<PAGE> 1
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, 2000
/ / 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 Identification No.)
incorporation or organization)
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:79,530,389 shares outstanding at September 30, 2000.
<PAGE> 2
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION
---------------------
<S> <C>
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 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 29
PART II OTHER INFORMATION
Item 1 Legal Proceedings 30
Item 2 Changes in Securities and Use of Proceeds 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Submission of Matters to a Vote of Security Holders 31
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 32
Signature 33
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions, except per share amounts)
<S> <C> <C> <C> <C>
NET REVENUES
Energy sales $ 159.2 $ 122.8 $ 1,020.6 $ 1,274.5
Less: Products purchased 25.3 1.8 468.3 689.5
----------- ----------- ----------- -----------
Gross Margin 133.9 121.0 552.3 585.0
Transportation 147.5 140.5 563.3 509.1
Production gas sales 33.5 31.6 115.3 84.0
Other 39.1 40.2 129.1 153.3
----------- ----------- ----------- -----------
Total Net Revenues 354.0 333.3 1,360.0 1,331.4
----------- ----------- ----------- -----------
OPERATING EXPENSES
Operation and maintenance 204.9 195.7 638.9 615.3
Settlement of gas supply charges -- -- -- (29.8)
Depreciation and depletion 43.5 46.7 153.0 174.1
Other taxes 32.0 33.0 141.3 155.8
----------- ----------- ----------- -----------
Total Operating Expenses 280.4 275.4 933.2 915.4
----------- ----------- ----------- -----------
OPERATING INCOME 73.6 57.9 426.8 416.0
----------- ----------- ----------- -----------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 5.7 8.1 103.8 20.2
Interest expense and related charges (48.3) (41.0) (139.2) (115.6)
----------- ----------- ----------- -----------
Total Other Income (Deductions) (42.6) (32.9) (35.4) (95.4)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 31.0 25.0 391.4 320.6
Income Taxes 11.5 4.5 145.6 103.9
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 19.5 20.5 245.8 216.7
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS - NET OF TAXES
Loss from operations -- (30.2) (1.5) (49.9)
Estimated loss on disposal (83.3) (13.0) (110.7) (13.0)
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS - NET OF TAXES (83.3) (43.2) (112.2) (62.9)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (63.8) $ (22.7) $ 133.6 $ 153.8
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations $ 0.25 $ 0.25 $ 3.07 $ 2.63
Loss from discontinued operations -- (0.37) (0.02) (0.61)
Estimated loss on disposal (1.05) (0.16) (1.38) (0.16)
----------- ----------- ----------- -----------
BASIC EARNINGS (LOSS) PER SHARE $ (0.80) $ (0.28) $ 1.67 $ 1.86
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $ 0.24 $ 0.25 $ 3.04 $ 2.61
Loss from discontinued operations -- (0.37) (0.02) (0.60)
Estimated loss on disposal (1.03) (0.16) (1.37) (0.16)
----------- ----------- ----------- -----------
DILUTED EARNINGS (LOSS) PER SHARE $ (0.79) $ (0.28) $ 1.65 $ 1.85
=========== =========== =========== ===========
DIVIDENDS PAID PER SHARE $ 0.225 $ 0.225 $ 0.675 $ 0.65
BASIC AVERAGE COMMON SHARES
OUTSTANDING (thousands) 79,525 81,791 80,163 82,482
DILUTED AVERAGE COMMON SHARES (thousands) 80,441 82,432 80,930 82,925
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of
----------------------------
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
(millions)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $8,054.2 $7,886.2
Accumulated depreciation (3,740.9) (3,659.4)
-------- --------
Net Gas Utility and Other Plant 4,313.3 4,226.8
-------- --------
Gas and oil producing properties, full cost method
United States cost center 876.9 823.5
Canadian cost center 17.9 12.6
Accumulated depletion (266.3) (251.6)
-------- --------
Net Gas and Oil Producing Properties 628.5 584.5
-------- --------
Net Property, Plant and Equipment 4,941.8 4,811.3
-------- --------
INVESTMENTS AND OTHER ASSETS
Unconsolidated affiliates 25.7 65.6
Net assets of discontinued operations 279.9 410.0
Assets held for sale 134.6 --
Other 37.1 61.4
-------- --------
Total Investments and Other Assets 477.3 537.0
-------- --------
CURRENT ASSETS
Cash and temporary cash investments 30.3 58.1
Accounts receivable, net 278.3 498.5
Gas inventory 236.5 144.9
Other inventories - at average cost 14.6 16.1
Prepayments 80.0 70.7
Regulatory assets 56.3 52.7
Underrecovered gas costs 92.3 40.5
Deferred property taxes 24.5 79.9
Exchange gas receivable 458.4 275.4
Other 39.6 31.0
-------- --------
Total Current Assets 1,310.8 1,267.8
-------- --------
REGULATORY ASSETS 344.9 358.1
DEFERRED CHARGES 25.7 63.1
-------- --------
TOTAL ASSETS $7,100.5 $7,037.3
======== ========
</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,
2000 1999
------------- ------------
(unaudited)
(millions)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $2,034.3 $2,064.0
Long-term debt 1,639.2 1,639.3
-------- --------
Total Capitalization 3,673.5 3,703.3
-------- --------
CURRENT LIABILITIES
Short-term debt 54.1 465.5
Current maturities of long-term debt 311.1 311.1
Accounts and drafts payable 238.7 240.8
Accrued taxes 144.5 216.1
Accrued interest 75.6 32.4
Estimated rate refunds 7.3 21.4
Overrecovered gas costs 8.8 14.6
Transportation and exchange gas payable 223.7 297.5
Deferred revenue 436.0 40.0
Other 305.5 366.8
-------- --------
Total Current Liabilities 1,805.3 2,006.2
-------- --------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes, noncurrent 741.1 661.9
Investment tax credits 31.6 32.6
Postretirement benefits other than pensions 116.7 91.0
Regulatory liabilities 34.3 36.4
Deferred revenue 512.2 300.8
Other 185.8 205.1
-------- --------
Total Other Liabilities and Deferred Credits 1,621.7 1,327.8
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $7,100.5 $7,037.3
======== ========
</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,
-------------------
2000 1999
---- ----
(millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $133.6 $153.8
Adjustments to reconcile net income to net
cash from continuing operations:
Loss from discontinued operations 1.5 49.9
Loss from disposal of discontinued operations 110.7 13.0
Depreciation and depletion 153.0 174.1
Deferred income taxes 64.6 64.8
Gain on sale of partnership (90.5) --
Earnings from equity investment, net of distributions (9.7) (10.4)
Deferred revenue 211.4 (10.5)
Other - net 21.4 (36.5)
------ ------
596.0 398.2
Change in components of working capital:
Accounts receivable, net of sale 112.2 180.0
Sale of accounts receivable 77.7 --
Gas inventory (91.6) (24.6)
Other inventories - at average cost 1.5 3.7
Prepayments (9.3) (7.9)
Accounts payable (12.3) 32.6
Accrued taxes (71.6) (121.4)
Accrued interest 43.2 35.7
Estimated rate refunds (14.1) (18.3)
Estimated supplier obligations -- (40.7)
Under/Overrecovered gas costs (57.6) (49.2)
Exchange gas receivable/payable (256.8) 117.5
Deferred revenue 396.0 1.5
Other working capital 41.3 66.2
------ ------
Net Cash From Continuing Operations 754.6 573.3
Net Cash From Discontinued Operations 17.9 (136.4)
------ ------
Net Cash From Operating Activities 772.5 436.9
------ ------
INVESTMENT ACTIVITIES
Capital expenditures (305.9) (311.0)
Capital expenditures - assets held for sale (41.1) --
Sale and purchase of investments 107.5 (63.2)
------ ------
Net Investment Activities (239.5) (374.2)
------ ------
FINANCING ACTIVITIES
Dividends paid (54.1) (53.5)
Issuance of common stock 5.4 9.5
Issuance (repayment) of short-term debt (411.4) 376.5
Retirement of long-term debt -- (52.5)
Purchase of treasury stock (114.1) (132.3)
Other financing activities 13.4 (213.0)
------ ------
Net Financing Activities (560.8) (65.3)
------ ------
Decrease in cash and temporary cash investments (27.8) (2.6)
Cash and temporary cash investments at beginning of year 58.1 20.8
------ ------
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30 * $ 30.3 $ 18.2
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 89.0 $ 75.3
Cash paid for income taxes (net of refunds) $ 68.2 $ 69.7
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
* Columbia 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,
2000 1999
----------- -----------
(unaudited)
(millions)
<S> <C> <C>
Common stock, $.01 par value, authorized
200,000,000 shares, issued 83,898,689
and 83,786,942 shares, respectively $ 0.8 $ 0.8
Additional paid in capital 1,617.0 1,611.6
Retained earnings 666.4 586.9
Unearned employee compensation (0.3) (0.6)
Accumulated other comprehensive income (loss) (0.5) 0.3
Treasury stock, at cost (4,368,300 and 2,478,500 shares) (249.1) (135.0)
----------- ------------
TOTAL COMMON STOCK EQUITY $ 2,034.3 $ 2,064.0
=========== =============
</TABLE>
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the year to date
period ended
-------------------------------
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
(millions)
<S> <C> <C>
COMPREHENSIVE INCOME
Net income $133.6 $249.2
Other Comprehensive Income (Loss):
Foreign currency translation adjustment (0.8) 0.5
------ ------
COMPREHENSIVE INCOME $132.8 $249.7
====== ======
</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 1999 Annual Report on Form 10-K (Form 10-K) and Quarterly
Reports on Form 10-Q for the first and second quarters of 2000. 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 1999 financial statements to conform to the 2000
presentation. As discussed in Note 5, the 1999 financial statements have
been reclassified to report Columbia Propane Corporation (Columbia
Propane), Columbia Petroleum Corporation (Columbia Petroleum) and Columbia
Energy Services Corporation (Columbia Energy Services) Wholesale and
Trading operations, Major Accounts and Retail Mass Markets businesses 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). 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 dilutive
effect of stock options.
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,
------------------- -------------------
Diluted Average Common Shares Computation 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denominator (thousands)
Basic average common shares outstanding 79,525 81,791 80,163 82,482
Dilutive potential common shares - options 916 641 767 443
-------------------------------------------------------------------------------------------------------------
DILUTED AVERAGE COMMON SHARES 80,441 82,432 80,930 82,925
=============================================================================================================
</TABLE>
3. Treasury Stock
In March 2000, Columbia announced that it had restarted its open market
share repurchase program, that was authorized by Columbia's Board of
Directors (Columbia's Board). The program had been suspended since October
1999, when Columbia's Board authorized Columbia's management to explore
strategic alternatives to enhance shareholder value. Under the recommenced
program, Columbia was allowed to repurchase up to $300 million of its
common shares through July 14, 2000. The repurchase program authorized
Columbia to make purchases in the open market or otherwise. The timing and
terms of purchases, and the number of shares actually purchased, were
determined by management based on several factors including market
conditions. Purchased shares are held in treasury at cost and are
available for general corporate purposes or resale at a future date or may
be retired. During the first nine months of 2000, Columbia purchased
1,889,800 common shares at a cost of $114.1 million under the recommenced
program. As of September 30, 2000, Columbia had
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
purchased 4,368,300 common shares at a cost of $249.1 million.
4. Business Segment Information
Columbia manages its operations in four primary business segments:
transmission and storage; distribution; exploration and production; and
power generation and other operations. The following table provides
information concerning these major business segments. Revenues include
intersegment sales to affiliated subsidiaries, which are eliminated when
consolidated. Affiliated sales are recognized on the basis of prevailing
market or regulated prices. Operating income is derived from revenues and
expenses directly associated with each segment.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Transmission and Storage
Unaffiliated 133.9 130.0 444.3 425.8
Intersegment 53.2 44.6 176.4 184.9
---------------------------------------------------------------------------------------------------------------------
TOTAL 187.1 174.6 620.7 610.7
---------------------------------------------------------------------------------------------------------------------
Distribution
Unaffiliated 196.7 167.9 1,233.3 1,504.5
Intersegment 0.1 -- 0.9 0.9
---------------------------------------------------------------------------------------------------------------------
TOTAL 196.8 167.9 1,234.2 1,505.4
---------------------------------------------------------------------------------------------------------------------
Exploration and Production
Unaffiliated 39.4 35.6 131.3 96.6
Intersegment 0.5 0.2 1.4 1.2
---------------------------------------------------------------------------------------------------------------------
TOTAL 39.9 35.8 132.7 97.8
---------------------------------------------------------------------------------------------------------------------
Power Generation and Other
Unaffiliated 10.4 6.8 38.9 18.2
Intersegment (0.2) 0.1 (0.2) (0.4)
---------------------------------------------------------------------------------------------------------------------
TOTAL 10.2 6.9 38.7 17.8
---------------------------------------------------------------------------------------------------------------------
Adjustments and eliminations
Unaffiliated 0.3 -- 0.3 --
Intersegment (53.6) (44.9) (178.5) (186.6)
---------------------------------------------------------------------------------------------------------------------
TOTAL (53.3) (44.9) (178.2) (186.6)
---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED 380.7 340.3 1,848.1 2,045.1
---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Transmission and Storage 61.3 55.4 252.1 255.5
Distribution 12.3 1.3 149.9 148.1
Exploration and Production 15.5 11.6 51.3 24.1
Power Generation and Other (15.8) 0.9 (14.5) (1.3)
Corporate 0.3 (11.3) (12.0) (10.4)
---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED 73.6 57.9 426.8 416.0
======================================================================================================================
</TABLE>
5. Discontinued Operations
On May 22, 2000, as a result of its ongoing strategic assessment, Columbia
announced that it decided to sell Columbia Propane, a propane marketer.
Columbia also announced its decision to sell Columbia Petroleum, a
diversified petroleum distribution company. Columbia Propane and Columbia
Petroleum are reported as discontinued operations and therefore the
financial statements for 1999
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
have been reclassified accordingly.
In the third quarter 2000, Columbia sold its Retail Mass Marketing
business to The New Power Company. The proceeds from the sale were $44.2
million. Columbia Energy Services ceased operations of its Major Accounts
business during the third quarter of 2000. Columbia Energy Services'
Wholesale and Trading operations, Major Accounts and Retail Mass Markets
businesses are reported as discontinued operations.
The revenues from discontinued operations were $153.1 million (Gas-$20.8
million, Power Trading-$1 million, Propane-$49.9 million, Petroleum-$73.6
million and Other $7.8 million) and $657.9 million (Gas-$186.9 million,
Power Trading-$12.2 million, Propane-$213.7 million, Petroleum-$217.4
million and Other-$27.7 million) for the three months and nine months
ended September 30, 2000, respectively. The revenues from discontinued
operations were $1,638.1 million (Gas-$1,098.3 million, Power
Trading-$453.2 million, Propane-$31.2 million, and Petroleum-$49.4 million
and Other-$6 million) and $4,542.8 million (Gas-$3,376.4 million, Power
Trading $1,005.1 million, Propane-$78.5 million, Petroleum-$70.8 million
and Other $12 million) for the three months and nine months ended
September 30, 1999. The loss from discontinued operations and the
estimated loss on disposal information are provided in the following
table.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
($ in millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss from discontinued operations -- 48.9 2.0 77.4
Income tax benefit -- 18.7 .5 27.5
--------------------------------------------------------------------------------------------------------------------------
NET LOSS FROM DISCONTINUED OPERATIONS -- 30.2 1.5 49.9
--------------------------------------------------------------------------------------------------------------------------
Estimated loss on disposal 128.2 20.0 166.3 20.0
Income tax benefits 44.9 7.0 55.6 7.0
--------------------------------------------------------------------------------------------------------------------------
NET ESTIMATED LOSS ON DISPOSAL 83.3 13.0 110.7 13.0
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net assets of the discontinued operations were as follows:
<TABLE>
<CAPTION>
($ in millions) SEPTEMBER 30, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS
<S> <C> <C>
Accounts receivable, net 62.0 416.7
Property, Plant and Equipment, net 220.5 212.0
Other assets 127.4 239.6
Accounts payable (74.6) (388.4)
Other liabilities (55.4) (69.9)
-----------------------------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS 279.9 410.0
-----------------------------------------------------------------------------------------------------------------
</TABLE>
6. Voluntary Incentive Retirement Programs
On September 30, 1999, Columbia Gas Transmission Corporation (Columbia
Transmission) announced the introduction of their voluntary incentive
retirement program (VIRP). Approximately 600 Columbia Transmission
employees were eligible for the program, which provides a retirement
incentive for active employees who were age fifty and above with at least
five years of service as of March 1, 2000. During the acceptance period
that began on January 1, 2000, and closed on January 31, 2000, 486
employees elected early retirement. The majority of the retirements
occurred in the first quarter of 2000. As a result of settlement gains,
Columbia Transmission recorded a net gain of $13.4 million in the first
nine months of 2000 related to its VIRP.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
In February 2000, the five distribution subsidiaries and Columbia Energy
Group Service Corporation (Service Corp.) announced the introduction of
their VIRP. Approximately 880 employees were eligible for the program,
which provides a retirement incentive for certain active employees who
were age fifty and above with at least five years of service as of June 1,
2000. During the acceptance period that began on April 1, 2000, and closed
on April 30, 2000, 679 employees elected early retirement. The majority of
the retirements occurred in the second quarter of 2000. The distribution
subsidiaries and Service Corp. recorded a net charge of $8.8 million in
the first nine months of 2000 related to their VIRP.
The VIRPs did not result in a curtailment of the pension plan as defined
in Statement of Financial Accounting Standards No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits".
In September 2000, Columbia announced that employees of the five
distribution subsidiaries and Service Corp. that were not eligible for the
February 2000 VIRP, as well as the employees of Columbia Energy Resources,
Inc. would be offered a VIRP. Approximately 400 employees are eligible for
the program, which provides a retirement incentive for certain employees
who are age fifty and above with a least five years of service as of
January 1, 2001, and are not a member of a bargaining unit. The eligible
employees for this VIRP have approximately 45 days after the closing date
of the merger with NiSource, Inc. to elect early retirement. The actual
retirement date for those employees electing the VIRP will be based on the
specific business needs of the business units. Retirement costs for these
employees are funded through the pension plan and will not have a
significant impact on Columbia's consolidated net income.
11
<PAGE> 12
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,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Transmission and Storage $ 61.3 $ 55.4 $ 252.1 $ 255.5
Distribution 12.3 1.3 149.9 148.1
Exploration and Production 15.5 11.6 51.3 24.1
Power Generation and Other (15.8) 0.9 (14.5) (1.3)
Corporate 0.3 (11.3) (12.0) (10.4)
-------- -------- --------- ---------
CONSOLIDATED $ 73.6 $ 57.9 $ 426.8 $ 416.0
======== ======== ======== ========
</TABLE>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actual 149 80 3,294 3,341
Normal 41 41 3,600 3,568
% Colder (warmer) than normal 263 95 (9) (6)
% Colder (warmer) than prior period 86 95 (1) 16
</TABLE>
12
<PAGE> 13
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 following Management's Discussion and Analysis of Financial Condition and
Results of Operations, including statements regarding market risk sensitive
instruments, 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, dispositions, objectives,
expected performance, expenditures and recovery of expenditures through
rates, stated on either a consolidated or segment basis, underlying
assumptions and statements that are other than 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 objective and expected
performance is subject to a wide range of risks and can be adversely affected
by, among other things, increased competition in deregulated energy markets,
weather conditions, fluctuations in energy-related commodity prices, service
territories, successful consummation of dispositions, growth opportunities
for Columbia's regulated and nonregulated businesses, dealings with third
parties over whom Columbia has no control, actual operating experience of
acquired assets, the ability to integrate acquired operations into its
operations, the regulatory process, regulatory and legislative changes,
changes in general economic, capital and commodity market conditions and
counter-party credit risk, 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 any references made to ratings assigned to Columbia's debt
securities, there can be no assurance that Columbia will be successful in
maintaining its quality of credit, or that such credit ratings will continue
for any given period of time, or that they will not be revised downward or
that they will not be 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 consolidated income from continuing operations for the third
quarter 2000 of $19.5 million, or $0.24 per share, a decrease of $1 million, or
$0.01 per share from the same period last year. Including discontinued
operations, Columbia reported a net loss of $63.8 million, or $0.79 per share,
for the third quarter 2000 compared to a net loss of $22.7 million, or $0.28 per
share, in the same period last year. All per share amounts are on a diluted
basis.
After adjusting for one-time items, third quarter 2000 income from continuing
operations was $32.4 million, compared to $26.3 million in the same period last
year. The effect of higher interest expense and additional costs related to the
fiber-optics network being built was largely offset by the favorable effect of
lower labor and benefit costs and higher natural gas prices received for
production. The lower labor and benefits costs were attributable to voluntary
incentive retirement programs (VIRP) implemented at several subsidiaries earlier
this year.
One-time items in the current quarter include costs recorded for a previously
disclosed regulatory issue related to certain prior transactions by the
transmission subsidiaries as well as employee-related payments
13
<PAGE> 14
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
made primarily resulting from the achievement of specific objectives in the
development of Columbia Electric, Corporation's (Columbia Electric's) projects.
In last year's third quarter, income was reduced by approximately $5.8 million
after-tax for professional fees associated with the tender offer by NiSource,
Inc (NiSource).
Revenues
Total third quarter 2000 consolidated net revenues (operating revenues less
associated products purchased costs) were $354 million, a $20.7 million increase
over the same period last year. The increase was primarily attributable to
higher natural gas prices for Columbia Energy Resources, Inc.'s (Columbia
Resources') production volumes and an increase in transportation services that
more than offset the effect of a small decrease in natural gas production.
Expenses
Operating expenses for the third quarter of 2000 were $280.4 million, an
increase of $5 million over the same period last year. The increase was largely
due to additional costs for certain prior transactions by the transmission
subsidiaries and employee-related costs for Columbia Electric's projects, as
mentioned above. Tempering these increases were reduced labor and benefits costs
as a result of implementing the VIRP. Third quarter 1999 included professional
fees relating to the tender offer made by NiSource.
Other Income (Deductions)
Other Income (Deductions), which includes interest income and other, net and
interest expense and related charges, decreased income by $42.6 million for the
third quarter of 2000 compared to a decrease of $32.9 million in the same period
last year. Interest income and other, net of $5.7 million for the third quarter
2000 was down $2.4 million from the same period last year reflecting reduced
short-term investments. Interest expense and related charges of $48.3 million in
the third quarter of 2000, increased $7.3 million compared to the same period in
1999 primarily due to additional short-term borrowings in the current period.
Income Taxes
Income tax expense of $11.5 million in the third quarter of 2000 increased $7
million over the third quarter of 1999 as the effect of higher pre-tax income
was more than offset by the recording of certain deferred taxes.
Nine-Month Results
Income from Continuing Operations
Columbia's income from continuing operations for the first nine months of 2000
was $245.8 million, or $3.04 per share, an increase of $29.1 million, or $0.43
per share, over the $216.7 million, or $2.61 per share, for the same period in
1999.
Excluding third quarter one-time items in 2000 and 1999 mentioned above, and the
gain recorded earlier this year on the sale of Cove Point LNG, costs for
tender-offer related professional fees, and a $20.6 million after-tax gain
recorded in 1999 related to a producer settlement, income from continuing
operations for 2000 was $212.6 million, an increase of $17.1 million over that
in 1999, despite warmer weather. This improvement was largely due to an increase
in natural gas production and prices together with lower labor and benefits
costs as a result of the VIRPs. The improvement for the VIRPs was due in part to
settlement gains recorded in the first and third quarters of 2000. Tempering
these improvements were higher interest costs reflecting additional short-term
borrowings and higher operation and maintenance costs.
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)
Revenues
For the nine months ended September 30, 2000, net revenues of $1,360 million
increased $28.6 million over the same period in 1999. The improvement was
primarily related to higher gas prices and production for Columbia Resources'
operations and increased transportation services. Partially offsetting this
increase were lower revenues from the sale of base gas volumes for the
transmission and storage operations and reduced gas sales by the distribution
segment due to warmer weather in 2000.
Expenses
Operating expenses for the first nine months of 2000 were $933.2 million, an
increase of $17.8 million over the same period last year, due to a reduction in
the first quarter of 1999 operating expenses for the producer settlement.
Operating expenses were higher in the current period due to additional costs for
certain prior transactions by the transmission subsidiaries and costs related to
Columbia Electric's projects, as mentioned above. Tempering these higher
expenses was lower gross receipts taxes and the beneficial effect of the VIRP.
Also decreasing operating expense during the first nine months of 2000 was a
reduction in depreciation expense, as provided for under the terms of Columbia
Gas of Ohio, Inc.'s (Columbia of Ohio) 1999 regulatory settlement.
Other Income (Deductions)
Other Income (Deductions), decreased income by $35.4 million for the first nine
months of 2000 compared to a reduction to income of $95.4 million in the same
period last year. Interest income and other, net of $103.8 million for the 2000
period was up $83.6 million over the same period in 1999. The increase was due
to the sale of Cove Point LNG, mentioned previously, partially offset by reduced
interest income on short-term investments. In 1999, a $2.9 million gain was
recorded as a result of the sale of Columbia Energy Resources' surface coal
property. Interest expense and related charges increased $23.6 million in the
first nine months of 2000, due to additional short-term borrowings due in part
to fund the stock repurchase program together with higher interest rates on
short-term borrowings.
Income Taxes
Income tax expense of $145.6 million in the first nine months of 2000 increased
$41.7 million over the same period in 1999 due to higher pre-tax income and
certain tax benefits realized last year.
Discontinued Operations
Earlier in 2000, Columbia undertook an evaluation of the appropriateness of
remaining in some of its businesses given the rapidly changing energy industry
and its pending merger with NiSource. During the course of this assessment, it
was determined to essentially exit the energy marketing operations, which
includes the propane, petroleum and Columbia Energy Services Corporation's
(Columbia Energy Services) Mass Marketing businesses, as discussed below. In
accordance with generally accepted accounting principles, the results from the
following businesses are now reported as discontinued operations.
In the fourth quarter of 1999, Columbia Energy Services, a wholly-owned
subsidiary of Columbia, sold its Wholesale and Trading operations to Enron North
America Corporation. In late 1999, Columbia Energy Services also decided to exit
its Major Accounts business.
In May 2000, Columbia Energy Services sold its internet-based energy marketing
operation, Energy.com. Also in May 2000, Columbia announced that it was in the
process of preparing its propane and petroleum businesses for sale. Columbia's
propane business is the fifth largest propane marketer in the United States,
with operations in more than 30 states and nearly 350,000 customers. The
petroleum business is a
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)
diversified petroleum distribution operation that engages in retail and
wholesale petroleum product sales, transportation, and branded gasoline
distribution.
In the third quarter of 2000, Columbia sold its retail energy mass marketing
business to The New Power Company, a national residential and small business
energy provider.
For the third quarter of 2000, discontinued operations reflected an after-tax
loss of $83.3 million, compared to a $43.2 million after-tax loss in the same
period last year. Included in the amount recorded for discontinued operations is
an additional loss on the propane and petroleum businesses to reflect the
anticipated sale of these assets. For the first nine months of 2000,
discontinued operations represented an after-tax loss of $112.2 million, $49.3
million greater than for the same period in 1999.
Liquidity and Capital Resources
A significant portion of Columbia's operations is subject to seasonal
fluctuations in cash flow. During the heating season, which is primarily from
November through March, cash receipts from sales and transportation services
typically exceed cash requirements. Conversely, during the remainder of the
year, cash on hand together with external short-term and long-term financing, as
needed, is used to purchase gas to place in storage for heating season
deliveries, perform necessary maintenance of facilities, make capital
improvements in plant and expand service.
Net cash from continuing operations for the first nine months of 2000 was $754.6
million, a $181.3 million increase over the same period in 1999. The increase
was primarily due to prepayments received for natural gas to be delivered in the
future, differences associated with exchange gas activity and other working
capital items partially offset by reduced cash receipts due to the impact of
warmer weather.
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 (Credit Facilities) that totaled
$1.35 billion on September 30, 2000.
On October 11, 2000, the Credit Facilities were amended and restated, and
decreased in aggregate to $900 million. The existing $450 million 364-day
facility was increased in size to $850 million, and is scheduled to expire in
October 2001. The existing $900 million five-year facility was decreased in size
to $50 million, shortened to a two-year facility expiring in October 2002, and
will be solely used to support the issuance 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 Credit Facilities have 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. Moody's
Investors Service, Inc. (Moody's), Fitch Investors Service (Fitch) and Standard
& Poor's Ratings Group (S&P) rating of Columbia's long-term debt is A3, A and
BBB+, respectively. Columbia's long-term debt ratings are currently under review
for a possible change by Moody's, Fitch and 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 P-2 by Moody's, F-1 by Fitch
and A-2 by S&P.
As of September 30, 2000, Columbia had approximately $127.9 million of letters
of credit issued, of which approximately $49 million were issued under the
Credit Facilities, and $54.1 million of commercial paper was outstanding.
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)
In 1998, Columbia entered into several 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 annual floating rate debt exposure for 10 to 20% of its
outstanding long-term debt.
Columbia has an effective shelf registration statement on file with the
Securities and Exchange Commission (SEC) 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.
Management believes that its sources of funding are sufficient to meet the
short-term and long-term liquidity needs of Columbia.
Common Stock Repurchase Program
During 1999, Columbia's Board of Directors (Columbia's Board) authorized the
repurchase of up to $500 million of Columbia's common stock through July 14,
2000, in the open market or otherwise. During that period a total of 4,368,300
common shares has been repurchased under this program at a cost of $249.1
million. Purchased shares are held in treasury to be made available for general
corporate purposes, resold at a future date or retired.
Merger Agreement
On February 28, 2000, Columbia announced that it had entered into an Agreement
and Plan of Merger, dated as of February 27, 2000, and subsequently amended and
restated on March 31, 2000 (Merger Agreement), between Columbia and NiSource.
Columbia's Board determined to enter into the Merger Agreement after a
comprehensive evaluation of strategic alternatives that might generate value
greater than that which Columbia's business plan could create.
In early June 2000, the shareholders of both companies approved the merger
between NiSource and Columbia Energy Group. As provided for in the Merger
Agreement, NiSource has organized a new company that will serve as the holding
company for Columbia and its subsidiaries after the completion of the
transaction. Pursuant to the terms of the Merger Agreement, each of Columbia and
NiSource will be merged with newly formed special purpose subsidiaries of the
new holding company, and each will become a wholly-owned subsidiary of the new
holding company. Immediately following these mergers, NiSource will be merged
into the new holding company, which will then change its name to NiSource.
Subject to the terms and conditions of the Merger Agreement, upon completion of
the transaction, Columbia's shareholders will receive, for each share of
Columbia common stock, $70 in cash plus $2.60 face value SAILS(SM) (a unit
consisting of a zero coupon debt security with a forward equity contract).
Columbia's shareholders also have the option to elect to receive (in lieu of
cash and SAILS(SM)) shares in the new holding company in a tax-free exchange,
for up to 30% of the outstanding shares of Columbia common stock. Pursuant to
the stock election option, each Columbia share will be exchanged for up to $74
in new holding company stock. If the average closing price of NiSource shares
during the 30 days prior to the closing of the transaction is greater than
$16.50, Columbia shareholders will receive shares of the new holding company
valued at $74 for each share of Columbia stock, and if the average closing price
of NiSource shares during the 30 days prior to closing of the transaction is
$16.50 or below, Columbia
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)
shareholders will receive 4.4848 shares of new holding company stock for each
Columbia share. Upon completion of the transaction, NiSource shareholders will
receive one share of holding company stock for each share of NiSource common
stock that they own.
As of the filing date of this Form 10-Q, regulatory actions on the merger have
been completed in all of the necessary states and the Federal Energy Regulatory
Commission (FERC). Approval from the SEC is expected in the near future and it
is anticipated that the merger will be completed on November 1, 2000.
Voluntary Retirement Programs
In September 1999, Columbia Transmission announced a VIRP that provided a
retirement incentive for active employees who were age fifty and above with at
least five years of service as of March 1, 2000. Approximately 486 of its 600
eligible employees elected early retirement under this program with the majority
of the retirements occurring in the first quarter of 2000.
In February 2000, the five distribution subsidiaries and Columbia Energy Group
Service Corp. (Columbia Service Corp) also announced a VIRP for selected areas
within these organizations. Of the 879 employees eligible for the program, 679
employees elected early retirement. Most of the retirements from this second
VIRP occurred on June 1, 2000, with the remainder scheduled to occur on December
1, 2000, due to business needs.
In September 2000, Columbia announced that employees of the five distribution
subsidiaries and Service Corp. that were not eligible for the February 2000
program, as well as the employees of Columbia Resources would be offered a VIRP.
To be eligible for the VIRP, an employee must be age fifty and above with at
least five years of service as of January 1, 2001, and not be a member of a
bargaining unit. The approximately 400 employees eligible for the program have
about 45 days after the closing date of the merger with NiSource to elect early
retirement. The actual retirement date for those employees electing the VIRP
will be based on the specific business needs of the business units.
Retirement costs for these employees are funded through the pension plan. Costs
related to implementing these programs will not have a significant effect on
Columbia's consolidated annual income and they are expected to reduce future
labor and benefits costs due to a reduced employee complement.
Presentation of Segment Information
Columbia revised its presentation of its primary business segment information
beginning with the reporting of second quarter 2000 results. As a result of the
discontinuation of most of the businesses within the Energy Marketing
Operations, this segment has been deleted. (See Note 5 of Part 1, Item 1 -
Financial Statements for additional information.) In addition, due to the recent
sale of Cove Point LNG, the Power Generation, LNG and Other Operations segment
has been renamed Power Generation and Other. The results for Columbia Service
Partners Inc., which provides energy-related services to primarily residential
customers, were previously in Energy Marketing Operations. These operations were
reclassified to Power Generation and Other Operations.
Market Risk Exposure
Some of Columbia's non-rate regulated subsidiaries 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 hedging
activities to help ensure stable cash flow and favorable prices and margins.
Financial instruments authorized for use by Columbia for hedging include
futures, swaps and options.
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)
Due to the sale of Columbia's Wholesale and Trading business in late 1999, and
the Mass Marketing business in 2000, Columbia's use of derivatives has been
significantly reduced. Columbia Resources utilizes financial instruments to fix
prices for a portion of its future production volumes, which are hedged in the
marketplace through a third party. Columbia Propane Corporation, which is
currently being prepared for sale, utilizes financial instruments to help
protect the value of its propane and petroleum inventories and commitments.
Derivative instruments continue to be controlled within predetermined limits as
provided by Columbia's senior management. Columbia's policy prohibits any
Columbia subsidiary from entering into derivative transactions that are not
effectively connected with its business. Market risks are monitored by an
independent risk control group that operates separately from the area that
creates or actively manages these risk exposures in order to monitor compliance
with Columbia's stated risk management policies. As a result of hedging
activities and forward price sales, at September 30, 2000, Columbia's exposure
to commodity price risk through 2002 for Columbia Resources' production and
propane operations was not material.
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.
19
<PAGE> 20
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,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Transportation revenues $138.0 $125.3 $463.8 $442.2
Storage revenues 44.5 44.5 133.2 138.5
Other revenues 4.6 4.8 23.7 30.0
----- ----- ----- -----
Total Operating Revenues 187.1 174.6 620.7 610.7
----- ----- ----- -----
OPERATING EXPENSES
Operation and maintenance 86.2 80.9 245.9 264.4
Settlement of gas supply charges -- -- -- (29.8)
Depreciation 27.2 26.2 81.8 79.8
Other taxes 12.4 12.1 40.9 40.8
----- ----- ----- -----
Total Operating Expenses 125.8 119.2 368.6 355.2
----- ----- ----- -----
OPERATING INCOME $ 61.3 $ 55.4 $252.1 $255.5
====== ====== ====== ======
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area 141.2 149.3 705.6 707.7
Columbia Gulf
Mainline 149.5 144.5 457.2 441.4
Short-haul 52.5 57.5 150.5 166.1
Intrasegment eliminations (138.5) (135.8) (435.7) (420.1)
------ ------- -------- -------
Total Throughput 204.7 215.5 877.6 895.1
====== ====== ======= ========
</TABLE>
20
<PAGE> 21
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 PipeLines Ltd. at a new Lake Erie
export point and transport approximately 700,000 Mcf (thousand cubic feet) per
day to eastern markets. There are currently seven shippers who have signed
agreements for a significant portion, in aggregate, of the available capacity.
Based on delays attributed to the regulatory approval process at the FERC, the
Millennium Project sponsors have advised the FERC of a revised in-service date
of November 1, 2002.
The sponsors of the proposed Millennium Project are Columbia Transmission,
Westcoast Energy, Inc., TransCanada PipeLines Ltd. and MCN Energy Group, Inc.
Mainline '99
Columbia Gulf Transmission Company's (Columbia Gulf's) largest expansion of its
mainline facilities, referred to as Mainline '99, will increase Columbia Gulf's
certificated capacity to nearly 2.2 billion cubic feet (Bcf) per day by
replacing certain compressor units and increasing the horsepower capacity of
other compressor stations. On December 1, 1999, approximately 270,000 Dth/day of
additional capacity was made available on Columbia Gulf's mainline. The project
is currently in the final phase that is expected to add additional capacity of
approximately 45,000 Dth/day by November 1, 2000.
Discussions with FERC
The transmission and storage subsidiaries have been in confidential discussions
with the staff of the FERC to resolve a previously disclosed regulatory issue.
In late October 2000, the FERC issued an order approving a settlement between
FERC staff and the transmission subsidiaries resolving all regulatory issues.
The financial impact on earnings of this settlement was recorded in the third
quarter of 2000.
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, mid-western, 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 204.7 Bcf and 877.6
Bcf for the third quarter and first nine months of 2000, respectively. The third
quarter reflected a decrease of 10.8 Bcf from the same period in 1999 primarily
due to reduced demand from natural gas fired electric generation facilities as a
result of cooler than normal summer weather. For the year-to-date period,
throughput decreased 17.5 Bcf from the 1999 period due largely to the effect of
warmer weather early in the year combined with decreased third quarter
requirements attributable to cooler summer weather and lower offshore
throughput.
Operating Revenues
Total operating revenues were $187.1 million for the third quarter of 2000, an
increase of $12.5 million over the same period last year due primarily to higher
demand revenues from increased transportation services.
For the first nine months of 2000, operating revenues were $620.7 million, an
increase of $10 million over the same period last year reflecting increased
transportation revenues. The increase in transportation
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 (CONTINUED)
revenues was partially offset by lower revenues from the sale of Columbia
Transmission's storage base gas.
Operating Income
Third quarter 2000 operating income of $61.3 million, increased $5.9 million
over the same period in 1999 due largely to higher operating revenues together
with lower labor and benefits costs attributable to Columbia Transmission's VIRP
that was implemented in the first quarter of 2000. Tempering these improvements
were costs recorded for a previously disclosed regulatory issue related to
certain prior transactions.
For the first nine months of 2000, operating income was $252.1 million, a
decrease of $3.4 million from the same period in 1999. This decrease is
primarily due to a gain on a Columbia Transmission producer settlement recorded
in 1999 and expense recorded in the third quarter of 2000 for the regulatory
issue mentioned above, partially offset by lower labor and benefits costs due to
the implementation of the VIRP and higher revenues.
22
<PAGE> 23
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
NET REVENUES
Sales revenues $ 150.5 $ 120.1 $ 992.1 $1,283.9
Less: Cost of gas sold 68.7 43.0 614.6 865.0
-------- -------- -------- --------
Net Sales Revenues 81.8 77.1 377.5 418.9
-------- -------- -------- --------
Transportation revenues 46.3 47.8 242.1 221.5
Less: Associated gas costs 1.5 5.2 19.8 24.1
-------- -------- -------- --------
Net Transportation Revenues 44.8 42.6 222.3 197.4
-------- -------- -------- --------
Net Revenues 126.6 119.7 599.8 616.3
-------- -------- -------- --------
OPERATING EXPENSES
Operation and maintenance 89.9 89.6 320.0 299.2
Depreciation 9.2 11.5 42.3 64.6
Other taxes 15.2 17.3 87.6 104.4
-------- -------- -------- --------
Total Operating Expenses 114.3 118.4 449.9 468.2
-------- -------- -------- --------
OPERATING INCOME $ 12.3 $ 1.3 $ 149.9 $ 148.1
======== ======== ======== ========
THROUGHPUT (Bcf)
Sales
Residential 7.7 7.7 81.3 92.3
Commercial 3.2 2.9 29.1 30.9
Industrial and other 0.8 0.6 2.8 2.2
-------- -------- -------- --------
Total Sales 11.7 11.2 113.2 125.4
Transportation 60.5 65.8 260.3 250.6
-------- -------- -------- --------
Total Throughput 72.2 77.0 373.5 376.0
Off-System Sales 1.2 1.6 10.7 167.1
-------- -------- -------- --------
Total Sold and Transported 73.4 78.6 384.2 543.1
======== ======== ======== ========
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot market* 77.1 96.1 217.0 239.0
Producers 2.3 4.7 8.5 9.4
Storage withdrawals (injections) (35.0) (33.2) (22.5) (7.6)
Other (31.5) (54.8) (79.1) 51.7
-------- -------- -------- --------
Total Sources of Gas Sold 12.9 12.8 123.9 292.5
Gas received for delivery to customers 60.5 65.8 260.3 250.6
-------- -------- -------- --------
Total Sources 73.4 78.6 384.2 543.1
======== ======== ======== ========
</TABLE>
* Reflects volumes under purchase contracts of less than one year.
23
<PAGE> 24
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 market area for its distribution subsidiaries
(Distribution) for the first nine months of 2000 was 9% warmer than normal and
one percent warmer than the same period in 1999. As a result, Distribution's
weather-sensitive deliveries for the first nine months of 2000 were down 20 Bcf
from the same period last year.
Regulatory Matters
In April 1999, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) filed an
application with the Kentucky Public Service Commission (KPSC), seeking approval
to initiate a residential and small commercial transportation program. In late
January 2000, the KPSC approved Columbia of Kentucky's application, but did not
renew Columbia of Kentucky's gas cost incentive program. Columbia of Kentucky
filed for rehearing of the order during the first quarter. On May 19, 2000, the
KPSC issued an order affirming its original decision to deny continuation of the
gas cost incentive program originally approved in 1996. As an alternative, an
incentive sharing mechanism was approved that allows Columbia of Kentucky to
retain 25% of annual off-system sales over the term of the pilot program.
Additionally, Columbia of Kentucky will remain responsible for mitigating
transition capacity costs through the utilization of non-traditional revenues.
Columbia of Kentucky began customer enrollment in the pilot program in September
2000, for gas deliveries beginning November 1, 2000. The program is scheduled to
run through 2004.
FERC Order 637
The FERC issued Order 637 on February 9, 2000. The order sets forth revisions to
FERC regulations governing short-term natural gas transportation services and
policies governing the regulation of interstate natural gas pipelines. Among
other things, the order lifts the price cap for short-term capacity release by
pipeline customers for an experimental period ending September 1, 2002.
Currently, negotiations between the pipelines, shippers and the FERC are
expected to begin this fall and may continue for months.
Columbia's Distribution companies are currently in the process of evaluating the
potential changes and impact Order 637 may have on operations; however, it is
not anticipated that implementation of Order 637 will have a material impact on
Columbia's consolidated results.
Throughput
During the third quarter of 2000, total volumes sold and transported of 73.4 Bcf
decreased 5.2 Bcf from the same period last year. The decline primarily
reflected reduced natural gas requirements by electric generation facilities as
a result of cooler summer weather partially offset by customer growth.
For the first nine months of 2000, total throughput sold and transported of
384.2 Bcf decreased 158.9 Bcf from the first nine months of 1999. The decline
largely reflected a decrease in off-system sales, which are typically low-margin
and represent sales outside of Distribution's traditional market, and warmer
weather during the heating season. Tempering this decrease was higher industrial
demand reflecting an increase in steel production.
Off-system sales volumes for the first nine months of 2000 were 10.7 Bcf
compared to 167.1 Bcf in 1999. The higher off-system sales in 1999 were due to
additional opportunities available, particularly during the first quarter.
Net Revenues
Net revenues for the three months ended September 30, 2000, were $126.6 million,
an increase of $6.9 million over the same period last year. The increase in
revenues resulted primarily from the positive impact of the 1997 Ohio regulatory
settlement.
24
<PAGE> 25
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
For the first nine months of 2000, net revenues were $599.8 million, down $16.5
million from the same period last year primarily due to warmer weather in 2000.
Operating Income
Operating income for the three months ended September 30, 2000 of $12.3 million
increased $11 million from that in the same period in 1999, primarily due to
higher revenues and lower labor and benefits costs related to the implementation
of the VIRP earlier this year. The improvement from lower labor and benefits
expense was largely offset by higher other operation and maintenance costs. Also
reducing operating expense was lower gross receipts taxes.
For the nine months ended September 30, 2000, operating income of $149.9 million
increased $1.8 million from the same period last year. The decrease in net
revenues was more than offset by an $18.3 million reduction in operating
expenses. Depreciation expense declined $22.3 million primarily as a result of
recording the terms of the 1999 Columbia of Ohio regulatory settlement. Other
taxes decreased $16.8 million primarily due to a decrease in gross receipts and
property taxes. Operation and maintenance expense in the nine months ending
September 30, 2000, increased $20.8 million over the same period in 1999,
reflecting higher expense for outside services together with a general increase
in other costs.
25
<PAGE> 26
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,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas revenues $ 34.9 $ 32.4 $ 118.7 $ 86.2
Other revenues 5.0 3.4 14.0 11.6
------- ------- ------- -------
Total Operating Revenues 39.9 35.8 132.7 97.8
------- ------- ------- -------
OPERATING EXPENSES
Operation and maintenance 15.2 13.7 46.5 40.0
Depreciation and depletion 5.9 7.7 25.3 25.9
Other taxes 3.3 2.8 9.6 7.8
------- ------- ------- -------
Total Operating Expenses 24.4 24.2 81.4 73.7
------- ------- ------- -------
OPERATING INCOME $ 15.5 $ 11.6 $ 51.3 $ 24.1
======= ======= ======= =======
GAS PRODUCTION STATISTICS
Production (Bcf)
U.S 12.4 13.2 39.4 34.0
Canada -- -- 0.1 0.1
------- ------- ------- -------
Total 12.4 13.2 39.5 34.1
======= ======= ======= =======
Average Price ($ per Mcf)
U.S 2.72 2.39 2.95 2.49
Canada 4.22 2.07 3.33 2.35
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000 Bbls)
U.S 71 44 164 130
Canada 3 2 8 7
------- ------- ------- -------
Total 74 46 172 137
======= ======= ======= =======
Average Price ($ per Bbl)
U.S 20.70 16.25 23.92 13.07
Canada 30.00 20.01 29.55 16.70
</TABLE>
26
<PAGE> 27
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS (CONTINUED)
Drilling Activity
Columbia Resources participated in 79 gross (72.5 net) wells during the third
quarter of 2000 with a success rate of 80%, adding 17.1 net Bcfe of reserves.
During the same period in 1999, Columbia Resources completed 92 gross (84.3 net)
wells with an 87% success rate, adding reserves of 30.9 net Bcfe.
Columbia Resources' drilling activity in the first nine months of 2000 resulted
in the discovery of 32.7 net Bcfe of gas and oil reserves compared to 45.6 Bcfe
in the same period in 1999. Through September 30, 2000, Columbia Resources
participated in 161 gross (144.5 net) wells with a success rate of 80% compared
to 163 gross (144.6 net) wells with a success rate of 83% in the first nine
months of 1999.
Forward Sale of Natural Gas
On August 24, 2000, Columbia Resources entered into an agreement with Mahonia II
Limited, whereby Columbia Resources agreed to sell 111.7 Bcf of natural gas to
Mahonia for the period August 2000 through July 2005. This forward sale, at an
average commodity price of $3.48 per Mcf exclusive of the basis differential,
provided $246.4 million in cash proceeds, net of expenses.
Volumes
Gas production of 12.4 Bcf in the third quarter of 2000 decreased 800,000 Mcf,
or 6%, from last year's third quarter. For the nine months ended September 30,
2000, gas production increased 5.4 Bcf from the same period last year to 39.5
Bcf principally due to new wells coming on line.
Operating Revenues
Operating revenues for the three months ended September 30, 2000 of $39.9
million increased $4.1 million or 11% over the third quarter of 1999 due to
higher sales prices. Gas prices increased $0.33 per Mcf to $2.72 per Mcf
compared to the third quarter of 1999. Approximately 97% of Columbia Resources'
third quarter 2000 natural gas production was hedged or committed through fixed
price contracts at an average price of $2.99 per Mcf.
Operating revenues for the first nine months of 2000 were $132.7 million,
compared to $97.8 million for the same period in 1999. A $0.46 per Mcf increase
in Columbia Resources' natural gas sales price, along with the increase in gas
production, contributed to the improvement in operating revenues. Approximately
74% of Columbia Resources' natural gas production for the first nine months of
2000 was hedged or committed through fixed price contracts at an average price
of $3.04 per Mcf.
Operating Income
For the three months ended September 30, 2000, operating income of $15.5 million
increased $3.9 million over last year's third quarter as the increase in
operating revenues was partially offset by a $200,000 increase in operating
expenses.
Operating income of $51.3 million for the first nine months of 2000 increased
$27.2 million over the same period in 1999 as the $34.9 million increase in
operating revenues was partially offset by an increase of $7.7 million in
operating expenses. Operation and maintenance expenses were up due to the
acquisition of the Wiser Oil Company's production assets in the second quarter
of 1999, while other taxes increased reflecting higher revenues.
27
<PAGE> 28
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
POWER GENERATION AND OTHER OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2000 1999 2000 1999
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Gas revenues $ 8.1 $ 1.7 $25.9 $ 4.6
Power generation revenues 1.9 2.5 6.7 6.0
LNG revenues -- 2.6 3.8 6.8
Other revenues 0.2 0.1 2.3 0.4
----- ----- ----- -----
Total Operating Revenues 10.2 6.9 38.7 17.8
----- ----- ----- -----
OPERATING EXPENSES
Products purchased 5.9 -- 19.5 0.3
Operation and maintenance 19.8 5.8 33.0 18.2
Depreciation -- 0.1 0.2 0.3
Other taxes 0.3 0.1 0.5 0.3
----- ----- ----- -----
Total Operating Expenses 26.0 6.0 53.2 19.1
----- ----- ----- -----
OPERATING INCOME (LOSS) $(15.8) $ 0.9 $(14.5) $(1.3)
===== ===== ===== =====
</TABLE>
28
<PAGE> 29
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
POWER GENERATION AND OTHER OPERATIONS
Telecommunications Network
In 1999, 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.
As reported in Columbia's 1999 Form 10-K, Transcom anticipated the completion of
the 260-mile D.C. to New York fiber optics link in the first half of 2000.
However, as a result of certain matters as discussed in Part II Legal
Proceedings, Item 1-I.C and other unrelated matters, the project has been
delayed.
Sale of Columbia Electric
In October 2000, Columbia Electric agreed to sell its interests in four power
generation plants to a partnership between Delta Power Company and John Hancock
Life Insurance Company. These facilities include the Gregory Power Project in
Corpus Christi, Texas; a cogeneration facility in Rumford, Maine; and two
combined-cycle facilities, one located near Pedericktown, New Jersey and the
other near Vineland, New Jersey. These projects are qualifying facilities under
the Public Utility Regulatory Policies Act (PURPA).
Also in October, Columbia entered into an agreement to sell the remainder of
Columbia Electric to Orion Power Holdings, Inc. This transaction is expected to
close by mid-December 2000, subject to approval under the Hart-Scott-Rodino Act.
The sale of Columbia Electric and its operations is expected to result in an
improvement to Columbia's consolidated fourth quarter results of approximately
$89 million after-tax.
Operating Revenues
Operating revenues for the 2000 third quarter of $10.2 million increased $3.3
million over same period last year reflecting gas sales for long-term sales
contracts assumed by Columbia Service Partners, Inc. that were formerly the
responsibility of Columbia Energy Services' wholesale operations, which were
sold effective year end 1999. The increase in revenues attributable to gas sales
was largely offset by gas purchased costs reflected in products purchased
expense.
Operating revenues for the first nine months of 2000 increased $20.9 million to
$38.7 million primarily due to improved gas sales as mentioned above and the
cogeneration contract restructuring in the second quarter of 2000.
Operating Income (Loss)
Power Generation and Other Operations reported an operating loss $15.8 million
and $14.5 million in the third quarter of 2000 and first nine months of 2000,
respectively. This compares to operating income of $900,000 and an operating
loss of $1.3 million in the same periods last year. The increase in operating
revenues was more than offset by higher operation and maintenance expense
primarily due to employee-related payments resulting from the achievement of
specific objectives in the development of cogeneration projects by Columbia
Electric and start-up costs related to the telecommunications business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is reported on page 18 of
the Management's Discussion and Analysis under "Market Risk
Exposure."
29
<PAGE> 30
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, 1999 or the
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
except as follows:
I. Other
A. Canada Southern Petroleum Ltd. v. Columbia Gas Development of Canada
Ltd. (C.A. No. 9001-03466, Court of Queen's Bench, Alberta, Canada,
filed March 7, 1990). The plaintiffs assert, among other things, that
the defendant working interest owners, including Columbia Gas
Development of Canada Ltd. (Columbia Canada) and various Amoco
affiliates, breached an alleged fiduciary duty to ensure the earliest
feasible marketing of gas from the Kotaneelee field (Yukon Territory,
Canada). The plaintiffs seek, among other remedies, the return of the
defendants' interests in the Kotaneelee field to the plaintiffs, a
declaration that such interests are held in trust for the plaintiffs
and an order requiring the defendants to promptly market Kotaneelee gas
or assessing damages.
In November 1993, the plaintiffs amended their Amended Statement of
Claim to include allegations that the balance in the Carried Interest
Account (an account for operating costs, which are recoverable, by
working interest owners) which is in excess of the balance as of
November 1988 should be reduced to zero. Columbia, on behalf of
Columbia Canada, consented to the amendment in consideration of the
plaintiffs' acknowledgment that approximately $63 million was properly
charged to the account. However, Columbia and Columbia Canada continue
to dispute the claim to the extent that the claim challenges
expenditures incurred since November 1988, including expenditures made
after Columbia Canada was sold to Anderson Exploration Ltd. (Anderson)
effective December 31, 1991.
A trial commenced in the third quarter of 1996 in the Court of Queen's
Bench. Following multiple lengthy adjournments, the parties have
concluded presenting their witnesses and evidence. The plaintiffs have
submitted their written argument and defendant's written argument is
due in August. The trial is expected to conclude by the end of 2000.
Management continues to believe that its defenses are meritorious, and
that the risk of any material liability to Columbia is de minimis.
Pursuant to an Indemnification Agreement regarding the Kotaneelee
Litigation entered into when Columbia Canada was sold to Anderson,
Columbia agreed to indemnify and hold Anderson harmless for losses due
to this litigation arising out of actions occurring prior to December
31, 1991. As a result of the 1997 upgrading of Columbia's long-term
debt, an escrow account that provides security for the indemnification
obligation and is now funded by a letter of credit was reduced to
approximately $35,835,000 (Cdn).
B. Columbia Gas Transmission Corp. v. Consolidation Coal Co., et al.,
U.S.D.C. W.D. Pa., C.A. No. 99-2071. On December 21, 1999 Columbia
Transmission filed a complaint against Consolidation Coal Co. and
McElroy Coal Co. (collectively, Consol), seeking declaratory and
permanent injunctive relief enjoining Consol from pursuing its current
plan to conduct longwall mining through Columbia Transmission's Victory
Storage Field in northern West Virginia. The complaint was served on
April 10, 2000. Consol's current plans to longwall mine through the
Victory Storage Field would destroy certain infrastructure of Victory
Storage Field, including all of Columbia Transmission's storage wells
in the path of the mining. The parties are holding discussions
concerning resolution of this matter. On April 28, 2000, Consol filed a
Motion to Dismiss, which is currently pending before the Court. In
addition, discovery initiated by Columbia Transmission is on hold
pending the court's ruling on Consol's Motion to Dismiss. -
C. Transcom. On March 17, April 11 and April 21, 2000, one of Columbia's
subsidiaries, Columbia Transmission Communications Corporation
(Transcom) received directives from the Philadelphia District of the
U.S. Army Corps of Engineers (Philadelphia District) and an
administrative order from The Pennsylvania Department of Environmental
Protection (PA DEP) addressing alleged violations of federal
30
<PAGE> 31
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
and state laws resulting from construction activities associated with
Transcom's laying fiber optic cable along portions of a route between
Washington, D.C. and New York City. The order and directives required
Transcom to largely cease construction activities. On September 18,
2000, Transcom entered into a voluntary settlement agreement with the
Philadelphia District under which Transcom contributed $1.2 million to
the Pennsylvania chapter of the Nature Conservancy and the Philadelphia
District lifted its directives. Transcom is continuing discussions with
the PA DEP, the Maryland Department of the Environment (MDE) and the
Baltimore District of the U.S. Army Corps of Engineers (Baltimore
District) which agencies, to date, have not assessed any penalties. As
a result of the voluntary agreement with the Philadelphia District and
communications with the PA DEP, the MDE and the Baltimore District,
certain work in Pennsylvania and Maryland is now ongoing. However,
certain other work cannot proceed until the PA DEP administrative order
is lifted or new or modified permits are received. Transcom cannot
predict when or if the PA DEP order precluding certain construction
activities will be lifted, the effect of the ongoing discussions on the
completion schedule for the project, nor the nature or amount of total
remedies that may be sought in connection with the foregoing
construction activities.
D. NiSource Related Litigation. During the course of NiSource's tender
offer for Columbia, Columbia shareholders filed five class action
lawsuits, which were later consolidated into a single action in the
Delaware Chancery Court, and an action in federal court. NiSource also
commenced two lawsuits in Chancery Court and one action in federal
court. Taken together, the Chancery Court's actions alleged that
Columbia and its directors acted improperly by not negotiating with
NiSource, by implementing a share repurchase program, by adopting
change in control agreements with Columbia executive officers and by
failing to elect the number of directors prescribed in Columbia's
certificate of incorporation. The federal court actions alleged that
Columbia and its directors had violated federal securities laws in
their statements in response to NiSource's tender offer. The claim
relating to the number of directors was dismissed. In October 1999,
NiSource and Columbia agreed to stay all litigation between them
pending the outcome of certain meetings between Columbia and NiSource.
Following the execution of the merger agreement, NiSource dismissed
with prejudice all of its claims. In September 2000, shareholder
plaintiffs and Columbia executed a Settlement Agreement and Stipulation
of Dismissal. This agreement has been mailed to all shareholders of
record. On November 14, 2000, the Chancery Court is scheduled to hold a
hearing to consider approval of the Settlement Agreement and
Stipulation of Dismissal.
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
31
<PAGE> 32
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Reference is made below to those exhibits that have previously been
filed with the Commission. Exhibits so referred to are incorporated by
reference.
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10-CQ $50,000,000 Amended and Restated Credit Agreement dated October 11, 2000, among
Columbia Energy Group and certain banks party thereto and Citibank, N.A.
as Administrative and Syndication Agent.
10-CR $850,000,000 Amended and Restated Credit Agreement dated October 11, 2000, among
Columbia Energy Group and certain banks party thereto and Citibank, N.A.
as Administrative and Syndication Agent.
12* Statements of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule
</TABLE>
* Filed herewith
The following reports on Form 8-K were filed during the third quarter
of 2000.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- ---------- ------------------- -----------------------
<S> <C> <C> <C>
5 Yes ** July 14, 2000 July 14, 2000
</TABLE>
** Summary of Financial and Operational data for the three
months ended June 30, 2000.
32
<PAGE> 33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Columbia Energy Group
---------------------------
(Registrant)
Date: October 26, 2000 By: /s/ Jeffrey W. Grossman
----------------------------
Jeffrey W. Grossman
Vice President and Controller
(Principal Accounting Officer
and Duly Authorized Officer)
33
