<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 JUNE 30, 1998
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
------ ------
Commission file number 1-1098
------
COLUMBIA ENERGY GROUP
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
----------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13880 Dulles Corner Lane, Herndon, VA 20171-4600
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 561-6000
--------------
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: 83,371,109 shares outstanding at June 30, 1998.
<PAGE> 2
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1 Financial Statements
Statements of Consolidated Income 3
Condensed Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 6
Consolidated Statements of Common Stock Equity 7
Notes 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About Market Risks 30
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 30
Item 2 Changes in Securities and Use of Proceeds 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Submission of Matters to a Vote of Security Holders 31
Item 5 Other Information 32
Item 6 Exhibits and Reports on Form 8-K 32
Signature 33
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------- -------------------------------
1998 1997 1998 1997
---------------- -------------- ------------ -------------
(millions, except per share amounts)
<S> <C> <C> <C> <C>
NET REVENUES
Energy sales $1,149.0 $ 629.5 $2,748.6 $1,960.2
Less: Products purchased 936.8 400.3 2,156.0 1,297.0
-------- ------- -------- --------
Gross Margin 212.2 229.2 592.6 663.2
Transportation 121.5 120.3 282.7 268.8
Production gas sales 11.7 8.4 29.1 13.7
Other 40.2 49.2 103.7 89.5
-------- ------- -------- --------
Total Net Revenues 385.6 407.1 1,008.1 1,035.2
-------- ------- -------- --------
OPERATING EXPENSES
Operation 192.8 200.6 377.2 399.5
Maintenance 24.1 26.8 45.8 51.4
Depreciation and depletion 52.8 49.2 126.0 120.4
Other taxes 45.0 46.2 134.0 123.0
-------- ------- -------- --------
Total Operating Expenses 314.7 322.8 683.0 694.3
-------- ------- -------- --------
OPERATING INCOME 70.9 84.3 325.1 340.9
-------- ------- -------- --------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 3.2 6.1 5.5 20.4
Interest expense and related charges (38.5) (38.0) (80.1) (78.3)
-------- ------- -------- --------
Total Other Income (Deductions) (35.3) (31.9) (74.6) (57.9)
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES 35.6 52.4 250.5 283.0
Income Taxes 12.8 17.5 80.2 85.4
-------- ------- -------- --------
NET INCOME $ 22.8 $ 34.9 $ 170.3 $ 197.6
======== ======= ======== ========
EARNINGS PER SHARE OF COMMON STOCK* $ 0.27 $ 0.42 $ 2.04 $ 2.38
DIVIDENDS PAID PER SHARE OF COMMON STOCK* $ 0.20 $ 0.17 $ 0.37 $ 0.27
AVERAGE COMMON SHARES OUTSTANDING (thousands)* 83,335 83,050 83,299 83,019
</TABLE>
* All per share amounts and average common shares outstanding have been
restated to reflect a three-for-two common stock split, in the form of a
stock dividend, effective June 15, 1998.
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
-----------------------------------------------------
June 30, December 31,
1998 1997
--------------------- -------------------
(unaudited)
ASSETS (millions)
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
Gas utility and other plant, at original cost $ 7,457.7 $ 7,368.9
Accumulated depreciation (3,555.3) (3,481.5)
--------- ---------
Net Gas Utility and Other Plant 3,902.4 3,887.4
--------- ---------
Gas and oil producing properties, full cost method
United States cost center 672.4 660.2
Canadian cost center 3.7 -
Accumulated depletion (212.3) (196.0)
--------- ---------
Net Gas and Oil Producing Properties 463.8 464.2
--------- ---------
Net Property, Plant and Equipment 4,366.2 4,351.6
--------- ---------
INVESTMENTS AND OTHER ASSETS 96.9 85.2
--------- ---------
CURRENT ASSETS
Cash and temporary cash investments 47.7 28.7
Accounts receivable, net 723.9 868.5
Gas inventory 130.1 226.8
Other inventories - at average cost 31.0 35.6
Prepayments 79.1 107.7
Regulatory assets 63.3 64.6
Underrecovered gas costs 13.3 41.4
Deferred property taxes 39.2 80.8
Exchange gas receivable 209.0 189.0
Other 42.7 64.6
--------- ---------
Total Current Assets 1,379.3 1,707.7
--------- ---------
REGULATORY ASSETS 383.0 400.9
DEFERRED CHARGES 76.6 66.9
--------- ---------
TOTAL ASSETS $ 6,302.0 $ 6,612.3
========= =========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
4
<PAGE> 5
ITEM 1 - FINANCIAL STATEMENTS
PART I - FINANCIAL INFORMATION (CONTINUED)
Columbia Energy Group and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
------------------------------------------------------
June 30, December 31,
1998 1997
--------------------- ---------------------
(unaudited)
CAPITALIZATION AND LIABILITIES (millions)
<S> <C> <C>
CAPITALIZATION
Common stock equity $1,935.0 $1,790.7
Long-term debt 2,002.2 2,003.5
-------- --------
Total Capitalization 3,937.2 3,794.2
-------- --------
CURRENT LIABILITIES
Short-term debt 45.9 328.1
Accounts and drafts payable 455.2 536.7
Accrued taxes 109.9 140.9
Accrued interest 32.8 29.4
Estimated rate refunds 53.7 68.4
Estimated supplier obligations 72.6 73.9
Transportation and exchange gas payable 124.6 89.2
Overrecovered gas costs 67.8 84.6
Other 315.6 367.0
-------- --------
Total Current Liabilities 1,278.1 1,718.2
-------- --------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes, noncurrent 644.4 618.4
Investment tax credits 34.9 35.6
Postretirement benefits other than pensions 102.7 148.8
Regulatory liabilities 46.3 41.3
Other 258.4 255.8
-------- --------
Total Other Liabilities and Deferred Credits 1,086.7 1,099.9
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $6,302.0 $6,612.3
======== ========
</TABLE>
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------------------------------
1998 1997
------------------ -----------------
(millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 170.3 $ 197.6
Adjustments for items not requiring (providing) cash:
Depreciation and depletion 126.0 120.4
Deferred income taxes 34.3 (6.5)
Earnings from equity investment, net of distributions (3.7) (0.6)
Other - net (3.3) (28.0)
------- -------
323.6 282.9
Change in components of working capital:
Accounts receivable 123.1 2.8
Gas inventory 96.7 84.6
Prepayments 28.6 (31.4)
Accounts payable (25.0) 54.4
Accrued taxes (31.0) 33.3
Accrued interest 3.4 2.5
Estimated rate refunds (14.7) (27.1)
Estimated supplier obligations (1.3) (37.1)
Under/Overrecovered gas costs 11.3 207.3
Exchange gas receivable/payable 15.9 (11.0)
Other working capital 21.6 10.9
------- -------
Net Cash from Operations 552.2 572.1
------- -------
INVESTMENT ACTIVITIES
Capital expenditures (163.4) (141.4)
Other investments - net (8.5) (8.6)
------- -------
Net Investment Activities (171.9) (150.0)
------- -------
FINANCING ACTIVITIES
Retirement of long-term debt (0.9) (0.5)
Dividends paid (31.1) (22.1)
Issuance of common stock 5.4 5.5
Issuance (repayment) of short-term debt (281.4) (250.0)
Other financing activities (53.3) (14.6)
------- -------
Net Financing Activities (361.3) (281.7)
------- -------
Increase in Cash and Temporary Cash Investments 19.0 140.4
Cash and temporary cash investments at beginning of year 28.7 49.8
------- -------
Cash and temporary cash investments at June 30 * $ 47.7 $ 190.2
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 74.5 71.6
Cash paid for income taxes (net of refunds) 32.0 34.7
</TABLE>
* Columbia considers all highly liquid short-term investments to be cash
equivalents.
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
<TABLE>
<CAPTION>
As of
------------------------------------
June 30, December 31,
1998 1997
---------------- -----------------
(unaudited)
(millions)
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, $10 par value, authorized
100,000,000 shares, outstanding 83,371,109
and 55,495,460* shares, respectively $ 833.7 $ 554.9
Additional paid in capital 758.3 754.2
Retained earnings 344.0 482.7
Unearned employee compensation (0.9) (1.1)
Accumulated Other Comprehensive Income:
Foreign currency translation adjustment (0.1) -
-------- --------
TOTAL COMMON STOCK EQUITY $1,935.0 $1,790.7
======== ========
</TABLE>
* The common shares outstanding for December 31, 1997 do not reflect the
three-for-two common stock split, effected on June 15, 1998.
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these statements.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
NOTES
1. Basis of Accounting Presentation
The accompanying unaudited condensed consolidated financial
statements for the Columbia Energy Group (Columbia) reflect all
normal recurring adjustments that 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 1997 Annual Report on Form 10-K and Quarterly Report on
Form 10-Q for the first quarter of 1998. 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 1997 financial statements to conform to the 1998
presentation.
2. Settlement of Retiree Benefit Obligation
In March 1998, trusts established by Columbia purchased insurance
policies that provide both medical and life insurance with respect
to liabilities to a selected class of current retirees. This
resulted in a settlement of $152.1 million of Columbia's obligation
and a gain in the amount of $46.7 million, pre-tax. This gain is
reflected in the financial statements as a $23.1 million reduction
to benefits expense, and a $23.6 million liability of certain
rate-regulated companies.
3. Earnings Per Share
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128)
requires dual presentation of Basic and Diluted earnings per share
(EPS) by entities with complex capital structures and also requires
restatement of all prior-period EPS data presented. 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. Diluted EPS reflects the potential
dilution if certain securities are converted into common stock.
Under the requirements of SFAS No. 128, Columbia's Diluted EPS is
as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
Diluted EPS Computation 1998 1997 1998 1997
=================================================================================================================
<S> <C> <C> <C> <C>
Net Income (millions) $ 22.8 $ 34.9 $ 170.3 $ 197.6
-----------------------------------------------------------------------------------------------------------------
Denominator (thousands)
Average common shares outstanding 83,335 83,050 83,299 83,019
Dilutive potential common shares - options 391 235 391 235
-----------------------------------------------------------------------------------------------------------------
Diluted Average Common Shares 83,726 83,285 83,690 83,254
-----------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.27 $ 0.42 $ 2.03 $ 2.37
=================================================================================================================
</TABLE>
The number of shares reflect a three-for-two common stock split
effected in the form of a stock dividend (see Note 4).
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
4. Stock Split Effected in the Form of a Stock Dividend
On May 20, 1998, Columbia's board of directors approved a
three-for-two common stock split, effected in the form of a 50%
stock dividend (stock split), on June 15, 1998, payable to
shareholders of record as of June 1, 1998. In connection with the
stock split, 27.8 million shares were issued on June 15, 1998, and
$277.9 million was transferred to common stock from retained
earnings. The value of fractional shares resulting from the stock
split was determined at the closing price on June 1, 1998, and $0.6
million was paid in cash to the shareholders for fractional-share
interests. All references in the financial statements and notes to
the number of common shares outstanding and per-share amounts,
except where otherwise noted, reflect the retroactive effect of the
stock split.
5. New Accounting Standards
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement
of Position 98-1, "Accounting for the Costs of Computer Software
Developed for Internal Use" (SOP 98-1). This statement requires the
capitalization of certain internal-use software costs, once certain
criteria are met. Columbia adopted this statement in June 1998,
retroactive to the beginning of the year. The adoption of SOP 98-1
did not have a material effect on Columbia's financial statements.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5). This statement requires that certain costs of start-up
activities, including organization costs, be expensed as incurred.
SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. Columbia does not anticipate that
the adoption of this statement will have a significant impact on the
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). This
statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires an
entity to recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Columbia does not anticipate that the
adoption of this statement will have a significant impact on the
consolidated results of operations.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
6. Long-Term Debt - Interest Rate Swap
At June 30, 1998, Columbia had entered into an interest rate swap
agreement through November 28, 2002, on a $50 million notional
amount of its 6.61% Series B Debentures due November 28, 2002. Under
the terms of the agreement, Columbia pays interest based on a
floating rate index and receives interest based on a fixed rate. The
effect is to modify the interest rate characterization of a portion
of the long-term debt from fixed to variable.
7. Business Segment Information
Effective June 30, 1998, in accordance with generally accepted
accounting principles, Columbia revised the presentation of its
business segments. Columbia's operations are divided into five
primary business segments. The transmission and storage segment
offers transportation and storage services for local distribution
companies and industrial and commercial customers located in
Northeastern, middle Atlantic, Midwestern, and Southern states and
the District of Columbia. The distribution segment provides natural
gas service and transportation for residential, commercial and
industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and
Maryland. The exploration and production segment explores for,
develops, produces, and markets gas and oil in the United States and
in Canada. The marketing segment provides gas and electricity
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 residential customers. The propane, power generation
and LNG segment includes the sale of propane at wholesale and retail
to customers in eight states, participation in natural gas fueled
electric generation projects and peaking services.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING INCOME (LOSS) BY SEGMENT
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
--------------------------------- --------------------------------
(millions)
<S> <C> <C> <C> <C>
Transmission and Storage $58.8 $64.8 $176.6 $156.3
Distribution 13.4 21.3 133.5 161.9
Exploration and Production 8.5 5.4 22.9 17.1
Marketing (7.6) (0.4) (13.1) 0.6
Propane, Power Generation and LNG (0.2) (0.2) 7.3 10.1
Corporate (2.0) (6.6) (2.1) (5.1)
----- ----- ------ ------
TOTAL $70.9 $84.3 $325.1 $340.9
===== ===== ====== ======
</TABLE>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- -------------------------------
1998 1997 1998 1997
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Actual 518 837 2,837 3,530
Normal 580 580 3,527 3,527
% Colder (warmer) than normal (11) 44 (20) -
% Colder (warmer) than prior period (38) 19 (20) (7)
</TABLE>
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
Forward-Looking Statements
The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments, and Item 3 hereof contain "forward-looking
statements," within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Investors and prospective investors 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. These forward-looking statements include, but
are not limited to, statements concerning Columbia's plans, objectives, expected
performance, expenditures and recovery of expenditures through rates, stated on
either a consolidated or segment basis, and 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. All 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, capital and commodity market conditions, many of
which are beyond the control of Columbia. In addition, the relative
contributions to profitability by segment, and the assumptions underlying the
forward-looking statements relating thereto, may change over time due to changes
in the marketplace.
With respect to any references made to ratings assigned to Columbia's debt
securities, there can be no assurance that Columbia will be successful in
maintaining its credit quality, or that such credit ratings will continue for
any given period of time, or that they will not be revised downward or withdrawn
entirely by the rating agencies. Credit ratings reflect only the views of the
rating agencies, whose methodology and the significance of their ratings may be
obtained from them.
Second Quarter Results
Net Income
Columbia's second quarter 1998 net income was $22.8 million, or $0.27 per share,
a decrease of $12.1 million, or $0.15 per share, from the same period last year
due to 38% warmer weather and additional infrastructure investment and staffing
costs in the marketing segment. The second quarter of 1998 was 11% warmer than
normal, while the same period last year was 44% colder than normal. In addition,
the second quarter of 1997 reflected a $12.4 million after-tax improvement from
Columbia Gas Transmission Corporation's (Columbia Transmission) sale of storage
base gas, as provided for by its rate settlement. Except where otherwise noted,
all per share amounts are adjusted to reflect the three-for-two stock split, in
the form of a stock dividend (stock split), that occurred in June 1998.
Revenues
Total consolidated net revenues (operating revenues less associated products
purchased costs) for the second quarter of 1998 were $385.6 million, a $21.5
million decrease from the same period last year, reflecting reduced
weather-sensitive gas sales for the distribution segment and $19.1 million of
revenues last year from Columbia Transmission's regulatory settlement. Tempering
these decreases were higher net revenues from the marketing segment due to a
significant increase in natural gas sales, as well as current period net
revenues from electric power sales that began in late 1997. The increase in the
marketing segment's natural gas sales was primarily in low-margin wholesale
sales that significantly increased energy sales revenues and related products
purchased costs.
12
<PAGE> 13
PART I - FINANCIAL INFORMATION
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Expenses
For the three months ended June 30, 1998, operating expenses of $314.7 million
were $8.1 million lower than the same period last year, primarily reflecting a
$10.5 million decrease in operation and maintenance costs. This decrease was
attributable to restructuring initiatives recently implemented for the
transmission and distribution segments as well as $11.9 million of restructuring
costs recorded last year. Partially offsetting these improvements were
additional investments in the marketing segment's infrastructure and higher
costs related to staff additions.
Other Income (Deductions)
Other Income (Deductions), which includes interest income and other and interest
expense, reduced income by $35.3 million in the current quarter compared to a
reduction to income of $31.9 million in the same period last year. This change
primarily reflected reduced interest income on temporary cash investments.
Income Taxes
For the three months ended June 30, 1998, income tax expense of $12.8 million
decreased $4.7 million from the same period last year, primarily reflecting
lower pre-tax income.
Six Month Results
Net Income
Columbia's net income for the first half of 1998 was $170.3 million, a decrease
of $27.3 million from the same period last year. After adjusting for the stock
split, earnings decreased $0.34 per share to $2.04 per share. This decrease was
largely due to the record-breaking first quarter warm weather that continued
into the second quarter making the first six months of 1998 the warmest on
record for Columbia.
Other significant items affecting net income for the first half of 1998 included
the favorable effect of a $15.9 million after-tax reduction in the cost of
certain postretirement benefits resulting from a buyout of a portion of those
liabilities with an insurance carrier, a benefit of $10 million from tax
planning initiatives and a gain of $8.7 million from the sale of certain storage
volumes. In addition, lower operating expenses for the rate-regulated
subsidiaries and increased gas production and prices for the exploration and
production segment also contributed to the 1998 results. Reducing net income was
Columbia's continued investment in its marketing operations. Net income for the
first half of last year was improved $12.8 million by the implementation of tax
planning initiatives, $12.4 million from Columbia Transmission's regulatory
settlement and $5.5 million from a gain on the deactivation of a storage field.
Revenues
For the first six months of 1998, net revenues of $1,008.1 million represented a
decrease of $27.1 million from the same period last year, primarily reflecting
the adverse effect of this year's warmer weather on the distribution segment and
Columbia Transmission's regulatory settlement in 1997, mentioned previously.
This decrease was partially offset by a $13.5 million increase in the gross
margin from the marketing segment, a $13.4 million increase from the sale in the
first quarter of 1998 of 5 billion cubic feet (Bcf) of storage base gas and
higher revenues from increased gas production and prices. Natural gas sales for
Columbia's marketing segment during the first half of 1998 totaled 711.6 Bcf, an
increase of 483.2 Bcf, or over 200%, from the same period last year, while its
1998 electric power sales were 3,353,000 megawatt hours.
Expenses
Operating expenses of $683 million for the six months ended June 30, 1998,
decreased $11.3 million when compared to the same period last year, largely
reflecting a reduction of $27.9 million in operation
13
<PAGE> 14
PART I - FINANCIAL INFORMATION
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
and maintenance expense. This decrease was primarily the result of a
$25.6 million reduction in the cost of certain postretirement benefits,
reflecting a buyout with an insurance carrier of a portion of Columbia's
liabilities. Last year's expenses were also higher because of $12.8 million of
restructuring costs. The transmission and distribution segment's operation and
maintenance expense also decreased as a result of cost conservation measures
and efficiencies gained through recently implemented restructuring activities.
Tempering these improvements were $27.2 million of higher operating expenses
for the marketing operations. Depreciation and depletion expense increased $5.6
million due primarily to an increase in depletion expense for the exploration
and production segment resulting from the acquisition of Alamco, Inc. (Alamco).
Higher gross receipts and property taxes in the distribution segment were the
principal reasons for the $11 million increase in other taxes.
Other Income (Deductions)
Through the first half of 1998, Other Income (Deductions) reduced income by
$74.6 million compared to a reduction of $57.9 million in the same period last
year. Interest income and other of $5.5 million from the first six months of
1998 decreased $14.9 million when compared to the same period last year due
largely to an $8.5 million gain recorded in 1997 for a payment received from the
deactivation of a storage field that allowed the owner of the coal reserves to
mine the property. Also reducing other income was reduced interest income on
temporary cash investments. Interest expense and related charges of $80.1
million increased $1.8 million from the same period in 1997 primarily reflecting
increased interest on short-term borrowings. Both periods included $70.2 million
of interest expense on long-term debt.
Income Taxes
Income tax expense for the first six months of 1998 was $80.2 million, a
decrease of $5.2 million primarily reflecting lower pre-tax income. Income
benefited from reductions to income tax expense of $10 million in 1998 and $12.8
million in 1997 due to the implementation of tax planning initiatives.
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 primarily 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 short-term and long-term financing,
as needed, is used to purchase gas to place in storage for heating season
deliveries, perform necessary maintenance of facilities, make capital
improvements in plant and expand service into new areas.
For the first half of 1998, net cash from operations was $552.2 million, a $19.9
million decrease from the same period last year, due largely to lower cash from
working capital reflecting a decrease in the overrecovery of gas costs by the
distribution subsidiaries, as well as the effect of warmer weather in 1998. The
decrease in the overrecovery position primarily reflects higher gas prices in
the current period compared to the first half of 1997. The recovery of the
commodity portion of the distribution subsidiaries' rates is provided for under
the current regulatory process.
Columbia satisfies its liquidity requirements through internally generated funds
and the use of two unsecured bank revolving credit facilities that total $1.35
billion (Credit Facilities). The Credit Facilities were established in March
1998, and replaced the $1 billion five-year revolving credit facility entered
into by Columbia in November 1995. The Credit Facilities also support Columbia's
commercial paper program.
14
<PAGE> 15
PART I - FINANCIAL INFORMATION
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Columbia's Credit Facilities consist of a $900 million five-year revolving
credit facility and a $450 million 364-day revolving credit facility with a
one-year term loan option. The five-year facility provides for the issuance of
up to $300 million of letters of credit.
As of June 30, 1998, Columbia had outstanding approximately $134.9 million of
letters of credit and $45.9 million of commercial paper.
Interest rates on borrowings under the Credit Facilities are based upon the
London Interbank Offered Rate, Certificate of Deposit rates or other short-term
interest rates. The interest rate margins and facility fees on the commitment
amount are based on Columbia's public debt ratings. In 1997, Fitch Investors
Service (Fitch) and Standard & Poor's Ratings Group (S&P) upgraded Columbia's
long-term debt rating to BBB+ and BBB+, respectively. In July 1998, Moody's
Investors Service, Inc. (Moody's) upgraded Columbia's long-term debt rating to
A3. Under the Credit Facilities, higher debt ratings result in lower facility
fees and interest rates on borrowings. Columbia's commercial paper ratings are
F-2 by Fitch, P-2 by Moody's and A-2 by S&P.
Columbia entered into a fixed-to-floating interest rate swap agreement to modify
the interest characteristics of $50 million of its outstanding debt in the
second quarter of 1998. As a result of this transaction, that portion of
Columbia's long-term debt is now exposed to fluctuations in interest rates. In
the opinion of management the overall risk to Columbia is not material.
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 prior
credit facility and to retire $400 million of preferred stock issued in late
1995. No further issuances of the remaining $750 million available under the
shelf registration are scheduled at this time.
Management believes that its sources of funding are sufficient to meet
short-term and long-term liquidity needs not met by cash flows from operations.
Presentation of Segment Information
In accordance with generally accepted accounting principles, beginning with this
report Columbia has revised its reporting of primary business segment
information for the current and prior periods. Marketing operations are now
reported in a separate segment rather than the former marketing, propane and
power generation segment. Columbia LNG Corporation's results are now reported in
the propane, power generation and LNG segment, rather than the transmission and
storage segment.
Impact of Year 2000 on Computer Systems
As previously reported in Columbia's 1997 Annual Report on Form 10-K, Columbia
is in the process of reviewing its computer applications and their interaction
with third parties to address the Year 2000 issue. Based on the review to date,
certain applications have been found not to be Year 2000 compliant. It is
anticipated that all major applications will have been reviewed and, if
necessary, corrected or replaced by the year 2000. At the present time,
management does not anticipate that the cost of correcting or replacing those
applications that are not Year 2000 compliant will have a material impact on
Columbia's financial condition.
15
<PAGE> 16
PART I - 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 Six Months
Ended June 30, Ended June 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transportation revenues $ 134.5 $ 136.8 $ 314.6 $ 317.0
Storage revenues 45.7 48.3 92.3 91.8
Other revenues 4.9 22.6 23.1 29.7
------- ------- ------- -------
Total Operating Revenues 185.1 207.7 430.0 438.5
------- ------- ------- -------
OPERATING EXPENSES
Operation and maintenance 89.0 102.5 174.5 201.4
Depreciation 24.0 26.6 50.0 52.9
Other taxes 13.3 13.8 28.9 27.9
------- ------- ------- -------
Total Operating Expenses 126.3 142.9 253.4 282.2
------- ------- ------- -------
OPERATING INCOME $ 58.8 $ 64.8 $ 176.6 $ 156.3
======= ======= ======= =======
THROUGHPUT (BCF)
Transportation
Columbia Transmission
Market area 166.9 196.4 523.6 574.2
Columbia Gulf
Mainline 151.1 161.9 281.8 312.9
Short-haul 59.4 57.0 121.6 119.0
Intrasegment eliminations (147.4) (160.6) (272.4) (305.4)
------- ------- ------- -------
Total Throughput 230.0 254.7 654.6 700.7
======= ======= ======= =======
</TABLE>
16
<PAGE> 17
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
Market Expansion Projects
Millennium Pipeline Project
The proposed Millennium Pipeline Project (Millennium Project), in which Columbia
Transmission is participating and will serve as developer and operator, will
transport western gas supplies to Northeast and middle Atlantic markets. The
442-mile pipeline will connect to TransCanada Pipe Lines Ltd. at a new Lake Erie
export point and transport up to approximately 700 million cubic feet per day to
eastern markets. Ten shippers have signed agreements for the available capacity.
A filing with the Federal Energy Regulatory Commission (FERC), requesting
approval of the Millennium Project, was made in December 1997. This filing
begins the extensive review process, including opportunities for public review,
communication and comment. On June 3, 1998, the Millennium Project sponsors
announced that the proposed in-service date has been revised to November 1,
2000. The current sponsors of the proposed Millennium Project are Columbia
Transmission, Westcoast Energy, Inc., TransCanada Pipe Lines Ltd., and MCN
Energy Group, Inc.
Mainline '99
Columbia Gulf Transmission Company (Columbia Gulf) filed an application with the
FERC on June 5, 1998, for authority to increase the maximum certificated
capacity of its mainline facilities. The expansion project, referred to as
Mainline '99, will increase Columbia Gulf's certificated capacity to nearly 2.2
Bcf/day by replacing certain compressor units and increasing the horsepower
ratings of certain compressor stations. Various shippers have contracted for the
additional service through an open bidding process held in 1997. Construction
relating to the compressor replacements is scheduled to begin in the first
quarter of 1999. The proposed in-service date for the requested Mainline '99
project is December 1, 1999, subject to regulatory approval.
Regulatory Matters
Challenge to Columbia Transmission's Rate Design
Pursuant to a provision of Columbia Transmission's 1997 rate settlement, the New
York Public Service Commission (NYPSC) had the right to request a hearing
challenging the appropriateness of the Straight Fixed Variable (SFV) rate design
for Columbia Transmission. In a decision rendered in April 1998, the presiding
Administrative Law Judge granted a motion, filed jointly by several interested
parties, to dismiss the challenge by NYPSC. The judge found that the NYPSC
failed to demonstrate that continued use of the SFV rate design on Columbia
Transmission's system would be unjust or unreasonable. On May 26, 1998, the
NYPSC filed an appeal of the Administrative Law Judge's decision.
Columbia Gulf's Rate Settlement
Columbia Gulf filed a general rate case in October 1996, which became effective
on May 1, 1997, subject to refund. Active parties in the proceeding unanimously
agreed to the terms of settlement that was filed with the FERC on March 3, 1998.
The settlement was approved by the FERC on April 29, 1998 and became final 30
days thereafter. The approval of the settlement did not have a material impact
on Columbia's financial results.
Sale of Certain Facilities
As previously reported in Columbia's 1997 Annual Report on Form 10-K, Columbia
Transmission has agreed to sell certain natural gas pipeline facilities that
consist of approximately 341 miles of pipeline, together with property and
associated facilities, located in New York and Pennsylvania. On May 22, 1998,
Columbia Transmission filed an application with the FERC seeking authority to
abandon the facilities by sale to Norse Pipeline, LLC for $21.8 million. The
sale of these assets will not have a material impact on Columbia's financial
results.
17
<PAGE> 18
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
Also as previously reported in Columbia's 1997 Annual Report on Form 10-K,
Columbia Transmission is in the process of selling its gathering facilities. As
part of this process, Columbia Transmission's anticipated sale of 750 miles of
gathering facilities to Columbia Natural Resources, Inc. (Columbia Resources),
has been delayed due to a dispute with a gas distribution company. The delay in
the sale of these assets is not expected to have a material impact on Columbia's
financial results.
Bankruptcy-related Producer Claims
On April 27, 1998, the Claims Mediator issued a recommended finding disallowing
the claim of KV Oil & Gas (KV). On July 10, 1998, the United States Bankruptcy
Court for the District of Delaware (Bankruptcy Court) approved Columbia
Transmission's motion to have the claim disallowed. KV did not appeal the order,
which became final on July 20, 1998.
On July 24, 1998, the Bankruptcy Court entered an Order allowing the claim of
New Bremen Corporation in accordance with the Claims Mediator's Report and
Recommendations and the decision of the U.S. 5th Circuit Court of Appeals. New
Bremen had ten days in which to file notice of an appeal of this Order to the U.
S. District Court. No notice was filed. During Columbia Transmission's
bankruptcy proceedings, New Bremen filed a recalculated claim for approximately
$88 million. Columbia Transmission believes that the Court's Order granting its
motion will result in an allowed claim amount that will be immaterial.
Environmental Matters
Columbia's transmission subsidiaries have implemented programs to continually
review compliance with existing environmental standards. In addition, Columbia
Transmission continues to review past operational activities and to formulate
remediation programs where necessary. Columbia Transmission is currently
conducting assessment, characterization and remediation activities at specific
sites under a 1995 Environmental Protection Agency (EPA) Administrative Order by
Consent (AOC).
Consistent with Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation," a regulatory asset has been
recorded to the extent environmental expenditures are expected to be recovered
through rates. As previously reported in Columbia's 1997 Annual Report on Form
10-K, Columbia Transmission's 1997 rate settlement excluded the issue of
environmental cost recovery and provided that a hearing be held to address this
issue. The procedural schedule established by the presiding Administrative Law
Judge provided for a hearing to commence in the fall of 1998. However, at the
request of Columbia Transmission and other active parties, the schedule was
suspended on May 5, 1998, in order to afford the parties an opportunity to
pursue settlement discussions. These discussions are ongoing, however, it is not
possible to predict whether or not they will be successful. Columbia
Transmission also continues to pursue recovery of environmental expenditures
from its insurance carriers and has met with some success; however at this time,
management is unable to determine the total amount or final disposition of any
such recovery. 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.
Throughput
Columbia Transmission's throughput consists of transportation and storage
services for local distribution companies and other customers within its market
area, which covers fifteen Northeastern, mid-Atlantic, Midwestern and Southern
states and the District of Columbia. Throughput for Columbia Gulf reflects
18
<PAGE> 19
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
mainline transportation services from Rayne, Louisiana, to West Virginia and
short-haul transportation services from the Gulf of Mexico to Rayne, Louisiana.
Throughput for the transmission and storage segment totaled 230 Bcf for the
second quarter of 1998, and 654.6 Bcf for the six months ended June 30, 1998.
This represents a decrease of 24.7 Bcf and 46.1 Bcf, respectively, from the same
periods last year, primarily reflecting the impact of warmer weather. This
decrease was partially offset by increased throughput associated with new
contracts attributable to Columbia Transmission's market expansion project that
was placed in service in November 1997.
Operating Revenues
Total operating revenues were $185.1 million for the second quarter of 1998 and
$430 million for the six months ended June 30, 1998. This represents a decrease
of $22.6 million and $8.5 million, respectively, compared to the same periods in
1997. This decrease was principally due to the recording of $19.1 million of
revenues in the second quarter of 1997 for the sale of base gas provided for in
Columbia Transmission's regulatory settlement. Revenues in both the current
quarter and year-to-date period were also lower compared to last year due to the
sale of certain gathering facilities in 1997. Revenues were improved in the
current six-month period by the first quarter sale of approximately 5 Bcf of
base gas volumes that were part of Columbia Transmission's overall 1997 rate
settlement. Increased revenues from transportation and storage services,
primarily related to Columbia Transmission's market expansion contracts, and the
effect of Columbia Gulf's regulatory settlement in May 1998 also contributed to
current period revenues.
Operating Income
Operating income for the second quarter was $58.8 million, a decrease of $6
million from the same period last year, reflecting $22.6 million lower operating
revenues that were partially offset by $16.6 million lower operating expenses.
Operation and maintenance expense decreased $13.5 million due to operating
efficiencies gained through restructuring initiatives and reduced costs
attributable to the sale of certain facilities as mentioned above. Part of the
decline in operation and maintenance expense was approximately $7.9 million of
restructuring costs recorded in the second quarter of 1997.
For the first half of 1998, operating income for the transmission and storage
segment of $176.6 million increased $20.3 million over the same period last year
as $28.8 million lower operating expenses more than offset lower operating
revenues. Operation and maintenance expense declined $26.9 million compared to
the same period in 1997, primarily reflecting savings achieved through the
implementation of restructuring initiatives and a $4.5 million reduction in the
cost of certain postretirement benefits, as discussed previously. As mentioned
above, approximately $7.9 million of restructuring costs were recorded in the
second quarter of 1997, which contributed to the decline.
19
<PAGE> 20
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------- --------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- --------------
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Sales revenues $276.5 $342.8 $1,020.5 $1,368.0
Less: Cost of gas sold 158.3 207.5 639.8 926.6
------ ------ -------- --------
Net Sales Revenues 118.2 135.3 380.7 441.4
------ ------ -------- --------
Transportation revenues 35.8 33.3 93.5 75.4
Less: Associated gas costs 4.4 3.3 10.0 6.2
------ ------ -------- --------
Net Transportation Revenues 31.4 30.0 83.5 69.2
------ ------ -------- --------
Net Revenues 149.6 165.3 464.2 510.6
------ ------ -------- --------
OPERATING EXPENSES
Operation and maintenance 92.0 102.6 183.9 212.8
Depreciation 16.7 12.4 50.5 48.0
Other taxes 27.5 29.0 96.3 87.9
------ ------ -------- --------
Total Operating Expenses 136.2 144.0 330.7 348.7
------ ------ -------- --------
OPERATING INCOME $ 13.4 $ 21.3 $ 133.5 $ 161.9
====== ====== ======== ========
THROUGHPUT (BCF)
Sales
Residential 20.9 29.7 92.9 118.1
Commercial 7.1 10.6 33.7 44.7
Industrial and other 0.8 0.7 2.4 1.0
------ ------ -------- --------
Total Sales 28.8 41.0 129.0 163.8
Transportation 62.5 61.0 146.6 133.0
------ ------ -------- --------
Total Throughput 91.3 102.0 275.6 296.8
Off-System Sales 22.4 10.9 51.4 42.2
------ ------ -------- --------
Total Sold or Transported 113.7 112.9 327.0 339.0
====== ====== ======== ========
SOURCES OF GAS FOR THROUGHPUT (BCF)
Sources of Gas Sold
Spot market* 57.6 76.8 119.0 138.4
Producers 2.9 8.1 8.6 19.6
Storage withdrawals (injections) (25.9) (50.7) 37.8 32.0
Other 16.6 17.7 15.0 16.0
------ ------ -------- --------
Total Sources of Gas Sold 51.2 51.9 180.4 206.0
Transportation received for delivery to customers 62.5 61.0 146.6 133.0
------ ------ -------- --------
Total Sources 113.7 112.9 327.0 339.0
====== ====== ======== ========
</TABLE>
* Purchase contracts of less than one year.
20
<PAGE> 21
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Conditions
The unusually mild temperatures experienced in the first quarter of 1998
continued into the second quarter. Second quarter weather was 38% warmer than
the same period in 1997 and 11% warmer than normal. As a result, Columbia's
distribution subsidiaries' (Distribution) weather-sensitive deliveries in the
second quarter decreased approximately 16 Bcf from the same quarter last year.
Weather in Distribution's market area through the first half of 1998 was the
warmest on record for that six-month period. It was 20% warmer than the first
six months of 1997 as well as 20% warmer than normal, resulting in a decrease of
34 Bcf in weather-sensitive deliveries from the same period last year.
Regulatory Matters
On March 31, 1998, Columbia Gas of Ohio, Inc. (Columbia of Ohio) filed with the
Public Utilities Commission of Ohio (PUCO) seeking approval to extend its
Customer CHOICE(R) program to all of its nearly 1.3 million Ohio customers. On
June 18, 1998, the PUCO approved the request, with suppliers free to sign up
customers starting August 1, 1998. The PUCO approval to expand and continue the
program was based on the success of Columbia of Ohio's pilot program in three
northwestern Ohio counties where more than 60,000 customers, including 30
percent of eligible residential customers and 46 percent of eligible small
commercial customers, chose to participate.
On July 9, 1998, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania)
received permission from the Pennsylvania Public Utility Commission (PPUC) to
expand its pilot Customer CHOICE(R) program into five additional counties.
Customers can begin shopping for a new supplier in August 1998 for gas to be
delivered in November. Programs have been in operation in Allegheny and
Washington counties and the approved extension means that over two-thirds of
Columbia of Pennsylvania's 382,000 customer base would be eligible to
participate in the Customer CHOICE(R) program. Meanwhile, Columbia of
Pennsylvania continues to push for a legislative proposal that would set the
terms for natural gas retail competition statewide.
Columbia Gas of Virginia, Inc. (Columbia of Virginia) filed a rate case with the
Virginia State Corporation Commission (VSCC) in May 1998, requesting a $13.8
million increase in annual revenue. Of the requested increase, $8.5 million is
currently being collected, subject to refund, through interim rates from
Columbia of Virginia's 1997 rate filing, which is currently pending before the
VSCC. Rates reflecting the requested additional increase of $5.3 million will go
into effect, also subject to refund, in mid-October 1998. As detailed in the May
1998 filing, the additional revenue increase is necessary to recover plant
additions including those required to replace facilities due to age and
condition along with normal increases in operating expenses. Resolution of these
proceedings will not have a material impact on Columbia's consolidated results.
Columbia of Virginia's two-year pilot transportation program for residential and
small commercial customers began December 1, 1997 and is open to approximately
27,000 customers in the Gainsville market area of Northern Virginia. There are
now over 4,900 customers participating in the program and they are being served
by 7 marketers out of a total of 9 approved to participate. Columbia of Virginia
anticipates expanding the program and eventually have it available to all of its
165,000 customers, depending on the results of the pilot program.
On July 27, 1998, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) received
approval from the Kentucky Public Service Commission to extend their pilot
off-system sales program for another year until July 31, 1999. The off-system
sales program has been in effect on a pilot basis for two years since August 1,
1996. Columbia of Kentucky must file by July 1, 1999 to continue the program
beyond August 1, 1999.
21
<PAGE> 22
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Volumes
Throughput for the second quarter of 1998 was 91.3 Bcf, a decrease of 10.7 Bcf
from the same period in 1997, as the impact of warmer weather was partially
offset by the return to full production at a major industrial customer that had
been idled by a labor strike last year. An increase in transportation volumes
and customer growth also partially offset the adverse impact of the unusual
weather.
For the first half of 1998, throughput of 275.6 Bcf was 21.2 Bcf lower than the
first six months of 1997 as the impact of the record warm weather on tariff
sales was partially offset by customer growth, an increase in transportation
volumes and the return to full production at the major industrial customer.
Net Revenues
Net revenues for the quarter ended June 30, 1998, were $149.6 million, down
$15.7 million from the second quarter of 1997. This decrease primarily reflects
a decline of approximately $25.6 million due to the adverse impact of warm
weather that was partially offset by the beneficial effect of a Columbia of Ohio
regulatory settlement.
For the six months ended June 30, 1998, net revenues were $464.2 million, down
$46.4 million from the same period last year. This decrease primarily reflects
the effect of warmer weather that reduced net revenues approximately $51.8
million compared to the first half of 1997 and was only partially offset by
Columbia of Ohio's regulatory settlement.
Operating Income
Operating income for the second quarter of 1998 was $13.4 million, down $7.9
million from the same period last year. The decline in net revenues was tempered
by a $7.8 million decrease in operating expenses. Operation and maintenance
expense for the second quarter of 1998 was down $10.6 million from the same
period last year primarily reflecting a reduction in net labor and benefits
costs of $7.5 million due to the 1997 restructuring, which resulted in a
reduction in the workforce of approximately 220 employees. Depreciation expense
increased by $4.3 million due in part to plant additions.
For the first six months of 1998, operating income of $133.5 million decreased
$28.4 million from the same period last year due to the decline in net revenues
partially offset by an $18 million decline in operating expenses. Operation and
maintenance expense for the first six months of 1998 decreased $28.9 million
from the same period last year primarily reflecting a $15.9 million decrease in
benefits expense to reflect a reduction in certain postemployment benefits costs
and also due to the ongoing beneficial impact of restructuring. Other taxes
increased $8.4 million primarily due to higher gross receipts and property
taxes. Depreciation expense increased by $2.5 million again due in part to plant
additions.
22
<PAGE> 23
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas revenues $ 28.8 $ 25.8 $ 62.4 $ 53.7
Other revenues 3.6 0.9 7.4 2.0
------ ------ ------ ------
Total Operating Revenues 32.4 26.7 69.8 55.7
------ ------ ------ ------
OPERATING EXPENSES
Operation and maintenance 12.4 11.4 22.8 20.1
Depreciation and depletion 8.7 7.8 18.9 14.6
Other taxes 2.8 2.1 5.2 3.9
------ ------ ------ ------
Total Operating Expenses 23.9 21.3 46.9 38.6
------ ------ ------ ------
OPERATING INCOME $ 8.5 $ 5.4 $ 22.9 $ 17.1
====== ====== ====== ======
GAS PRODUCTION STATISTICS
Production (Bcf)
U.S. 10.2 8.4 20.1 16.7
Canada 0.1 - 0.1 -
------ ------ ------ ------
Total 10.3 8.4 20.2 16.7
====== ====== ====== ======
Average Price ($ per Mcf)
U.S. 2.81 2.67 3.09 2.72
Canada 2.66 - 2.79 -
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000Bbls)
U.S. 48 48 106 100
Canada 4 - 4 -
------ ------ ------ ------
Total 52 48 110 100
====== ====== ====== ======
Average Price ($ per Bbl)
U.S. 12.66 17.67 13.45 19.45
Canada 17.37 - 17.56 -
Average 12.84 17.67 13.61 19.45
</TABLE>
23
<PAGE> 24
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION (CONTINUED)
Drilling Activity
During the first half of 1998, Columbia Resources participated in 41 gross
wells, of which 73% were successful. These wells added 5.7 net billion cubic
feet equivalent (Bcfe) to reserves, an increase of 3.4 net Bcfe over the first
six months of 1997.
Joint Venture with CanEnerco Limited
During the second quarter of 1998, Columbia Resources entered into a Joint
Venture Agreement with CanEnerco Limited (CanEnerco), a Canadian Corporation, to
jointly develop drilling properties located in southwestern Ontario. This
agreement will include approximately 50,000 net acres owned by CanEnerco and
5,000 net acres owned by Columbia Natural Resources Canada Ltd., a wholly-owned
subsidiary of Columbia Resources.
Volumes
Gas production for the current quarter of 10.3 Bcf increased 1.9 Bcf, or 23%,
over the second quarter of 1997. The properties purchased from Alamco
represented two-thirds of this increase. For the six months ended June 30, 1998,
gas production increased 3.5 Bcf to 20.2 Bcf.
Operating Revenues
Second quarter operating revenues for 1998 increased $5.7 million from the same
period last year to $32.4 million. For the quarter ended June 30, 1998, Columbia
Resources' average gas sales price was $2.81 per Mcf compared to $2.67 per Mcf,
in the second quarter of 1997. In addition, third party gathering revenues
increased $1.6 million. As previously reported in Columbia's 1997 Annual Report
on Form 10-K, certain gathering facilities were transferred from Columbia
Transmission to Columbia Resources in the third quarter of 1997.
Operating revenues of $69.8 million for the first six months of 1998 increased
$14.1 million over the same period last year, primarily due to the increase in
production and higher gas prices. Columbia Resources' average gas sales price
for the six months ended June 30, 1998, was $3.09 per Mcf, up 14% over the same
period last year. The stronger natural gas prices reflected the benefit of
hedging activity last fall when prices were significantly higher. Third party
gathering revenues also increased $3.6 million. Revenues in 1997 benefited from
$4.1 million of revenues recorded in 1997 for a payment made by a cogeneration
partnership to allow it to terminate its gas purchase contract with Columbia
Resources.
Operating Income
Operating income for the three and six months ended June 30, 1998, were $8.5
million and $22.9 million, respectively. This is an increase of $3.1 million and
$5.8 million, respectively, over the same periods last year. The income
improvements occurred notwithstanding higher operation and maintenance expenses
due to additional costs associated with the acquisition of Alamco and the
transfer of gathering facilities, as well as an increase in depletion expense
due to the additional investment in the exploration and production segment.
24
<PAGE> 25
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------- --------------------------------
1998 1997 1998 1997
---------------- --------------- ------------- ---------------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas revenues $781.7 $295.9 $1,640.8 $602.0
Power revenues 91.5 - 97.8 -
------ ------ -------- ------
Total Revenues 873.2 295.9 1,738.6 602.0
Less: Products purchased 861.5 291.7 1,715.6 592.5
------ ------ -------- ------
Gross Margin 11.7 4.2 23.0 9.5
------ ------ -------- ------
OPERATING EXPENSES
Operation and maintenance 18.0 4.3 33.5 8.2
Depreciation 0.7 0.1 1.4 0.2
Other taxes 0.6 0.2 1.2 0.5
------ ------ -------- ------
Total Operating Expenses 19.3 4.6 36.1 8.9
------ ------ -------- ------
OPERATING INCOME (LOSS) $ (7.6) $ (0.4) $ (13.1) $ 0.6
====== ====== ======== ======
MARKETING SALES
Gas (billion cubic feet) 347.4 121.7 711.6 228.4
Power (thousand megawatt hours) 3,048 - 3,353 -
</TABLE>
25
<PAGE> 26
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING OPERATIONS (CONTINUED)
Columbia's wholesale and retail nonregulated natural gas and electric power
marketing operations are conducted by Columbia Energy Services Corporation
(Columbia Energy Services). These businesses provide integrated energy-related
products and services to wholesale, industrial and commercial, and residential
customers nationwide. The wholesale business line provides products and services
to wholesale customers, including gas and electricity supply, fuel management
and transportation-related services, management of energy-related assets, energy
commodity sales and services, risk management products and financial services.
The retail business line provides energy-related products and services to a
diverse customer base, including industrial and commercial customers as well as
residential customers.
Wholesale Energy Activity
Wholesale energy activity can be categorized into two broad business lines: gas
trading and marketing and electric power trading. Gas trading and marketing
activities have grown significantly since June 30, 1997, when Columbia Energy
Services acquired PennUnion Energy Services, LLC (Penn Union), an energy
marketing affiliate of the Pennzoil Company. Columbia Energy Services' marketing
volumes are exceeding 4.2 Bcf per day as a result of this acquisition together
with internal growth.
Electric power trading and marketing activities began in December 1997. During
the first six months of 1998, Columbia Energy Services has continued to expand
its presence in the electricity market. In the first quarter of 1998, Columbia
Energy Services joined the Pennsylvania-New Jersey-Maryland electric power pool
that covers much of the heavily populated mid-Atlantic region of the U.S. During
the second quarter of 1998, Columbia Energy Services, through a subsidiary,
began trading electricity nationwide when it gained membership into the Western
System Power Pool (WSPP). The WSPP, formed by a group of electric utilities in
the 1980s to buy electricity from energy marketers, binds members to a common
marketing agreement thereby providing a more efficient trading process.
A ten-year natural gas supply contract between Columbia Energy Services and a
municipal gas authority was signed in July 1998. Effective August 1, 1998,
Columbia Energy Services will sell to the municpal gas authority approximately
45 Bcf of natural gas over the ten years. As part of the agreement, in July
1998, the municipal gas authority made an advance payment of $73.5 million for
such future deliveries.
In June 1998, Columbia Energy Services signed a long-term energy management
contract with Hopewell Cogeneration Limited Partnership (HCLP), a 365-megawatt
combined-cycle, natural gas-fired generation facility in Hopewell, Virginia.
Columbia Energy Services began providing HCLP with natural gas on June 1, 1998.
HCLP has a baseload volume of approximately 5,000 million British thermal units
(MMBtu) daily for steam generation and a daily peak demand volume of up to
75,000 MMBtu for electric generation to be sold to Virginia Electric and Power
Company. In addition to supplying HCLP's natural gas, Columbia Energy Services
will also manage HCLP's fuel oil reserve tanks.
Retail Energy Activity
Retail energy activity can also largely be categorized into two broad business
lines: industrial and commercial retail activity and mass market retail
activity. These retail business lines provide energy expertise to end-use
customers, both for gas and power retail markets. These business lines are
favorably positioned for electric retail market unbundling and deregulation.
During 1998, for example, Columbia Energy Services plans to initiate marketing
retail power to customers in Pennsylvania. Under the Pennsylvania program, a
portion of electric power customers for seven Pennsylvania electric companies
will be able to choose their power supplier beginning January 1, 1999, with
customer choice for all customers expected by January 1, 2001.
26
<PAGE> 27
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING OPERATIONS (CONTINUED)
Columbia Energy Services is also offering diverse products and services by
participating in several state or local programs related to the deregulation of
retail markets, including Ohio, Pennsylvania, Virginia, Maryland, New Jersey,
and Illinois. For example, Columbia Service Partners, Inc. (Columbia Service), a
subsidiary of Columbia Energy Services, initiated two homeowners' warranty
programs in Pennsylvania. In May 1998, Water Line Guarantee program began in
Allegheny County including Pittsburgh. The Water Line Guarantee program provides
protection of customer-owned water-supply pipes from the curb to the meter
inside the home. This service is expected to be offered in other western
Pennsylvania counties by year-end 1998. In September 1998, Columbia Service
plans to offer the House Line Guarantee program to western Pennsylvania. This
warranty program provides warranty protection to customer-owned gas lines inside
homes.
Gross Margins
Gross margins (revenues less associated products purchased costs) for the second
quarter of 1998 almost tripled compared to the same period last year. Gas
revenues represent the majority of this growth, primarily due to increased
volumetric growth. Gas marketing volumes for Columbia Energy Services almost
tripled for the second quarter, reflecting its significant growth plus the
effect of the PennUnion acquisition and the agreement with Kerr-McGee
Corporation to purchase and market its off-shore natural gas production. Power
revenues were approximately $92 million for the second quarter of 1998
reflecting three million megawatt hours of power sales. There were no power
revenues in the second quarter of 1997.
For the six months ended June 30, 1998, gross margins totaled $23 million,
compared to $9.5 million for the same period last year. This is primarily due to
increased growth in both natural gas volumes and the addition of power traded
volumes. Gas marketing volumes of 711.6 Bcf for the first half of 1998 were over
three times the same period in 1997.
Operating Income (Loss)
An operating loss of $7.6 million for the second quarter of 1998, was $7.2
million greater than the $400,000 loss in last year's second quarter. Operating
expenses of $19.3 million for the second quarter of 1998 were approximately
$14.7 million more than the same period last year. For the first six months of
1998, the marketing segment had an operating loss of $13.1 million compared to
operating income of $600,000 for the first half of 1997, largely due to higher
operating expenses. The higher expenses for the second quarter and year-to-date
periods related to several changes in the business. These changes reflect
Columbia Energy Services' strategy to build its systems and infrastructure,
allowing for future growth in conjunction with the continued deregulation of the
industry. In addition, higher expenses for the second quarter and first six
months of 1998 include costs associated with the development of new products and
services, such as a new internet-based business called Energy.com Corporation as
well as costs associated with adding new mass-market retail customers and
increased staffing levels.
27
<PAGE> 28
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PROPANE, POWER GENERATION AND LNG OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------ -----------------------------------
1998 1997 1998 1997
---------------- ---------------- --------------- ----------------
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Propane revenues $11.3 $12.7 $37.6 $41.2
Less: Products purchased 5.6 7.0 18.5 23.2
----- ----- ----- -----
Net Propane Revenues 5.7 5.7 19.1 18.0
Power Generation 2.3 2.3 3.8 8.4
Other Revenues 2.0 2.6 4.4 5.4
----- ----- ----- -----
Net Revenues 10.0 10.6 27.3 31.8
----- ----- ----- -----
OPERATING EXPENSES
Operation and maintenance 8.5 9.4 16.8 18.9
Depreciation 1.2 0.9 2.2 1.7
Other taxes 0.5 0.5 1.0 1.1
----- ----- ----- -----
Total Operating Expenses 10.2 10.8 20.0 21.7
----- ----- ----- -----
OPERATING INCOME (LOSS) $(0.2) $(0.2) $ 7.3 $10.1
===== ===== ===== =====
PROPANE SALES (MILLIONS OF GALLONS)
Retail 8.6 8.8 31.4 29.9
Wholesale and Other 1.4 3.3 3.4 7.0
----- ----- ----- -----
Total Propane Sales 10.0 12.1 34.8 36.9
===== ===== ===== =====
</TABLE>
28
<PAGE> 29
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PROPANE, POWER GENERATION AND LNG OPERATIONS (CONTINUED)
Propane Acquisition
In May 1998, Columbia Propane Corporation (Columbia Propane) purchased the
propane assets of James E. Zerkel, Inc., a company in northwest Virginia that
sells approximately 2.8 million gallons of propane annually to 6,000 customers.
Power Generation
On June 4, 1998, Columbia Electric Corporation (Columbia Electric) and LGE Power
Inc., a subsidiary of LGE Energy Corporation, announced an agreement for
Columbia Electric to participate in the development of a natural gas-fired
cogeneration project. The facility will have a total capacity of approximately
550 megawatts and will provide steam and electric services to a Reynolds Metals
plant in Gregory, Texas. The project will also provide electricity to the Texas
energy market and is expected to begin commercial operation in the Electric
Reliability Council of Texas (ERCOT) region in the summer of 2000. Final
negotiation of project documents and financial arrangements are scheduled to be
completed by this fall.
Net Revenues
Net revenues for the second quarter of 1998 decreased $600,000 from the same
period last year to $10 million. Columbia Propane's net revenues of $5.7 million
in the second quarter of 1998 were unchanged from last year's second quarter, as
the decrease in volumes sold was offset by slightly higher margins. Propane
sales decreased 2.1 million gallons due primarily to warmer weather that was
only partially offset by additional sales from recent acquisitions. Other
miscellaneous revenues decreased $600,000 in the second quarter of 1998 compared
to the same period last year.
For the first six months of 1998, net revenues of $27.3 million decreased $4.5
million from last year primarily due to Columbia Electric's $3.2 million revenue
improvement recorded in the first quarter of 1997 from the assumption of a
cogeneration partnership fuel transportation contract. Propane net revenues
increased $1.1 million due to higher margins achieved in the first quarter of
1998 and additional retail sales attributable to recent acquisitions. Propane
volumes in total for the first six months of 1998 decreased 2.1 million gallons
compared to the same period last year due to warmer weather and lower spot
sales.
Operating Income (Loss)
An operating loss of $200,000 for the second quarter of 1998 was unchanged from
the same period last year, because the $600,000 decrease in net revenues was
offset by a similar decrease in operating expenses. In the second quarter of
1997, Columbia Electric recorded a $600,000 loss on the sale of the cogeneration
partnership assets. Operating income for Columbia LNG Corporation for the second
quarter of 1998 reflected a small improvement over the same period last year.
Operating income of $7.3 million for the six months ended June 30, 1998,
decreased $2.8 million from the same period last year, primarily due to the
decrease in net revenues tempered by $1.7 million lower operating expense.
Higher operating costs for the first six months of 1998 from recent propane
acquisitions and additional start-up costs for new services were more than
offset by the loss recorded last year for the cogeneration partnership,
mentioned above and a reduction in certain postretirement benefit costs
recorded in the first quarter of 1998.
29
<PAGE> 30
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Columbia entered into a fixed-to-floating interest rate
swap agreement to modify the interest characteristics of
$50 million of its outstanding debt in the second quarter
1998. As a result of this transaction, that portion of
Columbia's long-term debt is now exposed to fluctuations in
interest rates. The overall risk to Columbia is not
material in the opinion of management.
There have not been any material changes regarding
quantitative and qualitative disclosures about market risk
from the information reported in Columbia's 1997 Annual
Report on Form 10-K.
PART II - 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, 1997, except as follows:
I. Purchase and Production Matters
A. Pending Producer Matters
New Bremen Corp. v. Columbia Gas Transmission Corp.
and Columbia Gulf Transmission Co., No. 88V-631
(Dist. Ct. Austin County, TX). On July 24, 1998, the
Bankruptcy Court entered an Order allowing the claim of
New Bremen Corporation in accordance with the Claims
Mediator's Report and Recommendations and the decision
of the U.S. 5th Circuit Court of Appeals. New Bremen
had ten days in which to file notice of an appeal of
this Order to the U. S. District Court. No notice
was filed. During Columbia Transmission's bankruptcy
proceedings, New Bremen filed a recalculated claim
for approximately $88 million. Columbia Transmission
believes that the Court's Order granting its motion
will result in an allowed claim amount that is
immaterial.
II. Other
A. MarkWest Hydrocarbon, Inc., Arbitration Proceeding,
AAA Case No. 77 181 0035 98 (filed February 13, 1998);
Columbia Gas Transmission Corp. v. MarkWest
Hydrocarbon, Inc., U.S. D.C., S.D. W.Va., Case No.
2:98-03622 (filed April 28, 1998). In the Settlement
of Columbia Transmission's last rate case in Docket
No. RP95-408, approved by the FERC on April 17, 1997,
Columbia Transmission, MarkWest Hydrocarbon, Inc.
("MarkWest") and other parties agreed that Columbia
Transmission's gathering and products extraction rates
and services would be "unbundled" in compliance with
Order No. 636 and that MarkWest would acquire Columbia
Transmission's interests in certain products
extraction facilities and provide gas processing
services to certain shippers on Columbia Transmission's
system. In February, 1998, negotiations surrounding
the transfer of facilities and processing services
to MarkWest reached an impasse, resulting in an
arbitration proceeding and a court proceeding.
Columbia Transmission believes MarkWest's claims are
essentially without merit, and that any financial
consequence to Columbia Transmission will not be
material.
30
<PAGE> 31
PART II - OTHER INFORMATION
Arbitration Proceeding. On February 13, 1998, MarkWest
filed a demand for arbitration. In response to
Columbia's Transmission's request, the Arbitration
Panel (Panel), by orders dated June 10 and June 16,
directed MarkWest to file a more specific statement of
the claims to be arbitrated and to explain why the
claims are arbitrable. MarkWest filed an Amended Demand
for Arbitration on June 19, wherein MarkWest seeks an
order, inter alia, declaring that certain
pre-settlement agreements between Columbia Transmission
and MarkWest have not terminated and that specific
performance by Columbia Transmission is required.
Markwest also alleges interference with its existing
and prospective contracts, misrepresentation and civil
conspiracy by Columbia Transmission, Columbia Energy
Group and Columbia Resources to interfere with
MarkWest's business. MarkWest seeks compensatory
damages for past and future losses in an amount not
less than $391.55 million as well as exemplary damages.
Columbia Transmission answered and filed contingent
counterclaims on July 2 and contested the arbitrability
of all but three issues. On August 3, 1998, the Panel
issued an order whereby it found to be non-arbitrable
all of MarkWest's claims except those that relate to
obligations arising directly under two of the parties'
agreements, some of which Columbia Transmission agreed
were subject to arbitration. The Panel's decision
effectively dismisses MarkWest's interference,
fraudulent concealment, misrepresentation and civil
conspiracy claims described above. The Panel's decision
will reduce, by an amount Columbia Transmission cannot
determine, MarkWest's alleged damages.
Court Proceeding. Columbia Transmission filed a
complaint against MarkWest on April 28, 1998, in
Federal District Court for the Southern District of
West Virginia seeking, inter alia, (i) a declaratory
order that certain gas processing agreements are
terminated in whole or in part, (ii) a declaratory
order that MarkWest has breached the Settlement of
Docket No. RP 95-408, and (iii) an injunction against
MarkWest interfering with Columbia Transmission's
efforts to spin off its products extraction business.
On August 3, 1998, the U.S. District Court issued a
memorandum opinion and order granting MarkWest's motion
to stay proceedings and compel arbitration.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On May 20, 1998, Columbia held its Annual Meeting of
Stockholders. On the record date, Columbia had 55,517,028
shares of common stock outstanding, each of which was
entitled to one vote at the meeting. The election of four
directors each to serve a term of three years and the
election of Arthur Andersen LLP as independent public
accountants were voted upon and approved by the requisite
number of shares present in person or by proxy at the
meeting.
31
<PAGE> 32
PART II - OTHER INFORMATION
The following is a summary of the results of that meeting:
A. Election of Directors
<TABLE>
<CAPTION>
Name of Director Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
Richard F. Albosta 44,186,958 509,281
Malcolm Jozoff 44,164,106 515,072
Gerald E. Mayo 44,179,908 513,594
Douglas E. Olesen 44,185,411 509,242
</TABLE>
B. Election of Arthur Andersen LLP as independent public
accountants:
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------- -------
<S> <C> <C>
44,266,053 309,556 115,284
</TABLE>
Item 5. Other Information
Rule 14a-4 of the Securities and Exchange Commission's proxy
rules allows a company to use discretionary voting authority
to vote on matters coming before an annual meeting of
stockholders, which matters are not already included in the
proxy materials, if the company does not have notice of the
matter at least 45 days before the date corresponding to the
date on which it first mailed its proxy materials for the
prior year's annual meeting of stockholders or the date
specified by an overriding advance notice provision in the
company's Bylaws. Columbia's Bylaws do not contain such an
advance notice provision.
Accordingly, for Columbia's Annual Meeting of Stockholders,
that is expected to be held on May 19, 1999, stockholders must
submit such written notice to the Corporate Secretary on or
before February 13, 1999. Proposals for matters to be included
in Columbia's proxy materials must still be received by the
Corporate Secretary on or before November 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
3-D Restated Certificate of Incorporation of Columbia Energy Group, amended and
restated effective as of January 16, 1998
3-E By-Laws of Columbia Energy Group, amended and restated as of January 16, 1998
12 Statements of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
The following reports on Form 8-K were filed during the second
quarter of 1998.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- ---------- ---------------- --------------
<S> <C> <C> <C>
5 No May 20, 1998 May 21, 1998
5 Yes * July 13, 1998 July 13, 1998
</TABLE>
* Summary of Financial and Operational data for three and six
months ended June 30, 1998.
32
<PAGE> 33
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.
Columbia Energy Group
-----------------------------
(Registrant)
Date: August 14, 1998 By: /s/ Jeffrey W. Grossman
-------------------------------------
Jeffrey W. Grossman
Vice President and Controller
(Principal Accounting Officer
and Duly Authorized Officer)
33
<PAGE> 1
Exhibit 3-D
================================================================================
RESTATED
CERTIFICATE OF INCORPORATION
Of
COLUMBIA ENERGY GROUP
[COLUMBIA ENERGY GROUP LOGO]
As Filed with the Delaware Secretary of State on November 28, 1995, and amended
and restated effective as of January 16, 1998.
================================================================================
2
<PAGE> 2
RESTATED
CERTIFICATE OF INCORPORATION
OF
COLUMBIA ENERGY GROUP
Columbia Energy Group, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows: The name of
the corporation is Columbia Energy Group. Columbia Energy Group was
originally incorporated under the name Columbia Gas & Electric Corporation
and the original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 30,
1926. This Restated Certificate of Incorporation was duly adopted pursuant
to Sections 103, 242 and 245 of the General Corporation Law of the State
of Delaware. Upon filing with the Secretary of State, in accordance with
Section 103, this Restated Certificate of Incorporation amends and
restates and shall henceforth supersede the original Certificate of
Incorporation and shall, as it may thereafter be amended in accordance
with its terms and applicable law, be the Certificate of Incorporation of
the Corporation. The text of the Certificate of Incorporation as
heretofore amended or supplemented is hereby amended and restated to read
in its entirety as follows:
Article I
Name
The name of this Corporation is Columbia Energy Group.
Article II
Registered Office
The registered office of the Corporation in the State of Delaware is
located at The Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent is
The Corporation Trust Company, and the address of said registered agent is
Corporation Trust Center, 1209 Orange Street, in said city.
Article III
Statement of Purpose
The nature of the business to be conducted and the purposes of the
Corporation are to engage in any lawful act or activity for which
corporations may be organized under the Delaware General Corporation Law,
as amended.
3
<PAGE> 3
Article IV
Classes of Capital Stock
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One hundred forty million
(140,000,000), of which Forty million (40,000,000) shares of the par value
of Ten dollars (S10.00) each are to be of a class designated Preferred
Stock and One hundred million (100,000,000) shares of the par value of Ten
dollars (S10.00) each are to be of a class designated Common Stock.
To the extent required by Section 1123(aX6) of the U.S. Bankruptcy
Code (11 U.S.C Section 1123(a)(6)) no nonvoting equity securities of the
Corporation shall be issued. This provision shall have no further force
and effect beyond that required by Section 1123(a)(6) and is applicable
only for so long as such Section is in effect and applicable to the
Corporation.
A. Common Stock
1. Subject to the powers, preferences and other special rights
afforded Preferred Stock by the provisions of this Article IV or
resolutions adopted pursuant hereto, the holders of the Common Stock shall
be entitled to receive to the extent permitted by Delaware law, such
dividends as may from time to time be declared by the Board of Directors.
2. Except as otherwise required by Delaware law and as otherwise
provided in this Article IV and resolutions adopted pursuant hereto with
respect to Preferred Stock, and subject to the provisions of the Bylaws of
the Corporation, as from time to time amended, with respect to the closing
of the transfer books and the fixing of a record date for the
determination of stockholders entitled to vote, the holders of the Common
Stock shall exclusively possess voting power for the election of directors
and for all other purposes, and the holders of the Preferred Stock shall
have no voting power and shall not be entitled to any notice of any
meeting of stockholders.
3. At all elections of directors by stockholders of the Corporation,
each holder of Common Stock, and each holder of Preferred Stock, if
entitled to vote at such election, shall be entitled to as many votes as
shall equal the number of his shares of Common Stock or Preferred Stock,
as the case may be, multiplied by the number of directors for whom he as
such holder shall then be entitled to vote, and he may cast all of such
votes for one of such directors or may distribute them among any two or
more of them as he may see fit.
4. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at an annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and
subject to the rights of the holders of any class or any series of
Preferred Stock, special meetings of stockholders of the Corporation may
be called only by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors
1
<PAGE> 4
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board
for adoption).
5. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up of the Corporation,
after distribution in full of the preferential amounts, if any, to be
distributed to the holders of shares of Preferred Stock, as set forth in
the resolutions adopted with respect to such series under this Article IV,
holders of Common Stock shall be entitled to receive all of the remaining
assets of the Corporation of whatever kind available for distribution to
the stockholders ratably and in proportion to the number of shares of
Common Stock held by them respectively. The Board of Directors may
distribute in kind to the holders of Common Stock such remaining assets of
the Corporation or may sell, transfer, otherwise dispose of all or any
part of such remaining assets to any other corporation, trust or other
entity and receive payment therefor in cash, stock or obligations of such
other corporation, trust or other entity, or a combination thereof, and
may set all or make any part of the consideration so received and
distributed or any balance thereof in kind to holders of Common Stock. The
merger or consolidation of the Corporation into or with any other
corporation, or the merger of any other corporation into it, or any
purchase or redemption of shares of stock of the Corporation of any class,
shall not be deemed to be a dissolution, liquidation, or winding-up of the
Corporation for the purposes of this Article IV.
B. Preferred Stock
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the classes of
stock of the Corporation which are fixed by the Certificate of
Incorporation, and the express grant of authority to the Board of
Directors of the Corporation to fix by resolution or resolutions the
designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the shares of
Preferred Stock, which are not fixed by the Certificate of Incorporation,
are as follows:
1. The Preferred Stock may be issued from time to time in any amount,
not exceeding in the aggregate the total number of shares of Preferred
Stock herein above authorized, as Preferred Stock of one or more series,
as hereinafter provided. All shares of any one series of Preferred Stock
shall be alike in every particular, each series thereof shall be
distinctively designated by letter or descriptive words, and all series of
Preferred Stock shall rank equally and be identical in all respects except
as permitted by the provisions of Subsection B.2 of this Article IV.
2. Authority is hereby expressly granted to and vested in the Board
of Directors from time to time to issue the Preferred Stock as Preferred
Stock of any series and in connection with the creation of each such
series to fix, by the resolution or resolutions providing for the issue of
shares thereof, the voting powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, if any, of such series, to the full
extent now or hereafter permitted by the laws of the State of Delaware.
Pursuant to the foregoing general authority vested in the Board of
Directors, but not in limitation of the powers conferred on the Board of
Directors thereby and by the laws of the State of Delaware, the
2
<PAGE> 5
Board of Directors is expressly authorized to determine with respect to
each series of Preferred Stock:
(a) the designation of such series and number of shares constituting
such series;
(b) the dividend rate or amount of such series, the payment dates
for dividends on shares of such series, the status of such
dividends as cumulative or non-cumulative, the date from which
dividends on shares of such series, if cumulative, shall be
cumulative, and the status of such as participating or
non-participating after the payment of dividends as to which
such shares are entitled to any preference;
(c) the price or prices (which amount may vary under different
conditions or at different dates) at which, and the times, terms
and conditions on which, the shares of such series may be
redeemed at the option of the Corporation;
(d) whether or not the shares of such series shall be made
optionally or mandatorily convertible into, or exchangeable for,
shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the
Corporation or other securities and, if made so convertible or
exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made and any other terms and
conditions of such conversion or exchange;
(e) whether or not the shares of such series shall be entitled to
the benefit of a retirement or sinking fund to be applied to the
purchase or redemption of shares of such series, and if so
entitled, the amount of such fund and the manner of its
application, including the price or prices at which shares of
such series may be redeemed or purchased through the application
of such fund;
(f) whether or not the issue of any additional shares of such series
or any future series in addition to such series or of any shares
of any other class of stock of the Corporation shall be subject
to restrictions and, if so, the nature thereof;
(g) the rights and preferences, if any, of the holders of such
series of Preferred Stock upon the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, and
the status of the shares of such series as participating or
non-participating after the satisfaction of any such rights and
preferences;
(h) the full or limited voting rights, if any, to be provided for
shares of such series, in addition to the voting rights provided
by law; and
3
<PAGE> 6
(i) any other relative powers, preferences and participating,
optional or other special rights and the qualifications,
limitations or restrictions thereof, of shares of such series;
in each case, so far as not inconsistent with the provisions of this
Certificate of Incorporation or the Delaware General Corporation Law then
in effect.
4
<PAGE> 7
Article V
Board of Directors
A. Election and Removal of Directors
1. The Board of Directors shall consist of not less than thirteen
(13) or more than eighteen (18) persons, the exact number to be fixed from
time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to
the Board for adoption), provided, however, this provision shall not act
to limit Board size in the event a class or classes of Preferred Stock are
entitled to elect directors to the exclusion of holders of Common Stock.
The directors shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as may be, provided in the manner specified in the Bylaws, Class
I Directors to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1997, Class II Directors to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1998, and Class III Directors to hold office initially for a
term expiring at the annual meeting of stockholders to be held in 1999,
with the members of each class to hold office until their successors are
duly elected and qualified. At each annual meeting of the stockholders of
the Corporation, the successors to the class, of directors whose term
expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election.
2. Notwithstanding the foregoing and except as otherwise provided by
law, whenever the holders of any series of the Preferred Stock shall have
the right (to the exclusion of holders of Common Stock) to elect directors
of the Corporation pursuant to the provisions of Article IV and any
resolution adopted pursuant thereto, the election of such directors of the
Corporation shall be governed by the terms and provisions of said
resolutions and such directors so elected shall not be divided into
classes pursuant to this Subsection A.2 of Article V and shall be elected
to hold office for a term expiring at the annual meeting of stockholders
held in the first year following their election or, if such right of the
holders of the Preferred Stock is terminated, for a term expiring in
accordance with the provisions of such resolutions.
3. Newly-created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause may be filled only by a majority vote of the
directors then in office, even though less than a quorum of the Board of
Directors, acting at a regular or special meeting. If any applicable
provision of the Delaware General Corporation Law or any resolution
adopted pursuant to Article IV expressly confers power on stockholders to
fill such a directorship at a special meeting of stockholders, such a
directorship may be filled at such a meeting only by the affirmative vote
of at least 80 percent of the combined voting powers of the outstanding
shares of stock of the Corporation entitled to vote generally; provided,
however, that when (a) pursuant to the provisions of Article IV or any
resolutions adopted pursuant thereto, the holders of any series of
Preferred Stock have the right (to the exclusion of holders of
5
<PAGE> 8
the Common Stock), and have exercised such right, to elect directors
and (b) Delaware General Corporation Law or any such resolution expressly
confers on stockholders voting rights as aforesaid, if the directorship to
be filled had been occupied by a director elected by the holders of Common
Stock, then such directorship shall be filled by an 80 percent vote as
aforesaid, but if such directorship to be filled had been elected by
holders of Preferred Stock, then such directorship shall be filled in
accordance with the applicable resolutions adopted under Article IV. Any
director elected in accordance with the two preceding sentences shall hold
office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until
such director's successor shall have been elected and qualified unless
such director was elected by holders of Preferred Stock (acting to the
exclusion of the holders of Common Stock), in which case such director's
term shall expire in accordance with the applicable resolutions adopted
pursuant to Article IV. No decrease in the number of authorized directors
constituting the entire Board of Directors shall shorten the term of any
incumbent director, except, as otherwise provided in the applicable
resolutions adopted pursuant to Article IV, with respect to directorships
created pursuant to one or more series of Preferred Stock.
4. Subject to the rights of the holders of any class or series of
Preferred Stock to elect directors under specified circumstances, any
director or directors may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least 80
percent of the combined voting power of all of the then-outstanding shares
of stock of the Corporation entitled to vote generally, voting together as
a single class (it being understood that for all purposes of this Article
V, each share of Preferred Stock shall have the number of votes, if any,
granted to it pursuant to this Certificate of Incorporation or any
designation of terms of any class or series of Preferred Stock made
pursuant to this Certificate of Incorporation).
5. Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the stock of the Corporation
required by law, this Certificate of Incorporation or any Preferred Stock
certificate of designation, the affirmative vote of at least 80 percent of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
alteration, amendment or repeal is presented to the Board for adoption),
shall be required to alter, amend or repeal this Article V, or any
provision hereof.
B. Liability, Indemnification and Insurance
1. Limitation on Liability. To the fullest extent that the Delaware
General Corporation Law as it exists on the date hereof or as it may
hereafter be amended permits the limitation or elimination of the personal
liability of directors, no director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. No amendment to or repeal of this Section B.
1 shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
6
<PAGE> 9
2. Right to Indemnification. The Corporation shall to the fullest
extent permitted by applicable law as then in effect indemnify any person
(the Indemnitee who was or is involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so
involved in any threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including without limitation, any action, suit or
proceeding by or in the right of the Corporation to procure a judgment in
its favor) (a "Proceeding") by reason of the fact that such person is or
was a director, officer, employee or agent of the Corporation, or of the
Columbia Energy Group Service Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) against all
expenses including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such Proceeding. Such indemnification shall be a contract right and
shall include the right to receive payment of any expenses incurred by the
Indemnitee in connection with such Proceeding in advance of its final
disposition, consistent with the provisions of applicable law as then in
effect.
3. Insurance. Contracts and Funding. The Corporation may purchase and
maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amounts paid in settlement as specified in
Subsection B.2 of this Section B or incurred by any Indemnitee in
connection with any Proceeding referred to in Subsection B.1 of this
Section B, to the fullest extent permitted by applicable law as then in
effect. The Corporation may enter into contracts with any director,
officer, employee or agent of the Corporation in furtherance of the
provisions of this Section B and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Section B.
4. Indemnification; No Exclusive Right. The right of indemnification
provided in this Section B shall not be exclusive of any other rights to
which those seeking indemnification may otherwise be entitled, and the
provisions of this Section B shall inure to the benefit of the heirs and
legal representatives of any person entitled to indemnity under this
Section B and shall be applicable to Proceedings commenced or continuing
after the adoption of this Section B, whether arising from acts or
omissions occurring before or after such adoption.
5. Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of
the foregoing provisions, the following procedures, presumptions and
remedies shall apply with respect to advancement of expenses and the right
to indemnification under this Section B:
(a) Advancement of Expenses. All reasonable expenses incurred by
or on behalf of the Indemnitee in connection with any Proceeding
shall be advanced to the Indemnitee by the Corporation within twenty
(20) days after the receipt by the Corporation of a statement or
statements from the Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of
such Proceeding. Such
7
<PAGE> 10
statement or statements shall reasonably evidence the expenses
incurred by the Indemnitee and, if required by law at the time of
such advance, shall include or be accompanied by an undertaking by or
on behalf of the Indemnitee to repay the amounts advanced if it
should ultimately be determined that the Indemnitee is not entitled
to be indemnified against such expenses pursuant to this Section B.
(b) Procedure for Determination of Entitlement to
Indemnification.
(i) To obtain indemnification under this Section B, an
Indemnitee shall submit to the Secretary of the Corporation a
written request, including such documentation and information as
is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee
is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to
indemnification shall be made not later than sixty (60) days
after receipt by the Corporation of the written request for
indemnification together with the Supporting Documentation. The
Secretary of the Corporation shall, promptly upon receipt of such
a request for indemnification, advise the Board of Directors in
writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under
this Section B shall be determined in one of the following ways:
(A) by a majority vote of the disinterested Directors (as
hereinafter defined), even if they constitute less than a quorum
of the Board; (B) by a written opinion of Independent Counsel (as
hereinafter defined) if (x) a Change of Control (as hereinafter
defined) shall have occurred and the Indemnitee so requests or
(y) if there are no Disinterested Directors or a majority of such
Disinterested Directors so directs; (C) by the stockholders of
the Corporation (but only if a majority of the Disinterested
Directors presents the issue of entitlement to indemnification to
the stockholders for their determination); or (D) as provided in
Section B.5(c).
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
Section B.5(b)(ii), a majority of the Disinterested Directors
shall select the Independent Counsel (except that if there are no
Disinterested Directors, the Corporation's Chief Legal Officer
shall select the Independent Counsel), but only an Independent
Counsel to which the Indemnitee does not reasonably object;
provided, however, that if a Change of Control shall have
occurred, the Indemnitee shall select such Independent Counsel,
but only an Independent Counsel to which the Board of Directors
does not reasonably object.
(iv) The only basis upon which a finding of no entitlement
to indemnification may be made is that indemnification is
prohibited by law
8
<PAGE> 11
(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Section B, if a Change of
Control shall have occurred, the Indemnitee Shall be presumed to be
entitled to indemnification under this Section B upon submission of a
request for indemnification together with the Supporting
Documentation in accordance with Section B.5 (b)(i), and thereafter
the Corporation shall have the burden of proof to overcome that
presumption in reaching a contrary determination. In any event, if
the person or persons empowered under Section B.5(b) to determine
entitlement to indemnification shall not have been appointed or shall
not have made a determination within sixty (60) days after receipt by
the Corporation of the request therefor together with the Supporting
Documentation, the Indemnitee shall be deemed to be entitled to
indemnification and the Indemnitee shall be entitled to such
indemnification unless (A) the Indemnitee misrepresented or failed to
disclose a material fact in making the request for indemnification or
in the Supporting Documentation or (B) such indemnification is
prohibited by law. The termination of any Proceeding described in
Section B.2, or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, adversely affect the right of
the Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation or, with respect to any criminal
Proceeding, that the Indemnitee had reasonable cause to believe that
the Indemnitee's conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made, pursuant to
Section B.5(b) that the Indemnitee is not entitled to
indemnification under this Section B, (A) the Indemnitee shall
be entitled to seek an adjudication of his entitlement to such
indemnification either, at the Indemnitee's sole option, in (x)
an appropriate court of the State of Delaware or any other court
of competent jurisdiction or (y) an arbitration to be conducted
by a single arbitrator pursuant to the rules of the American
Arbitration Association; (B) any such judicial Proceeding or
arbitration shall be de nova and the Indemnitee shall not be
prejudiced by reason of such adverse determination; and (C) in
any such judicial Proceeding or arbitration the Corporation
shall have the burden of proving that the Indemnitee is not
entitled to indemnification under this Section B.
(ii) If a determination shall have been made or deemed to
have been made, pursuant to Section B.5(b) or (c), that the
Indemnitee is entitled to indemnification, the Corporation shall
be obligated to pay the amounts constituting such
indemnification within five (5) days after such determination
has been made or deemed to have been made and shall be
conclusively bound by such determination unless (A) the
Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law.
In the event that (x) advancement of expenses is not timely made
pursuant to Section B.5(a) or (y)
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<PAGE> 12
payment of indemnification is not made within five (5) days
after a determination of entitlement to indemnification has been
made or deemed to have been made pursuant to Section B.5(b) or
(c), the Indemnitee shall be entitled to seek judicial
enforcement of the Corporation's obligation to pay to the
Indemnitee such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Corporation may bring an
action, in an appropriate court in the State of Delaware or any
other court of competent jurisdiction, contesting the right of
the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (A) or (B) of this
clause (ii) (a "Disqualifying Event"); provided, however, that
in any such action the Corporation shall have the burden of
proving the occurrence of such Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in
any judicial Proceeding or arbitration commenced pursuant to
this Section B.5(d) that the procedures and preemptions of this
Section B are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that
the Corporation is bound by all the provisions of this Section
B.
(iv) In the event that the Indemnitee, pursuant to this
Section B.5(d), seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages
for breach of, this Section B, the Indemnitee shall be entitled
to recover from the Corporation, and shall be indemnified by the
Corporation against, any expenses actually and reasonably
incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined
in such judicial adjudication or arbitration that the Indemnitee
is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by the
Indemnitee in connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section B.5:
(i) "Change in Control" means (A) so long as the Public
Utility Holding Company Act of 1935 is in effect, any "company"
becoming a "holding company" in respect to the Corporation or
any determination by the Securities and Exchange Commission that
any "person" should be subject to the obligations, duties, and
liabilities if imposed by said Act by virtue of his, hers or its
influence over the management or policies of the Corporation, or
(B) whether or not said Act is in effect a change in control of
the Corporation of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 (the
"Act"), whether or not the Corporation is then subject to such
reporting requirement; provided that, without limitation, such a
change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of
the Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly
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<PAGE> 13
or indirectly, of securities of the Corporation representing
ten percent or more of the combined voting power of the
Corporation's then outstanding securities without the prior
approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such acquisition; (ii)
the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less
than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority
of the Board of Directors.
(ii) "Disinterested Director" means a director of the
Corporation who is not or was not a party to the Proceeding in
respect of which indemnification is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of
a law firm that neither presently is, nor in the past five years
has been, retained to represent: (A) the Corporation or the
Indemnitee in any matter material to either such party or (B)
any other party to the Proceeding giving rise to a claim for
indemnification under this Section B. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional
conduct then prevailing under the Delaware law, would have a
conflict of interest in representing either the Corporation or
the Indemnitee in an action to determine the Indemnitee's rights
under this Section B.
6. Severability. If any provision or provisions of this Section B
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (i) the validity, legality and enforceability of the remaining
provision of this Section B (including, without limitation, all portions
of any paragraph of this Section B containing any such provision held to
be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (ii) to the fullest extent possible, the provisions of this
Section B (including, without limitation, all portions of any paragraph of
this Section B containing any such provision held to be invalid, illegal
or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
7. Successor Laws, Regulations and Agencies. Reference herein to
laws, regulations or agencies shall be deemed to include all amendments
thereof, substitutions therefor and successors thereto.
Article VI
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<PAGE> 14
General Powers of the Board of Directors
A. Bylaws
The Board of Directors shall have the power to make, alter, amend and
repeal the Bylaws of the Corporation in such form and with such terms as
the Board may determine, subject to the power granted to stockholders to
alter or repeal the Bylaws provided under Delaware law; provided, however,
that, notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote the affirmative vote of at least 80 percent of the
total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
alteration, amendment or repeal is presented to the Board for adoption),
shall be required to alter, amend or repeal any provision of the Bylaws
which is to the same effect as any one or more sections of this Article
VI.
B. Charter Amendments
Subject to the provisions hereof, the Corporation, through its Board
of Directors, reserves the right at any time, and from time to time, to
amend, alter, repeal or rescind any provision contained in this Restated
Certificate of Incorporation in the manner now or hereinafter prescribed
by law, and any other provisions authorized by Delaware law at the time
enforced may be added or inserted, in the manner now or hereinafter
prescribed by law, and any and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other
persons whomsoever by and pursuant to this Restated Certificate of
Incorporation in its present form or as hereinafter amended are granted
subject to the rights reserved in this Article.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the Seal of the Corporation as of this 16th day of
January, 1998.
COLUMBIA ENERGY GROUP
Attest: /s/C. M. Afshar BY: /s/ M. W. O'Donnell
----------------- ------------------------------
Secretary Senior Vice President and Chief
Financial Officer
[SEAL]
12
<PAGE> 1
Exhibit 3-E
===============================================================================
COLUMBIA ENERGY GROUP
------
BY-LAWS
AS OF NOVEMBER 18, 1987; AMENDED AND RESTATED AS OF
JANUARY 16, 1998
===============================================================================
<PAGE> 2
BY-LAWS
Of
COLUMBIA ENERGY GROUP
---------
ARTICLE I.
SEAL.
The corporate seal of the Corporation shall consist of a metallic
stamp circular in form, bearing in its center the figures "1926" and the
words "Incorporated" and "Delaware" and on the outer edge the name of the
Corporation.
ARTICLE II.
OFFICES.
The location of the Corporation's principal office shall be in the
County of New Castle, State of Delaware.
The Corporation may, in addition to its principal office in the State
of Delaware, establish and maintain an office or offices in such other
states and places as the Board of Directors may from time to time find
necessary or desirable.
The books, documents, and papers of the Corporation, except as may be
otherwise required by the laws of the State of Delaware, may be kept
outside of the said State at such places as the Board of Directors may
from time to time designate.
ARTICLE III.
CAPITAL STOCK.
Every stockholder shall be entitled to have a certificate, signed by,
or in the name of the Corporation by, the Chairman of the Board, the
President or a Vice President and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation, certifying
the number of shares owned by him in
<PAGE> 3
the Corporation; provided, however, that any such signature on the
certificate may be a facsimile. In case any officer or officers, Transfer
Agent or Registrar who shall have signed, or whose facsimile signature or
signatures shall have been used on any such certificate or certificates
shall cease to be such officer or officers of the Corporation, Transfer
Agent or Registrar, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued
and delivered as though the person or persons who signed such certificate
or certificates or whose facsimile signature or signatures shall have been
used thereon had not ceased to be such officer or officers of the
Corporation, Transfer Agent or Registrar. Such certificates shall be
transferable on the stock books of the Corporation in person or by
attorney, but, except as hereinafter provided in the case of loss,
destruction or mutilation of certificates, no transfer of stock shall be
entered until the previous certificate, if any, given for the same shall
have been surrendered and cancelled.
The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation.
The Board of Directors may make such rules and regulations as it may
deem expedient, not inconsistent with these By-Laws, concerning the issue,
transfer and registration of certificates for shares of the capital stock
of the Corporation. It may appoint one or more Transfer Agents or one or
more Registrars or both, and may require all certificates of stock to bear
the signature of either or both.
In order that the Corporation may determine the stockholders entitled
to notice of, or to vote at, a meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any
rights in respect of any other change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix
in advance a record date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior
to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting
of stockholders the Board shall not fix such a record date,
2
<PAGE> 4
the record date for determining stockholders for such purpose shall
be the close of business on the day on which the Board shall adopt the
resolution relating thereto. A determination of stockholders entitled to
notice of, or to vote at, a meeting of stockholders, shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
In case of loss, destruction or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss,
destruction or mutilation and upon the giving to the Corporation of a bond
sufficient to indemnify the Corporation, its Transfer Agents and
Registrars, against any claim that may be made against it or them on
account of the alleged loss or destruction of any such certificate or the
issuance of such new certificate; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment
of the Board of Directors, it is proper so to do.
ARTICLE IV.
STOCKHOLDERS' MEETINGS.
(a) All meetings of the stockholders shall be held either at the
principal office of the Corporation in the State of Delaware, or at such
other place, either within or without the State of Delaware as the Board
of Directors shall determine. The place at which any given meeting shall
be held shall be distinctly specified in the notice of such meeting.
(b) The annual meeting of the stockholders of the Corporation, for
the election of Directors and for the transaction of such other business
as may come before the meeting, shall be held on the second Wednesday in
May of each year, at one o'clock in the afternoon, unless such day shall
fall on a legal holiday, in which event the annual meeting shall be held
on the day following. Such date and time of meeting may be changed by
action of the Board of Directors.
(c) Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a
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<PAGE> 5
resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to
the Board for adoption).
(d) If the annual meeting of the stockholders be not held as herein
prescribed, the election of Directors may be held at any meeting
thereafter called pursuant to these By-Laws.
(e) Notice of the annual and of all special meetings of the
stockholders shall be given each holder of stock of the Corporation having
power to vote at such meeting by depositing in the United States mail a
written or printed notice of the same not less than ten nor more than
sixty days prior to the meeting, with postage prepaid, to each such
stockholder of record of the Corporation and addressed to him at his
address as registered upon the books of the Corporation. Except in special
cases where other provision is made by statute, no publication of any
notice of a meeting of stockholders shall be required. Every notice of a
meeting of stockholders shall state the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Notice of any meeting of stockholders shall
not be required to be given to any stockholder who shall attend such
meeting in person or by proxy except a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not
lawfully called or convened. Except where otherwise required by statute
for an adjournment exceeding thirty days or if a new record date is fixed
for the adjourned meeting, notice of any adjourned meeting of the
stockholders of the Corporation shall not be required to be given if the
time and place thereof are announced at the meeting which is adjourned.
It shall be the duty of the officer who shall have charge of the
stock ledger of the Corporation to prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at said meeting, arranged in alphabetical order, showing
their addresses of record and the number of shares held by each. Such list
shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within the city,
town or
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<PAGE> 6
village where the meeting is to be held and which place shall be
specified in the notice of the meeting, or, if not so specified, at the
place where said meeting is to be held, and the list shall be produced and
kept at the time and place of the meeting during the whole time thereof,
and subject to the inspection of any stockholder who may be present.
(f) The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person, or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of any business except as otherwise
provided by law, by the Certificate of Incorporation or by these By-Laws.
If, however, such majority shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat
present in person or by proxy shall have power to adjourn the meeting from
time to time. At any such adjourned meeting at which the requisite amount
of voting stock shall be represented any business may be transacted which
might have been transacted at the meeting as originally called.
(g) Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE V.
BOARD OF DIRECTORS.
(a) The management of business and affairs of the Corporation shall
be under the direction of a Board of Directors consisting of not less than
thirteen (13) or more than eighteen (18) persons, the exact number to be
fixed from time to time exclusively by the Board of Directors pursuant to
a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time of any such resolution is presented
to the Board for adoption). At the 1986 annual meeting of stockholders,
the directors shall be divided into three classes, as nearly equal in
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<PAGE> 7
number as possible, with the term of office of the first class to expire
at the 1987 annual meeting of stockholders, the term of office of the
second class to expire at the 1988 annual meeting of stockholders and the
term of office of the third class to expire at the 1989 annual meeting of
the stockholders. Except as otherwise provided in the Corporation's
Certificate of Incorporation, at each annual meeting of the stockholders
following such initial classification and election, directors elected to
succeed those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of the
stockholders after their election.
(b) Any director of the Corporation may resign at any time by giving
written notice thereof to the Corporation. Such resignation shall take
effect at the time specified therefor, and unless otherwise specified with
respect thereto the acceptance of such resignation shall not be necessary
to make it effective. Subject to the rights of the holders of the
Preferred Stock to elect directors under specified circumstances, any
director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the
holders of at least 80 percent of the combined voting power of all of the
then outstanding shares of stock of all classes and series of the
Corporation entitled to vote generally (the "Voting Stock"), voting
together as a single class (it being understood that, for all purposes of
these By-Laws, each share of the Preferred Stock shall have the number of
votes granted to it pursuant to the Corporation's Certificate of
Incorporation or any designation of terms of any class or series of
Preferred Stock made pursuant to the Certificate of Incorporation). The
Corporation must notify the director of the grounds of his impending
removal and the director shall have an opportunity, at the expense of the
Corporation, to present his defense to the stockholders by a statement
which accompanies or precedes the Corporation's solicitation of proxies to
remove him. The term 'entire Board' as used in these By-Laws means the
total number of directors which the Corporation would have if there were
no vacancies.
(c) Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement,
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<PAGE> 8
disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, even though less
than a quorum of the Board of Directors, acting at a regular or special
meeting. If any applicable provision of the Delaware General Corporation
Law expressly confers power on stockholders to fill such a directorship at
a special meeting of stockholders, such a directorship may be filled at
such a meeting only by the affirmative vote of at least 80 percent of the
Voting Stock of the Corporation; provided, however, that when (a) pursuant
to the provision of Article Fourth of the Certificate of Incorporation the
holders of Preferred Stock have the right, and have exercised such right,
to elect directors and (b) The Delaware General Corporation Law expressly
confers on stockholders voting rights as aforesaid, if the directorship to
be filled had been occupied by a director elected by holders of Common
Stock, then such directorship shall be filled by an 80 percent vote as
aforesaid, but if such directorship to be filled had been elected by
holders of Preferred Stock, then such directorship shall be filled by the
majority vote of the holders of Preferred Stock. Any director elected in
accordance with the two preceding sentences shall hold office for the
remainder of the full term of the directors in which the new directorship
was created or the vacancy occurred and until such director's successor
shall have been elected and qualified. No decrease in the authorized
number of directors constituting the entire Board of Directors shall
shorten the term of any incumbent director.
(d) Without prejudice to the general powers conferred by subdivision
(a) of this Article, the Board of Directors shall have and exercise each
and every power granted to them in Article Ninth of the Certificate of
Incorporation of the Corporation.
(e) Regular meetings of the Board of Directors shall be held at such
office or offices, whether within or without the State of Delaware, and at
such times as the Board shall from time to time determine.
Special meetings of the Board of Directors may be called at any time
by the Chief Executive Officer or, if he is incapacitated or unable to
call such meetings, by any member of the Board of Directors. Such meetings
may take place in the office of the Corporation in the State of Delaware
or in such office or offices as the Directors may establish.
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<PAGE> 9
(f) Except as aforesaid, notice of all special meetings of the Board
of Directors shall be given to each Director by five days' service of the
same by telegram, or telephone or letter or personally. Notice of any
special meeting of the Board of Directors shall state the place and hour
of the meeting, but need not state the purposes thereof. Notice of any
meeting of the Board or of any Committee need not be given to any Director
if waived by him in writing, or by telegraph or cable, whether before or
after such meeting be held, or if he shall be present at the meeting; and
any meeting of the Board of Directors or of any Committee shall be a legal
meeting without any notice thereof having been given, if all the members
shall be present thereat. Notice of regular meetings of the Board need not
be given. In the absence of written instructions from a Director
designating some other address, notice shall be sufficiently given if
addressed to him at his usual business address.
(g) Except as provided in clause (c) of this Article, one-third of
the total number of Directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors; but
less than a quorum may adjourn the meeting.
(h) Each Director of the Corporation shall be entitled to receive
such fixed sum per meeting of the Board of Directors attended, or such
annual sum, or both, as the Board shall from time to time determine,
together with his expenses of attendance at such meeting.
ARTICLE VI.
STANDING COMMITTEES.
(a) The Board of Directors shall, by resolution adopted by a majority
of the whole Board, designate annually three or more of their number, one
of whom shall be the Chief Executive Officer, to constitute an Executive
Committee which shall have power to authorize the seal of the Corporation
to be affixed to all papers which may require it, and shall have and may
exercise in the intervals between the meetings of the Board of Directors
the
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<PAGE> 10
powers of the Board in the management of the business and affairs of
the Corporation (including the power and authority to declare a dividend
and to authorize the issuance of stock) except the power in reference to
amending the Certificate of Incorporation, adopting an agreement of merger
or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution, or amending the By-Laws of the
Corporation. The Executive Committee shall study and report to the Board
of Directors on such matters as shall be referred to it by the Board or by
the Chairman of the Board or Chief Executive Officer. The Board of
Directors may also designate one or more other Directors as alternate
members of the Executive Committee, who may replace any absent or
disqualified member at any meeting of the Committee. In the absence or
disqualification of a member of the Committee, the member or members
thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another
Director to act at the meeting in the place of any such absent or
disqualified member. Each member of the Executive Committee shall continue
to be a member thereof only during the pleasure of a majority of the whole
Board.
(b) The Board of Directors shall designate the Chairman of the
Executive Committee, who may be any member thereof. In the absence from
any meeting of the Executive Committee of its Chairman, the Committee may
appoint a Chairman of the meeting. At any meeting at which the Executive
Committee may exercise its power to act in intervals between the meetings
of the Board in the management of the business and affairs of the
Corporation, the Secretary of the Corporation shall act as Secretary
thereof. In the absence from any such meeting of the Secretary, and at any
other meeting of the Committee, the Committee may appoint a Secretary of
the meeting.
(c) Meetings of the Executive Committee may be called at the request
of any member of the Committee. Two days' notice of each meeting of the
Executive Committee shall be given by mail, telegraph or telephone or be
delivered personally, to each member of the Committee. Notice of any
meeting need not be given to any
9
<PAGE> 11
member of the Executive Committee if waived by him in writing or by
telegraph or cable, whether before or after such meeting be held, or if he
shall be present at the meeting; and any meeting of the Committee shall be
a legal meeting without any notice thereof having been given, if all the
members of the Committee shall be present thereat. In the absence of
written instructions from a member of the Executive Committee designating
some other address, notice shall be sufficiently given if addressed to him
at his usual business address. Subject to the provisions of this Article
VI, the Executive Committee, by resolution of a majority of all of its
members, shall fix its own rules of procedure and shall keep a record of
its proceedings and report them to the Board of Directors at the next
regular meeting thereof after such proceedings shall have been taken. All
such proceedings shall be subject to revision or alteration by the Board
of Directors; provided, however, that third parties shall not be
prejudiced by such revision or alteration.
(d) A quorum of the Executive Committee for the transaction of
business shall consist of not less than one-third of the total number of
members thereof nor less than two members thereof, and the act of a
majority of those present at a meeting at which a quorum is present shall
be the act of the Executive Committee. Less than a quorum may adjourn a
meeting. The members of the Executive Committee shall act only as a
committee, and the individual members shall have no power as such.
(e) Any member of the Executive Committee may resign at any time by
giving written notice to the Chief Executive Officer or to the Secretary
of the Corporation. Such resignation shall take effect at the time
specified in such notice and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
(f) Any vacancy in the Executive Committee shall be filled by the
vote of a majority of the whole Board of Directors.
(g) The members of the Executive Committee shall be entitled to
receive such fees and compensation as the Board of Directors may
determine.
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(h) The Board of Directors may, by resolution adopted by a majority
of the whole Board, also appoint such other standing or temporary
committees from time to time as they may see fit, investing them with all
or any part of their own powers. All committees shall adopt their own
rules of procedure and shall keep regular minutes of their transactions in
books kept in the office of the Corporation, and shall report the same to
the Board of Directors or to the Executive Committee at the various
meetings thereof.
ARTICLE VII.
OFFICERS.
(a) The officers of the Corporation shall be the President, one or
more Vice Presidents, the Secretary and the Treasurer, who shall be
elected by the Board of Directors, and such additional Assistant
Secretaries, Assistant Treasurers, and special subordinate officers as may
from time to time be elected or appointed by the Board of Directors or
appointed by the Chief Executive Officer. A Chairman of the Board and a
Vice Chairman of the Board may be elected by the Board of Directors. The
Board shall designate an officer as the Chief Executive Officer.
Any two of the above offices, not counting the title of Chief
Executive Officer, may be held by the same person.
The Chief Executive Officer shall, if present, preside at all
meetings of the stockholders and at all meetings of the Board of
Directors, provided, however, that if there is a Chairman of the Board who
is not the Chief Executive Officer, the Chairman of the Board, if present,
shall preside at all meetings of the stockholders and the Board of
Directors. The Chief Executive Officer or an officer designated by him
shall make a report on the state of the business of the Corporation at
each annual meeting of stockholders. From time to time, the Chief
Executive Officer or officers designated by him shall report to the
stockholders and to the Board of Directors and to the Executive Committee
all matters within the knowledge of the Chief Executive Officer which in
his
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<PAGE> 13
judgment the interests of the Corporation may require to be brought
to their notice.
All of the officers of the Corporation shall hold office for one year
and until others are elected or appointed and qualified in their stead,
unless in the election or appointment of the officer it shall be specified
that he holds his office for a shorter period or subject to the pleasure
of the Board of Directors or the Chief Executive Officer.
All vacancies in such offices by resignation, death or otherwise may
be filled by the Board of Directors. In the case of absence or inability
to act of any officer of the Corporation, and of any person herein
authorized to act in his place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer or
any Director or other person whom they may select.
(b) The Chief Executive Officer shall have general and active
supervision and direction over the business and affairs of the Corporation
and over its several officers; subject, however, to the control of the
Board of Directors and of the Executive Committee. He shall see that all
orders and resolutions of the Board of Directors and of the Executive
Committee are carried into effect. He may be ex officio a member of all
standing committees of the Board of Directors, and he shall perform such
other duties as may be assigned to him from time to time by the Board of
Directors or by the Executive Committee.
(c) The Chairman or Vice Chairman of the Board, if elected, shall
perform such duties as from time to time may be assigned by the Board of
Directors or by the Executive Committee.
(d) The President and the Vice Presidents shall perform such duties
as the Board of Directors shall, from time to time, require.
(e) The Treasurer shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation, shall deposit all
moneys and other valuables in the name and to the credit of the
Corporation, in such depositaries as may be directed by the Board of
Directors, shall disburse the funds of the Corporation as may be ordered
by the Board or the Chief
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<PAGE> 14
Executive Officer taking proper vouchers therefor, and shall render
to the Chief Executive Officer and the Directors whenever they may require
it an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
He shall also perform such other duties as the Board of Directors may
from time to time require.
If required by the Board of Directors he shall give the Corporation a
bond in a form and in a sum with surety satisfactory to the Board of
Directors for the faithful performance of the duties of his office and the
restoration to the Corporation in the case of his death, resignation or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession belonging to the Corporation.
At the request of the Treasurer, or in his absence or inability to
act, the Assistant Treasurer or, if there be more than one, the Assistant
Treasurer designated by the Treasurer, shall perform the duties of the
Treasurer and when so acting shall have the powers of and be subject to
all the restrictions of the Treasurer. The Assistant Treasurers shall
perform such other duties as may from time to time be assigned to them by
the Chief Executive Officer, the Treasurer or the Board of Directors.
(f) The Secretary shall attend all meetings of the Board of Directors
and of the stockholders and act as Clerk thereof and record all votes and
the minutes of all proceedings in a book to be kept for that purpose, and
shall perform like duties for the standing committees when required.
He shall keep in safe custody the seal of the Corporation and,
whenever authorized by the Board or the Executive Committee, affix the
seal to any instrument requiring the same.
He shall see that proper notice is given of all meetings of the
stockholders of the Corporation and of the Board of Directors and shall
perform such other duties as may be prescribed from time to time by the
Board of Directors or the Chief Executive Officer.
At the request of the Secretary, or in his absence or inability to
act, the Assistant Secretary or, if there be more than one, the Assistant
Secretary designated by the Secretary, shall perform the duties of the
Secretary and when so acting shall have all the powers of and be subject
to all the restrictions of the Secretary. The Assistant Secretaries shall
perform such other duties
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<PAGE> 15
as may from time to time be assigned to them by the Chief Executive
Officer, the Secretary or the Board of Directors.
(g) Any officer of the Corporation may be removed, either with or
without cause, at any time, by resolution adopted by the Board of
Directors at a regular meeting or at a special meeting of the Board called
for that purpose, by any Committee upon whom such power of removal may be
conferred by the Board of Directors or by a superior officer upon whom
such power of removal may be conferred by the Board of Directors.
ARTICLE VIII.
CONTRACTS, CHECKS, NOTES, ETC.
(a) All contracts and agreements authorized by the Board of Directors
or the Executive Committee, and all checks, drafts, notes, bonds, bills of
exchange and orders for the payment of money (including orders for
repetitive or non-repetitive electronic funds transfers) shall, unless
otherwise directed by the Board of Directors, or unless otherwise required
by law, be signed by any two of the following officers: the Chairman of
the Board, the President, any Vice President, the Treasurer, the
Secretary, any Assistant Treasurer or any Assistant Secretary; provided
that in every case at least one such officer shall be the Chairman of the
Board, the President, a Vice President, the Treasurer or the Secretary.
The Board of Directors may, however, notwithstanding the foregoing
provision, by resolution adopted at any meeting, authorize any of said
officers to sign checks, drafts and such orders for the payment of money
singly and without necessity of countersignature, and may designate
officers of the Corporation other than those named above, or different
combinations of such officers, who may, in the name of the Corporation,
execute checks, drafts, and such orders for the payment of money in its
behalf. Further, the Treasurer is authorized to designate to the
Corporation's banks, in writing, individuals employed in the Columbia
Energy Group Service Corporation Cash Management Department, who need not
be officers or employees of the Corporation, to give in the name of the
Corporation telephonic, telegraphic, or electronic transfer instructions
for the payment of
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money, which may, with respect to routine items, include instructions
as to the amount to be transferred, to any bank, pursuant to previously
issued written orders, signed by officers of the Corporation in any manner
provided above, which designate the recipients of such amounts and which
identify what shall be treated as routine items.
(b) Anything in subdivision (a) of this Article VIII to the contrary
notwithstanding, the officers of this Corporation may open in the name of
the Corporation special accounts appropriately designated in which shall
be deposited funds of the Corporation transferred from the Corporation's
other accounts by its checks signed in accordance with the requirements of
subdivision (a) of this Article VIII, but from which special accounts
funds may be disbursed by check, draft, or other instrument of the
Corporation designated as drawn against such special account and signed by
the single signature of any one of the executive officers of the
Corporation authorized by subdivision (a) of this Article VIII to sign
checks, drafts and other instruments of the Corporation or signed by the
single signature of any other person expressly authorized by the Board to
sign checks, drafts and other instruments disbursing funds from such
special accounts.
(c) Anything in subdivision (a) of this Article VIII to the contrary
notwithstanding, (i) bonds, notes, debentures and other evidence of
indebtedness of the Corporation issued under an indenture may be executed
in the name of the Corporation by the facsimile signature, printed,
engraved or otherwise used thereon, of the Chairman of the Board, the
President or any Vice President of the Corporation, and the corporate seal
affixed thereto or impressed, printed, engraved or otherwise reproduced
thereon may be attested by the facsimile signature of the Secretary or an
Assistant Secretary of the Corporation, provided that the indenture
require the same to be authenticated by the trustee under such indenture,
and (ii) interest coupons attached to any such bond, note, debenture or
other evidence of indebtedness may be executed on behalf of the
Corporation by the facsimile signature of the Treasurer of the
Corporation.
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ARTICLE IX.
FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first day of
January in each year.
ARTICLE X.
AMENDMENT OF BY LAWS.
These By-Laws may be amended, added to, rescinded or repealed at any
meeting of the Board of Directors or of the stockholders, provided notice
of the proposed change was given in the notice of the meeting or, in the
case of a meeting of the Board of Directors, in a notice given not less
than two days prior to the meeting; provided, however, that,
notwithstanding any other provisions of these By-Laws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition
to any affirmative vote of the holders of any particular class or series
of the Voting Stock required by law, the Certificate of Incorporation, any
class or series of Preferred Stock or these By-Laws, the affirmative vote
of at least 80 percent of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any such alteration, amendment or repeal is
presented to the Board for adoption), shall be required to alter, amend or
repeal Article IV (c), IV (g), V (a), V (b), V (c), and V (g) of these
By-Laws or this proviso to this Article X of these By-Laws.
ARTICLE XI.
NATIONAL EMERGENCY.
(a) Definition and Application. For the purposes of this Article XI
the term "national emergency" is defined as an emergency situation
resulting from an attack upon the United States, a nuclear disaster within
the United States, a catastrophe, or
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<PAGE> 18
other emergency condition, as a result of which attack, disaster,
catastrophe or emergency condition a quorum of the Board of Directors
cannot readily be convened for action. Persons not directors of the
Corporation may conclusively rely upon a determination by the Board of
Directors of the Corporation, at a meeting held or purporting to be held
pursuant to this Article XII that a national emergency as hereinabove
defined exists regardless of the correctness of such determination made or
purporting to be made as hereinafter provided. During the existence of a
national emergency the provisions of this Article XII shall become
operative, but, to the extent not inconsistent with such provisions, the
other provisions of these By-Laws shall remain in effect during any
national emergency and upon its termination the provisions of this Article
XII shall cease to be operative.
(b) Meetings, etc. When it is determined in good faith by any
director that a national emergency exists, special meetings of the Board
of Directors may be called by such director. The director calling any such
special meeting shall make a reasonable effort to notify all other
directors of the time and place of such special meeting, and such effort
shall be deemed to constitute the giving of notice of such special
meeting, and every director shall be deemed to have waived any
requirement, of law or otherwise, that any other notice of such special
meeting be given. At any such special meeting two directors shall
constitute a quorum for the transaction of business including, without
limiting the generality hereof, the filling of vacancies among directors
and officers of the Corporation and the election of additional Vice
Presidents, Assistant Secretaries and Assistant Treasurers. The act of a
majority of the directors present thereat shall be the act of the Board of
Directors. If at any such special meeting of the Board of Directors there
shall be only one director present, such director present may adjourn the
meeting from time to time until a quorum is obtained, and no further
notice thereof need be given of any such adjournment.
The directors present at any such special meeting shall make
reasonable effort to report any action taken thereat to all absent
directors, but failure to give such report shall not affect the validity
of the action taken at any such meeting. All directors, officers,
employees and agents of, and all persons dealing with, the Corporation, if
acting in good faith, may conclusively rely upon any action taken at any
such special meeting.
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(c) Amendment. The Board of Directors shall have the power to alter,
amend, or repeal any of these By-Laws by the affirmative vote of at least
two-thirds (2/3) of the directors present at any special meeting attended
by two (2) or more directors and held in the manner prescribed in (b) of
this Article, if it is determined in good faith by said two-thirds (2/3)
that such alteration, amendment or repeal would be conducive to the proper
direction of the Corporation's affairs.
(d) Chief Executive Officer. If, during the existence of a national
emergency, the Chief Executive Officer of the Corporation becomes
incapacitated, cannot by reasonable effort be located, or otherwise is
unable or unavailable to perform the duties of his office, an Executive
Vice President of the Corporation, if there be one, is hereby designated
as Chief Executive Officer. The Executive Vice President senior in office,
if there be more than one, shall so serve. If an Executive Vice President
is unable or unavailable to perform the duties of the Chief Executive
Officer of the Corporation, the senior available Vice President shall be
designated as Chief Executive Officer, such seniority to be determined by
the date on which such Vice President was first elected or appointed to
such office. If none of the foregoing officers is able or available to
perform the duties of the Chief Executive Officer, the next senior
available officer of the Corporation is hereby designated as Chief
Executive Officer, such seniority to be determined by the date on which he
was first elected or appointed to serve.
(e) Substitute Directors. To the extent required to constitute a
quorum at any meeting of the Board of Directors during a national
emergency, the officers of the Corporation who are present shall be
deemed, in order of rank of office and within the same rank in order of
election or appointment to such office, directors for such meeting.
I, Secretary of COLUMBIA ENERGY GROUP, hereby certify that the
foregoing constitutes a true and correct copy of the By-Laws of said
Corporation, effective November 18,1987; and
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amended and restated as of January 16, 1998, to reflect the change in
the Corporation's name.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said
Corporation, this day of
/s/ C.M.Afshar
-------------------------
Secretary
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<PAGE> 1
Exhibit 12
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges
($ in millions)
<TABLE>
<CAPTION>
Twelve Months
Ended June 30,
--------------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Consolidated Income (Loss) from Continuing Operations 359.7 372.5
Adjustments:
Interest during construction (2.6) 1.6
Distributed (Undistributed) equity income 2.7 1.8
Fixed charges * 181.8 181.2
----- -----
Earnings Available 541.6 557.1
----- -----
Fixed Charges:
Interest on long-term and short-term debt 146.8 145.3
Other interest 15.8 14.8
Portion of rentals representing interest 19.2 21.1
----- -----
Total Fixed Charges **, *** 181.8 181.2
----- -----
Ratio of Earnings to Fixed Charges 2.98 3.07
===== =====
<CAPTION>
Twelve Months
Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations 392.2 337.5 (643.0) 392.2 288.1
Adjustments:
Interest during construction (3.0) (1.1) (20.2) - -
Distributed (Undistributed) equity income 3.6 1.5 (7.9) (0.9) (0.1)
Fixed charges * 182.0 184.6 1,061.3 33.7 120.0
----- ----- ------- ----- -----
Earnings Available 574.8 522.5 390.2 425.0 408.0
----- ----- ------- ----- -----
Fixed Charges:
Interest on long-term and short-term debt 145.6 150.8 987.2 0.7 3.1
Other interest 15.4 13.5 53.6 14.1 98.4
Portion of rentals representing interest 21.0 20.3 20.5 18.9 18.5
----- ----- ------- ----- -----
Total Fixed Charges **, *** 182.0 184.6 1,061.3 33.7 120.0
----- ----- ------- ----- -----
Ratio of Earnings to Fixed Charges 3.16 2.83 N/A (a) 12.61 3.40
===== ===== ======= ===== =====
</TABLE>
(a) To achieve a one-to-one coverage, the Corporation would need an additional
$671.1 million of earnings for the twelve months ended December 31, 1995.
* Amounts for the twelve months ended December 31, 1993 through December 31,
1996 have been restated to conform to 1998 presentation.
** This amount excludes approximately $230 million and $210 million of interest
expense not recorded for the twelve months ended December 31, 1994 and 1993.
This amount includes interest expense of $982.9 million including the write-off
of unamortized discounts on debentures recorded in 1995.
*** 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 and 1993.
36
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000022099
<NAME> COLUMBIA ENERGY GROUP AND SUBSIDIARIES
<SUBSIDIARY>
<NUMBER> 1
<NAME> CEG
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<BOOK-VALUE> PER BOOK PER BOOK
<TOTAL-NET-UTILITY-PLANT> 3,902,400 3,902,400
<OTHER-PROPERTY-AND-INVEST> 560,700 560,700
<TOTAL-CURRENT-ASSETS> 1,379,300 1,379,300
<TOTAL-DEFERRED-CHARGES> 76,600 76,600
<OTHER-ASSETS> 383,000 383,000
<TOTAL-ASSETS> 6,302,000 6,302,000
<COMMON> 833,700 833,700
<CAPITAL-SURPLUS-PAID-IN> 758,300 758,300
<RETAINED-EARNINGS> 344,000 344,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,935,000 1,935,000
0 0
0 0
<LONG-TERM-DEBT-NET> 2,002,200 2,002,200
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 45,900 45,900
<LONG-TERM-DEBT-CURRENT-PORT> 300 300
0 0
<CAPITAL-LEASE-OBLIGATIONS> 2,100 2,100
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,364,800 2,364,800
<TOT-CAPITALIZATION-AND-LIAB> 6,302,000 6,302,000
<GROSS-OPERATING-REVENUE> 1,326,800 3,174,200
<INCOME-TAX-EXPENSE> 12,800 80,200
<OTHER-OPERATING-EXPENSES> 1,255,900 2,849,100
<TOTAL-OPERATING-EXPENSES> 1,255,900 2,849,100
<OPERATING-INCOME-LOSS> 70,900 325,100
<OTHER-INCOME-NET> 3,200 5,500
<INCOME-BEFORE-INTEREST-EXPEN> 74,100 330,600
<TOTAL-INTEREST-EXPENSE> 38,500 80,100
<NET-INCOME> 22,800 170,300
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 22,800 170,300
<COMMON-STOCK-DIVIDENDS> 17,300 31,100
<TOTAL-INTEREST-ON-BONDS> 35,100 70,200
<CASH-FLOW-OPERATIONS> 120,400 552,200
<EPS-PRIMARY> 0.27 2.04
<EPS-DILUTED> 0.27 2.03
</TABLE>
