipality has been deposited with
the court. As of the date hereof, the Subsidiary Company set
up an allowance for the total amount claimed.
In addition, the Municipality has filed a new claim for an
amount of Ps. 506,225.77 for the periods from January 1993 to
December 1994 and July 1995 to December 1995, inclusive,
therefore the Subsidiary Company filed a response and set up
an allowance of Ps. 380,000, included under the item
"Provisions". Subsequently, the Municipality reduced the
amount of its claim to Ps. 372,674, which was paid under
formal protest and with the right to exercise the
corresponding judicial actions. Furthermore, it was agreed
that the Municipality shall invest the aggregate amount paid
in gas networks for the city and said works are currently
being carried out.
Together with our external counsels, we have been evaluating
the possibility of instituting an independent action seeking
the declaration of unconstitutionality of the rules taxing the
occupancy of public places in relation to gas installations,
and a request for an injunctive relief until the matter is
settled.
Municipality of Saladillo, Province of Buenos Aires: The
principal amount claimed totals Ps. 55,542.
The claim was submitted and is pending consideration by the
administrative court with an answer filed by Camuzzi Gas
Pampeana S.A. The municipality has notified the Subsidiary
Company that the claim for the collection of such tax has been
dismissed.
Municipality of Realico, Province of La Pampa: The principal
amount claimed totals Ps. 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 Ps. 6,300. The Subsidiary
Company has filed a remedy for reconsideration.
Municipality of Las Flores, Province of Buenos Aires: The
principal amount claimed totals Ps. 20,083 and Ps. 10,000 as
interest and court fees. Upon the executive demand, the
Subsidiary Company answered by filing objections to the
action.
The Subsidiary Company has set up an allowance of Ps. 15,000,
which is included under the item "Provisions".
In the opinion of the Subsidiary Company, and except for the
lawsuit with the Municipality of Santa Rosa and Las Flores,
for which provisions have been set up, an adverse decision in
relation to the aforementioned claims is considered not
probable.
d. Stamp tax
---------
d.1. The Revenue Board of the Province of Neuquen notified
Camuzzi Gas del Sur S.A. in relation to the contracts
for the purchase of gas entered into jointly with the
Subsidiary Company, an amended amount of Ps.
<PAGE> 23
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10,400,134 involving the liquidation performed by the
supervisors. Subsequently, the notice was answered
and the resolution was interrupted on account of the
moratorium decrees. Subsequently, notes were filed
with the Argentine Ministry of Economy requesting an
opinion from the Minister in connection therewith.
The province issued Special Decree No. 3534 for the
regulated companies to avail themselves of the
moratorium, the limit to do so expired on November 6,
1998, and was renewed until January 11, 1999.
As of December 31, 1998, the Subsidiary Company
recorded an allowance of Ps. 1,536,551 in this
respect.
On January 7, 1999, the ENARGAS submitted a report to
the Argentine Ministry of Economy, expressing that
"the taxes claimed by Neuquen, will unfailingly lead
to a tariff increase with a serious damage for the
users".
The expiration of the time limit occurred on January
11, 1999 has not been renewed. The Licensee Company
is waiting for an opinion from the Ministry of
Economy as regards this issue.
d.2 The Province of Neuquen's Revenue Board has served a
notice to the Subsidiary Company claiming a principal
amount of approximately Ps. 6.2 million. This amount
corresponds to the stamp tax derived from the
transport agreements entered into with Transportadora
de Gas del Sur S.A., before take-over, when Gas del
Estado S.E. was the only shareholder of the
Subsidiary Company. The Subsidiary Company notified
its position to Gas del Estado.
The Subsidiary Company believes that these agreements
were not subject to provincial stamp tax due to the
fact that the parties who entered into said
agreements were Argentine state-owned companies, and
are therefore exempt from such tax. Although such
agreements were subject to stamp tax, the company
considers that Gas del Estado S.E. would be the party
liable for the payment of this tax, in accordance
with the provisions of the Transfer Agreement.
In the opinion of the Subsidiary Company and its
legal counsels, except for what is mentioned in item
d.1., an unfavorable resolution with respect to such
claims is considered not probable.
e. Others
------
On August 8, 1998, the Ministry of Economy and Public Works
and Services filed a claim for Ps. 656,485 for differences in
the collection of overdue bills; Camuzzi Gas Pampeana was in
charge of their collection for the account of Gas del Estado
S.E, pursuant to Schedule XXI of the Share Transfer Agreement.
The Subsidiary Company duly set up an allowance to meet the
claim for Ps. 220,000, which amount is considered sufficient.
NOTE 13: SUBSIDIARY COMPANY'S ESSENTIAL ASSETS INVENTORY
In compliance with ENARGAS' Resolution No. 60, the Subsidiary
Company made an inventory of the assets essential for the
service as of December 31, 1997, which was certified on
October 26, 1998 by an independent expert specialized in that
field.
As a result of said work, differences were detected between
the accounting inventory and the physical one, which reduce
the assets timely recorded in an amount of approximately Ps.
12.8 million.
Due to the fact that the Subsidiary Company maintains a
voluntary reserve account consisting of earnings derived from
financial undertakings by third parties users and transferred
free of charge, the Company adjusted the aforementioned
differences against the voluntary reserve.
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 sub-area 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.
<PAGE> 24
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year 1997, 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 1997 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: SUBSIDIARY COMPANY'S SALES OF LIQUIDS
As required by ENARGAS through its note No. 3299 dated October
26, 1994, the Subsidiary Company's sales of extracted liquids
and their respective costs for the fiscal year ended December
31, 1998 are disclosed below:
(Pesos)
Net sales 15,845,412
Direct costs of sales 13,472,821
NOTE 16: INFORMATION SYSTEMS ADAPTATION PROCESS (UNAUDITED)
The Subsidiary Company began a process to update its
information systems and related technologies, which has been
given priority by the Board of Directors. The methodology of
work adopted allocates to different engagement teams the
finding of a solution for the administrative, invoicing, human
resources, hardware and software systems.
<PAGE> 25
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED FIXED ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE A
<TABLE>
<CAPTION>
==================================================================================================================
VALUE
AS OF VALUE
BEGINNING OF AS OF
YEAR ADDITIONS TRANSFERS WRITE-OFFS END OF YEAR
PRINCIPAL ACCOUNT (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Land................................ 4,710,764 942 -- -- 4,711,706
Condominiums........................ 816,147 -- -- -- 816,147
Buildings........................... 14,263,215 -- -- -- 14,263,215
Facilities.......................... 7,665,766 10,392 1,120 -- 7,677,278
Gas pipelines....................... 162,160,048 -- 16,007,472 -- 178,167,520
Main and secondary pipelines........ 37,612,648 -- 7,496 -- 37,620,144
Distribution networks............... 281,128,281 3,822,580 201,004 (14,189,468) 270,962,397
Machinery and equipment............. 3,104,311 180,452 515 -- 3,285,278
Pressure reduction stations......... 11,868,608 -- 201,998 -- 12,070,606
Processing equipment................ 215,361 -- 568,360 -- 783,721
Vehicles............................ 5,024,579 787,362 1,025,200 (86,263) 6,750,878
Furniture and office equipment...... 1,819,773 37,982 -- -- 1,857,755
Gas meters.......................... 42,764,895 14,181 2,912,982 (489,226) 45,202,832
Gas cylinders....................... 1,189 -- -- -- 1,189
Works in progress................... 11,191,777 14,733,256 (18,341,822) -- 7,583,211
Computer equipment.................. 5,557,392 337,753 -- -- 5,895,145
Communications equipment............ 3,721,037 52,233 1,940,999 -- 5,714,269
Material at warehouses.............. 3,156,237 5,722,528 (3,002,796) (2,244,578) 3,631,391
Vehicles without title.............. 1,025,200 -- (1,025,200) -- 0
Advances to suppliers............... 770,780 489,474 (497,328) (60,500) 702,426
- ------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1998....... 598,578,008 26,189,135 -- (17,070,035) 607,697,108
- ------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1997....... 570,763,492 31,024,170 -- (3,209,654) 598,578,008
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================================
DEPRECIATION
--------------------------------------------------------------------------------------
CURRENT YEAR
------------------------------------------------------
ACCUMULATED
AS OF ACCUMULATED
BEGINNING OF AS OF
YEAR RATE(1) AMOUNT(2) TRANSFERS WRITE-OFFS END OF YEAR
PRINCIPAL ACCOUNT (PESOS) % (PESOS) (PESOS) (PESOS) (PESOS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land................................ -- -- -- -- -- --
Condominiums........................ 101,098 2.00 18,195 (17,571) -- 101,722
Buildings........................... 1,581,133 2.00 387,859 16,696 -- 1,985,688
Facilities.......................... 865,245 3.33 259,252 (187,832) -- 936,665
Gas pipelines....................... 25,453,335 2.50 4,625,535 4,756,304 -- 34,835,174
Main and secondary pipelines........ 6,904,902 2.50 1,204,521 (120,665) -- 7,988,758
Distribution networks............... 45,923,548 2.50 8,103,020 (5,298,221) (1,425,038) 47,303,309
Machinery and equipment............. 770,519 4.00 147,945 (270,908) -- 647,556
Pressure reduction stations......... 1,846,107 2.86 416,311 (168,721) -- 2,093,697
Processing equipment................ 23,341 3.33 8,992 (8,871) -- 23,462
Vehicles............................ 2,352,724 20.00 651,125 1,363,550 (58,269) 4,309,130
Furniture and office equipment...... 418,571 6.66 131,305 (53,309) -- 496,567
Gas meters.......................... 10,926,769 4.00 2,190,150 (821,911) (158,947) 12,136,061
Gas cylinders....................... 299 3.33 60 -- -- 359
Works in progress................... -- -- -- -- -- --
Computer equipment.................. 4,105,519 33.33 739,779 574,390 -- 5,419,688
Communications equipment............ 943,805 3.33/20.00 496,062 339,589 -- 1,779,456
Material at warehouses.............. -- -- -- -- -- --
Vehicles without title.............. 102,520 -- -- (102,520) -- 0
Advances to suppliers............... -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1998....... 102,319,435 -- 19,380,111 -- (1,642,254) 120,057,292
- -----------------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1997....... 79,655,373 -- 22,937,071 -- (273,009) 102,319,435
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================
NET CARRYING VALUE
AS OF DECEMBER 31,
-------------------------
1998 1997
PRINCIPAL ACCOUNT (PESOS) (PESOS)
- ------------------------------------------------------------------
<S> <C> <C>
Land................................ 4,711,706 4,710,764
Condominiums........................ 714,425 715,049
Buildings........................... 12,277,527 12,682,082
Facilities.......................... 6,740,613 6,800,521
Gas pipelines....................... 143,332,346 136,706,713
Main and secondary pipelines........ 29,631,386 30,707,746
Distribution networks............... 223,659,088 235,204,733
Machinery and equipment............. 2,637,722 2,333,792
Pressure reduction stations......... 9,976,909 10,022,501
Processing equipment................ 760,259 192,020
Vehicles............................ 2,441,748 2,671,855
Furniture and office equipment...... 1,361,188 1,401,202
Gas meters.......................... 33,066,771 31,838,126
Gas cylinders....................... 830 890
Works in progress................... 7,583,211 11,191,777
Computer equipment.................. 475,457 1,451,873
Communications equipment............ 3,934,813 2,777,232
Material at warehouses.............. 3,631,391 3,156,237
Vehicles without title.............. 0 922,680
Advances to suppliers............... 702,426 770,780
- -------------------------------------------------------------------
Total as of December 31, 1998....... 487,639,816 --
- -------------------------------------------------------------------
Total as of December 31, 1997....... -- 496,258,573
===================================================================
</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> 26
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INTANGIBLE ASSETS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE B
<TABLE>
<CAPTION>
==============================================================================================
VALUE AS VALUE AS
OF OF
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 of Notes . 5,306,825 128,061 -- 5,434,886
Software ............................. 745,275 147,372 -- 892,647
- ----------------------------------------------------------------------------------------------
Total as of December 31, 1998 ........ 6,052,100 275,433 -- 6,327,533
- ----------------------------------------------------------------------------------------------
Total as of December 31, 1997 ........ 5,195,139 856,961 -- 6,052,100
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
AMORTIZATION
------------------------------------------------------------
NET CARRYING VALUE AS OF
CURRENT YEAR DECEMBER 31,
-------------------- -------------------------
ACCUMULATED ACCUMULATED
AS OF AS OF
BEGINNING RATE PER END OF
OF YEAR ANNUM AMOUNT(1) WRITE-OFFS YEAR 1998 1997
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 . 2,696,814 20 1,113,867 -- 3,810,681 1,624,205 2,610,011
Software ............................. 148,781 20 124,567 -- 273,348 619,299 596,494
- -----------------------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1998 ........ 2,845,595 -- 1,238,434 -- 4,084,029 2,243,504 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total as of December 31, 1997 ........ 1,663,465 -- 1,182,130 -- 2,845,595 -- 3,206,505
===================================================================================================================================
</TABLE>
- --------------------
Note:
(1) The accounting allocation of depreciation charges for the year is
described in Schedule H.
<PAGE> 27
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INVESTMENTS
GENERAL BALANCE SHEET AS OF DECEMBER 31, 1998 AND 1997
SCHEDULE C
<TABLE>
<CAPTION>
================================================================================================================================
VALUE RECORDED AS OF DECEMBER 31,
-------------------------------------------
NUMBER OF 1998 1997
ISSUER AND SECURITIES SHARES/INTERESTS MARKET VALUE (PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT INVESTMENTS
Mutual investment funds
Banca Nazionale del Lavoro............... -- -- -- 3,517,048
Shares
INDUPA S.A.I.C........................... 90,881 0.650000 59,073 109,057
Argentina Government Bond (Schedule G)... -- -- 117,314
--------------------------------------------
TOTAL CURRENT INVESTMENTS..................... 59,073 3,743,419
--------------------------------------------
TOTAL INVESTMENTS............................. 59,073 3,743,419
=================================================================================================================================
</TABLE>
<PAGE> 28
SODIGAS PAMPEANA S.A.AND ITS SUBSIDIARY COMPANY
OTHER CONSOLIDATED INVESTMENTS
GENERAL BALANCE SHEET AS OF DECEMBER 31, 1998 AND 1997
SCHEDULE D
<TABLE>
<CAPTION>
===========================================================================================================================
VALUE RECORDED AS OF DECEMBER 31,
-------------------------------------------
1998 1997
PRINCIPAL ACCOUNT (PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT INVESTMENTS
Fixed-term deposits in Argentine and foreign currencies (Schedule G)... 13,177,946 25,510,827
-------------------------------------------
Total...................................................................... 13,177,946 25,510,827
===========================================================================================================================
</TABLE>
<PAGE> 29
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED ALLOWANCES
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
SCHEDULE E
<TABLE>
<CAPTION>
===================================================================================================================================
BALANCES AS OF DECEMBER 31,
---------------------------
BALANCES AS OF
BEGINNING OF YEAR ADDITIONS DECREASES 1998 1997
ITEM (PESOS) (PESOS) (PESOS) (PESOS) (PESOS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
Allowance for defaulting debtors ........... 6,775,306 (1) 2,798,836 -- 9,574,142 6,775,306
Allowance for uncollectible Series "C"
Certificates .............................. 480,000 (2) 36,000 -- 516,000 480,000
Allowance for depreciation of Mercobank's
shares .................................... -- (2) 291,434 -- 291,434
DEDUCTED FROM LIABILITIES
Provisions for lawsuits ................... 843,566 (3) 2,912,052 (841,146) 2,914,472 843,566
-------------------------------------------------------------------------------
Total ......................................... 8,098,872 6,038,322 (841,146) 13,296,048 8,098,872
===================================================================================================================================
</TABLE>
- -----------------
Notes:
(1) Charged to Marketing Expenses in Schedule H.
(2) Charged to Extraordinary Income (Note 4.h.)
(3) Pesos 2,633,853 charged to Other Expenses (Note 4.g.)
<PAGE> 30
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED COST OF SALES
For the Fiscal Years Ended December 31, 1998 and 1997
SCHEDULE F
<TABLE>
<CAPTION>
===========================================================================================================
FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997
(PESOS) (PESOS)
------------------------------------
<S> <C> <C>
Inventories at beginning of year ............................... 37,142 54,000
Plus:
Gas purchases ......................................... 155,228,445 158,067,447
Acquisition of transportation capacity ................ 80,354,997 84,739,458
Expenses per breakdown in Schedule H .................. 46,780,455 48,556,730
Less:
Inventories at end of year ............................ 161,545 37,142
----------- -----------
COST OF SALES ......................................... 282,239,494 291,380,493
===========================================================================================================
</TABLE>
<PAGE> 31
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
FOREIGN CURRENCY CONSOLIDATED ASSETS AND LIABILITIES
General Balance Sheet as of December 31, 1998 and 1997
SCHEDULE G
<TABLE>
<CAPTION>
==============================================================================================================
TYPE AND AMOUNT OF
FOREIGN CURRENCY CURRENT EXCHANGE RATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and banks........................... U$S 317,874 1.0000
Investments.............................. U$S -- 1.0000
Other receivables........................ U$S 157,500 1.0000
-------------------------------------------------------
TOTAL CURRENT ASSETS.............................. 475,374 --
-------------------------------------------------------
TOTAL ASSETS...................................... 475,374 --
-------------------------------------------------------
CURRENT LIABILITIES
Suppliers................................ U$S 37,711 1.0000
Bank loans
Loan from Banco Rio................... U$S 1,901,533 1.0000
Loan from Riobank Internacional....... U$S -- 1.0000
Loan from Banca Nazionale del Lavoro.. U$S -- 1.0000
Loan from Bank Boston................. U$S 250,119 1.0000
Bank Boston - Eximbank................ U$S 85,024 1.0000
Notes - Interest payable.............. U$S 326,599 1.0000
BNL Letters of credit................. U$S 3,748,098 1.0000
Financial loans
Notes - Interest payable.............. U$S 90,000,000 1.0000
-------------------------------------------------------
TOTAL CURRENT LIABILITIES......................... 96,349,084 --
-------------------------------------------------------
NON-CURRENT LIABILITIES
Financial loans
Notes................................. U$S 79,443,000 1.0000
Bank Boston - Eximbank................ U$S 42,324 1.0000
Banca Nazionale del Lavoro - Letters
of credit............................. U$S -- 1.0000
-------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES..................... 79,485,324 --
-------------------------------------------------------
TOTAL LIABILITIES................................. 175,834,408 --
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
AMOUNT IN ARGENTINE CURRENCY AS OF DECEMBER 31,
--------------------------------------------------
1998 1997
(PESOS) (PESOS)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and banks........................... 317,874 248,841
Investments.............................. -- 4,850,189
Other receivables........................ 157,500 151,090
--------------------------------------------------
TOTAL CURRENT ASSETS.............................. 475,374 5,250,120
--------------------------------------------------
TOTAL ASSETS...................................... 475,374 5,250,120
--------------------------------------------------
CURRENT LIABILITIES
Suppliers................................ 37,711 838,924
Bank loans
Loan from Banco Rio................... 1,901,533 --
Loan from Riobank Internacional....... -- 7,489,296
Loan from Banca Nazionale del Lavoro.. -- 750,329
Loan from Bank Boston................. 250,119 --
Bank Boston - Eximbank................ 85,024 85,347
Notes - Interest payable.............. 326,599 326,599
BNL Letters of credit................. 3,748,098 --
Financial loans
Notes - Interest payable.............. 90,000,000 4,567,500
--------------------------------------------------
TOTAL CURRENT LIABILITIES......................... 96,349,084 14,057,995
--------------------------------------------------
NON-CURRENT LIABILITIES
Financial loans
Notes................................. 79,443,000 169,443,000
Bank Boston - Eximbank................ 42,324 126,971
Banca Nazionale del Lavoro - Letters
of credit............................. -- 3,500,000
--------------------------------------------------
TOTAL NON-CURRENT LIABILITIES..................... 79,485,324 173,069,971
--------------------------------------------------
TOTAL LIABILITIES................................. 175,834,408 187,127,966
=========================================================================================================
</TABLE>
<PAGE> 32
SODIGAS PAMPEANA S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED INFORMATION REQUIRED UNDER ART. 64, CLAUSE (b) OF LAW 19,550
For the Fiscal Years Ended December 31, 1998 and 1997
SCHEDULE H
<TABLE>
<CAPTION>
=============================================================================================================================
TOTAL AS OF ADMINISTRATIVE
DECEMBER 31, 1998 SALES COST SERVICES COST EXPENSES
ITEMS PESOS PESOS PESOS PESOS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fees for services......................... 6,059,902 4,067,930 -- 1,991,972
Salaries and wages........................ 19,359,328 7,994,757 324,192 7,233,352
Contributions............................. 5,912,403 2,483,209 -- 2,246,713
Transportation expenses................... 1,171,965 492,225 -- 445,347
Taxes and assessments..................... 2,750,272 588,135 -- 1,868,069
Depreciation of fixed assets.............. 19,380,111 17,925,516 -- 969,730
Amortization of intangible assets......... 1,238,434 -- -- 1,238,434
Hired services............................ 7,101,145 3,838,900 -- 2,639,552
Postage, communications and data processing 1,907,693 579,743 -- 1,038,079
Processing of liquids..................... 5,652,797 5,652,797 -- --
Overheads................................. 5,865,924 3,157,243 -- 1,922,540
Defaulting debtors........................ 2,898,836 -- -- 100,000
Advertising............................... 310,314 -- -- --
------------------------------------------------------------------------------
Total as of December 31, 1998............. 79,609,124 46,780,455 324,192 21,693,788
------------------------------------------------------------------------------
Total as of December 31, 1997............. -- 48,556,730 114,194 20,973,995
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================
MARKETING TOTAL AS OF
EXPENSES DECEMBER 31, 1997
ITEMS PESOS PESOS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Fees for services......................... -- 5,747,555
Salaries and wages........................ 3,807,027 17,806,466
Contributions............................. 1,182,481 5,563,206
Transportation expenses................... 234,393 1,448,274
Taxes and assessments..................... 294,068 2,764,990
Depreciation of fixed assets.............. 484,865 22,937,071
Amortization of intangible assets......... -- 1,182,130
Hired services............................ 622,693 7,535,352
Postage, communications and data processing 289,871 1,865,631
Processing of liquids..................... -- 4,578,405
Overheads................................. 786,141 5,728,383
Defaulting debtors........................ 2,798,836 1,645,509
Advertising............................... 310,314 323,424
---------------------------------------
Total as of December 31, 1998............. 10,810,689 --
---------------------------------------
Total as of December 31, 1997............. 9,481,477 79,126,396
======================================================================================
</TABLE>
- ---------------------
Note:
(1) Charged to "Miscellaneous" under the caption "Other Expenses" (Note
4.g)
<PAGE> 33
SODIGAS PAMPEANA S.A.
US GAAP RECONCILIATION
ANNEX I
<TABLE>
<CAPTION>
As of
December 31, 1998
$
-----------------------------------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP 213,996,432
U.S. GAAP ADJUSTMENTS:
Initial carrying value of assets (38,565,393)
Contribution of gas networks (65,421,063)
Capitalization of interest 4,019,596
Depreciation expense 13,994,867
Intangible assets amortization (244,576)
Gross sales tax settlement (26,733,526)
Regulatory issues (1,929,269)
Deferred income taxes 6,464,147
Technical assistance fee 7,862,052
Minority interest 29,650,297
Deferred expenses (85,540)
Investments 291,434
=========================================
Total Shareholders' Equity under U.S. GAAP 143,299,458
=========================================
</TABLE>
<PAGE> 34
SODIGAS PAMPEANA S.A.
US GAAP RECONCILIATION
ANNEX I (CONT.)
<TABLE>
<CAPTION>
Year ended
December 31, 1998
$
--------------------------------------
<S> <C>
RECONCILIATION OF NET INCOME:
Net income under Argentine GAAP 6,815,389
U.S. GAAP ADJUSTMENTS:
Depreciation expense 3,000,709
Intangible assets amortization 342,548
Gross sales tax settlement 1,324,779
Regulatory issues (2,414,357)
Deferred income taxes 2,714,615
Technical assistance fee (181,623)
Minority interest (1,510,088)
Deferred expenses (85,540)
Investments 291,434
--------------------------------------
Net income under U.S. GAAP 10,297,866
======================================
</TABLE>
<PAGE> 1
EXHIBIT 99.8.4
BUENOS AIRES ENERGY
COMPANY S.A.
CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal year commenced January 1, 1998
and ended December 31, 1998
presented in comparative format with the
previous non-annual fiscal period commenced
February 20, 1997 and ended December 31, 1997
Free translation
<PAGE> 2
BUENOS AIRES ENERGY COMPANY S.A. AND ITS SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND 1997
(Notes 1 and 2)
<TABLE>
<CAPTION>
===============================================================================
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
------- -------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and banks (Note 3.a) 2,523,248 1,258,614
Investments (Schedule C) 544,113 1,524,608
Trade accounts receivable (Note 3.b) 49,981,623 40,901,778
Other receivables (Note 3.c) 3,391,004 3,423,890
------------------------------
TOTAL CURRENT ASSETS 56,439,988 47,108,890
------------------------------
NON-CURRENT ASSETS
Trade accounts receivable (Note 3.b) 3,028,167 1,363,136
Other receivables (Note 3.c) 37,502,967 40,963,668
Fixed assets (Schedule A) 419,916,748 410,020,052
Intangible assets (Schedule B) 20,179,721 21,106,426
Other Assets (Note 3.d.) 1,332,206 --
------------------------------
TOTAL NON-CURRENT ASSETS 481,959,809 473,453,282
------------------------------
TOTAL ASSETS 538,399,797 520,562,172
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================================
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
------- -------
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Commercial liabilities (Note 3.e) 20,072,630 19,210,053
Bank and financial loans (Note 3.f) 34,070,622 18,619,262
Intercompany liabilities (Note 3.g) 6,820,807 6,748,969
Social security liabilities (Note 3.h) 4,051,454 3,893,638
Tax liabilities (Note 3.i) 14,671,523 7,107,753
Other liabilities (Note 3.j) 739,049 1,097,132
Allowances (Schedule E) 120,000 --
------------------------------
TOTAL CURRENT LIABILITIES 80,546,085 56,676,807
------------------------------
NON-CURRENT LIABILITIES
Bank and financial loans (Note 3.f) 230,000,000 230,000,000
Intercompany liabilities (Note 3.g) 1,380,000 4,140,000
Other liabilities (Note 3.j) 1,939,328 1,757,155
------------------------------
TOTAL NON-CURRENT LIABILITIES 233,319,328 235,897,155
------------------------------
TOTAL LIABILITIES 313,865,413 292,573,962
------------------------------
MINORITY INTERESTS IN SUBSIDIARIES 125,227,021 126,736,381
------------------------------
SHAREHOLDERS' EQUITY 99,307,363 101,251,829
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 538,399,797 520,562,172
===========================================================================
</TABLE>
The accompanying notes and schedules are an integral part of these consolidated
financial statements.
<PAGE> 3
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENT OF INCOME/(LOSS)
For the fiscal year commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
(Notes 1 and 2)
<TABLE>
<CAPTION>
==========================================================================================
December 31, 1998 December 31, 1997 (1)
(Pesos) (Pesos)
--------------------------------------------
<S> <C> <C>
Net sales 200,836,538 117,126,629
Cost of sales (Schedule H) (149,993,368) (92,643,101)
--------------------------------------------
GROSS PROFIT 50,843,170 24,483,528
--------------------------------------------
Marketing expenses (Schedule H) (15,032,060) (5,386,880)
Administrative expenses (Schedule H) (8,113,198) (5,365,143)
Other income (Expenditure), Net (Note 18) 2,915,742 (97,800)
Financial gain/(loss) (Note 19)
Generated by assets 2,417,783 1,608,478
Generated by liabilities (23,675,722) (12,736,119)
Income tax (10,343,847) (1,690,721)
Ordinary loss on minority interests in
subsidiaries (687,449) (1,073,081)
--------------------------------------------
ORDINARY LOSS (1,675,581) (257,738)
Extraordinary loss (Note 20) (543,202) (356,633)
Extraordinary income from minority
interests in subsidiaries 274,317 180,100
--------------------------------------------
NET LOSS FOR THE YEAR (1,944,466) (434,271)
==========================================================================================
</TABLE>
The accompanying notes and schedules are an integral part of these consolidated
financial statements.
(1) EDEA S.A. Started operations in June 2, 1997
<PAGE> 4
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the fiscal year commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
(Notes 1 and 2)
<TABLE>
<CAPTION>
================================================================================================================
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
-----------------------------------------
<S> <C> <C>
CHANGES IN FUNDS
Funds at beginning of year 2,783,222 6,000
Increase in funds 284,139 2,777,222
-----------------------------------------
Funds at end of year 3,067,361 2,783,222
=========================================
CAUSES OF CHANGES IN FUNDS
SOURCES OF FUNDS
Ordinary loss for the year (1,675,581) (257,738)
Plus: Items not entailing applications of funds
Intangible asset amortization 2,441,832 1,096,795
Accrued intercompany liabilities pending payment 2,670,693 3,494,686
Expenses and purchases pending payment 17,235,483 17,783,848
Accrued social security and taxes pending payment 4,050,373 2,823,314
Accrued net financial income/(loss) pending payment 6,098,482 5,614,262
Intercompany accrued net financial/(loss) pending payment 14,033 109,472
Fixed asset depreciation 11,213,573 5,931,789
Labor contingencies under art. 26 accrued in the period 444,330 197,118
Net book value of fixed assets written off 11,737 --
Materials used up and others 1,280,736 1,101,915
Bad debt allowance (Net increase) 695,153 --
Provision for lawsuits 120,000 --
Tax on minimum hypothetical income 518,357 --
Tax on financial cost 912,337 --
Net loss from minority interest in subsidiaries 687,449 1,073,081
-----------------------------------------
48,394,568 39,226,280
-----------------------------------------
Less: Items not entailing sources of funds
Accrued intercompany sales pending collection (3,919) (57,383)
Intangible assets written off (32,973) --
Accrued interest pending collections (1,552) --
Sales pending collection (33,109,763) (32,065,384)
-----------------------------------------
(33,148,207) (32,122,767)
-----------------------------------------
FUNDS GENERATED BY ORDINARY OPERATIONS 13,570,780 6,845,775
-----------------------------------------
Extraordinary loss for the year (268,885) (176,533)
Plus: Items not entailing applications of funds
Increase in allowances 560,293 356,633
Less: Items not entailing sources of funds
Increase in other receivables (17,091) --
Income on minority interest in subsidiaries (274,317) (180,100)
-----------------------------------------
FUNDS GENERATED BY EXTRAORDINARY OPERATIONS -- --
-----------------------------------------
FUNDS GENERATED BY OPERATIONS (CARRIED FORWARD) 13,570,780 6,845,775
================================================================================================================
</TABLE>
<PAGE> 5
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the fiscal year commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
(Notes 1 and 2) (Continued)
<TABLE>
<CAPTION>
====================================================================================================================
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
----------------------------------------
<S> <C> <C>
FUNDS GENERATED BY OPERATIONS (BROUGHT FORWARD) 13,570,780 6,845,775
----------------------------------------
OTHER SOURCES OF FUNDS
Bank and financial loans, net of payments 14,870,575 13,005,000
Collections of receivables at beginning of year/Transferred 28,140,478 37,075,035
Collection of intercompany receivables at beginning of year 70,801 --
Increase in other liabilities transferred -- 51,001,000
Increase in intercompany liabilities -- 30,150,000
Capital contributions -- 101,683,100
Minority interest in subsidiaries -- 123,592,050
Negotiable bonds -- 230,000,000
Increase in other liabilities 161,838 112,114
Net changes in tax liabilities 3,785,322 5,206,486
----------------------------------------
TOTAL OTHER SOURCES OF FUNDS 47,029,014 591,824,785
----------------------------------------
TOTAL SOURCES OF FUNDS 60,599,794 598,670,560
----------------------------------------
APPLICATIONS OF FUNDS
Increase in other receivables (93,456) (44,248,933)
Increase in fixed assets (21,693,713) (417,053,756)
Payment of salaries and social security charges at beginning of year (3,874,715) --
Payment of other liabilities at beginning of year (803,255) --
Payment of commercial debts at beginning of year/transferred (19,153,142) (51,000,000)
Payment of financial loans at beginning of year (5,539,722) --
Payment of intercompany liabilities (5,347,509) (21,000,000)
Others -- (1,650)
Increase in receivables transferred at beginning of year -- (43,354,153)
Dividends paid (1,922,493) --
Increase in intangible assets (1,887,650) (19,234,846)
----------------------------------------
TOTAL APPLICATIONS OF FUNDS (60,315,655) (595,893,338)
----------------------------------------
INCREASE IN FUNDS 284,139 2,777,222
====================================================================================================================
</TABLE>
The accompanying notes and schedules are an integral part of these consolidated
financial statements.
<PAGE> 6
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal year commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS
The Company has consolidated its balance sheet at December 31,
1998 and 1997, the statements of income/(loss) and cash flows
for the fiscal years commenced January 1, 1998 and February
20, 1997 and ended December 31, 1998 and 1997, with the
balance sheet at December 31, 1998 and 1997 and the statements
of income/(loss) and cash flows for the fiscal years commenced
January 1, 1998 and February 20, 1997 and ended December 31,
1998 and 1997 of its Subsidiary Company Inversora Electrica de
Buenos Aires S.A. on a line-by-line basis, following the
procedure established by technical Resolution No. 4 of the
Argentine Federation of Professional Councils of Economic
Sciences (FACPCE). EDEA S.A. started operations on June 2,
1997.
The following data reflect the corporate control:
<TABLE>
<CAPTION>
Subsidiary Principal line of business Percentage held
----------------------- -------------------------------------------- ---------------
<S> <C> <C>
Inversora Electrica de Equity interest in Empresa Distribuidora de 55%
Buenos Aires S.A. Energia Atlantica S.A. (EDEA S.A.). It holds
the corporate control (90%).
</TABLE>
NOTE 2: FINANCIAL STATEMENT PRESENTATION AND ACCOUNTING POLICIES
The financial statements of the subsidiary have been prepared
based on criteria consistent with those applied by Buenos
Aires Energy Company S.A. for preparing its financial
statements.
For purposes of comparison, the balances at December 31, 1997
have been reclassified to state them on a consistent basis
with those of the Current year.
In addition, the principal valuation and disclosure criteria
used for preparing the consolidated financial statements of
the subsidiary at December 31, 1998, which have not been
explained in the note on accounting policies of the
Controlling Company, are as follows:
<PAGE> 7
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
a. Investments
These correspond to units in mutual funds, which have
been valued at their quotation value at closing date.
b. Other receivables
These include, among others, the following:
- Receivables for the supply of electricity
not transferred to EDEA S.A. and for which
negotiations have been initiated with the
Ministry of Works and Public Services of the
Province of Buenos Aires, as mentioned in
Note 5 to the consolidated financial
statements. Only for accounting purposes,
these receivables have been disclosed at a
value of Pesos 1.
c. Fixed assets
The value of the fixed assets transferred to EDEA
S.A. for the rendering of public utility services has
been determined considering the purchase price paid
by the majority shareholder (Buenos Aires Energy
Company Sociedad Anonima) for the capital stock, less
the assets and liabilities transferred by the
Licensor.
Based on a technical appraisal report issued by
independent experts, EDEA S.A. has assigned the total
value to the different captions forming part of the
fixed assets transferred, as well as their remaining
useful life. Depreciation has been calculated
following the straight-line method.
Additions carried out subsequently have been
disclosed in constant currency values.
<PAGE> 8
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
The values thus determined are disclosed net of their
corresponding accumulated depreciation calculated
based on the straight-line method, taking the
estimated useful lives of the assets.
Materials and spare parts in stock at closing date,
considered as fixed assets, were valued at their
estimated replacement cost at that date. Consumption
of such assets is included in the cost of sales for
the year in which they were used up.
The value of the Fixed Assets, taken as a whole, does
not exceed their estimated recoverable value, as
disclosed by business projections taken as a whole.
d. Intangible assets
This caption includes the following items:
- EDEA S.A.'s obligation to bear certain costs
and/or expenses, in accordance with the
License agreement.
- Pre-operating and organization expenses of
EDEA S.A.
- Labor commitments with EDEA S.A.'s personnel
determined through actuarial estimates, as
described in Note 17 to the consolidated
financial statements.
- EDEA S.A.'s Systems development expenses.
Intangible assets will be amortized based on the
straight-line method over fifteen years calculated on
a monthly basis, considering the first management
period, mentioned in Note 10 to the consolidated
financial statements. Systems development expenses
will be amortized based on the straight-line method
over a maximum five-year period.
Additionally, this caption includes the following
items:
<PAGE> 9
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
- Payment made for Consulting work and
expenses engaged for purposes of the
International Public Bid for the purchase of
the Share Capital of Empresa Distribuidora
de Energia Atlantica Sociedad Anonima -
#11.3.j. of the Terms and Conditions for the
Bid. These expenses are amortized under the
straight-line method over fifteen years
calculated on a monthly basis, considering
the first management period mentioned in
Note 10 to the consolidated financial
statements.
- Other expenses relating to the International
Public Bid mentioned above, in addition to
those provided for in #11.3.j. of the Terms
and Conditions for the Bid, which are
amortized under the same method and over the
same period.
- Other expenses relating to the bridge loan
granted by Citibank N.A. Bahamas Branch to
make the irrevocable contribution to EDEA
S.A. These expenses are amortized in line
with the straight-line method, over the life
of the negotiable bond program (5 and 7
years), which replaced the loan mentioned,
calculated on a monthly basis.
- Expenses connected with the issuance of the
Negotiable Bonds - Note 8 -. These expenses
are amortized in line with the straight-line
method, over the life of the negotiable bond
program (5 and 7 years), calculated on a
monthly basis.
e) Other assets
Includes a time deposit with Mercobank S.A.,
maturing in 2001, together with shares and
bonds received from that bank as settlement
of restricted savings account and checking
account balances of EDEA S.A., deposited
with Banco Credito Provincial, as mentioned
in Note 20 to the consolidated financial
statements. These assets are disclosed at
their estimated replacement value.
<PAGE> 10
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: BREAKDOWN OF BALANCE SHEET CAPTIONS
Balance Sheet
As at December 31, 1998 and 1997, the breakdown of balance
sheet captions is as follows:
<TABLE>
<CAPTION>
a. Cash and Banks
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
------- -------
<S> <C> <C>
Cash 16,047 16,282
Imprest fund 42,568 25,310
Fund collected to be deposited 203,862 110,841
Banks 2,260,467 1,082,037
Bank in foreign currency (Schedule G) 304 24,144
----------- -----------
TOTAL 2,523,248 1,258,614
=========== ===========
b. Trade receivables
CURRENT
Trade debtors 40,947,429 37,151,393
Energy supplied pending invoicing 19,721,000 18,203,567
Others 6,792,656 6,786,665
----------- -----------
SUBTOTAL 67,461,085 62,141,625
Less: Bad debt allowance (Schedule E) (17,479,462) (21,239,847)
----------- -----------
SUBTOTAL 49,981,623 40,901,778
----------- -----------
NON-CURRENT
Trade debtors (1) 7,483,705 1,363,136
Less: Bad debt allowance (Schedule E) (4,455,538) --
----------- -----------
SUBTOTAL 3,028,167 1,363,136
----------- -----------
TOTAL 53,009,790 42,264,914
=========== ===========
</TABLE>
(1) Includes refinanced agreements
<PAGE> 11
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (Continued)
<TABLE>
<CAPTION>
c. Other receivables
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
----------------- -----------------
<S> <C> <C>
CURRENT
Documents with first maturity following
April 1, 1997, (less than 60-day default
as at June, 2 1997) 403 403
Non-transferred documents included in
Circular No. 88 of the Terms of Reference
and Conditions 874 874
Miscellaneous 12 12
----------------- -----------------
SUBTOTAL (NOTE 5) 1,288,983 1,288,983
Bad debt allowance (Schedule E) (1,288,982) (1,288,982)
Employees Stock Ownership Plan 1,559,972 906
VAT credit 359 358
Miscellaneous advance payments 127 189
Intercompany receivables
United utilities Int. Ltd. 3 --
Empresa de Energia Rio Negro S.A. -- 69
Receivables from the staff 187 540
Banco Credito Provincial (Note 20) -- 713
Receivables from ESEBA S.A. 903 603
Other receivables 252 46
----------------- -----------------
SUBTOTAL 3,391,004 3,423,890
----------------- -----------------
NON-CURRENT
Loans to personnel 355 162
Employee Stock Ownership Plan 37,148,334 39,494,261
Banco Credito Provincial (Note 20) -- 1,664,291
Bad debt allowance
(Note 20 and Schedule E) -- (357)
----------------- -----------------
SUBTOTAL 37,502,967 40,963,668
----------------- -----------------
TOTAL 40,893,971 44,387,558
================= =================
</TABLE>
<PAGE> 12
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (Continued)
<TABLE>
<CAPTION>
d. Other assets
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
--------------- ---------------
<S> <C> <C>
Time deposit with Mercobank (Note 20) 574 --
Mercobank S.A. shares (Note 20) 933 --
Valuatio allowance (Note 20 and Schedule E) (324) --
Mercobank S.A. Bond "C" (Note 20) 741 --
Bad debt allowance (Note 20 and Schedule E) (593) --
--------------- -----------------
TOTAL 1,332,206 --
=============== =================
e. Commercial liabilities
In local currency
Suppliers 8,251,465 6,355,777
Provisions for invoices to be receive 5,842,853 5,315,880
--------------- ---------------
SUBTOTAL 14,094,318 11,671,657
--------------- ---------------
In foreign currency (Schedule G)
Suppliers 4,856,990 5,580,888
Provisions for invoices to be receive 1,121,322 1,957,508
--------------- ---------------
SUBTOTAL 5,978,312 7,538,396
--------------- ---------------
TOTAL 20,072,630 19,210,053
=============== ===============
</TABLE>
<PAGE> 13
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (Continued)
<TABLE>
<CAPTION>
f. Bank and financial loans
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
----------------------- ------------------
<S> <C> <C>
CURRENT
In foreign currency (Schedule G) (1)
Citibank 9,800,000 4,350,000
Banco Rio de la Plata 4,550,000 7,440,000
Banco del Buen Ayre 8,000,000 --
Banco Provincia de Buenos Aires -- 1,215,000
Bank Boston 5,600,000 --
Accrued interest 6,120,507 5,614,262
----------------------- ------------------
SUBTOTAL 34,070,507 18,619,262
----------------------- ------------------
In local currency
Bank Boston - overdraft 115 --
----------------------- ------------------
SUBTOTAL 34,070,622 18,619,262
----------------------- ------------------
NON-CURRENT
Negotiable Bonds (Schedule G) 230,000,000 230,000,000
----------------------- ------------------
TOTAL 264,070,622 248,619,262
======================= ==================
</TABLE>
(1) Periodically renewed loans
<PAGE> 14
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (Continued)
<TABLE>
<CAPTION>
g. Intercompany liabilities
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
--------------- ---------------
<S> <C> <C>
CURRENT
CNG International Corporation (Note 7 and
Schedule G) 858 424
Loma Negra S.A.-Note 7 and Schedule G) -- 424
United Utilities International Ltd. (Schedule G) 723 774
Camuzzi Argentina S.A 674 1,110,103
Camuzzi Argentina S.A. (Note 7 and Schedule G) 2,573,131 1,272,548
Camuzzi Gas Pampeana S.A 673 89
Central Piedra Buena S.A. (Schedule G) -- 1,610,728
United Utilities International Argentina S.A. 1,208,936 1,044,663
United Utilities International Argentina S.A.
(Schedule G) 111 --
--------------- ---------------
SUBTOTAL 6,820,807 6,748,969
--------------- ---------------
NON-CURRENT
Camuzzi Argentina S.A. (Note 7 and Schedule G) 765 1,836,000
CNG International Corporation (Note 7 and
Schedule G) 255 612
Loma Negra S.A. -Note 7 and Schedule G) -- 612
United Utilities International Ltd. (Schedule G) 360 1,080,000
--------------- ---------------
SUBTOTAL 1,380,000 4,140,000
--------------- ---------------
TOTAL 8,200,807 10,888,969
=============== ===============
h. Social security liabilities
Salaries payable 2 26
Social security charges payable 1,159,985 988
Accrued vacations 1,169,669 1,489,914
Provision for annual bonus based on efficiency 1,669,991 1,338,026
Provision for tourism assignment 50 52
--------------- ---------------
TOTAL 4,051,454 3,893,638
=============== ===============
</TABLE>
<PAGE> 15
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (Continued)
<TABLE>
<CAPTION>
i. Tax payables
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
--------------- --------------
<S> <C> <C>
National taxes
Law 23,681 83 83
VAT Debit 1,175,429 --
Tax on financial cost 912 --
Income tax 8,080,059 1,692,994
--------------- --------------
SUBTOTAL 10,250,479 1,775,640
--------------- --------------
Provincial taxes
Law 7,290 877 948
Law 9,038 481 520
Law 11,769 section 72 bis 353 587
Gross revenue tax 151 149
--------------- --------------
SUBTOTAL 1,862,590 2,203,708
--------------- --------------
Municipal taxes
Law 11,769 Section 72/Ter. 1,750,765 1,659,298
Law 10,740 808 1,469,107
--------------- --------------
SUBTOTAL 2,558,454 3,128,405
--------------- --------------
TOTAL 14,671,523 7,107,753
=============== ==============
j. Other liabilities
CURRENT
Labor commitment towards personnel (Note 17) 38 34
Inspection and control rate -- 586
User guarantee deposit 230 --
Miscellaneous 471 477
--------------- --------------
SUBTOTAL 739 1,097,132
--------------- --------------
NON-CURRENT
Labor commitment towards personnel (Note 17) 1,937,328 1,755,155
Miscellaneous 2 2
--------------- --------------
SUBTOTAL 1,939,328 1,757,155
--------------- --------------
TOTAL 2,678,377 2,854,287
=============== ==============
</TABLE>
<PAGE> 16
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: FIXED ASSETS TRANSFERRED
According to the Terms of Reference and Conditions for the
International and National Public Bid called for all the
shares of Empresa Distribuidora de Energia Atlantica S.A. and
the License Agreement, the fixed assets transferred by the
Licensor to EDEA S.A. include, among others, Properties,
Vehicles, Transformation Stations, Works in Progress,
Materials and Spare Parts and any other assets necessary for
the rendering of the public utility service existing at the
moment in which EDEA S.A. started its operations.
These assets shall only be used in connection with the
rendering of the public utility service, and shall be
transferred to the Province of Buenos Aires upon expiration of
the License.
NOTE 5: OTHER RECEIVABLES NOT TRANSFERRED
The subsidiary (EDEA S.A.) has started negotiations with the
Ministry of Works and Public Services of the province of
Buenos Aires, with respect to certain receivables for energy
supply and others which should have been transferred, as
construed by EDEA S.A. from the Share Transfer Agreement dated
June 2, 1997.
EDEA S.A. has accounted for such receivables, whose face value
amounts to pesos 1,288,983, as described in Note 3.c to the
consolidated financial statements.
NOTE 6: EMPLOYEE STOCK OWNERSHIP PROGRAM
Ordinary Class C shares of EDEA S.A., representing 10% of its
capital stock, were transferred to Inversora Electrica de
Buenos Aires to be held by Banco de la Provincia de Buenos
Aires as trustee, until the Employee Stock Ownership
Participation Program is implemented with them.
<PAGE> 17
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: (Continued)
Pursuant to Chapter XII of the Terms of Reference and
Conditions and to Clause Nine of Circular No. 36 for the
privatization of EDEA S.A., the employees of such Company who
elect to participate in the Stock Ownership Program shall pay
the purchase price of Ordinary Class C shares to the
Licensees, with the full amount of annual dividends
corresponding to such shares, net of the Trustee's fees and
the creation of a Guarantee and Repurchase Fund.
Accordingly, such receivable is disclosed under Other
Receivable in the consolidated financial statements. The
classification as current and non-current was made based on
the projection of dividends distributed and to be distributed
by EDEA S.A.
NOTE 7: LOANS FROM THE SHAREHOLDERS OF THE CONTROLLED COMPANY
On May 27, 1997, IEBA S.A. requested the financial assistance
of its shareholders, pro rata to their shareholdings, for the
payment of the price balance of the shares in Empresa
Distribuidora de Energia Atlantica S.A. The amounts obtained
were as follows:
Buenos Aires Energy Company S.A. U.S.$ 16,500,000 (1)
United Utilities International Limited U.S.$ 13,500,000
(1) Amount contributed by the shareholders of BAECO in
proportion to their shareholdings.
These loans were partially settled with the proceeds of the
issuance of Negotiable Bonds mentioned in Note 8 to the
consolidated financial statements and the balance was
renegotiated as follows:
<PAGE> 18
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: (Continued)
Loan from United Utilities International Limited for U.S.$
13,500,000
- U.S.$ 9,450,000 plus interest were settled on
September 24, 1997, with the proceeds of the
Negotiable Bonds.
- U.S.$ 2,250,000 were allocated to an irrevocable
contribution.
- U.S.$ 1,800,000 were refinanced in 5 semiannual
installments of U.S.$ 360,000 each, due as from March
31, 1998. Interest rate: LIBOR, 180-day rate.
Loan from the shareholders of BAECO S.A. for U.S.$ 16,500,000
- U.S.$ 11,400,000 plus interest were settled after
September 30, 1997, with the proceeds of the
Negotiable Bonds.
- U.S.$ 5,100,000 were refinanced in 5 semiannual
installments of U.S.$ 1,020,000 each, maturing on
March 31, 1998. Interest rate: LIBOR, 180-day rate.
The loans mentioned above outstanding at December 31, 1998,
plus interest, are disclosed in the consolidated financial
statements as current and non-current loans in accordance with
the renegotiations described above.
NOTE 8: ISSUANCE OF NEGOTIABLE BONDS
On September 24, 1997, IEBA S.A. issued Negotiable Bonds
non-convertible into shares, under the Negotiable Bond Program
approved by the CNV through Resolutions Nos. 11,880 and 11,898
dated September 8 and September 18, respectively.
The conditions of the issuance were as follows:
<PAGE> 19
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: (Continued)
Class A securities
. Face value: U.S.$ 100,000,000
. Annual interest rate: 8.65% payable semi-annually in
arrears
. Maturity of principal: September 16, 2002.
Class B securities
. Face value: U.S.$ 130,000,000
. Annual interest rate: 9.00%, payable semi-annually in
arrears
. Maturity of principal: September 16, 2004.
The main restrictions under the conditions for the issuance of
the Negotiable Bonds are the following:
Limitation on Additional indebtedness: The Issuer shall not,
create, incur, assume or issue either, directly or indirectly,
guarantee or in any manner become, either directly or
indirectly, liable for or with respect to it ("incur") or
tolerate any Indebtedness (including the Acquired
Indebtedness), except for Indebtedness falling within at least
one of the following categories:
(i) Indebtedness under the Securities and the Trust Agreement;
(ii) Indebtedness of the Issuer and of the Restricted
Subsidiaries outstanding at the Issue Date after giving effect
to the application of the proceeds of the sale of Securities;
(iii) Indebtedness of the Issuer or of any Restricted
Subsidiary; provided that, following such Indebtedness and
after giving effect thereto, (a) no Default or Event of
Default shall have occurred and be continuing, (b) the
Consolidated EBITDA Coverage Ratio of the Issuer determined on
a pro forma basis, for the last four fiscal quarters, taken as
a whole, and assuming such Indebtedness had been incurred on
the first day of such fourth quarter, had been at least 2.0 to
1.0; (iv) the Indebtedness incurred between the Issuer and any
Restricted Subsidiary; (v) Indebtedness incurred in Interest
Rate Agreements or Currency Agreements entered into with the
purpose of hedging the fluctuations of interest rates or
currency with respect to such Indebtedness and not for
<PAGE> 20
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: (Continued)
speculation purposes; (vi) (a) the Indebtedness of the Issuer
regarding (1) the purchase price of the property acquired in
the ordinary course of business or (2) obligations under other
transactions related to capital investments; and (b)
additional Indebtedness of EDEA provided that (x) such
Indebtedness is assumed in relation to EDEA's business and
operations, (y) such Indebtedness is not incurred in relation
to a Permitted Investment under subsections (vi) or (vii) of
the corresponding definition; and (z) immediately after the
assumption of an Indebtedness and after giving effect thereto,
the ratio (A) of the aggregate sum of EDEA's Total
Consolidated Indebtedness plus any Indebtedness of the Issuer
then incurred pursuant to subsection (a) above, to (B) EDEA's
Total Consolidated Capitalization, does not exceed 0.40 to
1.00; and (vii) the replacements, renewals, refinancing and
extensions of the Indebtedness described in clauses (i)
through (vii) above; provided, however, that any such
replacements, renewals, refinancing and extension (a) shall
not provide for any mandatory redemption, amortization or
sinking fund requirement in an amount in excess of the amounts
or at a date prior to the dates specified in the Indebtedness
being replaced, renewed, refinanced or extended, and (b) shall
not exceed the principal amount (plus accrued interest,
prepayment premium and costs of operations, if any) of the
Indebtedness.
Limitation on Restricted Payments: The Issuer shall not make,
and shall not permit any of the Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment unless:
(i) no Default or Event of Default had occurred and be
continuing at the time or after giving effect to such
Restricted Payment; (ii) (A) up to September 30, 2000, the
Consolidated EBITDA Coverage Ratio is at least 1.75 to 1.0 and
(B) thereafter the Issuer may incur an additional Indebtedness
of U.S.$1.00 pursuant to clause (iii) of the "Limitation on
Additional Indebtedness" covenant; and (iii) immediately after
giving effect to such Restricted Payment, the aggregate of all
Restricted Payments declared or made after the Issue Date does
not exceed the sum of: (a) the difference between the sum of
(1) 100% of cumulative Consolidated EBITDA (or if such
consolidated cumulative EBITDA is negative, less
<PAGE> 21
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: (Continued)
100% of such amount) and (2) the result of multiplying 1.5
times the Consolidated Net Interest Expense, in each instance
calculated for the fiscal year (taken as one accounting
period) commenced on June 2, 1997 and ended on the last day of
the last full fiscal quarter immediately preceding such
Restricted Payment for which quarterly or annual financial
statements of the Issuer are available, and (b) 100% of the
aggregate Net Proceeds received by the Issuer from the
issuance or sale, after the Issue Date, of Capital Stock
(other than Disqualified Capital Stock) of the Issuer or any
Indebtedness or other securities of the Issuer convertible
into Capital Stock (other than Disqualified Capital Stock) or
exercisable or exchangeable for Capital Stock of the Issuer
which have been so converted, exercised or exchanged, as the
case may be.
For purposes of determining the amounts expended for
Restricted Payments, cash distributed shall be valued at the
face value thereof and property other than cash shall be
valued at its Fair Market Value.
Notwithstanding the foregoing, the Company may make Permitted
Payments.
"Permitted Payments" include:
(x) the payment of any dividend within 60 calendar days after
the date of declaration thereof, if at such date of such
declaration the payment complied with the provisions of the
Trust Agreement, (y) the withdrawal of any Capital Stock or
Subordinated Indebtedness of the Issuer or of any Restricted
Subsidiary by conversion into or by exchange for, shares of
Capital Stock of the Issuer or of any Restricted Subsidiary
(other than Disqualified Capital Stock), or out of the
proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of the Issuer) of Capital Stock (other
than Disqualified Capital Stock) of the Issuer; and (z) the
withdrawal of any Subordinated Indebtedness of the Issuer by
exchange for or out of the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary) of
Subordinated Indebtedness of the Issuer permitted to be
incurred in accordance with the "Limitation on Additional
Indebtedness" covenant herein.
<PAGE> 22
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: (Continued)
In determining the amount of Restricted Payments permissible
under clause (iii) above, amounts expended pursuant to clauses
(x), (y) and (z) in the preceding paragraph shall be included
as Restricted Payments.
Limitation on liens. The Issuer shall not, whether indirectly
or directly, and shall not permit any of its Restricted
Subsidiaries to create, incur, assume or suffer to exist any
Lien (other than a Permitted Lien) of any kind upon any of
their respective property or assets now owned or hereafter
acquired (including any Capital Stock) or proceeds therefrom
securing any Indebtedness, unless the Securities and all the
amounts due under the Trust Agreement are equally and ratably
secured by such Lien upon such property, assets or proceeds,
together with (or prior to, in the event the obligation or
liability to be secured with such a Lien were a Subordinate
Indebtedness) the obligation or liability secured by such
Lien.
Ownership of voting stock of EDEA. The Issuer shall at all
times maintain ownership of at least 90% of the securities of
EDEA entitled to vote.
In addition to the aforementioned restrictions, there are
other restrictions related to the following:
Limitation on dividends and other payment restrictions
affecting the Subsidiaries.
Disposal of the proceeds of sales of assets.
Limitation on transactions with affiliates.
Limitation on mergers, mergers by absorption and sales of
assets.
Limitation on designation of unrestricted Subsidiaries.
<PAGE> 23
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: CALCULATION OF THE CONSOLIDATED EBITDA AND CONSOLIDATED
EBITDA COVERAGE RATIO
In accordance with the commitments under the issuance of
Negotiable Bonds, the breakdown of the calculation of the
EBITDA shall be the following:
<TABLE>
<S> <C> <C> <C>
NET CONSOLIDATED LOSS OF SUBSIDIARY (3,228,586)
PLUS:
Income tax 10,329,955
Financial gain/(loss) 23,534,447
Depreciation and Amortization 13,913,439
Minority interest 1,865,996
Extraordinary loss 543 50,187,039
------------------------ ------------------------
LESS:
Dividends from the minority interest
(Net of corresponding payments received
from the PPAP) (231)
Financial gain/(loss) (2,417,783)
Amortization of negative goodwill --
Extraordinary income -- (2,648,482)
------------------------ ------------------------
44,309,971
========================
</TABLE>
According to the commitments undertaken under the negotiable
Bond Issuance Program, the breakdown of the calculation of the
consolidated EBITDA coverage Ratio is as follows:
<TABLE>
<S> <C> <C>
Consolidated EBITDA (last four quarters) 44,309,971
---------- = 2.00
Consolidated interest expenses +
Dividends paid to third parties 22,197,508
</TABLE>
NOTE 10: MANAGEMENT PERIOD OF EDEA S.A.
In accordance with the provisions of Sections 6 through 12 of
the License Agreement, the term thereof shall be divided into
management periods. The first period shall extend for fifteen
years, as from takeover, and the remaining eight periods shall
be for ten years each, as from the end of the preceding
management period.
<PAGE> 24
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: (Continued)
At least six months prior to the end of each management
period, Inversora Electrica de Buenos Aires S.A. shall be able
to sell its holding of Class A shares of the Licensee -EDEA
S.A.- through an International Public Bidding called for by
the Ministry of Works and Public Services of the Province of
Buenos Aires.
NOTE 11: SECURITIES GRANTED BY THE CONTROLLED COMPANY
In compliance with section 38 of the License Agreement, Class
A Shares of EDEA, owned by Inversora Electrica de Buenos Aires
S.A., are pledged in security for the performance of the
obligations undertaken thereunder, under the following terms
and conditions:
* The pledged Class A shares shall be delivered to the
Licensor.
* The holders of Class A shares shall undertake the
obligation to increase this security by creating a
similar pledge on any Class A shares acquired
thereafter by the Licensee, as a result of new
capital contributions or capitalization of profits
and/or balances of capital adjustments and/or share
dividends.
* The pledge thus created shall be maintained during
the term of the License and such lien shall survive
the succeeding transfers of Class A shares.
NOTE 12: RESTRICTIONS ON THE TRANSFER OF SHARES
According to Section 16 of the License Agreement, Inversora
Electrica de Buenos Aires S.A., as majority shareholder of the
Class A shares of EDEA, shall not modify its holding of such
shares or sell then for five (5) years as from the date of the
enforcement of the License Agreement (June 2, 1997). Following
such five-year period, Inversora Electrica de Buenos Aires
S.A. shall be able to modify or sell its shareholding, prior
authorization of the Competent Authority.
<PAGE> 25
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: (Continued)
Pursuant to Section 16 in fine of the License agreement and to
Section 9 of the By-laws, the shareholders of Inversora
Electrica de Buenos Aires S.A. are restricted over a five-year
period as from the enforcement of the License (June 2, 1997)
from modifying their holding of such shares or selling the
shares of such Investment Company by a proportion and amount
exceeding FORTY NINE PERCENT (49%) of their respective
shareholdings of the Investment Company. Following such
five-year period, the shareholders will be allowed to dispose
of their shareholdings upon prior notice to the Provincial
Executive Power through the Relevant Authority, as provided
for in Provincial Law No. 11,769.
In addition, the technical operator of EDEA S.A. shall not,
over a five-year period as from the takeover (June 2, 1997)
modify his holding of such shares or sell its Class A shares
by a proportion and amount exceeding 39.20% of the total
shares representing the capital stock of the Company.
Following such five-year period, EDEA S.A. shall be able to
modify its shareholding or sell its Class A Shares subject to
the ordinary regulations set forth in connection with any of
the Company's shareholders.
NOTE 13: FORWARD CONTRACTS
At December 31, 1998, EDEA S.A. has energy sale forward
contracts, some of which were received as a result of the
privatization process, as follows:
- 31 contracts with cooperatives, maturing on year
2001,
- 21 contracts with large customers maturing between
1998 and year 2000.
<PAGE> 26
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: INVESTMENTS AND ELECTRIC ENERGY SUPPLY SYSTEM
It is EDEA S.A.'s responsibility to make the necessary
investments to ensure the rendering of the public service in
conformity with the quality levels set in the license
agreement, as well as to execute block energy purchase and
sale contracts that it considers necessary to cover the
current and future demand within the licensed area, in
addition to the energy purchase and sale contracts with
Central Termica San Nicolas S.A. and the cold reserve contract
with Eseba Generacion and Eseba S.A. or their predecessors,
which are a requirement of the license, and the lack of supply
cannot be given as a reason to be exempt from the
responsibility concerning its obligation to provide the
service.
NOTE 15: RESTRICTIONS ARISING FROM THE LICENSE AGREEMENT
The rights and obligations of EDEA S.A. arising from the
license agreement may not be assigned to any third party
without the prior consent of the Provincial Executive Power.
However, the prior consent of the Provincial Executive Power
shall not be necessary to assign to a third party, for the
purpose of granting a security, the economic rights arising
from the actual rendering of the utility service regarding
which the Licensee is entitled to render pursuant to the
license agreement.
NOTE 16: RESTRICTED ASSETS
EDEA S.A. shall be forbidden to create any mortgage, pledge,
lien or security interest in favor of third parties upon the
assets essential for the service. Notwithstanding the
foregoing, EDEA S.A. shall dispose without restrictions of
those assets which in the future may be deemed inadequate or
unnecessary for such purpose. This restriction shall not
extend to the creation of real property rights granted by EDEA
S.A. upon an asset at the moment of its acquisition, as a
security for the compliance of the payment of the purchase
price.
<PAGE> 27
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: LABOR COMMITMENTS TOWARDS EDEA S.A.'S PERSONNEL
In accordance with the provisions of Section 26 of the
Collective Bargaining Agreement, every employee availing
himself of the pension benefit plan, as well as his
beneficiaries, in the case of employees who may have died
while rendering services, shall be granted a bonus based on
his monthly remuneration and seniority.
According to the foregoing, the total cost recorded under
income for the period, based on actuarial estimates, is made
up of the following items:
<TABLE>
<CAPTION>
(Pesos)
-----------
<S> <C>
Costs of services 177
Interest costs 101
Amortization of initial commitment 166
-----------
Total 444
===========
</TABLE>
where Costs of Services represent the current estimated
actuarial value of the portion of indemnity attributable to
the year, Interest Cost corresponds to the interest on the
Projected Commitment and the Amortization is the portion
corresponding to the Initial Liabilities at June 2, 1997,
which amounted to Pesos 2,435,196, to be amortized in 15 equal
annual installments.
At December 31, 1998, the Projected Commitment has been
calculated in a total of Pesos 2,742,370 and the Cumulative
Commitment (current actuarial value of the portion of
indemnity attributable to past services) totalled Pesos
1,975,752.
Considering that the Cumulative Commitment should be disclosed
as a minimum, the Minimum Additional Liabilities are recorded
as a balancing entry under the Intangible Assets caption, for
a total of Pesos 1,334,304 at December 31, 1998.
<PAGE> 28
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: OTHER INCOME (EXPENDITURE), NET
At December 31, 1998 and 1997 the breakdown of this caption is
as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
(loss)/income (loss)/income
(Pesos) (Pesos)
------------------------ ------------------------
<S> <C> <C> <C> <C>
Recovery of bad debt allowance (Note 22 and Schedule E) 2,851,000 --
Provision for lawsuits (Schedule E) (120) --
Others 185 (98)
------------------------ ------------------------
TOTAL 2,915,742 (98)
======================== ========================
</TABLE>
NOTE 19: FINANCIAL INCOME/(LOSS)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
------------------------ ------------------------
<S> <C> <C> <C> <C>
GENERATED BY ASSETS
Surcharge for late payment 1,609,225 1,442,316
Interest 737 128
Exchange differences 72 38
------------------------ ------------------------
SUBTOTAL 2,417,783 1,608,478
------------------------ ------------------------
GENERATED BY LIABILITIES
Bank fees and expenses (643) (169)
Interest on financial transactions and others (22,108,084) (12,535,001)
Tax on financial cost (912) --
Exchange differences (13) (32)
------------------------ ------------------------
SUBTOTAL (23,675,722) (12,736,119)
------------------------ ------------------------
TOTAL (21,257,939) (11,127,641)
======================== ========================
</TABLE>
<PAGE> 29
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: RESTRICTION ON FUNDS
The Argentine Central Bank (the "BCRA") resolved, under
Resolution No. 365 dated August 20, 1997, the complete
suspension of the transactions of Banco Credito Provincial
S.A., except for those transactions related to the Central
Bank derived from monetary regulation and/or exchange
transactions; transactions related to purchase and credit
cards existing at that 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 pension and survivors'
benefits with funds provided by the National Administration of
Social Security.
In addition, on December 18, 1997, the BCRA through Resolution
No. 741 authorized the group of mayor depositors of Banco
Credito Provincial S.A., to integrate a retail commercial bank
named Mercobank S.A., created pursuant to the provisions of
section 7 of the Financial Institutions Law. Furthermore,
B.C.R.A. Resolution No. 742 resolved that the privileged
assets and liabilities of the Banco Credito Provincial S.A.
should be excluded.
Furthermore, the exclusion of privileged liabilities was
effected for a maximum total amount equivalent to the assets
excluded, and the transfer of these assets and liabilities to
Mercobank S.A. was authorized, as well as the subscription of
the capital stock by the major depositors for an amount of up
to Pesos 28,000,000.
Mercobank S.A. acknowledged EDEA S.A. deposits for Pesos
1,435,528 equivalent to 60% of the total amount owed by Banco
Credito Provincial, and EDEA, as major depositor, instructed
the institution about the application of these deposits for an
amount of up to Pesos 717,764 earmarked for the subscription
of 717,764 ordinary shares, with a face value of Pesos 1 each,
as irrevocable capital contribution.
In exchange for the difference in this connection, on May 19,
1998 the company received from Mercobank S.A. a certificate
covering a time deposit and on June 3, 1998 it collected the
coupon No. 1 plus interest accrued for Pesos 147,560. The
remaining coupon of Pesos 574,351 will mature on May 14, 2001
and the monthly collection of interest thereon was arranged.
<PAGE> 30
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: (Continued)
In exchange for the balance of privileged liabilities for
deposits not assumed by Mercobank S.A., EDEA S.A. would
receive Pesos 957,017 in Class C Participation Certificates of
the trust set up by Mercobank S.A., of which Promotora
Fiduciaria S.A. is the trustee; those certificates are
equivalent to 40% of the total amount owed by Banco Credito
Provincial S.A.
On August 25, 1998, Mercobank S.A. subscribed 215,620 ordinary
shares, with a face value of Pesos 1 each, through the
capitalization of Pesos 215,620 of the amount of the Class C
Participation Certificates of the trust mentioned in the
preceding paragraph. In view of this, the balance of those
certificates totals Pesos 741,397. The controlled company
decided to set up an allowance of Pesos 593,118, which
represents the portion of doubtful recovery of the value of
the class C certificates received by the Company.
At December 31, 1998, the Extraordinary net income/(loss)
caption includes the increase of Pesos 236,485 in the
aforementioned allowance during this year, net of differences
acknowledged by Mercobank S.A. for the deposits in checking
account and savings account timely effected by Banco Credito
Provincial S.A. and the allowance of Pesos 323,808 for the
valuation of Mercobank S.A.'s treasury stock at the estimated
recoverable value.
<PAGE> 31
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21: INTERCOMPANY TRANSACTIONS
As at December 31, 1998 and 1997, intercompany transactions
are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
(Pesos) (Pesos)
------------------ --------------------
<S> <C> <C> <C> <C>
TRANSACTIONS LOSS / (INCOME)
Camuzzi Gas Pampeana S.A. 734 16
Camuzzi Gas Pampeana S.A. (55) (30)
Camuzzi Argentina S.A. 1,222,939 (1) 1,855,001 (2)
Central Piedra Buena S.A. 6,109,488 1,225,917
CNG International Corporation 61 --
CEI Citicorp Holdings S.A. -- 82
Loma Negra S.A. -- 82
Empresa de Ene-gia Rio Negro S.A. -- (57)
United Utilities International Argentina S.A. 1,421,379 1,222,969
United Utilities International Ltd. 103 971 (3)
</TABLE>
(1) Includes Pesos 207,708 capitalized under Intangible
Assets.
(2) Includes Pesos 796,972 capitalized under Intangible
Assets.
(3) Includes Pesos 675,000 capitalized under Intangible
Assets.
NOTE 22: RECOVERY OF BAD DEBT ALLOWANCE, AGOSBA AND MUNICIPALITY OF
GENERAL ALVARADO
During this year, and based on the negotiation conducted by
EDEA S.A., the debt agreements involving AGOSBA and the
Municipality of General Alvarado transferred by ESEBA have
been refinanced. This refinancing led to a recovery of the bad
debt allowance estimated at the takeover date. This recovery
amounts to Pesos 551,000 and Pesos 2,300,000, respectively,
under the guarantees received and the concrete possibilities
of settling future installments by including certain municipal
taxes in the invoices of EDEA's users.
NOTE 23: ADVANCED DIVIDENDS
On July 28, 1998 the Board of Directors of EDEA S.A. approved
the distribution of dividends in advance for Pesos 8,568,000,
subject to the approval of the shareholders' meeting, of which
Pesos 7,711,200 corresponded to IEBA S.A. which had collected
them at the closing date.
<PAGE> 32
BUENOS AIRES ENERGY COMPANY S.A. AND ITS SUBSIDIARY
FIXED ASSETS
For the fiscal years commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
SCHEDULE A
<TABLE>
<CAPTION>
===========================================================================================================
OPENING VALUE
----------------------------------------------------------------------------------------
Value at Additions Value at
beginning for the end of
of year (Note 2.C) year Transfers Deletions year
(Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lines 237,294,808 -- -- -- 237,294,080
Connections 79,089,755 -- -- -- 79,089,755
Transformers 5,758,100 -- -- -- 5,758,100
Operation devices 26,262,121 -- -- -- 26,262,121
Substations 12,092,951 -- -- -- 12,092,951
Equipment 3,039,314 35 -- -- 3,074,271
Materials and spare parts 7,946,068 (2) 7,505,780 (5,837,082) (1,280,736) (1) 8,334,030
Meters in use 16,071,777 -- 2,471,501 -- 18,543,278
Tools 117 186 -- -- 303
Devices and instruments -- 137 -- -- 137
Computer equipment 589 663 -- -- 1,251,697
Communications equipment 56 52 -- -- 108
Facilities -- 143 -- -- 143
Furniture and fixtures 170 62 -- -- 232
Vehicles 298 1,872,909 -- (12) 2,158,543
Works in progress 3,744,548 10,871,180 3,365,581 -- 17,981,309
Land 2,222,151 411 -- -- 2,632,974
Buildings 21,200,363 273 -- -- 21,473,466
Advances to supplier -- 191 -- -- 191
--------------------------------------------------------------------------------
Total at December 31, 1998 415,951,841 22,402,742 -- (1,292,878) 437,061,705
--------------------------------------------------------------------------------
Total at December 31, 1997 -- 417,053,756 -- (1,101,915) 415,951,841
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
DEPRECIATION
-----------------------------------------------------------------------------------
For the year
------------------------------------------------------------------
Accumulated Accumulated Net carrying Net carrying
at beginning at end value at value at
of year Rate Amount(3) Deletions of year 12.31.98 12.31.97
(Pesos) % (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lines 3,132,422 232.00 5,573,428 -- 8,705,850 228,588,958 234,162,386
Connections 1,036,854 230.00 1,844,844 -- 2,881,698 76,208,057 78,052,901
Transformers 100 305.00 178 -- 278 5,480,097 5,658,073
Operation devices 456 300.00 812 -- 1,268,571 24,993,550 25,805,680
Substations 193 280.00 343 -- 536 11,556,771 11,900,030
Equipment 298 17.23/20.00 533 -- 831 2,243,148 2,740,898
Materials and spare parts -- -- -- -- -- 8,334,030 8,327,778
Meters in use 637 6.95/4.00 1,156,253 -- 1,793,203 16,750,070 15,434,822
Tools 5 3,333.00 69 -- 74 229 112
Devices and instruments -- 2,000.00 6 -- 6 131 --
Computer equipment 54 3,333.00 364 -- 419 833 534
Communications equipment 3 3,333.00 32 -- 35 73 53
Facilities -- 3,333.00 34 -- 34 109 --
Furniture and fixtures 3 2,000.00 43 -- 46 185 167
Vehicles 11 2,000.00 204 (405) 214 1,944,354 287
Works in progress -- -- -- -- -- 17,981,309 3,744,548
Land -- -- -- -- -- 2,632,974 1,840,441
Buildings 2 200.00 21 -- 22 21,451,303 21,198,853
Advances to supplier -- -- -- -- -- 191 --
--------------------------------------------------------------------------------------------------------
Total at December 31, 1998 5,931,789 -- 11,213,573 (405) 17,144,957 419,916,748 --
--------------------------------------------------------------------------------------------------------
Total at December 31, 1997 -- -- 5,931,789 -- 5,931,789 -- 410,020,052
====================================================================================================================================
</TABLE>
Note:
(1) Includes consumption of materials and spare parts for Pesos 708,835
(included in Schedule H) and Other Expenditure for Pesos 571,901
(2) the opening balance of Pesos 381,710 corresponding to materials was
reclassified in fixed assets transferred by ESEBA.
(3) Included in Schedule H.
<PAGE> 33
BUENOS AIRES ENERGY COMPANY S.A. AND ITS SUBSIDIARY
INTANGIBLE ASSETS
For the fiscal years commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
SCHEDULE B
<TABLE>
<CAPTION>
==============================================================================
Principal Account Opening value
-----------------------------------------------------------
-----------------------------------------------------------
Value at Additions Value at
beginning for the end of
of year year Deletions year
(Pesos) (Pesos) (Pesos) (Pesos)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pre-operating
and organization
expenses 1,903,006 919 -- 2,821,829
Consulting fees
and other
expenses re.
international
public bidding
for the purchase
of EDEA S.A.'s
shareholding 5,765,495 -- -- 5,765,495
Expenses re. the
issue of
Negotiable
Bonds 4,381,288 -- (147) 4,233,826
Expenses re. Loan
from Citibank 4,636,232 -- -- 4,636,232
Costs and
Expenses assumed
under the License
Agreement 3,424,095 172 -- 3,596,330
Labor
undertakings as
per Section 26
Collective
Bargaining
Agreement
(Note 17) 1,733,370 -- -- 1,733,370
Systems
development 501 797 -- 1,297,359
------------------------------------------------------------
Total at
December
31, 1998 22,344,253 1,887,650 (147) (24,084,441)
------------------------------------------------------------
Total at
December
31, 1997 -- 22,344,253 -- 22,344,253
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================================
Principal Account Depreciation
----------------------------------------------------------------------------
For the year
----------------------------------------------------------------------------------------------------------
Accumulated Net book Net book
at beginning Accumulated value at value at
of year Rate Deletions(1) at end 12.31.98 12.31.97
(Pesos) % Amount(1) (Pesos) of year (Pesos) (Pesos)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-operating
and organization
expenses 60 667.00 152 -- 212 2,609,433 1,843,029
Consulting fees
and other
expenses re.
international
public bidding
for the purchase
of EDEA S.A's
shareholding 224 667.00 384 -- 609 5,156,912 5,541,280
Expenses re. the
issue of
Negotiable
Bonds 245 20.00/14.30 735 (33) 947 3,287,130 4,136,371
Expenses re. Loan
from Citibank 435 20.00/14.30 745 -- 1,180,217 3,456,015 4,201,415
Costs and
Expenses assumed
under the License
Agreement 114 667.00 232 -- 346 3,250,404 3,310,269
Labor
undertakings as
per Section 26
Collective
Bargaining
Agreement
(Note 17) 114 -- 258 -- 399 1,334,304 1,592,338
Systems
development 19 20/33.33 193 -- 212 1,085,523 482
----------------------------------------------------------------------------------------------------------
Total at
December
31, 1998 1,237,827 -- 2,699,866 (33) 3,904,720 20,179,721 --
----------------------------------------------------------------------------------------------------------
Total at
December
31, 1997 -- -- 1,237,827 -- 1,237,827 -- 21,106,426
============================================================================================================================
</TABLE>
Note:
(1) Pesos 2,408,859 for Amortization of Intangible Assets and Pesos 258,034 are
included under Salaries and Wages in Schedule H.
<PAGE> 34
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
INVESTMENTS
Consolidated Balance Sheet at December 31, 1998 and 1997
SCHEDULE C
<TABLE>
<CAPTION>
====================================================================
BOOK VALUE BOOK VALUE
at 12.31.98 at 12.31.97
ITEM (Pesos) (Pesos)
- --------------------------------------------------------------------
<S> <C> <C>
CURRENT INVESTMENTS
Mutual funds
Provinfondos 544 1,524,608
--------------------------------
TOTAL CURRENT INVESTMENTS 544 1,524,608
--------------------------------
TOTAL INVESTMENTS 544 1,524,608
====================================================================
</TABLE>
<PAGE> 35
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
ALLOWANCES
For the fiscal years commenced January 1, 1998 and February 20, 1997 and
ended December 31, 1998 and 1997
SCHEDULE E
<TABLE>
<CAPTION>
====================================================================================================================================
Opening Additions for Net book value Net book value
Balances the year Decrease at 12.31.98 at 12.31.97
Item (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS
Allowance for trade receivables 21,239,847 3,830,573 (1) 3,135,420 (2) 21,935,000 21,239,847
Allowance for other receivables 1,288,982 -- -- 1,288,982 1,288,982
Allowance for other assets 357 560 (3) -- 917 357
---------------------------------------------------------------------------------------------------
Total at December 31, 1998 22,885,462 4,390,866 3,135,420 24,140,908 --
---------------------------------------------------------------------------------------------------
Total at December 31, 1997 -- 22,923,857 (4) 38 -- 22,885,462
---------------------------------------------------------------------------------------------------
CARRIED UNDER LIABILITIES
For lawsuits -- 120 (5) -- 120 --
---------------------------------------------------------------------------------------------------
Total at December 31, 1998 -- 120 -- 120 --
---------------------------------------------------------------------------------------------------
Total at December 31, 1997 -- -- -- -- --
====================================================================================================================================
</TABLE>
Note:
(1) Included in Schedule H.
(2) Pesos 2,851,000 were included in Other income (expenditure), net
(note 18 and 22) and Pesos 284,420 correspond to allowances used
during the year
(3) Included in Extraordinary Net income / (loss) (Note 20)
(4) Pesos 22,567,224 determined as at the takeover
(5) Included in Other income (expenditure), net (Note 18)
<PAGE> 36
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
FOREIGN CURRENCY ASSETS AND LIABILITIES
Consolidated Balance Sheet at December 31, 1998 and 1997
SCHEDULE G
<TABLE>
<CAPTION>
==================================================================================================================================
Amount in Amount in
Argentine Argentine
currency currency
Type and amount of at 12.31.98 at 12.31.97
ITEMS foreign currency Exchange rate (Pesos) (Pesos)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and banks
Trade & Commerce U.S.$ 304 10,000,0000 304 24
--------------------------------------
TOTAL CURRENT ASSETS 304 24
--------------------------------------
TOTAL ASSETS 304 24
--------------------------------------
CURRENT LIABILITIES
Commercial liabilities U.S.$ 5,978,312 10,000,0000 5,978,312 7,538,396
Bank and financial loans (including interest) U.S.$ 34,070,507 10,000,0000 34,070,507 18,619,262
Intercompany liabilities
Camuzzi Argentina S.A. U.S.$ 2,573,131 10,000,0000 2,573,131 1,272,548
CNG International Corporation U.S.$ 858 10,000,0000 858 424
Loma Negra S.A. -- -- 424
United Utilities International LTD U.S.$ 723 10,000,0000 723 774
United Utilities International Argentina
S.A. GB(pound) 67 16,627,0000 111 --
Central Piedra Buena -- -- 1,610,728
--------------------------------------
TOTAL CURRENT LIABILITIES 44,313,764 30,663,306
--------------------------------------
NON-CURRENT LIABILITIES
Bank and financial Loans
Negotiable bonds - Principal U.S.$ 230,000,000 10,000,0000 230,000,000 230,000,000
Intercompany liabilities
Camuzzi Argentina S.A. U.S.$ 765 10,000,0000 765 1,836,000
CNG International Corporation U.S.$ 255 10,000,0000 255 612
Loma Negra S.A. -- 612
United Utilities International LTD U.S.$ 360 10,000,0000 360 1,080,000
--------------------------------------
1,380,000 4,140,000
--------------------------------------
TOTAL NON-CURRENT LIABILITIES 231,380,000 234,140,000
--------------------------------------
TOTAL LIABILITIES 275,693,764 264,803,306
==================================================================================================================================
</TABLE>
<PAGE> 37
BUENOS AIRES ENERGY COMPANY S.A.
AND ITS SUBSIDIARY COMPANY
INFORMATION REQUIRED UNDER ART. 64, CLAUSE (b) OF LAW 19,550
For the fiscal years commenced January 1, 1998 and February 20, 1997
and ended December 31, 1998 and 1997
SCHEDULE H
<TABLE>
<CAPTION>
===========================================================================================================================
Administrative Marketing Total Total
Cost of sales expenses expenses at 12.31.98 at 12.31.97
Items (Pesos) (Pesos) (Pesos) (Pesos) (Pesos)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchase of energy
and power 114,354,252 -- -- 114,354,252 71,136,331
Fees for services 2,268,047 960 444 3,671,794 2,518,076
Salaries and wages 15,056,604 2,302,906 4,689,324 22,048,834 12,832,933
Traveling expenses 284 330 117 731 361
Taxes and charges 2,314,849 -- 178 2,492,553 823
Fixed Asset 10,652,895 280 280 11,213,573 5,931,789
depreciation
Intangible Asset
amortization 231 2,004,741 173 2,408,859 1,096,795
Expenses and
Services hired for
maintenance and
operation 4,619,093 670 1,734,860 7,024,116 4,512,594
Postage,
communications and
data processing 125 978 3,149,395 4,251,862 3,516,455
General expenses
for operation 88 588 107 783 612
Bad debts -- -- 3,830,573 3,830,573 --
Advertising -- -- 329 329 54
--------------------------------------------------------------------------------------------
Total at December 31, 1998 149,993,368 8,113,198 15,032,060 173,138,626 --
--------------------------------------------------------------------------------------------
Total at December 31, 1997 92,643,101 5,365,143 5,386,880 -- 103,395,124
===========================================================================================================================
</TABLE>
<PAGE> 38
ANNEX I
BUENOS AIRES ENERGY COMPANY S.A.
US GAAP RECONCILIATION
<TABLE>
<CAPTION>
As of
December 31, 1998
$
----------------------------
<S> <C>
RECONCILIATION OF SHAREHOLDERS' EQUITY:
Total shareholders' equity under Argentine GAAP 99,307,363
U.S. GAAP ADJUSTMENTS:
Deferred Income taxes (1,917,948)
Deferral of expenses (3,232,187)
Depreciation expenses 183,003
Financing costs (3,456,015)
Investments 323,808
Minority interest 3,900,085
----------------------------
Total Shareholders' Equity under U.S. GAAP 95,108,109
============================
</TABLE>
<TABLE>
<CAPTION>
Twelve-month period ended
December 31, 1998
$
----------------------------
<S> <C>
RECONCILIATION OF NET LOSS:
Net loss under Argentine GAAP (1,944,466)
U.S. GAAP ADJUSTMENTS:
Deferred Income taxes (155,834)
Deferral of expenses (721,429)
Depreciation expenses 116,175
Financing costs 745,400
Investments 323,808
Minority interest (114,604)
----------------------------
Net Loss under U.S. GAAP (1,750,950)
============================
</TABLE>
