<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 SEPTEMBER 30, 1999
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 by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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, $0.01
Par Value: 81,264,357 shares outstanding at September 30, 1999.
<PAGE> 2
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Statements of Consolidated Income 3
Consolidated Balance Sheets 4
Statements of Consolidated Cash Flows 6
Statements of Consolidated Common Stock Equity 7
Statements of Consolidated Comprehensive Income 7
Notes 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 37
PART II OTHER INFORMATION
Item 1 Legal Proceedings 37
Item 2 Changes in Securities and Use of Proceeds 38
Item 3 Defaults Upon Senior Securities 38
Item 4 Submission of Matters to a Vote of Security Holders 38
Item 5 Other Information 38
Item 6 Exhibits and Reports on Form 8-K 38
Signature 40
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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions, except per share amounts)
Net Revenues
<S> <C> <C> <C> <C>
Energy sales $ 364.0 $ 357.0 $ 1,968.0 $ 1,759.2
Less: Products purchased 192.0 193.2 1,259.4 1,030.1
------------- ------------ ------------ ------------
Gross Margin 172.0 163.8 708.6 729.1
Transportation 128.5 117.1 497.0 406.3
Production gas sales 6.0 12.8 25.5 41.9
Other 45.5 45.2 163.8 154.4
------------- ------------ ------------ ------------
Total Net Revenues 352.0 338.9 1,394.9 1,331.7
------------- ------------ ------------ ------------
Operating Expenses
Operation and maintenance 228.3 203.6 691.0 611.6
Settlement of gas supply charges -- -- (29.8) --
Depreciation and depletion 54.0 48.9 187.2 173.7
Other taxes 37.8 33.0 163.3 167.0
------------- ------------ ------------ ------------
Total Operating Expenses 320.1 285.5 1,011.7 952.3
------------- ------------ ------------ ------------
Operating Income 31.9 53.4 383.2 379.4
------------- ------------ ------------ ------------
Other Income (Deductions)
Interest income and other, net 4.5 3.4 14.7 10.0
Interest expense and related charges (42.1) (37.8) (116.7) (115.3)
------------- ------------ ------------ ------------
Total Other Income (Deductions) (37.6) (34.4) (102.0) (105.3)
------------- ------------ ------------ ------------
Income (Loss) from Continuing Operations
before Income Taxes (5.7) 19.0 281.2 274.1
Income Taxes (6.5) 6.8 89.5 88.6
------------- ------------ ------------ ------------
Income from Continuing Operations 0.8 12.2 191.7 185.5
------------- ------------ ------------ ------------
Discontinued Operations - net of taxes
Loss from operations (10.5) (1.0) (24.9) (4.0)
Estimated loss on disposal (13.0) -- (13.0) --
------------- ------------ ------------ ------------
(Loss) from Discontinued Operations - net of taxes (23.5) (1.0) (37.9) (4.0)
------------- ------------ ------------ ------------
Net Income (Loss) $ (22.7) $ 11.2 $ 153.8 $ 181.5
============= ============ ============ ============
Basic Earnings Per Share
Continuing operations $ 0.01 $ 0.14 $ 2.32 $ 2.23
Loss from discontinued operations (0.13) (0.01) (0.30) (0.05)
Estimated loss on disposal (0.16) -- (0.16) --
============== ============= ============= =============
Basic Earnings (Loss) Per Share $ (0.28) $ 0.13 $ 1.86 $ 2.18
============== ============= ============= =============
Diluted Earnings Per Share
Continuing operations $ 0.01 $ 0.14 $ 2.31 $ 2.22
Loss from discontinued operations (0.13) (0.01) (0.30) (0.05)
Estimated loss on disposal (0.16) -- (0.16) --
============== ============= ============= =============
Diluted Earnings (Loss) Per Share $ (0.28) $ 0.13 $ 1.85 $ 2.17
============== ============= ============= =============
Dividends Paid Per Share $ 0.225 $ 0.20 $ 0.65 $ 0.57
Basic Average Common Shares Outstanding (thousands) 81,791 83,430 82,482 83,345
Diluted Average Common Shares (thousands) 82,432 83,781 82,925 83,696
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
-----
September 30, December 31,
1999 1998
---- ----
(unaudited)
ASSETS (millions)
PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
Gas utility and other plant, at original cost $ 8,030.8 $ 7,679.7
Accumulated depreciation (3,679.9) (3,589.5)
---------- ----------
Net Gas Utility and Other Plant 4,350.9 4,090.2
---------- ----------
Gas and oil producing properties, full cost method
United States cost center 798.9 714.1
Canadian cost center 11.9 5.0
Accumulated depletion (243.3) (225.4)
---------- ----------
Net Gas and Oil Producing Properties 567.5 493.7
---------- ----------
Net Property, Plant and Equipment 4,918.4 4,583.9
---------- ----------
INVESTMENTS AND OTHER ASSETS
Unconsolidated affiliates 101.2 81.6
Net assets of discontinued operations 55.7 85.1
Other 63.4 40.5
---------- ----------
Total Investments and Other Assets 220.3 207.2
---------- ----------
CURRENT ASSETS
Cash and temporary cash investments 21.6 23.4
Accounts receivable, net 346.0 516.6
Gas inventory 210.6 186.0
Other inventories - at average cost 60.7 8.4
Prepayments 79.2 66.8
Regulatory assets 55.0 59.5
Underrecovered gas costs 53.6 24.5
Deferred property taxes 22.8 80.0
Exchange gas receivable 251.0 197.5
Other 57.9 69.2
---------- ----------
Total Current Assets 1,158.4 1,231.9
---------- ----------
REGULATORY ASSETS 351.6 391.4
DEFERRED CHARGES 225.9 80.1
---------- ----------
TOTAL ASSETS $ 6,874.6 $ 6,494.5
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
-----
September 30, December 31,
1999 1998
---- ----
(unaudited)
CAPITALIZATION AND LIABILITIES (millions)
Capitalization
<S> <C> <C>
Common stock equity $1,983.4 $2,005.3
Long-term debt 1,951.3 2,003.1
-------- --------
Total Capitalization 3,934.7 4,008.4
-------- --------
Current Liabilities
Short-term debt 521.2 144.8
Accounts and drafts payable 225.3 196.4
Accrued taxes 88.7 220.0
Accrued interest 53.0 17.3
Estimated rate refunds 40.9 59.2
Supplier obligations -- 72.4
Overrecovered gas costs 14.2 34.3
Transportation and exchange gas payable 312.2 139.7
Other 401.0 333.4
-------- --------
Total Current Liabilities 1,656.5 1,217.5
-------- --------
Other Liabilities and Deferred Credits
Deferred income taxes, noncurrent 707.4 655.3
Investment tax credits 33.0 34.1
Postretirement benefits other than pensions 97.0 103.7
Regulatory liabilities 42.8 44.0
Deferred revenue 180.9 191.4
Other 222.3 240.1
-------- --------
Total Other Liabilities and Deferred Credits 1,283.4 1,268.6
-------- --------
Total Capitalization and Liabilities $6,874.6 $6,494.5
======== ========
</TABLE>
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
(millions)
Operating Activities
<S> <C> <C>
Net income $153.8 $181.5
Adjustments for items not requiring (providing) cash:
Loss from discontinued operations 24.9 4.0
Estimated loss on disposal 13.0 --
Depreciation and depletion 187.2 173.7
Deferred income taxes 72.5 44.3
Earnings from equity investment, net of distributions (10.6) (5.7)
Other - net (45.4) 73.2
------ ------
395.4 471.0
Change in components of working capital:
Accounts receivable 170.6 81.6
Gas inventory (24.6) (14.2)
Prepayments (12.4) 21.4
Accounts payable 44.2 (63.0)
Accrued taxes (131.3) (68.1)
Accrued interest 35.7 40.1
Estimated rate refunds (18.3) (14.4)
Estimated supplier obligations (40.8) (1.5)
Under/Overrecovered gas costs (49.2) (33.1)
Exchange gas receivable/payable 119.0 86.7
Other working capital 68.5 27.5
------ ------
Net Cash From Continuing Operations 556.8 534.0
Net Cash From Discontinued Operations (8.5) 93.9
------ ------
Net Cash From Operating Activities 548.3 627.9
------ ------
Investment Activities
Capital expenditures (462.6) (296.4)
Acquisitions and other investments - net (222.7) (8.5)
------ ------
Net Investment Activities (685.3) (304.9)
------ ------
Financing Activities
Retirement of long-term debt (52.5) (0.9)
Dividends paid (53.5) (47.8)
Issuance of common stock 9.5 8.1
Issuance (repayment) of short-term debt 376.4 (229.7)
Purchase of treasury stock (132.3) --
Other financing activities (12.4) (56.1)
------ ------
Net Financing Activities 135.2 (326.4)
------ ------
Decrease in cash and temporary cash investments (1.8) (3.4)
Cash and temporary cash investments at beginning of year 23.4 28.6
------ ------
Cash and Temporary Cash Investments at September 30 * $ 21.6 $ 25.2
====== ======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest 75.9 75.0
Cash paid for income taxes (net of refunds) 69.7 44.6
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
* The Corporation considers all highly liquid short-term investments to be cash
equivalents.
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
<TABLE>
<CAPTION>
As of
------------------------------
September 30, December 31,
1999 1998
---- ----
(unaudited)
(millions)
<S> <C> <C>
Common stock, $.01 par value, authorized
200,000,000 shares, issued 83,695,257
and 83,511,878 shares, respectively* $ 0.8 $ 835.1
Additional paid in capital* 1,605.6 761.8
Retained earnings 509.8 409.5
Unearned employee compensation (0.6) (0.9)
Accumulated other comprehensive income (loss) 0.1 (0.2)
Treasury stock, at cost (2,430,900 shares held as of September 30, 1999) (132.3) --
-------- --------
Total Common Stock Equity $1,983.4 $2,005.3
======== ========
</TABLE>
* As described in Note 5, the par value of the common stock was reduced
from $10 to $.01 per share and the number of authorized shares of
common stock increased from 100 million to 200 million effective May
19, 1999.
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the year to date
period ended
------------
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
(unaudited)
(millions)
Comprehensive Income
Net income $153.8 $269.2
Other Comprehensive Income (Loss):
Foreign currency translation adjustment 0.3 (0.2)
------ ------
Comprehensive Income $154.1 $269.0
====== ======
</TABLE>
The accompanying Notes to 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 consolidated financial statements for
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 consolidated financial statements and notes thereto included
in Columbia's 1998 Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q for the first and second quarters of 1999. 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 1998 financial statements to conform to the 1999
presentation. As discussed in Note 9, the prior periods financial
statements have been reclassified to report Columbia Energy Services
Corporation (Columbia Energy Services) wholesale and trading operations
as discontinued operations.
2. Diluted Average Common Shares Computation
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. 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.
The numerator in calculating both basic and diluted earnings per share
for each year is reported net income. The computation of diluted
average common shares follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
Diluted Average Common Shares Computation 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Denominator (thousands)
Basic average common shares outstanding 81,791 83,430 82,482 83,345
Dilutive potential common shares - options 641 351 443 351
- ----------------------------------------------------------------------------------------------------------------
DILUTED AVERAGE COMMON SHARES 82,432 83,781 82,925 83,696
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
3. Business Segment Information
Columbia manages its operations in five primary business segments:
transmission and storage; distribution; exploration and production;
energy marketing; and power generation, LNG and other. The following
tables provide information concerning these major business segments.
Revenues include intersegment sales to affiliated subsidiaries, which
are eliminated when consolidated. Affiliated sales are recognized on
the basis of prevailing market or regulated prices. Operating income is
derived from revenues and expenses directly associated with each
segment.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
($ in millions) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Transmission and Storage
Unaffiliated 121.2 118.9 413.6 397.2
Intersegment 53.4 61.1 197.1 212.8
- ----------------------------------------------------------------------------------------------------
TOTAL 174.6 180.0 610.7 610.0
- ----------------------------------------------------------------------------------------------------
Distribution
Unaffiliated 167.9 206.2 1,504.8 1,319.8
Intersegment -- 1.5 0.6 1.9
- ----------------------------------------------------------------------------------------------------
TOTAL 167.9 207.7 1,505.4 1,321.7
- ----------------------------------------------------------------------------------------------------
Exploration and Production
Unaffiliated 10.1 15.5 38.2 52.0
Intersegment 25.7 11.3 59.6 44.6
- ----------------------------------------------------------------------------------------------------
TOTAL 35.8 26.8 97.8 96.6
- ----------------------------------------------------------------------------------------------------
Energy Marketing
Unaffiliated 248.1 185.5 708.4 591.1
Intersegment 0.3 -- 0.6 0.4
- ----------------------------------------------------------------------------------------------------
TOTAL 248.4 185.5 709.0 591.5
- ----------------------------------------------------------------------------------------------------
Power Generation, LNG and Other
Unaffiliated 5.1 5.9 13.1 14.5
Intersegment -- 0.2 -- --
- ----------------------------------------------------------------------------------------------------
TOTAL 5.1 6.1 13.1 14.5
- ----------------------------------------------------------------------------------------------------
Adjustments and eliminations
Unaffiliated (4.2) 2.7 -- (0.4)
Intersegment (78.3) (74.1) (257.5) (259.5)
- ----------------------------------------------------------------------------------------------------
TOTAL (82.5) (71.4) (257.5) (259.9)
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED 549.3 534.7 2,678.5 2,374.4
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Transmission and Storage 55.4 54.7 255.5 231.3
Distribution 1.3 1.6 148.1 135.1
Exploration and Production 11.6 5.5 24.1 28.4
Energy Marketing (26.7) (10.6) (36.6) (18.8)
Power Generation, LNG and Other 1.6 2.4 2.5 5.7
Corporate (11.3) (0.2) (10.4) (2.3)
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED 31.9 53.4 383.2 379.4
- ----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
4. Treasury Stock
In February 1999, Columbia's Board of Directors (Board of Directors or
Columbia's Board) approved a repurchase program for up to $100 million
of its common stock, through February 29, 2000. In July 1999,
Columbia's Board authorized a $400 million increase in the company's
open market share repurchase program. The Board of Directors authorized
the increase in the repurchase program through July 14, 2000. The
repurchase program authorizes Columbia to make purchases in the open
market or otherwise. The timing and terms of purchases, and the number
of shares actually purchased, is determined by management based on
market conditions and other factors. Purchased shares are held in
treasury and are available for general corporate purposes or resale at
a future date, or may be retired. Treasury stock purchases are
accounted for under the cost method, whereby the cost of the acquired
stock is recorded as treasury stock. As of September 30, 1999, Columbia
had purchased 2,430,900 common shares at a cost of $132.3 million.
5. Common Stock - Amendments
At Columbia's Annual Meeting of Shareholders held on May 19, 1999, the
shareholders voted to approve an amendment of Columbia's Restated
Certificate of Incorporation to increase the authorized number of
shares of common stock from 100 million to 200 million and decrease the
par value of common stock from $10 to $.01 per share. This change
resulted in a transfer during the second quarter of 1999 of $834.3
million from the Common Stock account to the Additional Paid In Capital
account.
6. Debt Repurchase
During May 1999, Columbia repurchased $52.45 million of its 7.62%
Series G debentures due November 28, 2025, at a price of approximately
99% of par value. The net impact of the early extinguishment of such
debt was immaterial.
7. Risk Management Activities
Columbia has adopted a policy that provides for commodity trading
activities to help ensure stable cash flow, favorable prices and
margins as well as to help capture any long-term increases in value.
Effective January 1, 1999, Columbia adopted Financial Accounting
Standards Board Emerging Issues Task Force Issue No. 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management
Activities" (EITF 98-10). The market value of the open physical and
financial positions at September 30, 1999, reflected a gain of
approximately $13.2 million, of which $8.3 million is included in
income from continuing operations and $4.9 million is included in loss
from discontinued operations.
8. Bankruptcy Matters
On November 28, 1995, Columbia and its wholly-owned subsidiary,
Columbia Gas Transmission Corporation (Columbia Transmission) emerged
from Chapter 11 protection of the United States Bankruptcy Code under
the jurisdiction of the United States Bankruptcy Court for the District
of Delaware (Bankruptcy Court). Both Columbia and Columbia Transmission
had operated under Chapter 11 protection from July 31, 1991, until
emergence.
During the first quarter of 1999, Columbia Transmission resolved its
last remaining producer claim in its bankruptcy proceeding. The
improvement to Columbia's first quarter 1999 consolidated net income
was $20.6 million. The settlement was approved by the Bankruptcy Court
on April 12, 1999 and on April 26, 1999, Columbia Transmission
distributed the producer holdback amounts in accordance with its Plan
of Reorganization and a producer settlement. There remain four
non-producer claims to be resolved, all of which are being litigated
outside of the Bankruptcy Court. Columbia believes adequate reserves
have been established for resolution of the remaining non-
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
producer claims.
9. Discontinued Operations
On August 30, 1999, Columbia Energy Services announced that it decided
to sell its wholesale and trading operations. The sale of the wholesale
and trading operations is expected to occur before the end of the first
quarter of 2000. In accordance with generally accepted accounting
principles, the Columbia Energy Services wholesale and trading
operations is reported as discontinued operations on Columbia's
financial statements, and therefore the financial statements for prior
periods have been reclassified accordingly. The loss from discontinued
operations - net of taxes was $10.5 million and $24.9 million for the
three and nine-month periods ended September 30, 1999, respectively.
The loss from discontinued operations - net of taxes was $1.0 million
and $4.0 million for the three and nine-month periods ended September
30, 1998, respectively.
After interested parties completed their evaluation process, Columbia,
recently received bids that were not as high as originally anticipated.
As a result, Columbia recorded a $13 million after-tax loss on the
disposal of discontinued operations in the third quarter of 1999.
The net assets of the discontinued operations are as follows:
<TABLE>
<CAPTION>
($ in millions) September 30, 1999 December 31, 1998
------------------------------------------------------------------------------
<S> <C> <C>
Net Assets of Discontinued Operations
Accounts receivable, net 415.8 505.1
Other assets 152.5 119.1
Accounts payable (418.4) (539.1)
Other liabilities (94.2) -
--------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS 55.7 85.1
================================================================================
</TABLE>
As reported in Columbia's 1999 Second Quarter Report on Form 10-Q,
Columbia had the intention of merging the Mass Markets and Major
Accounts businesses and consolidating them in Herndon, Virginia.
However, after further analysis from an ongoing strategic assessment,
it was determined that Columbia Energy Services should focus on its
Mass Markets business and exit the Major Accounts business. In November
1999, management began preparing the Major Accounts business for sale.
Management is presently reviewing the requirements for recording the
exit from the Major Accounts business as discontinued operations in
accordance with generally accepted accounting principals.
Management anticipates based on current information that, as a result
of an ongoing assessment being made of the existence and scope of
obligations to and from third parties, and of the decision to exit the
Major Accounts business, a reserve will be recorded in the fourth
quarter of 1999. The ultimate amount of the reserve is not determinable
pending completion of management's review. This amount when taken
together with continuing losses could be material to Columbia's
consolidated annual net income.
10. Unsolicited Tender Offer
On June 25, 1999, NiSource Inc., an Indiana corporation (NiSource),
through its wholly-owned subsidiary, CEG Acquisition Corp., a Delaware
corporation (collectively, the "Bidder"), disclosed in a Tender Offer
Statement on Schedule 14D-1 (Schedule 14D-1) an offer to purchase all
of the outstanding shares of Columbia's common stock at a price per
share of $68.00 (Offer Price) net to the seller in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated
June 25, 1999, and in the related Letter of Transmittal (together, the
"Offer"). Bidder revised the Offer on October 18, 1999, increasing the
Offer Price to $74.00 per share net to the seller in cash, upon the
terms and subject to the conditions set forth in the revised Offer to
Purchase, dated October 18, 1999 (together, the "Revised Offer"). The
Revised Offer is subject to numerous conditions. Twelve conditions and
numerous other sub-conditions must be satisfied or waived before Bidder
is obligated to consummate the Revised Offer.
Columbia's Board of Directors (Board) voted to reject the Revised Offer
and set forth a number of factors, including the separate opinions of
Morgan Stanley & Co., Inc. and Salomon Smith Barney Inc. that the Offer
Price is inadequate from a financial point of view to Columbia's
stockholders. Columbia's Board also instructed management, with the
assistance of Columbia's financial and legal advisors, to explore
strategic alternatives to generate value in excess of that which
Columbia's business plan or the Revised Offer can create, including,
without limitation (i) an extraordinary transaction, such as a merger
or reorganization, involving Columbia or any of its subsidiaries; or
(ii) a sale or transfer of a material amount of assets by Columbia or
any of its subsidiaries.
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
As a result, representatives of Columbia will initiate discussions with
one or more third parties that could relate to or result in one of the
transactions mentioned above. However, there can be no assurance that
any such transaction will result from these discussions.
Columbia's Board has determined that disclosure with respect to the
parties to, and the possible terms of, any transactions or proposals of
the type referred to in the preceding paragraphs might jeopardize any
discussions or negotiations that Columbia may conduct. Accordingly,
Columbia's Board has adopted a resolution instructing management not to
disclose the possible terms of any such transactions or proposals, or
the parties thereto, unless and until a definitive agreement or any
agreement in principle relating thereto has been reached or, upon the
advice of counsel, as may otherwise be required by law. The decision of
the Board of Directors and the factors considered in the analysis of
the Revised Offer are discussed more fully in Amendment No. 50 to the
Solicitation/Recommendation Statement filed by Columbia on Schedule
14D-9 with the Commission on October 25, 1999.
The Revised Offer is currently set to expire on December 10, 1999,
unless further extended. Columbia has retained the services of
independent financial and legal advisors to assist it in connection
with the Revised Offer.
In connection with the Tender Offer, NiSource has commenced litigation
against Columbia and several purported shareholder class actions have
also been filed (Refer to Part II - Other Information, Item 1C. Legal
Proceedings).
12
<PAGE> 13
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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Transmission and Storage $ 55.4 $ 54.7 $ 255.5 $ 231.3
Distribution 1.3 1.6 148.1 135.1
Exploration and Production 11.6 5.5 24.1 28.4
Energy Marketing (26.7) (10.6) (36.6) (18.8)
Power Generation, LNG and Other 1.6 2.4 2.5 5.7
Corporate (11.3) (0.2) (10.4) (2.3)
------- ------- ------- -------
Consolidated $ 31.9 $ 53.4 $ 383.2 $ 379.4
======= ======= ======= =======
</TABLE>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Actual 80 41 3,341 2,878
Normal 41 41 3,568 3,568
% Colder (warmer) than normal 95 -- (6) (19)
% Colder (warmer) than prior period 95 (62) 16 (21)
</TABLE>
13
<PAGE> 14
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 in the section "Impact of Year 2000 on Computer
and Other Systems," contains "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 many 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, proposed acquisitions and dispositions, 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, fluctuations in supply and demand for energy
commodities, successful consummation of proposed acquisitions and dispositions,
and other dealings with third parties over whom Columbia has no control, actual
operating experience of acquired assets, Columbia's ability to integrate
acquired operations into its operations, impact of the year 2000 on computer,
operating and other systems, the regulatory process, 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 each segment, and the assumptions
underlying the forward-looking statements relating thereto, may change over
time. With respect to Columbia's year 2000 program, the dates of completion of
various milestones have been based on management's best estimates, which were
derived utilizing numerous assumptions. Although management believes that it has
completed the appropriate steps to prevent or address disruptions from year 2000
related issues, there can be no guarantee against service disruptions or that
there will not be additional issues that may arise with respect to year 2000
issues. Specific factors that might cause problems include, but are not limited
to, the availability and cost of trained personnel in the event of widespread
industry failures, the possibility that all relevant computer codes for both
information technology (IT) and non-IT systems have not been located, corrected
and tested or upgraded, the possibility that third parties and suppliers upon
whom Columbia relies have not adequately remediated their systems despite their
representations to Columbia, verification and reporting required by relevant
government regulatory authorities, including federal and state utility
regulatory bodies, and other similar uncertainties.
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.
Third Quarter Results
Income from Continuing Operations
Columbia reported third quarter 1999 income from continuing operations of
$800,000, or one cent per share (diluted), a decrease of $11.4 million, or $0.13
per share (diluted), from the same period in 1998. All per share amounts are on
a diluted basis. The decrease was primarily attributable to professional fees
incurred
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)
in response to an unsolicited tender offer, which decreased net income by $5.8
million, along with retail marketing restructuring costs, and increased
operating expenses related to the expansion of Columbia's propane operations.
REVENUES
Total third quarter net revenues (operating revenues less associated products
purchased costs) were $352 million, a $13.1 million increase over the same
period last year. The improvement largely reflected higher propane sales as a
result of recent acquisitions, as well as increased revenues due to higher
natural gas production. A reduction in off-system sales in the distribution
segment and reduced prices for natural gas production partially offset these
improvements.
EXPENSES
For the three months ended September 30, 1999, operating expenses of $320.1
million were $34.6 higher than those for the same period last year. The increase
primarily reflected professional fees incurred to respond to the unsolicited
tender offer, as well as higher expenses in the energy marketing segment due to
retail marketing restructuring and the expansion of propane-related operations.
Depreciation expense in the current period was higher than that for the third
quarter of 1998 primarily due to increased plant in service. Other taxes
increased $4.8 million primarily as a result of higher payroll taxes.
OTHER INCOME (DEDUCTIONS)
Other Income (Deductions), which includes interest income and other interest
expense, reduced income by $37.6 million for the third quarter of 1999, compared
to a reduction in income of $34.4 million in the same period of 1998. Interest
income was up $1.1 million, primarily due to increased interest on temporary
investments reflecting higher short-term investment balances in the current
period. Interest expense was up $4.3 million due to higher borrowings to finance
recent acquisitions and to fund Columbia's stock repurchase program.
INCOME TAXES
For the three months ended September 30, 1999, a $6.5 million income tax credit
represented a decrease of $13.3 million from the same period last year. The
period-to-period decrease primarily reflected the decline in pre-tax income
compared to the prior year and adjustments for prior period tax issues.
NINE MONTH RESULTS
INCOME FROM CONTINUING OPERATIONS
Columbia's income from continuing operations for the first nine months of 1999
was $191.7 million, or $2.31 per share, an increase of $6.2 million, or $0.09
per share, over the same period last year. Increasing after-tax income relative
to last year was a $20.6 million after-tax gain recorded in the first quarter of
1999 for the producer contract settlement stemming from Columbia's bankruptcy
proceedings concluded in 1995, and weather that was 16% colder than during the
same period of 1998. Weather for the first nine months of 1999, however, was
still 6% warmer than normal. Partially offsetting these improvements were higher
costs for energy marketing operations, and costs related to the response to the
unsolicited tender offer. Also contributing to the decline was a 1998
improvement for a settlement gain related to postretirement benefit costs, which
reflected the purchase of insurance for a portion of those liabilities.
REVENUES
Net revenues of $1,394.9 million for the first nine months of 1999 reflected an
increase of $63.2 million from the same period last year. The improvement
primarily reflected the impact of this year's colder
15
<PAGE> 16
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
weather, increased transportation services and higher net revenues for propane
and petroleum products attributable to recent acquisitions. Reduced prices for
natural gas production partially offset these improvements.
Expenses
Operating expenses for the first nine months of 1999 were $1,011.7 million, an
increase of $59.4 million over the same period last year. Operation and
maintenance expense increased $79.4 million, due in part to last year's $24.8
million favorable adjustment for a settlement gain related to postretirement
benefit costs. Also increasing 1999 operation and maintenance expense were costs
incurred to add staff and build the retail marketing infrastructure, costs
associated with the growth in propane operations, and costs related to
Columbia's response to an unsolicited tender offer. Depreciation and depletion
expense rose $13.5 million primarily due to additional plant in service. The
settlement of gas supply litigation in 1999 reduced operating expenses by $29.8
million reflecting the bankruptcy-related producer settlement mentioned above.
Other Income (Deductions)
Through the first nine months of 1999, other income (deductions) reduced income
by $102 million compared to a reduction of $105.3 million in the same period
last year. Interest income and other, net, of $14.7 million was $4.7 million
greater than in the year-earlier period, due largely to a $2.9 million first
quarter 1999 gain from the sale of coal properties. Interest expense and related
charges of $116.7 million was relatively unchanged from $115.3 million for the
same period in 1998.
Income Taxes
Income tax expense of $89.5 million for the first nine months of 1999 increased
$900,000 from the same period in 1998, primarily due to higher pre-tax income in
1999. Income benefited as a result of utilizing certain tax benefits that were
recorded in the second and third quarter of 1999, partially offset by similar
adjustments in 1998.
Discontinued Operations
On August 30, 1999, Columbia Energy Services Corporation (Columbia Energy
Services), a wholly-owned subsidiary of Columbia, announced that it had decided
to sell its wholesale and trading operations, based in Houston, Texas. The move
came in the course of a strategic review of Columbia Energy Services' overall
energy marketing businesses initiated in February 1999.
In accordance with generally accepted accounting principles, the Columbia Energy
Services wholesale and trading operations are reported as discontinued
operations on Columbia's consolidated financial statements.
After interested parties completed their evaluation process, Columbia, recently
received bids that were not as high as originally anticipated. As a result,
Columbia recorded a $13 million after-tax loss on the disposal of discontinued
operations in the third quarter of 1999. See Note 9 on page 11 and the
discussion of Columbia Energy Services in the energy marketing section on page
33 for more information.
In addition to the loss on disposal of discontinued operations, mentioned above,
these operations reflected a net loss of $10.5 million for the third quarter of
1999 compared to a net loss of $1 million in the same period last year. For the
first nine months of 1999, discontinued operations had a $24.9 million after-tax
loss and in the same period in the prior year an after-tax loss of $4 million.
The decline was primarily due to lower margins for gas and power trading
together with higher operation and maintenance costs.
16
<PAGE> 17
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Liquidity and Capital Resources
A significant portion of Columbia's operations are 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.
Net cash from continuing operations for the first nine months of 1999 was
$556.8 million, an increase of $22.8 million over the same period last year.
This increase primarily reflects working capital changes, which included an
increase in short-term transportation payable and exchange gas for volumes
received earlier in 1999 that will be settled later in the year. Tempering the
year-to-year increase were higher prepayments in 1998 that were received for
delivery of natural gas over a multiple year period.
Columbia satisfies its liquidity requirements primarily through internally
generated funds and from the sale of commercial paper, which is supported by two
unsecured bank revolving credit facilities that total $1.35 billion (Credit
Facilities). The Credit Facilities consist of a $450 million 364-day revolving
credit facility, with a one-year term loan option, that expires in March 2000
and a $900 million five-year revolving credit facility that expires in March
2003 and provides for the issuance of up to $300 million of letters of credit.
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. In addition, the 364-day facility has a utilization fee if
borrowings exceed a certain level. The interest rate margins and facility fee on
the commitment amounts are based on Columbia's public debt ratings. In 1998,
Moody's Investors Service, Inc. (Moody's) and Fitch Investors Service (Fitch)
upgraded their rating of Columbia's long term debt to A3 and A, respectively.
Columbia's long-term debt rating is BBB+ by Standard & Poor's Ratings Group
(S&P). Under the Credit Facilities, higher debt ratings result in lower facility
fees and interest rate margins on borrowings. Columbia's commercial paper
ratings are F-1 by Fitch, P-2 by Moody's and A-2 by S&P.
As of September 30, 1999, Columbia had approximately $147.2 million of letters
of credit issued, of which approximately $55.7 million were issued under the
Credit Facilities. At the end of the third quarter of 1999, Columbia had $521.2
million of commercial paper outstanding.
During 1998, Columbia entered into fixed-to-floating interest rate swap
agreements to modify the interest characteristics of $300 million of its
outstanding long-term debt. As a result of these transactions, that portion of
Columbia's long-term debt is now subject to fluctuations in interest rates. This
allows Columbia to benefit from a lower interest rate environment. In order to
maintain a balance between fixed and floating interest rates, Columbia is
targeting average floating rate debt exposure for 10-20% of its outstanding
long-term debt.
Columbia has an effective shelf registration statement on file with the
Commission for the issuance of up to $1 billion in aggregate of debentures,
common stock or preferred stock in one or more series. Currently, Columbia has
$750 million available under the shelf registration.
At its February 1999 meeting, Columbia's Board of Directors (Board) authorized
the purchase of up to $100 million of Columbia's common stock through February
29, 2000, in the open market or otherwise. In July 1999, Columbia's Board
authorized the purchase of an additional $400 million of common stock through
July 14, 2000. The source of funds for repurchases consists of available funds
and/or borrowings. Through
17
<PAGE> 18
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
September 30, 1999, 2,430,900 common shares have been repurchased under this
program at a cost of approximately $132.3 million, leaving approximately $367.7
million available. The timing and terms of additional purchases, and the number
of shares actually purchased, will be determined by management based on market
conditions and other factors. Purchased shares will be held in treasury to be
made available for general corporate purposes, or resale at a future date or
they may be retired.
Management believes that its sources of funding are sufficient to meet
short-term and long-term liquidity needs of Columbia.
Unsolicited Tender Offer
On June 25, 1999, NiSource Inc., an Indiana corporation (NiSource), through its
wholly-owned subsidiary, CEG Acquisition Corp., a Delaware corporation
(collectively, the "Bidder"), disclosed in a Tender Offer Statement on Schedule
14D-1 (Schedule 14D-1) an offer to purchase all of the outstanding shares of
Columbia's common stock at a price per share of $68.00 (Offer Price) net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated June 25, 1999, and in the related Letter of Transmittal
(together, the "Offer"). Bidder revised the Offer on October 18, 1999,
increasing the Offer Price to $74.00 per share net to the seller in cash, upon
the terms and subject to the conditions set forth in the revised Offer to
Purchase, dated October 18, 1999 (together, the "Revised Offer"). The Revised
Offer is subject to numerous conditions. Twelve conditions and numerous other
sub-conditions must be satisfied or waived before Bidder is obligated to
consummate the Revised Offer.
Columbia's Board voted to reject the Revised Offer and set forth a number of
factors, including the separate opinions of Morgan Stanley & Co., Inc. and
Salomon Smith Barney Inc. that the Offer Price is inadequate from a financial
point of view to Columbia's stockholders. Columbia's Board also instructed
management, with the assistance of Columbia's financial and legal advisors, to
explore strategic alternatives to generate value in excess of that which
Columbia's business plan or the Revised Offer can create, including, without
limitation (i) an extraordinary transaction, such as a merger or reorganization,
involving Columbia or any of its subsidiaries; or (ii) a sale or transfer of a
material amount of assets by Columbia or any of its subsidiaries.
As a result, representatives of Columbia will initiate discussions with one or
more third parties that could relate to or result in one of the transactions
mentioned above. However, there can be no assurance that any such transaction
will result from these discussions.
Columbia's Board has determined that disclosure with respect to the parties to,
and the possible terms of, any transactions or proposals of the type referred to
in the preceding paragraphs might jeopardize any discussions or negotiations
that Columbia may conduct. Accordingly, Columbia's Board has adopted a
resolution instructing management not to disclose the possible terms of any such
transactions or proposals, or the parties thereto, unless and until a definitive
agreement or any agreement in principle relating thereto has been reached or,
upon the advice of counsel, as may otherwise be required by law. The decision of
Columbia's Board and the factors considered in the analysis of the Revised Offer
are discussed more fully in Amendment No. 50 to the Solicitation/Recommendation
Statement filed by Columbia on Schedule 14D-9 with the Commission on October 25,
1999.
The Revised Offer is currently set to expire on December 10, 1999, unless
further extended. Columbia has retained the services of independent financial
and legal advisors to assist it in connection with the Revised Offer.
18
<PAGE> 19
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Market Risk Exposure
Subsidiaries in Columbia's exploration and production and energy marketing
segments are exposed to market risk due primarily to fluctuations in commodity
prices. In order to help minimize this risk, Columbia has adopted a policy that
provides for commodity trading activities to help ensure stable cash flow,
favorable prices and margins as well as to help capture any long-term increases
in value. Financial instruments authorized for use by Columbia for commodity
trading include futures, swaps and options. Columbia Energy Services utilizes
financial instruments to help assure adequate margins on the purchase and resale
of natural gas and electric power. Columbia Energy Resources, Inc. (Columbia
Resources) utilizes financial instruments to fix prices for a portion of its
future production volumes. These positions of Columbia Resources are hedged in
the marketplace through Columbia Energy Services. Columbia Propane Corporation
(Columbia Propane) utilizes financial instruments to help protect the value of
its inventories and commitments.
In July 1999, the newly appointed president and chief executive officer of
Columbia Energy Services reduced the level of trading activity at Columbia
Energy Services during an ongoing evaluation of the various operations of this
subsidiary. At the completion of the initial phase of this evaluation, it was
determined that Columbia Energy Services would exit the wholesale and trading
business. Columbia is currently in the process of selling Columbia Energy
Services' wholesale and trading operations. During this period, Columbia Energy
Services' trading activity, which is primarily in the business unit being
offered for sale, will focus on managing physical assets and supporting gas and
power sales. As a result, Columbia Energy Services no longer engages in open
position trading in power and further trading in weather derivatives has been
curtailed. Positions in natural gas, electric power and weather derivatives
continue to be controlled within predetermined limits as provided by Columbia's
senior management. Columbia's policy prohibits any Columbia subsidiary from
entering into trading positions that are not effectively connected with its
business. The risks associated with these trading activities are managed
consistent with policies approved by Columbia's Board. Market risks are
monitored by an independent risk control group operating separately from the
area that creates or actively manages these risk exposures to monitor compliance
with Columbia's stated risk management policies.
Columbia measures the market risk in its portfolios on a daily basis and employs
multiple risk control mechanisms to mitigate market risk including value-at-risk
measures using a variance/covariance methodology and volumetric limits.
Effective January 1, 1999, Columbia adopted mark-to-market accounting for all of
its gas and power marketing operations and marks all physical and financial
positions to market in accordance with Financial Accounting Standards Board
Emerging Issues Task Force's Issue No. 98-10.
Columbia also utilizes fixed-to-floating interest rate swap agreements to modify
the interest characteristics of a portion of its outstanding long-term debt. As
a result of these transactions, $300 million of Columbia's long-term debt is now
subject to fluctuations in interest rates.
Impact of Year 2000 on Computer and Other Systems
The Year 2000 issue is a worldwide concern because many existing computer
programs and certain computer hardware were initially designed without
considering the impact of the change to the Year 2000. If not corrected, certain
computer, operating and other systems could fail or create erroneous results. In
October 1999, Columbia announced that it had met its Year 2000 readiness
objectives designed to provide uninterrupted, safe and reliable delivery of
natural gas.
19
<PAGE> 20
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Columbia evaluated its IT and non-IT systems to determine if they were Year 2000
compliant and, if these systems were not Year 2000 compliant, what corrective
action was necessary. IT and non-IT systems that were identified, tested and, as
necessary, corrected or replaced with compliant systems include: 1) mission
critical processes that relate to the safety or dependability of Columbia's
natural gas delivery system and other core business operations; 2) customer
billing, vendor payment, shareholder records and payroll systems; and 3) other
processes relevant to Columbia's continued operations. Embedded chips and other
non-IT hardware that were found not to be Year 2000 compliant were replaced or
upgraded as appropriate. To ensure timely completion of all phases of the Year
2000 project, Columbia utilized external consultants with relevant Year 2000
expertise on certain aspects of the project.
Columbia's Year 2000 program was divided into phases that provided for the
timely assessment, remediation and testing of IT and non-IT systems as
appropriate. The assessment phase, which was completed at the end of 1998,
covered the inventory of systems and the determination as to where potential
problems may exist. If a system could not be determined to be either compliant
or date sensitive, it was deemed non-compliant and scheduled for inclusion in
the remediation/testing phases. The remediation phase was for the correction of
any Year 2000 compliance issues through repair or replacement and has been
completed for IT systems and non-IT systems. The testing phase for IT and non-IT
systems, which was designed to provide assurance that the remediation effort has
been successful, is also complete. Critical devices were tested regardless of
whether a manufacturer/vendor indicated that the device was Year 2000 compliant.
To further test Columbia's Year 2000 readiness, Columbia conducted drills that
simulated operations during the loss of certain critical internal
systems/devises and loss of key public services. Columbia currently has in place
general contingency plans in the event that a computer system, facility or
process fails and it has completed its evaluation of the need for special
contingency plans in the event that a Year 2000 problem should arise in spite of
Columbia's efforts to ensure Year 2000 compliance. Where appropriate, specific
Year 2000 contingency plans were developed for those systems that are essential
to Columbia's ongoing businesses. Year 2000 contingency plans involve having
alternate suppliers, processes or personnel on stand-by for essential processes.
Columbia's planning for the Year 2000 contingency phase for mission critical
processes began on January 1, 1999, and has been completed.
In addition to the evaluation of its own systems, Columbia has completed a Year
2000 readiness review in connection with its evaluation of acquisitions to
determine that the potential target's systems either are, or will be, Year 2000
compliant in a timely manner.
Another area of concern is Columbia's exposure to third parties that may not be
Year 2000 compliant. Columbia has completed the process of contacting strategic
third parties with which it conducts business to obtain assurance that they will
be Year 2000 compliant, utilizing letters and, where appropriate,
questionnaires. Columbia has mailed letters to nearly all of its significant
vendors and service providers and has verbally communicated with many of their
strategic customers to determine whether or not interfaces with such entities
are vulnerable to Year 2000 problems and whether the products and services
purchased from or by such entities are Year 2000 compliant. Columbia has
received responses from a high percentage of these third parties with many of
the companies indicating that they expect to have addressed all of their
significant Year 2000 issues on a timely basis. Where Columbia was not
comfortable with the Year 2000 readiness of any third parties, Columbia
developed appropriate contingency plans to address the potential impact of such
party's failure on Columbia's operations.
The total estimated cost of assessing, testing and remediating Columbia's IT and
non-IT systems for Year 2000 compliance, along with the cost of developing
contingency plans, is approximately $18 million. The bulk of Columbia's Year
2000 project budget has been applied to the remediation and testing phases. This
20
<PAGE> 21
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
estimate does not include costs that will be incurred by Columbia related to the
acquisitions that may close subsequent to the date of this report. The total
cost of Columbia's IT and non-IT systems Year 2000 compliance efforts combined
with any incremental Year 2000 costs incurred relating to the acquisitions
discussed elsewhere in this report that are expected to close during 1999, are
not expected to be material. The estimated total cost of the Year 2000 project
represents management's assessment, based on information currently available,
scope of the project, work already completed and estimated remaining work. The
expenditures necessary to become Year 2000 compliant will be satisfied through
Columbia's cash flow from operations.
For the remainder of 1999, Columbia will continue to monitor Year 2000 readiness
issues to ensure that upgrades, replacements or routine modifications to systems
are identified and tested for Year 2000 compliance.
As part of its normal operations, Columbia continuously operates in a
safety-conscious, high-reliability environment and has numerous back-up systems
in place. As a result of the extensive planning that has been incorporated into
Columbia's current contingency plans and the Year 2000 project, management
believes that the most reasonably likely worst case Year 2000 scenario would
involve minor failures that were not detected and corrected during the project.
These failures should not be of the type that could result in the disruption of
services and will, in all likelihood, be corrected quickly. However, the failure
of Columbia or a key third party supplier to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations including Columbia's ability to deliver
energy. For such a failure to be material, numerous back-up systems or processes
would also have to fail. For example, an interruption in electric service along
Columbia's pipeline system could impact the operation of one or more compressor
stations or other field facilities and equipment. This impact, if coupled with
the failure of critical back-up systems and processes, could materially and
adversely affect Columbia's operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 issue, due in part to the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
Columbia is unable to determine at this time whether the consequences of any
likely Year 2000 failures will have a material impact on Columbia's operations,
liquidity or financial condition.
21
<PAGE> 22
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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Operating Revenues
<S> <C> <C> <C> <C>
Transportation revenues $125.3 $130.6 $442.2 $445.2
Storage revenues 44.5 45.4 138.5 137.7
Other revenues 4.8 4.0 30.0 27.1
------ ------ ------ ------
Total Operating Revenues 174.6 180.0 610.7 610.0
------ ------ ------ ------
Operating Expenses
Operation and maintenance 80.9 87.5 264.4 262.0
Settlement of gas supply charges -- -- (29.8) --
Depreciation 26.2 25.8 79.8 75.8
Other taxes 12.1 12.0 40.8 40.9
------ ------ ------ ------
Total Operating Expenses 119.2 125.3 355.2 378.7
------ ------ ------ ------
Operating Income $ 55.4 $ 54.7 $255.5 $231.3
====== ====== ====== ======
Throughput (Bcf)
Transportation
Columbia Transmission
Market area 149.3 151.0 707.7 674.6
Columbia Gulf
Mainline 144.5 138.8 441.4 420.6
Short-haul 57.5 56.7 166.1 178.3
Intrasegment eliminations (135.8) (134.4) (420.1) (406.8)
------ ------ ------ ------
Total Throughput 215.5 212.1 895.1 866.7
====== ====== ====== ======
</TABLE>
22
<PAGE> 23
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
Proposed 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 mid-Atlantic markets. The
442-mile pipeline will connect to TransCanada Pipe Lines Ltd. at a new Lake Erie
export point and transport approximately 700,000 thousand cubic feet (Mcf) per
day. Nine 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 on December 22, 1997. This filing began the
extensive review process, including opportunities for public review,
communication and comment. The Millennium Project sponsors have announced that
the proposed in-service date is expected to be November 1, 2000. The likelihood
of meeting the in-service date proposed by the Millennium Project sponsors
depends on a number of variables including the timely issuance of an acceptable
certificate by the FERC.
The sponsors of the proposed Millennium Project are Columbia Transmission,
Westcoast Energy, Inc., TransCanada Pipe Lines Ltd., and MCN Energy Group, Inc.
Market Expansion Project
Columbia Transmission's Market Expansion project expanded its pipeline and
storage system to meet increased customer demands. The final phase of the
service commenced in November 1999. The expansion adds approximately 500,000 Mcf
per day of firm service to 23 customers.
Storage Base Gas Sales
Columbia Transmission has agreements to sell 4.8 billion cubic feet (Bcf) of
base gas volumes in the first quarter of 2000. Base gas represents storage
volumes that are maintained to ensure that adequate pressure exists to deliver
current inventory. However, as a result of ongoing improvements made in Columbia
Transmission's storage operations, from time-to-time certain of these storage
volumes are determined to be unnecessary to maintain deliverability of current
inventory. Columbia Transmission is allowed to retain approximately 95% of the
first $60 million pre-tax gain from any base gas sales and to share equally with
customers any gain after that level.
Sale of Facilities
During the first nine months of 1999, Columbia Transmission sold approximately
1,120 miles of gathering facilities and related properties to various parties.
Agreements are in place for the planned sale of an additional 970 miles of
gathering and transmission pipelines and the Kanawha Separation Plant to third
parties.
Excluding the above sales, there are approximately 170 miles of gathering lines
remaining to be sold or refunctionalized.
The sale of these assets will not have a material impact on Columbia's financial
results.
Columbia Transmission's Phase II Rate Proceeding
Columbia Transmission's rate case settlement, approved by the FERC in April
1997, provided for a hearing to address environmental cost recovery that was
excluded from the settlement. 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
23
<PAGE> 24
PART I -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
was suspended in May 1998, in order to afford the parties an opportunity to
pursue settlement discussions. As a result of these discussions, the active
parties reached an agreement in principle on the overall components of an
environmental settlement. The comprehensive agreement in principle included such
major components as Columbia Transmission's total allowed recovery of
environmental remediation program costs and the disposition of any proceeds
received by Columbia Transmission from insurance carriers and others. Columbia
Transmission filed the stipulation and agreement with the FERC on April 5, 1999
and on September 15, 1999, the FERC approved the settlement. No requests for
rehearing were filed. The approval of the settlement did not have a material
impact on Columbia's consolidated financial results.
Columbia Transmission's Voluntary Incentive Retirement Program
Columbia Transmission announced the introduction of the voluntary incentive
retirement plan on September 30, 1999. Approximately 600 Columbia Transmission
employees are eligible for the program, which provides the retirement incentive
for active employees who are of age fifty and above with at least five years of
service as of March 1, 2000. Eligible employees will have a 45 day consideration
period beginning December 15, 1999. An acceptance window will open on January 1,
2000 and close on January 31, 2000. The majority of the retirements are
scheduled to occur in the first quarter of 2000, at which time the cost of the
program will be recorded. Retirement costs for these employees are funded
through the pension plan and will have a minimal impact on consolidated net
income.
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
mainline transportation services from Rayne, Louisiana, to Leach, Kentucky and
short-haul transportation services from the Gulf of Mexico to Rayne, Louisiana.
Throughput for the transmission and storage segment totaled 215.5 Bcf and 895.1
Bcf for the third quarter and first nine months of 1999, respectively. For the
third quarter, this represents an increase of 3.4 Bcf from the same period in
1998, primarily due to increased demand. Colder weather in 1999 and increased
transportation services from Columbia Transmission's market expansion project
resulted in a 28.4 Bcf increase in throughput for the first nine months of 1999
over the same period last year.
Operating Revenues
Total operating revenues were $174.6 million for the third quarter of 1999, a
decrease of $5.4 million from the same period in 1998. After adjusting for
certain revenues that are offset in operating expense, revenues decreased
$700,000 primarily attributable to the 1998 revenues benefiting from a $3.3
million contract termination fee, which is partially offset by increased
transportation services from Columbia Transmission's Market Expansion project.
For the first nine months of 1999, operating revenues were $610.7 million,
essentially unchanged from the same period in 1998. Both periods included the
sale of storage base gas. In the first quarter of 1999, approximately 6.9 Bcf
was sold for a gain of $14.4 million and in the same period in 1998,
approximately 4.7 Bcf of storage base gas was sold for a gain of $13.4 million.
24
<PAGE> 25
PART I -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
Operating Income
Operating income for the third quarter of 1999 was $55.4 million, an increase of
$700,000 over the same period last year. After adjusting for transactions that
have no effect on operating income, lower revenues were more than offset by
reduced operating expenses primarily reflecting lower [OUTSIDE SERVICE COSTS.]
For the first nine months of 1999, operating income for the transmission and
storage segment of $255.5 million increased $24.2 million over the same period
last year primarily reflecting a $23.5 million decrease in operating expenses.
Lower operating expenses included the producer contract settlement recorded in
the first quarter of 1999 stemming from Columbia's prior bankruptcy proceedings.
Partially offsetting the increase in income was the effect of a 1998 improvement
attributable to a $4.5 million settlement gain related to postretirement benefit
costs.
25
<PAGE> 26
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Net Revenues
<S> <C> <C> <C> <C>
Sales revenues $ 120.1 $ 178.6 $1,283.9 $1,199.1
Less: Cost of gas sold 43.0 83.3 865.0 723.1
-------- -------- -------- --------
Net Sales Revenues 77.1 95.3 418.9 476.0
-------- -------- -------- --------
Transportation revenues 47.8 29.1 221.5 122.6
Less: Associated gas costs 5.2 2.5 24.1 12.5
-------- -------- -------- --------
Net Transportation Revenues 42.6 26.6 197.4 110.1
-------- -------- -------- --------
Net Revenues 119.7 121.9 616.3 586.1
-------- -------- -------- --------
Operating Expenses
Operation and maintenance 89.6 91.8 299.2 275.7
Depreciation 11.5 11.4 64.6 61.9
Other taxes 17.3 17.1 104.4 113.4
-------- -------- -------- --------
Total Operating Expenses 118.4 120.3 468.2 451.0
-------- -------- -------- --------
Operating Income $ 1.3 $ 1.6 $ 148.1 $ 135.1
======== ======== ======== ========
Throughput (Bcf)
Sales
Residential 7.7 10.0 92.3 102.9
Commercial 2.9 4.0 30.9 37.7
Industrial and other 0.6 0.7 2.2 3.1
-------- -------- -------- --------
Total Sales 11.2 14.7 125.4 143.7
Transportation 65.8 60.2 250.6 206.8
-------- -------- -------- --------
Total Throughput 77.0 74.9 376.0 350.5
Off-System Sales 1.6 8.9 167.1 60.3
======== ======== ======== ========
Total Sold and Transported 78.6 83.8 543.1 410.8
======== ======== ======== ========
Sources of Gas for Throughput (Bcf)
Sources of Gas Sold
Spot market* 96.7 47.9 234.2 166.9
Producers 2.4 2.3 7.1 7.7
Storage withdrawals (injections) (33.2) (44.8) (7.6) (7.0)
Other (53.1) 18.2 58.8 36.4
-------- -------- -------- --------
Total Sources of Gas Sold 12.8 23.6 292.5 204.0
Gas received for delivery to customers 65.8 60.2 250.6 206.8
-------- -------- -------- --------
Total Sources 78.6 83.8 543.1 410.8
======== ======== ======== ========
</TABLE>
* Reflects volumes under purchase contracts of less than one year.
26
<PAGE> 27
PART I -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Conditions
Weather in Columbia's distribution subsidiaries' (Distribution) market area for
the first nine months of 1999 was 6% warmer than normal but 16% colder than the
record warm weather during the same period in 1998. For the first nine months of
1999, Distribution's weather-sensitive deliveries were up 22.3 Bcf from last
year.
Regulatory Matters
Distribution continues to sign up customers for its Customer CHOICE(SM) programs
in Ohio, Pennsylvania, Virginia and Maryland. These programs give retail
customers the opportunity to purchase natural gas directly from marketers and to
use Distribution's facilities for transportation services. More than 520,000
residential customers, or about 35% of eligible customers, are participating in
the Customer CHOICE(SM) programs. Overall, approximately 86% of Distribution's
nearly 2.1 million residential, commercial and industrial customers are eligible
to participate in its Customer CHOICE(SM) programs.
In October 1999, the Pennsylvania Public Utility Commission (PPUC) unanimously
approved Columbia Gas of Pennsylvania, Inc.'s (Columbia of Pennsylvania) interim
restructuring plan, thereby allowing all 382,000 of the company's residential
and small-commercial customers the right to choose a new natural gas supplier,
effective November 1, 1999. Prior to this date, more than 70% of Columbia of
Pennsylvania's customers in seven counties could choose their supplier under a
program approved by the PPUC in 1998. Nearly 40% of these eligible customers
purchased their natural gas from an alternative supplier. Columbia of
Pennsylvania's full restructuring plan is expected to be approved in early 2000
and is not expected to have a material effect on Columbia's consolidated results
of operations.
On October 25, 1999, Columbia Gas of Ohio, Inc. (Columbia of Ohio) and a group
comprising diverse interested parties, also known as the Collaborative, filed
with the Public Utilities Commission of Ohio (PUCO) a third amendment to its
1994 rate case. The filing proposes to extend Columbia of Ohio's Customer
CHOICE(SM) program through October 31, 2004, to resolve the issue of transition
capacity costs and freeze base rates through 2004. A decision by the PUCO is
expected before year-end.
Environmental Matters
Distribution's primary environmental issues relate to seventeen former
manufactured gas plant sites. Investigations or remedial activities are
currently underway at six sites and remedial construction has been completed at
two sites. Additional site investigations may be required at some of the
remaining sites. To the extent Distribution's site investigations have been
conducted, remediation plans developed and any responsibility for remediation
established, the appropriate estimated liabilities have been recorded.
Regulatory assets have also been recorded for a majority of these costs as rate
recovery has been authorized or is anticipated.
Volumes
During the third quarter of 1999, total volumes sold and transported of 78.6 Bcf
decreased 5.2 Bcf from last year's third quarter. The decline reflects a
decrease in off-system sales opportunities in the current quarter, which was
only partially offset by the impact of increased natural gas usage in electric
generation and oil refining.
For the first nine months of 1999, total volumes sold and transported of 543.1
Bcf increased 132.3 Bcf over the same period in 1998. The improved throughput
reflects this year's colder weather compared to 1998, along with a 106.8 Bcf
increase in off-system sales as Distribution took advantage of higher spot
prices in March 1999 to sell supplies available due to warmer than normal
weather.
27
<PAGE> 28
PART I -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Net Revenues
Net revenues for the quarter ended September 30, 1999 were
$119.7 million, down $2.2 million from the same period last year. Lower revenues
from non-traditional revenue sources that Columbia of Ohio was allowed to retain
under terms of its 1996 regulatory settlement were mostly offset by the
beneficial impact of Columbia of Ohio's 1997 rate settlement.
For the first nine months of 1999, net revenues were $616.3 million, up $30.2
million from the same period in 1998, primarily due to this year's colder
weather.
Operating Income
Distribution had operating income of $1.3 million for the third quarter of 1999,
down $300,000 from the same period of 1998. The lower net revenues described
above were partially offset by a $1.9 million decline in total operating
expenses. Operation and maintenance expense decreased by $2.2 million, primarily
reflecting lower uncollectible accounts. The decline in operation and
maintenance expense was partially offset by increases in depreciation and taxes
other than income.
Operating income for the first nine months of 1999 of $148.1 million represents
an increase of $13 million over the same period in the prior year. The $30.2
million increase in net revenues over last year was partially offset by $17.2
million in higher operating expenses. Operating income for the first nine months
of 1998 benefited from a $15.9 million settlement gain related to postretirement
benefits costs that reflected the purchase of insurance for a portion of those
liabilities. Other changes in operation and maintenance expense increased $7.6
million over the first nine months of 1998 reflecting higher costs for other
employee benefits. Depreciation expense increased $2.7 million due to additional
plant in service while other taxes decreased $9 million as a result of lower
gross receipts taxes.
28
<PAGE> 29
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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Operating Revenues
<S> <C> <C> <C> <C>
Gas revenues $ 32.4 $ 24.1 $ 86.2 $ 86.5
Other revenues 3.4 2.7 11.6 10.1
------- ------- ------- -------
Total Operating Revenues 35.8 26.8 97.8 96.6
------- ------- ------- -------
Operating Expenses
Operation and maintenance 13.7 10.4 40.0 33.2
Depreciation and depletion 7.7 8.6 25.9 27.5
Other taxes 2.8 2.3 7.8 7.5
------- ------- ------- -------
Total Operating Expenses 24.2 21.3 73.7 68.2
------- ------- ------- -------
Operating Income $ 11.6 $ 5.5 $ 24.1 $ 28.4
======= ======= ======= =======
Gas Production Statistics
Production (Bcf)
U.S 13.2 8.5 34.0 28.6
Canada -- -- 0.1 0.1
======= ======= ======= =======
Total 13.2 8.5 34.1 28.7
======= ======= ======= =======
Average Price ($ per Mcf)
U.S 2.39 2.83 2.49 3.01
Canada 2.07 2.44 2.35 2.70
Oil and Liquids Production Statistics
Production (000 Bbls)
U.S 44 46 130 152
Canada 2 4 7 8
======= ======= ======= =======
Total 46 50 137 160
======= ======= ======= =======
Average Price ($ per Bbl)
U.S 16.25 11.55 13.07 12.87
Canada 20.01 17.04 16.70 17.31
</TABLE>
29
<PAGE> 30
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS
Acquisitions
On August 30, 1999, Columbia Natural Resources Inc. (CNR), a subsidiary of
Columbia Resources, announced the expansion of its holdings in New York by
acquiring assets from Meridian Exploration Corporation (Meridian Exploration).
The property and wells are located in Seneca and Cayuga Counties, New York. The
transaction involved 319 producing wells, an 88-mile gathering system, and two
natural gas fields composed of 51,000 acres of mineral rights and 17 Bcf
equivalents (Bcfe) of proven reserves. CNR plans an active drilling and
production program in this area, which will complement its ongoing exploration
and drilling program along the southern region of the Finger Lakes.
In the third quarter of 1999, another subsidiary of Columbia Resources, Columbia
Natural Resources Canada Limited, acquired additional properties and established
two new joint venture arrangements in New Brunswick, Canada. The transactions
involve exploration interests in over 1.6 million acres, 17 tracts, one well and
approximately 40 miles of seismic data.
Drilling Activity
On October 14, 1999, CNR announced that it had discovered natural gas in a
second deep well in Roane County, West Virginia. The well's operational
characteristics are similar in many respects to the original discovery well
announced in June 1999, which demonstrated an open-flow rate of approximately 50
MMcf per day. Both wells encountered natural gas flows at pressures considered
extraordinary in the Appalachian Basin. CNR is prepared to drill 12 wells in
2000 to expand and develop these prospects and expects to complete two
additional test wells in similar structures at other West Virginia locations
before year-end.
Columbia Resources has participated in 92 gross (84 net) wells during the third
quarter, adding 30.9 net Bcfe of reserves. During the same period of 1998,
Columbia Resources completed 46 gross (40 net) wells, adding reserves of 11.5
net Bcfe.
For the first nine months of 1999, Columbia Resources has drilled 194 wells,
while participating in 16 wells drilled by third parties. Of the total wells
drilled, 163 gross (145 net) wells have been completed with a success rate of
83%, adding 45.6 Bcfe of reserves. Columbia Resources experienced a 75% success
rate during the first nine months of 1998 that yielded a total of 17.2 Bcfe from
the drilling of 87 gross (72 net) wells. Columbia Resources' 1999 drilling
program is progressing on track toward 230 net new wells. The company currently
has 13 rigs operating throughout six states.
Volumes
Gas production of 13.2 Bcf in the third quarter of 1999 increased 4.7 Bcf over
the same period in 1998, primarily due to the acquisitions of the Wiser Oil
Company and Meridian Exploration, new drilling and improvements to Columbia
Resources' gathering facilities. For the nine months ended September 30, 1999,
gas production increased 5.4 Bcf to 34.1 Bcf. The increased gas production
experienced in the third quarter is expected to continue for the remainder of
1999, resulting in expected annual production for this year to be approximately
50 Bcf.
Operating Revenues
Operating revenues for the third quarter of 1999 were $35.8 million, compared to
$26.8 million for the same quarter a year ago. The $9 million increase was
primarily due to increased gas production, which was up 55% over last year. The
average gas price for the third quarter of $2.39 per Mcf was $0.44 per Mcf lower
than the same quarter a year ago.
30
<PAGE> 31
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS
Operating revenues of $97.8 million for the first nine months of 1999 increased
$1.2 million over the same period last year. A 19% increase in gas production
was offset by lower realized prices for 1999 gas sales relative to the 1998
period. Columbia Resources continues to manage the uncertainty of natural gas
prices by hedging a portion of its production using derivative instruments. As
of September 30, 1999, CNR had hedged 100% of its at-risk gas production for the
fourth quarter of 1999 at an average price of $3.41 per Mcf. Fifty percent of
the at-risk production for the first quarter of 2000 has been hedged at an
average price of $3.74 per Mcf.
Operating Income
Operating income for the third quarter of 1999 of $11.6 million increased $6.1
million over last year's third quarter primarily due to higher operating
revenues, as discussed above, which were partially offset by higher operation
and maintenance costs attributable to recent acquisitions.
Operating income of $24.1 million for the nine months ended September 30, 1999,
represents a decrease of $4.3 million from the same period in 1998. The decrease
reflects in large part the higher operating costs associated with acquisitions
and operation and maintenance costs due to expanded gathering facilities.
31
<PAGE> 32
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING OPERATIONS
ENERGY MARKETING OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
(millions)
Net Revenues
<S> <C> <C> <C> <C>
Gas $160.7 $174.4 $544.5 $541.2
Propane 32.7 8.5 78.5 43.0
Petroleum 47.9 -- 70.8 --
------ ------ ------ ------
Total 241.3 182.9 693.8 584.2
Less: Products purchased 227.9 178.2 640.8 558.6
------ ------ ------ ------
Gross Margin 13.4 4.7 53.0 25.6
Other revenues 7.1 2.6 15.2 7.3
------ ------ ------ ------
Net Revenues 20.5 7.3 68.2 32.9
------ ------ ------ ------
Operating Expenses
Operation and maintenance 34.9 15.3 83.9 44.6
Depreciation 7.5 1.7 13.4 4.1
Other taxes 4.8 0.9 7.5 3.0
------ ------ ------ ------
Total Operating Expenses 47.2 17.9 104.8 51.7
------ ------ ------ ------
Operating (Loss) $(26.7) $(10.6) $(36.6) $(18.8)
====== ====== ====== ======
Sales
Gas (billion cubic feet) 27.7 34.0 111.3 99.2
Propane (millions of gallons) 40.3 9.7 95.8 44.5
Petroleum (millions of gallons) 74.8 -- 122.5 --
</TABLE>
32
<PAGE> 33
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Beginning with reported third quarter of 1999 results, energy marketing
operations include the operations of Columbia Propane Corporation as well as
Columbia Energy Services' continuing retail businesses. The segment results for
the 1999 and 1998 prior periods have been reclassified to reflect this change.
Columbia Energy Services
Columbia Energy Services consists of four distinct business lines: These
business lines consist of: 1) Mass Markets that primarily markets natural gas
and electric power to residential and small commercial customers through several
channels; 2) Major Accounts that provides energy services and products to
industrial and large commercial clients; 3) an internet based business that
offers a variety of services to energy marketers and consumers, and 4) the
wholesale and trading business that provides energy products and services to
wholesale customers and trades natural gas and power using derivative
instruments.
The Mass Markets business concentrates on providing natural gas and electric
power to smaller volume retail customers; whereas the Major Accounts business
serves larger volume customers and has a separate accounting subsystem and
billing system. Frequently the Major Accounts business provides the management
of its customers' energy procurement activities and individual balancing and
scheduling of customers' energy requirements. Revenues for the first nine months
of 1999 for the Major Accounts business totaled $240.5 million and for the Mass
Markets line of business, revenues of $65.5 million were reported for the same
period.
The recently appointed president and CEO of Columbia Energy Services has been
conducting a strategic assessment of all facets of Columbia Energy Services'
businesses, which was begun in the first quarter of 1999, including ongoing
action taken with company personnel and outside consultants to identify and
continue to address infrastructure weaknesses.
After completing the initial phase of the strategic assessment, it was
determined that Columbia Energy Services would concentrate its efforts primarily
on the retail businesses, taking advantage of Columbia's existing geographic
presence in an area where deregulation of gas and electric power markets is
proceeding rapidly. In late August 1999, Columbia Energy Services announced its
intention to sell its wholesale and trading operations, based in Houston, Texas.
In accordance with generally accepted accounting principles, the wholesale and
trading operations are being reported as discontinued operations on Columbia's
consolidated financial statements. After interested parties completed their
evaluation process, Columbia recently received bids that were not as high as
originally anticipated. As a result, Columbia recorded a loss on the disposal
of discontinued operations in the third quarter of 1999 of $13 million
after-tax. See Note 9 for additional information regarding this adjustment.
As reported in Columbia's 1999 Second Quarter Report on Form 10-Q, Columbia had
the intention of merging the Mass Markets and Major Accounts businesses and
consolidating them in Herndon, Virginia. However, after further analysis from
the ongoing strategic assessment, it was determined that Columbia Energy
Services should focus on its Mass Markets business and exit the Major Accounts
business. In November 1999, management began preparing the Major Accounts
business for sale. Management is presently reviewing the requirements for
recording the exit from the major accounts business as discontinued operations
in accordance with generally accepted accounting principles.
Management anticipates based on current information that, as a result of an
ongoing assessment being made of the existence and scope of obligations to and
from third parties, and of the decision to exit the Major Accounts business, a
reserve will be recorded in the fourth quarter of 1999. The ultimate amount of
the reserve is not determinable pending completion of management's review.
This amount when taken together with continuing losses could be material to
Columbia's consolidated annual net income.
On October 20,1999, Columbia and Metromedia Energy, Inc. (Metromedia Energy), a
Metromedia Company affiliate, announced the completion of a letter of intent to
form a joint venture between Columbia and
33
<PAGE> 34
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Metromedia Energy to market a broad, consumer-driven portfolio of retail energy
and related services. The business will focus initially on emerging energy
markets, primarily in the Northeast quadrant of the United States.
The new venture, called Columbia Metromedia Energy, will be owned equally,
directly or indirectly, by Columbia and Metromedia Energy and will operate
Columbia Energy Services' Mass Markets business. The new company also will
include the businesses of Metromedia Energy. The venture, subject to execution
of a definitive agreement and other conditions, is currently expected to be
operational by the end of the first quarter of 2000.
Propane Acquisitions
On July 27, 1999, Columbia Propane completed its purchase of the propane assets
of ENC Propane and a related appliance sales and services business, both located
in eastern North Carolina. On September 21, 1999, Columbia Propane completed the
purchase of the propane and fuel oil assets of Baker & Russell, Inc. (Baker &
Russell) located in Shippensburg, Pennsylvania. These acquisitions, together
with the acquisitions of National Propane Partners, L.P., Carlos R. Leffler,
Inc., (Leffler) and Trentane Gas, Inc. earlier in 1999, raise the total number
of customers served by Columbia Propane to more than 344,700 in 35 states and
the District of Columbia, triple the number of customers served at the end of
1998. Columbia Petroleum Corporation (Columbia Petroleum), a subsidiary of
Columbia Propane, owns and operates the petroleum assets acquired from Leffler
and Baker & Russell. Columbia Petroleum currently serves 42,600 customers in
five states.
Net Revenues
Net revenues for the third quarter of 1999 were $20.5 million, an increase of
$13.2 million over the same period last year. This improvement reflects an
increase in net propane and petroleum revenues as a result of Columbia Propane's
acquisitions partially offset by a decrease in net gas revenues due to Columbia
Energy Services' lower margins.
For the nine months ended September 30, 1999, net revenues were $68.2 million,
up $35.3 million from last year, primarily due to Columbia Propane's
acquisitions and colder weather in the first quarter of 1999. The improvement in
net propane and petroleum revenues was partially offset by a decrease in net gas
revenues due to lower margins from Columbia Energy Services.
Operating Loss
An operating loss of $26.7 million was recorded in the third quarter of 1999
compared to an operating loss of $10.6 million in the same period last year. Of
the increased loss, approximately $10.3 million of the period-to-period change
reflected Columbia Energy Services' restructuring costs, higher customer
acquisition and retention costs, a larger infrastructure than a year ago and
costs incurred from on-going consulting services to improve its operations. Also
adding to the higher loss were lower recorded margins and increased costs
related to new customer billing systems and costs related to addressing
weaknesses in, and promoting operational efficiencies of, the infrastructure,
which is larger when compared to a year ago. In addition, the expanded
operations of Columbia Propane, resulting from recent acquisitions, contributed
to the increased loss.
For the first nine months of 1999, an operating loss of $36.6 million was
reported compared to an operating loss of $18.8 million in the same period last
year. Improved net revenues were more than offset by higher 1999 operating costs
that primarily reflected restructuring costs for Columbia Energy Services'
retail operations, customer acquisition and retention costs, additional staffing
levels as well as costs related to improving weaknesses and promoting
efficiencies in its infrastructure, as discussed previously.
34
<PAGE> 35
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
POWER GENERATION, LNG AND OTHER OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(millions)
Operating Revenues
<S> <C> <C> <C> <C>
Power generation $ 2.5 $ 2.6 $ 6.0 $ 6.4
LNG 2.5 3.1 6.7 7.7
Other 0.1 0.4 0.4 0.4
----- ----- ----- -----
Total Operating Revenues 5.1 6.1 13.1 14.5
----- ----- ----- -----
Operating Expenses
Operation and maintenance 3.4 3.6 10.2 8.6
Depreciation 0.1 -- 0.1 --
Other taxes -- 0.1 0.3 0.2
----- ----- ----- -----
Total Operating Expenses 3.5 3.7 10.6 8.8
----- ----- ----- -----
Operating Income $ 1.6 $ 2.4 $ 2.5 $ 5.7
===== ===== ===== =====
</TABLE>
35
<PAGE> 36
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
POWER GENERATION, LNG AND OTHER OPERATIONS (CONTINUED)
Telecommunications Network
Columbia Transmission Communications Corporation (Transcom), a wholly-owned
subsidiary of Columbia, began the construction of its telecommunications network
along the Washington, D.C. to New York City corridor. Transcom will build and
maintain a fiber network on rights-of-way of Columbia's pipeline companies.
Transcom expects to complete the D.C. to New York fiber link in the first
quarter of 2000. The route covers 260 miles and provides access to 16 million
people in the busiest telecommunications corridor in the United States. The
company is developing plans to extend the fiber network to 2,500 route miles
with direct access to 35 million people throughout the eastern United States.
Proposed Cogeneration Project
In October 1999, Columbia's wholly-owned subsidiary, Columbia Electric
Corporation, announced that it is developing a natural gas-fired power plant in
Charles County, Maryland. The proposed plant, known as the Kelson Ridge Project,
if completed, would produce up to 550 megawatts of energy for the regional
market. Subject to the receipt of various state and local regulatory approvals
and completion of other development activities, construction is estimated to
begin in 2001.
Operating Revenues
Operating revenues for the third quarter and first nine months of 1999 decreased
$1 million and $1.4 million, respectively, from the same periods last year
primarily reflecting reduced LNG short-term storage sale prices and a contract
reduction for customer services.
Operating Income
The power generation, LNG and other operations reported operating income of $1.6
million in the third quarter of 1999, down $800,000 from the same period last
year, primarily reflecting lower revenues from LNG services.
Operating income for the first nine months of 1999 was $2.5 million, a decrease
of $3.2 million from the same period in 1998. This decrease primarily reflected
lower operating revenues of $1.4 million and higher operation and maintenance
expense of $1.6 million due to increased staffing levels and development
activity for the cogeneration business.
36
<PAGE> 37
PART II - OTHER INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have not been any material changes regarding quantitative and
qualitative disclosures about market risk from the information reported
in Columbia's Annual Report on Form 10-K for the year ended December
31, 1998, other than the information reported on page 19 of the
Management's Discussion and Analysis under "Market Risk Exposure."
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No new reportable matters have arisen and there have been no material
developments in any legal proceedings reported in Columbia's Annual
Report on Form 10-K for the year ended December 31, 1998 or the
Quarterly Report on Form 10-Q for the first and second quarters of
1999, except as follows:
Other
A. Cathodic Protection. The history related to this matter is discussed
in Columbia's 1998 Annual Report on Form 10-K. On April 29, 1999, the
staff of the Virginia State Corporation Commission (VSCC) issued a
Notice of Probable Violation, indicating that it had discovered
numerous "probable violations" of the VSCC's pipeline safety
regulations. On May 26, 1999, Columbia of Virginia submitted a response
to the Notice acknowledging that cathodic protection deficiencies had
occurred, identifying the actions taken by Columbia of Virginia to
address such deficiencies, and requesting an informal conference.
Informal conferences with the VSCC staff have been held. As a result of
these conferences, Columbia of Virginia has agreed to engage an
independent consultant to review its cathodic protection program.
Discussions between Columbia of Virginia and the staff concerning the
resolution of this matter are continuing.
B. 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). On October 16, 1999, Columbia Transmission and
MarkWest executed the necessary documents to implement a full and
complete settlement of all issues. As part of the settlement, MarkWest
will expand certain facilities to process additional gas production in
the Appalachian region.
C. NiSource Related Litigation. NiSource has commenced three lawsuits
against Columbia and its directors, two in Delaware Chancery Court and
one in the United States District Court for the District of Delaware.
Several groups of shareholders have instituted similar or identical
actions against Columbia. These shareholder actions have been
consolidated with each other and coordinated with NiSource's actions.
NiSource's federal court complaint was filed on June 24, 1999, and was
amended on July 8, 1999. The federal court complaint, among other
things (i) alleges that certain statements that Columbia has made in
connection with NiSource's offer to purchase Columbia have been false
and misleading in violation of the Securities Exchange Act of 1934, as
amended; (ii) seeks an injunction requiring Columbia to take all
actions necessary to exempt the NiSource tender offer from the
requirements of Section 203 of the Delaware General Corporation Law,
and (iii) seeks injunctive relief prohibiting Columbia from taking any
defensive actions in response to the Offer.
The first Chancery Court complaint was filed on June 24, 1999, and
alleged that Columbia's certificate of incorporation requires 13
persons to be on the Board of Directors and that,
37
<PAGE> 38
therefore, Columbia's current 12-person Board of Directors violates the
certificate. On September 22, 1999, the Chancery Court granted
Columbia's motion to dismiss and declined to grant an order for a
special meeting of the shareholders to elect a thirteenth director.
The second Chancery Court complaint was filed on July 29, 1999, and
alleges that the Board's actions in response to the Offer, including
the announced increase in Columbia's share repurchase program,
represent a breach of the fiduciary duties owed to Columbia
stockholders. This matter is scheduled for a preliminary injunction
hearing on December 9, 1999.
The parties began discovery in both the federal and Chancery Court
action. On October 25, 1999, the parties agreed to a standstill on
discovery pending the outcome of meetings between the two companies.
The parties also agreed to ask the Chancery Court to vacate the
December 9, 1999 preliminary injunction hearing.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Reference is made below to those exhibits which have previously been
filed with the Commission. Exhibits so referred to are incorporated
by reference.
Exhibit
Number
------
12* Statements of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule
* Filed herewith
38
<PAGE> 39
PART II - OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
The following reports on Form 8-K were filed during the third
quarter of 1999.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
<S> <C> <C> <C> <C>
5 No July 6, 1999 July 7, 1999
5 Yes ** July 15, 1999 July 19, 1999
5 No August 30, 1999 August 31, 1999
</TABLE>
** Summary of Financial and Operational data for three
and six months ended June 30, 1999.
39
<PAGE> 40
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: November 15, 1999 By: /s/ Jeffrey W. Grossman
-----------------------
Jeffrey W. Grossman
Vice President and Controller
(Principal Accounting Officer
and Duly Authorized Officer)
40
<PAGE> 1
Exhibit 12
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
Statements of Ratio of Earnings to Fixed Charges
($ in millions)
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Ended September 30, Ended December 31,
------------------- -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes 442.5 392.0 435.4 398.3 337.5 (643.0) 392.2
Adjustments:
Interest during construction (3.0) (2.2) (2.1) (3.0) (1.1) (20.2) --
Distributed (Undistributed) equity income (3.0) 2.4 (0.4) 3.6 1.5 (7.9) (0.9)
Fixed charges 167.2 179.1 164.9 181.6 184.6 1,061.3 33.7
------- ------- ------- ------- ------- ------- -------
Earnings Available 603.7 571.3 597.8 580.5 522.5 390.2 425.0
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
Interest on long-term and short-term debt 146.3 147.3 145.4 145.6 150.8 987.2 0.7
Other interest 3.1 12.9 1.7 15.2 13.5 53.6 14.1
Portion of rentals representing interest 17.8 18.9 17.8 20.8 20.3 20.5 18.9
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges *, ** 167.2 179.1 164.9 181.6 184.6 1,061.3 33.7
------- ------- ------- ------- ------- ------- -------
Ratio of Earnings to Fixed Charges 3.61 3.19 3.63 3.20 2.83 N/A (a) 12.61
======= ======= ======= ======= ======= ======= =======
</TABLE>
Prior periods amounts for the twelve months ended December 31, 1997, December
31, 1998, and September 30, 1998 have been restated to reflect Columbia Energy
Services Corporation wholesale and trading operations as discontinued
operations.
(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.
* This amount excludes approximately $230 million of interest expense not
recorded for the twelve months ended December 31, 1994. 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.
<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 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,350,900 4,350,900
<OTHER-PROPERTY-AND-INVEST> 807,800 807,800
<TOTAL-CURRENT-ASSETS> 1,151,400 1,151,400
<TOTAL-DEFERRED-CHARGES> 225,900 225,900
<OTHER-ASSETS> 351,600 351,600
<TOTAL-ASSETS> 6,887,600 6,887,600
<COMMON> 800 800
<CAPITAL-SURPLUS-PAID-IN> 1,605,600 1,605,600
<RETAINED-EARNINGS> 552,800 552,800
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,996,400 1,996,400
0 0
0 0
<LONG-TERM-DEBT-NET> 1,951,300 1,951,300
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 521,200 521,200
<LONG-TERM-DEBT-CURRENT-PORT> 400 400
0 0
<CAPITAL-LEASE-OBLIGATIONS> 2,900 2,900
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,939,900 2,939,900
<TOT-CAPITALIZATION-AND-LIAB> 6,887,600 6,887,600
<GROSS-OPERATING-REVENUE> 549,300 2,678,500
<INCOME-TAX-EXPENSE> (6,500) 89,500
<OTHER-OPERATING-EXPENSES> 517,400 2,295,300
<TOTAL-OPERATING-EXPENSES> 517,400 2,295,300
<OPERATING-INCOME-LOSS> 31,900 383,200
<OTHER-INCOME-NET> 4,500 14,700
<INCOME-BEFORE-INTEREST-EXPEN> 36,400 397,900
<TOTAL-INTEREST-EXPENSE> 42,100 116,700
<NET-INCOME> (9,700) 166,800
0 0
<EARNINGS-AVAILABLE-FOR-COMM> (9,700) 166,800
<COMMON-STOCK-DIVIDENDS> 18,400 53,500
<TOTAL-INTEREST-ON-BONDS> 34,400 103,900
<CASH-FLOW-OPERATIONS> (151,700) 548,300
<EPS-BASIC> (0.12) 2.02
<EPS-DILUTED> (0.12) 2.01
</TABLE>
