<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended MARCH 31, 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
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: 80,669,811 shares outstanding at March 31, 2000.
<PAGE> 2
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
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 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk 28
PART II OTHER INFORMATION
Item 1 Legal Proceedings 28
Item 2 Changes in Securities and Use of Proceeds 30
Item 3 Defaults Upon Senior Securities 30
Item 4 Submission of Matters to a Vote of Security Holders 30
Item 5 Other Information 30
Item 6 Exhibits and Reports on Form 8-K 30
Signature 32
</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
Ended March 31,
-------------------------------
2000 1999
----------- -----------
(millions, except per share amounts)
<S> <C> <C>
NET REVENUES
Energy sales $ 900.0 $ 980.5
Less: Products purchased 573.2 640.8
----------- -----------
Gross Margin 326.8 339.7
Transportation 251.8 217.6
Production gas sales 46.4 25.4
Other 56.6 67.6
----------- -----------
Total Net Revenues 681.6 650.3
----------- -----------
OPERATING EXPENSES
Operation and maintenance 256.1 237.5
Settlement of gas supply charges -- (29.8)
Depreciation and depletion 69.2 75.4
Other taxes 72.9 83.5
----------- -----------
Total Operating Expenses 398.2 366.6
----------- -----------
OPERATING INCOME 283.4 283.7
----------- -----------
OTHER INCOME (DEDUCTIONS)
Interest income and other, net 1.4 4.0
Interest expense and related charges (45.7) (37.5)
----------- -----------
Total Other Income (Deductions) (44.3) (33.5)
----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 239.1 250.2
Income Taxes 89.4 89.8
----------- -----------
INCOME FROM CONTINUING OPERATIONS 149.7 160.4
(Loss) from Discontinued Operations - net of taxes -- (10.0)
----------- -----------
NET INCOME $ 149.7 $ 150.4
=========== ===========
BASIC EARNINGS PER SHARE
Continuing operations $ 1.84 $ 1.93
(Loss) from discontinued operations -- (0.12)
=========== ===========
BASIC EARNINGS PER SHARE $ 1.84 $ 1.81
=========== ===========
DILUTED EARNINGS PER SHARE
Continuing operations $ 1.83 $ 1.92
(Loss) from discontinued operations -- (0.12)
=========== ===========
DILUTED EARNINGS PER SHARE $ 1.83 $ 1.80
=========== ===========
DIVIDENDS PAID PER SHARE $ 0.225 $ 0.20
BASIC AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 81,148 83,244
DILUTED AVERAGE COMMON SHARES (THOUSANDS) 81,787 83,522
</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
---------------------------
March 31, December 31,
2000 1999
-------- --------
(unaudited)
(millions)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Gas utility and other plant, at original cost $8,187.8 $8,150.6
Accumulated depreciation (3,759.2) (3,708.8)
-------- --------
Net Gas Utility and Other Plant 4,428.6 4,441.8
-------- --------
Gas and oil producing properties, full cost method
United States cost center 834.1 823.5
Canadian cost center 14.1 12.6
Accumulated depletion (260.3) (251.6)
-------- --------
Net Gas and Oil Producing Properties 587.9 584.5
-------- --------
Net Property, Plant and Equipment 5,016.5 5,026.3
-------- --------
INVESTMENTS AND OTHER ASSETS
Unconsolidated affiliates 54.9 67.6
Net assets of discontinued operations 12.3 (9.7)
Assets held for sale 57.2 --
Other 74.7 61.6
-------- --------
Total Investments and Other Assets 199.1 119.5
-------- --------
CURRENT ASSETS
Cash and temporary cash investments 21.3 62.6
Accounts receivable, net 458.1 552.4
Gas inventory 12.5 144.9
Other inventories - at average cost 36.3 71.1
Prepayments 63.0 74.3
Regulatory assets 57.3 52.7
Underrecovered gas costs 10.5 40.5
Deferred property taxes 57.8 79.8
Exchange gas receivable 327.3 275.4
Other 62.0 39.5
-------- --------
Total Current Assets 1,106.1 1,393.2
-------- --------
REGULATORY ASSETS 353.7 358.1
DEFERRED CHARGES 181.4 198.8
-------- --------
TOTAL ASSETS $6,856.8 $7,095.9
======== ========
</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
------------------------
March 31, December 31,
2000 1999
-------- --------
(unaudited)
(millions)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock equity $2,157.9 $2,064.0
Long-term debt 1,639.6 1,639.7
-------- --------
Total Capitalization 3,797.5 3,703.7
-------- --------
CURRENT LIABILITIES
Short-term debt 178.0 465.5
Current maturities of long-term debt 312.3 311.3
Accounts and drafts payable 186.6 267.5
Accrued taxes 220.6 199.0
Accrued interest 67.4 32.5
Estimated rate refunds 8.5 21.4
Overrecovered gas costs 63.5 14.6
Transportation and exchange gas payable 322.3 297.5
Other 353.7 433.2
-------- --------
Total Current Liabilities 1,712.9 2,042.5
-------- --------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred income taxes, noncurrent 701.7 674.1
Investment tax credits 32.3 32.6
Postretirement benefits other than pensions 104.3 96.4
Regulatory liabilities 35.6 36.4
Deferred revenue 286.3 300.8
Other 186.2 209.4
-------- --------
Total Other Liabilities and Deferred Credits 1,346.4 1,349.7
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $6,856.8 $7,095.9
======== ========
</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>
Three Months
Ended March 31,
-----------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 149.7 $ 150.4
Adjustments to reconcile net income to net
cash from continuing operations:
Loss from discontinued operations -- 10.0
Depreciation and depletion 69.2 75.4
Deferred income taxes 12.6 9.8
Earnings from equity investment, net of distributions (3.6) (3.0)
Other - net (37.3) (21.1)
------- -------
190.6 221.5
Change in components of working capital:
Accounts receivable, net of sale 27.5 (291.4)
Sale of accounts receivable 43.9 --
Gas inventory 132.4 154.8
Other inventories - at average cost 34.8 2.2
Prepayments 11.3 (0.7)
Accounts payable (69.9) (45.7)
Accrued taxes 21.6 44.6
Accrued interest 34.9 41.0
Estimated rate refunds (12.9) 4.5
Under/Overrecovered gas costs 78.9 (14.7)
Exchange gas receivable/payable (27.1) 347.8
Other working capital (34.5) (33.0)
------- -------
Net Cash From Continuing Operations 431.5 430.9
Net Cash From Discontinued Operations (22.0) 27.1
------- -------
Net Cash From Operating Activities 409.5 458.0
------- -------
INVESTMENT ACTIVITIES
Capital expenditures (80.7) (86.3)
Acquisitions and other investments - net (39.7) (7.9)
------- -------
Net Investment Activities (120.4) (94.2)
------- -------
FINANCING ACTIVITIES
Dividends paid (18.3) (16.6)
Issuance of common stock 0.5 0.3
Issuance (repayment) of short-term debt (287.5) (144.8)
Purchase of treasury stock (38.2) (42.0)
Other financing activities 13.1 (28.0)
------- -------
Net Financing Activities (330.4) (231.1)
------- -------
Increase (decrease) in cash and temporary cash investments (41.3) 132.7
Cash and temporary cash investments at beginning of year 62.6 22.9
------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 * $ 21.3 $ 155.6
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 9.8 $ 1.1
Cash paid for income taxes (net of refunds) $ 24.2 $ 21.9
</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
-------------------------------
March 31, December 31,
2000 1999
-------- --------
(unaudited)
(millions)
<S> <C> <C>
Common stock, $.01 par value, authorized
200,000,000 shares, issued 83,794,611
and 83,786,942 shares, respectively $ 0.8 $ 0.8
Additional paid in capital 1,612.1 1,611.6
Retained earnings 718.3 586.9
Unearned employee compensation (0.3) (0.6)
Accumulated other comprehensive income 0.2 0.3
Treasury stock, at cost (3,124,800 and 2,478,500 shares) (173.2) (135.0)
-------- --------
TOTAL COMMON STOCK EQUITY $2,157.9 $2,064.0
======== ========
</TABLE>
Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the year to date
period ended
---------------------------
March 31, December 31,
2000 1999
------ ------
(unaudited)
(millions)
<S> <C> <C>
COMPREHENSIVE INCOME
Net income $149.7 $249.2
Other Comprehensive Income (Loss):
Foreign currency translation adjustment (0.1) 0.5
------ ------
COMPREHENSIVE INCOME $149.6 $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). 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 Energy Services Corporation
(Columbia Energy Services) Wholesale and Trading operations and Major
Accounts business 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
Ended March 31,
Diluted Average Common Shares Computation 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Denominator (thousands)
Basic average common shares outstanding 81,148 83,244
Dilutive potential common shares - options 639 278
---------------------------------------------------------------------------------------
DILUTED AVERAGE COMMON SHARES 81,787 83,522
---------------------------------------------------------------------------------------
</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 may repurchase up to $300 million of its
common shares. 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, will be
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 quarter of 2000, Columbia purchased
646,300 common shares at a cost of $38.2 million under the recommenced
program. As of March 31, 2000, Columbia had purchased 3,124,800 common
shares at a cost of $173.2 million.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
4. Business Segment Information
Columbia manages its operations in five primary business segments:
transmission and storage; distribution; exploration and production;
energy marketing; and power generation, LNG and other operations. The
following tables provide information concerning these major business
segments. Revenues include intersegment sales to affiliated
subsidiaries, which are eliminated when consolidated. Affiliated sales
are recognized on the basis of prevailing market or regulated prices.
Operating income is derived from revenues and expenses directly
associated with each segment.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------
($ in millions) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Transmission and Storage
Unaffiliated 175.7 171.7
Intersegment 69.4 81.6
-------------------------------------------------------------------------------------------------------
TOTAL 245.1 253.3
-------------------------------------------------------------------------------------------------------
Distribution
Unaffiliated 757.9 1,018.1
Intersegment 0.6 --
-------------------------------------------------------------------------------------------------------
TOTAL 758.5 1,018.1
-------------------------------------------------------------------------------------------------------
Exploration and Production
Unaffiliated 51.8 30.0
Intersegment 0.7 0.5
-------------------------------------------------------------------------------------------------------
TOTAL 52.5 30.5
-------------------------------------------------------------------------------------------------------
Energy Marketing
Unaffiliated 278.6 76.8
Intersegment 0.1 0.2
-------------------------------------------------------------------------------------------------------
TOTAL 278.7 77.0
-------------------------------------------------------------------------------------------------------
Power Generation, LNG and Other
Unaffiliated 3.6 4.4
Intersegment -- 0.1
-------------------------------------------------------------------------------------------------------
TOTAL 3.6 4.5
-------------------------------------------------------------------------------------------------------
Adjustments and eliminations
Intersegment (70.8) (82.4)
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 1,267.6 1,301.0
-------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Transmission and Storage 123.9 144.2
Distribution 131.2 130.2
Exploration and Production 20.8 5.6
Energy Marketing 9.7 (0.7)
Power Generation, LNG and Other 0.2 (0.6)
Corporate (2.4) 5.0
-------------------------------------------------------------------------------------------------------
CONSOLIDATED 283.4 283.7
-------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
5. Discontinued Operations
As reported in Columbia's 1999 Form 10-K, Columbia Energy Services'
Wholesale and Trading operations and Major Accounts business are
reported as discontinued operations. A provision for the operating
results of the discontinued operations for the three months ended March
31, 2000, was included in the estimated loss on the disposal of
discontinued operations recorded in 1999. The revenues from
discontinued operations were $1,463.1 million for the three months
ended March 31, 1999. The loss from discontinued operations - net of
taxes was $10 million for the three months ended March 31, 1999.
The net assets of the discontinued operations are as follows:
<TABLE>
<CAPTION>
($ in millions) MARCH 31, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS OF DISCONTINUED OPERATIONS
Accounts receivable, net 53.1 317.7
Other assets 13.9 18.3
Accounts payable (42.8) (317.0)
Other liabilities (11.9) (28.7)
------------------------------------------------------------------------------------------------------
NET ASSETS OF DISCONTINUED OPERATIONS 12.3 (9.7)
------------------------------------------------------------------------------------------------------
</TABLE>
6. Voluntary Incentive Retirement Program
On September 30, 1999, Columbia Gas Transmission Corporation (Columbia
Transmission) announced the introduction of a voluntary incentive
retirement program (VIRP). Approximately 600 Columbia Transmission
employees were eligible for the program, which provides a retirement
incentive for active employees who are 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. The VIRP 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". Columbia Transmission recorded a net gain of $8.1 million in
the first quarter of 2000 related to the VIRP.
In February 2000, the five distribution subsidiaries and Columbia
Energy Group Service Corporation announced the introduction of a VIRP.
Approximately 880 employees are eligible for the program, which
provides a retirement incentive for certain active employees who are
age fifty and above with at least five years of service as of June 1,
2000. The acceptance period will end on April 30, 2000. The majority of
the retirements are scheduled to occur on June 1, 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 not have a
significant impact on Columbia's consolidated annual net income.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING INCOME (LOSS) BY SEGMENT
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
Transmission and Storage $ 123.9 $ 144.2
Distribution 131.2 130.2
Exploration and Production 20.8 5.6
Energy Marketing 9.7 (0.7)
Power Generation, LNG and Other 0.2 (0.6)
Corporate (2.4) 5.0
------- -------
CONSOLIDATED $ 283.4 $ 283.7
======= =======
</TABLE>
DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
2000 1999
------ ------
<S> <C> <C>
Actual 2,566 2,778
Normal 2,979 2,947
% Colder (warmer) than normal (14) (6)
% Colder (warmer) than prior period (8) 20
</TABLE>
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS
Forward-Looking Statements
The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments, 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, increased competition in deregulated energy markets,
weather, fluctuations in supply and demand for energy commodities, successful
consummation of proposed acquisitions and 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, Columbia's 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 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.
First Quarter Results
Income from Continuing Operations
Columbia reported consolidated income from continuing operations for the first
quarter 2000 of $149.7 million, or $1.83 per share, a decrease of $10.7 million
or nine cents per share from the first quarter of 1999. In 1999, a $20.6 million
after-tax gain related to Columbia Gas Transmission Corporations (Columbia
Transmission) producer settlement was recorded. Excluding this one-time item,
income from continuing operations was up $9.9 million, or 16 cents per share
over the same period last year despite eight percent warmer weather. All per
share amounts are on a diluted basis.
The $9.9 million improvement primarily reflected sharply higher gas production
and prices for the Exploration and Production segment. The Energy Marketing
segment reported operating income of $9.7 million versus a loss of $700,000 in
the same period last year due to a reduced operating loss for Columbia Energy
Services Corporation's (Columbia Energy Services) Mass Marketing business and
increased operating income from Columbia Propane Corporation (Columbia Propane)
as a result of recent acquisitions. The transmission and storage segment
benefited $5.3 million after-tax from recording the effect of Columbia
Transmission's Voluntary Incentive Retirement Program.
12
<PAGE> 13
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONSOLIDATED RESULTS (CONTINUED)
Revenues
Total consolidated net revenue (operating revenues less associated products
purchased costs) for the three months ended March 31, 2000, was $681.6 million,
a $31.3 million increase over the same period last year. The increase was
primarily attributable to higher gas prices along with a 33% increase in gas
production. In addition, several propane and petroleum acquisitions in 1999
increased net revenues. Tempering this improvement were lower revenues from the
sale of base gas volumes for the transmission and storage segment and reduced
gas sales by the distribution segment due to warmer weather.
Expenses
Operating expenses for the first quarter of 2000 were $398.2 million, an
increase of $31.6 million over the same period last year due to the $29.8
million reduction in the first quarter of 1999 operating expenses for the
producer settlement. This was partially offset by lower gross receipts and
property taxes and the beneficial effect of Columbia Transmission's Voluntary
Incentive Retirement Program. Also decreasing operating expense during the first
quarter of 2000 was a reduction in depreciation expense, consistent with the
terms of Columbia of Ohio's 1999 regulatory settlement. These reductions were
tempered by higher operation and maintenance expense in the current period
associated with Columbia Propane's 1999 acquisitions.
Other Income (Deductions)
Other Income (Deductions), which includes interest income and other, net and
interest expense and related charges, reduced operating income by $44.3 million
for the first three months of 2000 compared to a reduction of $33.5 million in
the same period last year. In the first quarter of 1999, a $2.9 million gain was
recorded as a result of the sale of Columbia Energy Resources Inc.'s (Columbia
Resources) surface coal property. Interest expense for the first three months of
2000 was higher than the same period last year as a result of additional
short-term borrowings, primarily due to a stock repurchase program and higher
interest rates.
Income Taxes
Income tax expense of $89.4 million in the first quarter of 2000 was essentially
unchanged from the first quarter of 1999. Certain tax benefits realized last
year offset the effect of lower pre-tax income from continuing operations in the
current period.
Discontinued Operations
Discontinued operations, which reflect Columbia Energy Services' Wholesale and
Trading and Major Accounts businesses, posted an after-tax loss of $10 million
for the first quarter of 1999.
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 quarter of 2000 was $431.5
million, essentially unchanged from the same period last year.
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
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)
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 2001 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. 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 March 31, 2000, Columbia had approximately $121.1 million of letters of
credit issued, of which approximately $42.2 million were issued under the Credit
Facilities, and $178 million of commercial paper was outstanding.
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 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
At the February 1999 meeting, Columbia's Board of Directors (Columbia's 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. In October 1999, the repurchase program was suspended
pending consideration of strategic alternatives. At that time, 2,478,500 common
shares had been repurchased at a cost of approximately $135 million. In March
2000, Columbia resumed the repurchase program. During the first quarter of 2000,
646,300 common shares were repurchased at a cost of $38.2 million.
From February 1999 through March 31, 2000, a total of 3,124,800 common shares
have been repurchased under this program at a cost of $173.2 million. Based on
market conditions and other factors, management will determine the timing and
terms of additional purchases and the number of shares to be purchased.
Purchased shares will be held in treasury to be made available for general
corporate purposes, resold at a future date or retired. Any purchases will be
made from available funds.
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)
Merger Agreement
As reported in Columbia's Form 10-K for 1999, 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 Inc., an Indiana corporation
(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.
The terms of the Merger Agreement provide that NiSource will organize a new
company which shall serve as the holding company for both Columbia and NiSource
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.
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 and a $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, subject to a collar such that, 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 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.
The Merger Agreement is conditioned upon, among other things, the approval of
Columbia's shareholders and various regulatory commissions. If the NiSource
shareholder approval is not obtained, the transaction will automatically be
restructured so that, instead of each of NiSource and Columbia becoming
wholly-owned subsidiaries of the new holding company, Columbia will become a
wholly-owned subsidiary of NiSource, and Columbia shareholders will receive, for
each share of Columbia's common stock, $70 in cash and a $3.02 face value
SAILS(SM) unit of NiSource with no option for Columbia shareholders to elect new
holding company stock.
Strategic Assessment of Certain Assets
Columbia is in various stages of completing an evaluation of its various
businesses to determine which operations are consistent with its strategic
objectives. To the extent that continuing to be in certain businesses may not be
appropriate, Columbia may sell, or otherwise exit, those businesses before the
merger, as discussed above, is completed. Columbia is evaluating bids received
for the sale of certain assets that were deemed non-essential for meeting its
strategic objectives. The timing, or ultimate success, of completing such a sale
cannot be determined at this time.
Presentation of Segment Information
Columbia revised its presentation of primary business segment information
beginning with the reporting of third quarter 1999 results. The results for
Columbia Propane were moved from the propane, power generation and liquefied
natural gas (LNG) operations to energy marketing operations that include
Columbia Energy Services' retail operations. This change is consistent with
senior management's
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)
responsibility for these segments. Prior periods have been restated to reflect
this change.
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 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. Due to the sale of
Columbia's Wholesale and Trading business, Columbia's use of derivatives has
been significantly reduced. However, Columbia Energy Services does utilize
financial instruments to help assure adequate margins for its Mass Markets
business on the purchase and resale of energy products. Columbia Energy
Resources Corporation (Columbia Resources) also 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 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 operating separately from the area that creates
or actively manages these risk exposures in order to monitor compliance with
Columbia's stated risk management policies. Columbia measures the market risk in
its energy marketing portfolios and employs multiple risk control mechanisms to
mitigate market risk including value-at-risk measures using a
variance/covariance methodology and volumetric limits. Value-at-risk simulates
forward price curves in the energy markets to estimate the size and probability
of future potential losses. At March 31, 2000, based on a 95% confidence
interval and a one-day time horizon, the value-at-risk for Columbia's derivative
positions was insignificant.
16
<PAGE> 17
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
OPERATING REVENUES
Transportation revenues $ 185.6 $ 182.4
Storage revenues 44.6 50.3
Other revenues 14.9 20.6
------- -------
Total Operating Revenues 245.1 253.3
------- -------
OPERATING EXPENSES
Operation and maintenance 78.6 96.9
Settlement of gas supply charges -- (29.8)
Depreciation 27.3 26.7
Other taxes 15.3 15.3
------- -------
Total Operating Expenses 121.2 109.1
------- -------
OPERATING INCOME $ 123.9 $ 144.2
======= =======
THROUGHPUT (Bcf)
Transportation
Columbia Transmission
Market area 378.1 394.0
Columbia Gulf
Mainline 145.7 147.4
Short-haul 57.5 50.6
Intrasegment eliminations (140.4) (138.7)
------- -------
Total Throughput 440.9 453.3
======= =======
</TABLE>
17
<PAGE> 18
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
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 Mcf (thousand cubic feet) per
day to eastern markets. To date, 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 initiated the extensive review process, which includes an
opportunity for public review and comment. The Millennium Project sponsors
proposed an in-service date of November 1, 2000. However, the final in-service
date for the entire project has been delayed as a result of the timing of
certificate approval 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.
Proposed Volunteer Pipeline
On April 14, 1999, Columbia Gulf Transmission Company (Columbia Gulf), MCN
Energy Group, Inc. and AGL Resources, Inc. announced the start of an open
season. They were offering approximately 250,000 Mcf per day of capacity in a
proposed 24-inch natural gas pipeline, extending approximately 160 miles from an
interconnection near Portland, Tennessee to an interconnection near Chattanooga,
Tennessee. The pipeline, Volunteer Pipeline (Volunteer), anticipates additional
interconnections with several pipeline companies, including Columbia Gulf.
Columbia Gulf will serve as operator of the new pipeline facilities.
Nearly a dozen companies requested more than 440,000 Mcf per day of capacity on
Volunteer. Potentially expandable to approximately 500,000 Mcf per day,
Volunteer expects to provide firm natural gas transportation from the
mid-continent into the Atlanta, Georgia, and other southeastern markets.
Subsequent to the open season, AGL Resources, Inc. withdrew its participation in
the project. Subject to an analysis of the final market commitments, Volunteer
expects to file a certificate application with the FERC for approval of the
project.
Sale of Facilities
During 2000, Columbia Transmission sold approximately 200 miles of gathering and
transmission pipelines and related properties. Agreements are in place for an
additional 770 miles of gathering and transmission pipelines to be sold to third
parties. Excluding these sales, there are approximately 150 miles of gathering
lines remaining to be sold or refunctionalized. The sale of these assets will
not have a material impact on Columbia's consolidated financial results.
Storage Base Gas Sales
Columbia Transmission sold 4.8 billion cubic feet (Bcf) of base gas volumes in
the first quarter of 2000 and 7 Bcf in the same period last year that resulted
in pre-tax gains of $10.9 million and $14.4 million, respectively. 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 storage volumes are determined to be unnecessary to maintain
deliverability of current inventory. As a result of first quarter 2000 base gas
sales, Columbia Transmission reached the cumulative $60 million pre-tax gain
level above which it must share any future gains equally with its customers
pursuant to the terms of a prior rate settlement.
Mainline '99
Columbia Gulf filed an application with the FERC on June 5, 1998, for authority
to increase the maximum
18
<PAGE> 19
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)
certificated capacity of its mainline facilities. The expansion project,
referred to as Mainline '99, will increase Columbia Gulf's certificated capacity
to nearly 2.2 Bcf per day, by replacing certain compressor units and increasing
the horsepower capacity of other compressor stations. Various shippers
contracted for the additional service through an open bidding process held in
late 1997 and early 1998. On February 10, 1999, the FERC issued an order
approving Columbia Gulf's June 1998 filing and construction commenced on March
3, 1999. On December 1, 1999, approximately 270,000 Dth/day of additional
capacity was made available on Columbia Gulf's mainline. Additional capacity of
approximately 45,000 Dth/day is expected to be made available on November 1,
2000. On March 29, 2000, two petitions for review of FERC's orders in the
underlying certificate proceeding were filed by Baltimore Gas & Electric Company
and by the Cities of Charlottesville and Richmond, Virginia in the United States
Court of Appeals for the District of Columbia Circuit.
Discussions with FERC
The transmission and storage subsidiaries are in confidential and informal
discussions with the staff of the FERC (Staff) concerning the scope of
authorization for certain past transactions under the relevant filed tariffs.
The transmission and storage subsidiaries initiated these discussions with the
FERC. These subsidiaries provided information concerning these transactions to
the Staff pursuant to an informal non-public inquiry being conducted by the
Staff. Management is unable to reasonably estimate the amount that will have to
be paid pursuant to reimbursement or other remedies.
Columbia Transmission's Voluntary Incentive Retirement Program
In September 1999, Columbia Transmission announced the introduction of a
voluntary incentive retirement program (VIRP). Approximately 600 Columbia
Transmission employees were eligible for the program, which provides a
retirement incentive for active employees who are age fifty and above with at
least five years of service as of March 1, 2000. Of the 486 employees that
elected early retirement, the majority of the retirements occurred in the first
quarter of 2000. Retirement costs for these employees are funded through the
pension plan.
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 440.9 Bcf for the
first quarter of 2000, a decrease of 12.4 Bcf from the same period last year.
Columbia Transmission's transportation decreased 15.9 Bcf from the first quarter
of 1999, primarily reflecting this year's warmer weather. Mainline
transportation for the first quarter of this year decreased 1.7 Bcf also due to
the warmer weather. Short-haul transportation increased 6.9 Bcf in 2000,
primarily reflecting increased market demand in the area south of Rayne,
Louisiana.
Operating Revenues
Total operating revenues were $245.1 million for the first quarter of 2000, a
decrease of $8.2 million from the same period last year. The decrease in
revenues was primarily due to timing differences and lower revenues from the
sales of base gas volumes partially offset by additional transportation service
from recent expansion projects.
Operating Income
First quarter 2000 operating income of $123.9 million was a decrease of $20.3
million from the same period last year, due in large part to the gain on the
producer settlement in the first quarter of 1999. Implementing Columbia
Transmission's VIRP in the first quarter of 2000 resulted in a $8.1 million
improvement to operation and maintenance expense.
19
<PAGE> 20
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
Ended March 31,
------------------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
NET REVENUES
Sales revenues $ 627.8 $ 911.1
Less: Cost of gas sold 425.2 666.6
------- -------
Net Sales Revenues 202.6 244.5
------- -------
Transportation revenues 130.7 107.0
Less: Associated gas costs 12.7 9.9
------- -------
Net Transportation Revenues 118.0 97.1
------- -------
Net Revenues 320.6 341.6
------- -------
OPERATING EXPENSES
Operation and maintenance 117.5 112.4
Depreciation 21.6 36.0
Other taxes 50.3 63.0
------- -------
Total Operating Expenses 189.4 211.4
------- -------
OPERATING INCOME $ 131.2 $ 130.2
======= =======
THROUGHPUT (Bcf)
Sales
Residential 57.5 69.1
Commercial 20.4 22.9
Industrial and other 1.4 1.0
------- -------
Total Sales 79.3 93.0
Transportation 123.3 107.9
------- -------
Total Throughput 202.6 200.9
Off-System Sales 7.1 156.3
------- -------
Total Sold and Transported 209.7 357.2
======= =======
SOURCES OF GAS FOR THROUGHPUT (Bcf)
Sources of Gas Sold
Spot market* 52.7 56.7
Producers 3.3 2.4
Storage withdrawals (injections) 45.3 61.9
Other (14.9) 128.3
------- -------
Total Sources of Gas Sold 86.4 249.3
Gas received for delivery to customers 123.3 107.9
------- -------
Total Sources 209.7 357.2
======= =======
</TABLE>
* Reflects volumes under purchase contracts of less than one year.
20
<PAGE> 21
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTION OPERATIONS (CONTINUED)
Market Conditions
Weather in Columbia's market area for its distribution subsidiaries
(Distribution) for the first three months of 2000, was 14% warmer than normal
and 8% warmer than the same period in 1999. As a result, Distribution's
weather-sensitive deliveries were down 21 Bcf for the first three months of 2000
compared to the same period in 1999.
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 to initiate a
residential and small commercial transportation program on a pilot basis
effective February 1, 2000, through January 31, 2005. Under the terms of the
order, including modifications made by the KPSC, Columbia of Kentucky would have
to assume the financial risk for mitigating transition capacity costs through
the utilization of non-traditional revenue sources. Also, the order did not
renew Columbia of Kentucky's gas cost incentive program, which had been
temporarily continued by the KPSC until the conclusion of the customer
transportation case. On February 18, 2000, Columbia of Kentucky filed for
rehearing of the order. On March 6, 2000, the KPSC granted rehearing on certain
key issues, including the discontinuation of the gas cost incentive program. In
March 2000, Columbia of Kentucky filed its testimony on the rehearing issues and
the KPSC established a procedural schedule. Columbia of Kentucky has not
initiated the transportation program, pending an analysis of the rehearing
results.
Throughput
In 2000, total volumes sold and transported of 209.7 Bcf for the first quarter
decreased 147.5 Bcf from the first three months of 1999 primarily due to lower
off-system sales and warmer weather. Tempering this decrease was additional
throughput attributable to customer growth. Off-system sales volumes for the
first quarter of 2000 were 7.1 Bcf compared to 156.3 Bcf in 1999. The high
off-system sales in 1999 were due to additional opportunities available in March
1999 for these low margin sales.
Net Revenues
Net revenues for the three months ended March 31, 2000, were $320.6 million,
down $21 million from the same period in 1999, primarily due to warmer weather
and the effect of Columbia Gas of Ohio, Inc.'s (Columbia of Ohio) 1999
regulatory settlement.
Operating Income
Operating income for the first quarter of 2000 of $131.2 million, increased one
million dollars from the same period in 1999, as the lower net revenues were
more than offset by a $22 million decrease in operating expenses. The lower
expenses reflected a decrease of $14.4 million in depreciation expense as a
result of recording the terms of the 1999 Columbia of Ohio regulatory settlement
together with lower other taxes of $12.7 million primarily due to a decrease in
gross receipts and property taxes.
21
<PAGE> 22
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
Ended March 31,
-------------------------------
2000 1999
-------- --------
(millions)
<S> <C> <C>
OPERATING REVENUES
Gas revenues $ 47.5 $ 25.9
Other revenues 5.0 4.6
-------- --------
Total Operating Revenues 52.5 30.5
-------- --------
OPERATING EXPENSES
Operation and maintenance 16.1 12.9
Depreciation and depletion 12.4 9.5
Other taxes 3.2 2.5
-------- --------
Total Operating Expenses 31.7 24.9
-------- --------
OPERATING INCOME $ 20.8 $ 5.6
======== ========
GAS PRODUCTION STATISTICS
Production (Bcf)
U.S 14.1 10.6
Canada -- --
-------- --------
Total 14.1 10.6
======== ========
Average Price ($ per Mcf)
U.S 3.34 2.44
Canada 2.94 2.64
OIL AND LIQUIDS PRODUCTION STATISTICS
Production (000 Bbls)
U.S 43 36
Canada 3 3
-------- --------
Total 46 39
======== ========
Average Price ($ per Bbl)
U.S 23.65 9.79
Canada 28.12 12.49
</TABLE>
22
<PAGE> 23
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EXPLORATION AND PRODUCTION OPERATIONS (CONTINUED)
Drilling Activity
Drilling activity continued throughout the winter due to unseasonably mild
weather. Columbia Resources participated in 23 gross (18.2 net) wells during the
first quarter of 2000 with a success rate of 70%, adding 3 net Bcfe of reserves.
During the same period in 1999, Columbia Resources completed 32 gross (27.5 net)
wells with a 75% success rate, adding reserves of 7.2 net Bcfe of reserves.
Volumes
Gas production of 14.1 Bcf in the first quarter of 2000 increased 3.5 Bcf over
the same period in 1999 reflecting recent drilling successes, along with
improvements to Columbia Resources' gathering facilities and reduced capacity
constraints.
Operating Revenues
Operating revenues for the first quarter of 2000 were $52.5 million, compared to
$30.5 million for the same quarter a year ago. A 37% increase in Columbia
Resources' natural gas sales price along with the increase in gas production
contributed to the improvement in operating revenues. Approximately 50% of
Columbia Resources' first quarter 2000 natural gas production was hedged at an
average price of $3.75 per Mcf, 24% above the Appalachian weighted average
market price of $3.03 per Mcf.
Operating Income
Operating income for the first quarter 2000 of $20.8 million, increased $15.2
million over last year's first quarter, primarily due to higher operating
revenues, as discussed above, partially offset by higher operation and
maintenance costs attributable to recent acquisitions and increased depletion
expense.
23
<PAGE> 24
PART I - FINANCIAL
INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
NET REVENUES
Propane $ 116.1 $ 32.7
Gas 65.6 40.3
Petroleum 85.1 --
------- -------
Total 266.8 73.0
Less: Products purchased 214.1 52.7
------- -------
Gross Margin 52.7 20.3
Other revenues 11.9 4.0
------- -------
Net Revenues 64.6 24.3
------- -------
OPERATING EXPENSES
Operation and maintenance 44.9 21.4
Depreciation 6.9 2.0
Other taxes 3.1 1.6
------- -------
Total Operating Expenses 54.9 25.0
------- -------
OPERATING INCOME (LOSS) $ 9.7 $ (0.7)
======= =======
SALES
Propane (millions of gallons) 109.4 39.0
Gas (billion cubic feet) 13.6 11.2
Petroleum (millions of gallons) 90.6 --
</TABLE>
24
<PAGE> 25
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING OPERATIONS (CONTINUED)
The Energy Marketing Operations include Columbia Energy Services which consists
of its retail Mass Marketing business and a wholly-owned subsidiary that
provides energy related services and products. In April 2000, an internet-based
service that was owned by Columbia Energy Services was sold for approximately $3
million. The Energy Marketing segment also includes the operations of Columbia
Propane, which in turn includes Columbia Petroleum Corporation, a petroleum
business acquired in mid-1999.
Net Revenues
Net revenues for the first quarter of 2000 were $64.6 million, an increase of
$40.3 million over the same period last year. This improvement reflects a
significant increase in propane sales volumes as a result of Columbia Propane's
acquisitions partially offset by a decrease in the propane profit margin
reflecting a higher mix of wholesale volumes compared to last year. Net revenues
for Columbia Energy Services doubled due to a significant increase in the number
of Mass Marketing customers.
Operating Income (Loss)
Operating income was $9.7 million in the first quarter of 2000 compared to an
operating loss of $700,000 in the same period last year. The increased net
revenues and Columbia Energy Services' lower operating expenses, that included
lower customer acquisition costs and costs associated with improving operating
efficiencies, were largely offset by the higher operating costs associated with
Columbia Propane's 1999 acquisitions.
25
<PAGE> 26
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
Ended March 31,
-----------------------------
2000 1999
------- -------
(millions)
<S> <C> <C>
OPERATING REVENUES
Power generation $ 0.5 $ 2.0
LNG 2.0 2.3
Other 1.1 0.2
------- -------
Total Operating Revenues 3.6 4.5
------- -------
OPERATING EXPENSES
Operation and maintenance 3.3 4.9
Other taxes 0.1 0.2
------- -------
Total Operating Expenses 3.4 5.1
------- -------
OPERATING INCOME (LOSS) $ 0.2 $ (0.6)
======= =======
</TABLE>
26
<PAGE> 27
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
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.
Transcom will build and maintain a fiber optics network on rights-of-way of
Columbia's pipeline companies. 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 being notified of
certain matters as discussed in Part II Legal Proceedings, Item 1-I.D, there may
be a delay in this project.
Operating Revenues
Operating revenues for the first quarter of 2000 of $3.6 million decreased
$900,000 from the same period last year, primarily reflecting lower revenues
from cogeneration activities due to the termination of a power purchase contract
with a customer in December 1999.
Operating Income (Loss)
The Power Generation, LNG and Other Operations reported operating income of
$200,000 in the first quarter of 2000, compared to an operating loss of $600,000
in the same period last year. Lower operation and maintenance expense of $1.6
million, due in part to higher start-up costs for Columbia's telecommunications
business last year, more than offset the decreased operating revenues.
27
<PAGE> 28
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, 1999, other than the information reported on
page 16 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, 1999, 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, plaintiffs
concluded their case-in-chief in the fourth quarter of 1998.
Plaintiffs are currently presenting their rebuttal witnesses and
evidence. 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. Cathodic Protection. In September 1995, the management of
Commonwealth Gas Services, Inc. (now Columbia Gas of Virginia,
Inc.) (Columbia of Virginia) advised the Staff of the Virginia
State Corporation Commission (VSCC) that there had been
deficiencies in Columbia of Virginia's
28
<PAGE> 29
PART II - OTHER INFORMATION (CONTINUED)
cathodically protected pipeline distribution system in its
Northern Operating Area in Virginia. Following several months of
informal investigation, on March 1, 1996, the Commission
subpoenaed Columbia of Virginia to produce documents related to
its cathodic protection program in the Northern Operating Area.
Columbia of Virginia complied with the subpoena. On November 18,
1998, Columbia of Virginia reported to the VSCC that, with one
small exception, it had completed all remedial work related to the
cathodic protection deficiencies. On April 29, 1999, the Staff of
the VSCC issued a Notice of Probable Violation, indicating 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. Numerous informal conferences
were held with the Staff. As a result of these conferences, on
April 20, 2000, the VSCC issued an Order of Settlement approving a
settlement between Columbia of Virginia and the VSCC Staff
resolving all issues arising out of the Staff's investigation. In
the settlement, Columbia of Virginia neither admitted nor denied
the probable violations of the pipeline safety regulations.
Nevertheless, Columbia of Virginia agreed to pay a civil penalty
of $50,000 and undertake the following actions: (i) retain a
consultant to review Columbia of Virginia's cathodic protection
procedures and policies and to examine a statistical sampling of
Columbia of Virginia's facilities; (ii) remediate any pipeline
facilities that have become exposed due to weather or other
conditions; (iii) acquire certain customer-owned service lines;
and (iv) avoid filing a base rate case until May 1, 2001. Columbia
does not believe that the resolution of this matter will have a
material impact upon Columbia's financial condition.
C. 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 have held discussions concerning resolution of this
matter and further discussions are contemplated.
D. Transcom. On March 17, April 11 and April 21, 2000, one of
Columbia's subsidiaries, Columbia Transmission Communications
Corporation (Transcom) received directives from the U.S. Army
Corps of Engineers and an administrative order from The
Pennsylvania Department of Environmental Protection addressing
alleged violations of federal and state laws resulting from
construction activities associated with Transcom's laying fiber
optic cable along certain rights of way in Pennsylvania.
Columbia and Transcom are in discussions with the agencies and are
investigating the circumstances giving rise to the order and
directives. The order and directives require Transcom to cease
construction activities at the present time in Pennsylvania. The
agencies have not to date assessed any penalties. Transcom cannot
predict when or if the orders precluding construction activities
in Pennsylvania will be lifted, the effect of these events on the
completion schedule for the project, nor the nature or amount of
any remedies that may be sought in connection with the foregoing
construction activities.
E. 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 Courts
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
29
<PAGE> 30
PART II - OTHER INFORMATION (CONTINUED)
number of directors was dismissed. In October 1999, the parties
agreed to stay all litigation 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. The shareholder plaintiffs' lawsuits are still pending,
although they remain stayed.
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 that have previously
been filed with the Commission. Exhibits so referred to are
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
12* Statements of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule
</TABLE>
* Filed herewith
30
<PAGE> 31
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 first
quarter of 2000.
<TABLE>
<CAPTION>
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- ---------- ------------------- -----------------------
<S> <C> <C> <C>
5 Yes ** January 25, 2000 January 27, 2000
</TABLE>
** Summary of Financial and Operational data for three and
twelve months ended December 31, 1999.
31
<PAGE> 32
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: April 28, 2000 By: /s/ Jeffrey W. Grossman
----------------------------
Jeffrey W. Grossman
Vice President and Controller
(Principal Accounting Officer
and Duly Authorized Officer)
32
<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 March 31, Ended December 31,
------------------ ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income (Loss) from Continuing Operations
before Income Taxes 502.1 480.1 513.2 449.1 403.5 331.8 (645.6)
Adjustments:
Interest during construction (2.7) (2.5) (2.8) (2.1) (3.0) (1.1) (20.2)
Distributed (Undistributed) equity income (6.4) (2.4) (5.8) (0.4) 3.6 1.5 (7.9)
Fixed charges 194.6 161.4 185.9 164.9 181.3 184.4 1,061.3
------- ------- ------- ------- ------- ------- -------
Earnings Available 687.6 636.6 690.5 611.5 585.4 516.6 387.6
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
Interest on long-term and short-term debt 155.5 143.7 152.9 145.4 145.6 150.8 987.2
Other interest 20.5 1.0 15.0 1.8 15.2 13.5 53.6
Portion of rentals representing interest 18.6 16.7 18.0 17.7 20.5 20.1 20.5
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges 194.6 161.4 185.9 164.9 181.3 184.4 1,061.3
------- ------- ------- ------- ------- ------- -------
Ratio of Earnings to Fixed Charges 3.53 3.94 3.71 3.71 3.23 2.80 N/A (a)
======= ======= ======= ======= ======= ======= =======
</TABLE>
Prior periods have been restated to reflect Columbia Energy Services Corporation
Wholesale and Trading and Major Accounts businesses 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 includes interest expense of $982.9 million including the
write-off of unamortized discounts on debentures recorded in 1995.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000022099
<NAME> COLUMBIA ENERGY GROUP AND SUBSIDIARIES
<SUBSIDIARY>
<NUMBER> 1
<NAME> CEG
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,428,600
<OTHER-PROPERTY-AND-INVEST> 787,000
<TOTAL-CURRENT-ASSETS> 1,106,100
<TOTAL-DEFERRED-CHARGES> 181,400
<OTHER-ASSETS> 353,700
<TOTAL-ASSETS> 6,856,800
<COMMON> 800
<CAPITAL-SURPLUS-PAID-IN> 1,612,100
<RETAINED-EARNINGS> 718,300
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,157,900
0
0
<LONG-TERM-DEBT-NET> 1,639,600
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 178,000
<LONG-TERM-DEBT-CURRENT-PORT> 312,300
0
<CAPITAL-LEASE-OBLIGATIONS> 2,700
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,569,000
<TOT-CAPITALIZATION-AND-LIAB> 6,856,800
<GROSS-OPERATING-REVENUE> 1,254,800
<INCOME-TAX-EXPENSE> 89,400
<OTHER-OPERATING-EXPENSES> 398,200
<TOTAL-OPERATING-EXPENSES> 971,400
<OPERATING-INCOME-LOSS> 283,400
<OTHER-INCOME-NET> 1,400
<INCOME-BEFORE-INTEREST-EXPEN> 284,800
<TOTAL-INTEREST-EXPENSE> 45,700
<NET-INCOME> 149,700
0
<EARNINGS-AVAILABLE-FOR-COMM> 149,700
<COMMON-STOCK-DIVIDENDS> 18,300
<TOTAL-INTEREST-ON-BONDS> 34,100
<CASH-FLOW-OPERATIONS> 409,500
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.83
</TABLE>
