<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1996
REGISTRATION NO. 33-64555
TRUST INDENTURE ACT FILE NO. 22-22215
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE COLUMBIA GAS SYSTEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-1594808
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
20 MONTCHANIN ROAD
WILMINGTON, DELAWARE 19807
(302) 429-5000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
L. J. BAINTER, TREASURER
THE COLUMBIA GAS SYSTEM, INC.
20 MONTCHANIN ROAD
WILMINGTON, DELAWARE 19807
(302) 429-5597
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GREGORY M. SHAW, ESQ. WINTHROP B. CONRAD, JR., ESQ.
CRAVATH, SWAINE & MOORE DAVIS POLK & WARDWELL
WORLDWIDE PLAZA 450 LEXINGTON AVENUE
825 EIGHTH AVENUE NEW YORK, NY 10017
NEW YORK, NY 10019
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. /X/
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
FEBRUARY 23, 1996 [COLUMBIA GAS SYSTEM LOGO]
PROSPECTUS SUPPLEMENT
(To Prospectus Dated )
5,000,000 SHARES
THE COLUMBIA GAS SYSTEM, INC.
COMMON STOCK
($10 PAR VALUE)
Of the 5,000,000 shares of Common Stock, $10 par value per share (the "Common
Stock"), of The Columbia Gas System, Inc. ("Columbia") being offered hereby,
4,000,000 shares are being offered in the United States and Canada (the "U.S.
Offering") and 1,000,000 shares are being offered in a concurrent international
offering outside the United States and Canada (the "International Offering" and,
collectively with the U.S. Offering, the "Offerings"), subject to transfers
between the U.S. Underwriters and the International Underwriters. The Price to
Public and Underwriting Discount per share will be identical for the U.S.
Offering and the International Offering. See "Underwriting." The closings of the
U.S. Offering and International Offering are conditioned upon each other.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "CG." On February 21, 1996, the last reported sale price for the Common
Stock, as reported on the New York Stock Exchange Composite Transactions Tape,
was $44.375 per share. See "Price Range of Common Stock" and "Common Stock
Dividend Policy."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by Columbia estimated at .
(2) Columbia has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of 750,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such options in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SMITH BARNEY INC.
The date of this Prospectus Supplement is , 1996.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the U.S. Securities and
Exchange Commission (the "SEC"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, as well as at the following SEC Regional Offices:
Seven World Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Such material can
also be inspected at the New York Stock Exchange, 20 Broad Street, New York, NY,
10005. Copies can be obtained from the SEC by mail at prescribed rates. Requests
should be directed to the SEC's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
LOGO
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
This summary is qualified in its entirety by the more detailed information
included elsewhere in this Prospectus Supplement and the accompanying
Prospectus. Unless otherwise indicated, the information in this Prospectus
Supplement does not give effect to the exercise of the over-allotment options
described under "Underwriting." As used herein, "Columbia" or the "Company"
means The Columbia Gas System, Inc. and its subsidiaries, unless the context
indicates otherwise.
THE COMPANY
Columbia comprises one of the nation's largest integrated natural gas
systems engaged in natural gas transmission and storage, natural gas
distribution and exploration for and production of oil and natural gas.
Columbia's pipeline system consists of approximately 54,500 miles of gathering,
transmission and distribution pipelines and the nation's second largest network
of natural gas storage fields having a working capacity of approximately 222
billion cubic feet ("Bcf"). Columbia is also engaged in related energy
businesses including the marketing of natural gas and other energy products, the
generation of electricity and the distribution of propane.
Columbia's natural gas transmission system extends from the offshore Gulf
of Mexico to midwest, midatlantic and northeast markets, and serves an area that
accounts for approximately 21% of the nation's gas consumption. Within this
market area, the transmission system holds an approximate 26% market share.
Columbia's distribution system, which is one of the largest in the United
States, serves almost 2.0 million customers in Ohio, Pennsylvania, Virginia,
Kentucky and Maryland. Combined, this market area represents approximately 11%
of the nation's gas consumption; and Columbia's distribution system accounts for
approximately 25% of this market.
Columbia and its principal pipeline subsidiary, Columbia Gas Transmission
Corporation ("Columbia Transmission"), emerged from bankruptcy on November 28,
1995. During its reorganization proceedings, Columbia continued to invest
substantial amounts of capital in its business segments. Columbia emerged from
bankruptcy as a well capitalized, low cost transporter of natural gas.
Within the past year Columbia has recruited a new management team headed by
Oliver G."Rick" Richard III who joined Columbia on April 28, 1995 as Chairman,
Chief Executive Officer and President. Prior to joining the Company, Mr. Richard
served as Chairman, Chief Executive Officer and President of New Jersey
Resources Corporation. In addition, Mr. Richard served as the Chief Executive
Officer of Northern Natural Gas Company, the major pipeline subsidiary of Enron
Corp. Mr. Richard also served as a Commissioner of the Federal Energy Regulatory
Commission ("FERC").
BUSINESS STRATEGY
Columbia's management is intent on developing a more agile,
customer-focused organization which will utilize Columbia's core asset
strengths, its extensive customer base and its knowledge and experience in the
energy markets to remake Columbia into a "total energy company" -- a leading
provider of energy and energy services. To achieve this goal, Columbia has
developed the following strategic initiatives:
Capitalize on Core Asset Strengths. Management intends to capitalize on
Columbia's core asset strengths in order to compete more effectively in an
increasingly competitive energy marketplace. Columbia will focus on and expand
its core businesses, allocating approximately 90% of planned 1996 capital
investment to the transmission and distribution segments. Consistent with this
focus, Columbia has announced a $400 million expansion of the Columbia
Transmission storage and transportation systems to be substantially completed in
the period from 1997 through 1999.
Exploit Synergies. Unlike the structure of many of its peers, Columbia's
distribution, storage and Appalachian oil and gas production operations form a
grid connected from within by Columbia Transmission. In order to capitalize on
the synergies inherent in this structure, Columbia intends to
S-3
<PAGE> 5
embark on a system-wide marketing strategy that will provide customers with
unbundled gas supply and a variety of gathering, processing, transportation,
storage, distribution and other energy delivery services. Columbia is also
seeking to capitalize on the efficiencies of its integrated system through
initiatives with regulators designed to promote rate structures that will reward
Columbia's transmission and distribution segments for enhanced productivity and
efficiency.
Develop Nonregulated Energy Businesses. Columbia is planning to market a
broad range of nonregulated energy products and services within its wholesale
and retail market areas. These services, which the Company intends to expand,
will ultimately position it to provide customers with one-stop shopping for
their energy needs.
Streamline Organizational Structure. Columbia has initiated a top-down
review of its operations to streamline the organizational structure and improve
customer service. Columbia recently implemented operational and management cost
reductions in its Appalachian exploration and production subsidiary and believes
that further cost reductions are likely in other business segments.
Implement Columbia Value Added. Underpinning the Company's financial
strategy is the recent application of a value added approach, Columbia Value
Added("CVA"), to all of its businesses. CVA is a process, as well as a financial
measure, that determines whether the anticipated return on a business activity
or project exceeds its risk adjusted capital cost. Columbia has adopted CVA on a
system-wide basis for use in strategic planning, capital investment and
allocation, measurement of business segment performance and establishment of
management compensation levels.
Maintain Financial Flexibility. Following its bankruptcy recapitalization,
Columbia achieved one of the lowest average costs of debt in the natural gas
industry and, as of year-end 1995, had a 57% ratio of long-term debt to total
capital. Columbia's debentures are currently rated Baa3/BBB/BBB by Moody's
Investors Service, Inc. ("Moody's")/Standard and Poor's ("S&P")/Fitch Investors
Service, Inc. ("Fitch"), respectively. One of management's objectives is to
improve the credit quality and debt ratings of Columbia over time to better
position the Company to take advantage of business opportunities as they arise.
THE OFFERINGS
<TABLE>
<S> <C>
Number of shares of Common Stock offered:
U.S. Offering.................................. 4,000,000
International Offering......................... 1,000,000
------------
Total(1)............................... 5,000,000
Number of shares of Common Stock to be
outstanding after the Offerings(1)(2).......... 54,204,025
Use of Proceeds.................................. To retire short-term debt
incurred for redemption of
preferred stock. See "Use of
Proceeds."
NYSE Symbol...................................... CG
</TABLE>
- ---------------
(1) Does not include up to an aggregate of 750,000 shares of Common Stock
subject to over-allotment options granted to the U.S. Underwriters and
International Underwriters. See "Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of December 31,
1995.
S-4
<PAGE> 6
SUMMARY FINANCIAL DATA AND OPERATING INFORMATION
The selected historical consolidated financial data of Columbia shown below
for years ended and as of December 31, have been derived from Columbia's audited
consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements of Columbia and related
notes included in Columbia's 1995 Annual Report on Form 10-K incorporated by
reference in the accompanying Prospectus and Management's Discussion and
Analysis of Financial Condition and Results of Operations and Pro Forma
Condensed Consolidated Income Statements contained elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995(1) 1994 1993
-------- -------- --------
($ IN MILLIONS, EXCEPT PER SHARE
AMOUNTS AND THROUGHPUT)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.................................... $2,635.2 $2,747.1 $3,313.8
Operating Expenses.................................... 2,245.0 2,363.0 2,940.8
Operating Income...................................... 390.2 384.1 373.0
Other Income (Deductions)(2).......................... (44.8) 22.9 16.6
Interest expense(3)................................... 988.4 14.8 101.5
Income taxes.......................................... (210.7) 146.0 135.9
Income (Loss) before Extraordinary Item and Cumulative
Effect of Accounting Change......................... (432.3) 246.2 152.2
Net Income (Loss)..................................... (360.7) 240.6 152.2
Earnings (Loss) Per Share of Common Stock:
Before extraordinary item and accounting change..... $ (8.57) $ 4.87 $ 3.01
Earnings (Loss) on Common Stock..................... $ (7.15) $ 4.76 $ 3.01
Average Shares Outstanding (thousands)................ 50,468 50,560 50,559
BALANCE SHEET DATA (AS OF DECEMBER 31)
Net Property, Plant and Equipment..................... $3,956.4 $4,081.0 $3,890.1
Total Assets.......................................... 6,057.0 7,164.9 6,957.9
Common Stock Equity................................... 1,114.0 1,468.0 1,227.3
Preferred Stock....................................... 399.9 -- --
Long-Term Debt........................................ 2,004.5(4) 4.3 4.8
OTHER DATA
EBITDA(5)............................................. $ 660.2 $ 645.8 $ 612.8
Capital Expenditures.................................. $ 421.8 $ 447.2 $ 361.3
Throughput (Bcf):
Transmission........................................ 1,336.2 1,272.0 1,355.9
Distribution........................................ 546.6 513.0 509.8
</TABLE>
- ---------------
(1) The financial data for the year ended and as of December 31, 1995 reflect
the reapplication of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS No. 71")
by Columbia Transmission and Columbia Gulf Transmission Company ("Columbia
Gulf") effective December 1, 1995. As a result of reapplying SFAS No. 71, an
extraordinary gain of $71.6 million was recorded in 1995.
(2) Includes reorganization items and other income. Included in 1995 is the
estimated loss ($77.8 million pre-tax) on the proposed sale of Columbia Gas
Development Corporation ("Columbia Development").
(3) Due to the bankruptcy filings, interest expense of approximately $230
million and $210 million was not recorded for 1994 and 1993, respectively.
Interest expense of $982.9 million, including the write-off of unamortized
discounts on debentures, was recorded in the fourth quarter 1995.
(4) Includes $2 billion of debentures issued upon emergence from bankruptcy.
(5) Operating income plus depreciation, depletion and amortization ("EBITDA") is
not a measurement concept under generally accepted accounting principles.
EBITDA is presented to provide additional information about Columbia's
ability to meet its future debt service, capital expenditure and working
capital requirements. EBITDA, while providing useful information, should not
necessarily be considered in isolation or as a substitute for net income as
an indicator of operating performance or as an alternative to cash flow as a
measure of liquidity, in each case determined in accordance with generally
accepted accounting principles.
S-5
<PAGE> 7
SUMMARY PRO FORMA INCOME STATEMENT
The following table presents the unaudited summary pro forma income
statement of Columbia for the year ended December 31, 1995. The pro forma
results have been derived from Columbia's consolidated financial statements, as
adjusted to give pro forma effect to the Offerings, Columbia's emergence from
bankruptcy and certain other items as if they had occurred at the end of 1994 by
(i) the elimination of emergence and other bankruptcy related items; (ii) the
inclusion of interest expense related to the long-term and short-term debt
issued upon emergence; (iii) the reflection of the reapplication of SFAS No. 71
by Columbia Transmission and Columbia Gulf; (iv) the reflection of the assumed
receipt of the $214.1 million in net proceeds of the Offerings and the
incurrence of $185.8 million of short-term indebtedness under Columbia's $1
billion Credit Facility dated as of November 28, 1995 (the "Credit Facility") to
redeem the 7.89% Preferred Stock, Series A ("Series A -- Preferred Stock") and
5.22% Convertible Preferred Stock, Series B ("Series B -- DECS") issued upon
emergence; and (v) the reflection of certain other transactions described in
"Pro Forma Condensed Consolidated Income Statements."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------
($ IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Operating Revenues.............................................................. $2,627.6
Operating Expenses.............................................................. 2,266.3
Operating Income................................................................ 361.3
Other Income (deductions)(1).................................................... (57.6)
Interest expense................................................................ (186.4)
Income taxes.................................................................... 39.3
Income before Extraordinary Item................................................ 78.0
Earnings Per Share of Common Stock before Extraordinary Item.................... $ 1.44
Average Common Shares Outstanding (thousands)................................... 54,052
</TABLE>
- ---------------
(1) Includes reorganization items and other income. Also includes the estimated
loss ($77.8 million pre-tax) on the proposed sale of Columbia Development.
------------------------
In Management's Discussion and Analysis of Financial Condition and Results
of Operations appearing elsewhere herein, Columbia has presented an analysis
which adjusts reported net income (loss) to eliminate bankruptcy-related and
unusual items on an after-tax basis in order to normalize its results of
operations. Such analysis differs from the pro forma presentation set forth
above which has been prepared in accordance with the requirements of the SEC's
Regulation S-X. The following table presents a reconciliation of such Adjusted
Net Income to pro forma net income.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
------------------
($ IN MILLIONS)
<S> <C>
Adjusted Net Income (per Management's Discussion and Analysis of Financial
Condition and Results of Operations)......................................... $153.3
Adjustments (after-tax):
Estimated loss on proposed sale of Columbia Development...................... (54.8)
To reflect interest expense with respect to new debt issued upon emergence
and to eliminate interest expense on prepetition debt and interest income
on accumulated cash included in Adjusted Net Income........................ (0.7)
Other miscellaneous adjustments including adjustments to reflect the assumed
adoption of SFAS No. 71 effective December 31, 1994 and the elimination of
certain other adjustments in arriving at Adjusted Net Income such as
environmental costs and employee relocation and severance costs............ (12.0)
-----
Pro Forma Income before Preferred Stock Dividends and Extraordinary Item
(adjusted for Emergence and SFAS No. 71)..................................... $ 85.8
=====
Pro Forma Income before Preferred Stock Dividends and Extraordinary Item
(adjusted for Emergence, SFAS No. 71 and Offerings).......................... $ 78.0
=====
</TABLE>
See "Pro Forma Condensed Consolidated Income Statements."
S-6
<PAGE> 8
COMMON STOCK DIVIDEND POLICY
On February 21, 1996, Columbia declared a quarterly dividend of 15 cents
per share with respect to the first quarter of 1996 payable on or about March
15, 1996 to holders of record on March 1, 1996. Accordingly, purchasers of
Common Stock in the Offerings will not be entitled to such dividend. While
Columbia currently intends to pay quarterly cash dividends on its outstanding
shares of Common Stock, it does not intend to establish a target earnings payout
ratio for its dividends. The determination of the amount of future cash
dividends, if any, to be declared and paid by Columbia will depend upon, among
other things, Columbia's financial condition, funds from operations, the level
of its capital expenditures, future business prospects and investment
opportunities, and other factors deemed relevant by the Board of Directors.
Columbia did not pay dividends on its Common Stock during the pendency of
its Chapter 11 bankruptcy proceedings.
USE OF PROCEEDS
The net proceeds to Columbia from the Offerings are estimated to be $214.1
million ($246.2 million if the Underwriters' over-allotment options are
exercised in full), after deducting underwriting discounts and commissions and
other expenses payable by Columbia. Columbia plans to use the net proceeds from
the Offerings to reduce amounts which will be borrowed under the Credit Facility
on February 26, 1996 to redeem the approximately $200 million liquidation value
of the Series A-Preferred Stock and approximately $200 million liquidation value
of the Series B-DECS, which were issued pursuant to Columbia's Third Amended
Plan of Reorganization dated July 27, 1995. Such borrowings will bear interest
at a floating rate which is expected to be approximately 5.80% at incurrence.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the NYSE under the ticker symbol "CG". High
and low closing stock prices for the periods indicated are as follows:
<TABLE>
<CAPTION>
PRICE
----------------
HIGH LOW
----- -----
<S> <C> <C>
1993
1st Quarter............................................ $24 $18 1/4
2nd Quarter............................................ 25 3/8 20 5/8
3rd Quarter............................................ 27 3/8 21 1/4
4th Quarter............................................ 27 1/8 22 3/8
1994
1st Quarter............................................ $29 3/4 $21 7/8
2nd Quarter............................................ 30 25 3/8
3rd Quarter............................................ 28 3/4 26
4th Quarter............................................ 28 7/8 22 5/8
1995
1st Quarter............................................ $29 5/8 $23 1/4
2nd Quarter............................................ 32 5/8 29
3rd Quarter............................................ 39 1/4 31 3/8
4th Quarter............................................ 44 37
1996
1st Quarter (through February 21, 1996)................ $44 7/8 $42 1/4
</TABLE>
A recent last sale price of the Common Stock as reported on the NYSE is set
forth on the cover page of this Prospectus Supplement.
S-7
<PAGE> 9
CAPITALIZATION
The following table sets forth the consolidated capitalization of Columbia
as of December 31, 1995 and as adjusted to give effect to the (i) issue and sale
in the Offerings of 3,583,845 shares of authorized but unissued Common Stock and
1,416,155 shares of treasury stock using the last price per share of the Common
Stock shown on the cover page hereof and (ii) the use of the net proceeds
thereof and borrowings under the Credit Facility to finance the redemption of
the Series A-Preferred Stock and Series B-DECS. The pro forma information is not
necessarily indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor is it indicative of
Columbia's future results.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995
--------------------------
AS ADJUSTED
ACTUAL FOR OFFERINGS
-------- -------------
($ IN MILLIONS)
<S> <C> <C>
Common Stock Equity
Common stock, $10 par value, authorized 100,000,000 shares,
outstanding 49,204,025 shares actual and 54,204,025 shares as
adjusted for Offerings......................................... $ 506.2 $ 542.0
Additional paid in capital........................................ 595.8 716.3
Retained earnings................................................. 69.8 69.8
Treasury stock.................................................... (57.8) --
------- -------
Total Common Stock Equity........................................... 1,114.0 1,328.1
Preferred Stock..................................................... 399.9 --
Long-Term Debt, Excluding Current Maturities........................ 2,004.5 2,004.5
------- -------
Total Capitalization................................................ $3,518.4 $ 3,332.6
======= =======
Short-Term Debt(1).................................................. $ 338.9 $ 524.7
======= =======
</TABLE>
- ---------------
(1) Short-term debt will be increased by $399.9 million on February 26, 1996 to
fund the redemption of the Series A-Preferred Stock and of the Series
B-DECS. As adjusted for the Offerings, short-term debt is reduced by the
estimated net proceeds of the Offerings of $214.1 million.
S-8
<PAGE> 10
THE COMPANY
GENERAL
Columbia comprises one of the nation's largest integrated natural gas
systems engaged in natural gas transmission and storage, natural gas
distribution and exploration for and production of oil and natural gas.
Columbia's pipeline system consists of approximately 54,500 miles of gathering,
transmission and distribution pipelines and the nation's second largest network
of natural gas storage fields having a working capacity of approximately 222
Bcf. Columbia is also engaged in related energy businesses, including the
marketing of natural gas and other energy products, the generation of
electricity and the distribution of propane.
Columbia's natural gas transmission system extends from the offshore Gulf
of Mexico to midwest, midatlantic and northeast markets and serves an area that
accounts for approximately 21% of the nation's gas consumption. Within this
market area, the transmission system holds an approximate 26% market share.
Columbia's distribution system, which is one of the largest in the United
States, serves almost 2.0 million customers in Ohio, Pennsylvania, Virginia,
Kentucky and Maryland. Combined, this market area represents approximately 11%
of the nation's gas consumption; and Columbia's distribution system accounts for
approximately 25% of this market.
Columbia and its principal pipeline subsidiary, Columbia Transmission,
emerged from bankruptcy on November 28, 1995. During its reorganization
proceedings, Columbia continued to invest substantial amounts of capital in its
business segments. Columbia emerged from bankruptcy as a well capitalized,
low-cost transporter of natural gas.
Columbia is a registered public utility holding company under the Public
Utility Holding Company Act of 1935 ("HCA").
NEW MANAGEMENT
Oliver G. "Rick" Richard III joined Columbia on April 28, 1995 as Chairman,
Chief Executive Officer and President. Prior to joining Columbia, Mr. Richard
served as Chairman, Chief Executive Officer and President of New Jersey
Resources Corporation ("NJR"). He joined NJR in 1991 after three years as
President and Chief Executive Officer of Northern Natural Gas Company, the major
pipeline subsidiary of Enron Corp. Prior to that Mr. Richard also served as
Senior Vice President and, subsequently, Executive Vice President of Enron Gas
Pipeline Group. Prior to that he was Vice President and General Counsel of
Tenngasco, an unregulated gas trading subsidiary of Tenneco, Inc. From 1982 to
1985 Mr. Richard served as a Commissioner of the FERC where he was instrumental
in promulgating initiatives aimed at increasing competition and efficiencies
among federally regulated energy providers. From 1978 to 1981 he served as a
legislative assistant for energy issues to the Honorable Bennett Johnston, U.S.
Senator from Louisiana.
In September 1995, Peter M. Schwolsky was appointed Senior Vice President
and Chief Legal Officer of Columbia. He had previously been Executive Vice
President for Law and Corporate Development for NJR. Other recent appointments
include the election of Robert C. Skaggs, Jr., as President and Chief Executive
Officer of Columbia Gas of Ohio, Inc. and Columbia Gas of Kentucky, Inc., and
Catherine Good Abbott as Chief Executive Officer of Columbia Transmission and
Columbia Gulf. Mr. Skaggs was previously Executive Vice President and Chief
Financial Officer of Columbia's distribution subsidiaries. Ms. Abbott was a
Principal at Gem Energy Consulting, Inc. ("Gem") and prior to that was a vice
president at various business units within Enron Corp. Also from Gem, Stephen J.
Harvey was recently appointed as the Vice President of Strategic Planning for
Columbia Gas System Service Corporation, and Terrance L. McGill was elected
President of Columbia Gulf. Prior to Gem, Mr. Harvey was President of NJR
Energy, a subsidiary of NJR. Mr. McGill was previously a principal of Rykel
Energy Advisors, Inc. and, prior to that, held an executive position with
various Enron pipelines. W. Henry Harmon, the former Treasurer and Controller of
Columbia Natural Resources, Inc. ("CNR"), Columbia's Appalachian oil and
S-9
<PAGE> 11
gas exploration and production subsidiary, was selected as the new President of
CNR and Columbia Coal Gasification Corporation ("Columbia Coal Gasification").
Dr. Michael J. Gluckman, formerly President of Paradigm Power, a subsidiary of
NJR, was selected as the new Chief Executive Officer of TriStar Ventures
Corporation ("TriStar Ventures").
BUSINESS STRATEGY
Columbia's management is intent on developing a more agile,
customer-focused organization which will utilize Columbia's core asset
strengths, its expansive customer base and its knowledge and experience in the
energy markets to remake Columbia into a "total energy company" -- a leading
provider of energy and energy services. To achieve this goal, Columbia has
developed the following strategic initiatives:
Capitalize on Core Asset Strengths. Management intends to capitalize on
its core asset strengths in order to compete more effectively in an increasingly
competitive energy marketplace. Columbia will focus on and expand its core
businesses, allocating approximately 90% of planned 1996 capital investment to
the transmission and distribution segments. Consistent with this focus Columbia
has announced a $400 million expansion of Columbia Transmission's storage and
transportation systems which is expected to be substantially completed in the
period from 1997 to 1999. The recent announcement of Columbia's intention to
sell Columbia Development, Columbia's southwest exploration and production
company which accounted for approximately 196 billion cubic feet equivalent
("Bcfe") of reserves at December 31, 1995 (approximately 24% of the Company's
total reserves), is consistent with this new strategy, as management determined
that the strategic value to Columbia of drilling for gas in the Southwest had
diminished. In contrast, the reserves held by Columbia's Appalachian oil and gas
subsidiary, CNR, have greater strategic value due to their location.
Exploit Synergies. Unlike the structure of many of its peers, Columbia's
distribution, storage and Appalachian oil and gas production operations form a
grid connected from within by Columbia Transmission. Columbia intends to embark
on a system-wide marketing strategy that will provide customers with unbundled
gas supply and a variety of gathering, processing, transportation, storage,
distribution and other energy delivery services. Columbia is also seeking to
capitalize on the efficiencies of its integrated system through initiatives with
regulators designed to promote rate structures that will reward Columbia's
transmission and distribution segments for enhanced productivity and efficiency.
Develop Nonregulated Energy Businesses. Columbia's extensive presence in
the northeast, midatlantic and midwestern regions of the country provides
significant opportunities to offer customers a wide variety of nonregulated
energy-related products and services. Currently, Columbia Energy Services, Inc.
("CES"), Columbia's nonregulated marketing subsidiary, actively markets natural
gas and a broad range of natural gas-related products and services. In order to
expand the scope of energy services and products offered, Columbia has filed an
application under the HCA seeking authority to offer a wide array of additional
products and services to energy consumers. These nonregulated energy-related
products and services would be offered by CES or another Columbia subsidiary to
energy consumers within Columbia's wholesale and retail market area. In
addition, Columbia has filed an application with the SEC under the HCA for
authority to market all forms of energy. Columbia's gas marketing subsidiary
already operates an electronic system for the trading of natural gas supplies
and transportation-related services, The Fast Lane(TM), that could be expanded
to allow instantaneous trading of any energy commodity. Columbia expects that
the SEC will approve the concept of electricity marketing by natural gas
registered holding company systems in the near future and that an appropriate
order will be issued for Columbia on a timely basis. Columbia anticipates the
expansion of energy-related and power marketing services over time so that
ultimately Columbia will be able to provide its customers with one-stop shopping
for all their energy needs.
Streamline Organizational Structure. In February 1996, Columbia's
transmission and distribution subsidiaries commenced a top-down review of their
management structure and operations in an effort to
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<PAGE> 12
streamline their organizational structure and improve customer service. The
studies will examine all aspects of Columbia's operations including the
appropriate configuration and location of its management. No decisions have been
made as yet and it is premature to estimate the potential costs and/or savings,
if any, which might result from implementation of any recommendations resulting
from the studies. These studies parallel a similar effort involving the Columbia
Gas System Service Corporation ("Service Corporation") which was previously
initiated. The Company anticipates that changes in its organizational structure
and operations will occur over a period of time. For example, the recently
announced management changes at the distribution segment, providing for the
president and chief executive officers to report directly to Mr. Richard are the
beginning of an effort to flatten Columbia's organizational structure. Columbia
also recently implemented various operational and maintenance cost reductions in
CNR and believes that similar cost reductions are likely in other business
segments.
Implement CVA. Underpinning the Company's financial strategy is the recent
application of a value added approach, CVA, to all of its businesses. CVA is a
process, as well as a financial measure, that determines whether the anticipated
return on a business activity or project exceeds its risk adjusted capital cost.
The CVA process was initiated to encourage the Company's employees to think in
terms of value enhancement. All material, discretionary capital expenditures
will be subject to the CVA process. Columbia believes the effects of CVA are
beginning to materialize, reflecting net planned investment reductions in a
number of Columbia's business segments. This new management tool aided Columbia
in its decisions to allocate capital to Columbia Transmission's planned
expansion and to divest Columbia Development. CVA is also being employed in
Columbia's strategic planning process, in measuring business segment performance
and in setting management compensation levels.
Maintain Financial Flexibility. As a result of its bankruptcy
recapitalization, Columbia achieved one of the lowest average costs of debt in
the natural gas industry (7.03%) with an average maturity of 14 years and, as of
year-end 1995, had a 57% ratio of long-term debt to total capital. Columbia's
debentures are currently rated Baa3/BBB/BBB by Moody's/S&P/Fitch, respectively.
One of management's objectives is to improve the credit quality and debt ratings
of Columbia over time, to better position the Company to take advantage of
business opportunities as they arise. However, there can be no assurance that
the Company will be successful at improving or maintaining its credit quality or
debt ratings.
Credit ratings accorded by the rating agencies are not recommendations to
purchase, hold or sell any securities inasmuch as such ratings do not comment as
to market price or suitability for a particular investor. There is no assurance
that any credit rating will remain in effect for any given period of time or
that any credit rating will not be revised or withdrawn entirely by a rating
agency in the future if in its judgment circumstances so warrant.
OVERVIEW OF BUSINESS SEGMENTS
Set forth below is an overview of the Company's business segments. For
further information with respect to those segments, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Transmission
Columbia's two interstate pipeline companies, Columbia Transmission and
Columbia Gulf operate an approximately 23,200-mile pipeline network extending
from the offshore Gulf of Mexico to midwest, midatlantic and northeast markets.
In addition, Columbia Transmission operates one of the nation's largest
underground natural gas storage systems. The transmission companies serve
directly or indirectly approximately eight million customers in fifteen
northeastern, midatlantic, midwestern, and southern states and the District of
Columbia. On a combined basis, the transmission companies are one of the lowest
cost transporters of gas to their market areas.
S-11
<PAGE> 13
Since November 1, 1993, following a fundamental restructuring of the gas
industry that was brought about by new federal regulations, Columbia
Transmission has eliminated its merchant function. It now provides an array of
competitively priced natural gas transportation and storage services for local
distribution companies and industrial and commercial customers who contract
directly with producers or marketers for their gas supplies. Further, the
transmission companies are pursuing rate structures that, in addition to the
traditional cost-based mechanisms, would include financial incentives for
enhanced productivity and efficiency.
In addition to its normal capital spending, Columbia Transmission plans to
invest about $400 million over a three-year period starting in 1997 to expand
the capacity of its natural gas pipeline system to provide in excess of 500,000
thousand cubic feet per day ("Mcf/d") of additional firm storage and
transportation services. As part of the expansion project, Columbia Transmission
plans to enhance the performance of its storage operations by drilling new
storage wells and improving the deliverability of existing storage wells. Also,
Columbia Transmission plans to add, replace or upgrade an aggregate of
approximately 300 miles of pipeline and install additional compression along its
core pipeline system. In connection with the expansion, Columbia Transmission
has signed 15-year service agreements with 23 customers, mostly gas distribution
companies. As a result of the agreements, the transmission companies' current
level of firm service entitlements will increase by about seven and one-half
percent. Eighty-five percent of the new capacity will be for firm storage
service; the remainder will be for transportation service. Customers receiving
the additional services are located primarily in the midwest and midatlantic
areas.
Distribution
Columbia's five local distribution subsidiaries ("Distribution") provide
natural gas service to almost 2.0 million residential, commercial and industrial
customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland. Distribution
purchases gas for and sells gas to high priority (mostly residential) customers
and transports gas for certain industrial and commercial customers who purchase
gas from other suppliers. More than 30,600 miles of Distribution's pipelines
serve these major markets. In three of the last five years, the combined volume
of sales and transportation deliveries to customers has exceeded 500 Bcf
annually.
Efforts by the electric industry to make inroads in the residential and
small commercial markets are being countered by active marketing efforts that
include new promotional approaches and innovative financing programs to
encourage customers to choose natural gas-fueled appliances. Distribution is
currently promoting the new "Triathlon" gas heat pump, the first commercial
natural gas-fueled year-round climate control system. Additional opportunities
for natural gas distribution have occurred due to the Clean Air Act Amendments
of 1990 ("CAA-90") which require many electric power generating facilities to
reduce emissions by installing expensive exhaust scrubbers or using cleaner
burning fuels. Distribution is also promoting the use of environmentally
friendly and cost-efficient natural gas cooling equipment by commercial and
industrial customers.
Columbia's distribution subsidiaries are supportive of initiatives
providing for the separation or "unbundling" at the residential level of the
charge for retail transportation services from the charge for the natural gas
commodity. These initiatives seek to foster greater customer choice and
competition for retail gas services. Unbundling has already occurred at the
industrial and commercial customer levels throughout Distribution's market area.
Distribution believes that complete unbundling will ultimately provide it and
Columbia's non-regulated subsidiaries with opportunities to compete more
effectively with other energy companies by providing tailored energy services to
Columbia's customers.
Distribution is pursuing a variety of incentive rate initiatives, some of
which have already received regulatory approval. These initiatives include: (i)
off-system sales and capacity release programs, where Distribution shares
revenue with customers, (ii) supply management incentive programs designed to
reward Distribution for purchasing gas at a cost lower than a specified market
index, and (iii) weather normalization adjustments that are designed to
alleviate the impact of unusual weather on customer bills.
S-12
<PAGE> 14
Distribution also continues to support regulatory initiatives and pilot
transportation programs that will permit small customers including residential
to arrange their own purchases of natural gas for deliveries by Distribution.
Oil and Gas
The Company's two E&P subsidiaries, CNR and Columbia Development, explore
for, develop and produce oil and natural gas in the United States. In an effort
to strategically focus its resources, Columbia recently announced its intent to
sell Columbia Development, its southwest E&P subsidiary. Columbia believes that
the strategic value to Columbia of drilling for oil and gas in the Southwest has
diminished. Columbia Development accounted for approximately 196 Bcfe of proved
oil and natural gas reserves at December 31, 1995 (approximately 24% of the
Company's total reserves).
Columbia currently plans to retain its larger and more strategically
located Appalachian oil and gas subsidiary, CNR, which is closer to Columbia's
customer base and market area. As of December 31, 1995, CNR held interests in
more than 2.2 million net acres of gas and oil leases and had proved oil and gas
reserves in excess of 609 Bcfe.
Other Energy
CES, Columbia's nonregulated natural gas marketing company, provides an
array of supply and fuel management services to distribution companies,
independent power producers and other large end users both on and off Columbia's
transmission and distribution pipeline systems. CES opened the Columbia Energy
Market Center in 1994 to provide one-stop shopping for natural gas supply and
transportation-related services to help customers better manage their energy
costs. In 1995, CES added electronic trading to its list of services, making
real-time trading of natural gas supplies and pipeline capacity easier and more
efficient.
TriStar Ventures is involved in four cogeneration projects that produce
both electricity and thermal energy. Three of these projects are fueled
principally by natural gas. TriStar Ventures holds various interests in these
facilities that have a total capacity of nearly 300 megawatts.
Columbia Propane Corporation and Commonwealth Propane, Inc., sell propane
at wholesale and retail to approximately 74,300 customers in eight states.
Columbia Coal Gasification leases in excess of 500 million tons of coal
reserves in the Appalachian area, much of which contains less than 1% sulfur.
Approximately 50% of these reserves are sublet to other companies for
development.
Columbia LNG Corporation ("Columbia LNG") is a partner with Potomac
Electric Power Company in the Cove Point LNG Limited Partnership ("Cove Point
LNG") which recently began commercial operation of one of the largest natural
gas peaking and storage facilities in the United States at its Cove Point,
Maryland LNG facility (the "Cove Point LNG facility"). The facility enables
liquified natural gas ("LNG") to be stored until needed for the winter peak-day
requirements of utilities and other large gas users. The facility has the
capacity to liquefy natural gas at a rate of 15,000 Mcf of natural gas per day.
S-13
<PAGE> 15
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1995
The table below sets forth actual and pro forma condensed consolidated
income statements of Columbia for the year ended December 31, 1995. The pro
forma adjustments give effect to the Offerings, Columbia's emergence from
bankruptcy and certain other items as if they had occurred at the end of 1994,
by (i) for emergence and SFAS No. 71, the elimination of emergence and other
bankruptcy related items, the inclusion of interest expense related to the
long-term and short-term debt issued upon emergence and the reflection of the
reapplication of SFAS No. 71 by Columbia Transmission and Columbia Gulf and (ii)
for emergence, SFAS No. 71 and the Offerings, the reflection of the preceding
factors, the reflection of the assumed receipt of the $214.1 million in net
proceeds of the Offerings and the incurrence of $185.8 million of short-term
indebtedness under the Credit Facility to redeem the Series A-Preferred Stock
and the Series B-DECS issued upon emergence. The pro forma adjustments also give
effect to certain other transactions described in the accompanying notes.
The pro forma financial information does not purport to be indicative of
the actual financial position as it will finally be recorded, or the results of
operations which would actually have been reported if the transactions had
occurred on the dates or for the periods indicated, or which may be reported in
the future. The pro forma financial information should be read in conjunction
with the separate historical consolidated financial statements and the related
notes to such financial statements of Columbia, incorporated by reference in the
accompanying Prospectus.
<TABLE>
<CAPTION>
ADJUSTMENTS TOTAL
---------------------------------------------------- ADJUSTMENTS FOR PRO FORMA FOR
NOTE NOTE NOTE NOTE NOTE NOTE EMERGENCE AND EMERGENCE AND
ACTUAL (A) (B) (C) (D) (E) (F) SFAS NO. 71 SFAS NO. 71
-------- ------ ------ ----- ------- ------- ------ --------------- -------------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues.............. $2,635.2 $ (7.6) $ -- $ -- $ -- $ -- $ -- $ (7.6) $ 2,627.6
Operating Expenses.............. 2,245.0 (1.2) 21.2 1.3 -- -- -- 21.3 2,266.3
------- ----- ----- ---- ------ ------ ----- ----- ------
Operating Income (Loss)......... 390.2 (6.4) (21.2) (1.3) -- -- -- (28.9) 361.3
Interest income and other,
net........................... (58.2) 0.6 -- -- -- -- -- 0.6 (57.6)
Interest expense and related
charges....................... (988.4) 956.0 -- 9.1 (151.1) -- -- 814.0 (174.4)
Reorganization items, net....... 13.4 (13.4) -- -- -- -- -- (13.4) --
------- ----- ----- ---- ------ ------ ----- ----- ------
Income (Loss) before Income
Taxes and Extraordinary
Item.......................... (643.0) 936.8 (21.2) 7.8 (151.1) -- -- 772.3 129.3
Income taxes.................... (210.7) -- (9.9) -- -- 264.1 -- 254.2 43.5
------- ----- ----- ---- ------ ------ ----- ----- ------
Income (Loss) before Preferred
Stock Dividends and
Extraordinary Item............ (432.3) 936.8 (11.3) 7.8 (151.1) (264.1) -- 518.1 85.8
Preferred Stock Dividends....... -- -- -- -- -- -- 26.2 26.2 26.2
------- ----- ----- ---- ------ ------ ----- ----- ------
Income (Loss) before
Extraordinary Item............ $ (432.3) $936.8 $(11.3) $ 7.8 $(151.1) $(264.1) $(26.2) $ 491.9 $ 59.6
======= ===== ===== ==== ====== ====== ===== ===== ======
Earnings (Loss) Per Share of
Common Stock before
Extraordinary Item............ $ (8.57)
Average Common Shares
Outstanding (thousands)....... 50,468
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR EMERGENCE,
FOR OFFERINGS SFAS NO. 71
NOTE(G) AND OFFERINGS
------------- --------------
<S> <C> <C>
Operating Revenues.............. $ -- $2,627.6
Operating Expenses.............. -- 2,266.3
----- ------
Operating Income (Loss)......... -- 361.3
Interest income and other,
net........................... -- (57.6)
Interest expense and related
charges....................... (12.0) (186.4)
Reorganization items, net....... -- --
----- ------
Income (Loss) before Income
Taxes and Extraordinary
Item.......................... (12.0) 117.3
Income taxes.................... (4.2) 39.3
----- ------
Income (Loss) before Preferred
Stock Dividends and
Extraordinary Item............ (7.8) 78.0
Preferred Stock Dividends....... (26.2) --
----- ------
Income (Loss) before
Extraordinary Item............ $ 18.4 $ 78.0
===== ======
Earnings (Loss) Per Share of
Common Stock before
Extraordinary Item............ $ 1.44(H)
Average Common Shares
Outstanding (thousands)....... 54,052
</TABLE>
S-14
<PAGE> 16
(A) To eliminate the impact of non-recurring adjustments recorded at bankruptcy
emergence. The major adjustment was to eliminate approximately four and
one-half years of interest expense on debt all recorded at bankruptcy
emergence. An additional adjustment eliminates "Reorganization items, net",
including interest on accumulated cash, professional fees and other
reorganization items. Also adjusted was the impact of certain regulatory
matters, including court cases and rate case issues, the settlement of
which was finalized concurrent with bankruptcy emergence. The regulatory
items impacted operating revenues and expenses.
(B) To reflect the reapplication of SFAS No. 71 as if it was reapplied by
Columbia Transmission and Columbia Gulf effective December 31, 1994.
(C) To reflect the capitalization of $9.1 million of Allowance for Funds Used
During Construction ("AFUDC") and Interest During Construction ("IDC") and
the corresponding $1.3 million increase in depreciation expense during the
period. AFUDC and IDC were not recorded during the bankruptcy as no
interest expense was recorded during this period.
(D) To reflect the effect of the interest expense on the new long-term and
short-term debt incurred in connection with emergence from bankruptcy. This
represents the addition of 11 months of interest expense, since one month
is reflected in 1995 actual results. The principal balances, interest
rates, and incremental interest expenses are as follows:
<TABLE>
<CAPTION>
INCREMENTAL
PRINCIPAL INTEREST
--------- -----------
($ IN MILLIONS)
<S> <C> <C>
Long-term debt:
6.39% Debentures series due November 2000.......... $ 311.0 $ 18.2
6.61% Debentures series due November 2002.......... 281.5 17.0
6.80% Debentures series due November 2005.......... 281.5 17.5
7.05% Debentures series due November 2007.......... 281.5 18.2
7.32% Debentures series due November 2010.......... 281.5 18.9
7.42% Debentures series due November 2015.......... 281.5 19.2
7.62% Debentures series due November 2020.......... 281.5 19.7
------- -----
Total long-term debt............................... $ 2,000.0 $ 128.7
Short-term debt @ 6.46%............................ 370.0 21.9
Amortization of deferred debt expense.............. 0.5
-----
Total interest expense............................. $ 151.1
=====
</TABLE>
(E) To reflect the income tax effect of the adjustments listed previously.
(F) To reflect the dividend requirements on the Series A-Preferred Stock and
Series B-DECS issued in connection with the emergence from Chapter 11 as
detailed below:
<TABLE>
<CAPTION>
ANNUALIZED
AMOUNT DIVIDEND
------ ----------
($ IN MILLIONS)
<S> <C> <C>
7.89% Series A-Preferred Stock......................... $200.0 $ 15.8
5.22% Series B-DECS.................................... 199.9 10.4
----- ----
Total........................................ $399.9 $ 26.2
===== ====
</TABLE>
(G) To reflect the net proceeds received from the Offerings and the use of
$185.8 million of short-term debt at a rate of 6.46% to retire the Series
A-Preferred Stock and Series B-DECS. This transaction results in an
increase of interest expense of $12.0 million and the elimination of $26.2
million of dividends.
(H) Pro forma earnings per common share are based on the average number of
common and common equivalent shares outstanding for the period and are
computed after giving effect to treasury shares held of 1,416,155 and the
issuance of 5,000,000 shares of common stock and the redemption of the
Series A-Preferred Stock and Series B-DECS.
S-15
<PAGE> 17
CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of Columbia shown below
for years ended and as of December 31 have been derived from Columbia's audited
consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements of Columbia and related
notes included in Columbia's 1995 Annual Report on Form 10-K incorporated by
reference in the accompanying Prospectus and Management's Discussion and
Analysis of Financial Condition and Results of Operations and Pro Forma
Condensed Consolidated Income Statements contained elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995(1) 1994 1993
--------- -------- --------
($ IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES
Gas sales.............................................. $ 1,929.0 $2,031.3 $2,574.3
Transportation......................................... 487.7 505.7 518.4
Other.................................................. 218.5 210.1 221.1
------ ----- -----
Total Operating Revenues....................... 2,635.2 2,747.1 3,313.8
------ ----- -----
OPERATING EXPENSES
Products purchased..................................... 820.6 984.2 1,577.7
Operation.............................................. 826.7 774.4 702.3
Maintenance............................................ 116.6 133.7 165.5
Depreciation and depletion............................. 270.0 261.7 239.8
Other.................................................. 211.1 209.0 255.5
------ ----- -----
Total Operating Expenses....................... 2,245.0 2,363.0 2,940.8
------ ----- -----
OPERATING INCOME......................................... 390.2 384.1 373.0
OTHER INCOME (DEDUCTIONS)
Interest income and other, net......................... (58.2) 35.2 7.7
Interest expense and related charges(2)................ (988.4) (14.8) (101.5)
Reorganization items, net.............................. 13.4 (12.3) 8.9
------ ----- -----
Total Other Income (Deductions)................ (1,033.2) 8.1 (84.9)
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE................. (643.0) 392.2 288.1
Income taxes........................................... (210.7) 146.0 135.9
------ ----- -----
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE............................ (432.3) 246.2 152.2
Extraordinary item..................................... 71.6 -- --
Cumulative effect of change in accounting for
postemployment benefits............................. -- (5.6) --
------ ----- -----
NET INCOME (LOSS)........................................ $ (360.7) $ 240.6 $ 152.2
====== ===== =====
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Before extraordinary item and accounting change........ $ (8.57) $ 4.87 $ 3.01
Extraordinary item..................................... 1.42 -- --
Change in accounting for postemployment benefits....... -- (0.11) --
------ ----- -----
Earnings (Loss) on Common Stock.......................... $ (7.15) $ 4.76 $ 3.01
====== ===== =====
AVERAGE COMMON SHARES OUTSTANDING (thousands)............ 50,468 50,560 50,559
</TABLE>
- ---------------
(1) The financial data for the year ended and as of December 31, 1995 reflect
the reapplication of SFAS No. 71 by Columbia Transmission and Columbia Gulf
effective December 1, 1995. As a result of reapplying SFAS No. 71, an
extraordinary gain of $71.6 million was recorded in 1995.
(2) Due to the bankruptcy filings, interest expense of approximately $230
million and $210 million was not recorded for 1994 and 1993, respectively.
Interest expense of $982.9 million, including write-off of unamortized
discounts on debentures, was recorded in the fourth quarter of 1995.
S-16
<PAGE> 18
The tables set forth below provide information concerning Columbia's
business segments. Revenues include intersegment sales to affiliated
subsidiaries, which are eliminated when consolidated. Affiliated sales are
recognized on the basis of prevailing market or regulated prices. Operating
income is derived from revenues and expenses directly associated with each
segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C>
OPERATING REVENUES
Transmission............................................ $ 756.7 $ 758.7 $1,698.7
Distribution............................................ 1,783.1 1,830.7 1,830.7
Oil and Gas............................................. 180.6 205.3 222.2
Other Energy............................................ 389.4 371.5 307.8
Adjustments and Eliminations............................ (474.6) (419.1) (745.6)
------- ------- -------
CONSOLIDATED............................................ $2,635.2 $2,747.1 $3,313.8
======= ======= =======
OPERATING INCOME (LOSS)
Transmission............................................ $ 214.1 $ 209.7 $ 176.9
Distribution............................................ 163.6 128.3 146.4
Oil and Gas............................................. 3.7 30.6 53.6
Other Energy............................................ 19.3 24.1 3.1
Corporate............................................... (10.5) (8.6) (7.0)
------- ------- -------
CONSOLIDATED............................................ $ 390.2 $ 384.1 $ 373.0
======= ======= =======
CAPITAL EXPENDITURES
Transmission............................................ $ 169.1 $ 179.1 $ 137.2
Distribution............................................ 151.8 151.4 117.8
Oil and Gas............................................. 86.8 101.6 95.1
Other Energy............................................ 14.1 15.1 11.2
------- ------- -------
CONSOLIDATED............................................ $ 421.8 $ 447.2 $ 361.3
======= ======= =======
DEPRECIATION & DEPLETION
Transmission............................................ $ 103.8 $ 103.9 $ 97.8
Distribution............................................ 70.9 64.5 62.3
Oil and Gas............................................. 86.9 86.2 73.8
Other Energy............................................ 7.9 7.1 5.9
Adjustments and Eliminations............................ 0.5 -- --
------- ------- -------
CONSOLIDATED............................................ $ 270.0 $ 261.7 $ 239.8
======= ======= =======
</TABLE>
S-17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED REVIEW
Net Income (Loss)
After adjusting for items related to emergence from bankruptcy in November
1995 and other bankruptcy-related and unusual items, as listed below, Columbia
had net income for 1995 of $153.3 million, a decrease of $11.6 million from the
prior year. This decrease was largely due to higher operating costs for Columbia
Transmission that are not being recovered in current rates, higher interest
expense, lower prices received for natural gas produced and reduced oil and gas
production volumes. These factors more than offset the beneficial effect of
higher rates and increased transportation deliveries for the distribution
subsidiaries. For 1995 on an unadjusted basis, Columbia reported a net loss of
$360.7 million, or $7.15 per share, versus net income of $240.6 million, or
$4.76 per share in the prior year. The decrease was primarily caused by the $676
million after-tax effect of bankruptcy-related charges.
BANKRUPTCY-RELATED AND UNUSUAL ITEMS
AFTER-TAX EFFECT ON NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1995 1994
------- ------
($ IN MILLIONS)
<S> <C> <C>
Reported Net Income (Loss).................................... $(360.7) $240.6
Less:
Bankruptcy related items
- Interest and customer settlements........................ (649.4) (22.8)
- Estimated interest costs not recorded on prepetition debt
prior to emergence....................................... 158.0 149.2
- Professional fees and related expenses................... (26.8) (30.1)
- Producer claim adjustment................................ -- (35.4)
Reapplication of SFAS No. 71 for transmission subsidiaries.... 71.6 --
Estimated loss on the proposed sale of the southwest oil and
gas subsidiary............................................. (54.8) --
Transmission regulatory items................................. -- 28.0
IRS settlement................................................ -- 10.3
Miscellaneous unusual items................................... (12.6) (23.5)
------- ------
Total adjustments..................................... (514.0) 75.7
------- ------
Net Income after adjusting for bankruptcy and unusual items... $ 153.3 $164.9
======= ======
</TABLE>
Revenues
For 1995, operating revenues of $2,635.2 million were down $111.9 million
from the prior year due to lower natural gas prices that reduced that portion of
the sales rate that recovers the cost of gas for the distribution segment and
decreased the price received for gas produced by the oil and gas segment.
Mitigating these decreases were higher operating revenues related to additional
retail sales volumes and higher rates in effect for the non-gas portion of the
sales rate for the distribution segment resulting from recent regulatory
settlements which provided $56.3 million higher revenues in 1995. Also improving
the current period was $12.2 million of exit fee payments received by Columbia
Gulf and $10.3 million of surcharges that were offset in expense and had no
effect on operating income. Revenues in 1994 were reduced $35 million for a
customer settlement reserve addition partially offset by $22.1 million of
revenues Columbia Transmission recorded because its average cost of gas from an
earlier period met
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<PAGE> 20
certain competitive tests as well as higher revenues in 1994 for the recovery of
certain transportation costs.
Operating revenues for 1994 decreased $566.7 million, to $2,747.1 million
from 1993 primarily due to the elimination of Columbia Transmission's merchant
function in November 1993 under FERC Order No. 636 ("Order 636"). The reduced
revenues also reflected pipeline exit fees of $130 million recorded in 1993 that
were offset in products purchased expense and had no effect on income. Also
contributing to lower revenues in 1994 was the customer settlement reserve
addition mentioned above, warmer weather for the distribution segment and the
effect of lower prices and reduced gas production. Improving revenues was the
$22.1 million increase for Columbia Transmission's recovery of prior period gas
costs, discussed previously.
Expenses
Operating expenses of $2,245 million for 1995 decreased $118 million from
the prior year. Product purchases were down $163.6 million due to lower gas
prices that reduced the cost of gas purchased for resale offset by additional
purchases necessary to meet increased sales requirements. Operation and
maintenance expense increased $35.2 million in 1995. Partially offsetting this
increase was the effect of a $19.1 million environmental reserve addition in
1994. Increasing current period expenses was $8.3 million higher depreciation
and depletion expense primarily reflecting additional plant in service.
Depletion expense for 1995 was essentially unchanged from 1994 as the impact on
depletion expense from lower depletable revenues, caused by lower natural gas
prices and reduced production, was offset by a higher depletion rate. Also
included in operating expense was $10.3 million of expense that was offset by
revenue surcharges and had no effect on operating income, as mentioned above.
In 1994, operating expenses of $2,363 million were $577.8 million lower
than 1993 primarily reflecting a $593.5 million reduction for products purchased
due to the elimination of Columbia Transmission's merchant function and the 1993
expense associated with pipeline exit fees, mentioned above. The total expense
for 1994 was also lower by comparison due to the effect of certain 1993 items;
namely a $57.5 million writedown for Columbia's investment in Columbia LNG and
environmental accruals of $66.8 million. The effect of these items was more than
offset by a $140 million increase in operating and maintenance expense,
depreciation expense and other taxes in 1994.
Other Income (Deductions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
--------- ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
Interest income and other, net..................... $ (58.2) $ 35.2 $ 7.7
Interest expense and related charges............... (988.4) (14.8) (101.5)
Reorganization items, net.......................... 13.4 (12.3) 8.9
--------- ------ -------
Total Other Income (Deductions).......... $(1,033.2) $ 8.1 $ (84.9)
========= ====== =======
</TABLE>
Other Income (Deductions) reduced income $1,033.2 million in 1995, whereas
in 1994 income was improved $8.1 million. Interest expense and related charges
for 1995 was $973.6 million higher than the prior year due primarily to
recording at emergence approximately $982 million of bankruptcy-related interest
costs on prepetition debt obligations. In 1994, a reserve reduction in interest
charges of $15.8 million was recorded for an Internal Revenue Service ("IRS")
settlement, largely offset by $14.7 million of interest expense based on an
initial interpretation of the claims mediator's report on producer claims
against Columbia Transmission. The remaining decrease in interest expense
primarily reflects other emergence adjustments partially offset by higher
interest costs on contingent taxes and rate refunds. Included in the $93.4
million decrease for Interest income and other, net was $77.8 million in 1995
for the estimated loss on the proposed sale of Columbia Development and an
income improvement in 1994 for a $21 million reserve reversal for carrying
charges on exchange gas. Reorganization items, net increased $25.7 million over
1994 due to $40 million recorded in 1994 for the principal portion of the
producer claim
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<PAGE> 21
reserve, mentioned previously, and $30.1 million higher interest earned in 1995
on cash accumulated during the Chapter 11 proceedings. Tempering these
improvements were $44 million for bankruptcy-related emergence adjustments and
additional expense for professional fees and related charges.
Other Income (Deductions) increased income in 1994 by $8.1 million compared
to a decrease to income of $84.9 million in 1993. The $86.7 million change in
Interest expense and related charges primarily reflected $74.5 million of
interest expense recorded in 1993 for the IRS settlement and the subsequent
$15.8 million reduction in this reserve in 1994. The $14.7 million of interest
expense associated with the producer claims also contributed to the change.
Interest income and other, net increased $27.5 million between 1994 and 1993
primarily for the $21 million reserve adjustment recorded in 1994 for carrying
charges, mentioned previously, as well as a $5.4 million reduction to income in
1993 for a pipeline partnership reserve. The 1994 reserve for producer claims of
$40 million and higher professional fees and related charges led to the $21.2
million higher expense for Reorganization items, net that was only partially
offset by increased interest earned on accumulated cash.
Income Taxes
Income tax expense in 1995 decreased $356.7 million when compared to the
prior year and increased $10.1 million when comparing 1994 to the year earlier.
These changes were caused principally by changes in pre-tax book income.
Extraordinary Items
Columbia recorded an extraordinary after-tax gain of $71.6 million for the
cumulative adjustment for reapplication of SFAS No. 71 for Columbia Transmission
and Columbia Gulf. The impact of the reapplication results in the recognition of
regulatory assets for certain costs previously expensed which are expected to be
recovered in rates, mainly environmental and postemployment benefit costs, and
recording revenues and expenses in a manner to reflect the ratemaking process.
Management believes that cost of service rate concepts will continue to be
applicable to Columbia's FERC-regulated transmission subsidiaries for the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash From Operations
Cash paid to producers and creditors on emergence from bankruptcy resulted
in a deficit of $807.4 million in net cash from operations for 1995. Included in
cash from operations, was approximately $1.45 billion of cash paid on emergence
to satisfy claims against Columbia and Columbia Transmission. After adjusting
for emergence payments, net cash from operations was $73.1 million higher than
1994 primarily reflecting a 1994 payment for Order 500/528 ("Order 500") refunds
to nonaffiliated customers of $84.6 million, higher rates in effect for the
distribution segment and increased throughput. Over-recovery of gas costs in
1994 for the distribution segment and lower prices received for oil and gas
production in 1995 partially offset this improvement as well as the effect in
both periods of supplier refunds and payments made by Columbia Transmission.
In 1994 net cash from operations of $572.8 million decreased $277.6 million
from the year earlier. The decrease was largely due to the 1994 Order 500
refunds made by Columbia Transmission, mentioned above, exit fee payments made
in 1994, lower oil and gas prices and gas production, and warmer weather in late
1994. Cash from operations was higher in 1993 due to refunds received from
certain pipelines and the sale of Columbia Transmission's gas in underground
storage, resulting from the elimination of the merchant function.
A significant portion of Columbia's operations are subject to seasonal
fluctuations in cash flow. During the heating season, which is essentially from
November through March, cash receipts from sales and transportation services
typically exceed cash requirements. Conversely during the remainder of the
S-20
<PAGE> 22
year this excess cash, together with external financing as needed, is typically
used to purchase gas to place in storage for heating season deliveries, make
capital improvements in plant, perform necessary maintenance of the facilities
and expand service into new areas.
Financing Activities
Prior to the emergence date, Columbia and its subsidiaries satisfied their
liquidity requirements through internally generated funds, since payments were
not made on Columbia's outstanding indebtedness. Columbia and Columbia
Transmission each maintained a debtor-in-possession facility of up to $25
million strictly for the issuance of letters of credit. Upon emergence from
bankruptcy, Columbia issued $2 billion of debentures and approximately $200
million each of Series B-DECS and Series A-Preferred Stock to holders of
Columbia's pre-bankruptcy debt securities. The $2.4 billion distribution of
securities, bank borrowings under the Credit Facility as discussed below, and
cash on hand were used to settle claims in accordance with approved plans of
reorganization. Maturities of the new debentures range from 5 to 30 years with
an average cost of approximately 7.03%. In early February 1996, Columbia issued
a notice of redemption to redeem the Series B-DECS and Series A-Preferred Stock
on February 26, 1996. Temporary funding for the redemption will be provided by
borrowings under the Credit Facility. It is anticipated that permanent funding
will be provided with funds generated from the planned sale of Columbia
Development and from the Offerings as described herein. In addition, Columbia
will receive an income tax refund of about $270 million expected to be received
in the second quarter of 1996.
Columbia maintains the five-year Credit Facility totaling $1 billion.
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 provides for the issuance of up to $100
million of letters of credit. As of December 31, 1995, Columbia had $339 million
of borrowings and $59 million of letters of credit outstanding under the Credit
Facility. It is expected that borrowings under the Credit Facility will
temporarily increase to approximately $600 million in order to effect the
above-mentioned redemption of the Series B-DECS and Series A-Preferred Stock.
On November 22, 1995, Columbia filed a shelf registration with the SEC
requesting authorization to issue up to $1 billion in aggregate of debentures,
common stock or preferred stock in one or more series. In February 1996,
Columbia announced its intention to use a combination of treasury stock and the
issuance of new common stock, totaling approximately 5 million shares of common
stock (excluding the Underwriters' over-allotment options), yielding net
proceeds of approximately $214.1 million, for the purpose of reducing the
borrowings incurred under the Credit Facility for the redemption of Series B-
DECS and Series A-Preferred Stock. Columbia believes that future ongoing cash
requirements will be met with internally generated funds, amounts available
under the Credit Facility and additional potential drawdowns under the shelf
registration, although only the common stock sale discussed above is currently
planned.
Capital Expenditures
The table below reflects actual capital expenditures by segment for 1994
and 1995 and an estimate for 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
------------------
1996 1995 1994
---- ---- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Transmission.................................................... $133 $169 $179
Distribution.................................................... 160 152 151
Oil and Gas..................................................... 21 87 102
Other Energy.................................................... 13 14 15
---- ---- ----
Total................................................. $327 $422 $447
==== ==== ====
</TABLE>
S-21
<PAGE> 23
For 1995 Columbia's capital expenditures were $422 million, a decrease of
$25 million from 1994. The largest portion of the transmission subsidiaries'
investments was made to assure the safety and reliability of the pipelines.
Distribution's program included investments to extend service to new areas and
develop future markets, as well as expenditures required to ensure safe and
reliable service and improved service where warranted. The capital expenditures
for the oil and gas segment decreased $15 million from the 1994 level reflecting
curtailments due in large part to depressed energy prices.
Capital expenditures for 1996 are expected to decrease $95 million to $327
million. This reflects $66 million of lower expenditures for the oil and gas
segment as a result of the proposed sale in 1996 of Columbia Development and
reduced exploration in the Appalachian area. Ongoing replacement and upgrading
of the distribution and pipeline facilities of approximately $175 million will
represent the largest portion of the 1996 program. Columbia Transmission also
anticipates expenditures of approximately $9 million in 1996 for its expansion
project.
Streamlining of Organization
Columbia is in the process of a top down review of its management structure
and operations to streamline the organization structure and improve customer
service. Columbia is considering various options including cost reduction
initiatives and the configuration of and location of its management. No
decisions have been made as yet and it is too early to estimate possible costs
or potential savings which might result from the review.
TRANSMISSION OPERATIONS
Marketing Initiatives
Early in 1995, Columbia Transmission announced plans to expand its pipeline
and storage capacity to serve the increasing needs of customers in its eastern
market area. Columbia Transmission has signed 15-year agreements with 23
customers for approximately 500,000 Mcf/d of additional firm service to be
phased in over a three-year period commencing November 1, 1997. Approximately
82% of the increased firm agreements are for storage service and related
transportation from storage to customers during the winter periods. The company
will make a filing with the FERC in February 1996 seeking authorization for this
project. This additional capacity, once fully phased in, is projected to
increase total firm service for the transmission segment by approximately 7.5%.
The cost to construct the facilities is estimated at approximately $400 million.
Other significant marketing developments during 1995 include:
- Columbia Gulf began transporting approximately 10,000 Mcf/d to a natural
gas distribution company near Nashville, Tennessee in November 1995.
- Columbia Transmission filed for FERC authorization to provide
approximately 23,000 Mcf/d of firm transportation service to a
cogeneration facility in Brandywine, Maryland. Approval is expected in
March 1996 and service is anticipated to commence in the fall of 1996.
- In November 1995, Columbia Transmission initiated 3,100 Mcf/d of firm
transportation service to a plant in Covington, Virginia, and
approximately 500 Mcf/d to a facility in Alderson, West Virginia.
- Columbia Transmission constructed additional facilities at its
Chesapeake, Virginia, LNG facility to provide an additional 33,650 Mcf/d
of peak deliveries commencing November 1, 1995.
Capital Expenditure Program
The transmission segment's 1995 capital expenditure program of
approximately $169 million and anticipated 1996 capital expenditures of $133
million, which includes $9 million for the major expansion project mentioned
above, reflect the segment's continued commitment to maintaining its competitive
position by modernizing and upgrading facilities. The commitment will contribute
to a safe, reliable and
S-22
<PAGE> 24
efficient pipeline system, which conforms to all pipeline safety regulations.
Total expenditures in this area are expected to approximate $125 million a year.
Regulatory Matters
Customer Settlement. Incorporated in the plan of reorganization ("Plan")
for Columbia Transmission was a settlement by Columbia Transmission and Columbia
Gulf with firm customers, state regulatory agencies and consumer groups
("Customer Settlement") that resolved virtually all outstanding Order 636
transition costs and rate and bankruptcy related matters that were pending
before the FERC. The FERC approved the settlement on June 15, 1995 and it was
implemented upon Columbia Transmission's emergence from bankruptcy. Generally,
the settlement defined Columbia Transmission's and Columbia Gulf's refund
obligations to their customers in certain pending regulatory proceedings and
established Columbia Transmission's ability to recover certain costs associated
with the restructuring of its services under Order 636. The Customer Settlement
provided for payment to Columbia Transmission's customers of an estimated $170
million in refunds and recovery of $250 million in costs from Columbia
Transmission's customers. The refunds paid under the Customer Settlement
resolved all issues relating to the flowthrough of customer refunds involved in
the bankruptcy reorganization, Columbia Transmission's collection of gas
purchase costs, its own Order 500 costs and gas inventory charges, Columbia
Transmission's ability to flowthrough upstream Order 500 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.
Upstream Pipeline Contracts. In early 1995, Columbia Transmission made its
annual filing with the FERC to recover costs it continues to incur under
transportation contracts with upstream pipelines. The filing provided for
recovery of costs that 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 incurred during 1994. This underrecovery related, in part,
to $39 million paid by Columbia Transmission to Columbia Gulf under the
provisions of the cost-of-service contract between the two companies for the
period through October 31, 1994, the date on which the agreement was terminated.
Various parties protested Columbia Transmission's filing and challenged, among
other things, Columbia Transmission's ability to recover the costs attributable
to Columbia Gulf. A technical conference among the parties was held at the FERC
in December 1995, and Columbia Transmission, Columbia Gulf and intervenors filed
comments and reply comments with the FERC in support of their positions.
Columbia Transmission's General Rate Filing. On August 1, 1995, Columbia
Transmission filed with the FERC its first general rate case since 1991,
requesting an increase in annual revenues of approximately $147 million. In
addition to seeking a reasonable return on additional plant investment and
recovering general increases in expenses, the filing also requested:
- recovery over a five-year period of Columbia Transmission's net
investment in gathering facilities and substantially all of its net
investment in gas processing facilities (approximately $60 million) that
were "stranded" as a result of the implementation of Order 636 (see
"-- Oil and Gas Operations -- Gathering Facilities");
- an increase in certain depreciation rates;
- recovery of environmental expenses that are anticipated to be incurred as
a result of recent settlements with the U.S. Environmental Protection
Agency ("EPA") and certain state environmental regulatory agencies; and
- certain tariff changes relating to operational and service issues.
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
S-23
<PAGE> 25
August 30, 1995, the FERC accepted the filing subject to refund, directed that
certain operational and tariff changes be considered at a technical conference,
suspended implementation of the increased rates until February 1, 1996, and
directed that certain revisions be made to Columbia Transmission's requested
rates. In an effort to reach a timely resolution of the issues, Columbia
Transmission agreed that it would not implement 25% of the rate increase for a
three month period beginning February 1996, because settlement negotiations
currently underway were continuing at a satisfactory pace at year-end 1995. On
January 11, 1996, a procedural schedule was approved which established a hearing
date of November 12, 1996. Environmental issues were removed from the normal
procedural schedule and will be pursued separately from the other rate case
issues.
Columbia Gulf's Rate Filing. In 1994, Columbia Gulf filed a general rate
case with the FERC that was placed into effect, subject to refund, on November
1, 1994. The rate case reflected the termination of Columbia Gulf's
long-standing transportation contract with Columbia Transmission and sought the
recovery of increased costs since its last rate case. A unanimous settlement
providing for $8.4 million of additional annual revenues was reached and
approved by the FERC on July 18, 1995.
Columbia Gulf Show Cause Proceeding. In its September 1993 order on
Columbia Transmission's and Columbia Gulf's Order 636 compliance filings, the
FERC initiated a proceeding concerning Columbia Gulf's transportation service to
Columbia Transmission. It directed Columbia Gulf to show cause as to why it had
not filed for the FERC's abandonment authorization to reduce capacity on its
mainline facilities. In a response to the FERC in late 1993, Columbia Gulf
asserted that no abandonment filing was required. During 1994 and early 1995,
Columbia Transmission and Columbia Gulf responded to information requests from
the FERC's staff. Management continues to believe that an abandonment filing was
not necessary; however, the ultimate outcome of this issue is uncertain at this
time.
Restructuring Proceedings. Numerous parties filed with the United States
Court of Appeals for the District of Columbia ("Circuit Court") for review of
Columbia Transmission's and Columbia Gulf's restructuring proceedings under
Order 636. Under the terms of the Customer Settlement, the transmission
subsidiaries will have no refund obligations in the event the appeals of the
FERC order approving the restructuring are successful. As discussed above, the
Customer Settlement became effective as a result of the United States Bankruptcy
Court for the District of Delaware ("Bankruptcy Court") approving Columbia
Transmission's Plan. On December 18, 1995, Columbia Transmission filed a motion
with the Circuit Court to dismiss certain of the petitions for review and to
sever certain issues as moot in accordance with the terms of the Customer
Settlement.
Appeals of Order 636. Numerous parties have filed petitions for review of
Order 636 with the Circuit Court. Upon review, Order 636 may be modified or
reversed in whole or in part; however, at this time it is impossible to predict
the outcome. On June 12, 1995, the FERC filed its brief in support of Order 636
with the Court. Oral argument is currently scheduled for February 1996. Under
the terms of the FERC-approved Customer Settlement, Columbia Transmission and
Columbia Gulf will have no refund obligation in the event the appeals are
successful. Further, the Customer Settlement states that the transmission
subsidiaries can adjust rates prospectively to take into account any change or
modifications as a result of a court remand of Order 636.
Environmental Matters
Columbia Transmission and Columbia Gulf continue their reviews of
compliance with existing environmental standards, including reviews of past
operational activities, identification of potential problems through site
reviews and the formulation of remediation programs where necessary. The
progress of Columbia Transmission's efforts in the last year was limited by a
1995 EPA Administrative Order by Consent ("AOC") that requires Columbia
Transmission to obtain prior EPA approval of its investigation, characterization
and remediation efforts. Progress was further limited because of the more than
19,000 miles of pipeline that Columbia Transmission operates, the exceptionally
large number of sites at which it conducts or has conducted operations, and the
long time period over which operations have been conducted.
S-24
<PAGE> 26
Management had previously estimated, based on studies conducted since 1990
by independent consultants, that site investigation, characterization and
remediation costs might 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 evaluations. In 1994, in anticipation of
implementation of the AOC, Columbia Transmission commissioned a new study ("1995
Study") to reflect costs that might arise from the EPA's recommendations with
respect to site assessment and remediation under the AOC and to reflect
information gathered since the previous studies. The 1995 Study was structured
to be a comprehensive review of all environmental issues currently known to
management. The 1995 Study estimated that the cost of Columbia Transmission's
environmental program under the AOC may range between $204 million and $319
million over the life of the program. This estimate was based on a limited
amount of actual data available and utilized a variety of assumptions,
including: the number of sites to be investigated, characterized and remediated;
the location, nature and levels of wastes that will be treated at or disposed of
from each site; the amount of time and nature of equipment required for such
activities; the appropriate remediation levels and the technology to be
utilized; and the frequency with which groundwater contamination might be
discovered at sites requiring remediation. The 1995 Study did not include
previously identified costs, aggregating approximately $50 million, for which
Columbia Transmission already had reasonable estimates.
Following an extensive review of bases utilized and assumptions contained
in the 1995 Study, management has concluded that only those site investigation,
characterization and remediation costs currently known and determinable can be
considered "probable and reasonably estimable" under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies" ("SFAS No. 5"). This
conclusion was based upon the fact that the actual characterization and
remediation experience of Columbia Transmission was extremely limited and
information on environmental conditions at many of the sites or former sites of
operations is not yet available. The nature and condition of such sites varies
greatly, and any change in any of the numerous assumptions used in the 1995
Study may materially alter the estimated range of costs, with no assurance that
actual costs will not exceed amounts specified in the range. Columbia
Transmission is unable, at this time, to accurately estimate the timeframe and
potential costs of all site screening, characterization and remediation. As
Columbia Transmission continues its program pursuant to the AOC, additional
costs will become probable and reasonably estimable and will be recorded.
Moreover, in time, management expects that, as additional work is performed and
more facts become available, it will then be able to develop a probable and
reasonable estimate for the entire program or a major portion thereof consistent
with the SEC's Accounting Bulletin No. 92 and SFAS No. 5.
Based upon its current review, Columbia Transmission estimates the future
costs of investigating, characterizing, and remediating sites upon which it has
adequate information will be approximately $136.6 million. This resulted in the
recognition of an additional liability of approximately $21 million in the
fourth quarter of 1995. 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. These expenditures will be
charged against Columbia's previously recorded liability. Management does not
believe that Columbia Transmission's environmental expenditures will have a
material adverse effect on Columbia's operations, liquidity or financial
position, based on known facts and existing laws and regulations and the long
period over which expenditures will be made. In addition, as a result of
reapplying SFAS No. 71, Columbia Transmission has recorded a regulatory asset to
the extent environmental expenditures are expected to be recovered through
rates, and therefore, environmental expenditures will have less potential impact
upon Columbia's financial results.
In addition, predecessor companies of Columbia Transmission may have been
involved in the operation of manufactured gas plants. When such plants were
abandoned, material used and created in the process was sometimes buried at the
site. Columbia Transmission is unable at this time to determine if it will
become liable for any characterization or remediation costs at such sites.
S-25
<PAGE> 27
Clean Air Act Amendments of 1990
In 1995, Columbia Transmission completed the majority of the equipment
installations required by Title I of the CAA-90. Until regulations are
finalized, the capital expenditures necessary to comply fully with CAA-90 cannot
be estimated. Management anticipates that capital expenditures made in
compliance with CAA-90 will be recoverable through the rate-making process.
Adoption of SFAS No. 71
As a result of emergence from bankruptcy and significant industry changes
culminating with Order 636, the operating experience gained since implementation
of Order 636, 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 reapplied SFAS No. 71 upon
Columbia Transmission's emergence from bankruptcy. Management believes that cost
of service rate concepts will continue to be applicable to Columbia's
FERC-regulated transmission subsidiaries for the foreseeable future. The
reapplication of SFAS No. 71 results in the recognition of regulatory assets for
certain costs previously expensed, which are expected to be recovered in rates,
mainly environmental and postemployment benefit costs, and recording revenues
and expenses in a manner to reflect the ratemaking process. As a result of
reapplying SFAS No. 71, an extraordinary gain of $71.6 million was recorded in
1995.
Volumes
Throughput for Columbia Transmission consists of transportation for local
distribution companies and other customers in its market area and for storage
services. Columbia Gulf's mainline transportation service extends from Louisiana
to West Virginia. Short-haul transportation service is primarily from the Gulf
of Mexico to Rayne, Louisiana. Total 1995 throughput for the transmission
subsidiaries of 1,336.2 Bcf, increased 64.2 Bcf over the prior year, due largely
to increased demand stemming from the colder weather during the last quarter of
1995 and increased summer-related requirements from cogeneration facilities.
Total throughput for 1994 was 1,272 Bcf, a decrease of 83.9 Bcf from 1993. This
decrease reflected a timing change for the recognition of transportation for
storage activity and reduced short-haul transportation needed by customers for
spot purchases.
In 1995, market area transportation increased 67.5 Bcf over 1994 largely
due to colder weather and increased deliveries to cogeneration facilities
attributable to unseasonably warm weather during the summer. Market area
transportation increased 142.7 Bcf in 1994 over 1993 due to customers switching
from sales to transportation services as a result of the implementation of Order
636, partially offset by a timing change in the recognition of market area
transportation for storage activity.
Mainline transportation service of 605 Bcf, up 14.7 Bcf over 1994,
reflected the impact of colder weather in 1995 causing customers to increase
their utilization of Columbia Gulf's transportation services. Columbia Gulf's
mainline transportation service increased in 1994 by 10.4 Bcf over 1993
primarily reflecting additional transportation service for customers to move gas
to Columbia Transmission's storage fields and to meet their supply requirements.
Short-haul transportation of 221.4 Bcf in 1995 was essentially unchanged
from 1994 as the impact of customers using facilities other than Columbia Gulf's
to transport their gas requirements was offset by colder weather together with
additional natural gas supplies available for transportation and increased
marketing efforts. In 1994, short-haul transportation decreased from 1993 by
32.7 Bcf due to reduced customer requirements.
Under Order 636, a significant portion of the transmission segment's fixed
costs are being recovered through a monthly demand charge. As a result,
variations in throughput have little effect on income.
S-26
<PAGE> 28
Operating Revenues
The transmission segment's 1995 operating revenues of $756.7 million were
relatively unchanged from 1994. After adjusting for unusual items, operating
revenues increased $3.1 million reflecting higher demand revenues attributable
to additional short-term transportation agreements and the impact of higher
throughput. The unusual items include Columbia Gulf in 1995 recording exit fee
revenues of $12.2 million, most of which were associated with its pipeline
partnerships. Revenues in 1994 were higher for the recovery of certain
transportation and other costs, and $22.1 million of additional revenues were
recorded by Columbia Transmission because its sales rate from an earlier period
met certain competitive tests. Reducing revenues in 1994 was a customer
settlement reserve addition of $35 million.
Operating revenues in 1994 of $758.7 million were $940 million lower than
1993 due largely to eliminating the merchant function. This decrease also
included the effect of a $35 million reserve established in 1994 for various
customer and regulatory settlements and a lower cost-of-service recovery level
for Columbia Transmission reflecting its restructuring under Order 636.
Operating Income
Operating income for 1995 of $214.1 million, increased $4.4 million,
primarily reflecting $6.4 million in lower operating expenses. Included in
operating expense in 1994 were environmental accruals of approximately $19.1
million for Columbia Gulf and $8 million of severance and relocation expense.
Partially offsetting 1994's higher expenses is the impact of rising operating
costs in 1995 that exceed recovery through current rates. In August 1995,
Columbia Transmission made its first rate filing since 1991 to recover, among
other things, these increasing costs.
Operating income for 1994 of $209.7 million increased $32.8 million over
1993. The $940 million decrease in revenues was offset by a $972.8 million
decrease in operating expenses. A significant portion of this decrease was
attributable to reduced gas purchases due to the elimination of Columbia
Transmission's merchant function in 1994. Also contributing to this decrease was
a $57.5 million writedown in the investment in the Cove Point LNG facility in
1993 along with a $66.8 million 1993 environmental reserve addition.
STATEMENTS OF OPERATING INCOME FROM TRANSMISSION OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
------ ------ --------
($ IN MILLIONS)
<S> <C> <C> <C>
OPERATING REVENUES
Transportation revenues..................................... $612.7 $650.7 $ 549.7
Storage revenues............................................ 139.3 141.7 125.3
Other revenues.............................................. 4.7 (33.7) 1,023.7
------ ------ -------
Total Operating Revenues...................................... 756.7 758.7 1,698.7
------ ------ -------
OPERATING EXPENSES
Operation and maintenance................................... 388.0 391.1 1,310.3
Depreciation................................................ 103.8 103.9 97.8
Other taxes................................................. 50.8 54.0 56.2
Writedown of investment in Columbia LNG..................... -- -- 57.5
------ ------ -------
Total Operating Expenses...................................... 542.6 549.0 1,521.8
------ ------ -------
OPERATING INCOME.............................................. $214.1 $209.7 $ 176.9
====== ====== =======
</TABLE>
S-27
<PAGE> 29
TRANSMISSION OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES.............. $ 169.1 $ 179.1 $ 137.2 $ 114.2 $ 152.9
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area.................. 1,106.1 1,038.6 895.9 909.0 849.9
Columbia Gulf
Main-line.................... 605.0 590.3 579.9 574.3 535.4
Short-haul................... 221.4 225.4 258.1 258.3 267.0
Intrasegment eliminations....... (596.3) (583.2) (561.7) (563.3) (535.4)
------- ------- ------- -------
Total Transportation.............. 1,336.2 1,271.1 1,172.2 1,178.3 1,116.9
Sales............................. -- 0.9 183.7 196.0 112.6
------- ------- ------- -------
Total Throughput.................. 1,336.2 1,272.0 1,355.9 1,374.3 1,229.5
======= ======= ======= =======
</TABLE>
DISTRIBUTION OPERATIONS
Market Conditions
The continued strong economy in Distribution's service area and the success
of its industrial marketing efforts resulted in a 6% increase in industrial
throughput during 1995. Increased production at manufacturing facilities
(specifically, steel, paper, oil and chemicals) and increased demand from power
generation facilities all contributed to the increase. Similar to previous
years, Distribution experienced nominal customer growth and added approximately
34,900 net residential and commercial customers in 1995, a 1.8% increase. Also
in 1995, a large industrial customer in Virginia signed an agreement with
Commonwealth Gas Services, Inc. ("Commonwealth Services"), Columbia's local
distribution company in Virginia, to service a new 50 megawatt gas-fired
cogeneration plant. Estimated gas load from the facility is expected to exceed 3
Bcf per year.
As a result of a continuing market assessment, Distribution concluded that
the future demand for natural gas vehicles ("NGVs") will not be as great as
previously thought and therefore reduced its previously announced five-year
commitment to invest $38 million in its NGV program to $10 million. Distribution
has decided to eliminate future capital expenditures, except for NGV fueling
stations currently under construction, and is now focusing its NGV efforts on
opportunities within its own fleet and more fully developing NGV fueling
stations that are currently operational. Distribution participated in the
completion of 28 new NGV fueling stations during 1995.
Beginning in 1995, Columbia Gas of Ohio, Inc. ("Columbia of Ohio")
initiated a commercial water heater financing program designed to assist food
service operators in purchasing supplemental gas water heaters. The program
supports Distribution's entry into a market that has predominantly been served
by electricity. Financing is provided by third parties and the program is being
promoted through contractors. This complements the residential water heater
replacement program that was introduced in Ohio in 1994. Both programs are being
expanded to other Distribution affiliates in 1996.
Distribution continues to promote the use of environmentally friendly and
cost-efficient natural gas cooling equipment by commercial and industrial
customers. In 1995, new sales of gas cooling equipment in Distribution's
territory totaled 4,500 refrigerant tons which added 60,000 Mcf of annual gas
load. In addition, Distribution continues its support of the "Triathlon" heat
pump, for residential natural gas heating and cooling. Distribution is among the
leading gas utilities in the nation in number of installations.
S-28
<PAGE> 30
The Clean Air Act Amendments of 1990, which require many electric power
generating facilities to reduce emissions by installing expensive exhaust
scrubbers or using cleaner burning fuels, also has created new marketing
opportunities for natural gas.
Competition
Industrial customers have been able to buy natural gas on the spot market
and transport it through transmission and distribution facilities for more than
a decade and third party sales to commercial users are becoming common as gas
brokering reaches smaller users. Market and regulatory forces are causing
Distribution to evaluate the extent to which it will unbundle the commodity gas
sales portion of its service from the transportation portion of such service to
all customers. This unbundling would increase competition among gas providers
and offer choices to customers. Distribution's primary role in this evolving
environment will be to transport gas and provide related services while the
regulatory approvals needed to compete with marketers in brokering gas for
profit are yet to be determined. The current bundled sales service margins are
similar to transportation service margins; therefore, discontinuing the current
sales service is not expected to significantly impact earnings.
Approximately 40 percent of Distribution's industrial and commercial
throughput, or 125 Bcf annually, is susceptible to bypass as these customers are
geographically located close to other natural gas pipelines. With the use of
innovative rate and capacity release strategies and the negotiation of unique
customer arrangements, substantial inroads by other natural gas pipelines have
been avoided to date. As a result of these actions, the current estimated
throughput exposure has been reduced to approximately 40 Bcf, representing $10
to $15 million in annual net revenues.
Distribution competes with 17 investor-owned electric utilities throughout
its five state service area as well as numerous municipal and cooperative
electric utilities. Competition is generally strong in the residential and
commercial markets of Kentucky, southern Ohio and southwest Pennsylvania where
electric rates are driven by low-cost coal-fired generation. Areas such as
northern Ohio and Pittsburgh, Pennsylvania have less competitive electric rates
due to the use of higher-cost nuclear-generated power.
Federal and state regulators are currently moving the electric industry
toward a more competitive environment. Customers may ultimately be able to
purchase electricity from sources other than their local utility, which would be
required to transport the electricity purchased. In response to the forces of
competition, these electric utilities are positioning themselves to be lower
cost suppliers than they have been in the past. Although the timing and overall
financial impact of these initiatives are uncertain at this time, they will
undoubtedly increase price competition for the gas industry.
Regulatory Matters
Rate Case Activity. Rate changes during 1995 and early 1996 resulted in
$22.8 million of annual revenue increases to recover higher operating costs. In
all jurisdictions, Distribution also continued its pursuit of regulatory
initiatives in order to more effectively participate in today's competitive
energy market. In each of its service areas, Distribution has formed a
regulatory collaborative process ("Collaborative") that provides for a more
cooperative environment among the many diverse and interested parties in its
rate cases, thereby possibly avoiding lengthy and costly litigation.
In late 1995, Columbia Gas of Pennsylvania, Inc. ("Columbia of
Pennsylvania") reached a settlement on a general rate case filed in September
1995. The settlement includes an annual revenue increase of $12.5 million as
well as a number of changes that allow Columbia of Pennsylvania to provide
additional services to its customers. Columbia of Pennsylvania received
regulatory approval of the settlement on January 12, 1996, with new rates
effective the same day, over five months sooner than originally anticipated.
Columbia Gas of Maryland, Inc. ("Columbia of Maryland") filed a rate case
in March 1995. The Maryland Public Service Commission approved an annual revenue
increase of $900,000, effective October 23, 1995.
S-29
<PAGE> 31
As provided in its 1994 general rate case settlement, Columbia Gas of
Kentucky, Inc. increased annual revenues $2.25 million, effective October 1,
1995, through the implementation of the second phase of a three-step increase.
The third step, which is expected to increase revenues by $1.5 million, will go
into effect October 1, 1996.
In Virginia, Commonwealth Services filed a general rate case in May 1995,
with new rates effective October 13, 1995. A settlement of the issues in this
case was reached with all parties on January 17, 1996. The settlement includes
an annual revenue increase of approximately $7.1 million and provides for a
separate proceeding to consider gas supply and other incentive proposals. The
settlement was presented to the Hearing Examiner on January 18, 1996, and
Commonwealth Services expects State Corporation Commission approval by mid-1996.
Columbia of Maryland currently plans to file for an increase in base rates
in November 1996 with new rates effective June 1997. Columbia of Ohio's 1994
rate case settlement provided for a re-opener, to provide the opportunity to
recover higher operating costs and additional plant investments, with new rates
effective May 1996. Columbia of Ohio has initiated discussions with its Ohio
Collaborative regarding an increase.
Regulatory Initiatives. Distribution continues to pursue regulatory
initiatives designed to bring about improvements to shareholders and customers.
These initiatives focus on maximizing efficiencies and customer choice and
releasing temporarily unused supply and pipeline capacity by continually
monitoring current market demand. Some of the incentive rate mechanisms
Distribution is pursuing include:
- off-system sales where Distribution shares income with its customers;
- supply management incentive programs that compensate Distribution for
purchasing gas at a cost that is lower than set prices reported in
major indices; and
- programs that allow Distribution to share income obtained by releasing
temporarily unused pipeline capacity with its customers.
Distribution continues to support pilot transportation programs that
provide small customers, including residential, the opportunity to arrange their
own gas purchases from marketers or producers while using Distribution's
facilities for the transportation. It is also working with legislatures and
regulatory commissions to streamline the related regulatory process.
In Distribution's various service areas, some of these activities have
received regulatory approval and are being implemented. In other jurisdictions
Distribution is still in the process of negotiating the various proposals with
the regulatory commissions and other interested parties.
In Ohio, a 1994 settlement allowed Columbia of Ohio to test a weather
normalization adjustment ("WNA") to alleviate the impact of unusual weather on
customers' bills. As a result of some customer concerns with the program,
Columbia of Ohio agreed to several modifications in February 1995. During the
second quarter, Columbia of Ohio met with interested parties to review the
results of the WNA program, and it was jointly determined that the pilot program
should be suspended. Although it was generally agreed that WNA refunds were not
appropriate, certain local governments and consumer groups continue to press for
the refund of WNA revenues collected during the 1994-1995 winter. Columbia of
Ohio did not pursue a WNA for the 1995-1996 winter.
Columbia of Ohio is permitted to include in its plant investment
post-in-service carrying charges on those eligible plant investments which are
placed in service between December 31, 1990, and December 31, 1994. Columbia of
Ohio is currently recovering plant investment post-in-service carrying charges
for 1991, 1992 and 1993 in rates. Subject to regulatory approval, the carrying
charges are also authorized to be included in base rates in subsequent rate
filings. These carrying charges are subject to a net income limitation, as
determined by the regulatory commission, through 1997.
S-30
<PAGE> 32
Project Customer Initiatives
Distribution is continuing to implement phases of its comprehensive
initiative termed "Project Customer", which is designed to reshape, streamline,
and enhance processes involved in delivering customer service. Columbia of Ohio
recently announced the establishment of three centralized customer service
centers, eliminating 26 smaller offices. The centers are designed to make
quality service more accessible and reliable for customers. As a result of this
initiative, Columbia of Ohio recorded a liability of $3.8 million in the fourth
quarter, representing salary and related severance benefit costs for 136
employees. A similar reorganization is expected in early 1996 for Columbia of
Pennsylvania and Columbia of Maryland with an estimated liability of $1.6
million, representing salary and related severance benefit costs for 71
employees. Efforts to restructure corporate services and other Project Customer
initiatives, that began in late 1993 and 1994, are continuing to be implemented.
Capital Expenditures
In addition to maintaining and upgrading facilities to assure safe,
reliable and efficient operation, Distribution's 1995 capital expenditure
program of $152 million, essentially the same as 1994, included expenditures for
extending service to new areas. The 1996 capital expenditure program amounts to
approximately $160 million, including $60 million for new business development
and $79 million for replacement and betterment projects.
Gas Supply
To ensure a reliable supply of gas to its customers, Distribution contracts
for both the purchase of gas and the interstate pipeline and storage capacity
necessary to transport and store the commodity. Since natural gas is readily
available and in ample supply, Distribution enters into primarily short-term
contracts for natural gas requirements. In 1995, Distribution purchased about
80% of its supply under contracts with term lengths of one year or less. Also,
Distribution maintains longterm contracts for firm transportation capacity to
serve its core market requirements.
To meet its customers' needs during the heating season, Distribution has
developed a delivery system consisting of storage services, 50 percent; firm
transportation capacity on interstate pipelines, 49 percent; and peaking service
for the coldest days, 1 percent. This favorable mix of storage and
transportation permits efficient annual utilization of Distribution's firm
transportation capacity and provides a high level of reliability.
In 1995, Distribution contracted for additional interstate pipeline
capacity to serve growing areas that have become capacity constrained. In
addition, Distribution has added peaking contracts that provide nearly 230,000
Mcf/d of additional capacity to serve heavy customer demand on the coldest
winter days.
Environmental Matters
Distribution's primary environmental issues relate to 14 former
manufactured gas plant sites. Investigations or remedial activities are
currently underway at five sites and additional site investigations may be
required at some of the remaining sites. 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.
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 Responsible Party by virtue of trash
hauling services provided to Columbia of Pennsylvania's service center by the
city of Hanover, Pennsylvania. Columbia of Pennsylvania believes, based on a
preliminary investigation of the facts, that involvement at this site, if any,
will not have a material impact on Columbia.
S-31
<PAGE> 33
Volumes
Distribution's 1995 throughput of 546.6 Bcf reflects an increase of 33.6
Bcf over 1994. Higher transportation deliveries, off-system sales, continued
customer growth and colder weather contributed to the increase. Transportation
deliveries were 23.4 Bcf higher due to strong economic conditions in
Distribution's service area while the 7.2 Bcf increase in off-system sales
reflects recent changes in natural gas industry regulations which have generated
opportunities to buy and sell gas in the open market. Under current regulatory
treatment traditional customers are given the benefit of most of the income
derived from off-system sales.
Distribution's 1994 throughput of 513 Bcf reflected a 3.2 Bcf increase over
1993. Transportation deliveries of 232.5 Bcf were 15 bcf higher largely due to
increased industrial demand in Ohio, Virginia and Kentucky as well as industrial
customers shifting from tariff sales to transportation services in order to
reduce their overall energy costs. The transportation improvement was largely
offset by an 11.8 Bcf sales decline due to nearly 3% warmer weather.
Net Revenues
Net revenues for 1995 of $821.5 million were up $86.7 million due to higher
rates that generated additional revenues of $56.3 million and improved
transportation deliveries that provided $14.3 million. Weather that was 3%
colder than 1994 resulted in a $4 million increase in net revenues. Surcharges
were $10.3 million higher in 1995 but they offset an equivalent expense and have
no impact on income.
Net revenues of $734.8 million in 1994 were up $8.8 million from 1993
primarily due to higher rates and increased transportation deliveries.
Operating Income
Operating income for 1995 of $163.6 million reflected an increase of $35.3
million over 1994 as the higher net revenues were partially offset by increased
operating expenses of $51.4 million. Included in the higher operating expenses
was an expense equal to the revenue surcharges, discussed above, and previously
capitalized benefit costs that are expensed as they are included in rates. After
eliminating the effect of these issues, operating expenses were up approximately
$34.5 million. This increase reflects generally higher costs including costs for
computer applications, labor and expenses associated with ongoing marketing and
customer service activities as well as ongoing pipeline maintenance. Increases
in plant additions contributed to higher depreciation expense and higher
property taxes.
Operating income for 1994 decreased $18.1 million from 1993 to $128.3
million as the increase in net revenues was more than offset by a $26.9 million
increase in operating expenses. Operation and maintenance expense increased
$12.5 million due to higher labor and benefits expense as well as the effect of
employee severance accruals associated with implementing productivity and
customer service initiatives. Other taxes increased $12.2 million due to higher
gross receipts taxes and property taxes while the $2.2 million increase in
depreciation expense primarily reflected plant additions.
S-32
<PAGE> 34
STATEMENTS OF OPERATING INCOME FROM DISTRIBUTION OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
-------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C>
NET REVENUES
Sales revenues.......................................... $1,677.8 $1,741.9 $1,754.0
Less: Cost of gas sold.................................. 952.2 1,088.6 1,098.6
-------- -------- --------
Net Sales Revenues...................................... 725.6 653.3 655.4
-------- -------- --------
Transportation revenues................................. 105.3 88.8 76.7
Less: Associated gas costs.............................. 9.4 7.3 6.1
-------- -------- --------
Net Transportation Revenues............................. 95.9 81.5 70.6
-------- -------- --------
Net Revenues.............................................. 821.5 734.8 726.0
-------- -------- --------
OPERATING EXPENSES
Operation and maintenance............................... 443.0 404.0 391.5
Depreciation............................................ 70.9 64.5 62.3
Other taxes............................................. 144.0 138.0 125.8
-------- -------- --------
Total Operating Expenses.................................. 657.9 606.5 579.6
-------- -------- --------
Operating Income.......................................... $ 163.6 $ 128.3 $ 146.4
======== ======== ========
</TABLE>
S-33
<PAGE> 35
DISTRIBUTION OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1995 1994 1993 1992 1991(1)
--------- --------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES............. $ 151.8 $ 151.4 $ 117.8 $ 99.7 $ 98.0
THROUGHPUT (Bcf)
Sales
Residential.................... 196.6 189.7 194.7 186.2 178.4
Commercial..................... 79.5 80.8 83.4 81.8 78.3
Industrial and Other........... 7.1 9.7 14.2 15.0 11.0
--------- --------- --------- --------- ---------
Total Sales...................... 283.2 280.2 292.3 283.0 267.7
Transportation................... 255.9 232.5 217.5 203.7 194.7
--------- --------- --------- --------- ---------
Total Throughput................. 539.1 512.7 509.8 486.7 462.4
Off-System Sales................. 7.5 0.3 -- -- --
--------- --------- --------- --------- ---------
Total Sold or Transported........ 546.6 513.0 509.8 486.7 462.4
========= ========= ========= ========= =========
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot market(2)................. 210.4 235.3 142.3 169.9 113.9
Producers...................... 70.9 67.5 56.9 57.1 64.4
Pipelines...................... -- -- 118.4 84.0 68.2
Storage withdrawals
(injections)................ 23.6 (14.0) (6.7) (10.7) 11.4
Company use and other.......... (14.2) (8.3) (18.6) (17.3) 9.8
--------- --------- --------- --------- ---------
Total Sources of Gas Sold... 290.7 280.5 292.3 283.0 267.7
Gas received for delivery to
customers...................... 255.9 232.5 217.5 203.7 194.7
--------- --------- --------- --------- ---------
Total Sources.................... 546.6 513.0 509.8 486.7 462.4
========= ========= ========= ========= =========
CUSTOMERS
Residential.................... 1,794,800 1,764,968 1,737,609 1,711,946 1,686,918
Commercial..................... 172,114 167,067 164,037 161,937 160,378
Industrial and Other........... 2,265 2,312 2,302 2,382 2,366
--------- --------- --------- --------- ---------
Total.......................... 1,969,179 1,934,347 1,903,948 1,876,265 1,849,662
========= ========= ========= ========= =========
DEGREE DAYS...................... 5,692 5,530 5,677 5,507 4,998
</TABLE>
- ---------------
(1) Includes Columbia Gas of New York, Inc. through March 31, 1991.
(2) Reflects volumes under purchase contracts of less than one year.
OIL AND GAS OPERATIONS
Proposed Sale of Columbia Development
On October 23, 1995, Columbia announced its intention to sell Columbia
Development, its wholly-owned southwest oil and gas exploration and production
subsidiary, which has approximately 196 Bcfe of proved oil and natural gas
reserves located in the Gulf of Mexico and on-shore continental United States.
Based on the proposed sale of this subsidiary in early 1996 an estimated loss of
$54.8 million after-tax was recorded in the fourth quarter of 1995. It is
expected that the proposed sale of Columbia Development may take several months
to complete and the financial impact of the sale may be different
S-34
<PAGE> 36
once finalized. Management has determined that the strategic value to Columbia
of drilling for oil and gas in the Southwest has diminished and that Columbia's
investment in Columbia Development would be better devoted to assets focused on
meeting customer needs. Columbia is not exiting the exploration and production
business, and will retain its larger and more strategically placed Appalachian
oil and gas subsidiary, CNR, which is closer to Columbia's customer base and
pipeline service territory. As of December 31, 1995, CNR held interests in more
than 2.2 million net acres of gas and oil leases and had proved oil and gas
reserves in excess of 609 Bcfe.
Market Conditions
Despite a rise in gas prices in late 1995, average prices for the year were
lower than the year earlier and had an adverse impact on results from operations
of the oil and gas segment. Columbia's natural gas prices averaged $1.96 per Mcf
in 1995 compared to $2.18 in 1994. Oil prices improved to $16.17 per barrel for
1995 from a 1994 level of $15.09 per barrel. The decline in gas prices
throughout most of 1995 has been attributed to a number of factors including
warm weather in the first quarter of 1995, increased imports from Canada,
greater pipeline and storage flexibility, and general excess supply
deliverability as a result of federal deregulation. In December 1995 gas prices
rebounded as storage levels fell due to unseasonably colder weather.
Fluctuations in oil and gas prices can cause significant variations in
revenues for the oil and gas segment. To dampen the impact of these price swings
and help stabilize revenues, the oil and gas segment uses futures and option
contracts and price swap agreements to lessen the price risk for a portion of
its production.
Capital Expenditures
In the Appalachian area, CNR participated in the drilling of 96 gross (61
net) development wells in 1995, with a success rate of 74%. The primary focus of
CNR's 1995 drilling activity was in the Rose Run formation in southeast Ohio and
shale formations in West Virginia. CNR's $21 million capital and exploration
budget for 1996 is anticipated to focus on joint venture prospects in Ohio,
which have higher reserve and deliverability potential.
In the southwest, Columbia Development drilled 67 gross (24 net) wells in
1995, with an 82 percent success rate. In the Austin Chalk drilling program, 45
out of 48 Austin Chalk wells drilled in 1995 were successful.
Gathering Facilities
Under Order 636, the natural gas pipeline industry is required to
eventually unbundle gathering services from other transportation services.
Columbia Transmission provides transportation services, including gathering
services, for a significant portion of gas produced from CNR's reserves. In its
August 1, 1995 general rate filing, Columbia Transmission requested an increase
in its gathering rate to reflect partial unbundling of this service.
Columbia Transmission is currently preparing the regulatory filings
necessary for abandonment of selected gathering facilities and transfer of those
assets to CNR. Capital expenditures needed to purchase these intercompany assets
are estimated at $22 million, the book value of the facilities, with additional
costs to be incurred for compression and measurement. Operation and maintenance
costs associated with these facilities will be partially offset by the absence
of Columbia Transmission's gathering charges on wells located in southern West
Virginia coupled with additional revenue generated from transportation of third
party gas.
Reserves
Net proved gas reserves at the end of 1995 totaled 737 Bcf, compared to 684
Bcf at the end of 1994. The determination that an increasing number of CNR's
wells are economical to produce at year-end
S-35
<PAGE> 37
1995 gas prices is reflected in a 116 Bcf upward revision in recoverable gas
reserves in the Appalachian area. Without this revision, reserve base declined
as production exceeded newly discovered Appalachian reserves and extensions of
14 Bcf. Drilling activity in the Appalachian area was curtailed during 1995 due
to low natural gas prices. In the Southwest, net proved reserves declined
slightly as production during 1995 and an 8 Bcf downward revision in recoverable
gas reserves exceeded new discoveries and extensions of 39 bcf by approximately
one Bcf.
Proved reserves for oil, condensate and natural gas liquids decreased from
12.3 million barrels at the end of 1994 to 11.6 million barrels for 1995. While
production of 2.8 million barrels was largely replaced through extensions and
discoveries of 2.7 million barrels during 1995, net reserves were revised
downward by 0.5 million barrels.
Volumes
Gas production decreased 1.9% in 1995 to 65.4 Bcf primarily due to normal
production declines from onshore wells in the Southwest. Gas production in the
Appalachian area was essentially unchanged at 33.3 Bcf as production from new
wells offset normal production declines from older wells combined with
production curtailments resulting from replacement and repair of Columbia
Transmission's gathering lines and compressor facilities. In 1994, gas
production decreased 6.7% to 66.7 Bcf as production declined in both the
southwest and Appalachian areas. The decline was primarily attributable to the
same factors impacting 1995 production.
Oil and liquids production declined in 1995 by 21.1% to 2.8 million
barrels. The decrease was primarily due to production declines in onshore wells,
especially horizontal wells in the Austin Chalk field, and decreased gas
processing from the West Cameron 485 block at the Blue Water Gas Processing
Plant. In 1994, oil and liquids production was essentially unchanged from 1993
as an increase in Appalachian production offset the decrease in the southwest
program due to offshore well production problems.
Operating Revenues
In 1995, operating revenues were $180.6 million, a decrease of $24.7
million from 1994. The decrease is primarily attributable to lower gas prices
and significantly lower oil and liquids production in the southwest. In 1994,
operating revenues declined $16.9 million or 7.6% from 1993 as the impact of
lower oil and gas prices and the decrease in gas production was only partially
offset by the combined effect of recording a reserve of $5.4 million in 1993 for
a royalty dispute and the subsequent reversal of most of this reserve in 1994.
Operating Income
Operating income in 1995 declined by $26.9 million to $3.7 million
primarily due to the lower operating revenues. In 1994, operating income
declined by $23 million due to lower operating revenues and an increase in
depletion expense of $12.4 million as a result of depressed energy prices.
S-36
<PAGE> 38
OIL AND GAS OPERATIONS
STATEMENTS OF OPERATING INCOME FROM OIL AND GAS OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
OPERATING REVENUES
Gas.......................................................... $134.4 $150.7 $163.8
Oil and liquids.............................................. 46.2 54.6 58.4
------ ------ ------
Total Operating Revenues....................................... 180.6 205.3 222.2
------ ------ ------
OPERATING EXPENSES
Operation and maintenance.................................... 79.6 76.9 83.7
Depreciation and depletion................................... 86.9 86.2 73.8
Other taxes.................................................. 10.4 11.6 11.1
------ ------ ------
Total Operating Expenses....................................... 176.9 174.7 168.6
------ ------ ------
OPERATING INCOME............................................... $ 3.7 $ 30.6 $ 53.6
====== ====== ======
</TABLE>
OIL AND GAS OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1995 1994 1993 1992 1991(1)
------- ------- ------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES....................... $86.8 $101.6 $95.1 $70.8 $120.8
PROVED RESERVES
Gas (Bcf)(2)............................. 736.5 683.8 697.0 779.5 808.1
Oil and Liquids (000 barrels)(3)......... 11,552 12,255 12,792 14,650 15,568
PRODUCTION
Gas (Bcf)................................ 65.4 66.7 71.5 69.2 76.3
Oil and Liquids (000 barrels)............ 2,849 3,611 3,603 3,061 3,411
AVERAGE PRICES
Gas ($ per Mcf).......................... $1.96 $2.18 $2.28 $2.02 $1.81
Oil and Liquids ($ per barrel)........... 16.17 15.09 16.17 18.20 21.10
</TABLE>
- ---------------
(1) Year 1991 includes results from Canadian operations that were sold effective
December 31, 1991.
(2) Includes reserves held for sale of 137 Bcf in 1995.
(3) Includes reserves held for sale of 9.9 million barrels in 1995.
OTHER ENERGY OPERATIONS
Energy Services
CES oversees Columbia's nonregulated natural gas marketing efforts and
provides an array of services to distribution companies, independent power
producers and other large end users both on and off Columbia's transmission and
distribution pipeline system. CES offers one-stop shopping for natural gas
supply, transportation-related services, and fuel management services to help
customers better manage their energy costs. In 1995 electronic trading, The Fast
LaneTM, was added to its services making real-time trading of natural gas
supplies and pipeline capacity easier and more efficient.
S-37
<PAGE> 39
Propane
During 1995, propane sales by Columbia Propane Corporation and Commonwealth
Propane, Inc. ("Commonwealth Propane") totaled 68.9 million gallons, a small
increase over 1994. The propane companies serve approximately 74,300 customers
in parts of Kentucky, Maryland, New York, North Carolina, Ohio, Pennsylvania,
Virginia and West Virginia.
Cogeneration
Columbia is part owner in four cogeneration projects through its
subsidiary, TriStar Ventures. These facilities produce both electricity and
useful thermal energy and are fueled principally by natural gas. TriStar
Ventures holds various interests in these facilities that have a total capacity
of nearly 300 megawatts. In 1995, TriStar Ventures expanded its business to
include facility energy management services. This includes providing operations,
maintenance, and technical advisory services for power generation projects.
TriStar Ventures plans to utilize the extensive Columbia presence in the
midatlantic region to market its services and develop additional opportunities
with customers of Columbia's distribution subsidiaries.
Cove Point Facility
Columbia LNG is a partner with subsidiaries of the Potomac Electric Power
Company in Cove Point LNG. Cove Point LNG recently began commercial operations
of one of the largest natural gas peaking and storage facilities in the United
States located at Cove Point, Maryland. The facility has a capacity to liquefy
natural gas at a rate of 15,000 Mcf per day and stores the resulting liquefied
natural gas until needed for winter peak day requirements of utilities and other
large gas users.
Commodity Hedging
CES and Commonwealth Propane use commodity futures from time to time to
hedge prices on commitments for natural gas purchases and sales and propane
inventories. Under internal guidelines, speculative positions are prohibited.
CES uses commodity futures contracts to assure acceptable margins on the
purchase and resale of natural gas in future months. When CES makes a sale for
future delivery without having natural gas committed to that sale, it purchases
commodity futures to reduce the risk of increasing prices prior to purchasing
the natural gas to fulfill the sales obligation.
Commonwealth Propane purchases propane and places it in inventory for
future sale. Commonwealth Propane sells commodity futures on a portion of its
inventory at the time of purchase to protect it from decreasing prices.
Environmental Matters
Service Corporation received a "General Notice of Potential Liability and
Section 104(2) Request for Information" from the EPA concerning a process site
to which the Service Corporation sent certain solvents. Service Corporation
joined a group for the purpose of sharing the costs of the cleanup. Management
does not believe this Superfund matter will have a material adverse effect on
future income or Columbia's financial position.
Net Revenues
Net revenues for gas marketing in 1995 were essentially unchanged at $7.1
million after increasing by $3.8 million in 1994. In the prior year the demand
for gas marketing services surged as a result of the new environment created by
Order 636. Net revenues from propane operations in 1995 were also relatively
unchanged at $29.6 million from the prior year. Net revenues increased in 1994
due primarily to cold weather in the first quarter of 1994.
S-38
<PAGE> 40
Other revenues increased $10.2 million in 1995, to $86.4 million, due to an
increase in revenues for professional services provided to affiliates, revenues
from Columbia LNG and an increase for cogeneration activities. In 1994, other
revenues increased $1.4 million as the impact of increased cogeneration
activities was mostly offset by a decline in revenues for service provided to
affiliated companies due to restructuring certain processes.
Operating Income
The $4.8 million decrease in operating income in 1995 to $19.3 million
reflects higher costs for services provided to affiliates, higher operating
expenses for propane operations and an operating loss associated with Columbia
LNG. The $21 million increase in operating income in 1994 was due to the $12.8
million decrease in operating expenses reflecting the impact of a reserve
recorded in 1993 for employee severance costs and the overall increase of $8.2
million in net revenues.
STATEMENTS OF OPERATING INCOME FROM OTHER ENERGY OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
NET REVENUES
Gas marketing revenues............................... $237.9 $232.1 $176.5
Less: Products purchased............................. 230.8 225.3 173.5
------ ------ ------
Net Gas Marketing Revenues........................... 7.1 6.8 3.0
------ ------ ------
Propane revenues..................................... 65.1 63.2 56.5
Less: Products purchased............................. 35.5 33.4 29.7
------ ------ ------
Net Propane Revenues................................. 29.6 29.8 26.8
------ ------ ------
Other revenues....................................... 86.4 76.2 74.8
------ ------ ------
Net Revenues........................................... 123.1 112.8 104.6
------ ------ ------
OPERATING EXPENSES
Operation and maintenance............................ 90.4 76.3 90.8
Depreciation and depletion........................... 7.9 7.1 5.9
Other taxes.......................................... 5.5 5.3 4.8
------ ------ ------
Total Operating Expenses............................... 103.8 88.7 101.5
------ ------ ------
OPERATING INCOME....................................... $ 19.3 $ 24.1 $ 3.1
====== ====== ======
</TABLE>
OTHER ENERGY OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES........................... $14.1 $15.1 $11.2 $15.0 $10.2
PROPANE
Gallons sold (millions)...................... 68.9 68.5 58.1 63.3 70.5
Customers.................................... 74,308 68,218 67,895 65,899 64,618
</TABLE>
S-39
<PAGE> 41
BANKRUPTCY MATTERS
On November 28, 1995, Columbia and its wholly-owned subsidiary, Columbia
Transmission, emerged from Chapter 11 ("Chapter 11") protection of the Federal
Bankruptcy Code ("Bankruptcy Code"). Both Columbia and Columbia Transmission
operated under Chapter 11 since filing for protection on July 31, 1991. The
companies were granted debtor-in-possession status under the Bankruptcy Code,
allowing them to conduct normal business operations subject to the jurisdiction
of the Bankruptcy Court.
Events that Led to Bankruptcy Filings
Both Columbia's and Columbia Transmission's Chapter 11 filings were
precipitated by a combination of events that adversely affected Columbia
Transmission's financial viability. Most notable were federal legislative and
regulatory actions, instituted years after Columbia Transmission signed gas
purchase contracts that significantly impacted Columbia Transmission's ability
to sell gas at a price which would allow it to recover the contracted purchase
price. These problems were compounded by record-setting warm weather in 1990 and
1991, that caused spot market prices for gas to plunge and created excess
transportation capacity, thus making an unexpected and persistent oversupply of
bargain-priced gas available to Columbia Transmission's customers. As a result,
Columbia Transmission's ability to market its gas was severely undercut,
substantially reducing both sales volumes and revenues.
Settlement of Prepetition Obligations
In settlement of its prepetition obligations, Columbia distributed
approximately $3.6 billion to its creditors, which included $2.3 billion for
Columbia's prepetition debt and approximately $1 billion for interest on that
debt. The amounts represented full payment of creditors' prepetition claims.
This distribution was funded by:
- $2 billion in new long-term debt securities, with maturities ranging from
5 to 30 years;
- $1 billion in cash, funded by cash on hand and approximately $370 million
of new bank debt; and
- $200 million in Series A-Preferred Stock and $200 million in Series
B-DECS.
The interest rates on the new debt securities and the dividend rates and
other financial terms of the new equity securities were based on market levels
at the time of emergence. Columbia's new long-term debt obligations were rated
as investment grade by three major rating agencies. See "-- Liquidity and
Capital Resources."
The provisions of Columbia Transmission's Plan provided for a total
distribution at or after emergence of approximately $3.9 billion to its
creditors, including:
- 100% of all priority and administrative claims, which together amounted
to $255 million;
- 100% of Columbia's secured claim of approximately $2 billion, including
interest, which was funded with approximately $900 million of secured
debt securities of reorganized Columbia Transmission and all of its
equity;
- 100% of all unsecured claims of $25,000 or less, which amounted to $8
million;
- 72.5% of all miscellaneous unsecured creditor claims in excess of
$25,000, which amounted to $40 million;
- approximately $130 million in customer refunds as provided under terms of
a customer settlement agreement;
- 68.875% to 72.5% of the $351 million unsecured claim of Columbia, that
will be ultimately determined by the final distribution percentage
received by unsecured producers; and
- an estimated $1.2 billion to unsecured producers (based on 100%
acceptance by producers of the settlement amounts proposed in the Plan).
Columbia Transmission's Plan included a producer
S-40
<PAGE> 42
settlement that provided for a total proposed amount of producer claims
of $1.6 billion and for distributions of 72.5% to those creditors who had
claims under those contracts in excess of $25,000.
Columbia Transmission's Plan provides that producers who rejected
settlement offers contained in Columbia Transmission's Plan may continue to
litigate their claims under the Bankruptcy Court-approved estimation procedures,
described below, 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 further provided that the actual distribution percentage for
producer claims, which would not be less than 68.875% or greater than 72.5%,
would not be determined until the total amount of contested producer claims is
established, and that until such time 5% of the amount to be distributed to
producer claimants and Columbia for unsecured debt will be withheld.
The 5% holdback from settling producers and a matching contribution by
reorganized Columbia Transmission, to the extent necessary, will be used 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
payment of the remaining distributions to producers, either in cash or, to the
extent that a nonsettling producer's finally allowed claim exceeds its proposed
settlement value, in Columbia's common stock.
Producer Claims Estimation Process
In 1992, the Bankruptcy Court approved the appointment of a Claims Mediator
(the "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 the Initial Report and Recommendations 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") and directed
producer claimants to submit to him recalculated claims prepared pursuant to the
instructions contained in the Report. The recommendations and instructions set
out in the Report have not been considered by the Bankruptcy Court. In mid-1995,
producers with which Columbia Transmission had not yet negotiated settlements
liquidating their claims submitted recalculated claims to the Claims Mediator.
As submitted, those recalculated claims initially amounted to over $2 billion.
Since mid-1995, numerous additional producers 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.
The estimation procedures remain in place under Columbia Transmission's
Plan for use in the post-confirmation liquidation of producer claims that were
not resolved with the confirmation of the Plan. The recalculated claims still
subject to the estimation process total about $490 million, as submitted and
amended. The estimation process is now proceeding with discovery, motions for
dismissal or summary judgement and evidentiary hearings before the Claims
Mediator to address individual producer claims, including specific issues not
addressed by the Report. The recommendations of the Claims Mediator concerning
the amounts at which particular claims should be allowed, as issued, are being
submitted to the Bankruptcy Court for consideration. The parties have rights of
appellate review with respect to the resulting orders of the Bankruptcy Court.
When claims are allowed by the Bankruptcy Court and the allowances become final,
Columbia Transmission will make additional distributions pursuant to the Plan.
The timing of the completion of this litigation process is impossible to
predict.
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 through litigation at amounts higher or lower 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, it currently estimates that the ultimate
S-41
<PAGE> 43
payment to producers, after litigation and after giving effect to the producer
holdback, is likely to exceed the $1.2 billion distribution projected in
Columbia Transmission's Plan (which is based on 100% producer acceptance of
amounts proposed in the Plan) 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.
Intercompany Complaint
Columbia Transmission's Plan provided for the withdrawal of a complaint
filed by the Official Committee of Unsecured Creditors of Columbia Transmission
with the Bankruptcy Court. The complaint alleged, among other items, that the
$1.7 billion of Columbia Transmission's secured and unsecured debt securities
held by Columbia should be recharacterized as capital contributions (rather than
loans) and equitably subordinated to the claims of Columbia Transmission's other
creditors.
Internal Revenue Service Matters
Columbia received a favorable ruling from the IRS in October 1995, stating
that payments made by Columbia Transmission pursuant to its Plan to producers in
connection with their contract rejection claims were deductible for tax purposes
in the year in which the payments were made. Because of the magnitude of the
payments, obtaining a favorable ruling from the IRS was a condition of both
Columbia's Plan and Columbia Transmission's Plan.
Security Holder and Derivative Litigation
On July 18, 1995, Columbia reached a settlement that resolved a
consolidated class action complaint filed in the District Court in 1991 against
Columbia and its directors and certain officers of the debtor companies. Under
the terms of the settlement Columbia paid approximately $16.5 million of the
total $36.5 million settlement. The remainder was shared among the insurance
carrier for the director and officer defendants and the other defendants to the
litigation. The settlement was implemented upon Columbia's emergence from
Chapter 11. 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 fiduciary duties to Columbia. Consistent with the recommendation
of a special committee of Columbia's Board of Directors it was determined that
it was in the best interest of Columbia to dispose of the litigation. The
derivative litigation was released and dismissed pursuant to Columbia's Plan.
S-42
<PAGE> 44
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of shares of
Common Stock by a Non-U.S. Holder. The term "Non-U.S Holder" means (a) a foreign
corporation, (b) a foreign partnership, (c) a nonresident alien individual or
(d) a foreign estate or trust (that is, a trust or estate not subject to United
States federal income tax on income from sources without the United States that
is not effectively connected with the conduct of a trade or business within the
United States). An individual may, subject to certain exceptions, be deemed to
be a resident alien (as opposed to a nonresident alien) with respect to a
calendar year by virtue of being present in the United States on at least 31
days in that calendar year and for an aggregate of at least 183 days during a
three-year period ending in that calendar year (counting for such purposes all
of the days present in that year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to United States federal tax as if
they were United States citizens.
This discussion does not describe all aspects of United States federal
income and estate taxation that may be relevant to a Non-U.S. Holder's
particular circumstances or to certain types of Non-U.S. Holders that may be
subject to special treatment under United States federal income tax laws (for
example, insurance companies, tax-exempt organizations, financial institutions
or broker-dealers). This discussion does not address the Non-U.S. Holders who
are partners in partnerships holding Common Stock. Moreover, this discussion
does not address non-U.S., state and local tax consequences. Furthermore, this
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations as of the date of
this Prospectus, all of which are subject to change. Any revisions of these
authorities could be made retroactive with respect to transactions consummated
prior to the time such changes are announced or enacted. NON-U.S. HOLDERS SHOULD
CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC UNITED STATES AND OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF COMMON
STOCK.
DIVIDENDS
A dividend paid to a Non-U.S. Holder of Common stock will be subject to
United States withholding tax at a rate of 30% of the gross amount of the
dividend (or at such lower rate as may be provided by an applicable income tax
treaty), unless the dividend is effectively connected with the conduct of a
trade or business in the United States by the Non-U.S. Holder.
If a dividend is effectively connected with a United States trade or
business of a Non-U.S. Holder (or, if a tax treaty applies, is attributable to a
U.S. permanent establishment of the Non-U.S. Holder) who has properly filed a
Form 4224 (or similar statement) with the withholding agent with respect to the
taxable year in which the dividend is paid, no withholding will be required.
However, that dividend will be subject to the regular United States federal
income tax on a net income basis at applicable graduated individual or corporate
rates, which is not collected by withholding. Further, under certain
circumstances, corporate Non-U.S. Holders may be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Currently, a dividend paid to an address in a foreign country is generally
presumed to be paid to a resident of the foreign country for purposes of
determining the applicability of the United States withholding tax discussed
above (either at the statutory rate of 30% or at any lower rate established by
treaty) unless the payer has knowledge to the contrary. Under proposed
regulations, however, additional evidence of residence in the foreign country
would be required.
GAIN ON DISPOSITION
In general, a Non-U.S. Holder will not be subject to the United States
federal withholding tax in respect of gain realized on a disposition of shares
of Common Stock. In addition, except as described
S-43
<PAGE> 45
below, regular United States federal income tax will not apply to gain realized
on the disposition of shares of Common Stock, provided that:
(i) the gain is not effectively connected with the conduct of a trade
or business of the Non-U.S. Holder in the United States (or, if any of
certain tax treaties applies, is not attributable to a United States
permanent establishment of the Non-U.S. Holder within the meaning of the
applicable treaty),
(ii) in the case of a Non-U.S. Holder who is an individual (a) if such
individual holds the Common Stock as a capital asset, either he (1) is not
present in the United States for 183 or more days in the taxable year of
the disposition (as calculated under certain provisions of the Code) or (2)
if so present in the United States, such individual's "tax home" for United
States federal income tax purposes is not in the United States and the gain
is not attributable to an office or other fixed place of business
maintained in the United States by such individual, (b) such individual is
not subject to tax pursuant to the Code provisions applicable to certain
expatriates and (c) such individual has not elected to be treated as a
resident of the United States for federal income tax purposes and
(iii) at the time of disposition the Company is not and has not been a
"United States Real Property Holding Corporation" at any time during the
shorter of the holder's holding period or the five-year period ending on
the date of disposition or, if the Company is or was a "United States Real
Property Holding Corporation" whose Common Stock is or was during the
calendar year of disposition regularly traded on an established securities
market, the Non-U.S. Holder has not held, directly or indirectly, at any
time during the shorter of the holder's holding period and the five-year
period ending on the date of disposition, more than 5% of the shares of
Common Stock.
In connection with clause (iii) above, the Company believes that it currently is
and will continue to be a "United States Real Property Holding Corporation" and
that the Common Stock currently is and will continue to be regularly traded on
an established securities market.
FEDERAL ESTATE TAXES
Shares of Common Stock owned, or treated as owned, by an individual who is
a Non-U.S. Holder at the time of death will be subject to United States federal
estate taxes, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service the amount
of dividends paid to, and the tax withheld with respect to, a Non-U.S. Holder.
These information reporting requirements apply even if withholding was not
required because the dividends were effectively connected with a trade or
business in the United States of the Non-U.S. Holder or withholding was reduced
by an applicable tax treaty. Copies of these information returns may also be
made available, under the provisions of a specific treaty or agreement, to the
tax authorities in the country in which the Non-U.S. Holder resides. United
States backup withholding tax, which generally is a withholding tax imposed at a
rate of 31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements, will
generally not apply to dividends paid on shares of Common Stock to a holder at
an address outside the United States, under temporary treasury regulations,
unless the payor has knowledge that the payee is a U.S. person.
In general, the payment of the proceeds of the disposition of shares of
Common Stock to or through a non-U.S. office of a non-U.S. broker will not be
subject to information reporting or backup withholding. Information reporting
requirements will apply, but backup withholding will not apply, to payments made
outside the United States to or through a foreign office of a broker that is a
United States person, a United States controlled foreign corporation or a
foreign person 50% or more of whose gross income (over a certain period) is
effectively connected with the conduct of a United States trade or business
unless such broker has documentary evidence in its records of the owner's
non-U.S. status, certain other conditions
S-44
<PAGE> 46
are met and such broker has no actual knowledge to the contrary or unless the
owner otherwise establishes an exemption. The Treasury is considering whether
backup withholding will apply with respect to such payments that are not
currently subject to backup withholding under the current regulations.
The payment of proceeds of the disposition of shares of Common Stock by a
broker to or through a U.S. office is possibly subject to both backup
withholding and information reporting requirements unless the holder certifies
his non-U.S. status under penalties of perjury, or otherwise establishes an
applicable exception.
REFUNDS
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder's
United States federal income tax liability, if any, provided that a proper claim
for refund is made or the required information is furnished to the Internal
Revenue Service.
S-45
<PAGE> 47
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Underwriting
Agreement, Columbia has agreed to sell to each of the U.S. underwriters named
below (the "U.S. Underwriters"), for whom Salomon Brothers Inc ("Salomon
Brothers"), Goldman, Sachs & Co. ("Goldman Sachs"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and Smith Barney Inc. ("Smith
Barney") are acting as U.S. Representatives (the "U.S. Representatives"), the
respective number of shares to Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Salomon Brothers Inc..............................................
Goldman, Sachs & Co. .............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Smith Barney Inc. ................................................
---------
Total...................................................
========
</TABLE>
The U.S. Underwriting Agreement provides that the several U.S. Underwriters
will be obligated to purchase all the shares of Common Stock being offered
(other than the shares covered by the over-allotment option described below), if
any are purchased. The U. S. Underwriters have advised Columbia that they
propose initially to offer such shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus Supplement,
and to certain dealers at such price, less a concession not in excess of
$ per share of the Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share of
Common Stock to other dealers. After the Offerings, the public offering price
and such concessions may be changed.
Columbia granted to the U.S. Underwriters and the international
underwriters (the "International Underwriters" and, collectively with the U.S.
Underwriters, the "Underwriters") options, exercisable during the 30-day period
after the date of this Prospectus Supplement, to purchase up to 750,000
additional shares of Common Stock from Columbia at the initial offering price
less the aggregate underwriting discounts and commissions, solely to cover
over-allotments. To the extent that the U.S. Underwriters and the International
Underwriters exercise such options, each of the U.S. Underwriters and the
International Underwriters, as the case may be, will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to such
U.S. Underwriter's or International Underwriter's initial commitment.
Columbia has entered into an International Underwriting Agreement with the
International Underwriters named therein, for whom Salomon Brothers
International Limited, Goldman Sachs International, Merrill Lynch International
Limited and Smith Barney Inc. are acting as representatives (the "International
Representatives"), providing for the concurrent offer and sale of 1,000,000
shares of Common Stock (in addition to the shares covered by the over-allotment
options described above) outside the United States and Canada. The offering
price and underwriting discount for the U.S. Offering made hereby and for the
International Offering will be identical. The closing of the U.S. Offering is
conditioned upon the closing of the International Offering and the closing of
the International Offering is conditioned upon the closing of the U.S. Offering.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of 4,000,000 shares of Common Stock offered by the U.S.
Underwriters, (a) it is not purchasing any shares of Common Stock for the
account of anyone other than a United States or Canadian Person, and (b) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Stock or distribute any Prospectus Supplement or the
accompanying Prospectus to any person outside the United States or Canada or to
anyone other than a United States or Canadian Person. Each International
Underwriter has severally agreed that, as part of the distribution of the
1,000,000 shares of Common Stock by the International Underwriters, (a) it is
not purchasing any shares of Common Stock for the account of any
S-46
<PAGE> 48
United States or Canadian Person, and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any shares of Common Stock or
distribute any Prospectus Supplement or the accompanying Prospectus relating to
the International Offering to any person within the United States or Canada or
to any United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States Person" or "Canadian Person"
means, respectively, any person who is a national or resident of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada, or of any
political subdivision thereof, or any estate or trust the income of which is
subject to the United States or Canadian federal income taxation, regardless of
the source of its income (other than a foreign branch of any United States or
Canadian Person), and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
public offering price, less an amount not greater than the concession to
securities dealers.
Any offer of the Common Stock in Canada will be made only pursuant to an
exemption from the registration and qualification requirements in any
jurisdiction in Canada in which such offer is made.
For a period of 120 days after the date of this Prospectus Supplement,
Columbia has agreed, subject to certain exceptions, not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
the offering of, any shares of Common Stock, or any securities convertible into,
or exchangeable for, shares of Common Stock, except shares offered pursuant to
the Offerings, without the prior written consent of the U.S. Representatives.
When more than 10% of the proceeds of a public offering of certain
securities are to be paid to members of the National Association of Securities
Dealers, Inc.("NASD") participating in such public offering or to affiliates of
such members, Section 44(c)(8) of the NASD's Rules of Fair Practice requires
disclosure of such fact.
Each of Salomon Brothers, Goldman Sachs, Merrill Lynch and Smith Barney
and/or certain affiliates thereof is a member of the NASD and owns shares of the
Series A-Preferred Stock and/or the Series B-DECS. The U.S. Representatives
and/or their affiliates may indirectly receive more than 10% of the net proceeds
from the Offerings as a result of the use of such proceeds to repay borrowings
under the Credit Facility which borrowings will be incurred to redeem the Series
A-Preferred Stock and the Series B-DECS. See "Use of Proceeds."
Salomon Brothers acted as a financial advisor to Columbia in connection
with Columbia's Plan, for which it received or is due customary fees, subject to
approval by the Bankruptcy Court. In addition, Salomon Brothers renders
investment banking and financial advisory services to Columbia from time to time
and receives customary fees for such services. Each of Salomon Brothers, Merrill
Lynch and Smith Barney acted as a "pricing agent" in connection with Columbia's
issuance of debt and preferred securities pursuant to Columbia's Plan. Merrill
Lynch was a member of The Official Committee of Unsecured Creditors of Columbia
organized in connection with Columbia's bankruptcy proceedings. Smith Barney
acted as a financial advisor to The Official Committee of Equity Security
Holders of Columbia, for which it received or is due customary fees for such
service, subject to approval by the Bankruptcy Court.
S-47
<PAGE> 49
Columbia has agreed to indemnify the several U.S. Underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the U.S. Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS AND MATTERS
The validity of the issuance of the shares for the Underwriters will be
passed upon by Davis Polk & Wardwell, and by Cravath, Swaine & Moore, for
Columbia.
This Prospectus Supplement includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although Columbia believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals or strategies will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
or projections included herein include regulatory actions, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy and the timing
and extent of Columbia's efforts to implement changes planned by management.
S-48
<PAGE> 50
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 1996.
PROSPECTUS
THE COLUMBIA GAS SYSTEM, INC.
DEBENTURES
PREFERRED STOCK
COMMON STOCK
The Columbia Gas System, Inc. (the "Company") intends to issue, and offer for
sale, directly, through agents to be designated from time to time, or through
dealers or underwriters also to be designated, (i) one or more series of its
debentures (the "Debentures"), which will be unsecured senior obligations of the
Company, (ii) shares of one or more series of its preferred stock, par value $10
(the "Preferred Stock") and (iii) shares of its common stock, par value $10
("Common Stock" and, collectively with the Debentures and Preferred Stock, the
"Securities"), all having an aggregate initial public offering price of up to
$1,000,000,000 and each of which Securities will be offered to the public on
terms to be determined at the time of sale. When a particular offering of
Securities is made, a supplement to this Prospectus (a "Prospectus Supplement")
will be delivered together with this Prospectus setting forth with respect to
each offering the following (or the method of determination, thereof): (i) in
the case of Debentures, the aggregate principal amount offered, denomination,
maturity, priority, rate of interest (which may be fixed or variable), time and
place of payment of interest, terms for optional redemption or repayment by the
Company or for sinking fund payments, terms for any conversion or exchange into
other securities, the initial public offering price, any stock exchange
listings, any provisions related to Debentures issued as medium-term notes,
original issue discount or other special terms, and the designation of the
trustee, security registrar and paying agent, (ii) in the case of Preferred
Stock, the specific title and stated value, number of shares or fractional
interests therein, any dividend, liquidation, redemption, sinking fund, voting
or other rights, the terms for any conversion or exchange into other securities,
any stock exchange listings and the public offering price, (iii) in the case of
Common Stock, the aggregate number of shares offered, the public offering price,
any stock exchange listing and other terms thereof, and (iv) for all offerings
of Securities, the underwriter or underwriters or agent or agents, if any, for
such offerings of Securities, their compensation, the resulting net proceeds to
the Company and any other relevant terms and conditions. See also "Descriptions
of Securities" and "Plan of Distribution" herein.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February , 1996.
<PAGE> 51
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 2
INCORPORATION OF DOCUMENTS BY REFERENCE................................................ 2
THE COMPANY............................................................................ 4
USE OF PROCEEDS........................................................................ 5
RATIO OF EARNINGS TO FIXED CHARGES..................................................... 5
DESCRIPTIONS OF SECURITIES............................................................. 6
CORPORATE PROVISIONS................................................................... 16
PLAN OF DISTRIBUTION................................................................... 16
LEGAL OPINIONS......................................................................... 17
EXPERTS................................................................................ 17
</TABLE>
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports and other information with the Securities and Exchange Commission
("SEC"). Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities of the
SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549,
as well as at the following SEC Regional Offices: 75 Park Place, New York, NY
10007 and Kluczynski Federal Building, 230 S. Dearborn Street, Chicago, IL
60604. Such material can also be inspected at the New York Stock Exchange, 20
Broad Street, New York, NY, 10005. Copies can be obtained from the SEC by mail
at prescribed rates. Requests should be directed to the SEC's Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549.
------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995 which has been filed with the SEC is incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of any offering of Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for
2
<PAGE> 52
purposes of this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company will provide
without charge to each person to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents described above which have been incorporated by reference
in this Prospectus, other than exhibits to such documents. Requests for copies
of such documents should be directed to The Columbia Gas System, Inc.,
Attention: Director, Investor Relations, 20 Montchanin Road, Wilmington, DE
19807 -- telephone (302) 429-5331 or (302) 429-5332.
3
<PAGE> 53
THE COMPANY
The Company operates one of the largest integrated natural gas systems in
the United States and was organized under the laws of the State of Delaware on
September 30, 1926. It is a registered holding company under the Public Utility
Holding Company Act of 1935 (the "Holding Company Act") and derives
substantially all its revenues and earnings from the operating results of its
direct subsidiaries. The Company owns all of the securities of its subsidiaries
except for approximately 8 percent of the stock in Columbia LNG Corporation
("Columbia LNG"). The Company's subsidiaries are engaged in natural gas
transmission, natural gas distribution, exploration for and production of oil
and natural gas, and other energy operations.
On July 31, 1991, the Company and its wholly-owned subsidiary, Columbia Gas
Transmission Corporation ("Columbia Transmission"), filed separate petitions for
protection under Chapter 11 of the Federal Bankruptcy Code in the U.S.
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Company and Columbia Transmission had operated under the protection of Chapter
11 of the Federal Bankruptcy Code since their respective bankruptcy filings on
July 31, 1991. On November 15, 1995, the Bankruptcy Court confirmed the Third
Amended Plan of Reorganization of the Company dated July 27, 1995 ("POR") and
the Amended Plan of Reorganization of Columbia Transmission dated July 17, 1995
(the "TCO POR") and emerged from their respective bankruptcy proceedings. On
November 28, 1995 the Company and Columbia Transmission consummated the POR and
TCO POR, respectively.
The Company's two interstate pipeline transmission companies, Columbia
Transmission and Columbia Gulf Transmission Company, operate a 23,200-mile
pipeline network that extends from offshore in the Gulf of Mexico to New York
State and the eastern seaboard. In addition, Columbia Transmission operates one
of the nation's largest underground natural gas storage systems.
Five distribution subsidiaries provide natural gas service to almost 2.0
million residential, commercial and industrial customers in Ohio, Pennsylvania,
Virginia, Kentucky, and Maryland. These subsidiaries purchase gas supplies to
serve their high-priority customers and transport gas for industrial and
commercial customers who purchase gas from other sources. The distribution
subsidiaries operate more than 30,600 miles of pipelines.
The Company's two oil and gas subsidiaries explore for, develop, produce,
and market oil and natural gas in the United States. These companies hold
interests in more than 2.2 million net acres of gas and oil leases and have
proved oil and gas reserves in excess of 609 billion cubic feet of gas
equivalent (Bcfe). In October 1995, the Company announced its intention to sell
Columbia Gas Development Corporation, its southwest oil and gas exploration and
production subsidiary representing approximately 196 Bcfe of the
above-referenced proved oil and gas reserves.
The Company has a subsidiary that is engaged in its nonregulated natural
gas marketing efforts and provides an array of supply and fuel management
services to distribution companies, independent power producers and other large
end users both on and off the transmission and distribution subsidiaries'
pipeline systems.
The Company, through another subsidiary, participates in natural gas-fueled
cogeneration projects that produce both electricity and thermal energy. In
addition, the Company's two propane subsidiaries sell propane at wholesale and
retail to approximately 74,300 customers in eight states. Another Company
subsidiary leases over 500 million tons of coal reserves, much of which contains
less than one percent sulfur.
Columbia LNG is a participant in a partnership that operates a natural gas
peaking service at its LNG facility in Maryland.
Columbia Gas System Service Corporation provides centralized,
cost-efficient data processing, financial, accounting, legal, and other services
for the Company and other subsidiaries.
The Company's principal executive offices are located at 20 Montchanin
Road, Wilmington, Delaware 19807-0020 and its telephone number is (302)
429-5000.
4
<PAGE> 54
USE OF PROCEEDS
Unless otherwise provided in the applicable Prospectus Supplement, the net
proceeds from the issuance of the Securities will be used for general corporate
purposes, which may include: making distributions to producers and other
creditors whose claims have not been finally determined pursuant to the TCO POR,
refunding securities issued under the POR and financing working capital
requirements and capital expenditures. The use of proceeds for each specific
issuance of Securities will be described in the applicable Prospectus
Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
Both actual and adjusted ratio of earnings to fixed charges for the Company
for each of the five years ended December 31 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1994 1993 1992 1991
----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Actual.................................... N/A* 27.44 3.84 12.77 N/A*
Adjusted.................................. 1.19 1.59 1.21 N/A* N/A*
</TABLE>
- ---------------
* To achieve a one-to-one coverage, the Company would need an additional $671.1
million of actual earnings in 1995, an additional $55.8 million of adjusted
earnings in 1992 and an additional $1,211.6 million of actual earnings in 1991
and an additional $1,313.1 million of adjusted earnings in 1991.
The actual ratio of earnings to fixed charges was calculated based on
information from the Company's books and records. In computing the ratio of
earnings to fixed charges, earnings consist of net earnings of the Company and
its consolidated subsidiaries plus taxes on income and fixed charges, plus
dividends received from non-consolidated associated companies accounted for by
the equity method, less interest capitalized net of amount amortized and less
equity earnings of non-consolidated associated companies accounted for by the
equity method. No preferred dividends were declared during any of the periods
indicated and no preferred shares were outstanding prior to 1995; therefore the
ratio of earnings to combined fixed charges and preferred share dividend
requirements would have been the same as the ratio of earnings to fixed charges
for each period indicated.
Adjusted earnings to fixed charges ratios reflect an increase to fixed
charges for an estimate of interest expense not recorded during bankruptcy in
order to provide more meaningful ratios.
5
<PAGE> 55
DESCRIPTIONS OF SECURITIES
DEBENTURES
The Debentures are to be issued under an Indenture (the "Indenture"), dated
as of November 28, 1995, between the Company and Marine Midland Bank, as Trustee
(the "Trustee"). The following summary statements with respect to the Debentures
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the detailed provisions of the Indenture, the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Capitalized terms are defined in the Indenture unless
otherwise defined herein. Whenever any particular section of the Indenture or
any term defined therein is referred to, such section or definition is
incorporated herein by reference.
GENERAL
The Debentures offered hereby will be limited to an aggregate initial
offering price not to exceed $1,000,000,000. The Indenture does not limit the
amount of Debentures which can be issued thereunder and provides that additional
Debentures may be issued in one or more series up to the aggregate principal
amount which may be authorized from time to time by the Company's Board of
Directors. The Debentures will be unsecured senior obligations of the Company
and will rank equally and ratably with all other unsecured unsubordinated
indebtedness of the Company.
Reference is made to the Prospectus Supplement relating to the particular
Debentures offered thereby for the following terms, where applicable, of the
Debentures: (i) the specific designation of the Debentures; (ii) the
denominations in which such Debentures are authorized to be issued; (iii) the
aggregate principal amount of such Debentures; (iv) the date or dates on which
the principal of such Debentures will mature or the method of determining such
date or dates; (v) the price or prices (expressed as a percentage of the
aggregate principal amount thereof) at which the Debentures will be issued; (vi)
the rate or rates (which may be fixed or variable) at which such Debentures will
bear interest, if any, or the method of calculating such rate or rates; (vii)
the times and places where principal of, premium, if any, and interest, if any,
on such Debentures will be payable; (viii) the date, if any, after which such
Debentures may be redeemed and the redemption prices; (ix) the date or dates on
which interest, if any, will be payable and the record date or dates therefor or
the method by which such date or dates will be determined; (x) the period or
periods within which, the price or prices at which, and the terms and conditions
upon which, such Debentures may be redeemed, in whole or in part, at the option
of the Company; (xi) the obligations, if any, of the Company to redeem or
purchase such Debentures pursuant to any sinking fund or analogous provisions,
upon the happening of a specified event or at the option of a holder thereof and
the period or periods within which, the price or prices at which and the terms
and conditions upon which, such Debentures will be redeemed or purchased, in
whole or in part, pursuant to such obligations; (xii) if other than the
principal amount hereof, the portion of the principal amount of such Debentures
which will be payable upon declaration of the acceleration of the maturity
thereof or the method by which such portion shall be determined; (xiii) the
person to whom any interest on any such Debenture will be payable if other than
the person in whose name such Debenture is registered on the applicable record
date; (xiv) any addition to, or modification or deletion of, any Event of
Default or any covenant of the Company specified in the Indenture with respect
to such Debentures; (xv) the application, if any, of such means of defeasance or
covenant defeasance as may be specified for such Debentures; (xvi) whether such
Debentures are to be issued in whole or in part in the form of one or more
temporary or permanent global securities and, if so, the identity of the
depositary for such global security or securities; and (xvii) any other special
terms pertaining to such Debentures. Unless otherwise specified in the
applicable Prospectus Supplement, the Debentures will not be listed on any
securities exchange.
Unless otherwise provided in the applicable Prospectus Supplement,
principal and premium, if any, or interest, if any, will be payable and the
Debentures may be surrendered for payment or transferred at the offices of the
Trustee as paying and authenticating agent, provided that payment of interest on
6
<PAGE> 56
registered Debentures may be made at the option of the Company by check mailed
to the address of the person entitled thereto as it appears in the Debenture
register.
Unless otherwise specified in the applicable Prospectus Supplement, the
Debentures will be issued in fully registered form without coupons in
denominations set forth in the Prospectus Supplement. No service charge will be
made for any transfer or exchange of such Debentures, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Some of the Debentures may be issued at a discount (bearing no interest or
interest at below market rates) ("Original Issue Discount Securities") to be
sold at a substantial discount below their stated principal amount. Federal
income tax consequences and other special considerations applicable to any such
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
The Debentures rank pari passu with other debentures issued under the
Indenture and with borrowings under the Company's $1 Billion Credit Agreement
Dated as of November 28, 1995.
The Indenture contains no covenants or other provisions that would afford
protection to holders of Debentures in the event of a highly-leveraged
transaction or a change in control of the Company.
RESTRICTIVE COVENANTS
Definitions
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of the definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Law" means Title 11, United States Code, or any similar federal
or state law for the relief of debtors.
"Consolidated Net Tangible Assets" means the sum of the Net Tangible Assets
of the Company and its consolidated Subsidiaries after eliminating intercompany
items.
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
"Debt" of any person means, without duplication,
(i) the principal of and premium, if applicable, in respect of (a)
indebtedness of such person for money borrowed and (b) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such person is responsible;
(ii) all capital lease obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property (but excluding trade accounts payable arising in
the ordinary course of business);
(iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through (iii)
above) entered into in the ordinary course of business of such person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt of a demand for reimbursement following
payment on the letter of credit);
(v) all obligations of the type referred to in clauses (i) through
(iv) of other persons for the payment of which such person is responsible
or liable as obligor or guarantor, and
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<PAGE> 57
(vi) all obligations of the type referred to in clauses (i) through
(v) of other persons secured by any Lien on any asset of such person
(whether or not such obligation is assumed by such person), the amount of
any such obligation which is not assumed being deemed to be the lesser of
the amortized cost of such assets or the amount of the obligation so
secured.
"Funded Debt" means all Debt of a Significant Subsidiary which matures by
its terms, or is renewable by such Subsidiary to a date, more than one year
after the date of its original creation.
"Lien" means any mortgage, pledge, deposit for security, security interest
or other similar lien, other than the following: (i) liens for taxes or
assessments or other local, state or federal governmental charges or levies;
(ii) any lien to secure obligations under workmen's compensation or unemployment
insurance laws or similar legislation; (iii) any lien to secure performance in
connection with bids, tenders, contracts (other than contracts for the payment
of Debt) or leases (other than capital lease obligations) made in the ordinary
course of business by the Company or any Affiliate thereof; (iv) liens to secure
public or statutory obligations; (v) materialmen's, mechanics', carriers',
workmen's, repairmen's, construction, or other liens or charges arising in the
ordinary course of business; or deposits to obtain the release of such liens;
(vi) any lien to secure indemnity, performance, surety or similar bonds to which
the Company or any affiliate of the Company is a party; (vii) liens created by
or resulting from court or administrative proceedings which are currently being
contested in good faith by appropriate actions or proceedings or for the purpose
of obtaining a stay or discharge in the course of any court or legal proceedings
for which appropriate accounting reserves have been made to the extent required
by generally accepted accounting principles; (viii) leases (other than capital
lease obligations) made, or existing on property acquired, constructed or
improved, in the ordinary course of business, together with repairs and
additions thereto and improvements thereof; (ix) landlords' liens; (x) zoning
restrictions, easements, licenses, reservations or restrictions in respect of
currently owned or hereafter acquired, constructed, or improved tangible
property or defects or irregularities (including any terms, conditions,
agreements, covenants, exceptions and reservations expressed or provided in
deeds or other agreements) in title thereto, which do not materially impair the
conduct of the business of the Company; (xi) any of such liens described in
clauses (i) through (x), whether or not delinquent, whose validity or
applicability is at the time being contested in good faith by appropriate
actions or proceedings of the Company or any Subsidiary and for which
appropriate accounting reserves have been made to the extent required by
generally accepted accounting principles; (xii) liens securing obligations
neither assumed by the Company or any Subsidiary nor on account of which any of
them customarily pays interest directly or indirectly, existing, either at the
date hereof, or, as to property hereafter acquired, constructed, or improved at
the time of acquisition, construction or improvement by the Company or a
Subsidiary; (xiii) any right which any municipal or governmental body or agency
may have by virtue of any franchise, license, contract or statute to purchase,
or designate a purchaser of or order the sale of, any property of the Company or
any Subsidiary upon payment of reasonable compensation therefor, or to terminate
any franchise, license or other rights or to regulate the property and business
of the Company or any Subsidiary; (xiv) the lien of judgments covered by
insurance, or upon appeal and covered, if necessary, by the filing of an appeal
bond, or if not so covered, not exceeding at any one time $10,000,000 in
aggregate amount; (xv) any lien or encumbrance, moneys sufficient for the
discharge of which have been deposited in trust with the Trustee hereunder or
with the trustee or mortgagee under the instrument evidencing such lien or
encumbrance, with irrevocable authority to the Trustee hereunder or to such
other trustee or mortgagee to apply such moneys to the discharge of such lien or
encumbrance to the extent required for such purpose; (xvi) rights reserved to or
vested in others to take or receive any part of the gas, by-products of gas or
steam or electricity generated or produced by or from any properties of the
Company or any Subsidiary or with respect to any other rights concerning supply,
transportation, or storage of a commodity which is used in the ordinary course
of business; and (xvii) liens created or assumed by the Company or a Subsidiary
in connection with the issuance of debt securities, the interest on which is
excludable from the gross income of the holders of such securities pursuant to
Section 103 of the Internal Revenue Code of 1986, or any successor section.
8
<PAGE> 58
"Net Tangible Assets" as applied to any person on any date shall mean the
gross book value as shown on the books of such person of all its property both
real and personal (exclusive of licenses, patents, patent applications,
copyrights, trademarks, trade names, goodwill, experimental or organizational
expense and other like intangibles, treasury stock and unamortized debt discount
and expense but including regulatory assets properly recorded on the balance
sheet), less all reserves for depreciation, obsolescence, depletion and
amortization of its properties as shown by the books and all other proper
reserves which in accordance with generally accepted accounting principles
should be provided in connection with the business conducted.
"Preferred Stock" as applied to the capital stock of any corporation, means
stock of any class or classes (however designated) (a) which is preferred as to
the payment of dividends, or as to the distribution of assets on any voluntary
or involuntary liquidation or dissolution of such corporation, over shares of
any other stock of any class of such corporation or (b) which contains
provisions requiring the mandatory redemption of such stock or the mandatory
payment of dividends thereon or which permit the holders of such stock to put
such stock to the issuer thereof.
"Secured Debt" means Debt secured by a Lien.
"Significant Subsidiary" means a Subsidiary that meets the conditions for
being classified as a "significant subsidiary" under Regulation S-X of the SEC.
"Subsidiary" means a corporation or limited liability corporation of which
a majority of the capital stock, having voting power under ordinary
circumstances to elect directors, is owned by the Company and/or one or more
Subsidiaries of the Company.
LIMITATION ON SECURED DEBT (SECTION 3.03)
The Company has covenanted that it will not issue any Secured Debt after
the date of the Indenture without making effective provision to ratably secure
the Debentures of all series issued and outstanding pursuant to the Indenture.
The preceding sentence does not require the Company to ratably secure the
Debentures upon the issuance of the following Secured Debt:
(1) Debt of the Company which is incurred to finance the acquisition,
construction or improvement of assets of the Company and its Subsidiaries,
which acquisition is consummated, or which construction or improvement is
commenced, after the date of this Indenture; provided, however, that such
Debt shall not be secured by any assets of the Company other than assets so
acquired, constructed or improved (together with (i) to the extent the
terms of Secured Debt so provide, repairs and additions thereto and
improvements thereof, and (ii) with respect to construction and
improvement, any theretofore unimproved real property on which the property
so constructed or improved is located);
(2) Debt of the Company which is secured by assets of a person where
such Debt was existing at the time such person was merged or consolidated
with the Company or at the time of sale, other disposition, or lease of the
properties of such person as an entirety (or substantially as an entirety)
to the Company; provided, however, that such Debt shall not be secured by
any assets of the Company other than the assets subject thereto at the time
of the acquisition (together with, to the extent the terms of Secured Debt
so provides, repairs and additions thereto and improvements thereof);
(3) Debt of the Company issued to refinance such Debt incurred under
paragraphs (1) and (2) provided that the Debt so issued is not secured by a
Lien on assets other than those which secure the Debt being refinanced
(together with, to the extent the terms of new Secured Debt so provides,
repairs and additions thereto and improvements thereof);
(4) Debt of the Company which is secured by inventory, accounts
receivable, or customers' installment paper, or the proceeds thereof,
including by means of asset securitization;
(5) obligations arising with respect to production payments; and
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(6) other Debt which does not exceed, in an aggregate principal amount
at any one time outstanding, ten percent (10%) of the Consolidated Net
Tangible Assets of the Company and its consolidated Subsidiaries,
determined as of the end of the most recent fiscal quarter of the Company
ending not less than 45 days from the date of determination.
LIMITATIONS ON FUNDED DEBT OR PREFERRED STOCK OF SIGNIFICANT SUBSIDIARIES
(SECTION 3.04)
The Company shall not permit any Significant Subsidiary to issue, directly
or indirectly, any Funded Debt or Preferred Stock except:
(1) Funded Debt and Preferred Stock issued and outstanding on or prior
to the date of the Indenture;
(2) Funded Debt and Preferred Stock issued to and held by the Company
or a Subsidiary; provided, however, that any subsequent issuance or
transfer of any common stock which results in any such Subsidiary ceasing
to be a Subsidiary and any subsequent transfer of such Debt or Preferred
Stock (other than to the Company or a Subsidiary) shall be deemed the
issuance of such Debt by the issuer thereof;
(3) Funded Debt and Preferred Stock of a Significant Subsidiary issued
and outstanding on or prior to the date on which such Significant
Subsidiary was acquired by the Company or on which it became a Significant
Subsidiary;
(4) Funded Debt and Preferred Stock issued to finance the acquisition
by such Significant Subsidiary of any assets or capital stock of any person
or the construction or improvement of assets of such Significant
Subsidiary, which acquisition is consummated, or which construction or
improvement is commenced, after the date of the Indenture;
(5) Funded Debt and Preferred Stock issued in exchange for, or the
proceeds of which are used to refund or refinance, Debt or Preferred Stock
referred to in the foregoing clauses (1) through (4) or to reacquire equity
or debt or to repay debt of such Significant Subsidiary held by the Company
or a Subsidiary;
(6) Funded Debt issued with respect to (a) obligations that are
tax-exempt pursuant to Section 103 of the Internal Revenue Code of 1986 as
from time to time amended and that are issued in connection with pollution
control or other facilities of such Significant Subsidiary or (b) other
obligations, whether taxable or tax-exempt, that are issued through any
public or governmental authority in connection with pollution control or
other facilities of such Significant Subsidiary;
(7) Funded Debt in an aggregate amount not exceeding the sum of (a)
total inventory of the Significant Subsidiary; (b) total accounts
receivable of the Significant Subsidiary; and (c) the total amount of
customers' installment paper of such Significant Subsidiary, determined in
accordance with generally accepted accounting principles, in each case, as
of the end of the most recent fiscal quarter of such Significant Subsidiary
ending not less than 45 days from the date of determination;
(8) obligations with respect to production payments; and
(9) Funded Debt in an aggregate principal amount and Preferred Stock
having an aggregate preferential involuntary liquidation value, in either
case which, when added to the aggregate principal amount of Funded Debt of
all other Significant Subsidiaries (other than Funded Debt referred to in
clauses (1) through (8) above) and when added to the aggregate preferential
involuntary liquidation value of Preferred Stock (other than Preferred
Stock referred to in clauses (1) through (5) above), does not exceed, at
any one time outstanding, ten percent (10%) of the sum of the Net Tangible
Assets of such Significant Subsidiary and all other Significant
Subsidiaries determined on a consolidated basis, as of the end of the most
recent fiscal quarter of each such Significant Subsidiary ending not less
than 45 days from the date of determination.
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CONSOLIDATION, MERGER AND SALE OF ASSETS (SECTION 4.01)
The Company may not consolidate or merge with or into, or transfer or lease
all or substantially all its assets to, any person, unless (i) the person (if
other than the Company) formed by such consolidation or into which the Company
is merged or which acquires or leases all or substantially all the assets of the
Company is organized and existing under the laws of the United States, any state
thereof or the District of Columbia and expressly assumes all of the Company's
obligations under the Debentures and under the Indenture; (ii) immediately after
giving effect to such transaction no Event of Default shall have happened and be
continuing; and (iii) certain other conditions are met.
SECURED DEBT OF COLUMBIA TRANSMISSION (INDENTURE SUPPLEMENTS WITH RESPECT TO POR
DEBENTURES)
Supplemental Indentures for the Debentures issued pursuant to the POR
contain a covenant requiring the Company, for the period through, and including,
November 27, 1999, to either hold $600 million of Columbia Transmission Secured
Debt or retire (by the means prescribed by the covenant) Company funded debt in
an amount equal to 150% of the amount by which $600 million exceeds the amount
of Columbia Transmission Secured Debt held by the Company.
EVENTS OF DEFAULT (SECTION 5.01)
The following are Events of Default with respect to Debentures:
(1) default in any payment of interest on any Debenture when the same
becomes due and payable and such default continues for a period of 20 days;
(2) default in the payment of the principal of any Debenture when the
same becomes due and payable at its stated maturity, upon declaration or
otherwise;
(3) failure to comply with the Indenture provisions relating to the
merger, consolidation or transfer of assets;
(4) failure to comply with any of its agreements in the Debentures or
Indenture (other than those referred to in (1), (2), or (3) above) and such
failure continues for 60 days after the notice specified below;
(5) the Company has entered against it final, non-appealable court
judgments for the payment of money exceeding in the aggregate $50,000,000
in uninsured liability and such judgments are not discharged, paid or
adequately provided for within 60 days after the last of such judgments
become final and non-appealable;
(6) the Company pursuant to or within the meaning of any Bankruptcy
Law: (a) commences a voluntary case; (b) consents to the entry of an order
for relief against it in an involuntary case; (c) consents to the
appointment of a custodian of it or for any substantial part of its
property; or (d) makes a general assignment for the benefit of its
creditors (collectively, a "Bankruptcy Default"); or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (a) is for relief against the Company in an
involuntary case; (b) appoints a Custodian of the Company or for any
substantial part of its property; or (c) orders the winding up or
liquidation of the Company; and the order or decree remains unstayed and in
effect for 60 days.
A default of the type described in clause (4) above is not an Event of
Default until the Trustee or the holders of at least 25% in principal amount of
the Debentures notify the Company of the default and the Company does not cure
the default within the time specified in clause (4) after receipt of such
notice.
The Company is required to file with the Trustee on an annual basis a
certificate executed by two of its officers stating that the Company is in
compliance with the terms of the Indenture (Section 3.05).
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ACCELERATION OF MATURITY (SECTION 5.02)
If an Event of Default with respect to Debentures occurs and is continuing,
then, and in each and every such case, unless the principal of all of the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in principal amount of the Debentures, by notice in
writing to the Company (and to the Trustee if given by holders), may declare the
entire principal amount (or, if the Debentures of such lesser series are
Original Issue Discount Securities, such portion of the principal as may be
specified in the terms of such Original Issue Discount Securities) of all of the
Debentures and any premium and interest accrued thereof to be due and payable
immediately, and upon any such declaration such principal amount (or specified
amount) and any premium and interest accrued thereon shall become immediately
due and payable. If an Event of Default specified previously in clause (6) or
(7) under the caption "Descriptions of Securities; Debentures -- Events of
Default" ("Bankruptcy Defaults") occurs and is continuing, the principal of and
interest on all the Debentures shall ipso facto become and be immediately due
and payable without any declaration or other act.
However, at any time after a declaration of acceleration with respect to
Debentures has been made, but before a judgment or decree based on such
acceleration has been obtained, the holders of a majority in principal amount of
the Debentures may, under certain circumstances, rescind and annul such
acceleration.
Reference is made to the Prospectus Supplement relating to each series of
Debentures which are Original Issue Discount Securities for the particular
provision relating to acceleration of the maturity of a portion of the principal
amount of such Original Issue Discount Securities upon the occurrence of an
Event of Default and the continuation thereof.
WAIVER AND MODIFICATION (SECTION 5.04 AND 8.02)
The holders of a majority in principal amount of Debentures may waive any
past default under the Indenture with respect to Debentures, except a default
not theretofore cured in the payment of the principal of or interest on any
Debentures or in respect of any provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Debenture
affected. (Section 5.04).
The Indenture contains provisions permitting the Company and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debentures in order (i) to cure any ambiguity, omission,
defect or inconsistency; (ii) to evidence the succession of another corporation
to the Company and the assumption of the covenants of the Company by a successor
to the Company; (iii) to provide for uncertificated Debentures in addition to or
in place of certificated Debentures; (iv) to comply with requirements of the SEC
in connection with qualifying the Indenture under the Trust Indenture Act of
1939, as amended; (v) to add to the covenants of the Company for the benefit of
holders of Debentures or to surrender any right or power of the Company; or (vi)
to make any change that does not adversely affect the interests of any holder of
Debentures in any material respect. (Section 8.01).
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in principal
amount of the Debentures outstanding; provided, however, that no such
modification or amendment may, without the consent of the holder of each
Debenture affected thereby, (i) reduce the principal amount of Debentures whose
holders must consent to an amendment; (ii) reduce the rate of or extend the time
for payment of interest on any Debenture; (iii) reduce the principal of or
extend the fixed maturity of any Debenture; (iv) reduce the premium payable upon
the redemption of any Debenture or change the time at which any Debenture may or
shall be redeemed; (v) make any Debenture payable in money other than that
stated in the Debenture; or (vi) reduce the percentage in principal amount of
Debentures, the consent of the holders of which is required for modification or
amendment of the Indenture or for waiver of certain defaults; and, provided
further, that in case more than one series of Debentures (or Debentures of a
single series which have different terms) are outstanding under the Indenture,
any such proposed amendment affects the rights of holders of Debentures of one
or more series (or Debentures of a single series which have different terms)
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and does not affect the rights of holders of the Debentures of one or more of
the other series (or Debentures of a single series which have different terms),
then only holders of Debentures to be affected shall have authority or be
required to consent to or approve such amendment. Any waiver of a default is
deemed to affect the Debentures of all series, and any modification of the
provisions of any sinking fund or covenant established in respect of Debentures
of a particular series (or Debentures of a single series having the same terms)
are deemed to affect only such Debentures. (Section 8.02)
SATISFACTION, DISCHARGE, AND DEFEASANCE PRIOR TO MATURITY OR REDEMPTION
(SECTIONS 7.01 AND 7.02)
The Company may, at any time, terminate (i) all its obligations under the
Indenture with respect to the Debentures of a series (such termination by the
Company, a "Legal Defeasance ") or (ii) its obligations to comply with certain
restrictive covenants ("Covenant Defeasance") with respect to the Debentures of
a series, provided that the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of principal of and
interest on the Debentures of the series to be defeased to maturity or
redemption, as the case may be. The conditions to Legal Defeasance or Covenant
Defeasance shall be that (i) no default exists or occurs, (ii) the Company
obtains a certificate from a firm of nationally recognized independent
accountants that the deposited U.S. Government Obligations will be sufficient to
pay principal of and interest on the Debentures to be defeased when due and
(iii) in the case of Legal Defeasance, 91 days pass after the deposit is made
and no Bankruptcy Default with respect to the Company is continuing at the end
of the 91-day period.
FEDERAL INCOME TAX CONSEQUENCES RELATED TO DEFEASANCE
Under current federal income tax law, a Covenant Defeasance as described
above will not result in a taxable event to any holder of Debentures or
otherwise affect the federal income tax consequence of an investment in
Debentures.
The federal income tax treatment of a Legal Defeasance as described above
is not clear. A Legal Defeasance may be treated as a taxable exchange of such
Debentures for beneficial interests in the trust consisting of the securities.
In that event, a holder of Debentures would be required to recognize gain or
loss equal to the difference between the holder's adjusted basis for the
Debentures and the fair market value of the holder's beneficial interest in such
trust. Thereafter, such holder would be required to include in income a share of
the income, gain, and loss of the trust. Purchasers of the Debentures should
consult their own advisors with respect to the tax consequences to them of such
Legal Defeasance, including the applicability and effect of tax laws other than
federal income tax law.
PREFERRED STOCK
The following summary contains a description of certain general terms of
the Company's Preferred Stock to which any Prospectus Supplement may relate.
Certain terms of any series of Preferred Stock that may be offered by any
Prospectus Supplement will be described in the Prospectus Supplement relating
thereto. If so indicated in the Prospectus Supplement, the terms of any series
may differ from the terms set forth below. The description of certain provisions
of the Company's Preferred Stock does not purport to be complete and is subject
to and qualified in its entirety by reference to the provisions of the Company's
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and the Certificate of Designation (the "Certificate of
Designation") relating to each particular series of Preferred Stock which will
be filed by amendment or incorporated by reference, as the case may be, as an
exhibit to the Registration Statement of which this Prospectus is a part at or
prior to the time of the issuance of such Preferred Stock.
GENERAL
Under the Certificate of Incorporation, the Board of Directors of the
Company is authorized, without further stockholder action to provide for the
issuance of up to 40,000,000 shares of Preferred Stock, of
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which 7,999,494 shares of 7.89% Preferred Stock, Series A, with a liquidation
value of $25 per share and 4,898,946 shares of 5.22% Convertible Preferred
Stock, Series B, with a liquidation value of $40.82 per share were issued and
outstanding as of December 31, 1995. On February 8, 1996, the Company announced
its intent to redeem the DECS and Preferred Stock on February 26, 1996 as
permitted under the terms of the applicable Certificate of Designation.
Additional Preferred Stock may be issued in one or more series, with such
designations or titles; dividend rates; any redemption provisions; special or
relative rights in the event of liquidation, dissolution, distribution or
winding up of the Company; any sinking fund provisions; any conversion
provisions; any voting rights; and any other preferences, privileges, powers,
rights, qualifications, limitations and restrictions, as shall be set forth as
and when established by the Board of Directors of the Company. The shares of any
series of Preferred Stock will be, when issued, fully paid and nonassessable and
holders thereof will have no preemptive rights in connection therewith.
The liquidation preference of any series of Preferred Stock is not
necessarily indicative of the price at which shares of such series of Preferred
Stock will actually trade at or after the time of their issuance. The market
price of any series of Preferred Stock can be expected to fluctuate with changes
in market and economic conditions, the financial condition and prospects of the
Company and other factors that generally influence the market price of
securities.
RANK
Any series of Preferred Stock will, with respect to rights on liquidation,
winding up and dissolution, rank (i) senior to Common Stock and to all other
equity securities issued by the Company, the terms of which specifically provide
that such equity securities will rank junior to such series of Preferred Stock
(the "Junior Liquidation Securities"); (ii) on a parity with all equity
securities issued by the Company, the terms of which specifically provide that
such equity securities will rank on a parity with such series of Preferred Stock
("Parity Liquidation Securities"); and (iii) junior to all equity securities
issued by the Company, the terms of which specifically provide that such equity
securities will rank senior to such series of Preferred Stock (the "Senior
Liquidation Securities"). In addition, any series of Preferred Stock will, with
respect to dividend rights, rank (i) senior to all equity securities issued by
the Company, the terms of which specifically provide that such equity securities
will rank junior to such series of Preferred Stock and, to the extent provided
in the applicable Certificate of Designation, to Common Stock; (ii) on a parity
with all equity securities issued by the Company, the terms of which
specifically provide that such equity securities will rank on a parity with such
series of Preferred Stock and, to the extent provided in the applicable
Certificate of Designation, to Common Stock ("Parity Dividend Securities"); and
(iii) junior to all equity securities issued by the Company, the terms of which
specifically provide that such equity securities will rank senior to such series
of Preferred Stock. As used in any Certificate of Designation for these
purposes, the term "equity securities" will not include debt securities
convertible into or exchangeable for equity securities.
DIVIDENDS
Holders of each series of Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of the Company out of funds
legally available therefor, cash dividends at such rates and on such dates as
are set forth in the Prospectus Supplement relating to such series of Preferred
Stock. Dividends will be payable to holders of record of Preferred Stock as they
appear on the books of the Company on such record dates as shall be fixed by the
Board of Directors. Dividends on any series of Preferred Stock may be cumulative
or non-cumulative.
No full dividends may be declared or paid out of funds set apart for the
payment of dividends on any series of Preferred Stock unless dividends shall
have been paid or set apart for such payment on any senior series of Preferred
Stock or on any Parity Dividend Securities. If full dividends are not so paid,
such series of Preferred Stock shall be subordinated to payment of dividends on
any senior series and shall share dividends pro rata with any Parity Dividend
Securities.
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CONVERSION AND EXCHANGE
The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, on which shares of that series are convertible into other
securities, including shares of another series of Preferred Stock or Common
Stock, or exchangeable for another series of Preferred Stock, Common Stock or
Debentures of the Company. The Common Stock of the Company is described below
under "Common Stock".
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of each series of Preferred Stock that ranks senior to the
Junior Liquidation Securities will be entitled to receive out of assets of the
Company available for distribution to shareholders, before any distribution is
made on any Junior Liquidation Securities, including Common Stock, distributions
upon liquidation in the amount set forth in the Prospectus Supplement relating
to each such series of Preferred Stock. If the holders of the Preferred Stock of
any series and any other Parity Liquidation Securities are not paid in full, the
holders of the Preferred Stock of such series and the Parity Liquidation
Securities will share ratably in any such distribution of assets of the Company
in proportion to the full liquidation preferences to which each is entitled.
After payment of the full amount of the liquidation preference to which they are
entitled, the holders of such series of Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Company.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock or except as expressly required by applicable law or
the Certificate of Incorporation, the holders of shares of Preferred Stock will
have no voting rights.
REISSUANCE
Preferred Stock redeemed or otherwise acquired by the Company will assume
the status of authorized but unissued Preferred Stock and may thereafter be
reissued in the same manner as other authorized but unissued Preferred Stock.
COMMON STOCK
The Company has authorized 100,000,000 shares of Common Stock, $10 par
value, of which 49,204,025 shares were issued and outstanding as of December 31,
1995. The shares of Common Stock currently outstanding are, and the shares of
Common Stock that may be offered hereby will be, fully paid and nonassessable.
Subject to the rights of the holders of any preferred stock then
outstanding, holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders of the Company, other than the election
of directors. Voting for directors is cumulative; each stockholder has votes
equal to the number of shares of Common Stock the stockholder owns multiplied by
the number of directors to be elected and all votes can be cast for one nominee
or divided among more than one.
Subject to the rights of the holders of Preferred Stock, holders of Common
Stock are entitled to receive such dividends, if any, as may be declared from
time to time by the Board of Directors of the Company in its discretion out of
funds legally available therefor. Upon any liquidation or dissolution of the
Company, holders of the Common Stock are entitled to receive pro rata all assets
remaining available for distribution to stockholders after payment of all
liabilities and provision for the liquidation of any shares of any Preferred
Stock at the time outstanding. The Common Stock has no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such stock.
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CORPORATE PROVISIONS
RESTATED CERTIFICATE OF INCORPORATION
The Certificate of Incorporation was amended and restated pursuant to the
POR and provides for, among other things: (i) the classification of the Board of
Directors; (ii) a prohibition on the removal of directors except for cause and
then only with a vote of 80% of shares outstanding; and (iii) stockholder action
only to be conducted at a duly called annual or special meeting of stockholders
and not effected by written consent. The Certificate of Incorporation also
provides that, except as otherwise required by law and subject to the rights of
holders of Preferred Stock, special meetings of stockholders of the Company may
be called only by the Company's Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized members of the Company's
Board of Directors. The classification of the Board into three classes, each
class serving a period of three years, could delay a holder of shares
representing a majority of the voting power from obtaining control of the Board
because such holder would not be able to replace a majority of the directors
prior to, at least, the second annual meeting of stockholders following the
acquisition of such majority interest. The article also contains certain
super-majority voting requirements with respect to filling director vacancies
and amending certain provisions.
The Certificate of Incorporation requires the Company to indemnify its
directors and officers and certain other persons serving at the request of the
Company to the fullest extent permitted by Delaware law and to advance
litigation expenses and to maintain director and officer liability insurance.
Article V of the Certificate of Incorporation also limits or eliminates the
personal monetary liability of directors and officers for breaches of fiduciary
duty to the fullest extent permitted by Delaware law.
The Company, as a Delaware corporation, is subject to Section 203 of the
Delaware General Corporation Law. Section 203 discourages efforts by others to
acquire control of the Company through acquisitions of stock or otherwise,
unless the transactions are approved by the Company's Board of Directors. It
provides that, with certain exceptions, a person who acquires 15% or more of a
Company's voting stock (thereby becoming an "interested stockholder") without
board approval may not, for three years thereafter, engage in a wide range of
business combinations with that corporation unless (i) upon consummation of the
transaction the interested stockholder owned at least 85% of the corporation's
voting stock; or (ii) the business combination is approved by the board of
directors and authorized by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
As a holding company registered under the Holding Company Act, the Company
must obtain the pre-approval by the SEC with respect to the issuance of its
securities under Sections 6 and 7 of the Act and the terms of business
combinations or divestitures involving the stock and assets of the Company or
its regulated subsidiaries under Sections 9 and 10 of the Act.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in four ways: (i)
directly to purchasers, (ii) through agents, (iii) through underwriters and (iv)
through dealers.
Offers to purchase Securities may be solicited by the Company and sales
thereof may be made by the Company directly to institutional investors or
others. The terms of any such sales, including the terms of any bidding or
auction process, if utilized, will be described in the Prospectus Supplement
relating thereto.
Offers to purchase Securities may be solicited directly by the Company or
by agents designated by the Company from time to time. Any such agent, who may
be deemed to be an underwriter as that term is defined in the Securities Act of
1933 (the "Securities Act"), involved in the offer or sale of any Securities in
respect of which this Prospectus is delivered will be named, and any commissions
payable by the Company to such agent will be set forth in the Prospectus
Supplement. Unless otherwise indicated in the
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Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment. Agents may be entitled, under agreements which
may be entered into with the Company, to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, or to
contribution to amounts that agents may be required to pay in respect of such
liabilities. Agents may be customers of, engage in transactions with or perform
services for the Company in the ordinary course of business.
If an underwriter or underwriters are utilized in the sale of Securities,
the Company will execute an underwriting agreement with such underwriters at the
time of such sale of Securities and the names of the underwriters and the terms
of the transaction will be set forth in the Prospectus Supplement, which will be
used by the underwriters to make resales of the Securities in respect of which
this Prospectus is delivered to the public. The underwriters may be entitled,
under the relevant underwriting agreements, to indemnification by the Company
against certain liabilities, including liabilities under the Securities Act, or
to contribution to amounts that underwriters may be required to pay in respect
of such liabilities.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to such
dealer as principal. Such dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Dealers
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution to amounts
that dealers may be required to pay in respect of such liabilities. The name of
the dealer, if any, and the terms of the transaction will be set forth in the
Prospectus Supplement.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers from certain institutions to purchase
Debentures from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the Prospectus
Supplement. Each Contract will be for an amount not less than, and unless the
Company otherwise agrees the aggregate principal amount of Debentures sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in the Prospectus Supplement. Institutions with which Contracts, when
authorized, may be made include commercial and saving banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions but shall in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
that the purchase by an institution of the Debentures covered by its Contract
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject. A
commission indicated in the Prospectus Supplement will be paid to underwriters
and agents soliciting offers to purchase Debentures pursuant to Contracts
accepted by the Company.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the accompanying Prospectus
Supplement.
LEGAL OPINIONS
Counsel who are passing upon certain legal matters relating to the
Securities are Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New
York, NY 10019 for the Company and Davis Polk & Wardwell, 450 Lexington Avenue,
New York, NY 10017 for the Underwriters.
EXPERTS
Statements made in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, under the caption "Oil and Gas Operating Highlights"
and in Note 18 of the Notes to Consolidated Financial Statements incorporated by
reference in such Annual Report on Form 10-K, also are incorporated herein by
reference in reliance upon the authority of Ryder Scott Company Petroleum
Engineers, independent petroleum and natural gas consultants, as experts.
17
<PAGE> 67
The audited consolidated financial statements and schedule included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated by reference in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
18
<PAGE> 68
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Available Information................ S-2
Prospectus Supplement Summary........ S-3
Common Stock Dividend Policy......... S-7
Use of Proceeds...................... S-7
Price Range of Common Stock.......... S-7
Capitalization....................... S-8
The Company.......................... S-9
Pro Forma Condensed Consolidated
Income Statements.................. S-14
Consolidated Financial Data.......... S-16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-18
Certain United States Tax
Consequences
to Non-U.S. Holders................ S-43
Underwriting......................... S-46
Legal Opinions and Matters........... S-48
PROSPECTUS
Available Information................ 2
Incorporation of Documents by
Reference.......................... 2
The Company.......................... 4
Use of Proceeds...................... 5
Ratio of Earnings to Fixed Charges... 5
Descriptions of Securities........... 6
Corporate Provisions................. 16
Plan of Distribution................. 16
Legal Opinions....................... 17
Experts.............................. 17
</TABLE>
5,000,000 SHARES
THE COLUMBIA GAS SYSTEM, INC.
COMMON STOCK
($10 PAR VALUE)
[COLUMBIA GAS SYSTEM LOGO]
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SMITH BARNEY INC.
PROSPECTUS SUPPLEMENT
DATED , 1996
<PAGE> 69
[ALTERNATE INTERNATIONAL PAGE]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
FEBRUARY 23, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated ) [LOGO]
5,000,000 SHARES
THE COLUMBIA GAS SYSTEM, INC.
COMMON STOCK
($10 PAR VALUE)
Of the 5,000,000 shares of Common Stock, $10 par value per share (the "Common
Stock"), of The Columbia Gas System, Inc. ("Columbia") being offered hereby,
1,000,000 shares are being offered in an international offering outside the
United States and Canada (the "International Offering") and 4,000,000 shares are
being offered in a concurrent offering in the United States and Canada (the
"U.S. Offering" and, collectively with the International Offering, the
"Offerings"), subject to transfers between the U.S. Underwriters and the
International Underwriters. The Price to Public and Underwriting Discount per
share will be identical for the U.S. Offering and the International Offering.
See "Underwriting." The closing of the U.S. Offering and International Offering
are conditioned upon each other.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "CG." On February 21, 1996, the last reported sale price for the Common
Stock, as reported on the New York Stock Exchange Composite Transactions Tape,
was $44.375 per share. See "Price Range of Common Stock" and "Common Stock
Dividend Policy."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at .
(2) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of 750,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriters
exercise such options in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INTERNATIONAL LIMITED
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL LIMITED
SMITH BARNEY INC.
The date of this Prospectus Supplement is , 1996.
<PAGE> 70
[ALTERNATE INTERNATIONAL PAGE]
UNDERWRITING
Subject to the terms and conditions set forth in the International
Underwriting Agreement, Columbia has agreed to sell to each of the international
underwriters named below (the "International Underwriters"), for whom Salomon
Brothers International Limited, Goldman Sachs International, Merrill Lynch
International Limited and Smith Barney Inc. are acting as international
representatives (the "International Representatives"), the respective number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITERS OF SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Salomon Brothers International Limited...................................
Goldman Sachs International..............................................
Merrill Lynch International Limited......................................
Smith Barney Inc. .......................................................
---------
Total..........................................................
=========
</TABLE>
The International Underwriting Agreement provides that the several
International Underwriters will be obligated to purchase all the shares of
Common Stock being offered (other than the shares covered by the over-allotment
option described below), if any are purchased. The International Underwriters
have advised Columbia that they propose initially to offer such shares of Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus Supplement, and to certain dealers at such price, less a
concession not in excess of $ per share of the Common Stock. The
International Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share of Common Stock to other dealers. After
the Offerings, the public offering price and such concessions may be changed.
Columbia granted to the International Underwriters and the U.S.
underwriters (the "U.S. Underwriters" and, collectively with the "International
Underwriters, the "Underwriters") options, exercisable during the 30-day period
after the date of this Prospectus Supplement, to purchase up to 750,000
additional shares of Common Stock from Columbia at the initial offering price
less the aggregate underwriting discounts and commissions, solely to cover
over-allotments. To the extent that the International Underwriters and the U.S.
Underwriters exercise such options, each of the International Underwriters and
the U.S. Underwriters, as the case may be, will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
International Underwriter's or U.S. Underwriter's initial commitment.
Columbia has entered into a U.S. Underwriting Agreement with the U.S.
Underwriters named therein, for whom Salomon Brothers Inc ("Salomon Brothers"),
Goldman, Sachs & Co. ("Goldman Sachs"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Smith Barney Inc. ("Smith Barney") are acting
as representatives (the "U.S. Representatives"), providing for the concurrent
offer and sale of 4,000,000 shares of Common Stock (in addition to the shares
covered by the over-allotment options described above) outside the United States
and Canada. The offering price and underwriting discount for the International
Offering made hereby and for the U.S. Offering will be identical. The closing of
the International Offering is conditioned upon the closing of the U.S. Offering
and the closing of the U.S. Offering is conditioned upon the closing of the
International Offering.
Each International Underwriter has severally agreed that, as part of the
distribution of 1,000,000 shares of Common Stock offered by the International
Underwriters, (a) it is not purchasing any shares of Common Stock for the
account of any United States or Canadian Person, and (b) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute any Prospectus Supplement or the accompanying Prospectus to
any person within the United States or Canada or to any United States or
Canadian Person. Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 4,000,000 shares of Common Stock by the U.S. Underwriters,
(a) it is not purchasing any shares of Common Stock for the account of anyone
other than a United States or Canadian Person, and (b) it has not offered or
sold, and will not offer or sell, directly or indirectly, any
S-46
<PAGE> 71
[ALTERNATE INTERNATIONAL PAGE]
shares of Common Stock or distribute any Prospectus Supplement or the
accompanying Prospectus to any person outside the United States or Canada or to
anyone other than a United States or Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States Person" or "Canadian Person"
means, respectively, any person who is a national or resident of the United
States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada, or of any
political subdivisions thereof, or any estate or trust the income of which is
subject to the United States or Canadian federal income taxation, regardless of
the source of its income (other than a foreign branch of any United States or
Canadian Person), and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Common Stock as may be mutually
agreed. The price of any shares of Common Stock so sold shall be the public
offering price, less an amount not greater than the concession to securities
dealers.
Columbia and each International Underwriter and U.S. Underwriter (a) have
not offered or sold and, prior to the expiry of six months from the closing of
the International Offering, will not offer or sell any shares of Common Stock in
the United Kingdom other than to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments, whether as
principal or agent, for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (b) have complied and will comply with all
applicable provisions of the Financial Services Act of 1986 (the "1986 Act")
with respect to anything done by it in relation to the shares of Common Stock
in, from or otherwise involving the United Kingdom and (c) have only issued or
passed on, and will only issue or pass on, in the United Kingdom any document
received by it in connection with the issue of the shares of Common Stock to a
person who is of a kind described in Article 11(3) of the 1986 Act (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on.
For a period of 120 days after the date of this Prospectus Supplement,
Columbia has agreed, subject to certain exceptions, not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
the offering of, any shares of Common Stock, or any securities convertible into
or exchangeable for shares of Common Stock, except shares offered pursuant to
the Offerings, without the prior written consent of the U.S. Representatives.
No action has been taken or will be taken in any jurisdiction by Columbia
or the International Underwriters or the U.S. Underwriters that would permit a
public offering of the shares offered hereby in any jurisdiction where action
for that purpose is required, other than the United States. Persons who come
into possession of this Prospectus Supplement and the accompanying Prospectus
are required by Columbia and the International Underwriters and the U.S.
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the shares offered hereby and the distribution of this
Prospectus Supplement and the accompanying Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
Each of Salomon Brothers, Goldman Sachs, Merrill Lynch and Smith Barney
and/or certain affiliates thereof own shares of the Series A-Preferred Stock
and/or the Series B-DECS. The U.S. Representatives and/or their affiliates may
indirectly receive more than 10% of the net proceeds from the Offerings as a
result of the use of such proceeds to repay borrowings under the Credit
Facility, which borrowings will be incurred to redeem the Series A-Preferred
Stock and the Series B-DECS. See "Use of Proceeds."
S-47
<PAGE> 72
[ALTERNATE INTERNATIONAL PAGE]
Salomon Brothers acted as a financial advisor to Columbia in connection
with Columbia's Plan, for which it received or is due customary fees, subject to
approval by the Bankruptcy Court. In addition, Salomon Brothers renders
investment banking and financial advisory services to Columbia from time to time
and receives customary fees for such services. Each of Salomon Brothers, Merrill
Lynch and Smith Barney acted as a "pricing agent" in connection with Columbia's
issuance of debt and preferred securities pursuant to Columbia's Plan. Merrill
Lynch was a member of The Official Committee of Unsecured Creditors of Columbia
organized in connection with Columbia's bankruptcy proceedings. Smith Barney
acted as a financial advisor to The Official Committee of Equity Security
Holders of Columbia, for which it received or is due customary fees for such
service, subject to approval by the Bankruptcy Court.
Columbia has agreed to indemnify the International Underwriters against
certain liabilities, including certain liabilities under the Securities Act, or
contribute to payments the International Underwriters may be required to make in
respect thereof.
LEGAL OPINIONS AND MATTERS
The validity of the issuance of the shares for the Underwriters will be
passed upon by Davis Polk & Wardwell, and by Cravath, Swaine & Moore, for
Columbia.
This Prospectus Supplement includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although Columbia believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals or strategies will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
or projections included herein include regulatory actions, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy and the timing
and extent of Columbia's efforts to implement changes planned by management.
S-48
<PAGE> 73
[ALTERNATE INTERNATIONAL PAGE]
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Available Information................ S-2
Prospectus Supplement Summary........ S-3
Common Stock Dividend Policy......... S-7
Use of Proceeds...................... S-7
Price Range of Common Stock.......... S-7
Capitalization....................... S-8
The Company.......................... S-9
Pro Forma Condensed Consolidated
Income Statements.................. S-14
Consolidated Financial Data.......... S-16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-18
Certain United States Tax
Consequences to Non-U.S. Holders... S-43
Underwriting......................... S-46
Legal Opinions and Matters........... S-48
PROSPECTUS
Available Information................ 2
Incorporation of Documents by
Reference.......................... 2
The Company.......................... 4
Use of Proceeds...................... 5
Ratio of Earnings to Fixed Charges... 5
Description of Securities............ 6
Corporate Provisions................. 16
Plan of Distribution................. 16
Legal Opinions....................... 17
Experts.............................. 17
</TABLE>
5,000,000 SHARES
THE COLUMBIA GAS
SYSTEM, INC.
[COLUMBIA GAS SYSTEM LOGO]
COMMON STOCK
($10 PAR VALUE)
SALOMON BROTHERS
INTERNATIONAL LIMITED
GOLDMAN SACHS
INTERNATIONAL
MERRILL LYNCH
INTERNATIONAL LIMITED
SMITH BARNEY INC.
PROSPECTUS SUPPLEMENT
DATED , 1996
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions. All of the
amounts shown are estimates, except the applicable SEC registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee........................... $ 344,828
Printing of Registration Statement, Prospectus, Definitive Debentures
and other Miscellaneous Papers........................................ $ 130,000
Trustee's Charges....................................................... $ 10,000
Legal Fees.............................................................. $ 225,000
Independent Public Accountants' Fees and Expenses....................... $ 150,000
Rating Agency Fees...................................................... $ 250,000
Service Charges, Columbia Gas System Service Corporation................ $ 200,000
Blue Sky Filing Fees and Expenses....................................... $ 30,000
Miscellaneous Expenses.................................................. $ 50,000
----------
Total Expenses................................................ $1,389,828
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware gives
Delaware corporations the power to indemnify present and former officers and
directors under certain circumstances. Article V of the Certificate of
Incorporation contains provisions which provide for indemnification of certain
persons (including officers and directors).
Directors and officers liability insurance has been purchased for the
Company's officers and directors, plus directors and officers of subsidiary
companies. Subject to policy terms and conditions, this insurance indemnifies
individual directors and officers for related costs, damage or charges,
including litigation expenditures, incurred as a result of actual or alleged
wrongful acts. The coverage also reimburses the Company and its subsidiary
companies for amounts paid by them to indemnify covered directors and officers.
The annual cost of this insurance to the Company and its subsidiary companies is
$1,565,000.
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C>
1-A -- Form of Underwriting Agreement.
4-Q -- Form of Indenture between the Company and Marine Midland Bank, Trustee.
4-R -- Form of Supplemental Indenture for Debentures.
4-S -- Indenture dated as of November 28, 1995 between the Company and Marine Midland
Bank, Trustee.
4-T -- First Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
4-U -- Second Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
4-V -- Third Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
</TABLE>
II-1
<PAGE> 75
<TABLE>
<S> <C> <C>
4-W -- Fourth Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
4-X -- Fifth Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
4-Y -- Sixth Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
4-Z -- Seventh Supplemental Indenture dated as of November 28, 1995 between the Company
and Marine Midland Bank, Trustee.
5 -- Opinion of Messrs. Cravath, Swaine & Moore with respect to the legality of the
Securities.
12 -- Statement of Ratio of Earnings to Fixed Charges.
23-A-1 -- Written consent of Arthur Andersen LLP, independent public accountants, dated
November 22, 1995, to the incorporation by reference of their reports dated
February 9, 1995, which are included, or incorporated by reference, in the
Company's Annual Report on Form 10-K.
23-A-2 -- Written consent of Arthur Andersen LLP, independent public accountants, dated
February 13, 1996, to the incorporation by reference of their reports dated
February 9, 1995, which are included, or incorporated by reference, in the
Company's Annual Report on Form 10-K.
23-A-3 -- Written consent of Arthur Andersen LLP, independent public accountants, dated
February 23, 1996, to the incorporation by reference of their report dated
February 5, 1996, which is included, or incorporated by reference, in the
Company's Annual Report on Form 10-K.
23-B-1 -- Letter report, dated February 3, 1995, of Ryder Scott Company Petroleum
Engineers, independent petroleum and natural gas consultants to the Company.
23-B-2 -- Written consent, dated January 4, 1996, of Ryder Scott Company Petroleum
Engineers, independent petroleum and natural gas consultants to the Company, to
the filing and use of information contained in such letter report, which is
incorporated by reference in Exhibit 23-B-1, in reports and registration
statements to be filed from January 1, 1996 through March 31, 1996.
23-B-3 -- Letter report, dated January 26, 1996, and the written consent to the filing and
use of information contained in such letter report, Reports and Registration
Statements filed during 1996, of Ryder Scott Company Petroleum Engineers,
independent petroleum and natural gas consultants.
23-C -- The consent of Messrs. Cravath, Swaine & Moore, counsel to the Company, appears
in their opinion which is filed as Exhibit 5 to this Registration Statement.
24 -- Powers of attorney.
25 -- Statement of eligibility of Trustee.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
<PAGE> 76
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
SEC by the registrant pursuant to Section 13 or 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registration pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of New Castle and State of Delaware on
February 23, 1996.
The Columbia Gas System, Inc.
By /s/ M.W. O'DONNELL
--------------------------------------
M.W. O'Donnell,
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-3 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ OLIVER G. RICHARD III Director (Principal February 23, 1996
- --------------------------------------------- Executive Officer)
Oliver G. Richard III
</TABLE>
<TABLE>
<S> <C> <C>
/s/ MICHAEL W. O'DONNELL Senior Vice President
- --------------------------------------------- (Principal Financial
Michael W. O'Donnell Officer)
/s/ RICHARD E. LOWE Vice President (Principal
- --------------------------------------------- Accounting Officer)
Richard E. Lowe
/s/ RICHARD F. ALBOSTA Director
- ---------------------------------------------
Richard F. Albosta
/s/ ROBERT H. BEEBY Director
- ---------------------------------------------
Robert H. Beeby
/s/ WILSON K. CADMAN Director
- ---------------------------------------------
Wilson K. Cadman
/s/ JAMES P. HEFFERNAN Director
- ---------------------------------------------
James P. Heffernan
/s/ DONALD P. HODEL Director
- ---------------------------------------------
Donald P. Hodel
/s/ MALCOLM T. HOPKINS Director
- ---------------------------------------------
Malcolm T. Hopkins
</TABLE>
II-4
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ MALCOLM JOZOFF Director
- ---------------------------------------------
Malcolm Jozoff
/s/ WILLIAM E. LAVERY Director
- ---------------------------------------------
William E. Lavery
/s/ GERALD E. MAYO Director
- ---------------------------------------------
Gerald E. Mayo
/s/ DR. DOUGLAS E. OLESEN Director
- ---------------------------------------------
Dr. Douglas E. Olesen
/s/ ERNESTA G. PROCOPE Director
- ---------------------------------------------
Ernesta G. Procope
/s/ JAMES R. THOMAS, II Director
- ---------------------------------------------
James R. Thomas, II
/s/ WILLIAM R. WILSON Director
- ---------------------------------------------
William R. Wilson
By: /s/ M.W. O'DONNELL
- ---------------------------------------------
(M.W. O'Donnell,
Attorney-in-Fact)
</TABLE>
II-5
<PAGE> 79
EXHIBIT INDEX
Reference is made in the two right hand columns below to those exhibits
which have heretofore been filed with the Commission. Exhibits so referred to
are incorporated herein by reference.
<TABLE>
<CAPTION>
REFERENCE
------------------------
FILE NO. EXHIBIT NO.
-------- -----------
<S> <C> <C> <C> <C>
1-A -- Form of Underwriting Agreement. 33-64555 1-A
4-Q -- Form of Indenture between the Company and Marine 33-64555 4-Q
Midland Bank, Trustee.
4-R -- Form of Supplemental Indenture for Debentures. 33-64555 4-R
4-S -- Indenture dated as of November 28, 1995 between the 33-64555 4-S
Company and Marine Midland Bank, Trustee.
4-T -- First Supplemental Indenture dated as of November 28, 33-64555 4-T
1995 between the Company and Marine Midland Bank,
Trustee.
4-U -- Second Supplemental Indenture dated as of November 28, 33-64555 4-U
1995 between the Company and Marine Midland Bank,
Trustee.
4-V -- Third Supplemental Indenture dated as of November 28, 33-64555 4-V
1995 between the Company and Marine Midland Bank,
Trustee.
4-W -- Fourth Supplemental Indenture dated as of November 28, 33-64555 4-W
1995 between the Company and Marine Midland Bank,
Trustee.
4-X -- Fifth Supplemental Indenture dated as of November 28, 33-64555 4-X
1995 between the Company and Marine Midland Bank,
Trustee.
4-Y -- Sixth Supplemental Indenture dated as of November 28, 33-64555 4-Y
1995 between the Company and Marine Midland Bank,
Trustee.
4-Z -- Seventh Supplemental Indenture dated as of November 28, 33-64555 4-Z
1995 between the Company and Marine Midland Bank,
Trustee.
5 -- Opinion of Messrs. Cravath, Swaine & Moore with respect 33-64555 5
to the legality of the Securities.
12 -- Statement of Ratio of Earnings to Fixed Charges. 1-1098 12
23-A-1 -- Written consent of Arthur Andersen LLP, independent 33-64555 24-A-1
public accountants dated November 22, 1995, to the
incorporation by reference of their reports dated
February 9, 1995, which are included, or incorporated
by reference, in the Company's Annual Report on Form
10-K.
23-A-2 -- Written consent of Arthur Andersen LLP, independent 33-64555 24-A-2
public accountants dated February 15, 1996, to the
incorporation by reference of their reports dated
February 9, 1995, which are included, or incorporated
by reference, in the Company's Annual Report on Form
10-K.
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
REFERENCE
------------------------
FILE NO. EXHIBIT NO.
-------- -----------
<S> <C> <C> <C> <C>
23-A-3* -- Written consent of Arthur Anderson LLP, independent
public accountants, dated February 23, 1996, to the
incorporation by reference of their report dated
February 5, 1996, which is included, or incorporated by
reference, in the Company's Annual Report on Form 10-K.
23-B-1 -- Letter report, dated February 3, 1995, of Ryder Scott 1-1098 23-A
Company Petroleum Engineers, independent petroleum and
natural gas consultants to the Company.
23-B-2 -- Written consent, dated January 4, 1996, of Ryder Scott 33-64555 23-B-2
Company Petroleum Engineers, independent petroleum and
natural gas consultants to the Company, to the filing
and use of information contained in such letter report,
which is incorporated by reference in Exhibit 23-B-1,
in reports and registration statements to be filed from
January 1, 1996 through March 31, 1996.
23-B-3 -- Letter report, dated January 26, 1996, and the written 1-1098 23-A
consent to the filing and use of information contained
in such letter report, Reports and Registration
Statements filed during 1996, of Ryder Scott Company
Petroleum Engineers, independent petroleum and natural
gas consultants.
23-C -- The consent of Messrs. Cravath, Swaine & Moore, counsel 33-64555 23-C
to the Company, appears in their opinion which is filed
as Exhibit 5 to this Registration Statement.
24 -- Powers of attorney. 33-64555 25
25 -- Statement of eligibility of trustee. 33-64555 26
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 23-A-3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 5, 1996
included in The Columbia Gas System's Form 10-K for the year ended December 31,
1995 and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
New York, New York
February 23, 1996
