<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission file number 1-1098
THE COLUMBIA GAS SYSTEM, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12355 Sunrise Valley Drive, Suite 300, Reston, VA 20191-3420
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 295-0300
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 such
filing requirements for the past 90 days. Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $10
Par Value: 55,206,184 shares outstanding at September 30, 1996.
<PAGE> 2
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Statements of Consolidated Income 1
Condensed Consolidated Balance Sheets 2
Consolidated Statements of Cash Flows 3
Consolidated Statements of Common Stock Equity 4
Notes 5
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings 25
Item 2 Changes in Securities 29
Item 3 Defaults Upon Senior Securities 29
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits and Reports on Form 8-K 29
Signature 30
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The Columbia Gas System, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (LOSS) (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas sales $ 315.3 $ 213.8 $1,749.6 $1,353.9
Transportation 99.6 101.5 355.5 337.0
Other 35.9 51.0 131.1 160.7
------- ------- -------- --------
Total Operating Revenues 450.8 366.3 2,236.2 1,851.6
------- ------- -------- --------
OPERATING EXPENSES
Products purchased 144.0 40.4 901.7 570.3
Operation 182.2 189.0 603.6 599.0
Maintenance 27.8 31.4 79.1 84.8
Depreciation and depletion 38.8 56.6 157.8 200.2
Other taxes 37.1 34.6 158.9 156.2
------- ------- -------- --------
Total Operating Expenses 429.9 352.0 1,901.1 1,610.5
------- ------- -------- --------
OPERATING INCOME 20.9 14.3 335.1 241.1
------- ------- -------- --------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 22.2 3.7 39.0 12.5
Interest expense and related charges* (51.8) (4.1) (134.7) (16.3)
Reorganization items, net - 18.9 - 51.4
------- ------- -------- --------
Total Other Income (Deductions) (29.6) 18.5 (95.7) 47.6
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (8.7) 32.8 239.4 288.7
Income Taxes (2.6) 13.5 86.0 109.7
------- ------- -------- --------
NET INCOME (LOSS) $ (6.1) $ 19.3 $ 153.4 $ 179.0
======= ======= ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (0.11) $ 0.38 $ 2.88 $ 3.54
======= ======= ======== ========
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.15 $ - $ 0.45 $ -
AVERAGE COMMON SHARES OUTSTANDING (thousands) 55,165 50,574 53,340 50,569
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
* Due to the bankruptcy filings, interest expense of approximately $67
million was not recorded for the three months ended September 30, 1995,
and approximately $199 million was not recorded for the nine months ended
September 30, 1995.
Reference is made to the accompanying Notes and Management's Discussion and
Analysis for information related to the 1991 to 1995 Chapter 11 bankruptcy
proceedings involving The Columbia Gas System, Inc. and Columbia Gas
Transmission Corporation (a wholly-owned subsidiary).
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, 1996 December 31, 1995
------------------ -----------------
(unaudited)
(millions)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $ 6,891.1 $ 6,903.2
Accumulated depreciation and depletion (3,307.7) (3,322.0)
--------- ---------
Net Gas Utility and Other Plant 3,583.4 3,581.2
--------- ---------
Oil and gas producing properties, full cost method 516.2 516.3
Accumulated depletion (155.3) (141.1)
--------- ---------
Net Oil and Gas Producing Properties 360.9 375.2
--------- ---------
Net Property, Plant and Equipment 3,944.3 3,956.4
--------- ---------
INVESTMENTS AND OTHER ASSETS 106.8 354.6
--------- ---------
CURRENT ASSETS
Cash and temporary cash investments 19.1 8.0
Accounts receivable, net 261.8 511.0
Income tax refund - 271.5
Gas inventory 316.5 172.3
Other inventories - at average cost 45.5 41.5
Prepayments 60.6 56.9
Regulatory assets 63.2 76.5
Other 263.5 138.2
--------- ---------
Total Current Assets 1,030.2 1,275.9
--------- ---------
REGULATORY ASSETS 420.9 422.0
DEFERRED CHARGES 47.9 48.1
--------- ---------
TOTAL ASSETS $ 5,550.1 $ 6,057.0
========= =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 1,491.1 $ 1,114.0
Preferred stock - 399.9
Long-term debt 2,004.0 2,004.5
--------- ---------
Total Capitalization 3,495.1 3,518.4
--------- ---------
CURRENT LIABILITIES
Short-term debt 110.0 338.9
Accounts and drafts payable 156.0 215.7
Accrued taxes 166.0 271.3
Accrued interest 54.8 94.3
Estimated rate refunds 104.4 96.1
Estimated supplier obligations 121.2 178.3
Transportation and exchange gas payable 40.9 46.7
Other 337.9 337.3
--------- ---------
Total Current Liabilities 1,091.2 1,578.6
--------- ---------
OTHER LIABILITIES AND DEFERRED CREDITS
Income taxes, noncurrent 516.5 468.6
Postretirement benefits other than pensions 174.1 208.2
Regulatory liabilities 44.1 44.9
Other 229.1 238.3
--------- ---------
Total Other Liabilities and Deferred Credits 963.8 960.0
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $ 5,550.1 $ 6,057.0
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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,
---------------------------------
1996 1995
---- ----
(millions)
<S> <C> <C>
OPERATIONS ACTIVITIES
Net Income $ 153.4 $ 179.0
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 157.9 200.2
Deferred income taxes 31.7 71.4
Other - net* 39.5 (11.5)
Change in components of working capital:
Accounts receivable 270.3 234.9
Income tax refunds 271.5 -
Gas inventory (144.2) (33.7)
Prepayments (3.2) 59.0
Accounts payable (12.8) (16.0)
Accrued taxes (125.5) (78.9)
Accrued interest (39.7) (0.8)
Estimated rate refunds 8.3 (75.4)
Estimated supplier obligations (57.1) (9.9)
Under/Overrecovered gas costs (128.9) 42.4
Exchange gas payable (7.8) 9.1
Other working capital 64.1 (11.9)
--------- ---------
Net Cash From Operations 477.5 557.9
--------- ---------
INVESTMENT ACTIVITIES
Capital expenditures (202.6) (270.6)
Net Proceeds received on the sale of Columbia Development 190.9 -
Other investments - net 11.6 6.1
--------- ---------
Net Investment Activities (0.1) (264.5)
--------- ---------
FINANCING ACTIVITIES
Retirement of preferred stock (400.0) -
Retirement of long-term debt (0.8) (0.5)
Dividends paid (23.9) -
Issuance of common stock 248.4 -
Net decrease in revolving credit facility (228.9) -
Other financing activities (61.1) (15.1)
--------- ---------
Net Financing Activities (466.3) (15.6)
--------- ---------
Increase in Cash and Temporary Cash Investments 11.1 277.8
Cash and temporary cash investments at beginning of year 8.0 1,481.8
--------- ---------
Cash and temporary cash investments at September 30** $ 19.1 $ 1,759.6
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 79.7 0.4
Cash paid for income taxes (net of refunds) (158.6) 40.8
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
* 1995 includes changes in Liabilities Subject to Chapter 11 Proceedings of
$4.2 million.
**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 1991 to 1995 Chapter 11 bankruptcy
proceedings involving The Columbia Gas System, Inc. and Columbia Gas
Transmission Corporation (a wholly-owned subsidiary).
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,
1996 1995
--------------------- --------------------
(unaudited)
(millions)
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, $10 par value, authorized
100,000,000 shares, outstanding 55,206,184 shares
and 49,204,025 shares, respectively $ 552.1 $ 506.2
Additional paid in capital 741.2 595.8
Retained earnings 199.3 69.8
Unearned employee compensation (1.5) -
Cost of treasury stock (1,416,155 shares
outstanding as of December 31, 1995) - (57.8)
-------- --------
TOTAL COMMON STOCK EQUITY $1,491.1 $1,114.0
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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
The accompanying unaudited condensed consolidated financial statements
for The Columbia Gas System, Inc. (Columbia) 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.
The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in Columbia's
1995 Annual Report on Form 10-K and 1996 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 1995 financial
statements to conform to the 1996 presentation.
2. Bankruptcy Matters
On November 28, 1995, Columbia and its wholly-owned subsidiary,
Columbia Gas Transmission Corporation (Columbia Transmission), emerged
from Chapter 11 protection of the Federal Bankruptcy Code under the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware (Bankruptcy Court). Both Columbia and Columbia Transmission
had operated under Chapter 11 protection since July 31, 1991. Certain
residual unresolved bankruptcy-related matters are still within the
jurisdiction of the Bankruptcy Court.
Unsettled Producer Claims
Columbia Transmission's approved plan of reorganization (Plan)
provided that producers who rejected settlement offers contained in
Columbia Transmission's Plan may continue to litigate their claims
under the Bankruptcy Court-approved claims estimation procedures,
described below, and receive the same percentage payout on their
allowed claims, when and if ultimately allowed, as received by the
settling producers. Columbia Transmission's Plan further provided
that the actual distribution percentage for all producer claims, which
would not be less than 68.875% or greater than 72.5%, could not be
determined until the total amount of contested producer claims is
established, and until such time, 5% of the maximum amount (based on a
72.5% payout) to be distributed to producer claimants for allowed
claims and to Columbia for unsecured debt will be withheld.
Additional distributions, if any, will be made when the total amount
of allowed producer claims has been determined.
Producer Claims Estimation Process
In 1992, the Bankruptcy Court approved the appointment of a claims
mediator and the implementation of a claims estimation procedure for
the quantification of claims arising from the rejection of
above-market gas purchase contracts and other claims by producers
related to gas purchase contracts with Columbia Transmission. In late
1994 and early 1995, the claims mediator issued initial and
supplemental reports on Generic Issues for Natural Gas Contract
5
<PAGE> 8
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Claims and directed producer claimants to submit recalculated claims.
The recommendations and instructions set out in the reports have not
been considered by the Bankruptcy Court. In mid-1995, most producers
with which Columbia Transmission had not yet negotiated settlements
submitted recalculated claims to the claims mediator. Those
recalculated claims amounted to over $2 billion. Since mid- 1995,
numerous additional producers have settled their claims and those
settlements became final with the confirmation of Columbia
Transmission's Plan. In addition, several recalculated claims have
been amended by producer claimants, and several claims have been
resolved by means of litigation within the claims estimation process.
The claims estimation procedures remain in place for use in the
post-confirmation liquidation of those producer claims that remain
unresolved. The claims administrator is holding evidentiary hearings
with respect to individual producer claims, including claim- specific
issues not addressed by the report. Recommendations made by the
claims mediator are subject to review by the Bankruptcy Court and all
parties have rights of appellate review. When claims are allowed by
the Bankruptcy Court and the allowances become final, Columbia
Transmission will make distributions with respect to those claims
pursuant to the Plan. The timing of this litigation process is
impossible to predict.
The 5% holdback from settling producers and a matching contribution by
the reorganized Columbia Transmission will be used, to the extent
necessary, to fund any distributions on producer claims ultimately
liquidated in an aggregate amount in excess of those proposed by
Columbia Transmission's Plan. If the holdback and matching
contributions are exhausted, any further distribution would be funded
entirely by Columbia Transmission. Columbia has guaranteed the
payments to producers after exhaustion of the holdback amounts, either
in cash or in Columbia's common stock. Based on the information
received and evaluated to date, Columbia Transmission believes
adequate reserves have been established for resolution of the
remaining producer claims and the payment of any amounts ultimately
due to producers with respect to the 5% holdback.
3. Sale of Southwest Oil and Gas Subsidiary
On April 30, 1996, Columbia sold Columbia Gas Development Corporation
(Columbia Development), effective December 31, 1995, to a
privately-held exploration and production concern for approximately
$200 million. Columbia Development had approximately 196 billion
cubic feet equivalent of proved oil and natural gas reserves located
in the Gulf of Mexico and on-shore continental United States. An
estimated loss of $54.8 million after-tax was recorded in the fourth
quarter of 1995 to reflect the sale of this subsidiary. In the second
quarter of 1996 an adjustment was recorded that reduced the loss to
$49.2 million.
6
<PAGE> 9
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING INCOME (LOSS) BY SEGMENT
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Transmission $ 36.0 $ 41.3 $ 160.4 $ 153.8
Distribution (19.3) (25.5) 145.7 82.8
Oil and Gas 5.4 (0.4) 22.6 (0.7)
Other Energy 1.4 2.8 15.0 12.4
Corporate (2.6) (3.9) (8.6) (7.2)
------ ------ ------ ------
TOTAL $ 20.9 $ 14.3 $335.1 $241.1
====== ====== ====== ======
</TABLE>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actual 103 102 3,910 3,484
Normal 41 41 3,600 3,568
% Colder (warmer) than normal 151 149 9 (2)
% Colder (warmer) than prior period 1 4 12 (10)
</TABLE>
7
<PAGE> 10
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)
Columbia reported a third quarter net loss of $6.1 million, or $0.11 per
share,whereas last year, when Columbia was in Chapter 11 and recorded no
interest expense for prepetition debt obligations, net income was $19.3
million, or $0.38 per share.
After adjusting for unrecorded interest and other unusual items, Columbia's
third quarter 1996 results improved $11.5 million over the same period last
year. In the current quarter, Columbia had an adjusted net loss of $3.6
million compared to an adjusted loss of $15.1 million in the third quarter of
1995. This improvement reflects higher rates for the regulated subsidiaries
and increased wellhead prices for gas production. Also contributing to the
increase was lower operation and maintenance expense due in part to
efficiencies gained through recently implemented reengineering initiatives.
The current period adjustments included $2.5 million for the after-tax effect
of reengineering severance costs and the prior period included $34.4 million
after-tax for bankruptcy-related issues, primarily interest costs not
recorded.
Unusual and Bankruptcy-Related Items
After-tax effect on Net Income
(millions)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Reported net income (loss) $(6.1) $ 19.3 $153.4 $179.0
Less (plus):
Estimated interest costs not recorded - 42.9 - 126.3
Bankruptcy-related professional fees and related expenses - (8.5) - (23.1)
Reengineering costs (2.5) - (21.1) -
Adjustment to the sale of Columbia Development - - 5.6 -
----- ------ ------ ------
Total adjustments (2.5) 34.4 (15.5) 103.2
----- ------ ------ ------
Net income (loss) after adjusting for unusual and bankruptcy items $(3.6) $(15.1) $168.9 $ 75.8
===== ====== ====== ======
</TABLE>
Revenues
For the third quarter of 1996, operating revenues were $450.8 million, an $84.5
million increase over the same period last year, reflecting higher rates in
place for Columbia Transmission, subject to regulatory approval, as well as
higher rates for four of the five distribution subsidiaries, increased wellhead
prices for gas production and additional sales by the gas marketing operations.
Tempering these improvements was a decrease in oil and gas production revenues
resulting from the sale of the southwest oil and gas subsidiary, Columbia
Development, effective year end 1995. The third quarter last year was also
improved by $6.8 million for revenues recorded for exit fees received by
Columbia Gulf Transmission Company (Columbia Gulf).
Expenses
Operating expenses for the three months ended September 30, 1996, of $429.9
million, increased $77.9 million over last year due to $103.6 million higher
product purchase expense primarily reflecting
8
<PAGE> 11
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
increased gas purchased for resale by the gas marketing function. In addition,
the current period included $3.9 million of restructuring expense and a charge
recorded by Columbia Transmission to reflect an unfavorable court decision that
overturned an earlier FERC ruling (see discussion on page 14 for more
information). Partially offsetting these higher costs was lower operation and
maintenance expense due to the sale of Columbia Development and the favorable
effect of restructuring activities recently implemented that have reduced costs
and improved customer service. The $17.8 million decrease in depreciation and
depletion expense largely reflected the sale of Columbia Development. Higher
franchise and property taxes were the principal reason for a $2.5 million
increase in other taxes.
Other Income (Deductions)
Interest expense on long-term debt obligations of $35.1 million was the primary
reason that Other Income (Deductions) reduced income $29.6 million in the
current period. No interest expense was recorded in the same period last year
due to Columbia's Chapter 11 status. Included in Interest Income and Other,
Net for the current quarter was a $13.4 million adjustment to interest income
associated with the court decision that overturned an earlier FERC ruling,
mentioned above. This amount is offset in Interest Expense and Related Charges
and has no effect on income. Also improving income was a $1.8 million gain on
the sale of Columbia Gulf's interest in its Overthrust pipeline partnership.
Other Income (Deductions) for the third quarter of 1995 improved income $18.5
million due to $29.2 million of interest earned on cash accumulated while in
Chapter 11 partially offset by $10.3 million of professional fees and related
services.
Nine Month Results
Net Income
Reported net income for the nine months ended September 30, 1996, was $153.4
million, or $2.88 per share, compared to $179 million, or $3.54 per share last
year. The 1995 results did not reflect interest expense on prepetition debt
obligations, because Columbia was in Chapter 11.
After adjusting for unusual items, colder weather and higher rates in effect
during 1996 led to Columbia's year-to-date net income of $168.9 million, up
$93.1 million. After adjustments, all of Columbia's segments had improved
results.
Included in unusual items for the first nine months of 1996 was $21.1 million
for the after-tax effect of reengineering costs, primarily for severance
expense, and a $5.6 million improvement to net income for a favorable
adjustment to the sale of Columbia Development. Bankruptcy- related items in
the prior period consisted of $126.3 million for the after-tax effect of not
recording interest expense on prepetition debt obligations and a decrease to
net income of $23.1 million for bankruptcy-related professional fees and
related services.
Revenues
Operating Revenues for 1996 of $2,236.2 million increased $384.6 million over
the first nine months of last year. Increased sales by the distribution
subsidiaries and gas marketing operations, due in part to colder weather in
early 1996, higher rates in effect for the regulated subsidiaries
9
<PAGE> 12
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
as well as higher wellhead prices for Appalachian gas production more than
offset the lower revenues resulting from the sale of Columbia Development. In
addition, last year included $12.2 million of additional revenues recorded for
exit fees paid to Columbia Gulf.
Expenses
Through September 30, 1996, operating expenses of $1,901.1 million, increased
$290.6 million over last year due primarily to $331.4 million in higher product
purchase expense reflecting increased sales requirements, higher gas prices and
the unfavorable court decision mentioned previously. Also contributing to
higher expenses was $32.5 million of severance costs recorded during 1996 as
part of Columbia's reengineering initiatives to improve customer service and
reduce costs. Partially offsetting these increases was the elimination of
operation and maintenance expense associated with Columbia Development and the
favorable effect of restructuring activities recently implemented. Also
contributing to a decrease in expenses was $42.4 million lower depreciation and
depletion expense as a result of reduced depletable plant due to the sale of
Columbia Development, a lower depletion rate attributable to higher natural gas
prices, partially offset by additional plant in service and higher depreciation
rates for the regulated subsidiaries.
Other Income (Deductions)
Other Income (Deductions) reduced income $95.7 million for the first nine
months of 1996, primarily reflecting interest expense on long-term debt of
$105.4 million in the current period. Improving income this year was a $8.6
million favorable adjustment for the sale of Columbia Development and, as
mentioned previously the gain on the sale of Columbia Gulf's Overthrust
partnership. Increasing both Interest Income and Other, Net and Interest
Expense and Related Charges was the $13.4 million adjustment for the
unfavorable court decision also previously discussed. In the same period last
year income was improved $47.6 million for Other Income (Deductions). In the
first nine months of 1995 no interest expense was recorded due to the
bankruptcy proceedings. Other prior year bankruptcy-related issues include
$79.2 million of interest earned on cash accumulated while in Chapter 11,
partially offset by $27.8 million for professional fees and related services
expense.
Liquidity and Capital Resources
For the nine months ended September 30, 1996, cash from operations was $477.5
million, a decrease of $80.4 million from the same period last year primarily
reflecting a lag in the recovery by the distribution subsidiaries of gas costs
in the current period together with increased prepayments, higher payments for
estimated supplier obligations and payment of accrued interest. The lag in
recovering gas costs resulted from the rise in prices during 1996 that exceeded
the distribution subsidiaries' current recovery levels. These higher costs
will be recovered over the next several months through future adjustments to
the commodity portion of rates as provided for under the regulatory process.
Conversely, in the prior period when gas prices were decreasing, the rates in
place for the distribution subsidiaries led to an overrecovered position.
Columbia's 1995 Federal Income Tax return included a net operating loss
carryback claim to recover income taxes and was the principal reason for a
$271.5 million improvement in working capital for income tax refunds. This
claim, net of other adjustments and liabilities to the Internal Revenue Service
(IRS), resulted in a cash refund in April 1996 of approximately $213 million.
10
<PAGE> 13
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Cash also improved for the favorable effect of colder weather that increased
sales for the distribution subsidiaries, as well as higher base rates in effect
for the regulated subsidiaries.
Columbia maintains a $1 billion unsecured bank revolving credit facility
(Credit Facility) that provides for a combination of borrowings and letters of
credit. Scheduled quarterly reductions of $25 million of the committed amount
begin December 31, 1997, and will reduce the Credit Facility to $700 million by
September 30, 2000. Borrowings under the Credit Facility were used in February
1996, to redeem the 5.22% Series B-Preferred Stock and 7.89% Series
A-Preferred Stock issued pursuant to Columbia's approved Plan of
Reorganization. As of September 30, 1996, Columbia had $79.4 million of
letters of credit outstanding under the Credit Facility and $110 million of
short-term borrowings.
Columbia has an effective shelf registration statement on file with the U.S.
Securities and Exchange Commission (SEC) for the issuance of up to $1 billion
in aggregate amount of debentures, common stock or preferred stock in one or
more series. In March 1996, Columbia issued 5,750,000 shares of common stock
under the shelf registration. Proceeds of $239.2 million from the issuance
were used to reduce borrowings incurred under the Credit Facility.
On April 30, 1996, Columbia received approximately $191 million from the sale
of Columbia Development. The funds generated from this sale were used to
reduce borrowings under the Credit Facility.
Columbia believes that future cash requirements for normal ongoing operations
and capital expenditures will be met with internally generated funds and
amounts available under the Credit Facility. No further issuances under the
shelf registration are contemplated at this time.
Restructuring Activities
Through the first nine months of 1996, $32.5 million (pre-tax) of expense was
recorded to reflect current and future reengineering-related costs, primarily
for severance and benefits. This reengineering initiative, called Project
Phoenix, began in 1995 to streamline operations and make them more efficient
and cost-competitive. The beneficial effect of any efficiencies gained will be
realized through improved profitability of Columbia's operations and reduced
rates being charged to customers of the regulated subsidiaries. These
activities are expected to be substantially completed and implemented over the
next few months and will result in additional expense being recorded in the
fourth quarter of this year and early 1997. It is anticipated that the
additional expense to be recorded will be approximately half of the amount
recorded through the third quarter.
As indicated in the results of operations for the third quarter, Columbia is
beginning to realize lower operation and maintenance costs as a result of
implementing these reengineering initiatives in its various operations. It is
anticipated that the favorable effect of these initiatives will continue in the
future as additional phases of the program are implemented. Once the project
is fully implemented, which is expected by the end of 1997, the total number of
employees System-wide is anticipated to decrease by approximately 10% from the
year-end 1995 level of nearly ten thousand.
11
<PAGE> 14
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,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transportation revenues $130.5 $130.3 $451.1 $424.9
Storage revenues 40.2 34.6 119.4 98.6
Other revenues 3.2 10.2 11.0 25.7
------ ------ ------ ------
Total Operating Revenues 173.9 175.1 581.5 549.2
------ ------ ------ ------
OPERATING EXPENSES
Operation and maintenance 102.8 96.9 300.9 279.4
Depreciation 20.9 26.1 76.1 77.8
Other taxes 14.2 10.8 44.1 38.2
------ ------ ------ ------
Total Operating Expenses 137.9 133.8 421.1 395.4
------ ------ ------ ------
OPERATING INCOME $ 36.0 $ 41.3 $160.4 $153.8
====== ====== ====== ======
THROUGHPUT (BCF)
Transportation
Columbia Transmission
Market-area 161.1 171.8 788.2 767.7
Columbia Gulf
Main-line 145.9 143.3 475.2 450.0
Short-haul 69.3 55.5 202.7 159.9
Intrasegment eliminations (145.1) (141.8) (469.8) (443.8)
------ ------ ------ ------
Total Throughput 231.2 228.8 996.3 933.8
====== ====== ====== ======
</TABLE>
12
<PAGE> 15
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Regulatory Matters
Secondary Market Transactions
On July 31, 1996, the FERC issued a notice of proposed rulemaking (NOPR) that
would revise capacity release provisions to (1) improve the operation of the
FERC's capacity release program, (2) eliminate the competitive bidding
requirement for capacity release transactions and (3) permit pipelines to sell
interruptible and short-term firm service and shippers to release capacity at
rates above the maximum cost-based rate cap, when the pipeline or shipper has
demonstrated that it does not exercise market power. Columbia Transmission and
Columbia Gulf filed comments to the NOPR in October 1996.
In conjunction with the NOPR, the FERC proposed a pilot program for the 1996
winter heating season (November 1, 1996 through March 31, 1997) to permit
interim implementation of the proposed changes to help assess whether
compliance with the criteria is indicative of a lack of market power. On
August 30, 1996, Columbia Transmission and Columbia Gulf filed applications to
participate in the pilot program. Several interventions and protests were
filed with respect to Columbia Transmission's and Columbia Gulf's applications,
and both companies responded thereto on October 18, 1996. Certain distribution
companies served by Columbia Transmission and Columbia Gulf also filed
applications to participate in the pilot program.
Columbia Transmission's Rate Filing
In August 1995, Columbia Transmission filed with the FERC its first general
rate case since 1991, requesting an increase in annual revenues of
approximately $147 million. Columbia Transmission also proposed to recover its
net investment in gathering and certain gas processing facilities over a period
of five years. The FERC authorized the new rates to be implemented on February
1, 1996, subject to refund. However, in an effort to reach a timely resolution
of the issues included in the filing, Columbia Transmission agreed to collect
only 75% of the requested rate increase for an interim period.
On August 30, 1996, a partial settlement was filed with an Administrative Law
Judge which, if approved, would resolve an issue relating to whether Columbia
Transmission's system-wide rates should be changed to reflect mileage or other
factors relating to the distance that natural gas is transported. The proposed
settlement calls for Columbia Transmission to maintain its current system-wide
rate structure through November 1, 2004.
Negotiations are ongoing with interested parties on the remaining issues in
Columbia Transmission's general rate case. Environmental matters have been
placed on a separate procedural track from the remaining issues in the case.
Order 94
In 1985, certain pipeline suppliers of Columbia Transmission made FERC filings
to recover, through direct billings, certain retroactive charges paid to
producers by those pipelines for production-related costs pursuant to FERC
Order No. 94 (Order 94). These costs were in turn allocated to each pipeline
customer based upon its purchases from the pipeline during the early 1980s.
Columbia Transmission and other parties challenged the legality of the past
purchase allocation methodology under these direct billing orders. Following
numerous proceedings involving the FERC and D.C. Circuit Court of Appeals,
approved settlements were implemented with all but one upstream pipeline
supplier, Transcontinental Gas Pipe Line Corporation (Transco). Transco
appealed a FERC order to the D.C. Circuit Court of Appeals which issued a
decision on September 10, 1996. The court's decision reversed a prior
determination by the FERC and directed that a previous settlement reached
between Columbia Transmission and Transco be reinstated. Adequate reserves
were established in the third quarter of 1996 by Columbia Transmission to
reflect the court's decision. Columbia Transmission
13
<PAGE> 16
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
believes that the Bankruptcy Court continues to have jurisdiction over this
issue and thus is evaluating the order to consider further action, if any.
Partnership Issues
In September 1996, Columbia Gulf recorded a gain of approximately $1.8 million
for the sale of its partnership interest in the Overthrust Pipeline System to
Questar Pipeline Company. Columbia Gulf held an 18% interest in the
partnership at the time of the sale. Overthrust Pipeline, located in Wyoming,
is the western-most part of the Trailblazer Pipeline System, which was placed
into service in 1982. Columbia Gulf originally entered into the investment to
provide a gas supply source for Columbia Transmission. Under Order 636,
Columbia Transmission discontinued its merchant function which eliminated its
need for this supply source.
Appeals of Order 636
As discussed in the 1995 Form 10-K, numerous parties have filed petitions for
review of FERC Order No. 636 (Order 636) with the D.C. Circuit Court (Circuit
Court). In July 1996 the Circuit Court issued an order that generally upheld
the FERC's actions, but it remanded to the FERC certain aspects of Order 636.
Motions for reconsideration of the court's order have been filed and responses
made by the FERC and certain distribution companies. As a result of these
proceedings, Order 636 may be modified or reversed in whole or in part;
however, at this time it is impossible to predict the outcome.
Volumes
Throughput of 231.2 Bcf for the third quarter reflected a small increase of 2.4
Bcf over the same period last year due primarily to a 13.8 Bcf increase in
short-haul transportation. These higher deliveries were due to additional
transportation to third parties made possible through new interconnections in
Louisiana. Market-area transportation was 10.7 Bcf lower than the prior year
due to additional transportation services needed in 1995 by electric generation
facilities to meet increased demand.
For the first nine months of 1996, throughput of 996.3 Bcf increased 62.5 Bcf
over 1995. This improvement included a 42.8 Bcf increase in short-haul
deliveries due largely to increased offshore supply at Vermillion and Eugene
Island and new interconnections in Louisiana. Also contributing to the
increase was 20.5 Bcf higher market-area transportation reflecting colder
weather early in 1996.
Operating Revenues
Total operating revenues of $173.9 million for the three months ended September
30, 1996, decreased $1.2 million from the same period last year. After
adjusting for the recovery of upstream transportation costs and certain other
issues that are offset in operating expense and have no effect on operating
income, including a depreciation expense adjustment, operating revenues
increased $1.1 million. This improvement primarily reflected higher rates for
Columbia Transmission that resulted from the implementation of its new general
rate case that became effective in early 1996, subject to refund. Largely
offsetting this increase over last year was $6.8 million of revenues recorded
in 1995 by Columbia Gulf for exit fee payments it received.
Through September 30, 1996, operating revenues of $581.5 million were up $32.3
million over the same period last year primarily reflecting new rates in place
for Columbia Transmission since February 1996. Increasing 1995 results were
$12.2 million of revenues recorded by Columbia Gulf for exit fees.
14
<PAGE> 17
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION OPERATIONS (CONTINUED)
Operating Income
Third quarter 1996 operating income of $36 million was $5.3 million lower than
the same period last year. After adjusting for items that have no effect on
operating income, operating expenses increased $6.4 million due in large part
to a court decision that overturned a previous FERC ruling and other tax
expense increased $3.4 million primarily reflecting higher franchise and gross
receipts taxes.
Year-to-date through September 30, 1996, operating income of $160.4 million
improved $6.6 million over 1995. Higher revenues of $32.3 million were
partially offset by a $25.7 million increase in operating expenses due
primarily to reengineering expense of $6.1 million, the unfavorable court
decision mentioned above and higher franchise and property taxes.
15
<PAGE> 18
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,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUES
Sales revenues $171.5 $144.8 $1,328.1 $1,146.3
Less: Cost of gas sold 84.0 62.5 771.5 655.3
------ ------ -------- --------
Net Sales Revenues 87.5 82.3 556.6 491.0
------ ------ -------- --------
Transportation revenues 21.6 19.3 88.0 76.7
Less: Associated gas costs 3.2 2.1 10.6 7.3
------ ------ -------- --------
Net Transportation Revenues 18.4 17.2 77.4 69.4
------ ------ -------- --------
Net Revenues 105.9 99.5 634.0 560.4
------ ------ -------- --------
OPERATING EXPENSES
Operation and maintenance 97.5 98.2 332.6 323.6
Depreciation 7.9 6.8 51.7 48.3
Other taxes 19.8 20.0 104.0 105.7
------ ------ -------- --------
Total Operating Expenses 125.2 125.0 488.3 477.6
------ ------ -------- --------
OPERATING INCOME (LOSS) $(19.3) $(25.5) $ 145.7 $ 82.8
====== ====== ======== ========
THROUGHPUT (BCF)
Sales
Residential 11.5 11.5 144.1 127.4
Commercial 5.1 5.3 59.2 52.0
Industrial and other 0.9 1.2 6.0 5.3
------ ------ -------- --------
Total Sales 17.5 18.0 209.3 184.7
Transportation 52.1 55.1 183.8 190.6
------ ------ -------- --------
Total Throughput 69.6 73.1 393.1 375.3
------ ------ -------- --------
Off-System Sales 3.1 2.3 8.4 6.2
------ ------ -------- --------
Total Sold or Transported 72.7 75.4 401.5 381.5
====== ====== ======== ========
SOURCES OF GAS FOR THROUGHPUT (BCF)
Sources of Gas Sold
Spot market* 69.5 46.8 236.7 159.4
Producers 9.0 13.3 34.6 45.9
Storage withdrawals (injections) (54.9) (45.1) (47.0) (18.7)
Other (3.0) 5.3 (6.6) 4.3
------ ------ -------- --------
Total Sources of Gas Sold 20.6 20.3 217.7 190.9
Transportation received for delivery to customers 52.1 55.1 183.8 190.6
------ ------ -------- --------
Total Sources 72.7 75.4 401.5 381.5
====== ====== ======== ========
</TABLE>
* Purchase contracts of less than one year.
16
<PAGE> 19
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Regulatory Matters
As previously reported, the review of Columbia Gas of Ohio, Inc.'s (Columbia of
Ohio) revenue requirements by a collaborative group composed of diverse
interested parties (Collaborative) has been completed. In October 1996,
Columbia of Ohio filed and unopposed settlement with the Public Utility
Commission of Ohio (PUCO) to resolve its revenue requirement. The filing would
permit Columbia of Ohio to retain up to $51 million over the next three years
subject to an earnings limitation, under which a portion of any earnings above
an industry composite allowed return on equity would be shared with customers.
The revenues eligible for retention are approximately $11.5 million in 1996,
$19.7 million in 1997 and $19.7 million in 1998. This revenue retention
mechanism is in lieu of a base rate increase and does not result in any base
rate increase for customers. Additionally, the setlement provides that
Columbia of Ohio will not implement any increase in base rates before January
1, 1999. This filing is a part of an overall collaborative settlement which
encompasses a "Customer Choice" transportation program for small customers.
The initial program design includes options of unbundled services for
participating marketers and full recovery of stranded costs. The tentative
start date is April 1, 1997. The target location is the Toledo, Ohio, market
area which includes approximately 159,000 residential customers and 11, 200
small commercial customers. PUCO rulings on both filings are expected in the
near future.
In August 1996, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania)
received Pennsylvania Public Utility Commission approval to make two changes in
its tariff provisions. The first change provides a permanent, statewide
residential transportation rate schedule. The second change initiates a
two-year transportation pilot program for more than 36,000 residential and
human needs customers in Washington County. The program, which begins on
November 1, 1996, is one of the largest pilot programs currently in the United
States.
Sales Incentives
Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) received approval from
the Kentucky Public Service Commission in July 1996 for its Incentive Plan on a
two-year pilot basis effective August 1, 1996. Columbia Gas of Maryland, Inc.
(Columbia of Maryland) and Columbia of Pennsylvania have similar incentive
programs in place that allow them to retain a portion of the profits generated
by off-system sales. Off-system sales are sales outside of the distribution
subsidiaries' (Distribution's) traditional market areas. In the first nine
months of 1996, Distribution had off-system sales and exchange volumes of
approximately 13 Bcf resulting in pre-tax income of $3 million, an increase of
10.1 Bcf and $2.9 million, respectively, from the same period in 1995.
Columbia of Ohio has deferred approximately $27.2 million of pre-tax income
from off-system sales and exchange transactions pending a final PUCO decision
regarding the treatment of these transactions..
Proceeds from releasing unused capacity totaled $10.6 million in the first nine
months of 1996, down $600,000 from the same period in 1995. This year's colder
weather increased the need for capacity to meet customer requirements and
reduced opportunities to release any unused capacity. Except for a small
amount retained by Columbia of Maryland, Distribution recorded these proceeds
as a reduction in gas costs. Columbia of Pennsylvania has an approved
incentive program that allows a portion of the proceeds to be retained once a
benchmark has been reached. Columbia of Kentucky received approval for a
similar capacity release incentive in the July 1996 order that granted it an
off-system sales incentive.
17
<PAGE> 20
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Distribution continues to pursue incentive program authorization in Virginia.
In Virginia, Commonwealth Gas Services, Inc.'s (Commonwealth Services) rate
case settlement that was reached in early 1996 provided for a separate
proceeding to consider gas supply and other incentive proposals. A hearing on
these issues was held in September 1996, and the Hearing Examiner's report
could be issued by year end.
Environmental Matters
Distribution's primary environmental issues relate to former manufactured gas
plant sites. Distribution previously reported it had identified 14 former gas
plant sites for which it may have some liability for clean up. During the
third quarter of 1996, a fifteenth formerly owned manufactured gas plant site
was identified. At this time, it is not possible to estimate the costs
associated with this additional site.
To the extent Distribution's site investigations have been conducted,
remediation plans developed and any responsibility for remediation action
established, the appropriate liabilities have been recorded. Regulatory assets
have also been recorded for a majority of these costs as rate recovery has been
allowed or is anticipated.
Volumes
For the quarter ended September 30, 1996, throughput of 72.7 Bcf was 2.7 Bcf
lower than the same period last year as minor decreases in sales and
transportation service were partially offset by higher off-system sales.
For the first nine months of 1996, throughput increased 20 Bcf over 1995 to
401.5 Bcf. Sales increased 24.6 Bcf as residential and commercial tariff sales
increased primarily due to colder weather. Transportation volumes decreased
6.8 Bcf reflecting reduced transportation service for power generation, the
effect of increased pressure from competitive fuels due to higher natural gas
prices and transportation capacity constraints. Increased usage within the
manufacturing sector partially offset these reductions.
Net Revenues
Net revenues for the quarter ended September 30, 1996 were $105.9 million, an
increase of $6.4_million over the third quarter of 1995. This increase
includes $2.2 million from higher rates in effect in four of the five states
that Distribution serves. The remaining increase was essentially due to higher
revenue surcharges that are offset in expense and have no effect on income.
For the first nine months of 1996, net revenues were $634 million, an increase
of $73.6 million over 1995. Additional throughput contributed $49.1 million of
the increase and higher rates produced another $17.4 million. Most of the
remaining increase was attributable to higher revenue surcharges that are
offset in expense.
18
<PAGE> 21
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Operating Income (Loss)
Distribution experienced a seasonal operating loss of $19.3 million for the
third quarter of 1996, a $6.2 million improvement over the operating loss in
the third quarter of 1995. After adjusting for issues that are offset by
revenue surcharges, this improvement primarily reflected higher rates in place
and lower operation and maintenance expense, attributable to the
implementation restructuring activities.
Operating income for the first nine months of 1996 of $145.7 million was up
$62.9 million from 1995 as the higher net revenues were partially offset by an
increase of $10.7 million in operating expenses. Included in the higher
operating expenses were restructuring costs of $15.9 million. Other operation
and maintenance expenses decreased due to efficiencies and modernization
efforts recently implemented. Plant additions contributed to the $3.4 million
increase in depreciation expense while lower gross receipts, sales, and
property taxes caused the $1.7 million decline in other taxes.
19
<PAGE> 22
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,
------------------- -------------------
1996 1995 1996 1995
------ ----- ------ -----
(MILLIONS)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas $ 21.6 $ 30.3 $ 72.8 $ 98.1
Oil and liquids 1.2 11.4 4.0 35.2
------ ------ ------ ------
Total Operating Revenues 22.8 41.7 76.8 133.3
------ ------ ------ ------
OPERATING EXPENSES
Operation and maintenance 8.4 18.1 26.4 58.5
Depreciation and depletion 7.0 21.5 21.3 67.5
Other taxes 2.0 2.5 6.5 8.0
------ ------ ------ ------
Total Operating Expenses 17.4 42.1 54.2 134.0
------ ------ ------ ------
OPERATING INCOME (LOSS) $ 5.4 $ (0.4) $ 22.6 $ (0.7)
====== ====== ====== ======
GAS PRODUCTION STATISTICS
Production (Bcf)
Appalachian 8.0 7.9 24.6 25.1
Southwest - 8.0 - 24.7
------ ------ ------ ------
Total 8.0 15.9 24.6 49.8
====== ====== ====== ======
Average Price ($/Mcf)
Appalachian 2.45 2.08 2.81 2.16
Southwest - 1.63 - 1.67
System 2.45 1.85 2.81 1.92
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000Bbls)
Appalachian 64 76 217 234
Southwest - 661 - 1,941
------ ------ ------ ------
Total 64 737 217 2,175
====== ====== ====== ======
Average Price ($/Bbl)
Appalachian 19.35 16.01 18.40 16.29
Southwest - 15.30 - 16.11
System 19.35 15.37 18.40 16.13
</TABLE>
20
<PAGE> 23
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
Merger of Columbia Coal Gasification Corporation
On July 1, 1996, Columbia Coal Gasification Corporation was merged into
Columbia Natural Resources, Inc. (Columbia Natural) in order to increase
administrative and operating efficiencies.
Drilling Activity
In 1996, Columbia Natural participated in 28 wells with 10 completed during the
third quarter. Of the wells completed in the third quarter, 5 were successful,
adding 1.1 Bcf to reserves. A portion of drilling operations scheduled for
1996 has been deferred until 1997. This deferral was necessitated by a change
in strategies used in determining the composition of the Columbia Natural's
drilling program. New strategies result in tighter scheduling and more
concerted development activities which are designed to lower average finding and
development costs. The deferral of drilling activity in 1996 has allowed
Columbia Natural's management to establish the new processes necessary to allow
for additional drilling efforts in 1997.
Volumes
For the three months and nine months ended September 30, 1996, gas production
was 8 Bcf and 24.6 Bcf compared to 15.9 Bcf and 49.8 Bcf, respectively, in
1995. After adjusting for the sale of Columbia Development, gas production for
the current quarter and year-to-date results were essentially unchanged.
Columbia Natural's oil and liquids production for both the three and nine month
periods are down 12,000 and 17,000 barrels, respectively, from 1995. Oil and
liquids production for Columbia Natural is incidental to its gas production
activities.
Revenues
Gas revenues for the current year third quarter and year-to-date were $21.6
million and $72.8 million, a decrease of $8.7 million and $25.3 million,
respectively, primarily due to the sale of Columbia Development. After
adjusting for the sale, gas revenues increased $4.4 million for the three-month
period and $16.1 million for the nine-month period, reflecting higher average
prices due in large part to colder weather earlier in the year. Through the
summer months gas prices continued to outpace last year's levels due to
increased demand for natural gas by distribution companies to refill storage
inventories. For the current three months average gas prices were $2.45 per
mcf, an 18% improvement over the same period last year while for the first nine
months of 1996 average gas prices of $2.81 per mcf were up 30%.
Revenues from oil and liquids production for the three and nine months ended
September 30, 1996, were $1.2 million and $4 million, down $10.2 million and
$31.2 million, respectively. After adjusting for the sale of Columbia
Development, oil and liquids production revenue were relatively unchanged in
both periods.
Operating Income (Loss)
Operating income was $5.4 million and $22.6 million for the current quarter and
year-to-date periods, respectively. In the same periods last year an operating
loss was recorded of $400,000 and $700,000, respectively. The 1995 loss
included results from Columbia Development. Reduced depletable plant
21
<PAGE> 24
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OIL AND GAS OPERATIONS (CONTINUED)
resulting from the sale of Columbia Development and higher gas prices led to
lower depletion expense of $14.5 million and $46.2 million for the three and
nine month periods, respectively. Operation and maintenance expense for
Columbia Natural was also lower reflecting improved efficiencies gained through
the implementation of ongoing restructuring activities.
22
<PAGE> 25
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,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUES
Gas marketing revenues $151.9 $ 54.0 $462.3 $168.1
Less: Products purchased 149.7 52.3 449.1 163.2
------ ------ ------ ------
Net Gas Marketing Revenues 2.2 1.7 13.2 4.9
------ ------ ------ ------
Propane revenues 10.8 9.2 54.0 43.4
Less: Products purchased 6.9 5.3 31.1 24.2
------ ------ ------ ------
Net Propane Revenues 3.9 3.9 22.9 19.2
------ ------ ------ ------
Other Revenues 23.6 22.3 68.8 63.8
------ ------ ------ ------
Net Revenues 29.7 27.9 104.9 87.9
------ ------ ------ ------
OPERATING EXPENSES
Operation and maintenance 25.1 21.8 79.0 65.2
Depreciation and depletion 2.3 2.1 6.8 6.2
Other taxes 0.9 1.2 4.1 4.1
------ ------ ------ ------
Total Operating Expenses 28.3 25.1 89.9 75.5
------ ------ ------ ------
OPERATING INCOME $ 1.4 $ 2.8 $ 15.0 $ 12.4
====== ====== ====== ======
PROPANE SALES (MILLIONS OF GALLONS)
Retail 8.9 7.3 42.0 34.4
Wholesale and Other 2.0 2.1 10.9 12.4
------ ------ ------ ------
Total Propane Sales 10.9 9.4 52.9 46.8
====== ====== ====== ======
</TABLE>
23
<PAGE> 26
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 third quarter of 1996 were $29.7 million, improving
slightly from the same period last year. The increase is primarily
attributable to an increase in gas marketing volumes, and increased usage for
Columbia LNG's peaking services. Higher Columbia Gas System Service
Corporation (Service Corporation) revenues reflect billings to affiliate
companies for Service Corporation's restructuring costs. These improvements
were tempered by lower gas marketing margins.
For the nine months ended September 30, 1996, net revenues increased $17
million over the same period last year to $104.9 million, principally
reflecting the favorable effect of colder weather on the various energy-related
operations. Higher sales volumes and margins led to increased net revenues
from gas marketing activities, up $8.3 million, and $3.7 million higher net
revenues for propane operations. Other net revenues improved $5 million as the
result of additional revenues for peaking services and Service Corporation
charges to affiliates for services provided and recovery of restructuring
costs.
Operating Income
Operating income of $1.4 million for the third quarter of 1996 was down $1.4
million from the same period last year reflecting restructuring costs for the
Service Corporation and additional startup costs for Columbia Service Partners,
Inc. Additional expenses associated with project development costs reduced
operating income for cogeneration activities.
For the nine months ended September 30, 1996, operating income was $15 million,
an increase of $2.6 million over 1995 as colder weather increased gas marketing
volumes and propane sales. These improvements were partially offset by
restructuring expense in the current period.
24
<PAGE> 27
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No new reportable matters have arisen and there have been no material
developments in any legal proceedings reported in Columbia's Annual Report on
Form 10-K for the year ended December 31, 1995, or reported on Form 10-Q for
the First or Second Quarter 1996, except as follows:
I. Regulatory Matters
Columbia Gas Transmission Corp., FERC Docket No. RP95-408 (August 1, 1995)
On July 17, 1996, Columbia Gas Transmission Corporation ("Columbia
Transmission") filed an appeal with the U.S. Court of Appeals for the D.C.
Circuit (the "D.C. Circuit") (Case No. 96-1250) concerning the Federal Energy
Regulatory Commission's ("FERC") rejection of Columbia Transmission's proposal
to earn its allowed rate of return on certain gathering facilities.
On August 30, 1996, Columbia Transmission and certain intervenors filed with
the FERC a proposed partial settlement of distance-sensitive rate issues in
Phase I of its rate case. Under that proposed settlement, Columbia
Transmission would absorb $850,000 annually to resolve these issues.
Settlement discussions among Columbia Transmission and certain intervenors
continue.
Columbia Gas Transmission Corp., FERC Docket No. CP96-386 (April 29, 1996)
On July 3, 1996, Columbia Transmission filed a motion to approve Columbia
Natural Resources, Inc.'s ("Columbia Natural") proposed default contracts for
gathering facilities. On July 25, 1996, Columbia Transmission and Columbia
Natural filed a joint answer to protests to the original filing. Four protests
to Columbia Transmission's motion were filed on August 1, 1996. This motion
may become moot in light of the Conoco v. FERC order issued by the D.C. Circuit
on August 2, 1996, finding that the FERC exceeded its jurisdiction by requiring
default contracts. Columbia Transmission is studying this issue. Columbia
Transmission also has opened a data room as part of its effort to auction the
remainder of its gathering facilities.
On October 15, 1996, the FERC issued data requests in this proceeding to which
Columbia Transmission and Columbia Natural plan to reply in November 1996.
The Ohio Oil and Gas Association filed a motion to require replacement
gathering contracts with shippers as a condition to abandonment. Columbia
Transmission and Columbia Natural filed responses to that motion on October 21,
1996.
Transcontinental Gas Pipe Line Corp., FERC Docket No. RP92-149, et al., appeal
pending sub nom. Trunkline, et al. v. FERC, No. 94-1728 (U.S. Ct. of App. for
the D.C. Cir.) (FERC Order No. 94 Costs) In 1992, Columbia Transmission reached
settlements with upstream pipeline suppliers that permitted those suppliers to
directly bill Columbia Transmission for production-related costs authorized
under FERC Order No. 94 ("Order 94"), provided that Columbia Transmission could
recover those costs from its customers. The settlements initially were
approved in 1994 by FERC order. Subsequently,
25
<PAGE> 28
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
after a rehearing of the matter, the FERC ruled that Columbia Transmission's
1985 Purchased Gas Adjustment settlement barred such recovery and that the
settlements must be rejected. Accordingly, the upstream pipelines were ordered
to refund to Columbia Transmission all Order 94 collections that they had
received, but all interest on such payments through February 10, 1994 was
forgiven. Appeals of both the initial and rehearing orders were filed in the
D.C. Circuit.
Settlements have been reached with all upstream pipeline suppliers with the
exception of Transcontinental Gas Pipe Line Corporation ("Transco").
Approximately $7 million (plus interest) is at issue with Transco. Briefs in
this matter were filed with the D.C. Circuit, and oral argument was held on
March 19, 1996.
On September 10, 1996, the D.C. Circuit Court of Appeals issued a decision
which reversed a prior determination by the FERC and directed that a previous
settlement reached between Columbia Transmission and Transco be reinstated.
Reserves adequate in the opinion of management have been established in the
third quarter of 1996 by Columbia Transmission to reflect the court's decision.
Columbia Transmission believes that the Bankruptcy Court continues to have
jurisdiction over this issue and thus is evaluating the order to consider
further action, if any.
Tennessee Gas Pipeline Co., FERC Docket No. RP96-61 (November 30, 1995)
On November 30, 1995, Tennessee Gas Pipeline Company ("Tennessee Gas") made a
filing to directly bill Columbia Transmission for $115,303 of new take-or-pay
costs which, if it were approved, could have resulted in estimated total costs
of $5 million to be billed to Columbia Transmission. Columbia Transmission
opposed Tennessee Gas's filing.
On July 22, 1996, the FERC issued an order holding that Tennessee Gas may not
bill new take-or-pay costs to Columbia Transmission. On August 6, 1996,
Tennessee Gas filed tariff sheets to comply with that order. No requests for a
rehearing of that order were filed, thereby concluding this proceeding with
respect to Columbia Transmission.
26
<PAGE> 29
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Secondary Market Transactions on Interstate Natural Gas Pipelines, FERC Docket
No. RM96-14 (July 31, 1996) and Columbia Gas Transmission Corp. and Columbia
Gulf Transmission Co., FERC Docket Nos. RP96-355 and RP96-356 (August 30, 1996)
(Pilot Program Applications) On July 31, 1996, the FERC issued a notice of
proposed rulemaking ("NOPR") that would revise capacity release provisions to
(1) improve the operation of the FERC's capacity release program, (2) eliminate
the competitive bidding requirement for capacity release transactions and (3)
permit pipelines to sell interruptible and short-term firm service and shippers
to release capacity at rates above the maximum cost-based rate cap, when the
pipeline or shipper has demonstrated that it does not exercise market power.
Columbia Transmission and Columbia Gulf filed comments to the NOPR in October
1996.
In conjunction with the NOPR, the FERC proposed a pilot program for the 1996
winter heating season (November 1, 1996 through March 31, 1997) to permit
interim implementation of the proposed changes to help assess whether
compliance with the criteria is indicative of a lack of market power. On
August 30, 1996, Columbia Transmission and Columbia Gulf filed applications to
participate in the pilot program. Several interventions and protests were
filed with respect to Columbia Transmission's and Columbia Gulf's applications,
and both companies responded thereto on October 18, 1996. Distribution
companies served by Columbia Transmission and Columbia Gulf that also filed
applications to participate in the pilot program include Mountaineer Gas Co.,
National Fuel Gas Distribution Corp., Central Hudson Gas & Electric Corp. and
Washington Gas Light Company.
Columbia Gas Transmission Corp. and Columbia Gulf Transmission Co., FERC Docket
Nos. RP96-390 and RP96-389 (Negotiated Rate Filings) Columbia Transmission and
Columbia Gulf filed on September 25, 1996 revisions to tariff sheets to permit
negotiated rate settlements (to become effective November 1, 1996) in
accordance with the FERC's orders on similar pipeline filings and its Statement
of Policy and Request for Comments and Alternatives to Traditional
Cost-of-Service Ratemaking for Natural Gas Pipelines (FERC Docket No.
RM95-6-000).
Columbia Gas Transmission Corp., FERC Docket No. RP95-196, et al. and UGI, Inc.
v. Columbia Gulf Transmission Co. and Columbia Gas Transmission Corp., FERC
Docket No. RP95-392 (Transportation Costs Recovery Adjustment Filings) The
Pennsylvania Office of Consumer Advocate and FERC staff filed testimony in this
proceeding to determine whether certain Columbia Gulf environmental costs
billed to Columbia Transmission under the T-1 Rate Schedule were prudently
incurred. Columbia Gulf filed data requests on this testimony in October 1996.
Columbia Transmission and Columbia Gulf filed on October 18, 1996 their joint
narrative stipulation of issues.
II. Bankruptcy Matters
New Bremen Corp. v. Columbia Gas Transmission Corp. and Columbia Gulf
Transmission Co., C.A. No. 88-V-631 (155th Jud. Dist. Ct. of Austin County,
Texas) (November 16, 1988) This action, initially filed in Texas state court,
was removed to the U.S. District Court for the Southern District of Texas,
Houston District (the "Texas District Court") on January 10, 1989 (Civ. Action
No. H-89-0072). The action concerns the interpretation of a producer contract
subject to the estimation proceedings in the United States Bankruptcy Court for
the District of Delaware (the
27
<PAGE> 30
"Bankruptcy Court"). On March 12, 1996, the Texas District Court entered an
order granting Columbia Transmission's motion for partial summary judgment.
New Bremen Corp. appealed the Texas District Court's ruling to the U.S. Court
of Appeals for the Fifth Circuit ("Fifth Circuit"). The issue on appeal
(contract price interpretation) has been briefed. The Fifth Circuit is
expected to schedule oral argument on this matter to be held during the week of
December 2, 1996.
In the Bankruptcy Court's estimation proceedings, the official claims mediator
granted in October 1996 Columbia Transmission's motion for partial summary
judgment with respect to that portion of New Bremen's claim which was asserted
in the alternative to, and not at issue in, the matter of contract
interpretation being addressed on appeal to the Fifth Circuit.
New Ulm and Fox v. Mobil Oil Corp., et al., C.A. No. 88-V-655 (155th Jud. Dist.
Ct. of Austin County, Texas) (December 20, 1988) On October 18, 1996, the Texas
Supreme Court reversed in part the judgment of the Court of Appeals and
rendered judgment in favor of Columbia Transmission on New Ulm's contract
interpretation claim. The Texas Supreme Court also affirmed, in part, the
appellate court's judgment by remanding New Ulm's fraud claim to the trial
court for further proceedings. New Ulm has until November 4, 1996 to request a
rehearing of the Texas Supreme Court's decision.
Daniel Garshman v. Columbia Gas Transmission Corporation, No. ATL-L-000172-99
(Sup. Ct. of N.J., 1993) The Bankruptcy Court has approved the parties'
resolution of this dispute. The resolution of this case does not have a
material effect on the financial condition of The Columbia Gas System, Inc.
("Columbia").
III. Other Matters
LG&E Natural Marketing Inc. v. Columbia Gulf Transmission Co. and Columbia Gas
Transmission Corp. Case No. 1:96CV02238 (U.S. Dist. Ct. for the District of
Columbia) and C.A. No. 96-CA07745 (Sup. Ct. of the District of Columbia) On
September 27, 1996, LG&E Natural Marketing Inc. ("LG&E") filed virtually
identical complaints in the United States District Court for the District of
Columbia and the Superior Court of the District of Columbia (Civil Division).
The complaints allege that Columbia Transmission and Columbia Gulf breached
purported obligations to make certain pipeline transportation capacity
available to LG&E. The complaints seek $10 million under each of a number of
different counts and punitive and treble damages under some of them. Both
cases were dismissed without prejudice. The parties are pursuing a mutually
satisfactory business arrangement to resolve this matter. Management believes
that the complaints' claims, should they be reasserted, do not represent a
material exposure to Columbia.
28
<PAGE> 31
PART II - OTHER INFORMATION
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
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, a copy of which is attached
hereto as PART II, EXHIBIT 12, pursuant to Regulation 229.601(b)(12).
27 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K
The following reports on Form 8-K were not previously
reported.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date Filed
-------- -------- ----------
<S> <C> <C>
5 No October 11, 1996
</TABLE>
29
<PAGE> 32
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: October 31, 1996 By: /s/J. W. Grossman
-------------------------------
J. W. Grossman
Vice President and Controller
(Chief Accounting Officer and duly
authorized officer)
30
<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,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computation for Statements of Consolidated
Income ($ in millions)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.1) 19.3 153.4 179.0
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings per share of common stock
(based on average shares outstanding) ($)
Earnings on common stock . . . . . . . . . . . . . . . . . . . . . . . (0.11) 0.38 2.88 3.54
- - ---------------------------------------------------------------------------------------------------------------------------------
Additional computation of average common
shares outstanding (thousands) (NOTE)
- - ---------------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding . . . . . . . . . . . . . . 55,165 50,574 53,340 50,569
Incremental common shares applicable to
common stock based on the common stock
daily average market price:
Applicable to contingent stock awards . . . . . . . . . . . . . . . . 10 15 10 8
Applicable to contingent stock options . . . . . . . . . . . . . . . 111 16 76 6
- - ---------------------------------------------------------------------------------------------------------------------------------
Average common shares as adjusted . . . . . . . . . . . . . . . . . . . 55,286 50,605 53,426 50,583
- - ---------------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding . . . . . . . . . . . . . . 55,165 50,574 53,340 50,569
Incremental common shares applicable to
common stock based on the more dilutive
of the common stock ending or daily average
market price during the year:
Applicable to contingent stock awards . . . . . . . . . . . . . . . . 10 15 10 8
Applicable to contingent stock options . . . . . . . . . . . . . . . 114 34 114 34
- - ---------------------------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution . . . . . . . . . . . . . 55,289 50,623 53,464 50,611
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings on common stock as adjusted ($) . . . . . . . . . . . . . . . (0.11) 0.38 2.87 3.54
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings on common stock assuming full dilution ($) . . . . . . . . . . (0.11) 0.38 2.87 3.54
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE These calculations are submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15
because they result in dilution of less than 3%.
31
<PAGE> 1
Exhibit 12
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges
($ in millions)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS
ENDED SEPTEMBER 30, ENDED DECEMBER 31,
------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes, Extraordinary Item and Cumulative
Effect of Accounting Change . . . . . . . . . . . . . (692.3) 400.5 (643.0) 392.2 288.1 161.4 (1,205.8)
Adjustments:
Interest during construction . . . . . . . . . . . . (21.2) - (20.2) - - - (3.4)
Distributed (Undistributed) equity income . . . . . . 3.6 (9.4) (7.9) (0.9) (0.1) (0.1) (2.4)
Fixed charges . . . . . . . . . . . . . . . . . . . 1,160.8 22.5 1,040.8 14.8 101.5 13.7 139.9
------- ------- ------- ------- ------- ------- -------
Earnings Available . . . . . . . . . . . . . . . . 450.9 413.6 369.7 406.1 389.5 175.0 (1,071.7)
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
Interest on long-term and short-term debt 1,100.1 0.4 987.2 0.7 3.1 4.9 112.4
Other interest . . . . . . . . . . . . . . . . . . . 60.7 22.1 53.6 14.1 98.4 8.8 27.6
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges before Adjustments*,**. . . . . 1,160.8 22.5 1,040.8 14.8 101.5 13.7 140.0
------- ------- ------- ------- ------- ------- -------
Adjustments:
Gain/(Loss) on reacquired debt . . . . . . . . . . . - - - - - - (0.1)
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges . . . . . . . . . . . . . . . 1,160.8 22.5 1,040.8 14.8 101.5 13.7 139.9
------- ------- ------- ------- ------- ------- -------
Ratio of Earnings Before Taxes to Fixed Charges N/A(a) 18.38 N/A(a) 27.44 3.84 12.77 N/A(a)
</TABLE>
(a)To achieve a one-to-one coverage, the Corporation would need an additional
$709.9, $671.1 and $1,211.6 million of earnings, for the twelve months ended
September 30, 1996, and the twelve months ended December 31, 1995 and 1991,
respectively.
* This amount excludes approximately $261 million interest expense not
recorded in the twelve months ended September 30, 1995, $230 million,
$210 million, $204 million and $86 million of interest expense not
recorded for 1994, 1993, 1992 and 1991. Includes interest expense of
$982.9 million including write-off of unamortized discounts on
debentures recorded in 1995. Reference is made to the Statements of
Consolidated Income for the quarterly period ended September 30, 1996,
as reported in Form 10-Q.
** This amount excludes $8.6 million of interest expense not recorded
with respect to the registrant's guarantee of LESOP Trust's debentures
for the twelve months ended September 30, 1995. Also excluded are $8.6
million, $8.6 million, $8.6 million and $15.5 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,
1994, 1993, 1992 and 1991, respectively.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,583,400 3,583,400
<OTHER-PROPERTY-AND-INVEST> 467,700 467,700
<TOTAL-CURRENT-ASSETS> 1,030,200 1,030,200
<TOTAL-DEFERRED-CHARGES> 47,900 47,900
<OTHER-ASSETS> 420,900 420,900
<TOTAL-ASSETS> 5,550,100 5,550,100
<COMMON> 522,100 522,100
<CAPITAL-SURPLUS-PAID-IN> 741,200 741,200
<RETAINED-EARNINGS> 199,300 199,300
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,491,100 1,491,100
0 0
0 0
<LONG-TERM-DEBT-NET> 2,004,000 2,004,000
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 2,600 2,600
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,055,000 2,055,000
<TOT-CAPITALIZATION-AND-LIAB> 5,550,100 5,550,100
<GROSS-OPERATING-REVENUE> 450,800 2,236,200
<INCOME-TAX-EXPENSE> (2,600) 86,000
<OTHER-OPERATING-EXPENSES> 429,900 1,901,100
<TOTAL-OPERATING-EXPENSES> 429,900 1,901,100
<OPERATING-INCOME-LOSS> 20,900 335,100
<OTHER-INCOME-NET> 22,300 39,100
<INCOME-BEFORE-INTEREST-EXPEN> 43,200 374,200
<TOTAL-INTEREST-EXPENSE> 51,900 134,800
<NET-INCOME> (6,100) 153,400
0 0
<EARNINGS-AVAILABLE-FOR-COMM> (6,100) 153,400
<COMMON-STOCK-DIVIDENDS> 0.15 0.45
<TOTAL-INTEREST-ON-BONDS> 35,104 105,312
<CASH-FLOW-OPERATIONS> (76,700) 477,500
<EPS-PRIMARY> (0.11) 2.87
<EPS-DILUTED> (0.11) 2.87
</TABLE>
