-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FD6itUzfcu0pyKshtaGqJQK6S5sHAkaz5KWu8uvwtqXiG15C2OgMwhi2qxFlPTtX OhaUPepKuO+oAim4VFbxXw== 0000893220-02-000615.txt : 20020510 0000893220-02-000615.hdr.sgml : 20020510 ACCESSION NUMBER: 0000893220-02-000615 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA ENERGY GROUP CENTRAL INDEX KEY: 0000022099 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 131594808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01098 FILM NUMBER: 02641785 BUSINESS ADDRESS: STREET 1: 13880 DULLES CORNER LANE STREET 2: SUITE 300 CITY: HENDERON STATE: VA ZIP: 20171-4600 BUSINESS PHONE: 7035616000 MAIL ADDRESS: STREET 1: 13880 DULLES CORNER LANE STREET 2: SUITE 300 CITY: HERNDON STATE: VA ZIP: 20171-4600 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA GAS SYSTEM INC DATE OF NAME CHANGE: 19920703 10-Q 1 w60316e10-q.txt QUARTERLY REPORT FOR THE PERIOD ENDED 3/31/2002 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, 2002 [ ] 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.) 801 East 86th Avenue, Merrillville, IN 46410 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (877) 647-5990 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 [ ]. As of November 1, 2000, all shares of the registrant's Common Shares, $.01 par value, were issued and outstanding, all held beneficially and of record by NiSource Inc. The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. COLUMBIA ENERGY GROUP AND SUBSIDIARIES FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2002 TABLE OF CONTENTS
Page PART I FINANCIAL INFORMATION Item 1. Financial Statements Statements of Consolidated Income....................................... 3 Consolidated Balance Sheets............................................. 4 Statements of Consolidated Cash Flows................................... 6 Notes................................................................... 7 Item 2. Management's Narrative Analysis of Results of Operations................ 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............. 13 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................................... 14 Item 2. Changes in Securities and Use of Proceeds............................... 16 Item 3. Defaults Upon Senior Securities......................................... 16 Item 4. Submission of Matters to a Vote of Security Holders..................... 16 Item 5. Other Information....................................................... 16 Item 6. Exhibits and Reports on Form 8-K........................................ 16 Signature........................................................................ 17
2 PART I ITEM 1. FINANCIAL STATEMENTS COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (unaudited)
Three Months Ended March 31, ( in millions) 2002 2001 - ------------------------------------------- ---- ---- NET REVENUES Energy sales $ 608.4 $ 1,168.0 Less: Products purchased 349.8 854.0 ------- --------- Gross Margin 258.6 314.0 Transportation 273.2 258.5 Production gas sales 51.0 46.7 Other 41.2 48.5 ------- --------- Total Net Revenues 624.0 667.7 ------- --------- OPERATING EXPENSES Operation and maintenance 181.4 201.0 Depreciation and depletion 58.7 58.6 Gain on sale of assets (3.5) - Other taxes 62.2 65.2 ------- --------- Total Operating Expenses 298.8 324.8 ------- --------- OPERATING INCOME 325.2 342.9 ------- --------- OTHER INCOME (DEDUCTIONS) Interest income and other, net 5.4 (1.2) Interest expense and related charges (29.7) (46.8) ------- --------- Total Other Income (Deductions) (24.3) (48.0) ------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 300.9 294.9 INCOME TAXES 114.1 110.6 ------- --------- INCOME FROM CONTINUING OPERATIONS 186.8 184.3 ------- --------- DISCONTINUED OPERATIONS - NET OF TAXES Income (Loss) from operations - - Estimated (loss) on disposal - (1.0) ------- --------- Loss from Discontinued Operations - net of taxes - (1.0) ------- --------- Cumulative effect of change in accounting principle - 4.0 ------- --------- NET INCOME $ 186.8 $ 187.3 ======= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, December 31, (in millions) 2002 2001 ASSETS PROPERTY, PLANT AND EQUIPMENT Gas utility and other plant, at original cost $ 8,314.2 $ 8,267.0 Accumulated depreciation (3,936.1) (3,879.1) --------- --------- Net Gas Utility and Other Plant 4,378.1 4,387.9 --------- --------- Gas and oil producing properties, successful efforts method United States cost center 928.3 934.2 Canadian cost center 14.9 14.2 Accumulated depletion (417.0) (407.4) --------- --------- Net Gas and Oil Producing Properties 526.2 541.0 --------- --------- Net Property, Plant and Equipment 4,904.3 4,928.9 --------- --------- INVESTMENTS AND OTHER ASSETS Unconsolidated affiliates 32.2 28.9 Net assets of discontinued operations - 60.0 Affiliated Notes Receivable 23.9 23.9 Other 17.2 (13.2) --------- --------- Total Investments and Other Assets 73.3 99.6 --------- --------- CURRENT ASSETS Cash, temporary cash investments and affiliated money pool 359.3 53.8 Accounts receivable Customer (less allowance for doubtful accounts of $20.2 and $25.3, respectively) 350.3 385.0 Affiliated 111.8 81.3 Other 69.5 29.9 Gas inventory 15.7 195.7 Other inventories - at average cost 14.8 14.5 Prepayments 83.7 84.4 Regulatory assets 78.7 75.4 Underrecovered gas costs 44.0 60.1 Deferred property taxes 40.8 48.7 Exchange gas receivable 140.8 186.8 Price risk management assets 7.5 65.8 Other 149.0 103.1 --------- --------- Total Current Assets 1,465.9 1,384.5 --------- --------- REGULATORY ASSETS 368.8 364.2 DEFERRED CHARGES 120.1 117.5 --------- --------- TOTAL ASSETS $ 6,932.4 $ 6,894.7 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, December 31, (in millions) 2002 2001 - ------------- ---- ---- CAPITALIZATION AND LIABILITIES COMMON STOCK EQUITY Common stock, par value $.01 per share - issued 3,000 shares $ - $ - Additional paid in capital 1,369.2 1,370.5 Retained earnings 939.4 755.3 Accumulated other comprehensive income 35.5 51.3 --------- --------- Total Common Stock Equity 2,344.1 2,177.1 Long-Term Debt 1,354.0 1,356.9 --------- --------- Total Capitalization 3,698.1 3,534.0 --------- --------- CURRENT LIABILITIES Current maturities of long-term debt 281.7 281.7 Accounts and drafts payable 96.7 258.4 Affiliated payable 39.3 58.9 Accrued taxes 319.3 232.8 Accrued interest 63.7 28.6 Estimated rate refunds 14.1 9.1 Overrecovered gas costs - 45.6 Transportation and exchange gas payable 218.7 285.1 Deferred revenue 118.0 89.0 Customer accounts receivable credit balances 61.9 120.6 Other 418.3 341.7 --------- --------- Total Current Liabilities 1,631.7 1,751.5 --------- --------- OTHER LIABILITIES AND DEFERRED CREDITS Deferred income taxes, noncurrent 788.6 759.4 Investment tax credits 29.4 29.8 Postretirement benefits other than pensions 103.6 104.9 Regulatory liabilities 32.3 32.9 Deferred revenue 403.0 435.4 Other 245.7 246.8 --------- --------- Total Other Liabilities and Deferred Credits 1,602.6 1,609.2 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 6,932.4 $ 6,894.7 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Three Months Ended March 31, (in millions) 2002 2001 - ------------------------------------------- ---- ---- Operating Activities Net Income $ 186.8 $ 187.3 Adjustments to reconcile net income to net cash from continuing operations: Loss from discontinued operations -- 1.0 Cumulative effect of accounting change, net of tax -- (4.0) Depreciation and depletion 58.7 58.6 Deferred income taxes (96.6) (26.3) Loss/Earnings from equity investment, net of distributions (3.3) (2.7) Deferred revenue (3.4) (0.1) Other - net 89.0 12.1 ------- ------- 231.2 225.9 ------- ------- Changes in components of working capital: Accounts receivable, net (35.4) (351.4) Gas inventory 180.0 88.1 Prepayments 0.7 (0.9) Accounts payable (161.7) (159.5) Accrued taxes 86.5 132.8 Accrued interest 35.1 33.1 Estimated rate refunds 5.0 (3.1) Under/Overrecovered gas costs 16.1 364.4 Exchange gas receivable/payable (20.4) (4.0) Other working capital 13.3 (28.0) ------- ------- Net Cash from Continuing Operations 350.4 297.4 Net Cash from Discontinued Operations -- (15.5) ------- ------- Net Cash from Operating Activities 350.4 281.9 ------- ------- Investment Activities Capital expenditures (42.0) (63.0) Purchases and sales of investments - net -- 6.2 ------- ------- Net Investment Activities (42.0) (56.8) ------- ------- Financing Activities Issuance (repayment) of short-term debt -- (521.0) Intercompany short-term financing -- 292.2 Other financing activities (2.9) (5.0) ------- ------- Net Financing Activities (2.9) (233.8) ------- ------- Increase (Decrease) in cash, temporary cash investments and affiliated money pool 305.5 (8.7) Cash and temporary cash investments at beginning of year 53.8 73.5 ------- ------- Cash, Temporary Cash Investments and Affiliated Money Pool at End of Year $ 359.3 $ 64.8 ======= ======= Supplemental Disclosures of Cash Flow Information Cash paid for interest 9.4 9.4 Cash paid for income taxes (net of refunds) -- 5.3 ------- -------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 6 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 accounting principles generally accepted in the United States. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Columbia's Annual Report on Form 10-K (Form 10-K) for the fiscal year ended December 31, 2001. 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 2001 financial statements to conform to the 2002 presentation. The 2001 results have been adjusted to reflect the change to successful efforts accounting in Columbia's Exploration and Production segment. 2. RESTRUCTURING ACTIVITIES During 2000, Columbia developed and began the implementation of a plan to restructure its operations as a result of the acquisition of Columbia by NiSource Inc. (NiSource). The restructuring plan included a severance program, a transition plan to implement operational efficiency throughout Columbia's operations and a voluntary early retirement program. During 2001, the restructuring initiative was continued with the addition of a plan to restructure the operations within the Distribution segment. For all of the plans, a total of approximately 750 management, professional, administrative and technical positions will be eliminated. As of March 31, 2002, approximately 450 employees had been terminated. At March 31, 2002 and December 31, 2001, the consolidated balance sheets reflected liabilities of $31.5 million and $31.4 million related to the restructuring plans, respectively. A portion of the liability related to the October 2000 charge was transferred to NiSource. This related to the merger of Columbia Energy Group Services, Inc. with NiSource Corporate Services, Inc. The reported liabilities and employee counts have been reduced to take into account the effect of the merger. 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE On August 21 2001, Columbia sold the stock and assets of Columbia Propane to AmeriGas Partners L.P. (AmeriGas) for approximately $196.0 million, consisting of $152.0 million in cash and $44.0 million of AmeriGas partnership common units. The loss on the sale of Columbia Propane amounted to an after-tax loss of $50.6 million. Columbia has also sold substantially all the assets of Columbia Petroleum Corporation. The loss from discontinued operations and the estimated loss on disposal information are provided in the following table:
Three Months Ended March 31, (in millions) 2002 2001 - ------------------------------------------ ---- ---- Loss from discontinued operations - - Income tax benefit - - --- ----- Net Loss from Discontinued Operations $ - $ - --- ----- Estimated loss on disposal - 1.5 Income tax benefits - 0.5 --- ----- NET LOSS ON DISPOSAL $ - $ 1.0 --- -----
The net assets of the discontinued operations were as follows: 7 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, December 31, (in millions) 2002 2001 - ------------------------------------------ ---- ---- NET ASSETS OF DISCONTINUED OPERATIONS Accounts receivable, net $ - $ - Property, plant and equipment, net - - Other assets - 60.6 Accounts payable - (0.6) Other liabilities - - NET ASSETS OF DISCONTINUED OPERATIONS $ - $ 60.0
4. RISK MANAGEMENT ACTIVITIES Columbia uses commodity-based derivative financial instruments to manage certain risks inherent in its business. Columbia accounts for its derivatives under Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS NO. 133. The activity for 2002 with respect to cash flow hedges included the following:
(in millions, net of tax) 2002 - ------------------------- ---- Net unrealized gains on derivatives qualifying as cash flow hedges at December 31, 2001 $ 52.4 Unrealized hedging gains arising during the period on derivatives qualifying as cash flow hedges 9.2 Reclassification adjustment for net gain included in net income (25.0) ------ Net unrealized gains on derivatives qualifying as cash flow hedges, net of tax $ 36.6 ------
Unrealized gains and losses on Columbia's cash flow and fair value hedges were recorded as price risk management assets and liabilities. The accompanying Consolidated Balance Sheets reflected price risk management assets related to unrealized gains and losses on hedges of $62.8 million and $65.2 million at March 31, 2002, and December 31, 2001, respectively, of which $7.5 and $65.1 million were included in "Current Assets" and $55.3 and $0.1 million were included in "Deferred Charges." Price risk management liabilities related to unrealized gains and losses on hedges were $13.6 million and $4.8 million at March 31, 2002, and December 31, 2001, respectively, all of which was included in "Current Liabilities." During the first quarter of 2002, a net loss of approximately $0.7 million, net of tax, was recognized in earnings due to time value and there were no components of the derivatives' fair values excluded in the assessment of hedge effectiveness. Also during the first quarter, Columbia reclassified $2.4 million, net of tax, related to its cash flow hedges of natural gas production, from other comprehensive income to earnings due to the probability that the forecasted transactions would not occur. It is anticipated that during the next twelve months the expiration and settlement of cash flow hedge contracts will result in net loss recognition of amounts currently classified in other comprehensive income of approximately $2.0 million, net of tax. 8 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. PRESENTATION OF SEGMENT INFORMATION Columbia manages its operations in four primary segments: 1) distribution, 2) transmission and storage, 3) exploration and production, and 4) other products and services. 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. 9 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions) 2002 2001 - ------------- ---- ---- REVENUES DISTRIBUTION Unaffiliated $ 708.9 $ 1,279.3 Intersegment and affiliates 4.6 0.3 ------- --------- Total 713.5 1,279.6 ------- --------- TRANSMISSION AND STORAGE Unaffiliated 174.0 183.1 Intersegment and affiliates 71.2 72.4 ------- --------- Total 245.2 255.5 ------- --------- EXPLORATION AND PRODUCTION Unaffiliated 58.2 53.2 Intersegment and affiliates 15.4 1.8 ------- --------- Total 73.6 55.0 ------- --------- OTHER PRODUCTS AND SERVICES Unaffiliated 5.5 9.3 Intersegment and affiliates 0.1 0.1 ------- --------- Total 5.6 9.4 ------- --------- Adjustments and eliminations (67.9) (71.4) ------- --------- Transportation Cost * 3.8 (6.4) ------- --------- CONSOLIDATED REVENUES $ 973.8 $ 1,521.7 ------- ---------
*Transportation revenues on consolidated income statement were adjusted by these costs.
(in millions) 2002 2001 - ------------- ---- ---- OPERATING INCOME (LOSS) Distribution $ 151.7 $ 190.2 Transmission and Storage 125.8 140.4 Exploration and Production 38.4 17.8 Other Products and Services 9.7 (4.8) Corporate (0.4) (0.7) CONSOLIDATED $ 325.2 $ 342.9
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS NOS. 141 AND 142 - BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The key requirements of the two interrelated Statements include mandatory use of the purchase method of accounting for business combinations, discontinuance of goodwill amortization, a revised framework for testing for goodwill impairment at a "reporting unit" level, and new criteria for the identification and potential amortization of other intangible assets. Other changes to existing accounting standards involve the amount of goodwill to be used in determining the gain or loss on the disposal of assets and a requirement to test goodwill for impairment at least annually. The Business Combinations Statement is generally effective for combinations initiated after June 30, 2001. The Statement on Goodwill and Other Intangible Assets is effective for fiscal years beginning after December 15, 2001. Columbia presently has no goodwill recorded, and therefore, these new statements do not presently affect the company. 10 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS COLUMBIA ENERGY GROUP AND SUBSIDIARIES Columbia meets the conditions specified in General Instruction H(1)(a) and (b) to Form 10-Q and is permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, such as NiSource, that are reporting companies under the Securities Exchange Act of 1934. Accordingly, this Columbia Management's Narrative Analysis of Results of Operations is included in this report, and Columbia has omitted from this report the information called for by Part I. Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations). Forward Looking Statements The Management's Narrative 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 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. The following Management's Narrative Analysis should be read in conjunction with the Columbia Annual Report on Form 10-K for the fiscal year ended December 31, 2001. FIRST QUARTER 2002 CONSOLIDATED RESULTS Net Income Columbia reported net income for the first quarter 2002 of $186.8 million, a decrease of $0.5 million from the first quarter of 2001, primarily due to warmer weather that decreased volumes delivered to the Distribution segment customers. Weather for the 2002 period was 14% warmer compared to the same period in 2001. Offsetting this decrease in lower net revenues were lower operation and maintenance and interest expenses. Net Revenues First quarter 2002 consolidated net revenues (operating revenues less associated products purchased costs) were $624.0 million, a $43.7 million decrease over the same period last year. This decrease was primarily attributable to 14% warmer weather and decreased demand due to the economic downturn. Partially offsetting this decrease were increased revenues in the Exploration and Production segment reflecting the benefits of favorable hedge positions for production in the 2002 period. Expenses Operating expenses for the first quarter of 2002 were $298.8 million, a decrease of $26.0 million over the same period last year. The decrease was mainly due to lower operating and maintenance expenses of $19.6 million primarily due to decreased labor costs, lower amounts for uncollectible customer receivables and the benefit of insurance recoveries for environmental remediation costs. Also reducing expenses was an additional recovery from the sale of assets of Columbia Energy Services. 11 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Other Income (Deductions) Other Income (Deductions) reduced pre-tax income by $24.3 million for the first quarter of 2002 compared to a reduction of $48.0 million in the same period last year. This change is primarily due to a decrease in interest expense from lower interest rates. Income Taxes Income tax expense of $114.1 million for the first quarter of 2002 increased $3.5 million due to higher pre-tax income. Discontinued Operations For the first three months in 2002, Columbia had no activity from discontinued operations due to the completion of its sales of its propane and petroleum operations in 2001. In the first quarter of 2001, Columbia's discontinued operations recorded an after-tax loss on disposal of $1.0 million relating to its propane business. 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 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. Columbia satisfies its liquidity requirements primarily through internally generated funds and through intra-system financing arrangements with NiSource Finance Corp. (NFC), NiSource's financing subsidiary. NFC borrows funds through its revolving credit facility and through the commercial paper markets. NFC maintains a $1.75 billion revolving credit facility with a syndicate of banks for advance purposes and for back-up liquidity purposes for its commercial paper program. The credit facility is guaranteed by NiSource. As of March 31, 2002, Columbia did not have any intercompany short-term borrowings with NFC outstanding. In addition, at March 31, 2002, Columbia had letters of credit issued and outstanding of $17.0 million. Columbia has entered into interest rate swap agreements to modify the interest characteristics of its outstanding long-term debt. Under the terms of all the swap agreements, Columbia pays interest based on a floating rate index and receives interest based on a fixed rate. The effect of these agreements is to modify the interest rate characteristics of a portion of Columbia's long-term debt from fixed to variable. In October 1999, Columbia of Ohio entered into an agreement to sell, without recourse, substantially all of its trade accounts receivable to Columbia Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia. At the same time, CARC entered into an agreement, with a third party, Canadian Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a defined pool of accounts receivable (Sales Program). Under this Sales Program, CARC can transfer an undivided interest in a designated pool of its accounts receivable on an ongoing basis up to a maximum of either $125.0 million or $100.0 million, as determined by the seasonal fluctuation in Columbia of Ohio's account receivable balances and the mutual consent of both parties. The amount available at any measurement date varies based upon the level of eligible receivables. Under these agreements, CARC may not sell any new affiliate receivables to the conduit if Columbia's debt rating falls below BBB or Baa2 at Standard and Poor's and Moody's, respectively. In addition, if Columbia's debt rating falls below investment grade, the agreements terminate and CARC may not sell any new affiliate receivables to the conduit. Under this agreement, approximately $125.0 million of receivables were sold as of March 31, 2002. 12 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Management believes that its sources of funding are sufficient to meet the short-term and long-term liquidity needs of Columbia. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omitted pursuant to General Instruction H(2)(c). 13 PART II ITEM 1. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES 1. CANADA SOUTHERN PETROLEUM LTD. V. COLUMBIA GAS DEVELOPMENT OF CANADA LTD. This action was originally filed March 7, 1990. The plaintiffs asserted, 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 sought, 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 Canada consented to the amendment in consideration of the plaintiffs' acknowledgment that approximately $63 million was properly charged to the account. Pursuant to an Indemnification Agreement regarding the Kotaneelee Litigation entered into when Columbia Canada was sold to Anderson Exploration Ltd. (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. An escrow account provides security for the indemnification obligation and is funded by a letter of credit with a face amount of approximately $35,835,000 (Cdn). A trial commenced in the third quarter of 1996 in the Court of Queen's Bench for the Province of Alberta and judgment was issued in September 2001. The court dismissed most of the plaintiffs' claims, including the fiduciary duty claim, but did order a reduction of the Carried Interest Account in the amount of $5.3 million (Cdn.) and ordered that the defendants were not entitled to charge the plaintiffs processing fees. The inability to charge the plaintiffs processing fees does not affect Columbia. The monetary value of these two items has not been determined. The plaintiffs have filed an appeal of the judgment. The Court has not yet set a date when it will hear the appeal; however, it has established a schedule for the filing of the arguments and responses of the parties, all of which must be completed by November 30, 2002. 2. UNITED STATES OF AMERICA EX REL. JACK J. GRYNBERG V. COLUMBIA GAS TRANSMISSION CORP., ET AL. The plaintiff filed a complaint under the False Claims Act, on behalf of the United States of America, against approximately seventy pipelines. The plaintiff claimed that the defendants had submitted false royalty reports to the government (or caused others to do so) by mismeasuring the volume and heating content of natural gas produced on Federal land and Indian lands. Plaintiff's original complaint was dismissed without prejudice for misjoinder of parties and for failing to plead fraud with specificity. In 1997, the plaintiff then filed over sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal courts. One of those complaints was filed in the Federal District Court for the Eastern District of Louisiana against Columbia and twelve affiliated entities. Plaintiff's second complaint repeats the mismeasurement claims previously made and 14 ITEM 1. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES adds valuation claims alleging that the defendants have undervalued natural gas for royalty purposes in various ways, including by making sales to affiliated entities at artificially low prices. Most of the Grynberg cases were transferred to Federal court in Wyoming in 1999. In December 1999, the Columbia defendants filed a motion to dismiss plaintiff's second complaint primarily based on a failure to plead fraud with specificity. In May 2001, the Court denied the Columbia defendants' motion to dismiss. The Columbia defendants joined together with numerous other defendants and filed a motion requesting the district court to amend its order to include a certification so that the defendants could request permission from the United States Court of Appeals for the Tenth Circuit to appeal a controlling question of law. That motion was denied on July 2, 2001. 3. QUINQUE OPERATING CO. ET AL V. GAS PIPELINES, ET AL. Plaintiff filed an amended complaint in Stevens County, Kansas state court on September 23, 1999, against over 200 natural gas measurers, mostly natural gas pipelines, including Columbia and fourteen affiliated entities. The allegations in Quinque are similar to those made in Grynberg; however, Quinque broadens the claims to cover all oil and gas leases (other than the Federal and Indian leases that are the subject of Grynberg). Quinque asserts a breach of contract claim, negligent or intentional misrepresentation, civil conspiracy, common carrier liability, conversion, violation of a variety of Kansas statutes and other common law causes of action. Quinque purports to be a nationwide class action filed on behalf of all similarly situated gas producers, royalty owners, overriding royalty owners, working interest owners and certain state taxing authorities. The defendants had previously removed the case to Federal court. On January 12, 2001, the Federal court remanded the case to state court. In June 2001, the plaintiff voluntarily dismissed nine of the thirteen Columbia entities. Discovery relating to personal jurisdiction has begun. On September 12, 2001 the four remaining Columbia defendants along with other defendants filed a joint motion to dismiss the amended complaint. That motion is currently pending before the court. 4. VIVIAN K. KERSHAW ET AL. V. COLUMBIA NATURAL RESOURCES, INC., ET AL. In February 2000, plaintiff filed a complaint in New York state court against Columbia, Columbia Natural Resources, Inc. and Columbia Transmission. The complaint alleges that Kershaw owns an interest in an oil and gas lease in New York and that the defendants have underpaid royalties on those leases by, among other things, failing to base royalties on the price at which natural gas is sold to the end user and by improperly deducting post-production costs. The complaint also seeks class action status on behalf of all royalty owners in oil and gas leases operated by Columbia Resources. Plaintiff seeks the alleged royalty underpayments and punitive damages. Columbia Resources and Columbia Transmission removed the case to Federal court in March 2000. The Federal court has now remanded Kershaw back to New York state court. The Columbia defendants' motion to dismiss was partially granted and partially denied by the New York state court judge on September 24, 2001. On December 3, 2001 the defendants filed an answer to the plaintiffs' complaint. 5. ANTHONY GONZALEZ, ET AL. V. NATIONAL PROPANE CORPORATION, ET AL. On December 11, 1997, plaintiffs Anthony Gonzalez, Helen Pieczynski, as Special Administrator of the Estate of Edmund Pieczynski, deceased, Michael Brown and Stephen Pieczynski filed a multiple-count complaint for personal injuries in the Circuit Court of Cook County, Illinois against National Propane Corporation and the Estate of Edmund Pieczynski sounding in strict tort liability and negligence. National Propane Corporation was acquired by Columbia in 1999, and this litigation was retained by Columbia when Columbia Propane was sold in 2001. Plaintiff's complaint arises from an explosion and fire, which occurred in a Wisconsin vacation cottage in 1997. National Propane, L.P. filed a third-party complaint for contribution against Natural Gas Odorizing and Phillips Petroleum Company. Written discovery has been completed and the parties are conducting oral discovery of the fact witnesses. The case has a scheduled trial date of October 17, 2002. 6. COLUMBIA GAS TRANSMISSION CORP. V. CONSOLIDATION COAL CO., ET AL. On December 21, 1999, Columbia Transmission filed a complaint in Federal court in Pittsburgh, Pennsylvania 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 (Victory) in northern West Virginia. The complaint was served on April 10, 2000. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described below. 15 ITEM 1. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES 7. MCELROY COAL COMPANY V. COLUMBIA GAS TRANSMISSION CORPORATION. On February 12, 2001, McElroy Coal Company (McElroy), an affiliate of Consolidation Coal Co., filed a complaint against Columbia Transmission in Federal court in Wheeling, West Virginia. The West Virginia complaint seeks declaratory and injunctive relief as to McElroy's alleged right to mine coal within Victory, and Columbia Transmission's obligation to take all necessary measures to permit McElroy to longwall mine. The complaint also seeks compensation for the inverse condemnation of any coal that cannot be mined due to Columbia Transmission's Victory operations. Except for the claim of inverse condemnation, McElroy's West Virginia complaint appears to be virtually identical to Consol's original counterclaim to Columbia Transmission's Federal court action in Pennsylvania. On April 10, 2001, the West Virginia case was dismissed without prejudice. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described above. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Omitted pursuant to General Instruction H(2)(b) ITEM 3. DEFAULTS UPON SENIOR SECURITIES Omitted pursuant to General Instruction H(2)(b) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Omitted pursuant to General Instruction H(2)(b) ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS TO FORM 10-Q Exhibit Number 12* Statements of Ratio of Earnings to Fixed Charges *Filed herewith There were no reports on Form 8-K filed during the first quarter of 2002. 16 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: May 10, 2002 By: /s/ Jeffrey W. Grossman ------------------------------------- Jeffrey W. Grossman Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) 17 EX-12 3 w60316ex12.txt STATEMENTS OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 COLUMBIA ENERGY GROUP AND SUBSIDIARIES Statements of Ratio of Earnings to Fixed Charges ($ in millions)
Twelve Months Twelve Months Ended March 31, Ended December 31, ------------------ --------------------------------------------------------- 2002 2001 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- ---- CONSOLIDATED INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES: 395.3 511.6 389.2 449.0 556.1 461.1 397.0 ADJUSTMENTS: Interest during construction (2.3) (2.3) (2.2) (2.2) (2.8) (2.1) (3.0) Distributed (Undistributed) equity income (0.6) (4.9) 2.2 (5.5) (5.8) (0.4) 3.6 Fixed charges * 161.1 191.7 177.9 192.8 183.8 163.3 180.5 ----- ----- ----- ----- ----- ----- ----- Earnings available 553.5 696.1 567.1 634.1 731.3 621.9 578.1 *FIXED CHARGES: Interest on long-term and short-term debt 116.8 151.5 123.6 154.3 152.9 145.4 145.6 Other interest 35.7 22.2 45.9 18.3 14.9 1.4 15.2 Portion of rentals representing interest 8.6 18.0 8.4 20.2 16.0 16.5 19.7 ----- ----- ----- ----- ----- ----- ----- Total Fixed Charges 161.1 191.7 177.9 192.8 183.8 163.3 180.5 RATIO OF EARNINGS TO FIXED CHARGES 3.44 3.63 3.19 3.29 3.98 3.81 3.20 ===== ===== ===== ===== ===== ===== ===== Prior periods have been restated to reflect discontinued operations.
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