<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission file number 1-1098
THE COLUMBIA GAS SYSTEM, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
20 Montchanin Road, Wilmington, Delaware 19807
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (302) 429-5000
SINCE JULY 31, 1991, THE COLUMBIA GAS SYSTEM, INC. AND ITS
WHOLLY-OWNED SUBSIDIARY, COLUMBIA GAS TRANSMISSION CORPORATION, HAVE BEEN
OPERATING UNDER BANKRUPTCY COURT PROTECTION PURSUANT TO CHAPTER 11 OF THE
FEDERAL BANKRUPTCY CODE.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $10
Par Value: 50,573,335 shares outstanding at July 31, 1995.
<PAGE> 2
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1 Financial Statements
Statements of Consolidated Income 1
Condensed Consolidated Balance Sheets 2
Consolidated Statements of Cash Flows 3
Consolidated Statements of Common Stock Equity 4
Notes 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 38
Item 2 Changes in Securities 43
Item 3 Defaults Upon Senior Securities 43
Item 4 Submission of Matters to a Vote of Security Holders 43
Item 5 Other Information 43
Item 6 Exhibits and Reports on Form 8-K 43
Signature 44
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The Columbia Gas System, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -------------------
1995 1994 1995 1994
------ ------ -------- --------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas sales $297.6 $359.0 $1,131.8 $1,265.6
Transportation 129.1 114.3 276.9 299.9
Other 48.0 49.7 117.9 116.4
------ ------ -------- --------
Total Operating Revenues 474.7 523.0 1,526.6 1,681.9
------ ------ -------- --------
OPERATING EXPENSES
Products purchased 87.9 137.7 525.1 659.5
Operation 222.9 209.2 456.1 451.5
Maintenance 30.8 30.5 53.4 55.8
Depreciation and depletion 59.9 59.8 143.6 134.6
Other taxes 46.3 46.2 121.6 118.7
------ ------ -------- --------
Total Operating Expenses 447.8 483.4 1,299.8 1,420.1
------ ------ -------- --------
OPERATING INCOME 26.9 39.6 226.8 261.8
------ ------ -------- --------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 2.8 35.5 8.8 22.1
Interest expense and related charges* (6.7) (6.6) (12.2) 10.2
Reorganization items, net 21.8 8.3 32.5 12.3
------ ------ -------- --------
Total Other Income 17.9 37.2 29.1 44.6
------ ------ -------- --------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 44.8 76.8 255.9 306.4
Income Taxes 13.9 29.0 96.2 118.4
------ ------ -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 30.9 47.8 159.7 188.0
Cumulative effect of change in
accounting for postemployment benefits - - - (5.6)
------ ------ -------- --------
NET INCOME $ 30.9 $ 47.8 $ 159.7 $ 182.4
====== ====== ======== ========
EARNINGS PER SHARE OF COMMON STOCK
(based on average shares outstanding)
Before accounting change $ 0.61 $ 0.95 $ 3.16 $ 3.72
Change in accounting for postemployment benefits - - - (0.11)
------ ------ -------- --------
EARNINGS ON COMMON STOCK $ 0.61 $ 0.95 $ 3.16 $ 3.61
====== ====== ======== ========
AVERAGE COMMON SHARES OUTSTANDING (thousands) 50,568 50,559 50,566 50,559
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
*Due to the bankruptcy filings, interest expense of approximately $67 million
and $55 million has not been recorded for the three months ended June 30, 1995
and 1994, respectively, and approximately $132 million and $109 million has not
been recorded for the six months ended June 30, 1995, and 1994, respectively.
Reference is made to the accompanying Notes and Management's Discussion and
Analysis for information related to the Chapter 11 bankruptcy filings made by
The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a
wholly-owned subsidiary) on July 31, 1991.
1
<PAGE> 4
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The Columbia Gas System, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
-------------------------------------
June 30, 1995 December 31, 1994
------------- -----------------
(unaudited)
ASSETS (millions)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $ 6,729.2 $ 6,637.5
Accumulated depreciation and depletion (3,266.3) (3,180.8)
--------- ---------
Net Gas Utility and Other Plant 3,462.9 3,456.7
--------- ---------
Oil and gas producing properties, full cost method 1,259.5 1,261.9
Accumulated depletion (650.3) (637.6)
--------- ---------
Net Oil and Gas Producing Properties 609.2 624.3
--------- ---------
Net Property, Plant and Equipment 4,072.1 4,081.0
--------- ---------
INVESTMENTS AND OTHER ASSETS 279.7 306.4
--------- ---------
CURRENT ASSETS
Cash and temporary cash investments 1,906.7 1,481.8
Accounts receivable, net 396.5 547.8
Gas inventory 180.5 230.3
Prepayments 98.6 134.2
Other 116.9 91.0
--------- ---------
Total Current Assets 2,699.2 2,485.1
--------- ---------
DEFERRED CHARGES 285.6 292.4
--------- ---------
TOTAL ASSETS $ 7,336.6 $ 7,164.9
========= =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 1,628.0 $ 1,468.0
Long-term debt 4.0 4.3
--------- ---------
Total Capitalization 1,632.0 1,472.3
--------- ---------
CURRENT LIABILITIES
Accounts and drafts payable 127.2 153.2
Accrued taxes 151.8 175.2
Estimated rate refunds 76.3 92.2
Estimated supplier obligations 60.0 69.7
Overrecovered gas costs 151.1 59.5
Transportation and exchange gas payable 28.9 35.1
Other* 270.5 275.0
--------- ---------
Total Current Liabilities 865.8 859.9
--------- ---------
LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS 3,991.7 3,988.9
--------- ---------
OTHER LIABILITIES AND DEFERRED CREDITS
Income taxes, noncurrent 395.4 344.1
Postretirement benefits other than pensions 225.2 236.3
Other 226.5 263.4
--------- ---------
Total Other Liabilities and Deferred Credits 847.1 843.8
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $ 7,336.6 $ 7,164.9
========= =========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
*Due to the bankruptcy filings, estimated accrued interest of approximately
$862 million and $730 million has not been recorded as of June 30, 1995 and
December 31, 1994, respectively.
Reference is made to the accompanying Notes and Management's Discussion and
Analysis for information related to the Chapter 11 bankruptcy filings made by
The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a
wholly-owned subsidiary) on July 31, 1991.
2
<PAGE> 5
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The Columbia Gas System, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------------
1995 1994
-------- --------
(millions)
<S> <C> <C>
OPERATIONS ACTIVITIES
Net Income $ 159.7 $ 182.4
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 143.6 134.6
Deferred income taxes 31.4 67.3
Loss on sale of partnership interest 2.9 -
Change in accounting for postemployment benefits - 5.6
Other - net (8.4) (32.4)
Change in components of working capital:
Accounts receivable 171.5 181.0
Gas inventory 49.7 41.6
Prepayments 42.6 32.3
Accounts payable 2.0 (12.6)
Accrued taxes (30.0) (9.0)
Estimated rate refunds (42.9) (121.7)
Estimated supplier obligations (2.2) (16.0)
Overrecovered gas costs 91.6 10.3
Exchange gas payable (6.7) (11.6)
Other working capital (12.1) 78.4
-------- --------
Net Cash From Operations 592.7 530.2
-------- --------
INVESTMENT ACTIVITIES
Capital expenditures* (155.2) (165.6)
Other investments - net 12.6 (0.1)
-------- --------
Net Investment Activities (142.6) (165.7)
-------- --------
FINANCING ACTIVITIES
Retirement of long-term debt (0.4) (0.5)
Decrease in short-term debt and other financing activities (24.8) (10.7)
-------- --------
Net Financing Activities (25.2) (11.2)
-------- --------
Increase in Cash and Temporary Cash Investments 424.9 353.3
Cash and Temporary Cash Investments at Beginning of Year 1,481.8 1,340.4
-------- --------
Cash and Temporary Cash Investments at June 30** $1,906.7 $1,693.7
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 0.5 0.2
Cash paid for income taxes (net of refunds) 39.5 23.5
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
* Includes amounts transferred from cash paid to employees and for other
employee benefits and other operating cash payments.
**The Corporation considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Reference is made to the accompanying Notes and Management's Discussion and
Analysis for information related to the Chapter 11 bankruptcy filings made by
The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a
wholly-owned subsidiary) on July 31, 1991.
3
<PAGE> 6
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The Columbia Gas System, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
<TABLE>
<CAPTION>
As of
------------------------------
June 30, December 31,
1995 1994
-------- ------------
(unaudited)
(millions)
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, $10 par value, authorized
100,000,000 shares, outstanding 50,573,335 and 50,563,335
shares, respectively $ 505.7 $ 505.6
Additional paid in capital 602.1 601.9
Retained earnings 590.2 430.5
Unearned employee compensation (70.0) (70.0)
-------- --------
TOTAL COMMON STOCK EQUITY $1,628.0 $1,468.0
======== ========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
Reference is made to the accompanying Notes and Management's Discussion and
Analysis for information related to the Chapter 11 bankruptcy filings made by
The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a
wholly-owned subsidiary) on July 31, 1991.
4
<PAGE> 7
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The Columbia Gas System, Inc. and Subsidiaries
NOTES
1. Basis of Accounting Presentation
On July 31, 1991, The Columbia Gas System, Inc. (the Corporation) and
its wholly-owned subsidiary, Columbia Gas Transmission Corporation
(Columbia Transmission), filed separate petitions for protection under
Chapter 11 of the Federal Bankruptcy Code. As a result, the two
companies are operating their businesses as debtors-in-possession
under the jurisdiction of the United States Bankruptcy Court for the
District of Delaware (Bankruptcy Court) and cannot engage in
transactions outside the ordinary course of business without
Bankruptcy Court approval.
The accompanying consolidated financial statements reflect all
adjustments necessary, in the opinion of management, to present fairly
the results of operations in accordance with generally accepted
accounting principles applicable to a going concern. Such
presentation contemplates the realization of assets and payment of
liabilities in the ordinary course of business. As a result of
reorganization proceedings under Chapter 11, the debtor companies may
take, or be required to take, actions which may cause assets to be
realized, or liabilities to be liquidated, for amounts other than
those reflected in the financial statements. The appropriateness of
continuing to present consolidated financial statements on a going
concern basis is dependent upon, among other things, the terms of the
ultimate plan of reorganization and the ability to generate sufficient
cash from operations and financing sources to meet obligations. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts, or the amounts and classification of liabilities that might
be necessary as a result of the outcome of the uncertainties discussed
herein.
The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Corporation's 1994 Annual Report on Form 10-K and the 1995 First
Quarter Form 10-Q. Income for interim periods may not be indicative
of results for the calendar year due to weather variations and other
factors. Certain reclassifications have been made to the 1994
financial statements to conform to the 1995 presentation.
2. Bankruptcy Matters
Reorganization Proceedings
Under the Federal Bankruptcy Code, actions by creditors to collect
prepetition indebtedness are stayed and other contractual obligations
may not be enforced against either the Corporation or Columbia
Transmission. As debtors-in-possession, both the Corporation and
Columbia Transmission have the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject executory
contracts and unexpired leases. In this context, "rejection" means
that the debtor companies are relieved from their obligations to
perform further under the contract or lease but are subject to a claim
for damages for the breach thereof. Any damages resulting from
rejection are treated as general unsecured claims in the
reorganization. The parties affected by rejections of contracts by
Columbia Transmission have filed or may file claims with the
Bankruptcy Court in accordance with bankruptcy procedures.
5
<PAGE> 8
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Proposed Plans of Reorganization
The Corporation and Columbia Transmission filed plans of reorganization and
related disclosure statements with the Bankruptcy Court on April 17, 1995 which
have been subsequently amended. The amended plans of reorganization (Plans)
incorporate settlements Columbia Transmission reached with certain of its
producer creditors and with its customer creditors and describe the terms of
the new securities to be issued by the Corporation and the methodology to be
used in pricing these securities. The Plans provide that Columbia Transmission
will remain a wholly-owned subsidiary of the Corporation. Columbia Transmission
will continue to offer an array of transportation and storage services, and
will retain ownership of its approximately 19,000-mile pipeline network and
related facilities.
Assuming the Plans are confirmed as filed, management expects that the
Corporation will emerge with investment-grade debt ratings. Both Plans, as
filed, are contingent on numerous conditions being met including such items as
sufficient class acceptance of the Securities Litigation settlement, approval
of the Bankruptcy Court or the District Court of the settlements embodied in
the Plans, an Internal Revenue Service (IRS) ruling and Securities and Exchange
Commission (SEC) approval under the Public Utility Holding Company Act of the
financing and restructuring of the Corporation's Plan and the Corporation's
participation in Columbia Transmission's Plan, all of which are discussed in
more detail in the disclosure statements filed with the Plans. On July 18,
1995, the Bankruptcy Court approved the adequacy of Columbia Transmission's
disclosure statement with some modifications of a non-material nature. On July
27, 1995, the Bankruptcy Court approved the adequacy of the Corporation's
disclosure statement and issued orders approving procedures for Columbia
Transmission and the Corporation to proceed in soliciting votes of creditors
and equity securityholders in connection with the Plans. The Bankruptcy Court
also set the confirmation hearings on both Plans to begin November 13, 1995.
The Corporation's and Columbia Transmission's most recent Plans filed with the
Bankruptcy Court, together with their respective disclosure statements, were
filed on Form 8-K on August 4, 1995.
Corporation's Plan
The Corporation anticipates emergence by December 31, 1995, and proposes total
distributions at that time of approximately $3.6 billion to its creditors in
accordance with the provisions of its Plan, which includes $2.3 billion in
payment of the Corporation's prepetition debt and $1.1 billion of interest on
that debt. The Official Committee of Equity Security Holders for the
Corporation supports the Plan in its current form. The Official Committee of
Unsecured Creditors of The Columbia Gas System, Inc. (Creditors' Committee)
have a few remaining areas of disagreement with the Plans which they have
indicated do not affect the Creditors' Committee's basic support for the Plan.
The Corporation's Plan proposes paying creditors the full amount of their
principal balances and accrued prepetition and postpetition interest and
interest on overdue interest through distribution of:
o Approximately $2.1 billion in new debt securities, with maturities
ranging from 5 to 30 years; and
o About $200 million in preferred stock and $200 million in Dividend
Enhanced Convertible Securities(TM).
o About $900 million in cash, to be funded in large part by new bank debt;
6
<PAGE> 9
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The interest rates on the proposed new debt securities and the dividend rates
and other financial terms of the proposed new equity securities will be based
on market levels at the time of emergence. However, in connection with its
issuance of debt securities, the Corporation has requested SEC approval, and
will require Bankruptcy Court approval, to use hedging instruments to obtain
current market interest rates and limit its exposure to a potential rise in
long-term interest rates.
The Corporation's Plan also provides for the implementation of a settlement of
the class action litigation as described below.
Columbia Transmission's Plan
Columbia Transmission's Plan is supported financially by the Corporation, and
proposes a total distribution by December 31, 1995, or as soon thereafter as
practical, of approximately $3.9 billion to its creditors, including
approximately $2.2 billion to the Corporation to resolve its secured and
unsecured claims, about $1.2 billion to resolve producer claims, assuming 100
percent producer participation, and about $500 million to resolve other third
party claims. The Official Committee of Unsecured Creditors of Columbia Gas
Transmission Corporation (Columbia Transmission Creditors' Committee), Official
Committee of Customers of Columbia Gas Transmission, as well as major producer
creditors subject to the producer settlement agreement, described below,
support Columbia Transmission's Plan. In addition to incorporating terms of
the producer settlement agreement, the Plan incorporates terms of a settlement
with almost all firm customers, state regulatory agencies and consumer groups,
also discussed below.
The producer settlement agreement was approved by the Bankruptcy Court on June
16, 1995, and reflects settlements and minimum distributions for claims filed
against Columbia Transmission by 17 major gas producers and a significant
number of Appalachian producers (approximately 140). These producers represent
in aggregate approximately 70 percent of the producer claims amounts as filed
against Columbia Transmission, seven percent of the total number of producer
creditors and 80 percent of the approximate $1.6 billion that Columbia
Transmission's Plan proposes to recognize as the aggregate allowed claims level
for all producer claims. Subsequent to the Bankruptcy Court's approval of the
settlement an additional 330 producers agreed to settlement amounts with
Columbia Transmission bringing the total level of acceptance to approximately
76 percent of the total claims filed, approximately 23 percent of the total
producer creditors and approximately 92 percent of the aggregate amount of
allowed claims proposed in Columbia Transmission's Plan. On July 20, 1995,
Columbia Transmission filed a second producer settlement seeking the Bankruptcy
Court's approval of additional settlements reached with 89 of those producers.
The producer settlement agreement contemplates that distributions under
Columbia Transmission's Plan will occur no later than June 28, 1996. Columbia
Transmission's Plan reflects the provisions of the producer settlement
agreements. It also includes offers of settlement to producer claimants who
are not parties to the producer settlements approved by the Bankruptcy Court.
The Plan provides that producers who reject the settlement offers contained in
Columbia Transmission's Plan may continue to litigate their claims under the
Bankruptcy Court-approved estimation procedure and will receive the same
7
<PAGE> 10
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
percentage payout on their claims, when and if ultimately allowed, as received
by the settling producers. Columbia Transmission's Plan provides that, until
the total amount of contested producer claims is established, five percent of
the amount distributable to all producer claimants will be withheld.
The five percent holdback will be used with a matching contribution by
reorganized Columbia Transmission to the extent necessary, to fund
distributions on currently contested producer claims which are ultimately
liquidated in an aggregate amount in excess of those proposed by Columbia
Transmission's Plan. If the holdback is exhausted, any further increase would
be funded entirely by Columbia Transmission, backed by the Corporation's
guaranty.
Also incorporated in Columbia Transmission's Plan are the terms of a major
settlement between Columbia Transmission and Columbia Gulf Transmission Company
(Columbia Gulf), firm customers, state regulatory agencies and consumer groups
that resolves virtually all outstanding Federal Energy Regulatory Commission
(FERC) Order No. 636 (Order 636) transition cost, rate and bankruptcy matters
that were pending before the FERC. The FERC approved this settlement on June
15, 1995. Generally, the settlement defines Columbia Transmission's and
Columbia Gulf's refund obligations to their customers in pending regulatory
proceedings, and determines Columbia Transmission's ability to recover certain
costs associated with the restructuring of its services under Order 636,
including certain costs relating to issues pending in the bankruptcy
proceedings. The settlement contemplates payment of an estimated $170 million
in refunds, including postpetition amounts, to Columbia Transmission's
customers. In addition, an estimated $200 million will be collected from
Columbia Transmission's customers, depending upon when the settlement is
implemented. Refunds to be paid under the settlement resolve all issues
relating to the flowthrough of customer refunds involved in the bankruptcy
reorganization, all issues surrounding Columbia Transmission's collection of
gas purchase costs, its own Order No. 500/528 costs and gas inventory pipeline
charges, all issues surrounding Columbia Transmission's ability to flowthrough
upstream Order No. 528 amounts, including settlement of the Baltimore Gas &
Electric vs. FERC litigation, implementation of a previous rate case settlement
of Columbia Transmission and Columbia Gulf, and Columbia Transmission's
collection of payments made to terminate contracts with certain upstream
pipelines.
Columbia Transmission's Plan monetizes the enterprise value of Columbia
Transmission and provides for the Corporation's guaranty of all third-party
distributions required under the amended Plan. Columbia Transmission's Plan
proposes to pay:
o 100 percent of all priority and administrative claims, which together
amount to approximately $255 million;
o 100 percent of the Corporation's secured claim of approximately $2
billion, including interest, which will be funded with new debt
securities of reorganized Columbia Transmission and all of its equity;
o 100 percent of all unsecured claims of $25,000 or less, which together
amount to approximately $8 million;
o 72.5 percent of all miscellaneous unsecured creditor claims in excess
of $25,000, which together amount to approximately $40 million;
8
<PAGE> 11
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
o Approximately $160 million in customer refunds as provided under terms
of the settlement agreement between Columbia Transmission and its firm
service customers and certain other parties;
o 72.5 percent of the approximately $351 million of unsecured claims
of the Corporation; and
o Approximately $1.2 billion to producers (assuming 100 percent
acceptance of the allowed claim amounts proposed in the Plan).
Columbia Transmission's Plan proposes a total allowed amount of
producer claims of approximately $1.6 billion and proposes to make
distributions up to 72.5 percent to those creditors who have claims
under those contracts in excess of $25,000
Exclusivity Period
On May 18, 1995, the Bankruptcy Court approved an extension of the exclusivity
period for filing Plans or amendments to the Plans for both the Corporation and
Columbia Transmission to October 16, 1995, and the period for soliciting
acceptances to December 18, 1995.
Approval Process
The next steps in the bankruptcy process include the Bankruptcy Court's
approval of any additional settlements with producers. In addition, the
Corporation's Plan and the Corporation's financial participation in Columbia
Transmission's Plan require SEC approval under the Public Utility Holding
Company Act. After obtaining SEC approval, the Corporation will distribute its
Plan and disclosure statement as well as a report of the SEC to each of its
creditors and shareholders for voting purposes pursuant to procedures approved
by the Bankruptcy Court. Columbia Transmission will also distribute its Plan
and disclosure statement to its creditors for voting purposes pursuant to
procedures approved by the Bankruptcy Court. Management believes that all
regulatory, judicial, creditor and shareholder approvals can be obtained and
that distributions under the Plans can take place prior to December 31, 1995.
Internal Revenue Service
The Corporation has filed a request with the IRS for a ruling that payments to
be made by Columbia Transmission pursuant to its Plan to producers in
connection with their contract rejection claims will be deductible for tax
purposes. Because of the magnitude of the payments, obtaining a favorable
ruling from the IRS is a condition of both Plans. If a favorable IRS ruling is
not received by December 15, 1995, Columbia Transmission and the Corporation
may either waive the receipt of the ruling as a condition of the Plans or cause
the settlement of producer claims to be null and void.
Intercompany Complaint
On March 19, 1992, Columbia Transmission Creditors' Committee filed a complaint
(Intercompany Complaint) with the Bankruptcy Court alleging that the $1.7
billion of Columbia Transmission's secured and unsecured debt securities held
by the Corporation should be recharacterized as capital contributions (rather
than loans) and equitably subordinated to the claims of Columbia Transmission's
other creditors. The Intercompany Complaint also challenged interest and
dividend payments made by Columbia Transmission to the Corporation of
approximately $500 million for the period from 1988 to the petition date
9
<PAGE> 12
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
and the 1990 property transfer from Columbia Transmission to Columbia Natural
Resources, Inc. as an alleged fraudulent transfer. At the Bankruptcy Court's
request, the trial proceedings for the Intercompany Complaint were transferred
to the U.S. District Court for the District of Delaware (the District Court)
and were concluded in 1994, and the District Court was expected to render a
decision in the second quarter of 1995. However, the parties involved in this
litigation requested that the District Court defer a decision at this time
since Columbia Transmission's Plan provides for a resolution of the litigation.
In connection with the confirmation of Columbia Transmission's Plan, District
Court approval of the settlement will be sought.
Estimation Procedures
As a result of the events that led to Columbia Transmission's bankruptcy
petition filing in July 1991, and its subsequent rejection of more than 4,800
above-market gas purchase contracts with producers, Columbia Transmission
recorded liabilities of approximately one billion dollars for estimated
contract rejection costs. In addition, approximately $255 million of
take-or-pay and other miscellaneous producer liabilities have also been
recorded.
In 1992, the Bankruptcy Court approved the appointment of a claims mediator to
implement a claims estimation procedure related to the rejected above-market
producer contracts and other producer claims. On October 13, 1994, and
February 17, 1995 respectively, the claims mediator issued his Initial Report
and Recommendation of the Claims Mediator on Generic Issues for Natural Gas
Contract Claims and a Supplement to Initial Report and Recommendations of the
Claims Mediator (Report). The Report, which is subject to Bankruptcy Court
review and approval, establishes the parameters within which producers must
initially recalculate their contract rejection and take-or-pay claims. The
recalculated claims are subject to challenge and audit and adjustment based
upon claim-specific issues.
Columbia Transmission, together with the Columbia Transmission Creditors'
Committee, utilized the Report, along with other information and analyses of
the numerous contract-specific issues, to develop and agree upon a methodology
which Columbia Transmission has employed to formulate settlement offers (i.e.
proposed allowed claim amounts) under its Plan for all producer-creditors not
party to the initial producer settlement. Columbia Transmission believes these
proposed allowed claim amounts result in fair and equitable treatment to those
creditors and provide to them the same percentage distributions on their
allowed claims as that afforded the settling producers. Columbia
Transmission's Plan does not restrict the maximum allowed claim of any
non-settling producer who may elect to litigate its claim pursuant to the
claims-estimation process or otherwise.
The claims mediator requested that producers either file their claims
recalculation forms or notify Columbia. Transmission of their intention to
accept the proposed settlement amounts by June 30, 1995. Several hundred
producers who had filed proofs of claim in the bankruptcy did neither. As of
August 7, 1995, the claims recalculations as filed total approximately $2
billion. Many of these recalculated claims are incomplete or incorrect on
their face. To date, producers have admitted errors in the recalculations
amounting to over $1 billion. In addition, Columbia Transmission firmly
believes that a significant number of the recalculated claims contain other
substantial errors and that these claims are, in the aggregate, still
significantly inflated. Since filing recalculated claims, some producers have
settled with Columbia Transmission at amounts approximating the proposed
settlement values under the Plan. Such settlements, however, are not
necessarily indicative of the relative value of all remaining recalculated
claims, which must be evaluated on an individual basis. Columbia Transmission
is in the process of reviewing information provided by producers in order to
assess the remaining recalculated claims. Based on the information received
and evaluated to date, Columbia Transmission believes that many of the
remaining claims will also be settled at amounts approximating the settlement
values, but that some claims will be settled at higher amounts or may be
resolved in post confirmation litigation. Columbia Transmission does not have
sufficient information to fully evaluate all claims and the outcome of
litigation is subject to uncertainty, but it currently estimates that its
ultimate payment to producers after any litigation and after giving effect to
the producer holdback, may exceed the $1.2 billion distribution projected in
the Plan (which based on 100 percent producer acceptance) but should not exceed
$1.3 billion. The foregoing estimation is based on the information currently
available to Columbia Transmission, and there can be no assurance as to the
timing or amount of settlements with producers or as to the amount ultimately
allowed or paid with respect to the remaining claims.
Interest Expense
Interest expense of the Corporation is not being accrued during bankruptcy. An
estimate that totals approximately $862 million for the period from July 31,
1991, through June 30, 1995,
10
<PAGE> 13
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
is included in a footnote on the Consolidated Balance Sheets which was
calculated based on the methodology outlined in the Corporation's Plan filed
with the Bankruptcy Court. As explained in the Plan, the ultimate payout to
creditors will depend on, among other items, obtaining necessary approvals and
upon the acceptance of the Plan by the required number of creditors and
percentage of claims.
Securities Litigation
After the announcement on June 19, 1991, regarding the Corporation's probable
charge to second quarter earnings and the suspension of its dividend, 17
complaints including purported class actions were filed against the Corporation
and its directors and certain officers of the debtor companies in the District
Court (Securities Litigation). The actions, which generally allege violations
of certain anti-fraud provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934, have been consolidated. On October 31, 1994,
the class action plaintiffs filed an amended and consolidated complaint against
the non-debtor defendants in the District Court essentially alleging the same
causes of action as the previously filed complaints.
On July 18, 1995, the Corporation reached a settlement with respect to the
Securities Litigation. Under the terms of the settlement the Corporation would
pay approximately $16.5 million of the total $36.5 million settlement. The
remainder would be shared among the insurance carrier for the director and
officer defendants and the other defendants to the litigation. The settlement
is subject to approval by the District Court and conditioned upon the
Bankruptcy Court confirmation of the Corporation's Plan. The settlement would
be implemented after the Corporation's Plan is confirmed. The settlement
permits members of the class of opt-out of the settlement fund and to pursue
their claims independently. If the opt-outs exceed a specified amount the
defendants may elect to terminate the settlement.
Derivative Litigation
Also in 1991, three derivative actions were filed in the Court of Chancery in
and for New Castle County (Delaware) alleging that directors breached their
fiduciary duties (Derivative Litigation). On March 15, 1995, the Corporation's
Board of Directors formed a Special Litigation Committee to determine whether
proceeding with the litigation is in the best interest of the Corporation. On
July 17, 1995, the Special Litigation Committee reported to the Board of
Directors that, after an extensive investigation of the allegations asserted in
the derivative actions, the committee determined that it is in the best
interest of the Corporation to settle the litigation without payment of any
money by or on behalf of the director defendants in the derivative actions.
That determination was made in consideration of and subject to the settlement
of the Securities Litigation discussed above. Therefore, it is proposed that
the derivative actions be disposed of by the Corporation's Plan, consistent
with the findings of the Special Litigation Committee. The disposition of the
derivative actions by the Corporation is subject to approval by the Bankruptcy
Court at the hearing on confirmation of the Plan.
11
<PAGE> 14
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Prepetition Obligations of Debtor Companies
The accompanying consolidated balance sheet as of June 30, 1995, includes
approximately $4 billion of liabilities subject to the Chapter 11 proceedings
of the Corporation and Columbia Transmission as follows:
<TABLE>
<CAPTION>
($ in millions)
<S> <C>
Corporation
Total payable (primarily debt obligations) 2,382.6
Less: payable to affiliates 5.2
-------
Payable to nonaffiliates 2,377.4
-------
Columbia Transmission
Total payable 3,943.5
Less: payable to affiliates 2,329.2
-------
Payable to nonaffiliates 1,614.3
-------
Liabilities Subject to Chapter 11 Proceedings 3,991.7
=======
</TABLE>
Prepetition obligations of the Corporation primarily represent debentures,
notes, bank loans and commercial paper outstanding on the filing date together
with accrued interest to that date. Columbia Transmission's prepetition
obligations include secured and unsecured debt payable to the Corporation,
estimated supplier obligations, estimated rate refunds, accrued taxes and other
trade payables and liabilities. A substantial amount of Columbia
Transmission's liabilities subject to Chapter 11 proceedings relate to amounts
owed to the Corporation. Columbia Transmission's borrowings have been funded
by the Corporation on a secured basis since June 1985 and are secured by
mortgages and a cash collateral order approved by the Bankruptcy Court. On the
petition date, the principal amount of the First Mortgage Bonds outstanding was
$930.4 million. A secured inventory financing agreement of $410 million was
also outstanding on the petition date. Prepetition and postpetition interest
on secured debt owed by Columbia Transmission to the Corporation was
approximately $565 million at June 30, 1995. In addition to these secured
claims, the Corporation has an unsecured claim against Columbia Transmission of
$351 million in installment notes issued prior to 1985 and accrued interest to
the petition date.
12
<PAGE> 15
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Financial Information for the Debtor Companies
Below is condensed financial information for the Corporation and Columbia
Transmission as of, and for the six month period ended, June 30, 1995.
<TABLE>
<CAPTION>
Corporation Columbia Transmission
--------------------- ---------------------
As of As of
------------------------------ -----------------------------
June 30, December 31, June 30, December 31,
($ in millions) 1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current assets
Cash and temporary
cash investments 408.6 218.5 1,405.0 1,253.5
Other 160.9 205.6 279.7 360.2
Total current assets 569.5 424.1 1,694.7 1,613.7
Current liabilities (12.1) (14.8) (339.3) (330.0)
-------- -------- -------- --------
Working capital 557.4 409.3 1,355.4 1,283.7
Noncurrent assets 3,721.2 3,669.8 2,299.1 2,321.5
Estimated liabilities subject
to Chapter 11 proceedings (2,382.6) (2,382.5) (3,943.5) (3,862.3)
Noncurrent liabilities (268.0) (228.6) (174.0) (232.0)
-------- -------- -------- --------
NET EQUITY 1,628.0 1,468.0 (463.0) (489.1)
======== ======== ======== ========
</TABLE>
<TABLE>
<Capiton>
Six Months Six Months
Ended June 30 Ended June 30
------------------------- ------------------------
($ in millions) 1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating revenues - - 330.4 369.0
Operating expenses 12.2 3.9 240.0 255.4
----- ----- ----- -----
Operating income (loss) (12.2) (3.9) 90.4 113.6
Other income (deductions) 204.5 230.0 (46.4) (23.5)
Income taxes 32.6 43.7 17.9 31.4
Change in accounting - - - (3.1)
----- ----- ----- -----
NET INCOME 159.7 182.4 26.1 55.6
===== ===== ===== =====
NET CASH FROM OPERATIONS 32.3 29.1 203.2 101.3
===== ===== ===== =====
</TABLE>
3. Environmental Matters
As discussed in the 1994 Form 10-K, the Corporation's subsidiaries are
subject to extensive federal, state and local laws and regulations
relating to environmental matters. These laws and regulations require
expenditures for corrective action at various operating facilities,
waste disposal sites and former gas manufacturing sites for conditions
resulting from past practices. Comprehensive reviews of compliance
with existing environmental standards are being conducted. These
reviews include an evaluation of operating activities, site
investigations, and, when necessary, the formulation of remediation
programs. As these self-assessment programs continue, it is likely
that additional compliance costs will be identified and become subject
to reasonable quantification.
13
<PAGE> 16
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Virtually all of Columbia Transmission's future remediation work for
currently owned or operated facilities will be performed under the
United States Environmental Protection Agency (EPA) Consent Order
entered into earlier this year. The Consent Order specifically
requires Columbia Transmission to prepare, for EPA approval, work
plans and procedures for investigating and, where necessary,
remediating its facilities.
Columbia Transmission's environmental consultant is currently
performing a study to quantify the projected financial scope of
remediation activities to be undertaken in future years. However, due
to the extensive amount of information required to be reviewed, the
study is now not expected to be available until later in 1995.
14
<PAGE> 17
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATUS OF BANKRUPTCY PROCEEDINGS
A summary of events relating to the bankruptcy proceedings that have occurred
subsequent to the information reported in the 1995 First Quarter Form 10-Q
follows.
Plans of Reorganization
On June 14, 1995, the Corporation and Columbia Transmission filed amended plans
of reorganization (Plans) and related disclosure statements with the Bankruptcy
Court for consideration by their creditors and other interested parties. Both
Plans were again amended in a filing made with the Bankruptcy Court on July 17,
1995, and the Corporation's Plan was further amended on July 27, 1995.
The Plans incorporate a settlement reached earlier by Columbia Transmission and
certain of its producer creditors and approved by the Bankruptcy Court on
June 16, 1995, and the terms of a comprehensive customer settlement discussed
below. The Corporation's Plan provides for new securities to be issued to the
Corporation's creditors and the methodology to be used in pricing these
securities (see Note 2 for additional information).
On May 18, 1995, the Bankruptcy Court approved an extension of the exclusivity
periods for filing plans of reorganization or amendments to the plans of
reorganization for both the Corporation and Columbia Transmission to October
16, 1995, and the period for soliciting acceptances to December 18, 1995.
The Bankruptcy Court approved the adequacy of Columbia Transmission's and the
Corporation's disclosure statements on July 18, 1995, and July 27, 1995,
respectively. Confirmation hearings for the Plans have been set to begin
November 13, 1995 (see Note 2 for additional information).
Securities Litigation
After the announcement on June 19, 1991, regarding the Corporation's probable
charge to second quarter earnings and the suspension of its dividend, 17
complaints including purported class actions were filed against the Corporation
and its directors and certain officers of the debtor companies in the District
Court (Securities Litigation). The actions, which generally allege violations
of certain anti-fraud provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934, have been consolidated. On October 31, 1994,
the class action plaintiffs filed an amended and consolidated complaint against
the non-debtor defendants in the District Court essentially alleging the same
causes of action as the previously filed complaints.
On July 18, 1995, the Corporation reached a settlement that resolves the
Securities Litigation. Under the terms of the settlement the Corporation would
pay approximately $16.5 million of the total $36.5 million settlement. The
remainder would be shared among the insurance carrier for the director and
officer defendants and the other defendants to the litigation. The settlement
is subject to approval by the District Court and conditioned upon the
Bankruptcy Court confirmation of the Corporation's Plan. The settlement would
be implemented after the Corporation's Plan is confirmed.
15
<PAGE> 18
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATUS OF BANKRUPTCY PROCEEDINGS (CONTINUED)
Customer Settlement
The FERC approved on June 15, 1995, a settlement agreement among Columbia
Transmission and Columbia Gulf, firm customers, state regulatory agencies and
consumer groups encompassing virtually all outstanding regulatory proceedings
before the FERC. Generally, the settlement defines Columbia Transmission's and
Columbia Gulf's refund obligations to their customers in pending regulatory
proceedings, and determines Columbia Transmission's ability to recover costs
associated with the restructuring of its services under Order 636, including
certain costs relating to issues pending in the bankruptcy proceedings (see
Customer Settlement on page 24 for additional information).
16
<PAGE> 19
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GAS SALES AND TRANSPORTATION REVENUES
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Residential $ 171.2 $ 182.6 $ 715.2 $ 758.9
Commercial 55.2 65.3 257.0 299.4
Industrial 39.1 43.3 89.2 107.0
Wholesale 25.9 62.3 50.0 88.7
Other 6.2 5.5 20.4 11.6
Transportation 129.1 114.3 276.9 299.9
-------- -------- -------- --------
TOTAL $ 426.7 $ 473.3 $1,408.7 $1,565.5
======== ======== ======== ========
</TABLE>
OPERATING INCOME (LOSS) BY SEGMENT
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Transmission $ 35.9 $ 42.0 $ 112.5 $ 129.0
Distribution (7.9) (13.5) 108.3 98.9
Oil and Gas (0.2) 11.1 (0.3) 23.2
Other Energy 1.7 1.8 9.6 14.6
Corporate (2.6) (1.8) (3.3) (3.9)
-------- -------- -------- --------
TOTAL $ 26.9 $ 39.6 $ 226.8 $ 261.8
======== ======== ======== ========
</TABLE>
17
<PAGE> 20
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COMPARATIVE GAS OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1995 1994 1995 1994
------- ------- ------- --------
<S> <C> <C> <C> <C>
THROUGHPUT (BCF)
SALES
Residential 25.6 28.1 116.0 126.3
Commercial 10.1 11.7 46.7 54.4
Industrial 19.5 17.7 42.5 38.5
Wholesale 20.4 19.3 43.0 38.8
Other 9.0 9.0 20.7 17.2
Intersegment eliminations (9.4) (8.7) (19.9) (17.7)
------- ------- ------- -------
Total Sales Volumes 75.2 77.1 249.0 257.5
------- ------- ------- -------
TRANSPORTATION
Market Area
Transmission 194.7 182.2 595.9 599.7
Distribution 58.7 52.8 135.5 115.5
Columbia Gulf
Main-line 151.8 165.9 306.7 339.3
Short-haul 53.7 58.2 104.4 133.3
Intersegment eliminations (230.9) (244.6) (559.3) (604.2)
------- ------- ------- -------
Total Transportation Volumes 228.0 214.5 583.2 583.6
------- ------- ------- -------
Total Throughput 303.2 291.6 832.2 841.1
======= ======= ======= =======
SOURCES OF GAS SOLD (BCF)
Purchased 115.7 132.3 222.5 247.1
Produced 16.2 16.8 33.9 33.4
Exchange 5.2 (5.2) 2.7 (3.7)
Storage withdrawals (injections) (42.6) (57.4) 26.4 15.5
Other, net (9.9) (0.7) (16.6) (17.1)
Intersegment eliminations (9.4) (8.7) (19.9) (17.7)
------- ------- ------- -------
Total 75.2 77.1 249.0 257.5
======= ======= ======= =======
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
Actual 624 614 3,382 3,761
Normal 580 580 3,527 3,527
% Colder (warmer) than normal 8 6 (4) 7
% Colder (warmer) than prior period 2 - (10) 8
</TABLE>
18
<PAGE> 21
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
Three Months Results
Net Income (Loss)
For the second quarter of 1995 the Corporation's net income was $30.9 million,
or $0.61 per share, a decrease of $16.9 million, or $0.34 per share from the
same period last year. The decrease was primarily due to a $19.2 million 1994
net income improvement caused by a favorable FERC ruling. After adjusting for
the bankruptcy and unusual items, detailed below, the current period had a net
loss of $4.3 million while 1994 had net income of $1.7 million. The current
period loss includes the effect of lower natural gas prices and reduced oil
production volumes for the oil and gas segment, reduced sales for the
distribution segment and higher operating costs for the transmission segment.
Columbia Transmission made a general rate filing in August 1995 to provide the
opportunity to recover current operating costs which are higher than those
contained in its last rate case in 1991.
Adjusted net income includes the impact of higher estimated unrecorded interest
costs on prepetition debt obligations that, or on after-tax basis, amounted to
$43.7 million in the current quarter and $35.6 million last year. This
increase reflects the impact of higher short-term interest rates and the
increasing impact of interest on interest.
Bankruptcy Related and Unusual Items
After-tax effect on Net Income
(millions)
<TABLE>
<CAPTION>
Three Months
Ended June 30
-----------------
1995 1994 *
------ -------
<S> <C> <C>
Reported net income $30.9 $47.8
Less:
o Estimated interest costs not recorded on prepetition debt 43.7 35.6
o Capitalized interest not recorded (0.7) (2.7)
o Professional fees and related expenses (7.8) (5.7)
o Reserve adjustment for favorable FERC ruling - 19.2
o Other - (0.3)
----- -----
Total adjustments 35.2 46.1
----- -----
Net income after adjusting for bankruptcy and unusual items (4.3) 1.7
===== =====
</TABLE>
* In the second quarter 1994 Form 10-Q net income before bankruptcy related and
unusual items of $12.4 million was reported. Certain unusual items related to
the transmission operations that were reported in the second quarter of 1994 to
allow for a meaningful comparison of the operating results between that year
and the year earlier are no longer appropriate and consequently have been
eliminated.
Revenues
Operating revenues for the second quarter of 1995 were $474.7 million, down
$48.3 million from the same period last year, largely due to lower sales for
the distribution segment as well as reduced gas prices and sales volumes for
the oil and gas segment that were only partially offset by higher distribution
rates in effect. Higher revenues from transportation services reflecting
increased volumes transported and higher rates also mitigated the effect of
lower sales revenues. In 1994 Columbia Transmission recorded $4.4 million for
the allowed recovery of certain costs because its cost of gas met certain
competitive tests. This was partially offset by Columbia Gas
19
<PAGE> 22
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
of Ohio recording in 1994 a weather normalization reserve of $6.5 million to
reflect a refund to customers for colder than normal first quarter weather.
Expenses
For the three months ended June 30, 1995, total operating expenses of $447.8
million, decreased $35.6 million from 1994 primarily reflecting reduced gas
purchase expense due to lower sales requirements. Expenses associated with
operations increased $13.7 million due largely to higher operating costs in
1995. Partially offsetting the increase in expenses was the effect of
recording $3.2 million of additional expense in 1994 for reengineering
activities.
Other Income (Deductions)
Other Income (Deductions) declined $19.3 million to $17.9 million compared to
the same quarter last year. Interest Income and Other, Net decreased $32.7
million from last year primarily reflecting a $29.8 million improvement in 1994
for a reserve adjustment for carrying charges associated with prior period gas
exchange activity as a result of a favorable FERC decision. Reorganization
Items, Net improved income $13.5 million over last year due to increased
interest earned of $16.0 million on accumulated cash partially offset by higher
professional fees and related expenses of $2.5 million. Both periods benefited
from not accruing interest expense on prepetition debt obligations estimated at
$67 million and $55 million, respectively.
Six Months Results
Net Income
Net income for the first six months of 1995 of $159.7 million, or $3.16 per
share, was down $22.7 million, or $0.45 per share from 1994. After adjusting
for bankruptcy related and unusual items, net income in the current period of
$90.9 million, decreased $7.9 million from last year. This decrease primarily
reflects the effect of warmer weather in the current period and lower natural
gas prices, partially offset by improved rates for the distribution segment.
The bankruptcy related and unusual items are as follows:
Bankruptcy Related and Unusual Items
After-tax effect on Net Income
(millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30
-----------------
1995 1994
------ ------
<S> <C> <C>
Reported net income $159.7 $182.4
Less:
o Estimated interest costs not recorded on
prepetition debt 85.8 70.9
o Capitalized interest not recorded (2.4) (5.3)
o Professional fees and related expenses (14.6) (12.7)
o Reserve adjustment for favorable FERC
ruling - 13.6
o Recovery of prior period gas costs due to
meeting certain competitive tests - 11.3
o Interest adjustment for IRS settlement - 10.3
o Other - (4.5)
------ ------
Total adjustments 68.8 83.6
------ ------
Net income after adjusting for bankruptcy and unusual items 90.9 98.8
====== ======
</TABLE>
Revenues
20
<PAGE> 23
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
For the first half of 1995, operating revenues were $1,526.6 million, a
decrease of $155.3 million from the previous year. The lower current period
revenues reflect reduced sales for the distribution segment attributable to
warmer first quarter weather coupled with decreased revenues from
transportation services for the transmission segment. Improved rates for the
distribution segment partially offset the effect of lower sales volumes. Lower
transportation revenues included the effect of a reduction of $17 million in
the recovery of certain transportation costs that are offset in expense. Last
year also included $17.3 million for the recovery of certain costs from an
earlier period because Columbia Transmission's gas costs met certain
competitive tests. This was partially offset by Columbia Gas of Ohio's second
quarter 1994 weather normalization reserve mentioned above.
Expenses
Total operating expenses of $1,299.8 million for the first six months of 1995
were down $120.3 million due primarily to reduced gas purchase expense
reflecting lower sales requirements. A higher depletion rate in effect
together with increased plant in service were the primary reasons for the $9
million increase in depreciation and depletion expense. Reduced depletable
revenues for oil and gas production due to lower natural gas prices and
decreased oil production volumes partially offset the effect of a higher
depletion rate on depletion expense. As mentioned above, the effect of
recording $3.2 million of additional expense in 1994 for reengineering
activities tempered the increase in operating expense between 1995 and 1994.
Other Income (Deductions)
Other Income (Deductions) improved income in the first half of 1995 by $29.1
million, a decline of $15.5 million from the first six months of 1994.
Interest Income and Other, Net decreased $13.3 million due to recording the
favorable effect of the reserve adjustment, for carrying charges in the prior
period, mentioned previously. In the first quarter of 1994, a reserve
adjustment for an IRS settlement improved income and was the primary reason for
increased Interest Expense and Related Charges of $22.4 million compared to
last year. Reorganization Items, Net improved income $20.2 million over last
year due to increased interest income on accumulated cash of $22.6 million
while expense for professional fees and related services was $2.4 million
higher.
Income for both 1995 and 1994 was improved by an estimated $132 million and
$109 million, respectively, from not accruing interest expense on prepetition
debt obligations. (Since the July 31, 1991 bankruptcy filing, the estimated
effect of not accruing interest expense on prepetition debt obligations totals
approximately $862 million. This amount was calculated based on the
methodology outlined in the Corporation's Plan filed with the Bankruptcy
Court.)
Liquidity and Capital Resources
Net cash flow from operations for the six months ended June 30, 1995, of $592.7
million reflected an increase of $62.5 million over the same period last year
due largely to a customer refund made in 1994. In April 1994, Columbia
Transmission issued refunds totaling $84.6 million for FERC Order No. 500/528
to its nonaffiliated customers for overpayments Columbia Transmission and its
customers previously made to upstream suppliers. Partially offsetting this
21
<PAGE> 24
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
improvement was lower sales receipts, net of payments for gas purchased, due to
this year's warmer first quarter weather and reduced prices for gas production.
The Corporation maintains a debtor-in-possession facility (DIP Facility) with
Chemical Bank (Chemical) solely for the issuance of letters of credit of up to
$25 million. The DIP Facility will expire on December 31, 1995, unless
extended by mutual agreement between the Corporation and Chemical. As of July
31, 1995, $13.7 million of letters of credit were outstanding under the DIP
Facility. The Corporation's liquidity needs are being satisfied by internally
generated funds.
As of July 31, 1995, the Corporation and its subsidiaries, excluding Columbia
Transmission, had $408.6 million invested in money market instruments.
The liquidity needs of Columbia Transmission are being satisfied by internally
generated funds. As of July 31, 1995, Columbia Transmission had $1,426 million
invested in money market instruments. Columbia Transmission also maintains a
DIP Facility with Chemical solely for the issuance of letters of credit of up
to $25 million. The expiration date of Columbia Transmission's DIP Facility is
December 31, 1995, unless extended by mutual agreement between Columbia
Transmission and Chemical. As of July 31, 1995, the balance of outstanding
letters of credit under Columbia Transmission's DIP Facility was $1.8 million.
Upon emergence from bankruptcy, the Corporation and Columbia Transmission
contemplate the satisfaction of claims as set forth in the respective Plans by
use of cash on hand; the issuance by the Corporation of up to $3 billion
aggregate principal amount of debentures, subject to adjustment to reflect the
actual amount of cash available, and up to $200 million each of
Dividend Enhanced Convertible Securities(TM) and preferred stock; and bank
borrowings by the Corporation aggregating up to $1.51 billion. To the extent
that ultimate distributions to producers exceed the amounts provided in the
Columbia Transmission Plan and/or to the extent of any payments to successful
claimants opting-out of the Securities Litigation settlement, the Corporation
may fund such payment through the issuance of common or preferred stock.
22
<PAGE> 25
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transportation revenues 155.6 143.5 336.0 380.0
Storage revenues 34.5 35.1 69.8 70.9
Other revenues 5.2 10.5 17.9 11.2
-------- -------- -------- --------
Total Operating Revenues 195.3 189.1 423.7 462.1
OPERATING EXPENSES
Operation and maintenance 120.0 107.7 232.1 252.5
Depreciation 26.0 25.8 51.7 51.6
Other taxes 13.4 13.6 27.4 29.0
-------- -------- -------- --------
Total Operating Expenses 159.4 147.1 311.2 333.1
-------- -------- -------- --------
OPERATING INCOME $ 35.9 $ 42.0 $ 112.5 $ 129.0
======== ======== ======== ========
THROUGHPUT (BCF)
Transportation
Columbia Transmission
Market area 194.7 182.2 595.9 599.7
Columbia Gulf
Main-line 151.8 165.9 306.7 339.3
Short-haul 53.7 58.2 104.4 133.3
Intrasegment eliminations (150.7) (154.1) (302.0) (318.0)
-------- -------- -------- --------
Total Throughput 249.5 252.2 705.0 754.3
======== ======== ======== ========
</TABLE>
23
<PAGE> 26
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Plan of Reorganization
On June 14, 1995, Columbia Transmission, with the Corporation as co-sponsor,
filed with the Bankruptcy Court a second Plan and disclosure statement.
Columbia Transmission's Plan was further amended in a filing made with the
Bankruptcy Court on July 17, 1995. The provisions of the Plan reflect the
results of extensive negotiations with creditors and other interested parties
and are supported by claimants representing a significant portion of filed
claims (see Note 2 for additional information).
On July 18, 1995, the Bankruptcy Court approved the adequacy of Columbia
Transmission's disclosure statement with some modifications of a non-material
nature.
Customer Settlement
On June 15, 1995, the FERC approved a settlement filed by Columbia
Transmission, Columbia Gulf, their firm customers, state regulatory agencies
and customer representatives that resolves virtually all of the transmission
segment's outstanding regulatory proceedings before the FERC. Generally, the
settlement defines Columbia Transmission's and Columbia Gulf's refund
obligations to their customers in pending regulatory proceedings, and
determines Columbia Transmission's ability to recover certain costs associated
with the restructuring of its services under Order 636, including certain costs
relating to issues pending in the bankruptcy proceedings. The settlement
contemplates payment of an estimated $170 million in refunds, including
post-petition amounts, to Columbia Transmission's customers. In addition, an
estimated $200 million will be collected from Columbia Transmission's
customers, depending upon when the settlement is implemented.
Refunds to be paid under the settlement resolve all refund issues in the
bankruptcy reorganization, all issues surrounding Columbia Transmission's
collection of gas purchase costs, its own Order No. 500/528 costs and gas
inventory charges, all issues surrounding Columbia Transmission's ability to
flowthrough upstream pipeline Order No. 528 amounts, including settlement of
the Baltimore Gas & Electric vs. FERC litigation, implementation of a previous
rate case settlement of Columbia Transmission and Columbia Gulf, and Columbia
Transmission's collection of payments made to terminate contracts with certain
upstream pipelines. The settlement was incorporated in Columbia Transmission's
Plan and its effectiveness is contingent upon approval of this plan by the
Bankruptcy Court. No requests for rehearing of the June 15, 1995 order were
filed insofar as it related to the customer settlement, although as
contemplated by the settlement, two parties filed requests for rehearing of
that portion of the order which approved an exit fee settlement with Overthrust
Pipeline Company in order to protect their rights of appellate review if the
customer settlement is not effectuated. If Columbia Transmission's Plan is
confirmed by the Bankruptcy Court as filed, the rehearing requests will be
withdrawn.
Under the customer settlement, customers and others retain the right to
challenge Columbia Transmission's recovery of approximately $39 million of
Columbia Gulf costs it incurred between November 1, 1993, and October 31, 1994.
Management believes that the resolution of this issue will not have material
impact on the consolidated financial statements.
24
<PAGE> 27
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Upstream Pipeline Contracts
Columbia Transmission has firm transportation contracts with certain pipeline
companies that historically have been used to deliver gas to Columbia
Transmission. Columbia Transmission has settled claims filed by some of these
pipelines in the bankruptcy proceedings. These settlements provide for the
assumption of certain contracts, the termination of certain other contracts
that are no longer necessary for Columbia Transmission's operations, or the
substantial reduction in the firm capacity requirements under the
transportation contracts. As a result, approximately $463 million of claims
filed by the pipelines against Columbia Transmission will be withdrawn when all
settlements receive Bankruptcy Court and regulatory approvals. These
settlements include projected exit fee payments of approximately $100 million
by Columbia Transmission including amounts already paid to certain pipelines
through June 1995. The projected exit fee payments will continue to decrease
as additional monthly demand payments are made until the effective dates of the
respective exit fee settlements. Exit fee payments are conditioned upon
Columbia Transmission's recovery of the exit fees through rates as stranded
costs associated with its restructuring under Order 636. Under the customer
settlement discussed above, Columbia Transmission will be permitted to continue
recovering a significant portion of upstream pipeline stranded costs.
During the second quarter of 1995, both the FERC and the Bankruptcy Court
approved a settlement agreement reached with Overthrust Pipeline Company which,
among other things, provides for an exit fee payment of approximately $5
million.
Columbia Transmission's Rate Filing
On August 1, 1995, Columbia Transmission filed with the FERC its first general
rate case since 1991. The proposed rates are expected to become effective,
subject to refund, on February 1, 1996, and would produce additional annual
revenues of approximately $150 million with a 14.5 percent rate of return on
equity. The new rate filing reflects increased construction, operating and
maintenance costs incurred since 1991 and does not include any costs associated
with Columbia Transmission's Chapter 11 bankruptcy proceeding.
In addition, the filing included the recovery over a five-year amortization
period of Columbia Transmission's approximately $60 million investment in
Appalachian area gathering and certain products extraction facilities. The
proceeds of any future sales of these facilities will be credited against such
recoveries. These facilities are being treated as stranded costs under Order
636.
The impact of the filing on Columbia Transmission's rates will be substantially
mitigated by the anticipated expiration in 1996 of an Order 636 transition cost
surcharge currently included in its rates. This surcharge involves costs
associated with Columbia Transmission's firm transportation contracts with its
upstream pipelines. Rates for the wide array of firm and interruptible
transportation and storage services that Columbia Transmission provides local
distribution companies, end users, and other customers throughout its 14-state
market area will remain competitive.
25
<PAGE> 28
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Columbia Gulf's Rate Filing
As reported in the 1994 Form 10-K, Columbia Gulf filed a general rate case with
the FERC which went into effect, subject to refund, on November 1, 1994. The
rate case reflects the termination of its long-standing transportation contract
with Columbia Transmission and seeks to recover increased costs since its last
rate case. A settlement was reached with interested parties and approved by
the FERC on July 18, 1995.
Environmental Matters
As discussed in the 1994 Form 10-K, the Corporation's subsidiaries are subject
to extensive federal, state and local laws and regulations relating to
environmental matters. These laws and regulations require expenditures for
corrective action at various operating facilities, waste disposal sites and
former gas manufacturing sites for conditions resulting from past practices.
Comprehensive reviews of compliance with existing environmental standards are
being conducted. These reviews include an evaluation of operating activities,
site investigations, and, when necessary, the formulation of remediation
programs. As these self- assessment programs continue, it is likely that
additional compliance costs will be identified and become subject to reasonable
quantification.
Virtually all of Columbia Transmission's future remediation work for currently
owned or operated facilities will be performed under the United States
Environmental Protection Agency (EPA) Consent Order entered into earlier this
year. The Consent Order specifically requires Columbia Transmission to
prepare, for EPA approval, work plans and procedures for investigating and,
where necessary, remediating its facilities.
Columbia Transmission's environmental consultant is currently performing a study
to quantify the projected financial scope of remediation activities to be
undertaken in future years. However, due to the extensive amount of
information required to be reviewed, the study is now not expected to be
available until later in 1995.
Adoption of Statement of Financial Accounting Standard No. 71, Accounting for
the Effects of Certain Types of Regulation (SFAS 71).
As a result of significant industry changes culminating with Order 636,
the operating experience gained since implementation of this order, a new
Columbia Transmission rate case which was filed on August 1, 1995, and the
resolution of its gas contract difficulties and various customer issues, the
Corporation and its transmission subsidiaries have undertaken a study to
determine whether it is appropriate to re-apply SFAS 71 to its transmission
segment. The effect would be to record on the balance sheet regulatory assets
and liabilities as if SFAS 71 had always been applicable to these subsidiaries
with the net of tax impact reflected in the income statement as an
extraordinary item.
Appeals of Order 636
Numerous parties have filed petitions for review of Order 636 with the D.C.
Circuit Court of Appeals (Circuit Court). Upon review, Order 636 may be
unchanged or reversed in whole or in part. However, at this time it is
impossible to predict the outcome. On June 12, 1995, the FERC's brief in
support of Order 636 was filed with the Circuit Court and reply briefs are due
in September 1995. Oral argument is currently scheduled for February 1996.
Under the terms
26
<PAGE> 29
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
of the FERC-approved customer settlement, the transmission companies will have
no refund obligations in the event the appeals are successful. Further, the
customer settlement states that the transmission companies can adjust rates
prospectively to take into account any changes or modifications as a result of
a court remand of Order 636.
Restructuring Proceedings
Numerous parties filed for review of Columbia Transmission's and Columbia
Gulf's restructuring proceedings under Order 636 (FERC Docket Nos. RS92-5 and
RS92-6) with the Circuit Court. Under the terms of the FERC approved customer
settlement, the transmission companies will have no refund obligations in the
event the appeal of the order approving the restructuring is successful.
Market Initiatives
As disclosed in the 1994 Form 10-K and the 1995 First Quarter Form 10-Q,
Columbia Transmission plans to expand the capacity of its natural gas pipeline
system to provide in excess of approximately 430 million cubic feet per day of
additional firm storage and transportation services over a three-year period
starting in 1997. The expected cost of this project over the 1997-1999 time
period is approximately $350 million. Twenty-three customers, most of them
local natural gas distribution companies, signed 15-year agreements that
provide for increased levels of service. Under the agreements, Columbia
Transmission will increase its current level of firm service by about seven
percent. Ninety percent of the new capacity is for firm storage service. The
remainder is for firm transportation service.
As part of the expansion project, Columbia Transmission will enhance the
performance of its storage operations by drilling new wells and improving the
deliverability of existing wells. Also, Columbia Transmission will add about
100 miles of pipeline in 14 segments along its core pipeline system and install
approximately 50,000 horsepower of compression. Columbia Transmission will
file with the FERC later this year for authority to construct the new
facilities. In addition, a filing will be made seeking any necessary
Bankruptcy Court approvals for the project.
Columbia Transmission will propose that expansion costs be rolled into existing
rates. The effect on existing rates will be minimal and well within the five
percent increase threshold recently established by the FERC.
Volumes
For the second quarter of 1995, throughput was essentially unchanged from the
same quarter last year. Similar weather during both periods resulted in
essentially the same transportation requirements in each period. For the first
half of 1995, throughput of 705 Bcf, decreased 49.3 Bcf from last year largely
due to the impact of warmer weather during the first quarter of 1995 which
reduced customer demand for transportation services.
27
<PAGE> 30
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Since a substantial portion of the transmission companies' costs are recovered
through monthly demand charges, changes in throughput levels have little effect
on operating revenues.
Operating Revenues
Total operating revenues for the second quarter of 1995 were $195.3 million, a
small increase of $6.2 million over 1994. This improvement includes $12
million higher revenues for the recovery of certain transportation costs that
is fully offset by a corresponding increase in expenses, thereby having no
effect on operating income. Partially offsetting the effect of these
improvements were revenues of $4.4 million recorded in 1994 which Columbia
Transmission was allowed to recover because its average cost of gas in a prior
period met certain competitive tests prescribed in a 1985 customer settlement.
All other charges netted to a $1.4 million decrease.
For the first half of 1995, total operating revenues were $423.7 million, down
$38.4 million from 1994. Included in this decrease were lower revenues of $17
million for the recovery of certain transportation costs which are fully offset
by a corresponding reduction to expense. The remaining $21.4 million decrease
in revenues reflects $17.3 million in 1994 that Columbia Transmission was
allowed to collect because its average cost of gas in a prior period met
certain tests as prescribed in a 1985 customer settlement. Also included in
this decrease was $9.5 million of lower revenues due to warmer first quarter
weather, decreased interruptible volumes transported by Columbia Gulf and lower
demand revenues for certain customers of Columbia Transmission. This decrease
was partially offset by Columbia Gulf's portion of the Ozark partnership's exit
fee receivable from Columbia Transmission and another pipeline that improved
1995 operating revenues by $5.4 million.
Operating Income
For the second quarter and the first half of 1995, operating income of $35.9
million and $112.5 million, respectively, decreased $6.1 million and $16.5
million from the same periods in 1994. In the second quarter last year $3.2
million of additional expense was recorded for reengineering activities. After
adjusting for the prior period reengineering activities and transportation
costs, that have no effect on operating income, operating expenses increased
$3.5 million and decreased $1.7 million in the second quarter and first half of
1995, respectively.
28
<PAGE> 31
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ --------------------
1995 1994 1995 1994
------ ------ -------- --------
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Sales revenues $234.4 $257.0 $1,001.5 $1,091.8
Less: Cost of gas sold 116.6 151.9 589.1 714.6
Net Sales Revenues 117.8 105.1 412.4 377.2
------ ------ -------- --------
Transportation revenues 23.8 20.0 57.4 46.6
Less: Associated gas costs 2.0 1.9 4.2 3.8
------ ------ -------- --------
Net Transportation Revenues 21.8 18.1 53.2 42.8
------ ------ -------- --------
Net Revenues 139.6 123.2 465.6 420.0
------ ------ -------- --------
OPERATING EXPENSES
Operation and maintenance 108.0 98.2 230.1 201.8
Depreciation 10.6 10.4 41.5 38.7
Other taxes 28.9 28.1 85.7 80.6
------ ------ -------- --------
Total Operating Expenses 147.5 136.7 357.3 321.1
------ ------ -------- --------
OPERATING INCOME (LOSS) $ (7.9) $(13.5) $ 108.3 $ 98.9
====== ====== ======== ========
THROUGHPUT (BCF)
Sales
Residential 25.5 28.1 115.9 126.2
Commercial 10.1 11.8 46.7 54.5
Industrial and other 1.9 1.6 8.0 6.5
------ ------ -------- --------
Total Sales 37.5 41.5 170.6 187.2
Transportation 58.7 52.8 135.5 115.5
------ ------ -------- --------
Total Throughput 96.2 94.3 306.1 302.7
====== ====== ======== ========
SOURCES OF GAS FOR THROUGHPUT (BCF)
Sources of Gas Sold
Spot market* 66.0 80.4 112.6 142.5
Producers 12.8 15.9 32.6 36.5
Storage withdrawals (injections) (42.6) (57.5) 26.4 15.5
Other 1.3 2.7 (1.0) (7.3)
------ ------ -------- --------
Total Sources of Gas Sold 37.5 41.5 170.6 187.2
Transportation received for delivery to customers 58.7 52.8 135.5 115.5
------ ------ -------- --------
Total Sources 96.2 94.3 306.1 302.7
====== ====== ======== ========
</TABLE>
* Purchase contracts less than one year.
29
<PAGE> 32
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Initiatives
The distribution subsidiaries (Distribution) continue to assess their markets
to gain a greater understanding of the energy needs and purchasing preferences
of its customers. The information gained from this assessment will be used to
develop and implement new marketing programs which will be customized to more
closely meet the needs of specific market segments. These types of targeted
programs will likely be the primary component of Distribution's marketing
approach in the increasingly competitive retail marketplace.
As part of its comprehensive market assessment, Distribution has been reviewing
its potential opportunities in the natural gas vehicle (NGV) market. Although
definitive conclusions have not yet been reached, Distribution is considering
reducing its previously announced $38 million NGV infrastructure program until
market conditions support this level of investment. Distribution remains
committed at this time to pursuing targeted opportunities in the fleet and lift
truck markets, as well as materially increasing the number of NGVs in its own
fleet.
Regulatory Matters
On May 15, 1995, Commonwealth Gas Services, Inc. (Commonwealth Services) filed
a general rate case requesting an annual revenue increase of $15.1 million, to
be effective in October 1995. The filing included a proposal for sharing the
revenue generated under several regulatory initiatives, including capacity
release and off-system sales.
As part of a rate case settlement agreement in 1994, Columbia Gas of Ohio, Inc.
(Columbia of Ohio) was permitted to implement an experimental weather
normalization adjustment (WNA) to alleviate the impact of unusual weather on
customers' bills. As a result of customer concerns with the program, Columbia
of Ohio agreed to several modifications in February 1995. The modifications
included an agreement with Columbia of Ohio's Regulatory Collaborative
(Collaborative) to continue the program through the five-month trial period to
appropriately evaluate the potential benefits of the program but to discontinue
any further upward adjustment to customer bills associated with the program.
During the second quarter, Columbia of Ohio met with the Collaborative to
review the results of the WNA program, and it was determined that the pilot
program be suspended at this time. However, the concept of weather
normalization was endorsed by most members of the Collaborative, and Columbia
of Ohio was encouraged to explore alternatives that would be less confusing to
customers. The Collaborative also agreed that the settlement agreement should
remain intact and that WNA refunds were not appropriate.
On June 12, 1995, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania)
reached an agreement with its various regulatory interests on many aspects of
its annual gas cost recovery proceeding, including an off-system sales program
that has a revenue sharing mechanism, continuation of the gas supply management
incentive program, and a pilot hedging program. Although Columbia of
Pennsylvania also reached agreement with the Office of Trial Staff on a
capacity release program that includes a revenue sharing mechanism, the Office
of Consumer Advocate declined to support aspects of the agreement, so the state
commission will have to rule
30
<PAGE> 33
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
upon Columbia of Pennsylvania's request to implement this mechanism. A final
state commission decision is expected by the end of the third quarter. The
Office of Consumer Advocate has also appealed the state commission's decision
in Columbia of Pennsylvania's previous gas cost proceeding, challenging the
state commission's authority to approve incentives in such proceedings. A
decision is not expected for several months.
In other regulatory matters, Columbia of Maryland, Inc. expects an order from
the state commission on its base rate filing by September 1995. The state
commission recently approved a tariff filing to be effective November 1995,
providing unbundling services for large customers. The current proposal makes
transportation service available to all but residential customers. The filing
also included a settlement agreeing to continue discussions on pilot programs
with unbundled customer choice options for small transportation and residential
customers.
On July 28, 1995, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) filed
for authority to conduct capacity release and off-system sales programs. The
filing provides for a sharing of the revenues generated by these programs
between the sales customers and Columbia of Kentucky. An order from the state
commission is expected later this year.
Volumes
Throughput for the quarter ended June 30, 1995, of 96.2 Bcf was essentially
unchanged from the same quarter last year as lower sales were offset by
increased transportation. Lower sales reflected continued usage reductions due
to customer equipment improvements and conservation while the demand for
transportation increased due to the relatively robust economic conditions
throughout the service area and low natural gas spot prices. For the first
half of 1995, total throughput was also essentially unchanged at 306.1 Bcf as
decreased sales volumes were offset by increased transportation service. The
decline in sales was primarily due to the mild weather in the first quarter of
1995 while transportation demand was up due to the strong economy, favorable
natural gas spot prices and the increased service to the power generation
market.
Net Revenues
Net revenues for the second quarter of 1995 were $139.6 million, an increase of
$16.4 million over 1994. The increase was primarily due to approximately $10.4
million for higher rates in effect during the current quarter, increased
transportation deliveries that contributed an additional $4.3 million and a
favorable adjustment for prior period costs that improved net revenues by $3.4
million. Also in the current period, revenues increased $3 million for
surcharges that increased both revenues and operating expenses and therefore
had no effect on operating income. These improvements were partially offset by
reduced tariff revenues of $10.8 million due to lower sales. In addition, in
1994 Columbia of Ohio recorded a weather normalization charge of $6.5 million.
Net revenues for the first half of 1995 of $465.6 million, improved $45.6
million over 1994. The increase reflects the effect of higher rates that
generated an additional $45.9 million, approximately $13 million for revenue
surcharges, which are offset in expense and have no effect
31
<PAGE> 34
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
on operating income, improved transportation deliveries contributed $11.3
million and the effect of the above-mentioned $6.5 million prior period charge.
These improvements were mitigated by a $35.3 million reduction in net revenues
reflecting lower sales volumes.
Operating Income (Loss)
Distribution had an operating loss for the current quarter of $7.9 million, a
$5.6 million improvement from last year's second quarter loss. The increase in
net revenues was partially offset by higher operating expenses of $10.8
million. Operation and maintenance expense increased due to the above
mentioned revenue surcharges and previously capitalized benefit costs that are
now expensed as they are included in rates. After eliminating the effect of
these issues, operation and maintenance costs were up $5.3 million primarily
due to higher overall administrative and general costs, as well as the timing
of planned promotional and marketing campaigns.
Operating income of $108.3 million for the first half of 1995 reflected an
increase of $9.4 million over the first six months of 1994. Higher net
revenues were largely offset by increased operating expenses. Included in the
higher operating expense was the effect of the revenue surcharges and
previously capitalized benefit costs that are now expensed as they are included
in rates. After adjusting for the effect of these issues, operating expense
was $17.5 million higher due to increased expense associated with ongoing
marketing and customer service studies, pipeline maintenance costs and higher
advertising expense together with $7.9 million higher depreciation expense and
property taxes due to additional plant investments.
32
<PAGE> 35
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
1995 1994 1995 1994
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas $31.1 $37.5 $67.8 $79.4
Oil and liquids 11.9 15.0 23.8 27.0
----- ----- ----- -----
Total Operating Revenues 43.0 52.5 91.6 106.4
----- ----- ----- -----
OPERATING EXPENSES
Operation and maintenance 19.4 16.4 40.4 36.2
Depreciation and depletion 21.1 21.8 46.0 40.8
Other taxes 2.7 3.2 5.5 6.2
----- ----- ----- -----
Total Operating Expenses 43.2 41.4 91.9 83.2
----- ----- ----- -----
OPERATING INCOME (LOSS) $(0.2) $11.1 $(0.3) $23.2
===== ===== ===== =====
GAS PRODUCTION STATISTICS
Production (Bcf) 16.2 16.8 33.9 33.4
Average Price ($/Mcf) 1.86 2.15 1.95 2.30
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000Bbls) 696 988 1,438 1,868
Average Price ($/Bbl) 16.98 15.16 16.52 14.43
</TABLE>
33
<PAGE> 36
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
Drilling Activities
Columbia Gas Development Corporation (Columbia Development) began drilling
operations on 13 (gross) wells during the second quarter of 1995. Of these,
eight were productive including seven in the Austin Chalk formation, and four
were still drilling at the end of the quarter. Columbia Development has drilled
31 wells since the beginning of 1995. Of these, 26 were successful,
representing an 84 percent success rate. Two other wells were shut-in pending
further evaluation. During 1995, 22 of the 23 wells drilled in the Austin
Chalk program were successful. In addition, Columbia Development was awarded
eight blocks in the Gulf of Mexico offshore lease sale held in May 1995 and was
high bidder on one other block that has not yet been awarded.
During the second quarter of 1995, Columbia Natural Resources, Inc.
participated in the drilling of 17 (gross) development wells in the Appalachian
region, 6 wells were successfully completed. For the first half of 1995, 30
(gross) development wells have been drilled, with a 57 percent success rate.
Oil and Gas Producing Properties
Under the full cost method of accounting for oil and natural gas properties,
all productive and nonproductive costs directly identified with acquisition,
exploration, and development activities are capitalized in a countrywide cost
center. At June 30, 1995, the sum of the estimated present value of future oil
and gas revenues exceeded the capitalized costs and, therefore, no charge to
earnings was required. However, under Order 636, the natural gas pipeline
industry is required to eventually unbundle gathering services from other
transportation services. Columbia Transmission provides transportation
services, including gathering services, for a significant portion of gas
produced from Columbia Natural Resources, Inc.'s reserves, and in the
previously mentioned rate filing, Columbia Transmission requested an increase
in their gathering rate. An increase in the gathering rate, a decline in gas
prices or increases in other costs could result in a writedown in the carrying
value of the oil and gas properties in the future.
Volumes
Natural gas production for the second quarter of 1995 was slightly down from
last year while increasing 0.5 Bcf for the six months ended June 30, 1995,
largely due to a small production increase during the first quarter of this
year. Oil and natural gas liquids production for the current quarter and for
the first half of 1995 decreased 292,000 barrels and 430,000 barrels,
respectively, from last year due to normal declines in wells and shut-ins for
offshore workovers. It is expected that oil and liquids production will
increase as new production comes onstream and workovers are completed.
Revenues
Declining gas prices during the current three and six-month periods was the
principal reason for the decline from the same periods last year in gas
revenues of $6.4 million and $11.6 million in these respective periods. Average
gas prices in the second quarter decreased by 13 percent to
34
<PAGE> 37
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
$1.86 per Mcf from the same period last year. For the first half of 1995,
average gas prices decreased by 15 percent to $1.95 per Mcf.
Revenues from oil and liquids production decreased during the current three and
six-month periods by $3.1 million and $3.2 million, respectively, reflecting
production declines in both periods that were only partially offset by higher
average prices in 1995. Average prices increased $1.82 per barrel to $16.98
per barrel during the second quarter and, for the first half of 1995, the
average price increased $2.09 per barrel to $16.52 per barrel.
Operating Income (Loss)
An operating loss for the second quarter of 1995 of $0.2 million versus $11.1
million in operating income in the same period last year reflected the $9.5
million decrease in operating revenues together with a $1.8 million increase in
operating expenses due largely to recording a favorable reserve reduction in
1994 for the resolution of a royalty dispute.
For the six-month period, the oil and gas operations had an operating loss of
$0.3 million compared to operating income of $23.2 million in 1994. This
decrease reflected a $14.8 million decline in operating revenues and higher
operating expense of $8.7 million due primarily to increased depletion expense
caused largely by a higher depletion rate in effect that more than offset lower
depletable revenues and the 1994 reserve adjustment mentioned above.
35
<PAGE> 38
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER ENERGY OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1995 1994 1995 1994
----- ----- ------ ------
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Gas marketing revenues $55.4 $57.8 $114.1 $125.7
Less: Products purchased 54.0 55.9 110.9 122.0
----- ----- ------ ------
Net Gas Marketing Revenues 1.4 1.9 3.2 3.7
----- ----- ------ ------
Propane revenues 8.7 8.2 34.2 35.2
Less: Products purchased 4.8 4.5 18.9 17.7
----- ----- ------ ------
Net Propane Revenues 3.9 3.7 15.3 17.5
----- ----- ------ ------
Other Revenues 21.7 17.5 41.5 38.9
----- ----- ------ ------
Net Revenues 27.0 23.1 60.0 60.1
----- ----- ------ ------
OPERATING EXPENSES
Operation and maintenance 22.0 18.3 43.4 39.1
Depreciation and depletion 2.0 1.7 4.1 3.5
Other taxes 1.3 1.3 2.9 2.9
----- ----- ------ ------
Total Operating Expenses 25.3 21.3 50.4 45.5
----- ----- ------ ------
OPERATING INCOME $ 1.7 $ 1.8 $ 9.6 $ 14.6
===== ===== ====== ======
PROPANE SALES (MILLIONS OF GALLONS)
Retail 6.9 6.1 27.1 27.6
Wholesale and other 1.2 2.1 10.3 10.5
----- ----- ------ ------
Total Propane Sales 8.1 8.2 37.4 38.1
===== ===== ====== ======
</TABLE>
36
<PAGE> 39
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER ENERGY OPERATIONS (CONTINUED)
Net Revenues
Net revenues for the three months ended June 30, 1995, increased $3.9 million
over the same period last year due principally to an increase of $4.2 million
in other revenues for services provided to affiliated companies and revenues
associated with the Columbia LNG Corporation's (Columbia LNG) agreement to
operate the Cove Point facility. Net revenues from propane operations
increased slightly over a year ago while net revenues for gas marketing
activities declined by $0.5 million due principally to reduced margins.
For the six months ended June 30, 1995, net revenues decreased $100,000 as
lower net revenues from propane operations and gas marketing activities
primarily reflected reduced margins. These decreases were offset by higher
other revenues due to an increase for cogeneration activities, revenues for
Columbia LNG, and higher revenues for services provided to affiliates.
Operating Income
Operating income for the second quarter of 1995 decreased by $100,000 as the
net revenue increase of $3.9 million was more than offset by a $4.0 million
increase in operating expenses primarily reflecting higher costs for providing
services to affiliates and Columbia LNG expenses associated with the
above-mentioned Cove Point LNG facility.
Operating income for the six months ended June 30, 1995 was $9.6 million, down
$5 million from last year reflecting higher revenues in the prior period for
services provided to affiliates that more than offset the associated expense,
lower net revenues for propane operations and a small operating loss associated
with Columbia LNG.
Department of Energy Refund of Prior Petroleum Product Costs
On July 11, 1995, the Department of Energy issued an order directing the
payment to Columbia LNG of a refund in the amount of approximately $8.5 million
related to the purchase of price-controlled petroleum products during the
period from mid-August 1973 through January 1981. The refund, which is
expected to be received in September 1995, will be paid from crude oil funds
made available for disbursement by the Office of Hearings and Appeals of the
Department of Energy.
Management has determined that Columbia LNG is entitled to retain this refund
and will record an improvement to income for this issue in the third quarter.
37
<PAGE> 40
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No new matters have arisen and there have been no material developments in any
legal proceedings reported in Registrants Annual Report on Form 10-K for the
year ended December 31, 1994, since the filing of the Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, dated May 11, 1995, except as
follows:
I. Shareholder Class Actions and Derivative Suits (Unless otherwise noted, all
matters are stayed against the Corporation pursuant to Section 362 of the
Bankruptcy Code).
After the June 19, 1991 announcement of the Corporation's proposed charge
to second quarter earnings and suspension of its dividend, seventeen
complaints including suits purporting to be class actions, or alleging
claims common to the purported class actions, were filed in the U.S.
District Court for the District of Delaware. These actions have been
consolidated under the style In re Columbia Gas Securities Litigation,
Consol. C.A. No. 91-357. The complaints named as defendants, the
Corporation, members of the Corporation's Board of Directors as of June
1991, certain officers, the Corporation's independent public accountants,
and the Corporation's underwriters for its 1990 common stock offering (the
Defendants).
On July 18, 1995, an agreement was reached among all the parties to the
class actions settling that litigation. Also, on July 18, 1995, the
Bankruptcy Court granted a motion lifting the automatic stay of the class
actions against the Corporation in order to implement the class action
settlement and on July 21, 1995 the District Court granted a motion made by
parties to the class action settlement lifting its stay order to permit
implementation of the settlement.
Pursuant to the class action settlement, the class action plaintiffs filed
a second consolidated amended complaint, naming the Corporation as an
additional defendant. On July 21, 1995, the District Court entered an
order which provided for 1) the provisional certification of the class
action, 2) the scheduling of a hearing on October 16, 1995 to determine
whether the proposed class action settlement should be approved by the
District Court and whether an order should be entered dismissing the
Securities Action with prejudice, and 3) the mailing of a notice, along
with certain solicitation materials, to class action claimants regarding
the hearing to approve the class action settlement.
Pursuant to the class action settlement, the Corporation and certain other
contributors will establish a settlement fund of $36.5 million
(approximately $16.5 million of which will be contributed by the
Corporation) to settle the class actions. That fund will be first applied
to pay court-approved counsel fees and costs of administration with the
remaining funds being distributed to class-action claimants who timely file
proof of claim and release forms in the District Court and who otherwise
qualify for distributions under the class action settlement.
Also in 1991, three derivative actions were filed in the Court of Chancery
in and for New Castle County (Delaware) alleging that the Corporation's
directors breached their fiduciary duties at that time. These suits have
been stayed by either the Bankruptcy Court filing or by stipulation of the
parties. On March 15, 1995, the Corporation's Board of Directors formed
38
<PAGE> 41
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
a special litigation committee of the Board to determine whether the
continuous prosecution of the derivative actions was in the best interests
of the Corporation. On July 17, 1995, the special litigation committee
reported to the Board of Directors that, after a full investigation of the
allegations asserted in the derivative actions, its members determined that
it is in the best interest of the Corporation to settle the litigation
without payment of any money by or on behalf of the director defendants in
the derivative actions. That determination was made in consideration of
and subject to the settlement of the class action litigation. The
disposition of the derivative actions by the Corporation is subject to
approval by the Bankruptcy Court at the hearing on confirmation of the
Plan.
II. Bankruptcy Matters
On June 14, 1995 Amended Plans of Reorganization were filed in the United
States Bankruptcy Court for the District of Delaware for both the
Corporation and Columbia Transmission. The Plans were subsequently amended
as July 17, 1995 and The Corporation's Plan was further amended on July 27,
1995. See the Management Discussion and Analysis for further details.
A. Matters in the United States Bankruptcy Court for the District of Delaware
1. Motion to Fix Procedures to Establish Columbia Transmission's
Liability to Third Party Beneficiary Investor Complaints. This
matter involves investors in production companies that claim to be
third party beneficiaries of the contracts between Columbia
Transmission and the production companies. They filed a motion
seeking to have their status as third party beneficiaries recognized
and seeking to have their claims against Columbia Transmission
liquidated separate from the Estimation Procedure established to
deal with producer claims. The matter was referred to state court.
On April 6, 1995, Columbia Transmission filed a notice of cross
appeal after plaintiffs appealed the state court order finding no
third party status.
B. Other Bankruptcy Matters in the United States District Court for the
District of Delaware
1. Pennsylvania Office of Consumer Advocate v. Columbia Gas System, et
al., CA No. 94-497. Appeal of Bankruptcy Court order denying
Columbia Transmission's motion for an order approving a settlement
of the 1990 rate case. On June 9, 1995 Joint State Appellants filed
a motion to hold oral argument and decision on appeal in abeyance
which was approved on June 19, 1995. This appeal will be resolved
by the Customer Settlement described below.
III. Purchase and Production Matters (Unless otherwise noted, all matters are
stayed pursuant to Section 362 of the Bankruptcy Code). On June 16,
1995, the Bankruptcy Court approved the Initial Producer Settlement.
Subject to the confirmation of Columbia Transmission's Plan of
Reorganization, the Initial Producer Settlement will resolve the
39
<PAGE> 42
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
following matters (other than Item III.B.4) previously reported in the
Annual Report on Form 10-K:
A. Appalachian Producer Litigation
1. Phillips Production Co. v. Columbia Gas Transmission Corp., C.A. No.
89-0269, (U.S. Dist. Ct., W.D. Pa. filed February 7, 1989)
B. Southwest Producer Litigation
1. Wagner & Brown v. Columbia Gas Transmission Corp., C.A. No. 83-15091
(Orleans Parish (La.) Civ. Dist. Ct. filed September 6, 1983)
2. Koch Industries Inc. v. Columbia Gas Transmission Corp. C.A. No. 89-2156
(U.S. Dist. Ct., E.D. La., filed May 12, 1989)
3. Energy Development Corp. v. Columbia Gas Transmission Corp., C.A. No.
CV91-0960, (U.S. Dist. Ct., W. D., La., division Lafayette/Opelousas,
filed May 13, 1991)
4. New Ulm and Fox v. Mobil Oil Corporation, Columbia Gas Transmission
Corp. and Columbia Gulf Transmission Co., C.A. No. 88-V- 655 (155th
Judicial Dist. Ct. of Austin County, TX filed December 20, 1988). New
Bremen alleges it is entitled to a higher price under the contract than
the market-out price Columbia Transmission paid for past periods. On
May 8, 1995, the parties filed responses to the others' application for
writ of error to the Supreme Court of Texas appealing an Appellate Court
reversal of the Trial Court decision against Columbia Transmission.
IV. Regulatory Matters
A. Take-or-Pay and Contract Reformation Costs Billed by Pipeline Suppliers
1. Columbia Gas Transmission Corp., Docket No. RP91-41, reversed and
remanded Baltimore Gas & Electric Co. v. FERC, 26 F.3d 1129 (D.C. Cir.
1994). This proceeding will be resolved by the Customer Settlement
discussed in below. On May 10, 1995, the FERC issued an order holding
this proceeding in abeyance pending the consideration of the Customer
Settlement.
2. Columbia Gas Transmission Corporation, Docket No. GP94-2, appeal pending
sub nom, CG&E v. FERC, U.S. Ct. of App., D.C. Cir. No. 94-1721. On
April 17, 1995 Columbia Transmission filed a Settlement with the FERC
resolving or partially resolving numerous FERC proceedings. The
Customer Settlement was also filed as a part of Columbia Transmission's
Amended Plan of Reorganization in the Bankruptcy Court. Implementation
of the settlement is contingent, however, upon its approval by the
Bankruptcy Court as a
40
<PAGE> 43
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
part of an amended plan of reorganization. On June 15, 1995, the FERC
issued its order approving the April 17, 1995 Customer Settlement
without modification or condition. The settlement was either supported
or not opposed by all parties. No requests for rehearing of the June
15, 1995 order were filed insofar as that order relates to the Customer
Settlement, although as contemplated by the Settlement two parties filed
protective requests for rehearing of only that portion of the order
which approved an exit fee settlement with Overthrust. This matter
concerning the interest rate to be paid by Columbia Transmission on
customer refunds would also be resolved by the Customer Settlement by
providing for payment of interest actually earned during the periods the
monies were in the special restricted investment account. On May 17,
1995, the D.C. Circuit issued an order holding this proceeding in
abeyance pending the consideration of the Customer Settlement.
B. Direct Billing of Past Period Production and Production-Related "Order 94"
Costs
1. Columbia Gas Transmission Corp. v. FERC, C.A. No. 94-1727 (U.S. Ct. of
App., D.C. Circuit). The Court of Appeals has consolidated the appeals
of the Panhandle, Trunkline, Texas Eastern and Texas Gas orders which
required these companies to refund Order 94 costs paid by Columbia
Transmission, but without interest.
On May 5, 1995, the FERC issued an order granting clarification of its
orders issued January 12, 1994, and October 18, 1994. Panhandle and
Texas Eastern must refund the entire amount they collected pursuant to
the unlawful direct bills, including the carrying charges paid to them
by Columbia Transmission, but without interest. The FERC also
clarified, with regard to the "net accelerated payments" between
Columbia Transmission and Panhandle, that Panhandle must refund to
Columbia Transmission the additional $2 million plus interest on the $2
million for periods after February 11, 1994.
2. Transcontinental Gas Pipe Line Corporation, C.A. No. 95-1332 (U.S. Ct.
of App., D.C. Circuit). On May 1, 1995, the FERC denied rehearing of
its order in RP92-149 requiring Transcontinental Gas Pipe Line
Corporation (Transco) to refund the principal only of Order 94 costs to
Columbia Transmission. On July 6, 1995 Columbia Transmission and
Transco filed appeals of these orders in the D.C. Circuit Court of
Appeals.
C. Pipeline Exit Fees
1. Columbia Gas Transmission Corporation, et al., Docket No. RP94-113.
Columbia Transmission and Tennessee Gas Pipeline Corporation (Tennessee)
file a joint petition to resolve outstanding bankruptcy issues and
contractual matters, including the payment by Columbia Transmission of a
$42 million exit fee to Tennessee.
As a result of the June 15, 1995 order approving the Customer
Settlement, all appeals by customers and other interested parties of
Columbia Transmission will be dismissed.
41
<PAGE> 44
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
However, some of Tennessee's customers appealed the orders approving the
exit fee settlement. That appeal is pending before the D.C. Circuit in
Case No. 94-1716.
2. Columbia Gas Transmission Corp., Docket Nos. RP94-315, 316, 317, 318,
RP95-98 and RP95-204. These proceedings involve petitions by Columbia
Transmission for approval of settlements to resolve outstanding issues,
including the payment of exit fees by Columbia Transmission, to Wyoming
Interstate Company Ltd. (WIC), Trailblazer Pipeline Company
(Trailblazer), Natural Gas Pipeline Co. of America (NGPL),
Transcontinental Gas Pipe Line Corporation (Transco), Ozark Gas
Transmission System (Ozark) and Overthrust Pipeline Corporation.
On May 22, 1995, the FERC issued an order approving the exit fee with
Ozark (Docket No. RP95-98). Requests for rehearing of that order are
pending.
In the June 15, 1995 order approving the Customer Settlement the FERC
also dismissed as moot and denied rehearing of its orders approving the
exit fees with WIC, Trailblazer and NGPL (Docket Nos. RP94-315, RP94-316
and RP94-317). Columbia Transmission has implemented these exit fee
settlements.
In the June 15, 1995 order approving the Customer Settlement, the FERC
also initially approved the exit fee settlement with Overthrust (Docket
No. RP95-204). Two protective requests for rehearing were filed in
order to protect appellate rights in the event the Customer Settlement
is not implemented.
V. Environmental
A. Columbia Gas Transmission Corp. v. Aetna Casualty & Surety Co., et al.,
C.A. No. 94-C-454 (Kanawha (W.Va) Cir. Ct. filed March 14, 1994). In
this matter Columbia Transmission is seeking coverage from various
insurers and under various insurance policies for environmental cleanup
costs. On July 14, 1995, Columbia Transmission filed a motion to stay
the litigation to allow informal discussions among the parties to the
litigation.
B. Columbia Gulf Transmission Company v. Aetna Casualty & Surety Co., et
al., C.A. No. 95-C-177 (Kanawha (W.Va) Cir. Ct. filed January 19, 1995).
In this matter Columbia Gulf is seeking coverage from various insurers
and under various insurance policies for environmental cleanup costs.
On July 14, 1995, Columbia Gulf filed a motion to stay the litigation to
allow informal discussions among the parties to the litigation. This
motion was granted by the court on July 19, 1995.
42
<PAGE> 45
PART II - OTHER INFORMATION
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
As of June 30, 1995, there were $1,349.8 million of the
Corporation's senior securities in default as a result of the
Chapter 11 filing. In addition, at the end of the 1995 second
quarter $488.9 million of short-term indebtedness was also in
default for nonpayment.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<S> <C>
10-BE Employment Agreement between Peter M. Schwolsky and
The Columbia Gas System, Inc.
11 Statement re Computation of Per Share Earnings, a
copy of which is attached hereto as PART II, EXHIBIT
11, pursuant to Regulation 229.601(b)(11).
12 Statements of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends, a copy of which is
attached hereto as PART II, EXHIBIT 12, pursuant to
Regulation 229.601(b)(12).
27 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K
The following reports on Form 8-K were not previously
reported.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date Filed
-------- ---------- --------------
<S> <C> <C>
5 No June 16, 1995
5 No June 19, 1995
5 No July 18, 1995
5 No July 19, 1995
5 No July 28, 1995
5 No August 4, 1995
</TABLE>
43
<PAGE> 46
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The Columbia Gas System, Inc.
----------------------------------------
(Registrant)
Date: August 11, 1995 By: /s/ R. E. LOWE
-------------------------------------
R. E. Lowe
Vice President, Controller and
Chief Accounting Officer
44
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 30th day of May, 1995 between Peter M.
Schwolsky, (the "Executive") and The Columbia Gas System, Inc. (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to secure the services of the
Executive as an officer and Chief Legal Officer; and
WHEREAS, the Executive is willing to serve as Senior Vice
President, and within ninety (90) days of his employment, as Chief Legal
Officer of the Company, and to enter into this Agreement on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Employment. The Company shall employ the Executive, and
the Executive shall serve, as Senior Vice President of the Company commencing
June 5, 1995. The Company shall also employ the Executive, and the Executive
shall serve, as Chief Legal Officer of the Company within ninety (90) days of
his employment. As Senior Vice President and Chief Legal Officer of the
Company, the Executive will report directly and solely to the Chief Executive
Officer of the Company. The Executive agrees to faithfully perform the duties
of Senior Vice President and Chief Legal Officer to the best of his ability
and, except for vacations and periods of temporary illness, to devote his full
time and attention to the Company's business. If elected, the Executive also
agrees to serve as a director and/or officer of any subsidiary or affiliate of
the Company.
2. Compensation. For all services to be rendered by the
Executive under this Agreement, the Executive shall be paid compensation and
receive benefits from the Company as follows:
<PAGE> 2
2
(a) Base Salary. A base salary of $285,000 per annum,
payable in accordance with the usual manner of payment of executive
salaries by the Company. Any increases that the Executive would be
entitled to shall be administered in the same manner as is applicable to
all other senior executives of the Company as shall be approved by the
Board of Directors. The term "base salary", for the purpose of this
Agreement, shall include any increases, and, as increased, shall be
reduced only if such reduction is part of and consistent with an
across-the-board reduction of salaries which occurs prior to a change in
control, as described in paragraph (e) of Section 6, and which affects
all members of the senior management of the Company; provided, however,
that the base salary shall in no case be reduced below $285,000 per
annum.
(b) Incentive Compensation Plan. The Executive shall
participate in the Company's incentive compensation plan and all other
incentive programs for officers of the Company as appropriate for his
status.
(c) Grant of Contingent Stock. Ninety (90) days after
the Executive commences employment with the Company, the Company shall
transfer to the Executive 2,500 shares of the Company's Common Stock, in
consideration of the Executive's resignation from employment with his
present employer and his willingness to accept employment with the
Company.
(d) Grant of Stock Options. The Board of Directors of
the Company shall grant to the Executive, under the Company's existing
stock option plan, stock options for 5,000 shares of the Company's
Common Stock. Such options shall be granted on the Executive's
employment date with an exercise price equal to 100% of the fair market
value of a share of Common Stock on such date. Such options shall
remain exercisable, as adjusted for stock splits, stock dividends and
the like, for the period ending ten years after the grant of such
options, provided that the Executive remains in the
<PAGE> 3
3
Company's employ. Notwithstanding the foregoing, in the event that the
Executive's employment is terminated by the Company for any reason other
than cause, for purposes of determining whether such stock options have
become exercisable and whether they remain exercisable, the Executive
shall be deemed to be employed by the Company for the period during
which the Executive is receiving severance benefit payments set forth in
paragraph (a)(i) of Section 7 of this Agreement and for a period of
ninety (90) days following the end of such payments.
3. Reimbursement of Expenses. The parties recognize that in
the course of performing his duties under this Agreement the Executive will
incur out-of-pocket expenses for the account of the Company. The Executive
shall be entitled to reimbursement for all reasonable out-of-pocket expenses so
incurred, upon submission to the Company of an adequate, written accounting.
4. Fringe Benefits. The Executive shall be eligible to
participate fully in all fringe benefits provided by the Company for its
employees in general, or for its executives, including, but not limited to, the
Pension Restoration Plan, the Thrift Restoration Plan, any pension plan or
profit sharing plan, maintained from time to time by the Company, and any life,
accident, health, hospitalization or long-term disability insurance, maintained
from time to time by the Company. The eligibility requirements under the
Company's Sick Leave Plan shall be waived so that the Executive shall at all
times be eligible to receive the maximum benefits under such plan, i.e.,
twenty-six weeks at full pay. The Executive shall also be entitled to receive
benefits under the Company's Transfer Personnel Plan, except that the
requirement under such plan that the Executive move his principal residence to
or near the metropolitan area in which the Company's headquarters is located
within one year of employment by the Company is waived; provided, however, that
within a reasonable period of time after the end of such one year period of
time, the Executive shall have established a residence
<PAGE> 4
4
and otherwise have become part of the general community in the area of or near
the Company's headquarters. Subject to any applicable legal limitations, the
Executive shall continue to participate in any such fringe benefits, or be
provided an equivalent amount of cash payments, during the period the Executive
is receiving the payments set forth in paragraph (a)(i) of Section 7 of this
Agreement (Severance Benefit).
5. Vacation. The Executive shall be entitled to four weeks of
paid vacation for each consecutive 12-month period during his employment by the
Company.
6. Termination. The Executive's employment shall be
terminated upon the first to occur of the following:
(a) The Executive's death.
(b) The Executive becoming permanently disabled.
Permanent disability shall mean physical or mental incapacity of a
nature which prevents the Executive, in the sole judgment of the Board
of Directors of the Company, from performing his duties under this
Agreement.
(c) The Executive's employment being terminated by the
Company for any reason other than for cause. Termination for cause
shall mean termination by action of the Board of Directors of the
Company because of the willful failure of the Executive to perform his
duties and obligations under this Agreement or gross negligence in the
performance of his duties under this Agreement or the commission by the
Executive of a felony.
(d) The 90th day after the Executive notifies the
Company in writing that he is terminating his employment as a result of
the Board of Directors of the Company failing to elect him Chief Legal
Officer within ninety (90) days of his employment, or subsequently
failing to reelect him to, or removing him from, the position of Senior
Vice President and Chief Legal Officer, or a material reduction in his
duties and responsibilities in
<PAGE> 5
5
any such position. Any notice pursuant to this paragraph must be given
in writing no later than ninety (90) days after the Board of Directors
fails to initially elect, reelect, or removes, the Executive or after
the material reduction in the Executive's duties or responsibilities.
(e) The 90th day after the Executive notifies the
Company (or any successor to the Company) in writing that he is
terminating his employment as a result of one of the following events:
(i) The Shareholders of the Company approve an
agreement for the sale or other disposition of all or
substantially all of the assets of the Company through a sale,
merger, consolidation, or other business combination transaction.
(ii) The acquisition by any person or group of
associated persons of beneficial ownership of 25% or more of the
voting securities of the Company (other than a pro forma
transaction for a purpose such as changing the name or state of
incorporation of the Company).
(iii) During any period of 24 consecutive months,
individuals who at the beginning of such period constitute the
Board of Directors and any new directors whose election by the
Board of Directors or nomination for election by the Company's
Shareholders was approved by a vote of at least 2/3 of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority of the Board of Directors.
Any notice pursuant to this paragraph must be given in writing no later
than 180 days after such event.
(f) The Executive notifies the Company that he is
terminating his employment, or the Company notifies the Executive that
the Executive's
<PAGE> 6
6
employment is being terminated, for any reason not set forth in the
preceding paragraphs of this Section.
7. Termination Benefits.
(a) If the Executive's employment is terminated for any
of the reasons set forth in paragraph (c) or (d) of Section 6
(termination by the Company without cause or termination by the
Executive for cause), the Company shall pay, or provide, to the
Executive the following termination benefits:
(i) Severance Benefit. A severance benefit in an
amount equal to the sum of (A) the Executive's then annual base
salary for a period of 24 months, or, if the Executive's
employment is terminated before the first anniversary of the
signing of this Agreement by the Company and the Executive, a
period of 24 months plus the number of months and days between
the date the Executive's employment is terminated and the first
anniversary of the signing of this Agreement by the Company and
the Executive, and (B) a reasonable estimate of the incentive
compensation the Executive would have received, under the
Company's incentive compensation plan, during such 24 month or
longer period if his employment had not terminated. Such benefit
shall be paid in monthly installments over such 24 month or
longer period and shall commence within a reasonable period of
time after such termination.
(ii) Supplemental Pension Payments. A monthly
supplemental pension payment equivalent to the greater of the
amount determined in (A) or (B) below, less the amount determined
in (C) below:
(A) the monthly benefit calculated under
the Retirement Income Plan for Columbia Gas System
Companies (the "System Plan") formula which applies to the
Executive at the date he elects to begin to receive his
retirement benefits under such plan, but determined (I)
without regard to compensation or benefit
<PAGE> 7
7
limitations prescribed by federal law or regulation and
(II) by including for all purposes under such plan the
period of the Executive's employment service and the
compensation which the Executive earned with his present
employer.
(B) the actuarial equivalent (as
determined under the actuarial assumptions in the System
Plan) of the monthly benefit calculated under the terms of
the pension plan of the Executive's present employer, as in
effect on the date of the Executive's termination of
employment with his present employer, as of the date the
Executive begins to receive his retirement benefits under
the System Plan, but with such monthly benefit being
determined (I) without regard to compensation or benefit
limitations prescribed by federal law or regulation and
(II) by including for all purposes of such calculation his
compensation history with both of his present employer and
the Company and his period of employment service with both
of his present employer and the Company.
(C) the total amount of the benefit, or
its equivalent straight life annuity amount, that the
Executive in fact receives from the pension plan of his
present employer and under the Company's Retirement
Program.
The Executive shall be entitled to receive the supplement pension
payments described in this subparagraph only if the Executive has
satisfied the vesting requirements as set forth in the System
Plan. If the Executive dies prior to the beginning of his
retirement benefits under the System Plan and the Executive's
surviving spouse or other beneficiary is entitled to receive a
death benefit under the System Plan, this subparagraph shall be
interpreted in a manner so as to
<PAGE> 8
8
provide the appropriate supplemental death benefit to the
Executive's surviving spouse or other beneficiary.
(iii) New Employment Assistance. Reasonable
assistance in obtaining new employment, including, but not
limited to, the use of an office, a telephone, and normal
secretarial and other office services.
(iv) Payment of Accrued Vacation. Payment for all
vacation periods earned and accrued to the date of such
termination but not taken. Such payment shall be made in a
single sum within a reasonable period of time after such
termination.
(b) If the period of employment is terminated for the
reason set forth in paragraph (a) of Section 6 (death), the Executive's
designated beneficiary shall receive, in addition to the death and other
benefits provided under the Company's fringe benefit programs, the
termination benefits set forth in paragraphs (a)(ii) and (iv) of this
Section (Supplemental Pension Payments and Payment of Accrued Vacation).
(c) If the period of employment is terminated for the
reason set forth in paragraph (b) of Section 6 (disability), the
Executive shall receive, in addition to the disability benefits provided
under the Company's fringe benefit programs, the termination benefits
set forth in paragraphs (a)(ii) and (iv) of this Section (Supplemental
Pension Payments and Payment of Accrued Vacation).
(d) If the period of employment is terminated for the
reason set forth in paragraph (e) of Section 6 (change in control), the
Executive shall receive the termination benefits set forth in paragraphs
(a)(i), (ii), (iii) and (iv) of this Section (Severance Benefit,
Supplemental Pension Payments, New Employment Assistance and Payment of
Accrued Vacation), except that the amount to be paid under paragraph
(a)(i) (Severance Benefit) shall be equal to the sum of (A) the
Executive's then annual base salary for a period of 36
<PAGE> 9
9
months, and (B) a reasonable estimate of the incentive compensation the
Executive would have received, under the Company's incentive
compensation plan, during such 36 month period if his employment had not
terminated. Such benefit shall be paid in monthly installments over
such 36 month period and shall commence within a reasonable period of
time after such termination. Notwithstanding the preceding to the
contrary, in the event that any payments or benefits received or to be
received by the Executive in connection with the Executive's termination
of employment (whether under the terms of this Agreement or any other
plan, arrangement or agreement with the Company or any of its
subsidiaries) would subject the Executive to an excise tax under Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then
to the extent necessary to eliminate the imposition of such an excise
tax (and after taking into account any reduction in payments or benefits
under any such other plan, arrangement or agreement), the payments under
paragraph (a)(i) of this Section 6 (Severance Benefit) shall be reduced.
(e) If the period of employment is terminated for the
reason set forth in paragraph (f) of Section 6 (any other reason), the
Executive shall receive only the termination benefit set forth in
paragraph (a)(iv) of this Section (Payment of Accrued Vacation).
8. Payment of Legal Fees and Expenses. The Company shall also
pay to the Executive reasonable legal fees and expenses incurred in good faith
by the Executive as a result of a termination which entitles the Executive to
benefits under the Agreement (including, but not limited to, all such fees and
expenses incurred in disputing any such termination or in seeking in good faith
to obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of Section 4999 of the Code to any payment or benefit provided
hereunder). Such payments shall be made within 5 business days after delivery
of the Executive's
<PAGE> 10
10
written requests for payment accompanied with such evidence of fees and
expenses incurred as the Company reasonably may require.
9. Designation of Beneficiary. The Executive may designate a
beneficiary or beneficiaries, who may be designated contingently or
successively and who may be an entity other than a natural person, to receive
any termination benefits which may become payable under Section 7 in the event
of the Executive's death. Any such designation may, from time to time and at
any time, be changed or canceled by the Executive without the consent of any
beneficiary. Any such designation must be by written notice delivered to the
Company. If the Executive designates more than one beneficiary, any payments
to the Executive's beneficiaries shall be made in equal shares unless the
Executive designates otherwise.
10. Withholding of Taxes. Any payments to the Executive, or to
his designated beneficiary or beneficiaries, pursuant to the terms of this
Agreement shall be reduced by such amounts as are required to be withheld with
respect thereto under all present and future federal, state and local tax laws
and regulations and other laws and regulations.
11. Notices. Any notice to be given to the Executive by the
Company under this Agreement shall be deemed to have been given by the Company
and received by the Executive if and when it is hand delivered to the Executive
or it is sent by registered or certified mail to the Executive at 22
Constitution Hill West, Princeton, NJ 08540, or such other address as may be
given by the Executive in writing to the Company. Any notice to be given to
the Company by the Executive under this Agreement shall be deemed to have been
given by the Executive and received by the Company if and when it is hand
delivered by the Executive to the Secretary of the Company or it is sent by
registered or certified mail, addressed to the Board of Directors of the
Company at 20 Montchanin Road,
<PAGE> 11
11
Wilmington, DE 19807, or such other address as may be given by the Company in
writing to the Executive.
12. Full and Complete Agreement; Amendment. This Agreement
constitutes the full and complete understanding and agreement of the parties
and supersedes all prior understandings and agreements. This Agreement may be
modified only by a written instrument executed by both parties.
13. Nonassignability. This Agreement and the rights and
benefits hereunder are personal to the Company and are not assignable or
transferrable, nor may the services to be performed hereunder be assigned by
the Company to any person, firm or corporation; provided, however, that this
Agreement and the rights and benefits hereunder may be assigned by the Company
to any corporation acquiring all or substantially all of the assets of the
Company or to any corporation into which the Company may be merged or
consolidated, and this Agreement and the rights and benefits hereunder will
automatically be deemed assigned to any such corporation. The Executive's
rights and interest under this Agreement may not be assigned, pledged or
encumbered by Executive. The provisions of this Agreement shall enure to the
benefit of Executive's heirs, executors, administrators and successors in
interest.
14. Construction. This Agreement shall be construed under the
laws of the State of Delaware.
15. Execution in Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
<PAGE> 12
12
16. Titles and Headings. Titles and headings to Sections
herein are for purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of any of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above.
THE COLUMBIA GAS SYSTEM, INC.
(Corporate Seal)
ATTEST: By: /s/ Oliver G. Rochard, III
------------------------------
Chairman, President and
Chief Executive Officer
/s/ T. S. Bindra
- ------------------------
Assistant Secretary
/s/ Peter M. Schwolsky
-----------------------------
Peter M. Schwolsky
<PAGE> 1
Exhibit 11
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Computation for Statements of Consolidated
Income ($ in millions)
- ------------------------------------------
Income (loss) before cumulative effect of accounting change . . . . . . . . . . . . . . 30.9 47.8 159.7 188.0
Cumulative effect of change in accounting for postemployment benefits . . . . . . . . . - - - (5.6)
------ ------ ------ ------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.9 47.8 159.7 182.4
------ ------ ------ ------
Earnings (loss) per share of common stock (based on average shares outstanding ($)
Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11)
------ ------ ------ ------
Earnings (loss) on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61
====== ====== ====== ======
Additional computation of average common shares outstanding (thousands) (NOTE)
Average shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . 50,568 50,559 50,566 50,559
Incremental common shares applicable to common stock based on the common stock daily
average market price:
Applicable to contingent stock awards . . . . . . . . . . . . . . . . . . . . . . . . 10 4 5 4
------ ------ ------ ------
Average common shares as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,578 50,563 50,571 50,563
====== ====== ====== ======
Average shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . 50,568 50,559 50,571 50,559
Incremental common shares applicable to common stock based on the more dilutive of the
common stock ending or daily average market price during the year:
Applicable to contingent stock awards . . . . . . . . . . . . . . . . . . . . . . . . 10 4 5 4
------ ------ ------ ------
Average common shares assuming full dilution . . . . . . . . . . . . . . . . . . . . . 50,578 50,563 50,571 50,563
====== ====== ====== ======
Earnings (loss) per share of common stock as adjusted:
Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11)
------ ------ ------ ------
Average common shares as adjusted ($) . . . . . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61
====== ====== ====== ======
Earnings (loss) per common shares assuming full dilution:
Average common shares assuming full dilution ($) . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61
====== ====== ====== ======
Earnings (loss) per common shares assuming full dilution:
Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11)
------ ------ ------ ------
Average common shares assuming full dilution ($) . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61
====== ====== ====== ======
</TABLE>
NOTE These calculations are submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15
because they result in dilution of less than 3%.
<PAGE> 1
Exhibit 12
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges
($ in millions)
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Ended June 30, Ended December 31,
--------------- ------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----- ----- ----- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes and Cumulative Effect of Accounting
Change . . . . . . . . . . . . . . . . . . . . . . . . . 341.6 371.4 392.2 288.1 161.4 (1,205.8) 162.6
Adjustments:
Interest during construction . . . . . . . . . . . . . . - - - - - (3.4) (10.0)
Distributed (Undistributed) equity income . . . . . . . . (3.1) (0.8) (0.9) (0.1) (0.1) (2.4) 2.9
Fixed charges . . . . . . . . . . . . . . . . . . . . . 37.2 76.5 14.8 101.5 13.7 139.9 182.5
----- ----- ----- ----- ----- -------- -----
Earnings Available . . . . . . . . . . . . . . . . . . 375.7 447.1 406.1 389.5 175.0 (1,071.7) 338.0
----- ----- ----- ----- ----- -------- -----
Fixed Charges:
Interest on long-term and short-term debt . . . . . . . . 0.2 1.3 0.7 3.1 4.9 112.4 170.6
Other interest . . . . . . . . . . . . . . . . . . . . . 37.0 75.2 14.1 98.4 8.8 27.6 10.5
----- ----- ----- ----- ----- -------- -----
Total Fixed Charges before Adjustments*,** . . . . . . 37.2 76.5 14.8 101.5 13.7 140.0 181.1
----- ----- ----- ----- ----- -------- -----
Adjustments:
Gain/(Loss) on reacquired debt . . . . . . . . . . . . . - - - - - (0.1) 1.4
----- ----- ----- ----- ----- -------- -----
Total Fixed Charges . . . . . . . . . . . . . . . . . . 37.2 76.5 14.8 101.5 13.7 139.9 182.5
----- ----- ----- ----- ----- -------- -----
Ratio of Earnings Before Taxes to Fixed Charges . . . . . . 10.10 5.84 27.44 3.84 12.77 N/A(a) 1.85
===== ===== ===== ===== ===== ======== =====
</TABLE>
(a) To achieve a one-to-one coverage, the Corporation would need an additional
$1,211.6 million of earnings.
* This amount excludes approximately $253 million interest expense not
recorded in the twelve months ended June 30, 1995, $216 million interest
expense not recorded in the twelve months ended June 30, 1994, $230 million,
and $210 million, $204 million and $86 million of interest expenses not
recorded for the twelve months ended 1994, 1993, 1992 and 1991. Reference
is made to the Statements of Consolidated Income for the quarterly period
ended June 30, 1995, as reported in Form 10-Q and to Note 2 of Notes to
Consolidated Financial Statements of the Corporation's Annual Report on Form
10-K for the year ended December 31, 1994.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> APR-01-1995 JAN-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,462,900 3,462,900
<OTHER-PROPERTY-AND-INVEST> 888,900 888,900
<TOTAL-CURRENT-ASSETS> 2,699,200 2,699,200
<TOTAL-DEFERRED-CHARGES> 285,600 285,600
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 7,336,600 7,336,000
<COMMON> 505,700 505,700
<CAPITAL-SURPLUS-PAID-IN> 602,100 602,100
<RETAINED-EARNINGS> 590,200 590,200
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,628,000 1,628,000
0 0
0 0
<LONG-TERM-DEBT-NET> 4,000 4,000
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,200 1,200
0 0
<CAPITAL-LEASE-OBLIGATIONS> 2,400 2,400
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,703,400 5,703,400
<TOT-CAPITALIZATION-AND-LIAB> 7,336,600 7,336,600
<GROSS-OPERATING-REVENUE> 474,700 1,526,600
<INCOME-TAX-EXPENSE> 13,900 96,200
<OTHER-OPERATING-EXPENSES> 447,800 1,299,800
<TOTAL-OPERATING-EXPENSES> 447,800 1,299,800
<OPERATING-INCOME-LOSS> 26,900 226,800
<OTHER-INCOME-NET> 24,600 41,300
<INCOME-BEFORE-INTEREST-EXPEN> 51,500 268,100
<TOTAL-INTEREST-EXPENSE> 6,700 12,200
<NET-INCOME> 30,900 159,700
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 30,900 159,700
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> 0 0
<EPS-PRIMARY> 0.61 3.16
<EPS-DILUTED> 0.61 3.16
</TABLE>
