<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended MARCH 31, 1997
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
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Commission file number 1-1098
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THE COLUMBIA GAS SYSTEM, INC.
-----------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12355 Sunrise Valley Drive, Suite 300, Reston, VA 20191-3420
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 295-0300
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: Common
Stock, $10 Par Value: 55,349,562 shares outstanding at March 31, 1997.
<PAGE> 2
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
PART I FINANCIAL INFORMATION
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Item 1 Financial Statements
Statements of Consolidated Income 3
Condensed Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Common Stock Equity 6
Notes 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 25
Item 2 Changes in Securities 27
Item 3 Defaults Upon Senior Securities 27
Item 4 Submission of Matters to a Vote of Security Holders 27
Item 5 Other Information 27
Item 6 Exhibits and Reports on Form 8-K 27
Signature 28
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The Columbia Gas System, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)
Three Months
Ended March 31,
---------------------------------------
1997 1996
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(millions, except per share amounts)
<S> <C> <C>
OPERATING REVENUES
Gas sales $ 1,308.4 $ 1,002.3
Transportation 151.4 142.6
Other 67.9 58.1
----------- ----------
Total Operating Revenues 1,527.7 1,203.0
----------- ----------
OPERATING EXPENSES
Products purchased 899.6 551.8
Operation 198.9 206.8
Maintenance 24.6 23.9
Depreciation and depletion 71.2 68.1
Other taxes 76.8 74.2
----------- ----------
Total Operating Expenses 1,271.1 924.8
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OPERATING INCOME 256.6 278.2
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OTHER INCOME (DEDUCTIONS)
Interest income and other, net 14.3 3.1
Interest expense and related charges (40.3) (43.7)
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Total Other Income (Deductions) (26.0) (40.6)
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INCOME BEFORE INCOME TAXES 230.6 237.6
Income Taxes 67.9 86.3
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NET INCOME $ 162.7 $ 151.3
=========== ==========
EARNINGS PER SHARE OF COMMON STOCK $ 2.94 $ 2.99
=========== ==========
DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.15 $ 0.15
AVERAGE COMMON SHARES OUTSTANDING (thousands) 55,327 50,662
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
3
<PAGE> 4
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
The Columbia Gas System, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
As of
-----------------------------------------
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS (millions)
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $ 7,018.6 $ 6,994.4
Accumulated depreciation and depletion (3,387.4) (3,344.5)
---------- ----------
Net Gas Utility and Other Plant 3,631.2 3,649.9
---------- ----------
Gas and oil producing properties, full cost method 502.7 502.8
Accumulated depletion (150.8) (146.4)
---------- ----------
Net Gas and Oil Producing Properties 351.9 356.4
---------- ----------
Net Property, Plant and Equipment 3,983.1 4,006.3
---------- ----------
INVESTMENTS AND OTHER ASSETS 95.8 103.3
---------- ----------
CURRENT ASSETS
Cash and temporary cash investments 65.3 49.8
Accounts receivable, net 728.5 597.6
Gas inventory 5.6 237.8
Other inventories - at average cost 47.7 45.1
Prepayments 65.7 73.8
Regulatory assets 66.7 63.4
Underrecovered gas costs 21.6 104.7
Prepaid property tax 54.1 81.1
Exchange gas receivable 171.1 114.6
Other 71.7 68.0
---------- ----------
Total Current Assets 1,298.0 1,435.9
---------- ----------
REGULATORY ASSETS 400.9 410.1
DEFERRED CHARGES 65.2 49.0
---------- ----------
TOTAL ASSETS $ 5,843.0 $ 6,004.6
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $ 1,712.1 $ 1,553.6
Long-term debt 2,003.2 2,003.8
---------- ----------
Total Capitalization 3,715.3 3,557.4
---------- ----------
CURRENT LIABILITIES
Short-term debt - 250.0
Accounts and drafts payable 192.1 348.6
Accrued taxes 193.9 142.6
Accrued interest 49.5 14.8
Estimated rate refunds 111.9 114.0
Estimated supplier obligations 78.0 115.1
Transportation and exchange gas payable 94.8 95.4
Overrecovered gas costs 89.0 -
Retirement income plan 57.7 57.4
Other 286.5 313.7
---------- ----------
Total Current Liabilities 1,153.4 1,451.6
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OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes, noncurrent 558.0 557.7
Investment tax credits 36.7 37.1
Postretirement benefits other than pensions 162.4 172.3
Regulatory liabilities 43.6 44.5
Other 173.6 184.0
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Total Other Liabilities and Deferred Credits 974.3 995.6
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TOTAL CAPITALIZATION AND LIABILITIES $ 5,843.0 $ 6,004.6
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
<PAGE> 5
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
The Columbia Gas System, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months
Ended March 31,
-----------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 162.7 $ 151.3
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 71.2 68.1
Deferred income taxes (14.1) 23.6
Other - net (10.1) (29.2)
Change in components of working capital:
Accounts receivable (128.3) (142.7)
Income tax refunds - (38.8)
Gas inventory 232.2 168.7
Prepayments 8.8 45.7
Accounts payable (142.2) 33.1
Accrued taxes 51.3 71.3
Accrued interest 36.0 37.6
Estimated rate refunds (2.0) (7.1)
Estimated supplier obligations (37.1) (13.9)
Under/Overrecovered gas costs 172.2 (40.0)
Exchange gas payable (1.9) 25.8
Other working capital (49.0) (53.3)
---------- -----------
Net Cash From Operations 349.7 300.2
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INVESTMENT ACTIVITIES
Capital expenditures (60.2) (53.5)
Deposit received on the sale of Columbia Development - 9.7
Other investments - net (4.2) 18.7
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Net Investment Activities (64.4) (25.1)
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FINANCING ACTIVITIES
Retirement of preferred stock - (400.0)
Retirement of long-term debt (0.5) (0.4)
Dividends paid (8.3) (7.4)
Issuance of common stock 4.2 241.6
Net decrease in revolving credit facility (250.0) (23.8)
Other financing activities (15.2) (62.1)
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Net Financing Activities (269.8) (252.1)
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Increase in Cash and Temporary Cash Investments 15.5 23.0
Cash and temporary cash investments at beginning of year 49.8 8.0
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Cash and temporary cash investments at March 31* $ 65.3 $ 31.0
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 3.0 6.5
Cash paid for income taxes (net of refunds) (9.6) (1.2)
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
* The Corporation considers all highly liquid debt instruments to be cash
equivalents.
5
<PAGE> 6
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
The Columbia Gas System, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
As of
---------------------------------------
March 31, December 31,
1997 1996
---------------- ------------
(unaudited)
(millions)
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, $10 par value, authorized
100,000,000 shares, issued 55,349,562
and 55,263,659 shares, respectively $ 553.5 $ 552.6
Additional paid in capital 746.1 743.2
Retained earnings 413.6 259.3
Unearned employee compensation (1.1) (1.5)
--------- ---------
TOTAL COMMON STOCK EQUITY $1,712.1 $1,553.6
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
<PAGE> 7
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
The Columbia Gas System, Inc. and Subsidiaries
NOTES
1. Basis of Accounting Presentation
The accompanying unaudited condensed consolidated financial statements
for The Columbia Gas System, Inc. (Columbia) reflect all normal
recurring adjustments which are necessary, in the opinion of
management, to present fairly the results of operations in accordance
with generally accepted accounting principles.
The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in Columbia's
1996 Annual Report on Form 10-K. Income for interim periods may not be
indicative of results for the calendar year due to weather variations
and other factors. Certain reclassifications have been made to the
1996 financial statements to conform to the 1997 presentation.
2. Bankruptcy Matters
On November 28, 1995, Columbia and its wholly-owned subsidiary,
Columbia Gas Transmission Corporation (Columbia Transmission), emerged
from Chapter 11 protection of the Federal Bankruptcy Code under the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware (Bankruptcy Court). Both Columbia and Columbia Transmission
had operated under Chapter 11 protection since July 31, 1991. Certain
residual unresolved bankruptcy-related matters are still within the
jurisdiction of the Bankruptcy Court.
Unsettled Producer Claims
Columbia Transmission's approved plan of reorganization (Plan)
provided that producers who rejected settlement offers contained in
Columbia Transmission's Plan may continue to litigate their claims
under the Bankruptcy Court-approved claims estimation procedures,
described below, and receive the same percentage payout on their
allowed claims, when and if ultimately allowed, as received by the
settling producers. Columbia Transmission's Plan further provided that
the actual distribution percentage for all producer claims, which
would not be less than 68.875% or greater than 72.5%, could not be
determined until the total amount of contested producer claims is
established, and until such time, 5% of the maximum amount (based on a
72.5% payout) to be distributed to producer claimants for allowed
claims and to Columbia for unsecured debt will be withheld. Additional
distributions, if any, will be made when the total amount of allowed
producer claims has been determined.
Producer Claims Estimation Process
In 1992, the Bankruptcy Court approved the appointment of a claims
mediator and the implementation of a claims estimation procedure for
the quantification of claims arising from the rejection of
above-market gas purchase contracts and other claims by producers
related to gas purchase contracts with Columbia Transmission. In late
1994 and early 1995, the claims mediator issued Initial and
Supplemental Reports On Generic Issues for Natural Gas Contract Claims
and directed producer claimants to submit recalculated claims
consistent with those reports. In mid-1995, most producers with which
Columbia Transmission had not yet negotiated settlements submitted
recalculated claims to the claims mediator. Those recalculated claims
amounted to over $2 billion. Since that time, several recalculated
claims have been amended by producer claimants. Since mid-1995,
numerous additional producers have settled their claims.
7
<PAGE> 8
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Some of those settlements became final with the confirmation of
Columbia Transmission's Plan while others were approved subsequent to
confirmation and have become final. In addition, several claims have
been resolved by settlement following litigation within the claims
estimation process. The recommendations and instructions set out in
those claims mediator's reports have not been considered by the
Bankruptcy Court.
The claims estimation procedures remain in place for the liquidation
of producer claims that still remain unresolved. The claims mediator
continues to schedule and hold evidentiary hearings with respect to
individual producer claims, including claim-specific issues not
addressed by the original reports.
Absent settlement by agreement, recommendations made by the claims
mediator would be submitted to the Bankruptcy Court, and all parties
then have rights of appellate review with respect to any rulings by
that court. When claims are allowed by the Bankruptcy Court and the
allowances become final, Columbia Transmission will make distributions
with respect to those claims pursuant to the Plan. The timing of
completion of the claims liquidation is impossible to predict.
Based on the information received and evaluated to date, Columbia
believes adequate reserves have been established for resolution of the
remaining producer claims and the payment of any amounts ultimately
due to producers with respect to the 5% holdback.
3. Statement of Financial Accounting Standards No. 128, "Earnings per
Share"
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128). This statement supersedes APB Opinion No. 15,
"Earnings per Share" and simplifies the computation of earnings per
share (EPS). Primary EPS is replaced with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. In addition, fully diluted
EPS is replaced with diluted EPS. Diluted EPS reflects the potential
dilution if certain securities are converted. This statement requires
dual presentation of basic and diluted EPS by entities with complex
capital structures and also requires restatement of all prior-period
EPS data presented. SFAS No. 128 will be effective for financial
statements for both interim and annual periods ending after December
15, 1997, and Columbia plans to adopt the statement for year-end 1997.
Columbia does not expect the effect of adopting SFAS No. 128 to have a
material impact on its EPS calculation. If adopted currently, SFAS No.
128 would not have a material impact on Columbia's reported EPS.
8
<PAGE> 9
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS) BY SEGMENT
----------------------------------
Three Months
Ended March 31,
---------------------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
Transmission and Storage $ 92.9 $ 85.5
Distribution 140.6 168.0
Exploration and Production 11.7 10.8
Marketing, Propane and Power Generation 9.9 14.7
Corporate 1.5 (0.8)
---------- ----------
TOTAL $ 256.6 $ 278.2
========== ==========
<CAPTION>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
--------------------------------------------
<S> <C> <C>
Actual 2,693 3,102
Normal 2,947 2,979
% Colder (warmer) than normal (9) 4
% Colder (warmer) than prior period (13) 13
</TABLE>
9
<PAGE> 10
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Management's Discussion and Analysis contains "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. Shareholders and prospective
shareholders should understand that several factors govern whether any
forward-looking statement contained herein will be or can be achieved. Any one
of those factors could cause actual results to differ materially from those
projected herein. These forward-looking statements include statements
concerning Columbia's plans, objectives and expected performance, expenditures
and recovery of expenditures through rates, including any and all underlying
assumptions and other statements that are other than statements of historical
fact. From time to time, Columbia may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of
Columbia, are also expressly qualified by these cautionary statements. These
forward-looking statements are based on assumptions that management believes to
be reasonable; however, there can be no assurance that actual results will not
differ materially. Realization of Columbia's objectives and expected
performance is subject to a wide range of risks and can be adversely affected
by, among other things, competition, weather, regulatory and legislative
changes as well as changes in general economic and capital market conditions,
many of which are beyond the control of Columbia. In addition, the relative
contributions to profitability by segment may change over time due to changes
in the market place.
Net Income
Despite unseasonably mild temperatures, Columbia reported record 1997 first
quarter net income of $162.7 million, an increase of $11.4 million over the
same period last year. First quarter earnings of $2.94 per share decreased
$0.05 from the first quarter of 1996. This decrease included the effect of
additional shares of common stock that were issued in early 1996 that resulted
in an increase of 4.7 million in the average number of shares outstanding.
Improvements for the first three months of 1997 included: a $12.8 million
reduction to tax expense resulting from benefits gained through consolidated
state tax filings; $4.7 million for lower operation and maintenance expense
reflecting the implementation of reengineering initiatives; $5.5 million gain
for a payment received from the deactivation of a storage field; proceeds from
the assignment of a transportation agreement and a gas purchase contract buyout
by a cogeneration facility and reduced interest costs on short-term borrowings.
Also improving 1997's first quarter results was the full period effect of
higher rates for Columbia Transmission and Columbia Gas of Kentucky, Inc.
(Columbia of Kentucky). Tempering these improvements was 13% warmer weather
compared to the same period last year that depressed net income $21 million, or
$0.41 per share.
Revenues
For the first three months of 1997, operating revenues of $1,527.7 million,
were up $324.7 million over the same period last year, primarily reflecting
higher rates in effect for the distribution subsidiaries to recover increased
gas costs and additional sales for the gas marketing affiliate. Sales of 106.7
Bcf for the marketing affiliate more than doubled from last year's level of
46.5 Bcf. Also increasing revenues was $4.1 million received by Columbia
Natural Resources, Inc. (Columbia Resources) for a gas purchase contract buyout
by the Binghamton Cogeneration Partnership (Binghamton Partnership) project
that ceased operations in early 1997. The facility had a contract to purchase
natural gas for its operations from Columbia Resources. This cogeneration
project was a partnership between a Columbia affiliate, TriStar Ventures
Corporation (TriStar), and third parties. In addition, TriStar received $3.2
million from the Binghamton Partnership for accepting the assignment of a
transportation agreement. Tempering
10
<PAGE> 11
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
these increases was the effect of the unseasonably warm weather in the current
period that resulted in lower sales volumes for the distribution subsidiaries
and lower wellhead prices for gas production.
Expenses
Operating expenses of $1,271.1 million increased $346.3 million over last year
due to increased products purchased expense of $347.8 million reflecting higher
gas prices and additional volumes purchased to meet the sales requirements of
the gas marketing operations. Operation and maintenance expense decreased $7.2
million from the first quarter of 1996 primarily as a result of implementing
restructuring initiatives. Additional plant in service for the distribution
subsidiaries led to $3.1 million higher depreciation expense while the $2.6
million increase in other taxes was largely due to higher property and gross
receipts taxes.
Other Income (Deductions)
For the first three months of 1997, Other Income (Deductions) decreased income
$26 million, whereas for the same period last year income was reduced $40.6
million. Interest income and other, net, of $14.3 million, increased $11.2
million over the same period last year. This improvement was due in large part
to recording a $8.5 million gain for the payment received from the deactivation
of a storage field that will allow the owner of the coal reserves to mine the
property. Total interest expense and related charges of $40.3 million,
decreased $3.4 million from last year due primarily to lower interest costs on
short-term debt balances.
Liquidity and Capital Resources
A significant portion of Columbia's operations is 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
year, cash on hand, together with external financing as needed, is 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.
For the first quarter of 1997, net cash from operations was $349.7 million, an
increase of $49.5 million over the same period last year. The improvement was
largely due to revenues associated with the recovery of gas costs by the
distribution subsidiaries in the current period. The higher level of recovery
reflected the rise in prices experienced in 1996 that resulted in an increase
in the commodity portion of the distribution subsidiaries' rates. The recovery
level will be reduced over the next several months through future adjustments
as provided for under the regulatory process. Previously the distribution
subsidiaries were in an underrecovered position because the rapid increase in
the cost of gas exceeded the recovery levels that were allowed at that time. In
addition, the full period effect of higher base rates for Columbia Transmission
and Columbia of Kentucky also improved cash from operations. Partially
offsetting these improvements was the effect of lower sales volumes for the
distribution subsidiaries due to the warmer weather. Reduced natural gas
purchases caused by the lower weather-related sales, together with lower prices
for gas purchases, resulted in a reduction in accounts payable.
Columbia satisfies its liquidity requirements through internally generated
funds and the use of its $1 billion unsecured bank revolving credit facility
(Credit Facility). Columbia also may pursue obtaining additional short-term
financing through the use of bid notes and the establishment of a commercial
paper program.
11
<PAGE> 12
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Columbia's $1 billion Credit Facility provides for scheduled quarterly
reductions of $25 million of the aggregate committed amount starting December
31, 1997, that will reduce the Credit Facility commitments to $700 million by
September 30, 2000. The Credit Facility also provides for the issuance of up to
$150 million of letters of credit. As of March 31, 1997, Columbia had no
borrowings and approximately $87.6 million of letters of credit outstanding
under the Credit Facility. During the first quarter, Columbia was able to repay
its remaining short-term borrowings which at year-end 1996 were $250 million.
Interest rates on borrowings are based upon the London Interbank Offered Rate,
Certificate of Deposit rates or other short-term interest rates. The facility
fee on the commitment amount is based on Columbia's public debt rating. Earlier
in 1997, Fitch Investor Service upgraded Columbia's long-term debt rating to
BBB+, and more recently Moody's Investors Service and Standard & Poors upgraded
their debt ratings for Columbia to Baa1 and BBB+, respectively. These higher
ratings will result in lower interest rates on any borrowings that Columbia
makes under the facility.
Columbia has an effective shelf registration statement on file with the U. S.
Securities and Exchange Commission for the issuance of up to $1 billion in
aggregate of debentures, common stock or preferred stock in one or more series.
In March 1996, Columbia issued 5,750,000 shares of common stock under the shelf
registration and used the proceeds to reduce borrowings incurred under the
Credit Facility. No further issuances of the remaining $750 million available
under the shelf registration are scheduled at this time.
12
<PAGE> 13
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
OPERATING REVENUES
Transportation revenues $ 180.2 $ 183.0
Storage revenues 43.5 38.7
Other revenues 9.7 4.9
------- -------
Total Operating Revenues 233.4 226.6
------- -------
OPERATING EXPENSES
Operation and maintenance 100.1 98.5
Depreciation 26.3 27.0
Other taxes 14.1 15.6
------- -------
Total Operating Expenses 140.5 141.1
------- -------
OPERATING INCOME $ 92.9 $ 85.5
======= =======
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area 377.8 429.5
Columbia Gulf
Main-line 151.0 170.2
Short-haul 62.0 69.3
Intrasegment eliminations (144.8) (166.5)
-------- --------
Total Throughput 446.0 502.5
======== ========
</TABLE>
13
<PAGE> 14
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
Marketing Initiatives
Proposed Millennium Pipeline Project
On April 3, 1997, Columbia Transmission announced its participation in the
proposed Millennium Pipeline Project. Additional parties include CMS Energy
Corporation (CMS), WestCoast Energy, Inc. (WestCoast Energy) and MCN Energy
Group, Inc. Additional strategic partners may be added, with Columbia
Transmission maintaining a minimum 40% ownership position. The pipeline will
bring western gas supplies directly to east coast markets via TransCanada's
recently announced expansion project and indirectly from Chicago through
agreements with CMS and Union Gas (a subsidiary of WestCoast Energy). The
380-mile pipeline will link with TransCanada Pipelines Limited at a new Lake
Erie export/import point and transport up to 650,000 Mcf per day to eastern
markets utilizing existing Columbia Transmission rights-of-way for the majority
of the route. The proposed in-service date is late-1999. Columbia Transmission
is taking the lead role in the development, construction and operation of the
proposed $600 million project. A 45-day "open season" began in early May 1997
to provide an opportunity for third parties to bid for the capacity. A filing
with the Federal Energy Regulatory Commission (FERC), requesting approval for
this project, is expected to be submitted later this year.
Market Expansion Project
In January 1997, the FERC issued a preliminary determination approving the
non-environmental aspects of Columbia Transmission's expansion of its pipeline
and storage systems. As discussed in Columbia's 1996 Annual Report on Form
10-K, the expansion will add approximately 500,000 Mcf per day of firm service
to 23 customers. The expansion will be phased in over a three-year period
commencing November 1, 1997. The FERC on March 24, 1997, issued for public
comment, its favorable environmental assessment report on the proposed
facilities for the project. Final approval of Columbia Transmission's market
expansion application is anticipated during the second quarter of 1997.
Regulatory Matters
Columbia Transmission's Rate Filing
In April 1997, the FERC approved Columbia Transmission's rate case settlement,
its first general rate filing since 1991. In addition to an increase in
revenues to recover higher costs, the approved settlement will allow for the
recovery of Columbia Transmission's net investment in gathering and certain gas
processing facilities.
The settlement, which was supported by all parties to the proceeding, resolved
virtually all issues, including rate design, cost of service, and the
unbundling of gathering and products extraction costs from Columbia
Transmission's transportation rates. The settlement also provides customers
with rate certainty through February 1, 2000, and allows Columbia Transmission
to recognize the proceeds from the 1996 sale of base gas from the
Majorsville-Heard storage field. An after-tax improvement of approximately $12
million will be recorded in the second quarter of 1997 to reflect the terms of
the settlement, including the base gas sale.
Excluded from the settlement is the environmental cost recovery issue which
will be addressed in a second phase of the proceeding. A hearing is currently
scheduled for the third quarter of 1998 to address this second phase.
Recovery of Columbia Gulf's Pre-November 1994 Transportation Costs
In March 1995, Columbia Transmission filed with the FERC to recover $69 million
of annual projected
14
<PAGE> 15
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
transportation costs and $39 million of unrecovered transportation costs that
were billed to Columbia Transmission by Columbia Gulf Transmission Company
(Columbia Gulf). Several parties filed protests with the FERC regarding the
Columbia Gulf charges. The FERC subsequently ruled that approximately $19
million of the charges were recoverable by Columbia Transmission, subject to a
general FERC audit, which has been completed. The remaining $20 million of
costs are associated with environmental issues. The FERC scheduled a hearing to
address the recovery of such costs; however, Columbia Transmission and the
parties to the case recently reached a settlement in principle which is
anticipated to be filed with the FERC in the second quarter of 1997.
Columbia Gulf's Rate Filing
On October 31, 1996, Columbia Gulf filed a general rate case with the FERC. A
prior rate case settlement required Columbia Gulf to file the new general rate
case at this time. The filing reflects a proposed increase in revenues of
approximately $9.6 million and addresses several rate design and cost
allocation issues. On November 27, 1996, the FERC accepted the filing subject
to refund and certain minor conditions. On April 29, 1997, Columbia Gulf filed
revised rates to be effective May 1, 1997, subject to refund, which reflected
changes required by the FERC's November 27, 1996 order. The April filing
reflects a revised proposed increase in revenues of approximately $8.1 million.
The case has been assigned to an administrative law judge for a hearing
scheduled for December 15, 1997.
Restructuring Activities
Columbia Transmission and Columbia Gulf began a restructuring project in early
1996 to streamline the business functions and improve productivity by focusing
on all processes within the transmission companies. In 1996, the implementation
of key recommendations began as well as $24.6 million of expense was recorded,
primarily for severance and benefits programs applicable to staff level
reductions. Implementation is continuing throughout 1997 and additional charges
associated with these restructuring activities will be incurred during the
year.
Columbia Transmission also began the process of selling portions of its
gathering facilities as a result of FERC's Order No. 636, which requires
natural gas pipelines to unbundle their gathering costs and services from other
transportation costs. In mid-1997, approximately 3,000 miles of gas gathering
lines in Kentucky and West Virginia will be sold to Columbia Resources at
Columbia Transmission's net book value. An agreement in principle has been
reached with a third party for the sale of approximately 1,700 miles of gas
gathering lines in Ohio to occur in late 1997. Columbia Transmission has
completed an open-bidding process for the remaining 1,900 miles of gathering
lines. Subsequent negotiations have resulted in letters of intent to sell to
various parties certain of the remaining gathering systems located in Ohio,
Pennsylvania, West Virginia and Maryland. It is anticipated that the facilities
will be sold before year-end 1997.
Environmental Matters
Columbia's transmission subsidiaries have implemented programs to continually
review compliance with existing environmental standards. Columbia Transmission
is currently conducting assessment, characterization and remediation activities
at specific sites under a 1995 EPA Administrative Order by Consent.
Expenditures of approximately $1.7 million in the first quarter of 1997 have
been charged against the liability previously established resulting in a
remaining overall liability of $124.1 million. Additional
15
<PAGE> 16
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
charges during the course of 1997 will also be charged against the previously
recorded liability. Management does not believe that Columbia Transmission's
environmental expenditures will have a material adverse effect on its
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 Statement of Financial Accounting
Standards No. 71 in 1995, a regulatory asset has been recorded to the extent
environmental expenditures are expected to be recovered through rates. Columbia
Transmission is also currently involved in pursuing recovery of environmental
expenditures from its insurance carriers; at this time, management is unable to
determine the extent, if any, of recovery.
Volumes
Columbia Transmission's throughput consists of transportation and storage
services for local distribution companies and other customers within its market
area. Throughput is recorded for market-area storage services as gas is
withdrawn from storage. Throughput for Columbia Gulf reflects mainline
transportation services from Rayne, Louisiana to West Virginia and short-haul
transportation services from the Gulf of Mexico to Rayne, Louisiana.
Total throughput for the transmission and storage segment totaled 446 Bcf for
the first quarter of 1997, a decrease of 56.5 Bcf from the same period last
year due largely to warmer weather. Under Order 636, a significant portion of
the transmission and storage segment's fixed costs are being recovered through
a monthly demand charge. As a result, variations in throughput do not have a
significant impact on income.
Operating Revenues
Total operating revenues for the first quarter of 1997 of $233.4 million have
increased $6.8 million over the previous period. After adjusting for revenues
related to the recovery of upstream transportation costs and certain other
costs that are fully offset in operating expenses, current period operating
revenues increased $5.3 million. The full period effect of new rates for
Columbia Transmission initiated February 1, 1996, subject to refund, together
with additional revenues generated by the Cove Point liquefied natural gas
peaking service, were the primary reasons for the increase in revenues.
Operating Income
Operating income of $92.9 million increased $7.4 million over last year. This
increase is attributable to the increase in revenues discussed above as well as
to a small decrease in operating expenses.
16
<PAGE> 17
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
DISTRIBUTION OPERATIONS
Three Months
Ended March 31,
------------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
NET REVENUES
Sales revenues $ 1,025.2 $ 856.7
Less: Cost of gas sold 719.1 518.7
---------- ----------
Net Sales Revenues 306.1 338.0
---------- ----------
Transportation revenues 42.1 35.9
Less: Associated gas costs 2.9 3.2
---------- ----------
Net Transportation Revenues 39.2 32.7
---------- ----------
Net Revenue 345.3 370.7
---------- ----------
OPERATING EXPENSES
Operation and maintenance 110.2 116.5
Depreciation 35.6 31.6
Other taxes 58.9 54.6
---------- ----------
Total Operating Expenses 204.7 202.7
---------- ----------
OPERATING INCOME $ 140.6 $ 168.0
========== ==========
THROUGHPUT (Bcf)
Sales
Residential 88.4 102.7
Commercial 34.1 42.3
Industrial and other 0.3 3.5
---------- ----------
Total Sales 122.8 148.5
Transportation 72.0 71.7
---------- ----------
Total Throughput 194.8 220.2
---------- ----------
Off-System Sales 31.3 4.4
---------- ----------
Total Sold or Transported 226.1 224.6
========== ==========
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot Market* 61.6 79.0
Producers 11.5 16.2
Storage withdrawals 82.7 68.5
Other (1.7) (10.8)
---------- ----------
Total Sources of Gas Sold 154.1 152.9
---------- ----------
Transportation received for delivery to customers 72.0 71.7
---------- ----------
Total Sources 226.1 224.6
========== ==========
</TABLE>
*Purchase contracts of less than one year.
17
<PAGE> 18
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Conditions
During the first quarter of 1997 weather in the market area served by
Columbia's distribution subsidiaries (Distribution) was 13% warmer than 1996
and 9% warmer than normal. This resulted in a 22 Bcf decline from 1996 in
Distribution's weather-sensitive deliveries. While January and March 1997 were
3% and 6% warmer than normal, respectively, the month of February was 18%
warmer than normal, the fifth warmest February since 1950.
Regulatory Matters
Columbia Gas of Ohio Inc.'s (Columbia of Ohio) "Customer Choice" transportation
pilot program began April 1, 1997, in the Toledo market. The Public Utilities
Commission of Ohio (PUCO) approved the initial program for a one-year period.
After a year, the PUCO will review the program before considering a more
permanent program. The Toledo market includes approximately 159,000 residential
customers and 11,200 small commercial customers. So far there are 13,600
customers participating of which 12,000 are residential. There are currently
eight active marketers in the program out of a total of 16 approved for
participation. The program provides for the automatic enrollment of some 40,000
economically disadvantaged customers statewide who are enrolled in Columbia of
Ohio's Percentage of Income Plan program. If the pilot program is successful,
Columbia of Ohio expects to expand "Customer Choice" to all of its nearly 1.3
million customers.
As reported in Columbia's 1996 Annual Report on Form 10-K, legislation was
enacted in Ohio that revised state laws governing natural gas to allow for more
competition among suppliers and more choices for customers. In March 1997, the
PUCO adopted final regulations implementing the legislation. The regulations
adopted by the PUCO deal only with the procedures used to process the new
applications filed by local distribution companies (LDCs). The adopted
procedures incorporated many of the recommendations of the LDCs. Columbia of
Ohio and the LDCs filed a joint application for rehearing in April 1997 to
convince the PUCO to adopt certain changes to the procedures including the
requirement that LDCs make social commitments as part of any application.
In Pennsylvania, the city of Pittsburgh and Allegheny County filed a petition
for a pilot program to establish retail natural gas customer choice in
Allegheny County. Under the pilot, the natural gas utilities authorized to
serve Allegheny County would be directed to provide open access transportation
service. In March 1997, the Pennsylvania Public Utility Commission (PPUC)
tentatively approved the pilot program. The PPUC will consider final approval
once guidelines are developed by the city, the county and the utilities. The
program is proposed to begin September 1, 1997. Columbia Gas of Pennsylvania,
Inc. (Columbia of Pennsylvania) has about 100,000 residential and small
commercial and industrial customers in Allegheny County. Columbia of
Pennsylvania's two-year pilot program which began November 1, 1996, in
Washington County has about 5,200 customers participating.
In Virginia, Commonwealth Gas Services, Inc.'s (Commonwealth Services) 1996
rate case settlement provided for a separate proceeding to consider capacity
release and off-system sales incentive proposals. A hearing on these issues was
held in September 1996. The Hearing Examiner issued a report in March 1997,
recommending approval of the incentive proposals. Comments on the Hearing
Examiner's report have been filed and the parties are now awaiting an order
from the Virginia State Corporation Commission.
Commonwealth Services will file for an increase in revenue in May 1997
proposing new rates to be effective October 1, 1997, under recently passed
legislation for performance-based ratemaking. In its filing,
18
<PAGE> 19
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Commonwealth Services will propose a residential/small commercial
transportation program called "Commonwealth Choice Program". The pilot program
would commence October 1, 1997, in the Gainesville market area. Additionally,
the filing will include future annual revenue increases, to be effective on
October 1, 1998 and October 1, 1999, that are needed to recover non-revenue
producing plant additions such as those required to replace facilities due to
age and condition. The revenue increases would be contingent upon achieving
performance benchmarks in the area of pipeline safety.
Gas Supply
Distribution's gas supply portfolio, with its large storage component, has the
reliability and flexibility to accommodate the impact of weather variations on
traditional customer demand as well as provide opportunities to increase
revenues through off-system sales and other incentive programs. Off-system
sales are sales or other transactions conducted outside of Distribution's
traditional market. Distribution had off-system sales in the first quarter of
1997 of 31.3 Bcf. This was an increase of 26.9 Bcf over last year due
indirectly to the mild first quarter weather as Distribution aggressively
marketed its storage volumes in March 1997.
Proceeds from the release of temporarily unused capacity totaled $5.2 million
during the first quarter of 1997, essentially unchanged from the same period in
1996. Where capacity release incentive program benchmarks are established, a
portion of the proceeds generated in excess of the benchmark provides income
for Distribution. The majority of the proceeds are recorded as a reduction to
gas costs. In the first quarter of 1997, both Columbia of Pennsylvania and
Columbia of Maryland were able to retain a small amount of capacity release
proceeds. As residential and small commercial transportation programs develop
into widespread practice and marketers take assignment of the local
distribution company's pipeline capacity contracts, non-traditional earnings
may decline.
Volumes
First quarter 1997 throughput of 194.8 Bcf decreased 25.4 Bcf from the same
period last year largely reflecting lower sales due to warmer weather in the
current period. The effect of the mild first quarter weather was tempered by
increased overall demand for transportation services reflecting competitive
natural gas spot prices, favorable economic conditions and decreased
interruptions by upstream suppliers. Industrial throughput was negatively
affected by a decrease of approximately 3 Bcf primarily caused by a production
shutdown at Wheeling-Pittsburgh Steel Corp. due to a labor strike.
Net Revenues
Net revenues for the first quarter of 1997 were $345.3 million, down $25.4
million from the first quarter of 1996. Weather that was 13% warmer than last
year reduced net revenues by approximately $32 million. The adverse impact of
the warm weather was partially offset by Columbia of Ohio's retention in the
current period of $8.1 million for certain off-system sales revenues resulting
from a 1996 rate settlement.
Operating Income
Operating income for the current quarter of $140.6 million was down $27.4
million from the same period last year primarily due to the $25.4 million
decline in net revenues. Higher operating expenses of $2 million also
contributed to the decline in operating income as other taxes were up $4.3
million due to higher property and gross receipts taxes and depreciation
expense increased $4 million due to plant additions. Partially offsetting these
increases were reduced operation and maintenance costs of $6.3 million
reflecting lower labor costs primarily as a result of the recently implemented
restructuring initiatives and cost containment measures.
19
<PAGE> 20
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION OPERATIONS
Three Months
Ended March 31,
------------------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
OPERATING REVENUES
Gas $ 27.9 $ 27.7
Oil and liquids 1.1 1.2
------- --------
Total Operating Revenues 29.0 28.9
------- --------
OPERATING EXPENSES
Operation and maintenance 8.7 8.9
Depreciation and depletion 6.8 6.9
Other taxes 1.8 2.3
------- --------
Total Operating Expenses 17.3 18.1
------- --------
OPERATING INCOME $ 11.7 $ 10.8
======= ========
GAS PRODUCTION STATISTICS
Production (Bcf) 8.3 8.5
Average Price (per Mcf) $ 2.76 $ 3.14
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000Bbls) 52 70
Average Price (per Bbl) $ 21.07 $ 16.71
</TABLE>
20
<PAGE> 21
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS (CONTINUED)
Drilling Activity
Through the first quarter of 1997, Columbia Resources participated in 11 gross
wells (4.5 net) of which 9 wells (3 net) have been successful. Drilling
activity is up from 1996 due to a more favorable outlook for natural gas and
the implementation of new processes that provide for more concerted development
activities designed to lower average finding and development costs.
Volumes
Gas production for the three months ended March 31, 1997, of 8.3 Bcf reflected
a small decrease of 3%. Oil and liquids production during the current quarter
was approximately 52,000 barrels, a decrease of 18,000 barrels from the first
quarter of 1996, primarily due to Columbia Resources' sale of the Granny's
Creek production field in December 1996.
Revenues
Revenues of $29 million for the first quarter of 1997 were relatively unchanged
from the same period last year. Revenues increased $4.1 million due to a
contract buyout by the Binghamton Partnership; however, this increase was
offset by lower gas prices due in part to warmer than normal weather. In
January 1997, gas deliveries averaged approximately $4.79 per Mcf in the
Appalachian area, but deteriorated significantly in the latter part of the
quarter with March deliveries averaging $2.13 per Mcf. Including the results of
hedging activities, Columbia Resources' average gas sales price for the quarter
of $2.76 per Mcf was down $0.38 per Mcf, or 12%, from the first quarter of
1996.
Operating Income
Operating income for the current quarter was $11.7 million, an increase of
$900,000 over 1996 first quarter results. The revenue improvement resulting
from the contract buyout was largely offset by lower prices received for
natural gas production, as mentioned above. The primary reasons for the
operating income improvement was lower other taxes principally reflecting
reduced franchise taxes, a decrease in operating and maintenance expense due to
last year's restructuring and a small reduction in depletion expense.
21
<PAGE> 22
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MARKETING, PROPANE AND POWER GENERATION OPERATIONS
Three Months
Ended March 31,
--------------------------
1997 1996
---- ----
(millions)
<S> <C> <C>
NET REVENUES
Gas marketing revenues $ 305.7 $ 158.1
Less: Products purchased 300.4 149.9
--------- --------
Net Gas Marketing Revenues 5.3 8.2
--------- --------
Propane revenues 28.5 32.3
Less: Products purchased 16.2 17.9
--------- --------
Net Propane Revenues 12.3 14.4
--------- --------
Other Revenues 5.9 3.0
--------- --------
Net Revenues 23.5 25.6
--------- --------
OPERATING EXPENSES
Operation and maintenance 11.9 9.3
Depreciation and depletion 0.9 0.8
Other taxes 0.8 0.8
--------- --------
Total Operating Expenses 13.6 10.9
--------- --------
OPERATING INCOME $ 9.9 $ 14.7
========= ========
PROPANE SALES (MILLIONS OF GALLONS)
Retail 21.1 24.8
Wholesale and Other 3.7 6.4
--------- --------
Total Propane Sales 24.8 31.2
========= ========
MARKETING SALES (Bcf) 106.7 46.5
</TABLE>
22
<PAGE> 23
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING, PROPANE AND POWER GENERATION OPERATIONS (CONTINUED)
Power Generation
On January 10, 1997, the Binghamton Partnership, in which TriStar had a 50%
partnership interest, terminated operations and sold the power agreement. The
Binghamton Partnership is currently evaluating various options to dispose of
the equipment. In addition, TriStar assumed the obligation of a Binghamton
Partnership fuel transportation contract for $3.2 million which was paid to
TriStar in January 1997. The termination of the Binghamton Partnership also
resulted in the buyout of its gas purchase contract with Columbia Resources
that improved first quarter revenues by $4.1 million for the exploration and
production segment.
Marketing Initiatives
Columbia Energy Services Corporation (Columbia Energy) is Columbia's
nonregulated natural gas marketing company. It provides gas supply, fuel
management and transportation-related services to a diverse customer base,
including cogenerators, local distribution companies, industrial plants,
commercial businesses, joint marketing partners and residences. In 1997,
Columbia Energy continues to increase the number of residential customers it
serves by participating in a fourth residential pilot program in Toledo, Ohio.
This program has increased Columbia Energy's residential customer base by
10,000 homeowners.
During the first quarter of 1997, Columbia Energy entered into an agreement
with Kerr-McGee Corporation (Kerr-McGee), a major natural resources company
headquartered in Oklahoma City, Oklahoma, to purchase and market Kerr-McGee's
North American offshore natural gas production of about 250 million cubic feet
per day, or 90 billion cubic feet a year. The marketing alliance will become
effective on May 1, 1997, and will continue for three years. Columbia Energy
will manage all of Kerr-McGee's domestic natural gas marketing activities,
including scheduling, nominating and balancing pipeline transportation, as well
as provide financial risk management services.
Propane
Commonwealth Propane, Inc. (Commonwealth Propane) and Columbia Propane
Corporation serve approximately 93,000 customers in parts of 10 eastern states
and the District of Columbia. To increase profitability, the propane operations
continually seek opportunities to maximize competitiveness and expand services.
The effect of significantly warmer weather in the first quarter of 1997,
compared to the same period last year, and reduced spot sales were the primary
reasons that propane sales of 24.8 million gallons decreased 6.4 million
gallons from last year.
On March 31, 1997, Commonwealth Propane purchased the assets of Supertane Gas
Corporation of Ranson, West Virginia. This acquisition adds 7,700 customers and
approximately 3.9 million gallons annually.
Net Revenues
Net revenues for the first quarter of 1997 decreased $2.1 million from the same
period last year to $23.5 million. While Columbia Energy's volumes more than
doubled to 106.7 Bcf, margins were down from the first quarter of 1996
resulting in $2.9 million lower net revenues for the marketing operations. The
colder than normal weather experienced in the first quarter of 1996 provided
Columbia Energy the opportunity to earn significantly higher margins in the
first quarter of 1996. Propane net revenues for the first quarter of 1997 were
down $2.1 million due to lower weather-related sales, only partially offset by
an increase in net margins of 7% to nearly $0.50 per gallon. TriStar's $3.2
million received from the assumption of the Binghamton Partnership fuel
transportation contract and $1 million in management
23
<PAGE> 24
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING, PROPANE AND POWER GENERATION OPERATIONS (CONTINUED)
service revenues mitigated these decreases in net revenues.
Operating Income
Operating income totaled $9.9 million, a decrease of $4.8 million from last
year due in part to lower net revenues discussed above and $2.7 million higher
operating expenses. Costs associated with Columbia Energy's business expansion
increased operating expense $1.3 million. Operating expense for TriStar also
increased $1.3 million primarily reflecting a $900,000 increase in fuel
management costs; however, these costs were offset by the $1 million management
service revenues mentioned above.
24
<PAGE> 25
PART I1 - OTHER INFORMATION
ITEM L - LEGAL PROCEEDINGS
No new reportable matters have arisen and there have been no material
developments in any legal proceedings reported in Columbia's Annual Report on
Form 10-K for the year ended December 31, 1996, except as follows:
I. Regulatory Matters
A. Columbia Gas Transmission Corp., Docket No. RP95-196 and UGI
Utilities, Inc. v. Columbia Gulf Transmission Co. and Columbia Gas Transmission
Corp., Docket No. RP95-392. A hearing was scheduled on this matter for March
24, 1997 to determine if certain environmental costs billed by Columbia Gulf
Transmission Company ("Columbia Gulf") to Columbia Gas Transmission Corporation
("Columbia Transmission") under the T-1 rate schedule were prudently incurred.
Columbia Transmission and the parties in this case have reached a settlement in
principle, which is anticipated to be filed with the FERC in the second quarter
of 1997. The hearing has been suspended by the administrative law judge subject
to documentation and filing of the settlement.
B. Columbia Gas Transmission Corp. v. FERC, C.A. No. 94-1727 (U.S. Ct.
of App., D.C. Circuit). On March 31, 1997, Transcontinental Gas Pipeline
Corporation ("Transco") filed a request for rehearing of FERC's February 28,
1997 order granting Columbia Transmission a stay of the payment obligation to
Transco in connection with a settlement of Order 94 billings pending action by
the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court").
II. Bankruptcy Matters
New Bremen Corp. v. Columbia Gas Transmission Corp. and Columbia Gulf
Transmission Co., C.A. No. 88-V-631 (155th Jud. Dist. Ct. of Austin County,
Texas) (November 16, 1988). This action, initially filed in Texas state court,
was removed to the U.S. District Court for the Southern District of Texas,
Houston District (the "Texas District Court") on January 10, 1989 (Civ. Action
No. H-89-0072). The action concerns the interpretation of a producer contract
subject to the estimation proceedings in the Bankruptcy Court. On March 12,
1996, the Texas District Court entered an order granting Columbia
Transmission's motion for partial summary judgment on the issue of contract
interpretation. New Bremen appealed the Texas District Court's ruling to the
U.S. Court of Appeals for the Fifth Circuit (AFifth Circuit").
On February 10, 1997, the Fifth Circuit denied New Bremen's appeal
and upheld the Texas District Court's grant of partial summary judgment in
favor of Columbia Transmission on the issue of contract pricing. On February
25, 1997, Columbia Transmission filed a motion with the Bankruptcy Court
seeking to have New Bremen's claim allowed in accordance with the Fifth Circuit
decision and the claims mediator's report and recommendations issued in the
claims estimation proceedings (resolving issues not covered by the Fifth
Circuit decision). The Bankruptcy Court has taken Columbia Transmission's
motion under consideration and will advise the parties whether it desires to
hear oral arguments.
III. Other Matters
LG&E Natural Marketing Inc. v. Columbia Gulf Transmission Co. and
Columbia Gas Transmission Corp., Case No. 1:96CV02238 (U.S. Dist. Ct. for the
District of Columbia) and C.A. No. 96-CA07745 (Sup. Ct. of the District of
Columbia). On September 27, 1996, LG&E Natural Marketing Inc. ("LG&E") filed
two similar complaints in the United States District Court for the District of
Columbia and in the Superior Court of the District of Columbia (Civil
Division). The complaints alleged that Columbia Transmission and Columbia Gulf
breached purported obligations to make certain pipeline
25
<PAGE> 26
PART I1 - OTHER INFORMATION
ITEM L - LEGAL PROCEEDINGS (CONTINUED)
transportation capacity available to LG&E. The complaints sought $10 million
under each of a number of different counts and punitive and treble damages
under some of them. Both cases were dismissed without prejudice in order to
allow the parties to pursue settlement negotiations. A settlement has been
reached in this matter. Management believes that the terms of the settlement
will not have a material effect on Columbia.
26
<PAGE> 27
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number
-------
10-BD Amendment to Employment Agreement for Oliver G. Richard III
10-BG Letter of Employment for Raymond R. Kaskel
10-BH Form of Letter regarding Deferral of Portion of Bonus for Certain Executives
11 Statement re Computation of Per Share Earnings
12 Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
27 Financial Data Schedule
The following reports on Form 8-K were filed during the first quarter of 1997.
Financial
Item Statements Date of
Reported Included Event Date Filed
-------- ---------- ---------------- ----------------
5 Yes* January 27, 1997 January 28, 1997
* Summary of Financial and Operational Data for 12 months and 3 months
ended December 31, 1996.
</TABLE>
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Columbia Gas System, Inc.
-----------------------------
(Registrant)
Date: May 8, 1997 By: /s/ Jeffrey W. Grossman
-----------------------------
Jeffrey W. Grossman
Vice President, Controller and
Vice President & Controller
(Principal Accounting Officer
and Duly Authorized Officer)
28
<PAGE> 1
Exhibit 10-BD
EMPLOYMENT AGREEMENT AMENDMENT
This Amendment, dated as of the 17th day of January, 1996, is made to the
Employment Agreement (the "Agreement") dated the 15th day of March, 1995, by
and between OLIVER G. RICHARD, III (the "Executive") and THE COLUMBIA GAS
SYSTEM, INC. (the "Company").
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into the Agreement to
secure the services of the Executive as the Company's Chairman, Chief Executive
Officer and President; and WHEREAS, the Company and the Executive wish to amend
the Agreement;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the Company and the Executive hereby
agree, as follows:
1. The following provision shall be added to Section 2 of the Agreement
as a new paragraph (e):
"(e) Restricted Stock.
(i) Subject to receipt of shareholder approval at
the Company's 1996 Annual Meeting and any necessary
regulatory approval, the Company shall issue to the
Executive shares of Company Common Stock subject to
forfeiture as described in this paragraph (e) (said
shares to be issued under this paragraph (e) being
called "Restricted Stock") under a long term incentive
plan (the "LTIP") established by the Company.
(ii) The Restricted Stock shall be issued within
10 business days after the later of the date of receipt
of regulatory approval or shareholder approval.
(iii) The number of shares of Restricted Stock to
be issued to the Executive under this paragraph (e)
shall equal the number (rounded up to the next whole
share) determined by dividing $1,450,000 by the Pair
Market Value (as defined in Section 2(d))of Company
Common Stock on the last trading day prior to the date
of issuance.
(iv) The Restricted Stock shall be subject to the
following vesting schedule (the "Vesting Schedule"):
- 1 -
<PAGE> 2
Shares Released Date
20% January 2, 1997
25% of remaining January 2, 1998
1/3 of remaining January 4, 1999
50% of remaining January 3, 2000
100% of remaining January 2, 2001
The number of shares to be released shall be rounded up in each
instance to the next whole share. (Shares of Restricted Stock
released under this clause (iv) or clause (v) of this paragraph shall
no longer be considered Restricted Stock for purposes of this
Agreement.)
(v) If the Executive's employment with the Company is
terminated for any reason set forth in paragraph (a), (b),
(c), (d) or (e) of Section 7 of this Agreement, the
remaining shares of Restricted Stock shall be released on
the actual date of employment termination.
(vi) If the executive's employment in terminated for
any reason other than as specified in clause (v) of this
paragraph, the Executive shall forfeit all remaining shares
of Restricted Stock.
(vii) The Executive may not sell, pledge, assign or
transfer the shares of Restricted Stock. However, the
Executive shall receive all dividends as declared on
Restricted Stock and may exercise voting and other rights of
stock ownership of the Restricted Stock.
(viii) If necessary regulatory or shareholder approval is
not obtained, as aforesaid, in lieu of issuance of
Restricted Stock the Executive shall be entitled to a bonus,
to be determined and paid as follows:
The bonus first shall be calculated by
determining the number of shares which would
have been issued as Restricted Stock in
clause (iii) of this paragraph (the date of
determination of the Fair Market Value of
Company Common Stock being the first trading
day following the earlier of the date of
regulatory or shareholder action constituting
disapproval of the LTIP). On each date
specified in the Vesting Schedule on which
the Executive is still employed by the
Company, the Executive shall be paid a bonus
equal to the number of shares which would
have been released on such date multiplied
by the average of the Fair Market Value of
- 2 -
<PAGE> 3
Company Common Stock on the last five trading
days of the preceding calendar year. In
addition, if the Executive's employment is
terminated for any reason set forth in
paragraph (a), (b), (c), (d) or (e) of
Section 7 of this Agreement, the Company
shall pay to the Executive as promptly as
possible after said termination
a bonus equal
to an amount determined by multiplying the
combined remaining number of shares to be
released in the Vesting Schedule (assuming
the release of shares in lieu of which the
Executive received a bonus under this clause
(viii)) by the Fair Market Value of the
Company Common Stock on the last trading date
prior to the date of termination."
2. Paragraph 2(d) of the Agreement shall be amended by deleting
the last sentence thereof and adding the following provision:
"In the event that thirty days after the Company's discharge
from bankruptcy ("Day 30") the Company is unable to grant
such option" under any Company stock option plan, such
options shall be granted with an exercise price equal to the
"Fair Market Value," as defined herein, of the Company stock
on the date of grant under a stock option plan adopted by
the Board of Directors and receiving all necessary
shareholder and regulatory approvals, and, at the time when
such stock options can be granted, the Executive shall
receive a cash payment equal to the excess, if any, of the
aggregate exercise price of such stock options as granted,
over the Fair Market Value of 100,000 shares of the
Company's Common Stock on Day 30. If required regulatory or
shareholder approval is not obtained for the issuance of the
options (or the underlying stock), in lieu of issuance of
the options, the Executive shall be entitled to a bonus to
be determined and paid as follows:
(i) on the first anniversary of the date the Company
is discharged from bankruptcy, if the Executive is
employed by the Company on such date, a bonus shall be
paid equal to the amount, if a positive number,
determined by multiplying 50,000 times (x) the Fair
Market Value of the Company's Common Stock on such
first anniversary date less (y) said Fair Market Value
on Day 30;
- 3 -
<PAGE> 4
(ii) on the second anniversary of the date the Company
is discharged from bankruptcy, if the Executive is
employed by the Company on such date, a bonus shall be
paid equal to the amount, if a positive number,
determined by multiplying 50,000 times (x) the Fair
Market Value of the Company's Common Stock on such
second anniversary date less (y) said Fair Market Value
on Day 30.
Fair Market Value, as used in this Agreement, on any date
shall be the average of the high and low sales prices on the
New York Stock Exchange for such date.
3. It is mutually agreed that the Agreement shall be and remain in full
force and effect except only as the same is specifically modified hereby. All
covenants, terms, obligations and conditions of the Agreement, not changed by
this Amendment, are hereby ratified and confirmed.
4. All the provisions of the Agreement not specifically mentioned in this
Amendment shall be considered modified to the extent necessary to be consistent
with the changes made in this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Agreement as of the date first set forth above.
THE COLUMBIA GAS SYSTEM, INC.
By: /s/ James R. Thomas II
----------------------------------
Chairman of Compensation Committee
[Corporate Seal]
Attested:
/s/ Carolyn M. Afsher
- ----------------------
/s/ Oliver G. Richard III
-------------------------------------
OLIVER G. RICHARD, III
<PAGE> 1
Exhibit 10-BG
OLIVER G. RICHARD III
Chairman, President and
Chief Executive Officer
March 31, 1997
Raymond R. Kaskel
6621 Rutgers
Houston TX 77005
Dear Ray:
I am very pleased that you are considering our offer to join the Columbia Gas
System Service Corporation. I firmly believe that you will be a highly
successful member of our senior management team and will bring the skills
necessary to grow the energy supply segment of Columbia profitably and to add
significant value for our shareholders.
This letter will formally confirm the offer of employment extended to you. You
are being offered the position of Senior Vice President of the Columbia Gas
System Service Corporation with full P&L responsibility for Columbia Natural
Resources, TriStar Ventures, Commonwealth Propane, Columbia Propane and the
Liquefied Natural Gas businesses. You will be reporting directly to me and will
be a participant in Columbia's Executive Compensation Program.
EXECUTIVE COMPENSATION PROGRAM
As a participant in the Executive Compensation Program you will have a starting
base salary of $280,000 and will participate in the annual cash incentive plan
which is targeted, at your position level, at 60% of base pay. This program is
tied directly to the overall financial (value added) performance measures of
the System, the business you will manage and your individual performance. The
actual cash payout can range from zero if performance is below threshold levels
to 90% of base salary if performance reaches predetermined stretch levels. You
will also be eligible for the Long Term-Stock Option feature of the Program
which measures the Corporation's Total Shareholder Return against our peer
group, that appears in the Columbia Gas System Inc. proxy. Under the program
you will be eligible for 7,000 to a maximum of 12,000 nonqualified stock
options. The actual number of stock options granted will be dependent upon
Columbia's performance compared to that of the peer group and an assessment of
your personal contributions. Columbia's performance must be above the 2nd
quartile of the peer group for stock options to be awarded to any participant.
PERFORMANCE SHARE FEATURE
In addition to the Executive Compensation Program described above you will also
participate in a performance share feature. This feature gives you the
opportunity to earn a maximum award of up to 20,000 shares of Columbia Gas
System common stock, depending on your level of achievement at the end of the
designated five year performance period.
<PAGE> 2
Raymond R. Kaskel
March 31, 1997
Page 2
The predetermined performance measures to be used will be Total Operating
Income and Total Return On Invested Capital for all of the above mentioned
subsidiaries for which you have P&L responsibility. The attached matrix
outlines the levels of performance needed to generate specific common stock
award payout. Performance achieved between the Threshold, Target and Stretch
levels will be interpolated and the number of shares to be awarded will be
calculated based upon actual results. No award will be paid for performance
which falls below the Threshold level during the five year performance period.
The performance share feature allows for an early award payout if your
performance reaches the Stretch level on both the Return On Invested Capital
and Operating Income goals, as measured at the end of any fiscal year, prior to
the end of the five year period. At that point any restrictions in regards to
the performance share feature will be considered fulfilled. In this instance
the maximum award of 20,000 shares would be fully earned.
OTHER TERMS
Any stock option awards that may be granted to you as a part of your
compensation program will be subject to the terms and conditions applicable
under The Columbia Gas System, Inc. Long Term Incentive Plan. A copy of the
Plan has been included for your review.
Although your employment is terminable at will, in the event of your
termination for any reason, with or without cause, prior to the end of the
completion of the five year performance period, an assessment of your actual
achievements to date in relationship to the financial measurements governing
your performance share feature will be made. A prorata award (if applicable)
will be made to you or your designated beneficiary if performance has met or
exceeded the Threshold level at that time. This offer of employment shall not
confer upon you any right to continue in the employment of the Columbia Gas
System Inc or any of its subsidiary companies after your acceptance or offer
any right Columbia or any of its subsidiaries may have to terminate your
employment.
As part of your joining Columbia, we will provide a signing bonus of $75,000
payable at the end of your first year of employment with Columbia. We will also
extend to you four weeks vacation annually, prorated for 1997. At your level of
participation in the Executive Compensation Program, financial planning
assistance and Columbia's full relocation program are included. The only
contingency of this offer is your successful completion of our drug testing.
You may begin work subsequent to your completion of our post-offer physical
examination.
<PAGE> 3
Raymond R. Kaskel
March 31, 1997
Page 3
Ray, I am delighted at the prospect of you joining our Columbia Executive Team.
I would appreciate if you would sign a copy of this letter to acknowledge your
acceptance. I look forward to receiving your response.
Sincerely,
/s/ Oliver G. Richard III
- -------------------------
Oliver G. Richard III
Chairman, President and Chief Executive Officer
Accepted:
/s/Raymond R. Kaskel March 31, 1997
---------------------- --------------
Raymond R. Kaskel Date
<PAGE> 1
Exhibit 10-BH
Form of Letter regarding Deferral of Portion of Bonus for the following
Executives:
O. G. Richard III
P. W. O'Donnell
Q. M. Schwolsky
R. G. Abbott
S. C. Skaggs Jr.
December 2, 1996
Dear Mr.
At a meeting scheduled to be held in February 1997, the Compensation
Committee will decide the amount of any bonus to be paid to you based on the
performance of you and The Columbia Gas System, Inc. and its subsidiaries (the
"Bonus"). At its November 19, 1996 meeting, the Compensation Committee decided
that 50% of the Bonus will be paid no later than the end of March 1997. The
remaining 50% will be deferred to be paid at a later date (the "Deferred
Bonus").
The Deferred Bonus (together with interest as determined in accordance
with the paragraph below) will be paid to you in a lump sum within 30 days
following the earlier of: (i) the date of a "Change-in-Control" of The Columbia
Gas System, Inc. (the "Corporation") (as that term is defined in the
Corporation's Long-Term Incentive Plan), (ii) the date you terminate employment
with the Corporation and any subsidiaries thereof, and (iii) the date (but in
no instance earlier than February 28, 1998) that you elect. Your election under
(iii) must be made on the attached copy of this letter and must be received by
the Corporation's Secretary on behalf of the Compensation Committee effective
no later than midnight Eastern Standard Time December 2, 1996. If you do not
make an election or your election is not received as of the deadline, you will
be deemed to have elected the date of your employment termination with the
Corporation and its subsidiaries.
Until paid, the Deferred Bonus will be credited with interest at the
end of each month beginning March 31, 1997 and continuing until the last day of
the month preceding the date of payment. The amount of interest credited will
be based on the Prime Rate published in the Wall Street Journal for the last
business day of each such month.
Your right to the Deferred Bonus and interest thereon will be as a
general unsecured creditor of the Corporation, and you may not assign,
hypothecate, transfer or alienate in any way your rights hereunder except by
will or by the laws of descent and distribution. You may file with the
Corporation's Secretary a beneficiary designation for any payments to be made
hereunder following the date of your death. If you do not have a beneficiary
designation filed with the Corporation's Secretary or your designated
beneficiary predeceases you, any payment to
<PAGE> 2
be made following your death will be paid to your estate.
If you have any questions regarding the Deferred Bonus or this letter
agreement, you should contact the Chairman of the Compensation Committee. This
letter agreement may be amended only in writing and approved by the then
Chairman of the Compensation Committee and you.
Very truly yours,
On behalf of THE COLUMBIA GAS SYSTEM, INC.,
as authorized by the Chairman, Compensation
Committee:
/s/ Louis E. Font
--------------------------------------------
Louis E. Font
Senior Vice President
Columbia Gas System Service Corporation
<PAGE> 3
December 2, 1996
Page - 3 -
I understand that 50% of the bonus which otherwise would have been
paid to me in March 1997 will be deferred and is referred to above as the
Deferred Bonus. I also understand that I may select a date (no sooner than
February 28, 1998), on which, if earlier than the date of my termination of
employment or a Change-in-Control of the Corporation, the Deferred Bonus will
be paid to me. The date I select for this purpose is _______________. I
acknowledge and agree that I must make my election as of no later than midnight
Eastern Standard Time December 2, 1996, and once made is not revocable.
By:
--------------------------
Received by:
/s/Carolyn M. Afshar
- --------------------------------
Secretary, The Columbia
Gas System, Inc.
<PAGE> 1
Exhibit 11
<TABLE>
<CAPTION>
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
------------------------------------------------
Statements Re Computation of Per Share Earnings
-----------------------------------------------
Three Months Twelve Months
Ended Ended
March 31, March 31,
----------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Computation for Statements of Consolidated
- ------------------------------------------
Income ($ in millions)
- ----------------------
<S> <C> <C> <C> <C>
Income (Loss) before extraordinary item....................... 162.7 151.3 233.0 (409.8)
Extraordinary item............................................ - - - 71.6
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss)............................................. 162.7 151.3 233.0 (338.2)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) per share of common stock
(based on average shares outstanding) ($)
Before extraordinary item..................................... 2.94 2.99 4.22 (8.09)
Extraordinary item............................................ - - - 1.41
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) on common stock............................... 2.94 2.99 4.22 (6.68)
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Additional computation of average common
shares outstanding (thousands) (NOTE)
- ----------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding.................... 55,327 50,662 55,198 50,603
Incremental common shares applicable to
common stock based on the common stock
daily average market price:
Applicable to contingent stock awards....................... 5 60 5 -
Applicable to contingent stock options...................... 125 - 116 -
- ----------------------------------------------------------------------------------------------------------------------------
Average common shares as adjusted............................. 55,457 50,722 55,319 50,603
============================================================================================================================
Average shares of common stock outstanding.................... 55,327 50,662 55,198 50,603
Incremental common shares applicable to
common stock based on the more dilutive
of the common stock ending or daily average
market price during the period:
Applicable to contingent stock awards....................... 5 74 5 -
Applicable to contingent stock options...................... 125 - 132 -
- ----------------------------------------------------------------------------------------------------------------------------
Average common shares assuming full dilution ................. 55,457 50,736 55,335 50,603
============================================================================================================================
Earnings (Loss) per share of common stock
as adjusted:
Before extraordinary item..................................... 2.93 2.98 4.21 (8.09)
Extraordinary item............................................ - - - 1.41
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) on common stock as adjusted ($)............... 2.93 2.98 4.21 (6.68)
============================================================================================================================
Earnings (Loss) per common shares assuming full
dilution:
Before extraordinary item..................................... 2.93 2.98 4.21 (8.09)
Extraordinary item............................................ - - - 1.41
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) on common stock assuming full dilution ($).... 2.93 2.98 4.21 (6.68)
============================================================================================================================
</TABLE>
NOTE These calculations are submitted in accordance with the Securities
Exchange Act of 1934 Release No. 9083 although not required by
footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15
because they result in dilution of less than 3%.
<PAGE> 1
Exhibit 12
<TABLE>
<CAPTION>
THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
----------------------------------------------
Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
------------------------------------------------------------------------------
($ in millions)
Twelve Months Twelve Months
Ended March 31, Ended December 31,
---------------------- ------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes .............................................. 330.6 (616.6) 337.5 (643.0)
Adjustments:
Interest during construction .................................... (1.4) (20.4) (1.1) (20.2)
Distributed (Undistributed) equity income........................ 1.7 (2.8) 1.5 (7.9)
Fixed charges.................................................... 161.2 1,079.4 164.3 1,040.8
----- ------- ----- -------
Earnings Available............................................. 492.1 439.6 502.2 369.7
----- ------- ----- -------
Fixed Charges:
Interest on long-term and short-term debt........................ 146.6 1,028.3 150.8 987.2
Other interest................................................... 14.7 51.1 13.5 53.6
Portion of rentals representing interest......................... 20.4 20.7 20.3 20.5
----- ------- ----- -------
Total Fixed Charges *, **.......................................... 181.7 1,100.1 184.6 1,061.3
----- ------- ----- -------
Ratio of Earnings Before Taxes to Fixed Charges.................... 2.71 N/A(a) 2.72 N/A(a)
===== ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes .............................................. 392.2 288.1 161.4
Adjustments:
Interest during construction .................................... - - -
Distributed (Undistributed) equity income........................ (0.9) (0.1) (0.1)
Fixed charges.................................................... 14.8 101.5 13.7
----- ----- -----
Earnings Available............................................. 406.1 389.5 175.0
----- ----- -----
Fixed Charges:
Interest on long-term and short-term debt........................ 0.7 3.1 4.9
Other interest................................................... 14.1 98.4 8.8
Portion of rentals representing interest......................... 18.9 18.5 19.3
----- ----- -----
Total Fixed Charges *, **.......................................... 33.7 120.0 33.0
----- ----- -----
Ratio of Earnings Before Taxes to Fixed Charges.................... 12.05 3.25 5.30
===== ===== =====
</TABLE>
(a) To achieve a one-to-one coverage, the Corporation would need an additional
$660.5 and $691.6 million of earnings, for the twelve months ended March 31,
1996 and the twelve months ended December 31, 1995, respectively.
* This amount excludes approximately $230 million, $210 million and $204
million of interest expense not recorded for the twelve months ended December
31, 1994, 1993 and 1992, respectively. This amount includes interest expense of
$982.9 million including the write-off of unamortized discounts on debentures
recorded in 1995. Reference is made to the Statements of Consolidated Income
for the quarterly period ended March 31, 1996, as reported in Form 10-Q.
**This amount excludes $8.6 million of interest expense not recorded with
respect to the registrant's guarantee of LESOP Trust's debentures for the
twelve months ended December 31, 1994, 1993 and 1992.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES
<SUBSIDIARY>
<NUMBER> 1
<NAME> CGS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER BOOK
<TOTAL-NET-UTILITY-PLANT> 3,631,200
<OTHER-PROPERTY-AND-INVEST> 447,700
<TOTAL-CURRENT-ASSETS> 1,298,000
<TOTAL-DEFERRED-CHARGES> 65,200
<OTHER-ASSETS> 400,900
<TOTAL-ASSETS> 5,843,000
<COMMON> 553,500
<CAPITAL-SURPLUS-PAID-IN> 746,100
<RETAINED-EARNINGS> 413,600
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,712,100
0
0
<LONG-TERM-DEBT-NET> 2,003,200
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,400
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,127,700
<TOT-CAPITALIZATION-AND-LIAB> 5,843,000
<GROSS-OPERATING-REVENUE> 1,527,700
<INCOME-TAX-EXPENSE> 67,900
<OTHER-OPERATING-EXPENSES> 1,271,100
<TOTAL-OPERATING-EXPENSES> 1,271,100
<OPERATING-INCOME-LOSS> 256,600
<OTHER-INCOME-NET> 14,300
<INCOME-BEFORE-INTEREST-EXPEN> 270,900
<TOTAL-INTEREST-EXPENSE> 40,300
<NET-INCOME> 162,700
0
<EARNINGS-AVAILABLE-FOR-COMM> 162,700
<COMMON-STOCK-DIVIDENDS> 0.15
<TOTAL-INTEREST-ON-BONDS> 35,100
<CASH-FLOW-OPERATIONS> 349,700
<EPS-PRIMARY> 2.94
<EPS-DILUTED> 2.93
</TABLE>
