<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
/ X / OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1995
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
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Commission file number 1-1098
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THE COLUMBIA GAS SYSTEM, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
20 Montchanin Road, Wilmington, Delaware 19807
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (302) 429-5000
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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
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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: 50,575,835 shares outstanding at October 31, 1995.
<PAGE> 2
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I FINANCIAL INFORMATION
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<S> <C> <C>
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 19
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 43
Item 2 Changes in Securities 46
Item 3 Defaults Upon Senior Securities 46
Item 4 Submission of Matters to a Vote of Security Holders 46
Item 5 Other Information 46
Item 6 Exhibits and Reports on Form 8-K 46
Signature 48
</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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas sales $ 213.8 $ 207.4 $ 1,353.9 $1,481.3
Transportation 121.0 131.3 397.9 431.2
Other 54.2 54.2 172.2 170.6
---------- ---------- ---------- ---------
Total Operating Revenues 389.0 392.9 1,924.0 2,083.1
---------- ---------- ---------- ---------
OPERATING EXPENSES
Products purchased 44.7 36.3 583.0 704.3
Operation 207.4 204.0 658.7 655.3
Maintenance 31.4 39.5 84.8 95.3
Depreciation and depletion 56.6 56.6 200.2 191.2
Other taxes 34.6 35.7 156.2 154.4
---------- ---------- --------- ---------
Total Operating Expenses 374.7 372.1 1,682.9 1,800.5
----------- ---------- ---------- ---------
OPERATING INCOME 14.3 20.8 241.1 282.6
---------- ---------- --------- ---------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 3.7 4.3 12.5 26.4
Interest expense and related charges* (4.1) (18.7) (16.3) (8.5)
Reorganization items, net 18.9 (32.4) 51.4 (20.1)
---------- ---------- ---------- ---------
Total Other Income (Deductions) 18.5 (46.8) 47.6 (2.2)
---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 32.8 (26.0) 288.7 280.4
Income Taxes 13.5 (11.0) 109.7 107.4
---------- ---------- ---------- ---------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 19.3 (15.0) 179.0 173.0
Cumulative effect of change in
accounting for postemployment benefits - - - (5.6)
---------- ---------- ----------- ---------
NET INCOME (LOSS) $ 19.3 $ (15.0) $ 179.0 $ 167.4
========== ========== ========== =========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
(based on average shares outstanding)
Before accounting change $ 0.38 $ (0.30) $ 3.54 $ 3.42
Change in accounting for postemployment benefits - - - (0.11)
--------- ---------- ----------- ---------
EARNINGS (LOSS) ON COMMON STOCK $ 0.38 $ (0.30) $ 3.54 $ 3.31
========= ========== ========== =========
AVERAGE COMMON SHARES OUTSTANDING (thousands) 50,574 50,560 50,569 50,560
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
* Due to the bankruptcy filings, interest expense of approximately $68
million and $59 million has not been recorded for the three months ended
September 30, 1995 and 1994, respectively, and approximately $200 million
and $168 million has not been recorded for the nine months ended September
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
------------------------------------------
September 30, 1995 December 31, 1994
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(unaudited)
(millions)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $ 6,811.0 $ 6,637.5
Accumulated depreciation and depletion (3,295.1) (3,180.8)
---------- ----------
Net Gas Utility and Other Plant 3,515.9 3,456.7
---------- ----------
Oil and gas producing properties, full cost method 1,281.5 1,261.9
Accumulated depletion (665.3) (637.6)
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Net Oil and Gas Producing Properties 616.2 624.3
---------- ----------
Net Property, Plant and Equipment 4,132.1 4,081.0
---------- ----------
INVESTMENTS AND OTHER ASSETS 297.7 306.4
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CURRENT ASSETS
Cash and temporary cash investments 1,759.6 1,481.8
Accounts receivable, net 325.1 547.8
Gas inventory 264.0 230.3
Prepayments 81.1 134.2
Other 108.9 91.0
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Total Current Assets 2,538.7 2,485.1
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DEFERRED CHARGES 287.2 292.4
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TOTAL ASSETS $ 7,255.7 $ 7,164.9
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 1,647.5 $ 1,468.0
Long-term debt 3.8 4.3
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Total Capitalization 1,651.3 1,472.3
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CURRENT LIABILITIES
Accounts and drafts payable 125.2 153.2
Accrued taxes 104.1 175.2
Estimated rate refunds 55.1 92.2
Estimated supplier obligations 38.5 69.7
Overrecovered gas costs 101.9 59.5
Transportation and exchange gas payable 43.9 35.1
Other* 265.3 275.0
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Total Current Liabilities 734.0 859.9
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LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS 3,981.9 3,977.7
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS
Income taxes, noncurrent 424.0 344.1
Postretirement benefits other than pensions 220.3 236.3
Other 244.2 274.6
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Total Other Liabilities and Deferred Credits 888.5 855.0
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $ 7,255.7 $ 7,164.9
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
*Due to the bankruptcy filings, estimated accrued interest of $930 million and
$730 million has not been recorded as of September 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>
Nine Months
Ended September 30,
-------------------------------
1995 1994
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(millions)
<S> <C> <C>
OPERATIONS ACTIVITIES
Net Income $179.0 $ 167.4
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 200.2 191.2
Deferred income taxes 71.4 79.8
Other - net* (11.5) (24.5)
Change in components of working capital:
Accounts receivable 234.9 335.2
Gas inventory (33.7) (85.7)
Prepayments 59.0 46.6
Accounts payable (16.0) (36.1)
Accrued taxes (78.9) (60.5)
Estimated rate refunds (75.4) (106.6)
Estimated supplier obligations (9.9) (9.2)
Overrecovered gas costs 42.4 6.4
Exchange gas payable 9.1 (29.9)
Other working capital (12.7) 51.4
--------- ----------
Net Cash From Operations 557.9 525.5
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INVESTMENT ACTIVITIES
Capital expenditures (270.6) (282.3)
Other investments - net 6.1 (4.2)
---------- ----------
Net Investment Activities (264.5) (286.5)
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FINANCING ACTIVITIES
Retirement of long-term debt (0.5) (0.9)
Decrease in short-term debt and other financing activities (15.1) (21.5)
---------- ----------
Net Financing Activities (15.6) (22.4)
---------- ----------
Increase in Cash and Temporary Cash Investments 277.8 216.6
Cash and Temporary Cash Investments at Beginning of Year 1,481.8 1,340.4
---------- ----------
Cash and Temporary Cash Investments at September 30** $ 1,759.6 $ 1,557.0
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 0.4 0.3
Cash paid for income taxes (net of refunds) 40.8 24.9
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
* Includes changes in Liabilities Subject to Chapter 11 Proceedings of $4.2
million in 1995 and $35.3 million in 1994.
** The Corporation considers all highly liquid debt instruments 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
-------------------------------------
September 30, December 31,
1995 1994
----------------- ----------------
(unaudited)
(millions)
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, $10 par value, authorized
100,000,000 shares, outstanding 50,575,835
shares and 50,563,335 shares, respectively $ 505.8 $ 505.6
Additional paid in capital 602.2 601.9
Retained earnings 609.5 430.5
Unearned employee compensation (70.0) (70.0)
---------- ----------
TOTAL COMMON STOCK EQUITY $ 1,647.5 $ 1,468.0
========== ==========
</TABLE>
The accompanying Notes to 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 normal
recurring adjustments which are 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 and Second Quarter Form
10-Qs. 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
5
<PAGE> 8
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
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.
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 long-term debt ratings.
Three rating agencies have indicated that they will assign investment-grade
ratings for the Corporation's debt obligations that will be issued at
emergence from Chapter 11. 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 security
holders in connection with the Plans. The Plans were subsequently mailed
to creditors and equity security holders for their acceptance or
disapproval in late August. The deadline for submitting ballots was
October 13, 1995, and based on preliminary results the Plans have been
accepted by the necessary majorities of each company's creditors and the
Corporation's shareholders. Final results of the voting will be available
by November 13, 1995, the scheduled date for the confirmation hearings to
begin for both Plans. Several objections to the Plans have been filed,
however, management does not believe that the objections filed present a
significant obstacle to the confirmation of the Plans. If the Plans are
confirmed at the scheduled hearings it is possible that both the
Corporation and Columbia Transmission could emerge from bankruptcy by the
end of November 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
approximately $1 billion of interest on that debt.
6
<PAGE> 9
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
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:
- Approximately $2 billion in new debt securities, with maturities
ranging from 5 to 30 years;
- About $900 million in cash, to be funded in large part by new
bank debt; and
- About $200 million in preferred stock and $200 million in
Dividend Enhanced Convertible Securities(TM).
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. The Corporation has
received both Securities and Exchange Commission (SEC) and 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.
Depending on market conditions, the Corporation may choose to utilize such
hedging instruments, but has not decided to use them at this time.
The Corporation's Plan also provides for the implementation of a settlement
of a class action litigation as described on page 11.
Columbia Transmission's Plan
Columbia Transmission's Plan is supported financially by the Corporation,
and proposes a total distribution at emergence, or as soon thereafter as
practical, of approximately $3.9 billion to its creditors, including:
- 100 percent of all priority and administrative claims, which together
amount to approximately $255 million;
- 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;
- 100 percent of all unsecured claims of $25,000 or less, which amount
to approximately $8 million;
- 72.5 percent of all miscellaneous unsecured creditor claims in excess
of $25,000, which amount to approximately $40 million;
- Approximately $130 million in customer refunds as provided under terms
of the Customer Settlement agreement between Columbia Transmission and
its firm service customers and certain other parties;
- 68.875 to 72.5 percent of the approximately $351 million unsecured
claim of the Corporation depending upon the final distribution
percentage received by unsecured producers; and
- 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 of 68.875 to 72.5 percent to those creditors who have
claims under those contracts in excess of $25,000.
7
<PAGE> 10
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
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 who have agreed to settlements of their claims in the
Initial Accepting Producer Settlement Agreement (Producer Settlement),
described below, support Columbia Transmission's Plan. In addition to
incorporating terms of the Producer Settlement, the Plan incorporates terms
of a settlement with almost all firm customers, state regulatory agencies
and consumer groups, also discussed below.
As of November 1, 1995, settlements with producers represent in aggregate
approximately 81 percent of the producer claims initially filed against
Columbia Transmission, 56 percent of the total number of producer creditors
and approximately 93 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. As of early November 1995, the producer
claims yet to be settled represent approximately $629 million in
recalculated or filed claims.
Columbia Transmission's 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 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
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 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 (Customer Settlement) 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;
however, implementation of the Customer Settlement is contingent upon
approval of Columbia Transmission's Plan. 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 Customer
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 Plan is implemented.
Refunds to be paid under the
8
<PAGE> 11
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Customer 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 a settlement regarding 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.
Exclusivity Period
On October 26, 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 January 2, 1996, to provide
ample time to obtain the approvals required for the Plans, and, if
necessary, to amend the Plans in order that they can be successfully
confirmed at the hearings which are scheduled to commence November 13,
1995.
Approval Process
The next step in the bankruptcy process is for the Bankruptcy Court to
consider whether the Corporation's and Columbia Transmission's Plans should
be confirmed. Management believes that all judicial approvals can be
obtained and that distributions under the Plans can take place prior to the
end of the year.
Internal Revenue Service
The Corporation received a favorable ruling in October 1995, from the
Internal Revenue Service (IRS) stating 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 in the year
in which the payments are made. Because of the magnitude of the payments,
obtaining a favorable ruling from the IRS was a condition of both Plans.
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 and the 1990 property transfer from
Columbia Transmission to Columbia Natural Resources, Inc. as alleged
fraudulent transfers. 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 the
trial was concluded in late 1994. However, the parties involved in this
litigation subsequently requested that the District Court defer decision
since Columbia Transmission's Plan provides for a resolution of the
litigation. In connection with the confirmation of Columbia Transmission's
and the Corporation's Plans, Bankruptcy Court approval of the settlement
will be sought.
9
<PAGE> 12
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
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 were
also recorded.
In 1992, the Bankruptcy Court approved the appointment of a claims mediator
to implement a claims estimation procedure for claims arising from the
rejected above-market producer contracts and other producer claims. On
October 13, 1994, and February 17, 1995 respectively, the claims mediator
issued the 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 adjustment in the claims estimation procedure based upon
claim-specific issues.
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 were incomplete or incorrect
when filed or were filed late. To date, producers have admitted errors in
the recalculations amounting to over $1 billion. 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,
numerous producers have settled with Columbia Transmission at amounts
approximating the proposed settlement values under the Plan. Columbia
Transmission is in the process of reviewing information provided by
producers in order to assess the remaining recalculated claims and has
commenced submitting to the Claims Mediator exceptions to those claims as
recalculated. The Claims Mediator has begun to schedule hearings for the
claims of some 50 producers and Columbia Transmission's objections thereto.
The Claims Mediator has advised that he would issue recommendations to the
Bankruptcy Court as to each of these producers' claims after these hearings
and briefs by interested parties. Remaining nonsettling producer claims at
the time of emergence from bankruptcy will be resolved by litigation or
settlement with no impact on the confirmation or effective date of Columbia
Transmission's Plan.
Based on the information received and evaluated to date, Columbia
Transmission believes that most of the remaining claims will be settled at
amounts approximating the settlement values, but expects that some claims
may be settled or resolved in post-confirmation litigation at allowed
amounts higher than the proposed settlement values. Although Columbia
Transmission does not have sufficient information to fully evaluate all
claims and the outcome of litigation is subject to uncertainty, Columbia
Transmission currently estimates that the ultimate payment to producers,
after litigation and after giving effect to the producer
10
<PAGE> 13
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
holdback, is likely to exceed the $1.2 billion distribution projected in
the Plan (which is based on 100 percent producer acceptance) but is
unlikely to exceed $1.3 billion. The foregoing estimation is based on the
information currently available, and there can be no assurance as to the
timing or amounts 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 $930 million for the period from July
31, 1991, through September 30, 1995, 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. If
emergence from Chapter 11 were to occur by the end of November 1995, the
estimated interest expense would be approximately $1 billion.
Securities Litigation
On July 18, 1995, the Corporation reached a settlement that resolved a
consolidated class action complaint filed against the Corporation and its
directors and certain officers of the debtor companies in the District
Court. Under the terms of the settlement the Corporation will pay
approximately $16.5 million of the total $36.5 million settlement. The
remainder will be shared among the insurance carrier for the director and
officer defendants and the other defendants to the litigation. A hearing
was held before the District Court to consider whether the settlement is
fair and reasonable. The District Court entered an order approving the
settlement on November 3, 1995. The Corporation's participation in the
settlement is conditioned upon the Bankruptcy Court's confirmation of the
Corporation's Plan. As permitted under the terms of the settlement, 39
members of the class, representing approximately 11,300 shares of the
Corporation's common stock, chose to opt-out of the settlement fund by
completing the opt-out forms in the manner prescribed in the Notice of
Settlement and therefore could pursue their claims independently. However,
management does not believe that claims made by these members, if any, will
represent a material financial exposure to the Corporation. The settlement
will be implemented upon the Corporation's emergence from Chapter 11.
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 had
breached their duties to the Corporation (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
dispose of the litigation pursuant to the Corporation's Plan. In addition,
the substantial contribution by the insurance carrier for the settlement
fund in the Securities Litigation was conditioned upon the release of the
derivative claims. The Plan provides that the derivative actions be
released and dismissed. 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 September 30, 1995,
includes approximately $4 billion of liabilities subject to the Chapter 11
proceedings of the Corporation and Columbia Transmission as follows:
<TABLE>
<S> <C>
($ in millions)
- -------------------------------------------------------------------------
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 3,974.2
Less: payable to affiliates 2,369.7
--------
Payable to nonaffiliates 1,604.5
- -------------------------------------------------------------------------
Liabilities Subject to Chapter 11 Proceedings 3,981.9
- -------------------------------------------------------------------------
</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 $605 million at September 30, 1995. In addition to these
secured claims, the Corporation has an unsecured claim against Columbia
Transmission of $351 million in installment notes issued prior to 1985 and
accrued interest to the petition date.
12
<PAGE> 15
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Financial Information for the Debtor Companies
Below is condensed financial information for the Corporation and Columbia
Transmission as of, and for the nine month period ended, September 30,
1995.
<TABLE>
<CAPTION>
Corporation Columbia Transmission
--------------------- ---------------------
As of As of
------------------------------------- ---------------------------------
September 30, December 31, September 30, December 31,
($ in millions) 1995 1994 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets
Cash and temporary
cash investments 423.1 218.5 1,397.7 1,253.5
Intercompany accounts
receivable 119.6 160.9 28.5 43.8
Other 43.6 44.7 239.0 316.4
----------------------------------------------------------------------------------------------------
Total current assets 586.3 424.1 1,665.2 1,613.7
----------------------------------------------------------------------------------------------------
Current liabilities
Intercompany accounts
payable (3.7) (3.1) (3.2) (3.2)
Other (14.3) (11.7) (272.4) (326.8)
----------------------------------------------------------------------------------------------------
Total current liabilities (18.0) (14.8) (275.6) (330.0)
----------------------------------------------------------------------------------------------------
Working capital 568.3 409.3 1,389.6 1,283.7
Noncurrent assets 3,749.2 3,669.8 2,323.8 2,321.5
Estimated liabilities subject
to Chapter 11 proceedings (2,382.6) (2,382.5) (3,974.2) (3,851.1)
Noncurrent liabilities (287.4) (228.6) (187.9) (232.0)
----------------------------------------------------------------------------------------------------
NET EQUITY 1,647.5 1,468.0 (448.7) (477.9)
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended September 30, Ended September 30,
----------------------------------- ----------------------------------
($ in millions) 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues - - 477.6 536.0
Operating expenses 15.9 6.2 361.7 384.3
-------------------------------------------------------------------------------------------------------
Operating income (loss) (15.9) (6.2) 115.9 151.7
Other income (deductions) 252.8 238.2 (68.9) (108.0)
Income taxes 57.9 64.6 17.9 13.4
Change in accounting - - - (3.1)
-------------------------------------------------------------------------------------------------------
NET INCOME 179.0 167.4 29.1 27.2
=======================================================================================================
</TABLE>
13
<PAGE> 16
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Corporation Columbia Transmission
------------------- ---------------------
As of Nine Months As of Nine Months
Ended September 30, Ended September 30,
------------------------------ -----------------------------
($ in millions) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH FROM OPERATIONS 43.9 61.2 225.0 138.4
---------------------------------------------------------------------------------------------------
Investment Activities
Capital expenditures - - (73.8) (76.9)
Other (4.2) (5.3) (2.4) -
---------------------------------------------------------------------------------------------------
Net Investment Activities (4.2) (5.3) (76.2) (76.9)
---------------------------------------------------------------------------------------------------
Financing Activities
Intercompany dividends
received 44.2 25.1 - -
Investment in subsidiary
common stock (13.0) - - -
Intercompany short-term
financing activity 61.4 15.6 - -
Investment in subsidiary
debt 72.1 54.1 - -
Other 0.2 0.2 (4.6) (3.1)
---------------------------------------------------------------------------------------------------
Net Financing Activities 164.9 95.0 (4.6) (3.1)
---------------------------------------------------------------------------------------------------
Increase in cash and
temporary cash investments 204.6 150.9 144.2 58.4
Cash and temporary cash
investments at beginning
of year 218.5 128.7 1,253.5 1,209.2
---------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH
INVESTMENTS AT END OF
THE PERIOD 423.1 279.6 1,397.7 1,267.6
---------------------------------------------------------------------------------------------------
</TABLE>
Pro Forma Consolidated Balance Sheet
The following unaudited condensed consolidated balance sheet for the
Corporation gives the effect of the Plans as if they are confirmed without
material modifications from the Plans currently filed with the Bankruptcy
Court. This pro forma statement further assumes that the effective date was
September 30, 1995. The actual effective date and adjustments will be based
on the final terms of the Plans that are ultimately confirmed by the
Bankruptcy Court.
The balance sheet adjustments primarily reflect the satisfaction of
approximately $4 billion of non-affiliated claims made against the
Corporation and Columbia Transmission in the bankruptcy proceedings and the
issuance of approximately $3 billion of associated new debt or preferred
stock. The pro forma consolidated balance sheet also includes other
adjustments and
14
<PAGE> 17
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
reclassifications to eliminate bankruptcy-related items and the anticipated
readoption of Statement of Financial Accounting Standard No. 71 by Columbia
Transmission and Columbia Gulf upon emergence. Management believes that
these adjustments fairly represent the effect of emergence from bankruptcy on
the consolidated balance sheet; however, the final adjustments could be
materially different since they would be subject to any further possible
Bankruptcy Court actions, further developments with respect to disputed
claims, the passage of time, or other events.
<TABLE>
<CAPTION>
Consolidated Balance Sheet
Actual and Pro Forma
As of
September 30, 1995
------------------
(millions)
Pro Forma
Actual Entries Pro Forma
---------- -------------- ---------
<S> <C> <C> <C>
Assets
- ------
Net Property, Plant and Equipment . . . . . . . . . . . $ 4,132.1 $ 18.0 $ 4,150.1
------------ ------------ -----------
Investments and Other Assets . . . . . . . . . . . . . 297.7 (91.0) 206.7
------------ ------------ -----------
Current Assets
Cash and temporary cash investments . . . . . . . 1,759.6 (1,758.2) 1.4
Other . . . . . . . . . . . . . . . . . . . . . . 779.1 198.2 977.3
------------ ------------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . 2,538.7 (1,560.0) 978.7
------------ ------------ -----------
Deferred Charges . . . . . . . . . . . . . . . . . . . 287.2 188.3 475.5
------------ ------------ -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . $ 7,255.7 $ (1,444.7) $ 5,811.0
============= ============= ===========
Capitalization and Liabilities
- ------------------------------
Capitalization
Common Stock Equity . . . . . . . . . . . . . . . . 1,647.5 (524.3) 1,123.2
Preferred Stock . . . . . . . . . . . . . . . . . . - 400.0 400.0
Long-term debt . . . . . . . . . . . . . . . . . . . 3.8 2,000.0 2,003.8
------------- ------------ -----------
Total Capitalization . . . . . . . . . . . . . . . . . 1,651.3 1,875.7 3,527.0
------------ ------------ -----------
Current Liabilities
Short-term debt . . . . . . . . . . . . . . . . . . - 538.0 538.0
Other . . . . . . . . . . . . . . . . . . . . . . . 734.0 17.9 751.9
------------ ------------ -----------
Total Current Liabilities . . . . . . . . . . . . . . . 734.0 555.9 1,289.9
------------ ------------ -----------
Liabilities Subject to Chapter 11 Proceedings . . . . . 3,981.9 (3,981.9) -
------------ ------------ ------------
Other Liabilities and Deferred Credits
Deferred income taxes, noncurrent . . . . . . . . . 424.0 (67.4) 356.6
Postretirement benefits other than pensions . . . . 220.3 2.2 222.5
Other . . . . . . . . . . . . . . . . . . . . . . . 244.2 170.8 415.0
------------ ------------ -----------
Total Other Liabilities and Deferred Credits . . . . . 888.5 105.6 994.1
------------ ------------ -----------
Total Capitalization and Liabilities . . . . . . . . . $ 7,255.7 $ (1,444.7) $ 5,811.0
============ ============ ===========
</TABLE>
15
<PAGE> 18
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
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.
Columbia Transmission continues its review of compliance with existing
environmental standards, including review of past operational activities
and identification of potential site problems, through site reviews and
the formulation of remediation programs where necessary. While Columbia
Transmission has made progress in these efforts, such progress has been
limited by a 1995 U.S. Environmental Protection Agency (EPA)
Administrative Order by Consent (AOC) that requires Columbia Transmission
to obtain EPA approval of its investigation, characterization
and remediation efforts. Progress is further limited because of the more
than 19,000 miles of pipeline which it operates, the exceptionally large
number of sites at which it conducts or has conducted operations, and the
long period over which operations have been conducted. As contemplated by
the AOC, Columbia Transmission's environmental expenditures are expected
to approximate $20 million in 1996 and to continue at that level for the
foreseeable future, which amounts will be charged against the
Corporation's previously recorded liability.
Columbia Transmission's ability to accurately determine the time frame and
potential costs of its site screening, characterization and remediation
program is complicated by the lack of information on environmental
conditions at many of its sites or former sites of operations and the
variability in the nature and condition of such sites. Management has
previously estimated, based on studies conducted since 1990 by independent
consultants, that site investigation, characterization and remediation
costs may range between $135 million and $280 million. The primary focus
of these prior studies was to analyze discrete issues to assist management
in its on-going environmental evaluation. In 1994, Columbia Transmission
commissioned a new study in light of information gathered since the
previous studies and the anticipated receipt of the AOC
which was designed to broaden the scope of the work contemplated by
such studies and to reflect costs that might arise from the EPA's
recommendations with respect to site assessment and remediation under the
AOC. This new study was structured to be a comprehensive review of all
environmental issues currently known to management. However, this study
did not include certain previously identified costs, aggregating
approximately $50 million, for which Columbia Transmission already had
reasonable estimates.
The study was completed in September 1995 and estimates that the cost of
the environmental program under the AOC may range between $204 million and
$319 million over the life of the program. The consultant based its
estimates on a variety of assumptions, including: the
16
<PAGE> 19
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
limited amount of actual data available; the number of sites to be
investigated, characterized and remediated; the amount of time and nature
of equipment required for such activities; the appropriate clean-up levels
and remediation technology to be utilized; the frequency with which
groundwater contamination will be discovered at sites requiring clean-up;
and the nature of wastes that will be treated at or disposed from the
sites. Any change in any one of these numerous assumptions could
materially alter the estimated range of costs, and there is no assurance
that actual costs would not exceed the amounts specified in the range.
Management intends, to the extent permitted under the AOC, to utilize risk
assessments, innovative technology and other cost reduction strategies in
implementing its investigation, characterization and remediation program.
Management is currently reviewing the detailed bases and assumptions used
to develop this range of possible total program costs for purposes of
determining, among other items, what portion should be considered
"probable and reasonably estimable" under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies." This review
is expected to be completed in the fourth quarter and any changes in the
recorded liability ($121 million at September 30, 1995) will be recognized
at that time.
Management expects most environmental assessment and remediation costs to
be recoverable through rates. Although charges to earnings could be
required prior to rate recovery, management does not believe that
environmental expenditures will have a material adverse effect on the
Corporation's financial position, based on known facts, existing laws and
regulations and the period over which expenditures are required.
4. Adoption of Statement of Financial Accounting Standard No. 71, "Accounting
for the Effects of Certain Types of Regulation" (SFAS No. 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 that was filed on August 1, 1995, and the
resolution of gas contract difficulties and various customer issues,
Columbia Transmission and Columbia Gulf anticipate re-applying SFAS No. 71
upon Columbia Transmission's emergence from bankruptcy. Under
SFAS No. 71, the transmission companies would be permitted to record a
regulatory asset for expense that are expected to be recovered through
rates.
5. 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 September 30, 1995, the capitalized
costs exceeded the sum of the estimated present value of future oil and
gas revenues. However, since that date, oil and gas prices recovered such
that the present value of future revenues exceeded the capitalized costs
and, therefore, no charge to earnings was required.
In addition, 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
18
<PAGE> 20
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
produced from Columbia Natural Resources, Inc.'s reserves, and in the
previously mentioned August 1995 rate filing, Columbia Transmission
requested an increase in its gathering rate. An increase in the gathering
rate, a decline in gas prices or increases in other costs could result in
a write-down in the carrying value of the oil and gas properties in the
future.
19
<PAGE> 21
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 Second Quarter Form 10-Q
follows.
Exclusivity Period for Filing Amended Plans of Reorganization
On October 26, 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 January 2, 1996, to provide ample time
to obtain the many approvals required under the Federal Bankruptcy Code, and,
if necessary, to amend the Plans in order that they can be successfully
confirmed at the hearings which are scheduled to commence November 13, 1995.
Preliminary Voting Results Received on Plans
The Corporation distributed its Plan and disclosure statement to its creditors
and shareholders in late August 1995, for voting purposes pursuant to
procedures approved by the Bankruptcy Court. At this same time Columbia
Transmission also distributed its Plan and disclosure statement to its
creditors for voting purposes pursuant to procedures approved by the Bankruptcy
Court. All ballots were required to be returned by October 13, 1995. Based on
preliminary results both Plans have been accepted by the necessary majorities
of each company's creditors and the Corporation's Plan by its shareholders.
Final results will be available by November 13, 1995, the scheduled date for
the commencement of the confirmation hearings on both Plans. If the Plans are
confirmed at the scheduled hearings it is possible that both the Corporation
and Columbia Transmission could emerge from bankruptcy by the end of November
1995.
Settlement of Securities Litigation
On October 16, 1995, the District Court ruled that a settlement that resolved a
consolidated class action complaint, filed against the Corporation and its
directors and certain officers of the debtor companies, is fair and reasonable.
Under the terms of the settlement the Corporation will pay approximately $16.5
million of the total $36.5 million settlement. The remainder will be shared
among the insurance carrier for the director and officer defendants and the
other defendants to the litigation. The Corporation's participation in the
settlement is conditioned upon the Bankruptcy Court's confirmation of the
Corporation's Plan. As permitted under the terms of the settlement, 39 members
of the class, representing approximately 11,300 shares of the Corporation's
common stock, chose to opt-out of the settlement fund, by completing the
opt-out forms in the manner prescribed in the Notice of Settlement, and are
allowed to pursue their claims independently. However, management does not
believe that claims made by these members, if any, will represent a material
financial exposure to the Corporation. The settlement will be implemented
after the Corporation's emergence from bankruptcy.
IRS Ruling on Deductibility of Contract Rejection Payments
In October 1995, the Corporation received a favorable ruling from the IRS
stating 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 in the year in which the payments are made.
Because of the magnitude of the payments, obtaining a favorable ruling from the
IRS was a condition of both Plans.
20
<PAGE> 22
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 Nine Months
Ended September 30, Ended September 30,
-------------------------- ----------------------
1995 1994 1995 1994
------ ------- ----- -----
(millions)
<S> <C> <C> <C> <C>
Residential $ 104.1 $ 102.2 $ 819.3 $ 861.1
Commercial 31.9 33.8 288.9 333.2
Industrial 36.5 39.5 125.7 146.5
Wholesale 32.0 24.9 90.3 121.9
Other 9.3 7.0 29.7 18.6
Transportation 121.0 131.3 397.9 431.2
--------- --------- --------- ---------
TOTAL $ 334.8 $ 338.7 $1,751.8 $1,912.5
========= ========= ========= =========
</TABLE>
OPERATING INCOME (LOSS) BY SEGMENT
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- ------------------------
1995 1994 1995 1994
------ ------ ----- -----
(millions)
<S> <C> <C> <C> <C>
Transmission $ 41.3 $ 42.9 $ 153.8 $ 171.9
Distribution (25.5) (26.9) 82.8 72.0
Oil and Gas (0.4) 4.2 (0.7) 27.4
Other Energy 2.8 2.9 12.4 17.5
Corporate (3.9) (2.3) (7.2) (6.2)
--------- ---------- --------- -----------
TOTAL $ 14.3 $ 20.8 $ 241.1 $ 282.6
========= ========== ========= ==========
</TABLE>
21
<PAGE> 23
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 Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
1995 1994 1995 1994
----- ----- ----- ------
<S> <C> <C> <C> <C>
THROUGHPUT (BCF)
- ----------------
SALES
Residential 11.5 11.1 127.5 137.4
Commercial 5.3 5.2 52.0 59.6
Industrial 21.8 18.2 64.3 56.7
Wholesale 21.5 19.7 64.5 58.5
Other 10.3 8.5 31.0 25.7
Intersegment eliminations (9.7) (8.0) (29.6) (25.7)
-------- -------- -------- ---------
Total Sales Volumes 60.7 54.7 309.7 312.2
-------- -------- -------- ---------
TRANSPORTATION
Market Area
Transmission 171.8 150.5 767.7 750.2
Distribution 55.1 52.5 190.6 168.0
Columbia Gulf
Main-line 143.3 136.4 450.0 475.7
Short-haul 55.5 68.6 159.9 201.9
Intersegment eliminations (197.6) (191.6) (756.9) (795.8)
-------- -------- -------- ---------
Total Transportation Volumes 228.1 216.4 811.3 800.0
-------- -------- -------- ---------
Total Throughput 288.8 271.1 1,121.0 1,112.2
======== ======== ======== =========
SOURCES OF GAS SOLD (BCF)
- -------------------------
Purchased 100.0 103.1 322.5 351.7
Produced 15.9 16.4 49.8 49.8
Exchange 10.1 0.2 12.8 (3.5)
Storage withdrawals (injections) (45.1) (49.7) (18.7) (34.2)
Other, net (10.5) (7.3) (27.1) (25.9)
Intersegment eliminations (9.7) (8.0) (29.6) (25.7)
-------- -------- -------- --------
Total 60.7 54.7 309.7 312.2
======== ======== ======== ========
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
- --------------------------------------------
Actual 102 98 3,484 3,859
Normal 41 41 3,568 3,568
% Colder (warmer) than normal 149 139 (2) 8
% Colder (warmer) than prior period 4 (18) (10) 7
</TABLE>
22
<PAGE> 24
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
Three Month Results
Net Income (Loss)
For the third quarter of 1995, the Corporation had net income of $19.3 million,
or $0.38 per share versus a net loss of $15 million, or $0.30 per share for the
same period last year. After adjusting for unusual and bankruptcy related
items, as listed below, both periods had a net loss, $15.1 million in the
current quarter and $3.9 million for the same period last year. The 1995
results primarily reflect higher operating costs for the transmission segment
and the effect of lower energy prices and production for the oil and gas
operations. Partially offsetting these decreases was an improvement recorded
in the current quarter for exit fee payments that will be paid to Columbia
Gulf. In August 1995, Columbia Transmission made a general rate filing to
provide the opportunity to recover current operating costs which are higher
than the level provided for in its last rate case in 1991.
Included in the adjustments for both periods is the impact of estimated
unrecorded interest costs on prepetition debt obligations that, on after-tax
basis, amounted to $44 million in the current quarter and $38.4 million for the
same period last year. This increase reflects the impact of higher short-term
interest rates and the increasing impact of interest on interest.
<TABLE>
<CAPTION>
Bankruptcy Related and Unusual Items
After-tax effect on Net Income
------------------------------
(millions)
Three Months
Ended September 30
--------------------
1995 1994*
------- -------
<S> <C> <C>
Reported net income (loss) $ 19.3 $ (15.0)
Less:
Bankruptcy related items
- Estimated interest costs not recorded on prepetition debt 44.0 38.4
- Capitalized interest not recorded (1.1) (3.0)
- Professional fees and related expenses (8.5) (8.4)
- Producer claim adjustment - (35.4)
- Miscellaneous unusual items - (2.7)
---------- ---------
Total adjustments 34.4 (11.1)
---------- ---------
Net loss after adjusting for bankruptcy and unusual items (15.1) (3.9)
========== =========
</TABLE>
* In the third quarter 1994 Form 10-Q net income before bankruptcy related and
unusual items of $9.4 million was reported. Certain unusual items related
to the transmission operations that were reported in the third 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 third quarter of 1995 were $389 million, essentially
unchanged from the same period last year. Improved rates in effect for the
distribution subsidiaries together with $6.8 million of exit fee revenues
recorded by Columbia Gulf were offset by reduced prices received for oil and
gas production.
23
<PAGE> 25
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
Expenses
Total operating expenses for the three months ended September 30, 1995, of
$374.7 million, increased $2.6 million primarily reflecting an increase in gas
purchase expense of $8.4 million due largely to refunds in the prior period
from upstream pipelines. In addition, higher current period operating costs
for Columbia Transmission were more than offset by reduced expense associated
with certain transportation costs.
Other Income (Deduction)
Other Income (Deductions) improved income $18.5 million in the third quarter of
1995, whereas income was reduced $46.8 million for the same period last year.
The current period includes an $11.4 million increase over the prior period in
interest income on cash accumulated during bankruptcy. The remainder of the
increase was the result of a prior period charge of $54.9 million for a reserve
addition for producer claims. Both periods benefitted from not accruing
interest expense on prepetition debt obligations.
Nine Months Results
Net Income
The Corporation's net income for the first nine months of 1995 was $179
million, or $3.54 per share, up $11.6 million, or $0.23 per share, over 1994.
After adjusting both years for bankruptcy related and unusual items, net income
was $75.8 million this year and $94.9 million in 1994. Below are the
bankruptcy related and unusual items for both periods.
<TABLE>
<CAPTION>
Bankruptcy Related and Unusual Items
After-tax effect on Net Income
------------------------------
(millions)
Nine Months
Ended September 30
--------------------
1995 1994
------- -------
<S> <C> <C>
Reported net income $ 179.0 $ 167.4
Less:
Bankruptcy related items
- Estimated interest costs not recorded on prepetition debt 129.8 109.3
- Capitalized interest not recorded (3.5) (8.3)
- Professional fees and related expenses (23.1) (21.1)
- Producer claim adjustment - (35.4)
Unusual items
- Transmission regulatory items - 26.8
- IRS settlement adjustment - 10.3
- Other - (9.1)
---------- ---------
Total adjustments 103.2 72.5
---------- ---------
Net income after adjusting for bankruptcy and unusual items 75.8 94.9
========== =========
</TABLE>
Revenues
For the nine months ended September 30, 1995, operating revenues of $1,924
million were down $159.1 million from the same period in 1994. This decrease
primarily reflected the effect of decreased sales volumes for the distribution
segment, due to warmer first quarter weather, and
24
<PAGE> 26
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
lower transportation revenues due in part to reduced recovery of certain
transportation costs that had no effect on operating income. Partially
offsetting the lower sales was higher rates for the distribution subsidiaries.
Included in revenues last year was $20.3 million for Columbia Transmission's
allowed recovery of certain costs from an earlier period because its gas costs
met certain competitive tests.
Expenses
Total operating expenses of $1,682.9 million for the first nine months of 1995,
decreased $117.6 million due largely to reduced gas purchases as a result of
lower sales requirements. Lower expenses associated with costs recovered
through revenue surcharges more than offset higher operating costs for Columbia
Transmission. Included in the prior period revenue surcharges was the recovery
of Columbia Gulf's environmental costs recorded in 1994. Increasing
depreciation and depletion expense of $9 million was due to additional plant in
service and a higher depletion rate in effect for 1995 that was only partially
offset by lower depletable revenues resulting from reduced oil production
volumes and prices for gas produced.
Other Income (Deductions)
Other Income (Deductions) increased income $47.6 million for 1995, whereas
income was decreased $2.2 million from the same period last year. The current
period benefited from increased interest income on accumulated cash of $33.8
million over the prior period. The remainder of the increase was caused by
items recorded in the prior period including a $54.9 million charge for a
reserve addition for producer claims offset by a $21 million improvement for
the reversal of a reserve for carrying charges on exchange gas and by a $15.8
million reduction in interest charges for an IRS settlement.
Income for the first nine months of 1995 and 1994 was improved by an estimated
$200 million and $168 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 $930 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 nine months ended September 30, 1995, of
$557.9 million reflected an increase of $32.4 million over the same period last
year due largely to higher rates in effect for the distribution subsidiaries
and the net effect of customer refunds made by Columbia Transmission in both
periods. In the second quarter last year, 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. Decreasing current period cash was rate refunds
made by Columbia Transmission to its nonaffiliated customers of $19 million in
August 1995 under the terms of the Customer Settlement. Also reducing cash in
1995 was the effect of lower sales receipts, net of payments
25
<PAGE> 27
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
for gas purchased, due to this year's warmer first quarter weather and reduced
oil production and prices for gas produced.
The Corporation and its subsidiaries are satisfying their liquidity needs
through the use of internally generated funds. As described above, the
Corporation and Columbia Transmission have not been paying interest on
prepetition debt obligations during their bankruptcy proceedings and the
Corporation and Columbia Transmission have accumulated $324.1 million and, $1.4
billion, respectively, invested in money market instruments.
To facilitate emergence from bankruptcy and to provide ongoing bank credit, the
Corporation received a commitment from a group of banks headed by Citibank,
N.A. to provide a senior, unsecured reducing revolving credit facility (Credit
Facility) in an amount of up to $1 billion for up to five years. Scheduled
quarterly reductions of $25 million of the committed amount start December 31,
1997 and will reduce the Credit Facility to $700 million by September 30, 2000.
The Credit Facility also provides for the issuance of up to $100 million of
letters of credit. On the effective date, this new facility will replace a
debtor-in-possession facility (DIP Facility) with Chemical Bank (Chemical)
currently maintained solely for the issuance of letters of credit of up to $25
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; bank borrowings by the Corporation
under the Credit Facility expected to aggregate up to $600 million; the
issuance by the Corporation of up to $2 billion aggregate principal amount of
debentures, subject to downward adjustment to reflect the amount of cash on
hand; and up to $200 million each of Dividend Enhanced Convertible Stock(TM)
and preferred stock. Following emergence from bankruptcy, the Corporation
expects to redeem the Dividend Enhanced Convertible Stock(TM) and the preferred
stock issued pursuant to the Plan, such securities which are redeemable
without a premium for a period of 120 days, and without any dividend for 90
days, following emergence from bankruptcy. The Corporation believes that it
will be able to meet its capital requirements and liquidity needs following
emergence from bankruptcy through the use of internally generated funds and
drawings under the Credit Facility. Additional funds may also be available
from other sources including the possible sale of Columbia Gas Development
Corporation (See page 39) and from sales of securities pursuant to a shelf
registration statement the Corporation intends to file with the SEC. The
registration statement will provide for the issuance over a five year period
after emergence from bankruptcy of up to $1 billion of debt and equity
securities, including the resale of the approximately 1.4 million shares to be
repurchased by the Corporation from the Leveraged Employee Stock Ownership Plan
(LESOP) portion of the Employees' Thrift Plan of Columbia Gas System Trust upon
emergence in connection with the termination of the LESOP portion of the Thrift
Plan. To the extent that the ultimate distributions to producers (some of
which may be determined in proceedings following emergence) exceed the amounts
provided in the Columbia Transmission Plan, the Corporation may fund such
payments through the issuance of common or preferred stock.
26
<PAGE> 28
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 Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1995 1994 1995 1994
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transportation revenues $149.8 $ 162.8 $ 485.8 $ 542.8
Storage revenues 34.6 37.1 104.4 108.0
Other revenues 13.4 (2.3) 31.3 8.9
--------- --------- --------- ---------
Total Operating Revenues 197.8 197.6 621.5 659.7
--------- --------- --------- ---------
OPERATING EXPENSES
Operation and maintenance 119.6 116.0 351.7 368.5
Depreciation 26.1 26.5 77.8 78.1
Other taxes 10.8 12.2 38.2 41.2
--------- --------- --------- ---------
Total Operating Expenses 156.5 154.7 467.7 487.8
--------- --------- --------- ---------
OPERATING INCOME $ 41.3 $ 42.9 $ 153.8 $ 171.9
========= ========= ========= =========
THROUGHPUT (BCF)
Transportation
Columbia Transmission
Market area 171.8 150.5 767.7 750.2
Columbia Gulf
Main-line 143.3 136.4 450.0 475.7
Short-haul 55.5 68.6 159.9 201.9
Intrasegment eliminations (141.8) (127.2) (443.8) (445.2)
--------- --------- --------- ---------
Total Throughput 228.8 228.3 933.8 982.6
========= ========= ========= =========
</TABLE>
27
<PAGE> 29
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Customer Settlement
As reported in the 1995 Second Quarter Form 10-Q, the FERC issued an order on
June 15, 1995, approving a settlement (Customer Settlement), between Columbia
Transmission, Columbia Gulf, their firm customers, state regulatory agencies,
customer representatives, and other parties. This settlement resolves
virtually all of the transmission segment's outstanding regulatory proceedings
before the FERC. Generally, the Customer Settlement defines Columbia
Transmission's and Columbia Gulf's refund obligations to their customers in
various 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 Customer Settlement contemplates payment of an
estimated $170 million in refunds, including postpetition amounts, to Columbia
Transmission's customers. On August 4, 1995, the Bankruptcy Court issued an
order in the bankruptcy proceeding authorizing Columbia Transmission to pay the
postpetition portion of rate refunds from a 1990 rate case pursuant to the
Customer Settlement. As a result of this order, approximately $30 million in
refund payments were made to Columbia Transmission's customers on August 28,
1995. The Customer Settlement also provides for the recovery of an estimated
$250 million in costs including unrecovered gas costs, exit fees and inventory
charges, from Columbia Transmission's customers, depending upon when the
settlement is implemented.
The Customer Settlement was incorporated in Columbia Transmission's Plan and
its effectiveness is contingent upon approval of the Plan by the Bankruptcy
Court. Columbia Transmission's Plan was accepted by its creditors based on
preliminary voting results received by the October 13, 1995 deadline. Final
results are expected to be available by the November 13, 1995 confirmation
hearing.
Upstream Pipeline Contracts
Columbia Transmission has firm transportation contracts with certain former
pipeline suppliers and 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 $432 million of claims filed by the pipelines
against Columbia Transmission will be either paid as prescribed by Columbia
Transmission's Plan or withdrawn. These settlements include projected exit fee
payments of approximately $100 million by Columbia Transmission including
amounts already paid to certain pipelines through September 1995. All of the
exit fee agreements have received Bankruptcy Court and final FERC approval;
however, parties have filed protective appeals of that portion of the June 1995
order, and the August 16, 1995 order denying rehearing, that approved an exit
fee settlement with Overthrust Pipeline Company to protect their rights if the
Customer Settlement is not effectuated. In addition, one party has filed a
protective request for rehearing of a FERC order on rehearing approving an exit
fee settlement with Ozark Gas Transportation System. If Columbia
Transmission's Plan is confirmed by the Bankruptcy Court as filed, the appeals
and request for rehearing will be withdrawn.
28
<PAGE> 30
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Earlier in 1995 Columbia Transmission made its annual filing to recover costs
it continues to incur under transportation contracts with upstream pipelines.
The filing provided for recovery of costs Columbia Transmission projected it
would incur under contracts it continues to utilize in system operations, costs
associated with contracts for which exit fees had not yet been implemented, and
continued amortization of exit fees paid to an upstream pipeline. In addition,
the filing proposed to implement a surcharge to recover an undercollection of
transportation costs paid during 1994. This underrecovery related, in part, to
amounts paid by Columbia Transmission to Columbia Gulf under the provisions of
the cost-of-service contract between the two companies for periods up to
October 31, 1994, the date on which the agreement was terminated. 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. Various
parties protested Columbia Transmission's filing, and challenged among other
things Columbia Transmission's ability to recover the costs attributable to
Columbia Gulf. Comments are due from all parties by November 16, 1995, and the
FERC's staff is expected to file its report near year-end 1995. Management
believes that the resolution of this issue will not have a material impact on
the consolidated income statement or balance sheet of the Corporation.
Columbia Transmission's Rate Filing
On August 1, 1995, Columbia Transmission filed its first general rate case with
the FERC since 1991, which requested an increase in annual revenues of
approximately $147 million. In addition to earning a return on additional
plant investment and recovering general increases in expenses, the filing also
requested:
- recovery through rates over a five year period or sale, all of
Columbia Transmission's net investment in gathering facilities and
substantially all of its net investment in gas processing facilities
that together total approximately $60 million;
- an increase in certain depreciation rates;
- recovery of environmental expenses that are anticipated to be incurred
as a result of a recent settlement with the U.S. Environmental
Protection Agency (EPA) and certain state environmental regulatory
agencies; and
- certain tariff changes relating to operational and service issues.
The impact of the filing on Columbia Transmission's rates will be mitigated by
the anticipated expiration in 1996 of an Order 636 surcharge currently included
in rates related to its exit fee payment to upstream suppliers as discussed
above.
On August 30, 1995, the FERC accepted the filing subject to refund, directed
that certain operational and tariff changes be considered at a technical
conference, and suspended implementation of the increased rates until February
1, 1996. Numerous customers and other interested parties protested the filing
and certain parties proposed that Columbia Transmission should be required to
adopt zone rates or mileage-based rates. On September 18, 1995, a prehearing
conference was held at which the administrative law judge agreed to defer
scheduling litigation procedural dates until early 1996 in order to give the
parties the opportunity to pursue
29
<PAGE> 31
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
settlement discussions. In an attempt to reach a timely resolution of the
issues, Columbia Transmission agreed that it would not implement 25 percent of
the rate increase for a three month period if settlement negotiations currently
underway are continuing at a satisfactory pace at year-end 1995.
Environmental Matters
The transmission companies continue their review of compliance with existing
environmental standards, including review of past operational activities and
identification of potential site problems, through site reviews and the
formulation of remediation programs where necessary. While Columbia
Transmission has made progress in these efforts, such progress has been
limited by a 1995 U.S. Environmental Protection Agency (EPA) Administrative
Order by Consent (AOC) that requires Columbia Transmission to obtain EPA
approval of its investigation, characterization and remediation efforts.
Progress is further limited because of the more than 19,000 miles of pipeline
which it operates, the exceptionally large number of sites at which it conducts
or has conducted operations, and the long period over which operations have
been conducted. As contemplated by the AOC, Columbia Transmission's
environmental expenditures are expected to approximate $20 million in 1996 and
to continue at that level for the foreseeable future, which amounts will be
charged against the Corporation's previously recorded liability.
Columbia Transmission's ability to accurately determine the time frame and
potential costs of its site screening, characterization and remediation program
is complicated by the lack of information on environmental conditions at many
of its sites or former sites of operations and the variability in the nature
and condition of such sites. Management has previously estimated, based on
studies conducted since 1990 by independent consultants, that site
investigation, characterization and remediation costs may range between $135
million and $280 million. The primary focus of these prior studies was to
analyze discrete issues to assist management in its on-going environmental
evaluation. In 1994, Columbia Transmission commissioned a new study in light
of information gathered since the previous studies and the anticipated receipt
of the AOC which was designed to broaden the scope of the work contemplated by
such studies and to reflect costs that might arise from the EPA's
recommendations with respect to site assessment and remediation under the AOC.
This new study was structured to be a comprehensive review of all environmental
issues currently known to management. However, this study did not include
certain previously identified costs, aggregating approximately $50 million, for
which Columbia Transmission already had reasonable estimates.
The study was completed in September 1995 and estimates that the cost of the
environmental program under the AOC may range between $204 million and $319
million over the life of the program. The consultant based its estimates on a
variety of assumptions, including: the limited amount of actual data available;
the number of sites to be investigated, characterized and remediated; the
amount of time and nature of equipment required for such activities; the
appropriate clean-up levels and remediation technology to be utilized; the
frequency with which groundwater contamination will be discovered at sites
requiring clean-up; and the nature of wastes that will be treated at or
disposed from the sites. Any change in any one of these numerous
30
<PAGE> 32
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
assumptions could materially alter the estimated range of costs, and there is
no assurance that actual costs would not exceed the amounts specified in the
range. Management intends, to the extent permitted under the AOC, to utilize
risk assessments, innovative technology and other cost reduction strategies in
implementing its investigation, characterization and remediation program.
Management is currently reviewing the detailed bases and assumptions used to
develop this range of possible total program costs for purposes of determining,
among other items, what portion should be considered "probable and reasonably
estimable" under Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies. This review is expected to be completed in the fourth
quarter and any changes in the recorded liability ($121 million at September
30, 1995) will be recognized at that time.
Management expects most environmental assessment and remediation costs to be
recoverable through rates. Although charges to earnings could be required
prior to rate recovery, management does not believe that environmental
expenditures will have a material adverse effect on the Corporation's financial
position, based on known facts, existing laws and regulations and the period
over which expenditures are required.
Adoption of Statement of Financial Accounting Standard No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS No. 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 that was filed on August 1, 1995, and the resolution of
gas contract difficulties and various customer issues, Columbia Transmission
and Columbia Gulf anticipate re-applying SFAS No. 71 upon Columbia
Transmission's emergence from bankruptcy. Under SFAS No. 71, the transmission
companies would be permitted to record a regulatory asset for expenses that are
expected to be recovered through rates.
Market Initiatives
As previously reported, Columbia Transmission in late 1994 announced a proposal
to expand its pipeline and storage capacity to serve increased customer
requirements in its market area. Substantial interest was expressed for
additional firm transportation and storage services in an open season held in
early 1995. Precedent agreements for increased services have been entered into
with prospective market expansion customers, many of which are current
customers of Columbia Transmission at this time. The total volumes to be
served in the expansion will be approximately 460 million cubic feet per day at
an estimated construction cost of $350 million. The volumes will be phased in
over a three-year period, beginning in 1997. Columbia Transmission continues
to study the requests for service and these estimates could be revised. It is
anticipated that Columbia Transmission will make a filing with the FERC in
early 1996 requesting authorization to construct the necessary facilities.
- 31 -
<PAGE> 33
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Volumes
The transmission segment's throughput for the third quarter of 1995 was
essentially unchanged at 228.8 Bcf. Market-area transportation increased 21.3
Bcf primarily due to additional deliveries to co-generation facilities to meet
increased demand for electric power. Offsetting this improvement were
decreases due to customers using other transportation arrangements for their
requirements.
For the first nine months of 1995 throughput of 933.8 Bcf, decreased 48.8 Bcf
from last year reflecting warmer first quarter weather and customers using
other transportation arrangements for their requirements.
Since a substantial portion of the costs for the transmission companies are
currently recovered through monthly demand charges, variations in throughput
levels have little effect on operating revenues.
Operating Revenues
Total operating revenues for the three months ended September 30, 1995, were
$197.8 million, essentially unchanged from the same period last year. After
adjusting for revenues related to the recovery of transportation costs that are
fully offset in operating expense, thereby having no effect on operating
income, operating revenues decreased $6.6 million from 1994. This decrease
reflects revenue recovery of higher transportation costs of $8.4 million in the
prior period and $3 million of revenues recorded last year by Columbia
Transmission because its average cost of gas met certain competitive tests as
prescribed in a 1985 customer settlement. Current period exit fee revenues of
$6.8 million were recorded by Columbia Gulf.
Year-to-date through September 30, 1995, total operating revenues of $621.5
million, decreased $38.2 million due in part to lower recovery of certain
transportation costs that are fully offset by a reduction in operating expense.
After adjusting for this issue, operating revenues decreased $27.3 million from
1994. Last year $20.3 million of revenues were recorded by Columbia
Transmission because its average cost of gas in a prior period met certain
competitive tests. In addition, recovery of higher transportation costs of
$11.2 million in the previous period also contributed to the decline.
Partially offsetting these decreases were exit fee revenues of $12.2 million in
1995 recorded by Columbia Gulf, most of which were associated with its pipeline
partnerships. All other changes represented a small decrease of $8 million
from last year.
Operating Income
For the three- and nine-month periods ended September 30, 1995, operating
income of $41.3 million and $153.8 million, decreased $1.6 million and $18.1
million, respectively. Included in the expenses, that are offset in revenues,
are transportation costs recorded by Columbia Gulf in 1994. After adjusting
for these and other transportation costs that are largely offset in operating
revenues, and have no effect on operating income, operating expenses increased
$5.2 million and
- 32 -
<PAGE> 34
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
$2.7 million for the current quarter and year-to-date periods. These increased
operating costs are not being recovered in current rates. As discussed above,
Columbia Transmission recently filed its first general rate case since 1991, to
be effective in early 1996, to recover these higher costs.
- 33 -
<PAGE> 35
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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
----- ----- ----- -----
(millions)
<S> <C> <C> <C>
NET REVENUES
Sales revenues $ 144.8 $ 143.9 $1,146.4 $1,235.7
Less: Cost of gas sold 62.5 66.4 654.8 781.1
-------- -------- --------- ---------
Net Sales Revenues 82.3 77.5 491.6 454.6
-------- -------- --------- ---------
Transportation revenues 19.3 17.1 76.8 63.7
Less: Associated gas costs 2.1 1.7 7.9 5.6
-------- -------- --------- ---------
Net Transportation Revenues 17.2 15.4 68.9 58.1
-------- -------- --------- ---------
Net Revenues 99.5 92.9 560.5 512.7
-------- -------- --------- ---------
OPERATING EXPENSES
Operation and maintenance 98.2 94.0 323.7 295.6
Depreciation 6.8 6.5 48.3 45.2
Other taxes 20.0 19.3 105.7 99.9
-------- -------- --------- ---------
Total Operating Expenses 125.0 119.8 477.7 440.7
-------- -------- --------- ---------
OPERATING INCOME (LOSS) $ (25.5) $ (26.9) $ 82.8 $ 72.0
======== ======== ========= =========
THROUGHPUT (BCF)
Sales
Residential 11.5 11.1 127.4 137.3
Commercial 5.3 5.2 52.0 59.7
Industrial and other 1.2 1.2 5.3 7.7
-------- -------- -------- --------
Total Sales 18.0 17.5 184.7 204.7
Transportation 55.1 52.5 190.6 168.0
-------- -------- -------- --------
Total Throughput 73.1 70.0 375.3 372.7
-------- -------- -------- --------
Off-System Sales 2.3 - 6.2 -
-------- -------- -------- --------
Total Sold or Transported 75.4 70.0 381.5 372.7
======== ======== ======== ========
SOURCES OF GAS FOR THROUGHPUT (BCF)
Sources of Gas Sold
Spot market* 46.8 54.6 159.4 197.1
Producers 13.3 12.0 45.9 48.5
Storage withdrawals (injections) (45.1) (49.7) (18.7) (34.2)
Other 5.3 0.6 4.3 (6.7)
-------- -------- -------- --------
Total Sources of Gas Sold 20.3 17.5 190.9 204.7
Transportation received for delivery to customers 55.1 52.5 190.6 168.0
-------- -------- -------- --------
Total Sources 75.4 70.0 381.5 372.7
======== ======== ======== ========
</TABLE>
* Purchase contracts less than one year.
- 34 -
<PAGE> 36
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Conditions
As a result of a comprehensive market assessment, Distribution has
significantly reduced its previously announced five year $38 million natural
gas vehicle (NGV) program. Distribution is now focusing its NGV efforts on
opportunities within its own fleet and more fully developing NGV fill stations
that are in place or projects underway.
Regulatory Matters
In Virginia, the filed rates in Commonwealth Gas Services, Inc.'s (Commonwealth
Services) pending rate case went into effect on October 13, 1995, subject to
refund. Commonwealth Services is requesting an annual revenue increase of
$15.1 million. A final order in the case is expected in the second half of
1996.
Columbia Gas of Ohio, Inc. (Columbia of Ohio) has decided not to pursue the
implementation of a weather normalization mechanism for the 1995-1996 winter
heating season. Nonetheless, certain local government entities continue to
press for the refund of certain revenues collected during the 1994-1995 winter
under a pilot weather normalization program.
On October 13, 1995, Columbia of Ohio filed a plan with the Public Utility
Commission of Ohio (PUCO) to begin a market test to assess the level of
residential customer interest and willingness to participate in a program
whereby residential customers would be free to purchase their gas requirements
from third parties with gas transportation services provided by Columbia of
Ohio. Due to an impasse with certain marketers-brokers and other interests
that involves operating requirements and the participation of Columbia of Ohio
affiliates, indications are that the PUCO will not act on this proposed four
month test program in a favorable or timely manner. Columbia of Ohio will
continue to conduct meetings with the Regulatory Collaborative (made up of key
stakeholders), marketers, and other interested parties to develop an acceptable
pilot program that could be implemented in 1996.
Legislation was recently introduced in Ohio to provide regulatory flexibility
for natural gas utilities to respond to competitive marketplace changes and
offer customers more choices. This legislation would maintain the PUCO's
consumer protection powers regarding the transportation and delivery of natural
gas to customers. However, it would exempt competitive "non-utility" services
from PUCO regulation and would allow for the deregulation of commodity sales of
natural gas when sufficient competition exists. Columbia of Ohio believes this
legislation may provide the means to remove obstacles preventing customers from
receiving the full benefits of increased competition and is committed to
working with the legislature and the PUCO to develop the regulatory flexibility
needed for the future.
On August 31, 1995, the state commission approved a settlement reached by
Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania) and various
other interested parties on many aspects of its gas costs recovery proceeding,
including proposals to share in any income derived from off-system sales,
continue a supply management incentive program, and participate in a pilot
- 35 -
<PAGE> 37
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
hedging program. However, the state commission rejected Columbia of
Pennsylvania's capacity release proposal, as discussed in the 1995 Second
Quarter Form 10-Q, but indicated it would consider approving the program if
appropriate modifications were made. On October 16, 1995, Columbia of
Pennsylvania filed a modified capacity release proposal with the commission.
On September 29, 1995, Columbia of Pennsylvania filed a general rate case
requesting an annual revenue increase of $28.4 million to be effective July 1,
1996. The filing included a number of regulatory initiatives, including a
weather adjustment mechanism and a multi-year rate plan as well as other
elements from Columbia of Pennsylvania's Regulatory Collaborative. Columbia of
Pennsylvania is actively working with its Regulatory Collaborative to reach a
non-litigated resolution of this matter.
In Columbia Gas of Maryland, Inc.'s (Columbia of Maryland) rate case, the
Hearing Examiner issued a proposed order recommending a revenue increase of
approximately $700,000 and rejecting several proposed regulatory initiatives.
On October 6, 1995, the state commission overturned significant aspects of the
Hearing Examiner's proposed order and adopted a Columbia of Maryland proposal
to use a year-ended valuation in setting the company's rate base. With these
changes, the commission allowed Columbia of Maryland to increase rates to a
level designed to provide additional annual revenue of approximately $900,000,
effective immediately.
Columbia of Maryland placed new tariffs into effect November 1, 1995 expanding
transportation service to all customers except residential. Under the
commission's framework for gas regulation, a pilot residential program will be
implemented by November 1, 1996. Columbia of Maryland is continuing
discussions on a capacity assignment program for small customers and a city gas
supply service which will include margin sharing with customers.
Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) implemented the second
phase of a three-step increase in annual revenue of $2.25 million, effective
October 1, 1995, as provided for in a 1994 general rate case settlement.
Environmental Matters
Distribution's primary environmental issues relate to former manufactured gas
plant sites. Distribution has identified 14 of these former gas plant sites
for which it may have some liability for clean-up. Environmental
investigations are being conducted at five of these sites which indicate that
remedial actions may be required. Investigations will be conducted at a number
of the other sites in the future. To the extent Distribution site
investigations have been conducted, remediation plans developed, and any
responsibility for remedial action established, the appropriate liabilities
have been recorded.
On October 18, 1995, Columbia of Pennsylvania was served in a Comprehensive
Environmental Response Compensation and Liability Act cost recovery action
related to the Keystone Sanitation Company Landfill/Superfund site. Columbia
of Pennsylvania may be named as a Potentially
- 36 -
<PAGE> 38
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Responsible Party (PRP) by virtue of trash hauling services provided to its
service center by the city of Hanover, Pennsylvania. Columbia of Pennsylvania
is currently investigating the situation.
Volumes
Throughput for the quarter ended September 30, 1995 of 75.4 Bcf increased 5.4
Bcf from the same quarter last year. The current period includes off-system
sales of 2.3 Bcf which accounts for most of the overall 2.8 Bcf increase in
total sales. These non-traditional sales are made possible by recent changes
in gas industry regulation which have generated opportunities to buy and sell
gas in the open market. Most of any income derived from these transactions is
credited to traditional customers. The increase in transportation volumes of
2.6 Bcf reflects strong industrial demand, higher customer usage and the effect
of customer growth.
For the first nine months of 1995, total throughput increased 8.8 Bcf to 381.5
Bcf, again primarily due to off-system sales in the current period of 6.2 Bcf.
The remaining throughput increase reflects higher industrial and commercial
transportation largely offset by the impact of warmer weather on sales in the
first quarter of 1995. The higher transportation throughput reflects strong
economic conditions, favorable natural gas prices and power generation demand
for natural gas.
Net Revenues
Net revenues for the third quarter of 1995 were $99.5 million, up $6.6 million
from 1994. The increase primarily reflects the impact of higher rates
generating $4.3 million, increased throughput that contributed $1.2 million
with the remaining increase due to higher revenue surcharges that increased
both revenues and expenses, and therefore had no effect on operating income.
Net revenues for the first nine months of 1995 of $560.5 million, improved
$47.8 million over 1994. The increase reflects the effect of higher rates that
generated additional revenues of approximately $50 million, improved
transportation deliveries of $13.1 million, and revenue surcharges of $8.5
million which are offset by an equivalent expense and have no impact on
operating income. These improvements were mitigated by the effect of warmer
weather on sales which reduced revenues by $35.6 million. For those sales
covered by weather normalization adjustment (WNA) clauses, because 1995 was
warmer than normal, the WNA had a $2.6 million favorable effect on current year
revenues. Conversely, the prior period was colder than normal and the WNA
reduced 1994 revenues by $6.6 million.
Operating Income (Loss)
Distribution had an operating loss for the current quarter of $25.5 million,
$1.4 million less than the operating loss experienced in the same period last
year. The higher net revenues were partially offset by increased operating
expenses of $5.2 million. Operation and maintenance expense increased due to
the above-mentioned revenue surcharges and previously capitalized benefit costs
that are expensed as they are included in rates. After eliminating the effect
of these items, operation and maintenance expenses were up $2.4 million
reflecting higher costs including those relating to computer systems designed
to improve long-term productivity. Higher property
- 37 -
<PAGE> 39
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
taxes was the principal reason for the $700,000 increase in other taxes while
depreciation expense increased $300,000, both reflecting plant additions.
Operating income of $82.8 million for the first nine months of 1995 reflected
an increase of $10.8 million over the same period last year. Higher net
revenues were partially offset by increased operating expenses of $37 million.
Included in the higher operating expenses was the effect of the revenue
surcharges and previously capitalized benefit costs that are expensed as they
are included in rates. After eliminating the effect of these issues, operation
and maintenance expenses were up approximately $13 million. This increase
reflects expenses associated with ongoing marketing and customer service
studies, costs related to new and existing computer applications as well as
ongoing pipeline maintenance activities. Increases in plant additions
contributed to $5.8 million higher property taxes and a $3.1 million increase
in depreciation expense.
- 38 -
<PAGE> 40
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 Nine Months
Ended September 30, Ended September 30,
---------------------- -----------------------
1995 1994 1995 1994
------ ------ ------ ------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas $ 30.3 $ 35.2 $ 98.1 $ 114.6
Oil and liquids 11.4 14.7 35.2 41.7
------- -------- -------- --------
Total Operating Revenues 41.7 49.9 133.3 156.3
------- -------- -------- --------
OPERATING EXPENSES
Operation and maintenance 18.1 21.1 58.5 57.3
Depreciation and depletion 21.5 21.8 67.5 62.6
Other taxes 2.5 2.8 8.0 9.0
-------- -------- -------- --------
Total Operating Expenses 42.1 45.7 134.0 128.9
-------- -------- -------- --------
OPERATING INCOME (LOSS) $ (0.4) $ 4.2 $ (0.7) $ 27.4
======== ======== ======== ========
GAS PRODUCTION STATISTICS
Production (Bcf) 15.9 16.4 49.8 49.8
Average Price ($/Mcf) 1.85 2.04 1.92 2.22
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000Bbls) 737 920 2,175 2,788
Average Price ($/Bbl) 15.37 15.93 16.13 14.92
</TABLE>
- 39 -
<PAGE> 41
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
Possible Sale of Columbia Gas Development Corporation
The Corporation announced on October 23, 1995, its intention to sell Columbia
Gas Development Corporation (Columbia Development), its wholly-owned southwest
oil and gas exploration and production subsidiary. It is expected that any
sale of Columbia Development may take several months to complete. Columbia
Development has in excess of 200 billion cubic feet equivalent of proved oil
and natural gas reserves located in the Gulf of Mexico and on-shore continental
United States.
Management has determined that the strategic value to the Corporation of
drilling for oil and gas in the Southwest has diminished and that the
Corporation's investment in Columbia Development would be better devoted to
assets focused on meeting customer needs. At this time there are no plans to
sell the Corporation's other oil and gas subsidiary, Columbia Natural
Resources, Inc.
Drilling Activities
Columbia Development began drilling operations on 22 wells during the third
quarter of 1995. Of these, 12 were productive including 10 in the Austin Chalk
formation, two were dry and six were still drilling at the end of the quarter.
An exploratory well drilled in south Louisiana was plugged and a development
well in the Permian Basin is testing at this time. During the first nine
months of 1995, Columbia Development completed 47 (gross) wells. Thirty-nine
of these wells were successful and eight were dry or uneconomic, representing
an 83 percent success rate. Three others appear to be productive, but are
currently shut-in pending further evaluation. Notable success has continued in
1995 in the Austin Chalk drilling program as 33 of the 35 wells drilled have
been successful. Through the third quarter of 1995 approximately 61 Bcf of new
reserves have been added as a result of drilling activities.
In the Appalachian region, Columbia Natural Resources, Inc. participated in the
drilling of 31 (gross) development wells during the third quarter of 1995, with
a 84 percent success rate. For the first nine months of 1995, 61 (gross)
development wells have been drilled, with a success rate of 70 percent. While
Columbia Natural Resources' efforts in the Appalachian area have resulted in
new discoveries, these reserve additions are exceeded by current production
levels.
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 September 30, 1995, the capitalized costs exceeded the sum of the
estimated present value of future oil and gas revenues. However, since that
date, oil and gas prices recovered such that the present value of future
revenues exceeded the capitalized costs and, therefore, no charge to earnings
was required.
In addition, 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
- 40 -
<PAGE> 42
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
from Columbia Natural Resources, Inc.'s reserves, and in the previously
mentioned rate filing, Columbia Transmission requested an increase in its
gathering rate. An increase in the gathering rate, a decline in gas prices or
increases in other costs could result in a write-down in the carrying value of
the oil and gas properties in the future.
Volumes
Natural gas production for the three months ended September 30, 1995 declined
0.5 Bcf and was unchanged at 49.8 Bcf for the nine month period. Oil and
natural gas liquids production for the current quarter and the first nine
months of 1995 decreased 183,000 barrels and 613,000 barrels, respectively, due
to normal declines in wells and shut-ins for offshore workovers. Oil and
liquids production is expected to increase as new production comes on stream
and workovers are completed.
Revenues
Gas revenues for the current three and nine-month periods of $30.3 million and
$98.1 million, respectively, decreased $4.9 million for the current quarter and
$16.5 million for the first nine months of 1995. These decreases were
primarily due to the continuing drop in gas prices during 1995. Average gas
prices in the third quarter of $1.85 per Mcf, decreased $0.19 per Mcf from the
same period last year. For the first nine months of 1995, average gas prices
of $1.92 per Mcf, decreased by 14 percent, or $0.30 per Mcf.
Revenues from oil and liquids production of $11.4 million and $35.2 million for
the current three and nine month periods decreased during the three and
nine-month periods by $3.3 million and $6.5 million, respectively, reflecting
production declines in both periods and lower average prices in the third
quarter. Average prices decreased $0.56 per barrel to $15.37 per barrel during
the third quarter of 1995 while, for the first nine months of 1995, the average
price increased $1.21 per barrel to $16.13 per barrel.
Operating Income (Loss)
An operating loss was reported for the third quarter of $400,000 whereas the
same period last year had operating income of $4.2 million as the $8.2 million
decrease in operating revenues was only partially offset by a $3.6 million
decrease in operating expenses.
For the nine-month period, an operating loss of $700,000 versus operating
income of $27.4 million in 1994 reflects the $23 million decline in operating
revenues and higher operating expenses of $5.1 million due primarily to
increased depletion expense caused largely by a higher depletion rate,
reflecting lower gas prices, and the recording in 1994 of a reserve reduction
for the resolution of a royalty dispute. These factors more than offset the
impact on depletion expense of lower depletable revenues.
- 41 -
<PAGE> 43
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 Nine Months
Ended September 30, Ended September 30,
------------------------- ----------------------
1995 1994 1995 1994
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Gas marketing revenues $ 54.0 $ 53.8 $168.1 $179.5
Less: Products purchased 52.3 52.7 163.2 174.7
------- ------- ------- -------
Net Gas Marketing Revenues 1.7 1.1 4.9 4.8
------- ------- ------- -------
Propane revenues 9.2 9.5 43.4 44.7
Less: Products purchased 5.3 5.4 24.2 23.1
------- ------- ------- -------
Net Propane Revenues 3.9 4.1 19.2 21.6
------- ------- ------- -------
Other Revenues 22.3 19.5 63.8 58.4
------- ------- ------- -------
Net Revenues 27.9 24.7 87.9 84.8
------- ------- ------- -------
OPERATING EXPENSES
Operation and maintenance 21.8 18.9 65.2 58.0
Depreciation and depletion 2.1 1.7 6.2 5.2
Other taxes 1.2 1.2 4.1 4.1
------- ------- ------- -------
Total Operating Expenses 25.1 21.8 75.5 67.3
------- ------- ------- -------
OPERATING INCOME $ 2.8 $ 2.9 $ 12.4 $ 17.5
======= ======= ======= =======
PROPANE SALES (MILLIONS OF GALLONS)
Retail 7.3 9.4 34.4 37.0
Wholesale and other 2.1 0.9 12.4 11.4
------- ------- ------- -------
Total Propane Sales 9.4 10.3 46.8 48.4
======= ======= ======= =======
</TABLE>
- 42 -
<PAGE> 44
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 September 30, 1995, of $27.9 million,
increased $3.2 million over the same period last year reflecting an increase of
$2.8 million in other revenues for services provided to affiliated companies,
increased cogeneration activities, and revenues associated with the Columbia
LNG Corporation's (Columbia LNG) operating agreement for the Cove Point LNG
facility. In addition, net revenues for gas marketing activities improved by
$600,000 due principally to increased volumes sold. Net revenues from propane
operations were essentially unchanged from a year ago as improved profit
margins were offset by reductions in sales volumes due to warmer weather.
For the nine months ended September 30, 1995, net revenues of $87.9 million,
increased $3.1 million. Higher other revenues of $5.4 million were due to an
increase for cogeneration activities, revenues for Columbia LNG, and higher
revenues for services provided to affiliates were partially offset by $2.4
million lower net revenues from propane operations due to decreased sales
volumes due to warmer weather. Net revenues from gas marketing were
essentially unchanged.
Operating Income
Operating income of $2.8 million for the third quarter of 1995 was essentially
unchanged as the net revenue increase of $3.2 million was offset by a similar
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.
For the nine months ended September 30, 1995, operating income was $12.4
million, down $5.1 million from the same period last year due to higher costs
for services provided to affiliates, lower net revenues for propane operations
and a small operating loss associated with Columbia LNG. Tempering these
decreases was higher income from cogeneration activities due to operating
efficiencies, lower fuel costs and favorable weather conditions.
Department of Energy Refund of Prior Petroleum Product Costs
The Corporation reported in the 1995 Second Quarter Form 10-Q that the
Department of Energy (DOE) issued an order in July 1995 directing payment to
Columbia LNG Corporation (Columbia LNG) of approximately $8.5 million. This
payment represents a refund related to the purchase of price-controlled
petroleum products during the period from mid-1973 through January 1981 and was
anticipated to be recorded as an income improvement during the third quarter of
1995. The refund was received on August 28, 1995. A complaint was filed on
September 8, 1995, by a group of utility and manufacturing claimants against
the DOE in the United States District Court for the District of Columbia
challenging the DOE's determination that Columbia LNG was entitled to the
refund. Columbia LNG is not a party to this action but its entitlement to the
refund may be affected by the outcome. Accordingly, Columbia LNG will not
record the refund as an improvement to income at this time.
- 43 -
<PAGE> 45
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 quarterly report on Form 10-Q for the
quarter ended June 30, 1995 except as follows:
I. Bankruptcy Matters
A. Appeals to or actions in the United States District Court for the
District of Delaware
1. In re Columbia Gas Securities Litigation, (U.S. Dist. Ct., D. Del.)
Consol. C.A. No. 91-357. 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 and later consolidated. As previously reported,
a settlement agreement was reached in July 1995. On November 3, 1995,
the U.S. District Court ruled that a $36.5 million settlement was fair
and reasonable.
2. In re Columbia Gas Derivative Litigation, (Del. Chan. Ct.) Consol. C.
A. 12159. The Corporation's Plan of Reorganization proposes to
release these claims and dismiss the litigation asserting derivative
claims against certain present and former directors. Two shareholders
have filed an objection to the Corporation's Plan. In furtherance of
this objection those shareholders have sought discovery from the
Corporation and the special litigation committee.
3. CNG Producing Co. v. Columbia Gas Transmission Corporation, C.A. No.
95-491. On August 11, 1995 CNG Producing Co. filed an appeal of the
Bankruptcy Court's order approving the Producer Settlement. CNG
settled their claims with Columbia Transmission; therefore, it is
anticipated that this appeal will be withdrawn in the near future.
II. Regulatory Matters
A. Direct Billing of Past Period Production and Production-Related Costs
1. Columbia Gas Transmission Corp. v. FERC., C.A. No. 94-1727 (U.S. Ct.
of App., D.C. Circuit). The appeals of the Texas Eastern Transmission
Corporation, Panhandle Eastern Corporation and Trunkline Gas Company
orders requiring refund of principal amounts paid by Columbia
Transmission without interest have been consolidated. A briefing
schedule has been established leading to oral argument on March 19,
1996.
- 44 -
<PAGE> 46
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
B. Pipeline Exit Fees
1. 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
(Overthrust).
On July 17, 1995, Indicated Producers (Chevron USA, Inc.; Conoco,
Inc.; Exxon Corp.; Mobil Natural Gas Inc.; Texaco Inc.; and Shell Oil
Company) and Cincinnati Gas & Electric Company (CG&E), et al., filed
requests for rehearing of the FERC's June 15, 1995 order approving the
Customer Settlement. The requests for rehearing were filed only in
Docket No. RP95-204 and apply only to the portion of the order
pertaining to the Overthrust exit fee settlement and were made only to
preserve the parties' rights in the event the Customer Settlement is
not finalized.
On August 14, 1995, CG&E and Mountaineer Gas Company (jointly) and
Exxon filed in the D.C. Cir. Court of Appeals protective appeals of
the June 15 order as it relates to the WIC, Trailblazer and NGPL exit
fee settlements. The appeals are being held in abeyance. On or about
October 13, 1995, CG&E and UGI Utilities, Inc (UGI) filed, in the
D.C. Circuit Court of Appeals, protective appeals of the September 15
order regarding the Overthrust exit fee settlement.
On September 15, 1995, the FERC denied rehearing of the May 22, 1995
order approving the Ozark exit fee. On October 13, 1995, the
Indicated Producers, other than Shell Oil Company, filed a request for
rehearing of the September 15 order which is pending before the FERC.
On November 2, 1995 Columbia Transmission filed a motion to dismiss
the request for rehearing.
C. Transportation Costs Recovery Adjustment (TCRA)
Columbia Gas Transmission Corp., Docket No. RP95-196-000 and UGI
Utilities, Inc. v. Columbia Gulf Transmission Co. and Columbia Gas
Transmission Co., Docket No. RP95-392. These proceedings involve the
recovery of Account No. 858 costs, including stranded Account No. 858
costs pursuant to the 858 cost tracker (TCRA). On August 2, 1995, the
FERC issued an order in Docket Nos. RP94-157 and RP95-196 (1)
requiring Staff to convene a Technical Conference and to file a report
with the FERC within 120 days, at which Columbia Transmission must
support the payments to Columbia Gulf, and (2) creating Docket No.
RP95-392 for the complaint filed by UGI and making Columbia Gulf a
party to the proceeding. On September 27, 1995, the Technical
Conference was held. Columbia Transmission's and Columbia Gulf's
initial comments on the technical
- 45 -
<PAGE> 47
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS (CONTINUED)
conference were filed on October 19, 1995. Initial comments were
filed by the parties on November 2, 1995, and reply comments by all
parties are due on November 16, 1995.
III. Other
A. Canada Southern Petroleum Ltd. v. Columbia Gas Development of Canada
Ltd. et al., (C.A. No. 9001-03466, Court of Queen's Bench, Alberta,
Canada, filed March 7, 1990). In this proceeding the plaintiff
asserts, among other things, that the defendant working interest
owners, including Columbia Gas Development of Canada Ltd. (Columbia
Canada) breached an alleged fiduciary duty to ensure the earliest
feasible marketing of gas from the Kotaneelee field (Yukon Territory,
Canada). During the week of October 2, 1995, the Court of Queen's
Bench denied the Corporation's motion for summary judgment which was
premised on the absence of an obligation on the part of the Columbia
Gas of Canada to market gas. Plaintiffs had also challenged all costs
charged to the carried interest account; the Court required that
parameters to the challenge be set so that the challenge amounts are
now definable.
- 46 -
<PAGE> 48
PART II - OTHER INFORMATION
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
As of September 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 third
quarter $488.9 million of short-term indebtedness was also in
default for nonpayment.
Item 4. Submission of Matters to Vote of Security Holders
The Corporation distributed its amended Plan and disclosure
statement to its creditors and shareholders in late August 1995,
for voting purposes pursuant to procedures approved by the
Bankruptcy Court. All ballots were required to be returned by
October 13, 1995. Based on preliminary results the
Corporation's Plan has been accepted by the necessary majority
of shareholders. Final results will be available by November
13, 1995, the scheduled date for the commencement of the
confirmation hearing on the Corporation's Plan.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
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.
- 47 -
<PAGE> 49
PART II - OTHER INFORMATION
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 October 4, 1995
5 No October 18, 1995
5 No October 20, 1995
5 No October 25, 1995
</TABLE>
- 48 -
<PAGE> 50
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: November 9, 1995 By: /s/ R. E. Lowe
----------------------------------------
R. E. Lowe
Vice President, Controller and
Chief Accounting Officer
- 49 -
<PAGE> 1
Exhibit 11
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 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 . . . . 19.3 (15.0) 179.0 173.0
Cumulative effect of change
in accounting for postemployment benefits . . . . . . . . . . . . - - - (5.6)
- -------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . 19.3 (15.0) 179.0 167.4
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share of common stock
(based on average shares outstanding ($)
Before cumulative effect of accounting change . . . . . . . . . . . 0.38 (0.30) 3.54 3.42
Cumulative effect of accounting change . . . . . . . . . . . . . . - - - (0.11)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) on common stock . . . . . . . . . . . . . . . . . . 0.38 (0.30) 3.54 3.31
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
Additional computation of average common
shares outstanding (thousands) (NOTE)
- ------------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding . . . . . . . . . . . . 50,574 50,560 50,569 50,560
Incremental common shares applicable to
common stock based on the common stock
daily average market price:
Applicable to contingent stock awards . . . . . . . . . . . . . . 15 - 8 -
Applicable to common stock options . . . . . . . . . . . . . . . 16 - 6 -
- ------------------------------------------------------------------------------------------------------------------------------
Average common shares as adjusted . . . . . . . . . . . . . . . . . 50,605 50,560 50,583 50,560
==============================================================================================================================
Average shares of common stock outstanding . . . . . . . . . . . . 50,574 50,560 50,569 50,560
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 . . . . . . . . . . . . . . 15 - 8 -
Applicable to common stock options . . . . . . . . . . . . . . . 34 - 34 -
- ------------------------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution . . . . . . . . . . . 50,623 50,560 50,611 50,560
==============================================================================================================================
Earnings (loss) per share of common stock
as adjusted:
Before cumulative effect of accounting change . . . . . . . . . . . 0.38 (0.30) 3.54 3.42
Cumulative effect of accounting change . . . . . . . . . . . . . . - - - (0.11)
- ------------------------------------------------------------------------------------------------------------------------------
Average common shares as adjusted ($) . . . . . . . . . . . . . . . 0.38 (0.30) 3.54 3.31
==============================================================================================================================
Earnings (loss) per common shares assuming full
dilution:
Before cumulative effect of accounting change . . . . . . . . . . . 0.38 (0.30) 3.54 3.42
Cumulative effect of accounting change . . . . . . . . . . . . . . - - - (0.11)
- ------------------------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution ($) . . . . . . . . . 0.38 (0.30) 3.54 3.31
==============================================================================================================================
</TABLE>
NOTE These calculations are submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15
because they result in dilution of less than 3%.
<PAGE> 1
Exhibit 12
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges
($ in millions)
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Ended September 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 . . . . . . . . . . . . . . . . 400.5 410.5 392.2 288.1 161.4 (1,205.8) 162.6
Adjustments:
Interest during construction . . . . . . . . . . - - - - - (3.4) (10.0)
Distributed (Undistributed) equity income . . . . (9.4) (1.4) (0.9) (0.1) (0.1) (2.4) 2.9
Fixed charges . . . . . . . . . . . . . . . . . 22.5 20.5 14.8 101.5 13.7 139.9 182.5
-------- --------- --------- -------- --------- --------- ---------
Earnings Available . . . . . . . . . . . . . . 413.6 429.6 406.1 389.5 175.0 (1,071.7) 338.0
-------- --------- --------- -------- --------- --------- ---------
Fixed Charges:
Interest on long-term and short-term debt . . . . 0.4 0.7 0.7 3.1 4.9 112.4 170.6
Other interest . . . . . . . . . . . . . . . . . 22.1 19.8 14.1 98.4 8.8 27.6 10.5
-------- --------- --------- -------- --------- --------- ---------
Total Fixed Charges before Adjustments*,** . . 22.5 20.5 14.8 101.5 13.7 140.0 181.1
-------- --------- --------- -------- --------- --------- ---------
Adjustments:
Gain/(Loss) on reacquired debt . . . . . . . . . - - - - - (0.1) 1.4
-------- --------- --------- -------- -------- --------- ---------
Total Fixed Charges . . . . . . . . . . . . . . 22.5 20.5 14.8 101.5 13.7 139.9 182.5
-------- --------- --------- -------- -------- --------- ---------
Ratio of Earnings Before Taxes to Fixed Charges . . 18.38 20.96 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 $261 million interest expense not
recorded in the twelve months ended September 30, 1995, $222 million
interest expense not recorded in the twelve months ended September
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 September 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.
** This amount excludes $8.6 million of interest expense not recorded
with respect to the registrant's guarantee of LESOP Trust's
debentures for each of the twelve months ended September 30, 1995 and
September 30, 1994, respectively. Also excluded are $8.6 million,
$8.6 million, $8.8 million and $6.7 million of interest expense not
recorded with respect to the registrant's guarantee of LESOP Trust's
debentures for the twelve months ended December 31, 1993, 1992, 1991
and 1990, respectively.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1995 JAN-01-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,515,900 3,515,900
<OTHER-PROPERTY-AND-INVEST> 913,900 913,900
<TOTAL-CURRENT-ASSETS> 2,538,700 2,538,700
<TOTAL-DEFERRED-CHARGES> 287,200 287,200
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 7,255,700 7,255,700
<COMMON> 505,800 505,800
<CAPITAL-SURPLUS-PAID-IN> 602,200 602,200
<RETAINED-EARNINGS> 609,500 609,500
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,647,500 1,647,500
0 0
0 0
<LONG-TERM-DEBT-NET> 3,800 3,800
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,500 1,500
0 0
<CAPITAL-LEASE-OBLIGATIONS> 2,300 2,300
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,604,400 5,604,400
<TOT-CAPITALIZATION-AND-LIAB> 7,255,700 7,255,700
<GROSS-OPERATING-REVENUE> 389,000 1,924,000
<INCOME-TAX-EXPENSE> 13,500 109,700
<OTHER-OPERATING-EXPENSES> 374,700 1,682,900
<TOTAL-OPERATING-EXPENSES> 374,700 1,682,900
<OPERATING-INCOME-LOSS> 14,300 241,100
<OTHER-INCOME-NET> 22,600 63,900
<INCOME-BEFORE-INTEREST-EXPEN> 36,900 305,000
<TOTAL-INTEREST-EXPENSE> 4,100 16,300
<NET-INCOME> 19,300 179,000
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 19,300 179,000
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (34,800) 557,900
<EPS-PRIMARY> 0.38 3.54
<EPS-DILUTED> 0.38 3.54
</TABLE>
