-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, btphvkRmi3RXN7aUQUS2iiR/njKHe46+4e/I20CTExA9ksIjH7JWnjw2FArBLTb/ 54qYAmumNKt0ACOaehwxlA== 0000893220-95-000516.txt : 19950814 0000893220-95-000516.hdr.sgml : 19950814 ACCESSION NUMBER: 0000893220-95-000516 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA GAS SYSTEM INC 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: 95561385 BUSINESS ADDRESS: STREET 1: 20 MONTCHANIN RD CITY: WILMINGTON STATE: DE ZIP: 19807 BUSINESS PHONE: 3024295000 10-Q 1 FORM 10-Q, THE COLUMBIA GAS SYSTEM, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 1995 [ ] 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 THE COLUMBIA GAS SYSTEM, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 13-1594808 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 20 Montchanin Road, Wilmington, Delaware 19807 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (302) 429-5000 SINCE JULY 31, 1991, THE COLUMBIA GAS SYSTEM, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, COLUMBIA GAS TRANSMISSION CORPORATION, HAVE BEEN OPERATING UNDER BANKRUPTCY COURT PROTECTION PURSUANT TO CHAPTER 11 OF THE FEDERAL BANKRUPTCY CODE. 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 filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $10 Par Value: 50,573,335 shares outstanding at July 31, 1995. 2 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 1995 TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION - ------ --------------------- Item 1 Financial Statements Statements of Consolidated Income 1 Condensed Consolidated Balance Sheets 2 Consolidated Statements of Cash Flows 3 Consolidated Statements of Common Stock Equity 4 Notes 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II OTHER INFORMATION - ------- ----------------- Item 1 Legal Proceedings 38 Item 2 Changes in Securities 43 Item 3 Defaults Upon Senior Securities 43 Item 4 Submission of Matters to a Vote of Security Holders 43 Item 5 Other Information 43 Item 6 Exhibits and Reports on Form 8-K 43 Signature 44
3 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS The Columbia Gas System, Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME (unaudited)
Three Months Six Months Ended June 30, Ended June 30, ------------------ ------------------- 1995 1994 1995 1994 ------ ------ -------- -------- (millions) OPERATING REVENUES Gas sales $297.6 $359.0 $1,131.8 $1,265.6 Transportation 129.1 114.3 276.9 299.9 Other 48.0 49.7 117.9 116.4 ------ ------ -------- -------- Total Operating Revenues 474.7 523.0 1,526.6 1,681.9 ------ ------ -------- -------- OPERATING EXPENSES Products purchased 87.9 137.7 525.1 659.5 Operation 222.9 209.2 456.1 451.5 Maintenance 30.8 30.5 53.4 55.8 Depreciation and depletion 59.9 59.8 143.6 134.6 Other taxes 46.3 46.2 121.6 118.7 ------ ------ -------- -------- Total Operating Expenses 447.8 483.4 1,299.8 1,420.1 ------ ------ -------- -------- OPERATING INCOME 26.9 39.6 226.8 261.8 ------ ------ -------- -------- OTHER INCOME (DEDUCTIONS) Interest income and other, net 2.8 35.5 8.8 22.1 Interest expense and related charges* (6.7) (6.6) (12.2) 10.2 Reorganization items, net 21.8 8.3 32.5 12.3 ------ ------ -------- -------- Total Other Income 17.9 37.2 29.1 44.6 ------ ------ -------- -------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 44.8 76.8 255.9 306.4 Income Taxes 13.9 29.0 96.2 118.4 ------ ------ -------- -------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 30.9 47.8 159.7 188.0 Cumulative effect of change in accounting for postemployment benefits - - - (5.6) ------ ------ -------- -------- NET INCOME $ 30.9 $ 47.8 $ 159.7 $ 182.4 ====== ====== ======== ======== EARNINGS PER SHARE OF COMMON STOCK (based on average shares outstanding) Before accounting change $ 0.61 $ 0.95 $ 3.16 $ 3.72 Change in accounting for postemployment benefits - - - (0.11) ------ ------ -------- -------- EARNINGS ON COMMON STOCK $ 0.61 $ 0.95 $ 3.16 $ 3.61 ====== ====== ======== ======== AVERAGE COMMON SHARES OUTSTANDING (thousands) 50,568 50,559 50,566 50,559
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. *Due to the bankruptcy filings, interest expense of approximately $67 million and $55 million has not been recorded for the three months ended June 30, 1995 and 1994, respectively, and approximately $132 million and $109 million has not been recorded for the six months ended June 30, 1995, and 1994, respectively. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 1 4 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
As of ------------------------------------- June 30, 1995 December 31, 1994 ------------- ----------------- (unaudited) ASSETS (millions) PROPERTY, PLANT AND EQUIPMENT Gas utility and other plant, at original cost $ 6,729.2 $ 6,637.5 Accumulated depreciation and depletion (3,266.3) (3,180.8) --------- --------- Net Gas Utility and Other Plant 3,462.9 3,456.7 --------- --------- Oil and gas producing properties, full cost method 1,259.5 1,261.9 Accumulated depletion (650.3) (637.6) --------- --------- Net Oil and Gas Producing Properties 609.2 624.3 --------- --------- Net Property, Plant and Equipment 4,072.1 4,081.0 --------- --------- INVESTMENTS AND OTHER ASSETS 279.7 306.4 --------- --------- CURRENT ASSETS Cash and temporary cash investments 1,906.7 1,481.8 Accounts receivable, net 396.5 547.8 Gas inventory 180.5 230.3 Prepayments 98.6 134.2 Other 116.9 91.0 --------- --------- Total Current Assets 2,699.2 2,485.1 --------- --------- DEFERRED CHARGES 285.6 292.4 --------- --------- TOTAL ASSETS $ 7,336.6 $ 7,164.9 ========= ========= CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock equity $ 1,628.0 $ 1,468.0 Long-term debt 4.0 4.3 --------- --------- Total Capitalization 1,632.0 1,472.3 --------- --------- CURRENT LIABILITIES Accounts and drafts payable 127.2 153.2 Accrued taxes 151.8 175.2 Estimated rate refunds 76.3 92.2 Estimated supplier obligations 60.0 69.7 Overrecovered gas costs 151.1 59.5 Transportation and exchange gas payable 28.9 35.1 Other* 270.5 275.0 --------- --------- Total Current Liabilities 865.8 859.9 --------- --------- LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS 3,991.7 3,988.9 --------- --------- OTHER LIABILITIES AND DEFERRED CREDITS Income taxes, noncurrent 395.4 344.1 Postretirement benefits other than pensions 225.2 236.3 Other 226.5 263.4 --------- --------- Total Other Liabilities and Deferred Credits 847.1 843.8 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 7,336.6 $ 7,164.9 ========= =========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. *Due to the bankruptcy filings, estimated accrued interest of approximately $862 million and $730 million has not been recorded as of June 30, 1995 and December 31, 1994, respectively. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 2 5 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, -------------------------- 1995 1994 -------- -------- (millions) OPERATIONS ACTIVITIES Net Income $ 159.7 $ 182.4 Adjustments for items not requiring (providing) cash: Depreciation and depletion 143.6 134.6 Deferred income taxes 31.4 67.3 Loss on sale of partnership interest 2.9 - Change in accounting for postemployment benefits - 5.6 Other - net (8.4) (32.4) Change in components of working capital: Accounts receivable 171.5 181.0 Gas inventory 49.7 41.6 Prepayments 42.6 32.3 Accounts payable 2.0 (12.6) Accrued taxes (30.0) (9.0) Estimated rate refunds (42.9) (121.7) Estimated supplier obligations (2.2) (16.0) Overrecovered gas costs 91.6 10.3 Exchange gas payable (6.7) (11.6) Other working capital (12.1) 78.4 -------- -------- Net Cash From Operations 592.7 530.2 -------- -------- INVESTMENT ACTIVITIES Capital expenditures* (155.2) (165.6) Other investments - net 12.6 (0.1) -------- -------- Net Investment Activities (142.6) (165.7) -------- -------- FINANCING ACTIVITIES Retirement of long-term debt (0.4) (0.5) Decrease in short-term debt and other financing activities (24.8) (10.7) -------- -------- Net Financing Activities (25.2) (11.2) -------- -------- Increase in Cash and Temporary Cash Investments 424.9 353.3 Cash and Temporary Cash Investments at Beginning of Year 1,481.8 1,340.4 -------- -------- Cash and Temporary Cash Investments at June 30** $1,906.7 $1,693.7 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest 0.5 0.2 Cash paid for income taxes (net of refunds) 39.5 23.5
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. * Includes amounts transferred from cash paid to employees and for other employee benefits and other operating cash payments. **The Corporation considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 3 6 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
As of ------------------------------ June 30, December 31, 1995 1994 -------- ------------ (unaudited) (millions) COMMON STOCK EQUITY Common stock, $10 par value, authorized 100,000,000 shares, outstanding 50,573,335 and 50,563,335 shares, respectively $ 505.7 $ 505.6 Additional paid in capital 602.1 601.9 Retained earnings 590.2 430.5 Unearned employee compensation (70.0) (70.0) -------- -------- TOTAL COMMON STOCK EQUITY $1,628.0 $1,468.0 ======== ========
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 4 7 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries NOTES 1. Basis of Accounting Presentation On July 31, 1991, The Columbia Gas System, Inc. (the Corporation) and its wholly-owned subsidiary, Columbia Gas Transmission Corporation (Columbia Transmission), filed separate petitions for protection under Chapter 11 of the Federal Bankruptcy Code. As a result, the two companies are operating their businesses as debtors-in-possession under the jurisdiction of the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court) and cannot engage in transactions outside the ordinary course of business without Bankruptcy Court approval. The accompanying consolidated financial statements reflect all adjustments necessary, in the opinion of management, to present fairly the results of operations in accordance with generally accepted accounting principles applicable to a going concern. Such presentation contemplates the realization of assets and payment of liabilities in the ordinary course of business. As a result of reorganization proceedings under Chapter 11, the debtor companies may take, or be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the financial statements. The appropriateness of continuing to present consolidated financial statements on a going concern basis is dependent upon, among other things, the terms of the ultimate plan of reorganization and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary as a result of the outcome of the uncertainties discussed herein. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation's 1994 Annual Report on Form 10-K and the 1995 First Quarter Form 10-Q. 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 1994 financial statements to conform to the 1995 presentation. 2. Bankruptcy Matters Reorganization Proceedings Under the Federal Bankruptcy Code, actions by creditors to collect prepetition indebtedness are stayed and other contractual obligations may not be enforced against either the Corporation or Columbia Transmission. As debtors-in-possession, both the Corporation and Columbia Transmission have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. In this context, "rejection" means that the debtor companies are relieved from their obligations to perform further under the contract or lease but are subject to a claim for damages for the breach thereof. Any damages resulting from rejection are treated as general unsecured claims in the reorganization. The parties affected by rejections of contracts by Columbia Transmission have filed or may file claims with the Bankruptcy Court in accordance with bankruptcy procedures. 5 8 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Proposed Plans of Reorganization The Corporation and Columbia Transmission filed plans of reorganization and related disclosure statements with the Bankruptcy Court on April 17, 1995 which have been subsequently amended. The amended plans of reorganization (Plans) incorporate settlements Columbia Transmission reached with certain of its producer creditors and with its customer creditors and describe the terms of the new securities to be issued by the Corporation and the methodology to be used in pricing these securities. The Plans provide that Columbia Transmission will remain a wholly-owned subsidiary of the Corporation. Columbia Transmission will continue to offer an array of transportation and storage services, and will retain ownership of its approximately 19,000-mile pipeline network and related facilities. Assuming the Plans are confirmed as filed, management expects that the Corporation will emerge with investment-grade debt ratings. Both Plans, as filed, are contingent on numerous conditions being met including such items as sufficient class acceptance of the Securities Litigation settlement, approval of the Bankruptcy Court or the District Court of the settlements embodied in the Plans, an Internal Revenue Service (IRS) ruling and Securities and Exchange Commission (SEC) approval under the Public Utility Holding Company Act of the financing and restructuring of the Corporation's Plan and the Corporation's participation in Columbia Transmission's Plan, all of which are discussed in more detail in the disclosure statements filed with the Plans. On July 18, 1995, the Bankruptcy Court approved the adequacy of Columbia Transmission's disclosure statement with some modifications of a non-material nature. On July 27, 1995, the Bankruptcy Court approved the adequacy of the Corporation's disclosure statement and issued orders approving procedures for Columbia Transmission and the Corporation to proceed in soliciting votes of creditors and equity securityholders in connection with the Plans. The Bankruptcy Court also set the confirmation hearings on both Plans to begin November 13, 1995. The Corporation's and Columbia Transmission's most recent Plans filed with the Bankruptcy Court, together with their respective disclosure statements, were filed on Form 8-K on August 4, 1995. Corporation's Plan The Corporation anticipates emergence by December 31, 1995, and proposes total distributions at that time of approximately $3.6 billion to its creditors in accordance with the provisions of its Plan, which includes $2.3 billion in payment of the Corporation's prepetition debt and $1.1 billion of interest on that debt. The Official Committee of Equity Security Holders for the Corporation supports the Plan in its current form. The Official Committee of Unsecured Creditors of The Columbia Gas System, Inc. (Creditors' Committee) have a few remaining areas of disagreement with the Plans which they have indicated do not affect the Creditors' Committee's basic support for the Plan. The Corporation's Plan proposes paying creditors the full amount of their principal balances and accrued prepetition and postpetition interest and interest on overdue interest through distribution of: o Approximately $2.1 billion in new debt securities, with maturities ranging from 5 to 30 years; and o About $200 million in preferred stock and $200 million in Dividend Enhanced Convertible Securities(TM). o About $900 million in cash, to be funded in large part by new bank debt; 6 9 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The interest rates on the proposed new debt securities and the dividend rates and other financial terms of the proposed new equity securities will be based on market levels at the time of emergence. However, in connection with its issuance of debt securities, the Corporation has requested SEC approval, and will require Bankruptcy Court approval, to use hedging instruments to obtain current market interest rates and limit its exposure to a potential rise in long-term interest rates. The Corporation's Plan also provides for the implementation of a settlement of the class action litigation as described below. Columbia Transmission's Plan Columbia Transmission's Plan is supported financially by the Corporation, and proposes a total distribution by December 31, 1995, or as soon thereafter as practical, of approximately $3.9 billion to its creditors, including approximately $2.2 billion to the Corporation to resolve its secured and unsecured claims, about $1.2 billion to resolve producer claims, assuming 100 percent producer participation, and about $500 million to resolve other third party claims. The Official Committee of Unsecured Creditors of Columbia Gas Transmission Corporation (Columbia Transmission Creditors' Committee), Official Committee of Customers of Columbia Gas Transmission, as well as major producer creditors subject to the producer settlement agreement, described below, support Columbia Transmission's Plan. In addition to incorporating terms of the producer settlement agreement, the Plan incorporates terms of a settlement with almost all firm customers, state regulatory agencies and consumer groups, also discussed below. The producer settlement agreement was approved by the Bankruptcy Court on June 16, 1995, and reflects settlements and minimum distributions for claims filed against Columbia Transmission by 17 major gas producers and a significant number of Appalachian producers (approximately 140). These producers represent in aggregate approximately 70 percent of the producer claims amounts as filed against Columbia Transmission, seven percent of the total number of producer creditors and 80 percent of the approximate $1.6 billion that Columbia Transmission's Plan proposes to recognize as the aggregate allowed claims level for all producer claims. Subsequent to the Bankruptcy Court's approval of the settlement an additional 330 producers agreed to settlement amounts with Columbia Transmission bringing the total level of acceptance to approximately 76 percent of the total claims filed, approximately 23 percent of the total producer creditors and approximately 92 percent of the aggregate amount of allowed claims proposed in Columbia Transmission's Plan. On July 20, 1995, Columbia Transmission filed a second producer settlement seeking the Bankruptcy Court's approval of additional settlements reached with 89 of those producers. The producer settlement agreement contemplates that distributions under Columbia Transmission's Plan will occur no later than June 28, 1996. Columbia Transmission's Plan reflects the provisions of the producer settlement agreements. It also includes offers of settlement to producer claimants who are not parties to the producer settlements approved by the Bankruptcy Court. The Plan provides that producers who reject the settlement offers contained in Columbia Transmission's Plan may continue to litigate their claims under the Bankruptcy Court-approved estimation procedure and will receive the same 7 10 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) percentage payout on their claims, when and if ultimately allowed, as received by the settling producers. Columbia Transmission's Plan provides that, until the total amount of contested producer claims is established, five percent of the amount distributable to all producer claimants will be withheld. The five percent holdback will be used with a matching contribution by reorganized Columbia Transmission to the extent necessary, to fund distributions on currently contested producer claims which are ultimately liquidated in an aggregate amount in excess of those proposed by Columbia Transmission's Plan. If the holdback is exhausted, any further increase would be funded entirely by Columbia Transmission, backed by the Corporation's guaranty. Also incorporated in Columbia Transmission's Plan are the terms of a major settlement between Columbia Transmission and Columbia Gulf Transmission Company (Columbia Gulf), firm customers, state regulatory agencies and consumer groups that resolves virtually all outstanding Federal Energy Regulatory Commission (FERC) Order No. 636 (Order 636) transition cost, rate and bankruptcy matters that were pending before the FERC. The FERC approved this settlement on June 15, 1995. Generally, the settlement defines Columbia Transmission's and Columbia Gulf's refund obligations to their customers in pending regulatory proceedings, and determines Columbia Transmission's ability to recover certain costs associated with the restructuring of its services under Order 636, including certain costs relating to issues pending in the bankruptcy proceedings. The settlement contemplates payment of an estimated $170 million in refunds, including postpetition amounts, to Columbia Transmission's customers. In addition, an estimated $200 million will be collected from Columbia Transmission's customers, depending upon when the settlement is implemented. Refunds to be paid under the settlement resolve all issues relating to the flowthrough of customer refunds involved in the bankruptcy reorganization, all issues surrounding Columbia Transmission's collection of gas purchase costs, its own Order No. 500/528 costs and gas inventory pipeline charges, all issues surrounding Columbia Transmission's ability to flowthrough upstream Order No. 528 amounts, including settlement of the Baltimore Gas & Electric vs. FERC litigation, implementation of a previous rate case settlement of Columbia Transmission and Columbia Gulf, and Columbia Transmission's collection of payments made to terminate contracts with certain upstream pipelines. Columbia Transmission's Plan monetizes the enterprise value of Columbia Transmission and provides for the Corporation's guaranty of all third-party distributions required under the amended Plan. Columbia Transmission's Plan proposes to pay: o 100 percent of all priority and administrative claims, which together amount to approximately $255 million; o 100 percent of the Corporation's secured claim of approximately $2 billion, including interest, which will be funded with new debt securities of reorganized Columbia Transmission and all of its equity; o 100 percent of all unsecured claims of $25,000 or less, which together amount to approximately $8 million; o 72.5 percent of all miscellaneous unsecured creditor claims in excess of $25,000, which together amount to approximately $40 million; 8 11 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) o Approximately $160 million in customer refunds as provided under terms of the settlement agreement between Columbia Transmission and its firm service customers and certain other parties; o 72.5 percent of the approximately $351 million of unsecured claims of the Corporation; and o Approximately $1.2 billion to producers (assuming 100 percent acceptance of the allowed claim amounts proposed in the Plan). Columbia Transmission's Plan proposes a total allowed amount of producer claims of approximately $1.6 billion and proposes to make distributions up to 72.5 percent to those creditors who have claims under those contracts in excess of $25,000 Exclusivity Period On May 18, 1995, the Bankruptcy Court approved an extension of the exclusivity period for filing Plans or amendments to the Plans for both the Corporation and Columbia Transmission to October 16, 1995, and the period for soliciting acceptances to December 18, 1995. Approval Process The next steps in the bankruptcy process include the Bankruptcy Court's approval of any additional settlements with producers. In addition, the Corporation's Plan and the Corporation's financial participation in Columbia Transmission's Plan require SEC approval under the Public Utility Holding Company Act. After obtaining SEC approval, the Corporation will distribute its Plan and disclosure statement as well as a report of the SEC to each of its creditors and shareholders for voting purposes pursuant to procedures approved by the Bankruptcy Court. Columbia Transmission will also distribute its Plan and disclosure statement to its creditors for voting purposes pursuant to procedures approved by the Bankruptcy Court. Management believes that all regulatory, judicial, creditor and shareholder approvals can be obtained and that distributions under the Plans can take place prior to December 31, 1995. Internal Revenue Service The Corporation has filed a request with the IRS for a ruling that payments to be made by Columbia Transmission pursuant to its Plan to producers in connection with their contract rejection claims will be deductible for tax purposes. Because of the magnitude of the payments, obtaining a favorable ruling from the IRS is a condition of both Plans. If a favorable IRS ruling is not received by December 15, 1995, Columbia Transmission and the Corporation may either waive the receipt of the ruling as a condition of the Plans or cause the settlement of producer claims to be null and void. Intercompany Complaint On March 19, 1992, Columbia Transmission Creditors' Committee filed a complaint (Intercompany Complaint) with the Bankruptcy Court alleging that the $1.7 billion of Columbia Transmission's secured and unsecured debt securities held by the Corporation should be recharacterized as capital contributions (rather than loans) and equitably subordinated to the claims of Columbia Transmission's other creditors. The Intercompany Complaint also challenged interest and dividend payments made by Columbia Transmission to the Corporation of approximately $500 million for the period from 1988 to the petition date 9 12 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) and the 1990 property transfer from Columbia Transmission to Columbia Natural Resources, Inc. as an alleged fraudulent transfer. At the Bankruptcy Court's request, the trial proceedings for the Intercompany Complaint were transferred to the U.S. District Court for the District of Delaware (the District Court) and were concluded in 1994, and the District Court was expected to render a decision in the second quarter of 1995. However, the parties involved in this litigation requested that the District Court defer a decision at this time since Columbia Transmission's Plan provides for a resolution of the litigation. In connection with the confirmation of Columbia Transmission's Plan, District Court approval of the settlement will be sought. Estimation Procedures As a result of the events that led to Columbia Transmission's bankruptcy petition filing in July 1991, and its subsequent rejection of more than 4,800 above-market gas purchase contracts with producers, Columbia Transmission recorded liabilities of approximately one billion dollars for estimated contract rejection costs. In addition, approximately $255 million of take-or-pay and other miscellaneous producer liabilities have also been recorded. In 1992, the Bankruptcy Court approved the appointment of a claims mediator to implement a claims estimation procedure related to the rejected above-market producer contracts and other producer claims. On October 13, 1994, and February 17, 1995 respectively, the claims mediator issued his Initial Report and Recommendation of the Claims Mediator on Generic Issues for Natural Gas Contract Claims and a Supplement to Initial Report and Recommendations of the Claims Mediator (Report). The Report, which is subject to Bankruptcy Court review and approval, establishes the parameters within which producers must initially recalculate their contract rejection and take-or-pay claims. The recalculated claims are subject to challenge and audit and adjustment based upon claim-specific issues. Columbia Transmission, together with the Columbia Transmission Creditors' Committee, utilized the Report, along with other information and analyses of the numerous contract-specific issues, to develop and agree upon a methodology which Columbia Transmission has employed to formulate settlement offers (i.e. proposed allowed claim amounts) under its Plan for all producer-creditors not party to the initial producer settlement. Columbia Transmission believes these proposed allowed claim amounts result in fair and equitable treatment to those creditors and provide to them the same percentage distributions on their allowed claims as that afforded the settling producers. Columbia Transmission's Plan does not restrict the maximum allowed claim of any non-settling producer who may elect to litigate its claim pursuant to the claims-estimation process or otherwise. The claims mediator requested that producers either file their claims recalculation forms or notify Columbia. Transmission of their intention to accept the proposed settlement amounts by June 30, 1995. Several hundred producers who had filed proofs of claim in the bankruptcy did neither. As of August 7, 1995, the claims recalculations as filed total approximately $2 billion. Many of these recalculated claims are incomplete or incorrect on their face. To date, producers have admitted errors in the recalculations amounting to over $1 billion. In addition, Columbia Transmission firmly believes that a significant number of the recalculated claims contain other substantial errors and that these claims are, in the aggregate, still significantly inflated. Since filing recalculated claims, some producers have settled with Columbia Transmission at amounts approximating the proposed settlement values under the Plan. Such settlements, however, are not necessarily indicative of the relative value of all remaining recalculated claims, which must be evaluated on an individual basis. Columbia Transmission is in the process of reviewing information provided by producers in order to assess the remaining recalculated claims. Based on the information received and evaluated to date, Columbia Transmission believes that many of the remaining claims will also be settled at amounts approximating the settlement values, but that some claims will be settled at higher amounts or may be resolved in post confirmation litigation. Columbia Transmission does not have sufficient information to fully evaluate all claims and the outcome of litigation is subject to uncertainty, but it currently estimates that its ultimate payment to producers after any litigation and after giving effect to the producer holdback, may exceed the $1.2 billion distribution projected in the Plan (which based on 100 percent producer acceptance) but should not exceed $1.3 billion. The foregoing estimation is based on the information currently available to Columbia Transmission, and there can be no assurance as to the timing or amount of settlements with producers or as to the amount ultimately allowed or paid with respect to the remaining claims. Interest Expense Interest expense of the Corporation is not being accrued during bankruptcy. An estimate that totals approximately $862 million for the period from July 31, 1991, through June 30, 1995, 10 13 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) is included in a footnote on the Consolidated Balance Sheets which was calculated based on the methodology outlined in the Corporation's Plan filed with the Bankruptcy Court. As explained in the Plan, the ultimate payout to creditors will depend on, among other items, obtaining necessary approvals and upon the acceptance of the Plan by the required number of creditors and percentage of claims. Securities Litigation After the announcement on June 19, 1991, regarding the Corporation's probable charge to second quarter earnings and the suspension of its dividend, 17 complaints including purported class actions were filed against the Corporation and its directors and certain officers of the debtor companies in the District Court (Securities Litigation). The actions, which generally allege violations of certain anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, have been consolidated. On October 31, 1994, the class action plaintiffs filed an amended and consolidated complaint against the non-debtor defendants in the District Court essentially alleging the same causes of action as the previously filed complaints. On July 18, 1995, the Corporation reached a settlement with respect to the Securities Litigation. Under the terms of the settlement the Corporation would pay approximately $16.5 million of the total $36.5 million settlement. The remainder would be shared among the insurance carrier for the director and officer defendants and the other defendants to the litigation. The settlement is subject to approval by the District Court and conditioned upon the Bankruptcy Court confirmation of the Corporation's Plan. The settlement would be implemented after the Corporation's Plan is confirmed. The settlement permits members of the class of opt-out of the settlement fund and to pursue their claims independently. If the opt-outs exceed a specified amount the defendants may elect to terminate the settlement. Derivative Litigation Also in 1991, three derivative actions were filed in the Court of Chancery in and for New Castle County (Delaware) alleging that directors breached their fiduciary duties (Derivative Litigation). On March 15, 1995, the Corporation's Board of Directors formed a Special Litigation Committee to determine whether proceeding with the litigation is in the best interest of the Corporation. On July 17, 1995, the Special Litigation Committee reported to the Board of Directors that, after an extensive investigation of the allegations asserted in the derivative actions, the committee determined that it is in the best interest of the Corporation to settle the litigation without payment of any money by or on behalf of the director defendants in the derivative actions. That determination was made in consideration of and subject to the settlement of the Securities Litigation discussed above. Therefore, it is proposed that the derivative actions be disposed of by the Corporation's Plan, consistent with the findings of the Special Litigation Committee. The disposition of the derivative actions by the Corporation is subject to approval by the Bankruptcy Court at the hearing on confirmation of the Plan. 11 14 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Prepetition Obligations of Debtor Companies The accompanying consolidated balance sheet as of June 30, 1995, includes approximately $4 billion of liabilities subject to the Chapter 11 proceedings of the Corporation and Columbia Transmission as follows:
($ in millions) Corporation Total payable (primarily debt obligations) 2,382.6 Less: payable to affiliates 5.2 ------- Payable to nonaffiliates 2,377.4 ------- Columbia Transmission Total payable 3,943.5 Less: payable to affiliates 2,329.2 ------- Payable to nonaffiliates 1,614.3 ------- Liabilities Subject to Chapter 11 Proceedings 3,991.7 =======
Prepetition obligations of the Corporation primarily represent debentures, notes, bank loans and commercial paper outstanding on the filing date together with accrued interest to that date. Columbia Transmission's prepetition obligations include secured and unsecured debt payable to the Corporation, estimated supplier obligations, estimated rate refunds, accrued taxes and other trade payables and liabilities. A substantial amount of Columbia Transmission's liabilities subject to Chapter 11 proceedings relate to amounts owed to the Corporation. Columbia Transmission's borrowings have been funded by the Corporation on a secured basis since June 1985 and are secured by mortgages and a cash collateral order approved by the Bankruptcy Court. On the petition date, the principal amount of the First Mortgage Bonds outstanding was $930.4 million. A secured inventory financing agreement of $410 million was also outstanding on the petition date. Prepetition and postpetition interest on secured debt owed by Columbia Transmission to the Corporation was approximately $565 million at June 30, 1995. In addition to these secured claims, the Corporation has an unsecured claim against Columbia Transmission of $351 million in installment notes issued prior to 1985 and accrued interest to the petition date. 12 15 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Financial Information for the Debtor Companies Below is condensed financial information for the Corporation and Columbia Transmission as of, and for the six month period ended, June 30, 1995.
Corporation Columbia Transmission --------------------- --------------------- As of As of ------------------------------ ----------------------------- June 30, December 31, June 30, December 31, ($ in millions) 1995 1994 1995 1994 -------- -------- -------- -------- Current assets Cash and temporary cash investments 408.6 218.5 1,405.0 1,253.5 Other 160.9 205.6 279.7 360.2 Total current assets 569.5 424.1 1,694.7 1,613.7 Current liabilities (12.1) (14.8) (339.3) (330.0) -------- -------- -------- -------- Working capital 557.4 409.3 1,355.4 1,283.7 Noncurrent assets 3,721.2 3,669.8 2,299.1 2,321.5 Estimated liabilities subject to Chapter 11 proceedings (2,382.6) (2,382.5) (3,943.5) (3,862.3) Noncurrent liabilities (268.0) (228.6) (174.0) (232.0) -------- -------- -------- -------- NET EQUITY 1,628.0 1,468.0 (463.0) (489.1) ======== ======== ======== ========
Six Months Six Months Ended June 30 Ended June 30 ------------------------- ------------------------ ($ in millions) 1995 1994 1995 1994 ----- ----- ----- ----- Operating revenues - - 330.4 369.0 Operating expenses 12.2 3.9 240.0 255.4 ----- ----- ----- ----- Operating income (loss) (12.2) (3.9) 90.4 113.6 Other income (deductions) 204.5 230.0 (46.4) (23.5) Income taxes 32.6 43.7 17.9 31.4 Change in accounting - - - (3.1) ----- ----- ----- ----- NET INCOME 159.7 182.4 26.1 55.6 ===== ===== ===== ===== NET CASH FROM OPERATIONS 32.3 29.1 203.2 101.3 ===== ===== ===== =====
3. Environmental Matters As discussed in the 1994 Form 10-K, the Corporation's subsidiaries are subject to extensive federal, state and local laws and regulations relating to environmental matters. These laws and regulations require expenditures for corrective action at various operating facilities, waste disposal sites and former gas manufacturing sites for conditions resulting from past practices. Comprehensive reviews of compliance with existing environmental standards are being conducted. These reviews include an evaluation of operating activities, site investigations, and, when necessary, the formulation of remediation programs. As these self-assessment programs continue, it is likely that additional compliance costs will be identified and become subject to reasonable quantification. 13 16 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Virtually all of Columbia Transmission's future remediation work for currently owned or operated facilities will be performed under the United States Environmental Protection Agency (EPA) Consent Order entered into earlier this year. The Consent Order specifically requires Columbia Transmission to prepare, for EPA approval, work plans and procedures for investigating and, where necessary, remediating its facilities. Columbia Transmission's environmental consultant is currently performing a study to quantify the projected financial scope of remediation activities to be undertaken in future years. However, due to the extensive amount of information required to be reviewed, the study is now not expected to be available until later in 1995. 14 17 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATUS OF BANKRUPTCY PROCEEDINGS A summary of events relating to the bankruptcy proceedings that have occurred subsequent to the information reported in the 1995 First Quarter Form 10-Q follows. Plans of Reorganization On June 14, 1995, the Corporation and Columbia Transmission filed amended plans of reorganization (Plans) and related disclosure statements with the Bankruptcy Court for consideration by their creditors and other interested parties. Both Plans were again amended in a filing made with the Bankruptcy Court on July 17, 1995, and the Corporation's Plan was further amended on July 27, 1995. The Plans incorporate a settlement reached earlier by Columbia Transmission and certain of its producer creditors and approved by the Bankruptcy Court on June 16, 1995, and the terms of a comprehensive customer settlement discussed below. The Corporation's Plan provides for new securities to be issued to the Corporation's creditors and the methodology to be used in pricing these securities (see Note 2 for additional information). On May 18, 1995, the Bankruptcy Court approved an extension of the exclusivity periods for filing plans of reorganization or amendments to the plans of reorganization for both the Corporation and Columbia Transmission to October 16, 1995, and the period for soliciting acceptances to December 18, 1995. The Bankruptcy Court approved the adequacy of Columbia Transmission's and the Corporation's disclosure statements on July 18, 1995, and July 27, 1995, respectively. Confirmation hearings for the Plans have been set to begin November 13, 1995 (see Note 2 for additional information). Securities Litigation After the announcement on June 19, 1991, regarding the Corporation's probable charge to second quarter earnings and the suspension of its dividend, 17 complaints including purported class actions were filed against the Corporation and its directors and certain officers of the debtor companies in the District Court (Securities Litigation). The actions, which generally allege violations of certain anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, have been consolidated. On October 31, 1994, the class action plaintiffs filed an amended and consolidated complaint against the non-debtor defendants in the District Court essentially alleging the same causes of action as the previously filed complaints. On July 18, 1995, the Corporation reached a settlement that resolves the Securities Litigation. Under the terms of the settlement the Corporation would pay approximately $16.5 million of the total $36.5 million settlement. The remainder would be shared among the insurance carrier for the director and officer defendants and the other defendants to the litigation. The settlement is subject to approval by the District Court and conditioned upon the Bankruptcy Court confirmation of the Corporation's Plan. The settlement would be implemented after the Corporation's Plan is confirmed. 15 18 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATUS OF BANKRUPTCY PROCEEDINGS (CONTINUED) Customer Settlement The FERC approved on June 15, 1995, a settlement agreement among Columbia Transmission and Columbia Gulf, firm customers, state regulatory agencies and consumer groups encompassing virtually all outstanding regulatory proceedings before the FERC. Generally, the settlement defines Columbia Transmission's and Columbia Gulf's refund obligations to their customers in pending regulatory proceedings, and determines Columbia Transmission's ability to recover costs associated with the restructuring of its services under Order 636, including certain costs relating to issues pending in the bankruptcy proceedings (see Customer Settlement on page 24 for additional information). 16 19 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GAS SALES AND TRANSPORTATION REVENUES
Three Months Six Months Ended June 30, Ended June 30, ------------------------- --------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (millions) Residential $ 171.2 $ 182.6 $ 715.2 $ 758.9 Commercial 55.2 65.3 257.0 299.4 Industrial 39.1 43.3 89.2 107.0 Wholesale 25.9 62.3 50.0 88.7 Other 6.2 5.5 20.4 11.6 Transportation 129.1 114.3 276.9 299.9 -------- -------- -------- -------- TOTAL $ 426.7 $ 473.3 $1,408.7 $1,565.5 ======== ======== ======== ========
OPERATING INCOME (LOSS) BY SEGMENT
Three Months Six Months Ended June 30, Ended June 30, ---------------------- --------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (millions) Transmission $ 35.9 $ 42.0 $ 112.5 $ 129.0 Distribution (7.9) (13.5) 108.3 98.9 Oil and Gas (0.2) 11.1 (0.3) 23.2 Other Energy 1.7 1.8 9.6 14.6 Corporate (2.6) (1.8) (3.3) (3.9) -------- -------- -------- -------- TOTAL $ 26.9 $ 39.6 $ 226.8 $ 261.8 ======== ======== ======== ========
17 20 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) COMPARATIVE GAS OPERATIONS DATA
Three Months Six Months Ended June 30, Ended June 30, ------------------- ------------------- 1995 1994 1995 1994 ------- ------- ------- -------- THROUGHPUT (BCF) SALES Residential 25.6 28.1 116.0 126.3 Commercial 10.1 11.7 46.7 54.4 Industrial 19.5 17.7 42.5 38.5 Wholesale 20.4 19.3 43.0 38.8 Other 9.0 9.0 20.7 17.2 Intersegment eliminations (9.4) (8.7) (19.9) (17.7) ------- ------- ------- ------- Total Sales Volumes 75.2 77.1 249.0 257.5 ------- ------- ------- ------- TRANSPORTATION Market Area Transmission 194.7 182.2 595.9 599.7 Distribution 58.7 52.8 135.5 115.5 Columbia Gulf Main-line 151.8 165.9 306.7 339.3 Short-haul 53.7 58.2 104.4 133.3 Intersegment eliminations (230.9) (244.6) (559.3) (604.2) ------- ------- ------- ------- Total Transportation Volumes 228.0 214.5 583.2 583.6 ------- ------- ------- ------- Total Throughput 303.2 291.6 832.2 841.1 ======= ======= ======= ======= SOURCES OF GAS SOLD (BCF) Purchased 115.7 132.3 222.5 247.1 Produced 16.2 16.8 33.9 33.4 Exchange 5.2 (5.2) 2.7 (3.7) Storage withdrawals (injections) (42.6) (57.4) 26.4 15.5 Other, net (9.9) (0.7) (16.6) (17.1) Intersegment eliminations (9.4) (8.7) (19.9) (17.7) ------- ------- ------- ------- Total 75.2 77.1 249.0 257.5 ======= ======= ======= ======= DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY) Actual 624 614 3,382 3,761 Normal 580 580 3,527 3,527 % Colder (warmer) than normal 8 6 (4) 7 % Colder (warmer) than prior period 2 - (10) 8
18 21 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS Three Months Results Net Income (Loss) For the second quarter of 1995 the Corporation's net income was $30.9 million, or $0.61 per share, a decrease of $16.9 million, or $0.34 per share from the same period last year. The decrease was primarily due to a $19.2 million 1994 net income improvement caused by a favorable FERC ruling. After adjusting for the bankruptcy and unusual items, detailed below, the current period had a net loss of $4.3 million while 1994 had net income of $1.7 million. The current period loss includes the effect of lower natural gas prices and reduced oil production volumes for the oil and gas segment, reduced sales for the distribution segment and higher operating costs for the transmission segment. Columbia Transmission made a general rate filing in August 1995 to provide the opportunity to recover current operating costs which are higher than those contained in its last rate case in 1991. Adjusted net income includes the impact of higher estimated unrecorded interest costs on prepetition debt obligations that, or on after-tax basis, amounted to $43.7 million in the current quarter and $35.6 million last year. This increase reflects the impact of higher short-term interest rates and the increasing impact of interest on interest. Bankruptcy Related and Unusual Items After-tax effect on Net Income (millions)
Three Months Ended June 30 ----------------- 1995 1994 * ------ ------- Reported net income $30.9 $47.8 Less: o Estimated interest costs not recorded on prepetition debt 43.7 35.6 o Capitalized interest not recorded (0.7) (2.7) o Professional fees and related expenses (7.8) (5.7) o Reserve adjustment for favorable FERC ruling - 19.2 o Other - (0.3) ----- ----- Total adjustments 35.2 46.1 ----- ----- Net income after adjusting for bankruptcy and unusual items (4.3) 1.7 ===== =====
* In the second quarter 1994 Form 10-Q net income before bankruptcy related and unusual items of $12.4 million was reported. Certain unusual items related to the transmission operations that were reported in the second quarter of 1994 to allow for a meaningful comparison of the operating results between that year and the year earlier are no longer appropriate and consequently have been eliminated. Revenues Operating revenues for the second quarter of 1995 were $474.7 million, down $48.3 million from the same period last year, largely due to lower sales for the distribution segment as well as reduced gas prices and sales volumes for the oil and gas segment that were only partially offset by higher distribution rates in effect. Higher revenues from transportation services reflecting increased volumes transported and higher rates also mitigated the effect of lower sales revenues. In 1994 Columbia Transmission recorded $4.4 million for the allowed recovery of certain costs because its cost of gas met certain competitive tests. This was partially offset by Columbia Gas 19 22 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS of Ohio recording in 1994 a weather normalization reserve of $6.5 million to reflect a refund to customers for colder than normal first quarter weather. Expenses For the three months ended June 30, 1995, total operating expenses of $447.8 million, decreased $35.6 million from 1994 primarily reflecting reduced gas purchase expense due to lower sales requirements. Expenses associated with operations increased $13.7 million due largely to higher operating costs in 1995. Partially offsetting the increase in expenses was the effect of recording $3.2 million of additional expense in 1994 for reengineering activities. Other Income (Deductions) Other Income (Deductions) declined $19.3 million to $17.9 million compared to the same quarter last year. Interest Income and Other, Net decreased $32.7 million from last year primarily reflecting a $29.8 million improvement in 1994 for a reserve adjustment for carrying charges associated with prior period gas exchange activity as a result of a favorable FERC decision. Reorganization Items, Net improved income $13.5 million over last year due to increased interest earned of $16.0 million on accumulated cash partially offset by higher professional fees and related expenses of $2.5 million. Both periods benefited from not accruing interest expense on prepetition debt obligations estimated at $67 million and $55 million, respectively. Six Months Results Net Income Net income for the first six months of 1995 of $159.7 million, or $3.16 per share, was down $22.7 million, or $0.45 per share from 1994. After adjusting for bankruptcy related and unusual items, net income in the current period of $90.9 million, decreased $7.9 million from last year. This decrease primarily reflects the effect of warmer weather in the current period and lower natural gas prices, partially offset by improved rates for the distribution segment. The bankruptcy related and unusual items are as follows: Bankruptcy Related and Unusual Items After-tax effect on Net Income (millions)
Six Months Ended June 30 ----------------- 1995 1994 ------ ------ Reported net income $159.7 $182.4 Less: o Estimated interest costs not recorded on prepetition debt 85.8 70.9 o Capitalized interest not recorded (2.4) (5.3) o Professional fees and related expenses (14.6) (12.7) o Reserve adjustment for favorable FERC ruling - 13.6 o Recovery of prior period gas costs due to meeting certain competitive tests - 11.3 o Interest adjustment for IRS settlement - 10.3 o Other - (4.5) ------ ------ Total adjustments 68.8 83.6 ------ ------ Net income after adjusting for bankruptcy and unusual items 90.9 98.8 ====== ======
Revenues 20 23 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) For the first half of 1995, operating revenues were $1,526.6 million, a decrease of $155.3 million from the previous year. The lower current period revenues reflect reduced sales for the distribution segment attributable to warmer first quarter weather coupled with decreased revenues from transportation services for the transmission segment. Improved rates for the distribution segment partially offset the effect of lower sales volumes. Lower transportation revenues included the effect of a reduction of $17 million in the recovery of certain transportation costs that are offset in expense. Last year also included $17.3 million for the recovery of certain costs from an earlier period because Columbia Transmission's gas costs met certain competitive tests. This was partially offset by Columbia Gas of Ohio's second quarter 1994 weather normalization reserve mentioned above. Expenses Total operating expenses of $1,299.8 million for the first six months of 1995 were down $120.3 million due primarily to reduced gas purchase expense reflecting lower sales requirements. A higher depletion rate in effect together with increased plant in service were the primary reasons for the $9 million increase in depreciation and depletion expense. Reduced depletable revenues for oil and gas production due to lower natural gas prices and decreased oil production volumes partially offset the effect of a higher depletion rate on depletion expense. As mentioned above, the effect of recording $3.2 million of additional expense in 1994 for reengineering activities tempered the increase in operating expense between 1995 and 1994. Other Income (Deductions) Other Income (Deductions) improved income in the first half of 1995 by $29.1 million, a decline of $15.5 million from the first six months of 1994. Interest Income and Other, Net decreased $13.3 million due to recording the favorable effect of the reserve adjustment, for carrying charges in the prior period, mentioned previously. In the first quarter of 1994, a reserve adjustment for an IRS settlement improved income and was the primary reason for increased Interest Expense and Related Charges of $22.4 million compared to last year. Reorganization Items, Net improved income $20.2 million over last year due to increased interest income on accumulated cash of $22.6 million while expense for professional fees and related services was $2.4 million higher. Income for both 1995 and 1994 was improved by an estimated $132 million and $109 million, respectively, from not accruing interest expense on prepetition debt obligations. (Since the July 31, 1991 bankruptcy filing, the estimated effect of not accruing interest expense on prepetition debt obligations totals approximately $862 million. This amount was calculated based on the methodology outlined in the Corporation's Plan filed with the Bankruptcy Court.) Liquidity and Capital Resources Net cash flow from operations for the six months ended June 30, 1995, of $592.7 million reflected an increase of $62.5 million over the same period last year due largely to a customer refund made in 1994. In April 1994, Columbia Transmission issued refunds totaling $84.6 million for FERC Order No. 500/528 to its nonaffiliated customers for overpayments Columbia Transmission and its customers previously made to upstream suppliers. Partially offsetting this 21 24 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) improvement was lower sales receipts, net of payments for gas purchased, due to this year's warmer first quarter weather and reduced prices for gas production. The Corporation maintains a debtor-in-possession facility (DIP Facility) with Chemical Bank (Chemical) solely for the issuance of letters of credit of up to $25 million. The DIP Facility will expire on December 31, 1995, unless extended by mutual agreement between the Corporation and Chemical. As of July 31, 1995, $13.7 million of letters of credit were outstanding under the DIP Facility. The Corporation's liquidity needs are being satisfied by internally generated funds. As of July 31, 1995, the Corporation and its subsidiaries, excluding Columbia Transmission, had $408.6 million invested in money market instruments. The liquidity needs of Columbia Transmission are being satisfied by internally generated funds. As of July 31, 1995, Columbia Transmission had $1,426 million invested in money market instruments. Columbia Transmission also maintains a DIP Facility with Chemical solely for the issuance of letters of credit of up to $25 million. The expiration date of Columbia Transmission's DIP Facility is December 31, 1995, unless extended by mutual agreement between Columbia Transmission and Chemical. As of July 31, 1995, the balance of outstanding letters of credit under Columbia Transmission's DIP Facility was $1.8 million. Upon emergence from bankruptcy, the Corporation and Columbia Transmission contemplate the satisfaction of claims as set forth in the respective Plans by use of cash on hand; the issuance by the Corporation of up to $3 billion aggregate principal amount of debentures, subject to adjustment to reflect the actual amount of cash available, and up to $200 million each of Dividend Enhanced Convertible Securities(TM) and preferred stock; and bank borrowings by the Corporation aggregating up to $1.51 billion. To the extent that ultimate distributions to producers exceed the amounts provided in the Columbia Transmission Plan and/or to the extent of any payments to successful claimants opting-out of the Securities Litigation settlement, the Corporation may fund such payment through the issuance of common or preferred stock. 22 25 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS
Three Months Six Months Ended June 30, Ended June 30, -------------------- --------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (millions) OPERATING REVENUES Transportation revenues 155.6 143.5 336.0 380.0 Storage revenues 34.5 35.1 69.8 70.9 Other revenues 5.2 10.5 17.9 11.2 -------- -------- -------- -------- Total Operating Revenues 195.3 189.1 423.7 462.1 OPERATING EXPENSES Operation and maintenance 120.0 107.7 232.1 252.5 Depreciation 26.0 25.8 51.7 51.6 Other taxes 13.4 13.6 27.4 29.0 -------- -------- -------- -------- Total Operating Expenses 159.4 147.1 311.2 333.1 -------- -------- -------- -------- OPERATING INCOME $ 35.9 $ 42.0 $ 112.5 $ 129.0 ======== ======== ======== ======== THROUGHPUT (BCF) Transportation Columbia Transmission Market area 194.7 182.2 595.9 599.7 Columbia Gulf Main-line 151.8 165.9 306.7 339.3 Short-haul 53.7 58.2 104.4 133.3 Intrasegment eliminations (150.7) (154.1) (302.0) (318.0) -------- -------- -------- -------- Total Throughput 249.5 252.2 705.0 754.3 ======== ======== ======== ========
23 26 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Plan of Reorganization On June 14, 1995, Columbia Transmission, with the Corporation as co-sponsor, filed with the Bankruptcy Court a second Plan and disclosure statement. Columbia Transmission's Plan was further amended in a filing made with the Bankruptcy Court on July 17, 1995. The provisions of the Plan reflect the results of extensive negotiations with creditors and other interested parties and are supported by claimants representing a significant portion of filed claims (see Note 2 for additional information). On July 18, 1995, the Bankruptcy Court approved the adequacy of Columbia Transmission's disclosure statement with some modifications of a non-material nature. Customer Settlement On June 15, 1995, the FERC approved a settlement filed by Columbia Transmission, Columbia Gulf, their firm customers, state regulatory agencies and customer representatives that resolves virtually all of the transmission segment's outstanding regulatory proceedings before the FERC. Generally, the settlement defines Columbia Transmission's and Columbia Gulf's refund obligations to their customers in pending regulatory proceedings, and determines Columbia Transmission's ability to recover certain costs associated with the restructuring of its services under Order 636, including certain costs relating to issues pending in the bankruptcy proceedings. The settlement contemplates payment of an estimated $170 million in refunds, including post-petition amounts, to Columbia Transmission's customers. In addition, an estimated $200 million will be collected from Columbia Transmission's customers, depending upon when the settlement is implemented. Refunds to be paid under the settlement resolve all refund issues in the bankruptcy reorganization, all issues surrounding Columbia Transmission's collection of gas purchase costs, its own Order No. 500/528 costs and gas inventory charges, all issues surrounding Columbia Transmission's ability to flowthrough upstream pipeline Order No. 528 amounts, including settlement of the Baltimore Gas & Electric vs. FERC litigation, implementation of a previous rate case settlement of Columbia Transmission and Columbia Gulf, and Columbia Transmission's collection of payments made to terminate contracts with certain upstream pipelines. The settlement was incorporated in Columbia Transmission's Plan and its effectiveness is contingent upon approval of this plan by the Bankruptcy Court. No requests for rehearing of the June 15, 1995 order were filed insofar as it related to the customer settlement, although as contemplated by the settlement, two parties filed requests for rehearing of that portion of the order which approved an exit fee settlement with Overthrust Pipeline Company in order to protect their rights of appellate review if the customer settlement is not effectuated. If Columbia Transmission's Plan is confirmed by the Bankruptcy Court as filed, the rehearing requests will be withdrawn. Under the customer settlement, customers and others retain the right to challenge Columbia Transmission's recovery of approximately $39 million of Columbia Gulf costs it incurred between November 1, 1993, and October 31, 1994. Management believes that the resolution of this issue will not have material impact on the consolidated financial statements. 24 27 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Upstream Pipeline Contracts Columbia Transmission has firm transportation contracts with certain pipeline companies that historically have been used to deliver gas to Columbia Transmission. Columbia Transmission has settled claims filed by some of these pipelines in the bankruptcy proceedings. These settlements provide for the assumption of certain contracts, the termination of certain other contracts that are no longer necessary for Columbia Transmission's operations, or the substantial reduction in the firm capacity requirements under the transportation contracts. As a result, approximately $463 million of claims filed by the pipelines against Columbia Transmission will be withdrawn when all settlements receive Bankruptcy Court and regulatory approvals. These settlements include projected exit fee payments of approximately $100 million by Columbia Transmission including amounts already paid to certain pipelines through June 1995. The projected exit fee payments will continue to decrease as additional monthly demand payments are made until the effective dates of the respective exit fee settlements. Exit fee payments are conditioned upon Columbia Transmission's recovery of the exit fees through rates as stranded costs associated with its restructuring under Order 636. Under the customer settlement discussed above, Columbia Transmission will be permitted to continue recovering a significant portion of upstream pipeline stranded costs. During the second quarter of 1995, both the FERC and the Bankruptcy Court approved a settlement agreement reached with Overthrust Pipeline Company which, among other things, provides for an exit fee payment of approximately $5 million. Columbia Transmission's Rate Filing On August 1, 1995, Columbia Transmission filed with the FERC its first general rate case since 1991. The proposed rates are expected to become effective, subject to refund, on February 1, 1996, and would produce additional annual revenues of approximately $150 million with a 14.5 percent rate of return on equity. The new rate filing reflects increased construction, operating and maintenance costs incurred since 1991 and does not include any costs associated with Columbia Transmission's Chapter 11 bankruptcy proceeding. In addition, the filing included the recovery over a five-year amortization period of Columbia Transmission's approximately $60 million investment in Appalachian area gathering and certain products extraction facilities. The proceeds of any future sales of these facilities will be credited against such recoveries. These facilities are being treated as stranded costs under Order 636. The impact of the filing on Columbia Transmission's rates will be substantially mitigated by the anticipated expiration in 1996 of an Order 636 transition cost surcharge currently included in its rates. This surcharge involves costs associated with Columbia Transmission's firm transportation contracts with its upstream pipelines. Rates for the wide array of firm and interruptible transportation and storage services that Columbia Transmission provides local distribution companies, end users, and other customers throughout its 14-state market area will remain competitive. 25 28 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Columbia Gulf's Rate Filing As reported in the 1994 Form 10-K, Columbia Gulf filed a general rate case with the FERC which went into effect, subject to refund, on November 1, 1994. The rate case reflects the termination of its long-standing transportation contract with Columbia Transmission and seeks to recover increased costs since its last rate case. A settlement was reached with interested parties and approved by the FERC on July 18, 1995. Environmental Matters As discussed in the 1994 Form 10-K, the Corporation's subsidiaries are subject to extensive federal, state and local laws and regulations relating to environmental matters. These laws and regulations require expenditures for corrective action at various operating facilities, waste disposal sites and former gas manufacturing sites for conditions resulting from past practices. Comprehensive reviews of compliance with existing environmental standards are being conducted. These reviews include an evaluation of operating activities, site investigations, and, when necessary, the formulation of remediation programs. As these self- assessment programs continue, it is likely that additional compliance costs will be identified and become subject to reasonable quantification. Virtually all of Columbia Transmission's future remediation work for currently owned or operated facilities will be performed under the United States Environmental Protection Agency (EPA) Consent Order entered into earlier this year. The Consent Order specifically requires Columbia Transmission to prepare, for EPA approval, work plans and procedures for investigating and, where necessary, remediating its facilities. Columbia Transmission's environmental consultant is currently performing a study to quantify the projected financial scope of remediation activities to be undertaken in future years. However, due to the extensive amount of information required to be reviewed, the study is now not expected to be available until later in 1995. Adoption of Statement of Financial Accounting Standard No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). As a result of significant industry changes culminating with Order 636, the operating experience gained since implementation of this order, a new Columbia Transmission rate case which was filed on August 1, 1995, and the resolution of its gas contract difficulties and various customer issues, the Corporation and its transmission subsidiaries have undertaken a study to determine whether it is appropriate to re-apply SFAS 71 to its transmission segment. The effect would be to record on the balance sheet regulatory assets and liabilities as if SFAS 71 had always been applicable to these subsidiaries with the net of tax impact reflected in the income statement as an extraordinary item. Appeals of Order 636 Numerous parties have filed petitions for review of Order 636 with the D.C. Circuit Court of Appeals (Circuit Court). Upon review, Order 636 may be unchanged or reversed in whole or in part. However, at this time it is impossible to predict the outcome. On June 12, 1995, the FERC's brief in support of Order 636 was filed with the Circuit Court and reply briefs are due in September 1995. Oral argument is currently scheduled for February 1996. Under the terms 26 29 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) of the FERC-approved customer settlement, the transmission companies will have no refund obligations in the event the appeals are successful. Further, the customer settlement states that the transmission companies can adjust rates prospectively to take into account any changes or modifications as a result of a court remand of Order 636. Restructuring Proceedings Numerous parties filed for review of Columbia Transmission's and Columbia Gulf's restructuring proceedings under Order 636 (FERC Docket Nos. RS92-5 and RS92-6) with the Circuit Court. Under the terms of the FERC approved customer settlement, the transmission companies will have no refund obligations in the event the appeal of the order approving the restructuring is successful. Market Initiatives As disclosed in the 1994 Form 10-K and the 1995 First Quarter Form 10-Q, Columbia Transmission plans to expand the capacity of its natural gas pipeline system to provide in excess of approximately 430 million cubic feet per day of additional firm storage and transportation services over a three-year period starting in 1997. The expected cost of this project over the 1997-1999 time period is approximately $350 million. Twenty-three customers, most of them local natural gas distribution companies, signed 15-year agreements that provide for increased levels of service. Under the agreements, Columbia Transmission will increase its current level of firm service by about seven percent. Ninety percent of the new capacity is for firm storage service. The remainder is for firm transportation service. As part of the expansion project, Columbia Transmission will enhance the performance of its storage operations by drilling new wells and improving the deliverability of existing wells. Also, Columbia Transmission will add about 100 miles of pipeline in 14 segments along its core pipeline system and install approximately 50,000 horsepower of compression. Columbia Transmission will file with the FERC later this year for authority to construct the new facilities. In addition, a filing will be made seeking any necessary Bankruptcy Court approvals for the project. Columbia Transmission will propose that expansion costs be rolled into existing rates. The effect on existing rates will be minimal and well within the five percent increase threshold recently established by the FERC. Volumes For the second quarter of 1995, throughput was essentially unchanged from the same quarter last year. Similar weather during both periods resulted in essentially the same transportation requirements in each period. For the first half of 1995, throughput of 705 Bcf, decreased 49.3 Bcf from last year largely due to the impact of warmer weather during the first quarter of 1995 which reduced customer demand for transportation services. 27 30 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Since a substantial portion of the transmission companies' costs are recovered through monthly demand charges, changes in throughput levels have little effect on operating revenues. Operating Revenues Total operating revenues for the second quarter of 1995 were $195.3 million, a small increase of $6.2 million over 1994. This improvement includes $12 million higher revenues for the recovery of certain transportation costs that is fully offset by a corresponding increase in expenses, thereby having no effect on operating income. Partially offsetting the effect of these improvements were revenues of $4.4 million recorded in 1994 which Columbia Transmission was allowed to recover because its average cost of gas in a prior period met certain competitive tests prescribed in a 1985 customer settlement. All other charges netted to a $1.4 million decrease. For the first half of 1995, total operating revenues were $423.7 million, down $38.4 million from 1994. Included in this decrease were lower revenues of $17 million for the recovery of certain transportation costs which are fully offset by a corresponding reduction to expense. The remaining $21.4 million decrease in revenues reflects $17.3 million in 1994 that Columbia Transmission was allowed to collect because its average cost of gas in a prior period met certain tests as prescribed in a 1985 customer settlement. Also included in this decrease was $9.5 million of lower revenues due to warmer first quarter weather, decreased interruptible volumes transported by Columbia Gulf and lower demand revenues for certain customers of Columbia Transmission. This decrease was partially offset by Columbia Gulf's portion of the Ozark partnership's exit fee receivable from Columbia Transmission and another pipeline that improved 1995 operating revenues by $5.4 million. Operating Income For the second quarter and the first half of 1995, operating income of $35.9 million and $112.5 million, respectively, decreased $6.1 million and $16.5 million from the same periods in 1994. In the second quarter last year $3.2 million of additional expense was recorded for reengineering activities. After adjusting for the prior period reengineering activities and transportation costs, that have no effect on operating income, operating expenses increased $3.5 million and decreased $1.7 million in the second quarter and first half of 1995, respectively. 28 31 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS
Three Months Six Months Ended June 30, Ended June 30, ------------------ -------------------- 1995 1994 1995 1994 ------ ------ -------- -------- (millions) NET REVENUES Sales revenues $234.4 $257.0 $1,001.5 $1,091.8 Less: Cost of gas sold 116.6 151.9 589.1 714.6 Net Sales Revenues 117.8 105.1 412.4 377.2 ------ ------ -------- -------- Transportation revenues 23.8 20.0 57.4 46.6 Less: Associated gas costs 2.0 1.9 4.2 3.8 ------ ------ -------- -------- Net Transportation Revenues 21.8 18.1 53.2 42.8 ------ ------ -------- -------- Net Revenues 139.6 123.2 465.6 420.0 ------ ------ -------- -------- OPERATING EXPENSES Operation and maintenance 108.0 98.2 230.1 201.8 Depreciation 10.6 10.4 41.5 38.7 Other taxes 28.9 28.1 85.7 80.6 ------ ------ -------- -------- Total Operating Expenses 147.5 136.7 357.3 321.1 ------ ------ -------- -------- OPERATING INCOME (LOSS) $ (7.9) $(13.5) $ 108.3 $ 98.9 ====== ====== ======== ======== THROUGHPUT (BCF) Sales Residential 25.5 28.1 115.9 126.2 Commercial 10.1 11.8 46.7 54.5 Industrial and other 1.9 1.6 8.0 6.5 ------ ------ -------- -------- Total Sales 37.5 41.5 170.6 187.2 Transportation 58.7 52.8 135.5 115.5 ------ ------ -------- -------- Total Throughput 96.2 94.3 306.1 302.7 ====== ====== ======== ======== SOURCES OF GAS FOR THROUGHPUT (BCF) Sources of Gas Sold Spot market* 66.0 80.4 112.6 142.5 Producers 12.8 15.9 32.6 36.5 Storage withdrawals (injections) (42.6) (57.5) 26.4 15.5 Other 1.3 2.7 (1.0) (7.3) ------ ------ -------- -------- Total Sources of Gas Sold 37.5 41.5 170.6 187.2 Transportation received for delivery to customers 58.7 52.8 135.5 115.5 ------ ------ -------- -------- Total Sources 96.2 94.3 306.1 302.7 ====== ====== ======== ========
* Purchase contracts less than one year. 29 32 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) Market Initiatives The distribution subsidiaries (Distribution) continue to assess their markets to gain a greater understanding of the energy needs and purchasing preferences of its customers. The information gained from this assessment will be used to develop and implement new marketing programs which will be customized to more closely meet the needs of specific market segments. These types of targeted programs will likely be the primary component of Distribution's marketing approach in the increasingly competitive retail marketplace. As part of its comprehensive market assessment, Distribution has been reviewing its potential opportunities in the natural gas vehicle (NGV) market. Although definitive conclusions have not yet been reached, Distribution is considering reducing its previously announced $38 million NGV infrastructure program until market conditions support this level of investment. Distribution remains committed at this time to pursuing targeted opportunities in the fleet and lift truck markets, as well as materially increasing the number of NGVs in its own fleet. Regulatory Matters On May 15, 1995, Commonwealth Gas Services, Inc. (Commonwealth Services) filed a general rate case requesting an annual revenue increase of $15.1 million, to be effective in October 1995. The filing included a proposal for sharing the revenue generated under several regulatory initiatives, including capacity release and off-system sales. As part of a rate case settlement agreement in 1994, Columbia Gas of Ohio, Inc. (Columbia of Ohio) was permitted to implement an experimental weather normalization adjustment (WNA) to alleviate the impact of unusual weather on customers' bills. As a result of customer concerns with the program, Columbia of Ohio agreed to several modifications in February 1995. The modifications included an agreement with Columbia of Ohio's Regulatory Collaborative (Collaborative) to continue the program through the five-month trial period to appropriately evaluate the potential benefits of the program but to discontinue any further upward adjustment to customer bills associated with the program. During the second quarter, Columbia of Ohio met with the Collaborative to review the results of the WNA program, and it was determined that the pilot program be suspended at this time. However, the concept of weather normalization was endorsed by most members of the Collaborative, and Columbia of Ohio was encouraged to explore alternatives that would be less confusing to customers. The Collaborative also agreed that the settlement agreement should remain intact and that WNA refunds were not appropriate. On June 12, 1995, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania) reached an agreement with its various regulatory interests on many aspects of its annual gas cost recovery proceeding, including an off-system sales program that has a revenue sharing mechanism, continuation of the gas supply management incentive program, and a pilot hedging program. Although Columbia of Pennsylvania also reached agreement with the Office of Trial Staff on a capacity release program that includes a revenue sharing mechanism, the Office of Consumer Advocate declined to support aspects of the agreement, so the state commission will have to rule 30 33 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) upon Columbia of Pennsylvania's request to implement this mechanism. A final state commission decision is expected by the end of the third quarter. The Office of Consumer Advocate has also appealed the state commission's decision in Columbia of Pennsylvania's previous gas cost proceeding, challenging the state commission's authority to approve incentives in such proceedings. A decision is not expected for several months. In other regulatory matters, Columbia of Maryland, Inc. expects an order from the state commission on its base rate filing by September 1995. The state commission recently approved a tariff filing to be effective November 1995, providing unbundling services for large customers. The current proposal makes transportation service available to all but residential customers. The filing also included a settlement agreeing to continue discussions on pilot programs with unbundled customer choice options for small transportation and residential customers. On July 28, 1995, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) filed for authority to conduct capacity release and off-system sales programs. The filing provides for a sharing of the revenues generated by these programs between the sales customers and Columbia of Kentucky. An order from the state commission is expected later this year. Volumes Throughput for the quarter ended June 30, 1995, of 96.2 Bcf was essentially unchanged from the same quarter last year as lower sales were offset by increased transportation. Lower sales reflected continued usage reductions due to customer equipment improvements and conservation while the demand for transportation increased due to the relatively robust economic conditions throughout the service area and low natural gas spot prices. For the first half of 1995, total throughput was also essentially unchanged at 306.1 Bcf as decreased sales volumes were offset by increased transportation service. The decline in sales was primarily due to the mild weather in the first quarter of 1995 while transportation demand was up due to the strong economy, favorable natural gas spot prices and the increased service to the power generation market. Net Revenues Net revenues for the second quarter of 1995 were $139.6 million, an increase of $16.4 million over 1994. The increase was primarily due to approximately $10.4 million for higher rates in effect during the current quarter, increased transportation deliveries that contributed an additional $4.3 million and a favorable adjustment for prior period costs that improved net revenues by $3.4 million. Also in the current period, revenues increased $3 million for surcharges that increased both revenues and operating expenses and therefore had no effect on operating income. These improvements were partially offset by reduced tariff revenues of $10.8 million due to lower sales. In addition, in 1994 Columbia of Ohio recorded a weather normalization charge of $6.5 million. Net revenues for the first half of 1995 of $465.6 million, improved $45.6 million over 1994. The increase reflects the effect of higher rates that generated an additional $45.9 million, approximately $13 million for revenue surcharges, which are offset in expense and have no effect 31 34 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) on operating income, improved transportation deliveries contributed $11.3 million and the effect of the above-mentioned $6.5 million prior period charge. These improvements were mitigated by a $35.3 million reduction in net revenues reflecting lower sales volumes. Operating Income (Loss) Distribution had an operating loss for the current quarter of $7.9 million, a $5.6 million improvement from last year's second quarter loss. The increase in net revenues was partially offset by higher operating expenses of $10.8 million. Operation and maintenance expense increased due to the above mentioned revenue surcharges and previously capitalized benefit costs that are now expensed as they are included in rates. After eliminating the effect of these issues, operation and maintenance costs were up $5.3 million primarily due to higher overall administrative and general costs, as well as the timing of planned promotional and marketing campaigns. Operating income of $108.3 million for the first half of 1995 reflected an increase of $9.4 million over the first six months of 1994. Higher net revenues were largely offset by increased operating expenses. Included in the higher operating expense was the effect of the revenue surcharges and previously capitalized benefit costs that are now expensed as they are included in rates. After adjusting for the effect of these issues, operating expense was $17.5 million higher due to increased expense associated with ongoing marketing and customer service studies, pipeline maintenance costs and higher advertising expense together with $7.9 million higher depreciation expense and property taxes due to additional plant investments. 32 35 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS
Three Months Six Months Ended June 30, Ended June 30, --------------- --------------- 1995 1994 1995 1994 ----- ----- ----- ----- (millions) OPERATING REVENUES Gas $31.1 $37.5 $67.8 $79.4 Oil and liquids 11.9 15.0 23.8 27.0 ----- ----- ----- ----- Total Operating Revenues 43.0 52.5 91.6 106.4 ----- ----- ----- ----- OPERATING EXPENSES Operation and maintenance 19.4 16.4 40.4 36.2 Depreciation and depletion 21.1 21.8 46.0 40.8 Other taxes 2.7 3.2 5.5 6.2 ----- ----- ----- ----- Total Operating Expenses 43.2 41.4 91.9 83.2 ----- ----- ----- ----- OPERATING INCOME (LOSS) $(0.2) $11.1 $(0.3) $23.2 ===== ===== ===== ===== GAS PRODUCTION STATISTICS Production (Bcf) 16.2 16.8 33.9 33.4 Average Price ($/Mcf) 1.86 2.15 1.95 2.30 OIL AND LIQUIDS PRODUCTION STATISTICS Production (000Bbls) 696 988 1,438 1,868 Average Price ($/Bbl) 16.98 15.16 16.52 14.43
33 36 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS (CONTINUED) Drilling Activities Columbia Gas Development Corporation (Columbia Development) began drilling operations on 13 (gross) wells during the second quarter of 1995. Of these, eight were productive including seven in the Austin Chalk formation, and four were still drilling at the end of the quarter. Columbia Development has drilled 31 wells since the beginning of 1995. Of these, 26 were successful, representing an 84 percent success rate. Two other wells were shut-in pending further evaluation. During 1995, 22 of the 23 wells drilled in the Austin Chalk program were successful. In addition, Columbia Development was awarded eight blocks in the Gulf of Mexico offshore lease sale held in May 1995 and was high bidder on one other block that has not yet been awarded. During the second quarter of 1995, Columbia Natural Resources, Inc. participated in the drilling of 17 (gross) development wells in the Appalachian region, 6 wells were successfully completed. For the first half of 1995, 30 (gross) development wells have been drilled, with a 57 percent success rate. Oil and Gas Producing Properties Under the full cost method of accounting for oil and natural gas properties, all productive and nonproductive costs directly identified with acquisition, exploration, and development activities are capitalized in a countrywide cost center. At June 30, 1995, the sum of the estimated present value of future oil and gas revenues exceeded the capitalized costs and, therefore, no charge to earnings was required. However, under Order 636, the natural gas pipeline industry is required to eventually unbundle gathering services from other transportation services. Columbia Transmission provides transportation services, including gathering services, for a significant portion of gas produced from Columbia Natural Resources, Inc.'s reserves, and in the previously mentioned rate filing, Columbia Transmission requested an increase in their gathering rate. An increase in the gathering rate, a decline in gas prices or increases in other costs could result in a writedown in the carrying value of the oil and gas properties in the future. Volumes Natural gas production for the second quarter of 1995 was slightly down from last year while increasing 0.5 Bcf for the six months ended June 30, 1995, largely due to a small production increase during the first quarter of this year. Oil and natural gas liquids production for the current quarter and for the first half of 1995 decreased 292,000 barrels and 430,000 barrels, respectively, from last year due to normal declines in wells and shut-ins for offshore workovers. It is expected that oil and liquids production will increase as new production comes onstream and workovers are completed. Revenues Declining gas prices during the current three and six-month periods was the principal reason for the decline from the same periods last year in gas revenues of $6.4 million and $11.6 million in these respective periods. Average gas prices in the second quarter decreased by 13 percent to 34 37 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS (CONTINUED) $1.86 per Mcf from the same period last year. For the first half of 1995, average gas prices decreased by 15 percent to $1.95 per Mcf. Revenues from oil and liquids production decreased during the current three and six-month periods by $3.1 million and $3.2 million, respectively, reflecting production declines in both periods that were only partially offset by higher average prices in 1995. Average prices increased $1.82 per barrel to $16.98 per barrel during the second quarter and, for the first half of 1995, the average price increased $2.09 per barrel to $16.52 per barrel. Operating Income (Loss) An operating loss for the second quarter of 1995 of $0.2 million versus $11.1 million in operating income in the same period last year reflected the $9.5 million decrease in operating revenues together with a $1.8 million increase in operating expenses due largely to recording a favorable reserve reduction in 1994 for the resolution of a royalty dispute. For the six-month period, the oil and gas operations had an operating loss of $0.3 million compared to operating income of $23.2 million in 1994. This decrease reflected a $14.8 million decline in operating revenues and higher operating expense of $8.7 million due primarily to increased depletion expense caused largely by a higher depletion rate in effect that more than offset lower depletable revenues and the 1994 reserve adjustment mentioned above. 35 38 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER ENERGY OPERATIONS
Three Months Six Months Ended June 30, Ended June 30, ------------------ ------------------ 1995 1994 1995 1994 ----- ----- ------ ------ (millions) NET REVENUES Gas marketing revenues $55.4 $57.8 $114.1 $125.7 Less: Products purchased 54.0 55.9 110.9 122.0 ----- ----- ------ ------ Net Gas Marketing Revenues 1.4 1.9 3.2 3.7 ----- ----- ------ ------ Propane revenues 8.7 8.2 34.2 35.2 Less: Products purchased 4.8 4.5 18.9 17.7 ----- ----- ------ ------ Net Propane Revenues 3.9 3.7 15.3 17.5 ----- ----- ------ ------ Other Revenues 21.7 17.5 41.5 38.9 ----- ----- ------ ------ Net Revenues 27.0 23.1 60.0 60.1 ----- ----- ------ ------ OPERATING EXPENSES Operation and maintenance 22.0 18.3 43.4 39.1 Depreciation and depletion 2.0 1.7 4.1 3.5 Other taxes 1.3 1.3 2.9 2.9 ----- ----- ------ ------ Total Operating Expenses 25.3 21.3 50.4 45.5 ----- ----- ------ ------ OPERATING INCOME $ 1.7 $ 1.8 $ 9.6 $ 14.6 ===== ===== ====== ====== PROPANE SALES (MILLIONS OF GALLONS) Retail 6.9 6.1 27.1 27.6 Wholesale and other 1.2 2.1 10.3 10.5 ----- ----- ------ ------ Total Propane Sales 8.1 8.2 37.4 38.1 ===== ===== ====== ======
36 39 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER ENERGY OPERATIONS (CONTINUED) Net Revenues Net revenues for the three months ended June 30, 1995, increased $3.9 million over the same period last year due principally to an increase of $4.2 million in other revenues for services provided to affiliated companies and revenues associated with the Columbia LNG Corporation's (Columbia LNG) agreement to operate the Cove Point facility. Net revenues from propane operations increased slightly over a year ago while net revenues for gas marketing activities declined by $0.5 million due principally to reduced margins. For the six months ended June 30, 1995, net revenues decreased $100,000 as lower net revenues from propane operations and gas marketing activities primarily reflected reduced margins. These decreases were offset by higher other revenues due to an increase for cogeneration activities, revenues for Columbia LNG, and higher revenues for services provided to affiliates. Operating Income Operating income for the second quarter of 1995 decreased by $100,000 as the net revenue increase of $3.9 million was more than offset by a $4.0 million increase in operating expenses primarily reflecting higher costs for providing services to affiliates and Columbia LNG expenses associated with the above-mentioned Cove Point LNG facility. Operating income for the six months ended June 30, 1995 was $9.6 million, down $5 million from last year reflecting higher revenues in the prior period for services provided to affiliates that more than offset the associated expense, lower net revenues for propane operations and a small operating loss associated with Columbia LNG. Department of Energy Refund of Prior Petroleum Product Costs On July 11, 1995, the Department of Energy issued an order directing the payment to Columbia LNG of a refund in the amount of approximately $8.5 million related to the purchase of price-controlled petroleum products during the period from mid-August 1973 through January 1981. The refund, which is expected to be received in September 1995, will be paid from crude oil funds made available for disbursement by the Office of Hearings and Appeals of the Department of Energy. Management has determined that Columbia LNG is entitled to retain this refund and will record an improvement to income for this issue in the third quarter. 37 40 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS No new matters have arisen and there have been no material developments in any legal proceedings reported in Registrants Annual Report on Form 10-K for the year ended December 31, 1994, since the filing of the Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, dated May 11, 1995, except as follows: I. Shareholder Class Actions and Derivative Suits (Unless otherwise noted, all matters are stayed against the Corporation pursuant to Section 362 of the Bankruptcy Code). After the June 19, 1991 announcement of the Corporation's proposed charge to second quarter earnings and suspension of its dividend, seventeen complaints including suits purporting to be class actions, or alleging claims common to the purported class actions, were filed in the U.S. District Court for the District of Delaware. These actions have been consolidated under the style In re Columbia Gas Securities Litigation, Consol. C.A. No. 91-357. The complaints named as defendants, the Corporation, members of the Corporation's Board of Directors as of June 1991, certain officers, the Corporation's independent public accountants, and the Corporation's underwriters for its 1990 common stock offering (the Defendants). On July 18, 1995, an agreement was reached among all the parties to the class actions settling that litigation. Also, on July 18, 1995, the Bankruptcy Court granted a motion lifting the automatic stay of the class actions against the Corporation in order to implement the class action settlement and on July 21, 1995 the District Court granted a motion made by parties to the class action settlement lifting its stay order to permit implementation of the settlement. Pursuant to the class action settlement, the class action plaintiffs filed a second consolidated amended complaint, naming the Corporation as an additional defendant. On July 21, 1995, the District Court entered an order which provided for 1) the provisional certification of the class action, 2) the scheduling of a hearing on October 16, 1995 to determine whether the proposed class action settlement should be approved by the District Court and whether an order should be entered dismissing the Securities Action with prejudice, and 3) the mailing of a notice, along with certain solicitation materials, to class action claimants regarding the hearing to approve the class action settlement. Pursuant to the class action settlement, the Corporation and certain other contributors will establish a settlement fund of $36.5 million (approximately $16.5 million of which will be contributed by the Corporation) to settle the class actions. That fund will be first applied to pay court-approved counsel fees and costs of administration with the remaining funds being distributed to class-action claimants who timely file proof of claim and release forms in the District Court and who otherwise qualify for distributions under the class action settlement. Also in 1991, three derivative actions were filed in the Court of Chancery in and for New Castle County (Delaware) alleging that the Corporation's directors breached their fiduciary duties at that time. These suits have been stayed by either the Bankruptcy Court filing or by stipulation of the parties. On March 15, 1995, the Corporation's Board of Directors formed 38 41 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS (CONTINUED) a special litigation committee of the Board to determine whether the continuous prosecution of the derivative actions was in the best interests of the Corporation. On July 17, 1995, the special litigation committee reported to the Board of Directors that, after a full investigation of the allegations asserted in the derivative actions, its members determined that it is in the best interest of the Corporation to settle the litigation without payment of any money by or on behalf of the director defendants in the derivative actions. That determination was made in consideration of and subject to the settlement of the class action litigation. The disposition of the derivative actions by the Corporation is subject to approval by the Bankruptcy Court at the hearing on confirmation of the Plan. II. Bankruptcy Matters On June 14, 1995 Amended Plans of Reorganization were filed in the United States Bankruptcy Court for the District of Delaware for both the Corporation and Columbia Transmission. The Plans were subsequently amended as July 17, 1995 and The Corporation's Plan was further amended on July 27, 1995. See the Management Discussion and Analysis for further details. A. Matters in the United States Bankruptcy Court for the District of Delaware 1. Motion to Fix Procedures to Establish Columbia Transmission's Liability to Third Party Beneficiary Investor Complaints. This matter involves investors in production companies that claim to be third party beneficiaries of the contracts between Columbia Transmission and the production companies. They filed a motion seeking to have their status as third party beneficiaries recognized and seeking to have their claims against Columbia Transmission liquidated separate from the Estimation Procedure established to deal with producer claims. The matter was referred to state court. On April 6, 1995, Columbia Transmission filed a notice of cross appeal after plaintiffs appealed the state court order finding no third party status. B. Other Bankruptcy Matters in the United States District Court for the District of Delaware 1. Pennsylvania Office of Consumer Advocate v. Columbia Gas System, et al., CA No. 94-497. Appeal of Bankruptcy Court order denying Columbia Transmission's motion for an order approving a settlement of the 1990 rate case. On June 9, 1995 Joint State Appellants filed a motion to hold oral argument and decision on appeal in abeyance which was approved on June 19, 1995. This appeal will be resolved by the Customer Settlement described below. III. Purchase and Production Matters (Unless otherwise noted, all matters are stayed pursuant to Section 362 of the Bankruptcy Code). On June 16, 1995, the Bankruptcy Court approved the Initial Producer Settlement. Subject to the confirmation of Columbia Transmission's Plan of Reorganization, the Initial Producer Settlement will resolve the 39 42 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS (CONTINUED) following matters (other than Item III.B.4) previously reported in the Annual Report on Form 10-K: A. Appalachian Producer Litigation 1. Phillips Production Co. v. Columbia Gas Transmission Corp., C.A. No. 89-0269, (U.S. Dist. Ct., W.D. Pa. filed February 7, 1989) B. Southwest Producer Litigation 1. Wagner & Brown v. Columbia Gas Transmission Corp., C.A. No. 83-15091 (Orleans Parish (La.) Civ. Dist. Ct. filed September 6, 1983) 2. Koch Industries Inc. v. Columbia Gas Transmission Corp. C.A. No. 89-2156 (U.S. Dist. Ct., E.D. La., filed May 12, 1989) 3. Energy Development Corp. v. Columbia Gas Transmission Corp., C.A. No. CV91-0960, (U.S. Dist. Ct., W. D., La., division Lafayette/Opelousas, filed May 13, 1991) 4. New Ulm and Fox v. Mobil Oil Corporation, Columbia Gas Transmission Corp. and Columbia Gulf Transmission Co., C.A. No. 88-V- 655 (155th Judicial Dist. Ct. of Austin County, TX filed December 20, 1988). New Bremen alleges it is entitled to a higher price under the contract than the market-out price Columbia Transmission paid for past periods. On May 8, 1995, the parties filed responses to the others' application for writ of error to the Supreme Court of Texas appealing an Appellate Court reversal of the Trial Court decision against Columbia Transmission. IV. Regulatory Matters A. Take-or-Pay and Contract Reformation Costs Billed by Pipeline Suppliers 1. Columbia Gas Transmission Corp., Docket No. RP91-41, reversed and remanded Baltimore Gas & Electric Co. v. FERC, 26 F.3d 1129 (D.C. Cir. 1994). This proceeding will be resolved by the Customer Settlement discussed in below. On May 10, 1995, the FERC issued an order holding this proceeding in abeyance pending the consideration of the Customer Settlement. 2. Columbia Gas Transmission Corporation, Docket No. GP94-2, appeal pending sub nom, CG&E v. FERC, U.S. Ct. of App., D.C. Cir. No. 94-1721. On April 17, 1995 Columbia Transmission filed a Settlement with the FERC resolving or partially resolving numerous FERC proceedings. The Customer Settlement was also filed as a part of Columbia Transmission's Amended Plan of Reorganization in the Bankruptcy Court. Implementation of the settlement is contingent, however, upon its approval by the Bankruptcy Court as a 40 43 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS (CONTINUED) part of an amended plan of reorganization. On June 15, 1995, the FERC issued its order approving the April 17, 1995 Customer Settlement without modification or condition. The settlement was either supported or not opposed by all parties. No requests for rehearing of the June 15, 1995 order were filed insofar as that order relates to the Customer Settlement, although as contemplated by the Settlement two parties filed protective requests for rehearing of only that portion of the order which approved an exit fee settlement with Overthrust. This matter concerning the interest rate to be paid by Columbia Transmission on customer refunds would also be resolved by the Customer Settlement by providing for payment of interest actually earned during the periods the monies were in the special restricted investment account. On May 17, 1995, the D.C. Circuit issued an order holding this proceeding in abeyance pending the consideration of the Customer Settlement. B. Direct Billing of Past Period Production and Production-Related "Order 94" Costs 1. Columbia Gas Transmission Corp. v. FERC, C.A. No. 94-1727 (U.S. Ct. of App., D.C. Circuit). The Court of Appeals has consolidated the appeals of the Panhandle, Trunkline, Texas Eastern and Texas Gas orders which required these companies to refund Order 94 costs paid by Columbia Transmission, but without interest. On May 5, 1995, the FERC issued an order granting clarification of its orders issued January 12, 1994, and October 18, 1994. Panhandle and Texas Eastern must refund the entire amount they collected pursuant to the unlawful direct bills, including the carrying charges paid to them by Columbia Transmission, but without interest. The FERC also clarified, with regard to the "net accelerated payments" between Columbia Transmission and Panhandle, that Panhandle must refund to Columbia Transmission the additional $2 million plus interest on the $2 million for periods after February 11, 1994. 2. Transcontinental Gas Pipe Line Corporation, C.A. No. 95-1332 (U.S. Ct. of App., D.C. Circuit). On May 1, 1995, the FERC denied rehearing of its order in RP92-149 requiring Transcontinental Gas Pipe Line Corporation (Transco) to refund the principal only of Order 94 costs to Columbia Transmission. On July 6, 1995 Columbia Transmission and Transco filed appeals of these orders in the D.C. Circuit Court of Appeals. C. Pipeline Exit Fees 1. Columbia Gas Transmission Corporation, et al., Docket No. RP94-113. Columbia Transmission and Tennessee Gas Pipeline Corporation (Tennessee) file a joint petition to resolve outstanding bankruptcy issues and contractual matters, including the payment by Columbia Transmission of a $42 million exit fee to Tennessee. As a result of the June 15, 1995 order approving the Customer Settlement, all appeals by customers and other interested parties of Columbia Transmission will be dismissed. 41 44 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS (CONTINUED) However, some of Tennessee's customers appealed the orders approving the exit fee settlement. That appeal is pending before the D.C. Circuit in Case No. 94-1716. 2. Columbia Gas Transmission Corp., Docket Nos. RP94-315, 316, 317, 318, RP95-98 and RP95-204. These proceedings involve petitions by Columbia Transmission for approval of settlements to resolve outstanding issues, including the payment of exit fees by Columbia Transmission, to Wyoming Interstate Company Ltd. (WIC), Trailblazer Pipeline Company (Trailblazer), Natural Gas Pipeline Co. of America (NGPL), Transcontinental Gas Pipe Line Corporation (Transco), Ozark Gas Transmission System (Ozark) and Overthrust Pipeline Corporation. On May 22, 1995, the FERC issued an order approving the exit fee with Ozark (Docket No. RP95-98). Requests for rehearing of that order are pending. In the June 15, 1995 order approving the Customer Settlement the FERC also dismissed as moot and denied rehearing of its orders approving the exit fees with WIC, Trailblazer and NGPL (Docket Nos. RP94-315, RP94-316 and RP94-317). Columbia Transmission has implemented these exit fee settlements. In the June 15, 1995 order approving the Customer Settlement, the FERC also initially approved the exit fee settlement with Overthrust (Docket No. RP95-204). Two protective requests for rehearing were filed in order to protect appellate rights in the event the Customer Settlement is not implemented. V. Environmental A. Columbia Gas Transmission Corp. v. Aetna Casualty & Surety Co., et al., C.A. No. 94-C-454 (Kanawha (W.Va) Cir. Ct. filed March 14, 1994). In this matter Columbia Transmission is seeking coverage from various insurers and under various insurance policies for environmental cleanup costs. On July 14, 1995, Columbia Transmission filed a motion to stay the litigation to allow informal discussions among the parties to the litigation. B. Columbia Gulf Transmission Company v. Aetna Casualty & Surety Co., et al., C.A. No. 95-C-177 (Kanawha (W.Va) Cir. Ct. filed January 19, 1995). In this matter Columbia Gulf is seeking coverage from various insurers and under various insurance policies for environmental cleanup costs. On July 14, 1995, Columbia Gulf filed a motion to stay the litigation to allow informal discussions among the parties to the litigation. This motion was granted by the court on July 19, 1995. 42 45 PART II - OTHER INFORMATION Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities As of June 30, 1995, there were $1,349.8 million of the Corporation's senior securities in default as a result of the Chapter 11 filing. In addition, at the end of the 1995 second quarter $488.9 million of short-term indebtedness was also in default for nonpayment. Item 4. Submission of Matters to Vote of Security Holders None. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10-BE Employment Agreement between Peter M. Schwolsky and The Columbia Gas System, Inc. 11 Statement re Computation of Per Share Earnings, a copy of which is attached hereto as PART II, EXHIBIT 11, pursuant to Regulation 229.601(b)(11). 12 Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends, a copy of which is attached hereto as PART II, EXHIBIT 12, pursuant to Regulation 229.601(b)(12). 27 Financial Data Schedule.
b. Reports on Form 8-K The following reports on Form 8-K were not previously reported.
Financial Item Statements Reported Included Date Filed -------- ---------- -------------- 5 No June 16, 1995 5 No June 19, 1995 5 No July 18, 1995 5 No July 19, 1995 5 No July 28, 1995 5 No August 4, 1995
43 46 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. The Columbia Gas System, Inc. ---------------------------------------- (Registrant) Date: August 11, 1995 By: /s/ R. E. LOWE ------------------------------------- R. E. Lowe Vice President, Controller and Chief Accounting Officer 44 EX-10.BE 2 EMPLOYMENT AGREEMENT, PETER M. SCHWOLSKY 1 EMPLOYMENT AGREEMENT THIS AGREEMENT, made this 30th day of May, 1995 between Peter M. Schwolsky, (the "Executive") and The Columbia Gas System, Inc. (the "Company"). W I T N E S S E T H: WHEREAS, the Company wishes to secure the services of the Executive as an officer and Chief Legal Officer; and WHEREAS, the Executive is willing to serve as Senior Vice President, and within ninety (90) days of his employment, as Chief Legal Officer of the Company, and to enter into this Agreement on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Executive hereby agree as follows: 1. Employment. The Company shall employ the Executive, and the Executive shall serve, as Senior Vice President of the Company commencing June 5, 1995. The Company shall also employ the Executive, and the Executive shall serve, as Chief Legal Officer of the Company within ninety (90) days of his employment. As Senior Vice President and Chief Legal Officer of the Company, the Executive will report directly and solely to the Chief Executive Officer of the Company. The Executive agrees to faithfully perform the duties of Senior Vice President and Chief Legal Officer to the best of his ability and, except for vacations and periods of temporary illness, to devote his full time and attention to the Company's business. If elected, the Executive also agrees to serve as a director and/or officer of any subsidiary or affiliate of the Company. 2. Compensation. For all services to be rendered by the Executive under this Agreement, the Executive shall be paid compensation and receive benefits from the Company as follows: 2 2 (a) Base Salary. A base salary of $285,000 per annum, payable in accordance with the usual manner of payment of executive salaries by the Company. Any increases that the Executive would be entitled to shall be administered in the same manner as is applicable to all other senior executives of the Company as shall be approved by the Board of Directors. The term "base salary", for the purpose of this Agreement, shall include any increases, and, as increased, shall be reduced only if such reduction is part of and consistent with an across-the-board reduction of salaries which occurs prior to a change in control, as described in paragraph (e) of Section 6, and which affects all members of the senior management of the Company; provided, however, that the base salary shall in no case be reduced below $285,000 per annum. (b) Incentive Compensation Plan. The Executive shall participate in the Company's incentive compensation plan and all other incentive programs for officers of the Company as appropriate for his status. (c) Grant of Contingent Stock. Ninety (90) days after the Executive commences employment with the Company, the Company shall transfer to the Executive 2,500 shares of the Company's Common Stock, in consideration of the Executive's resignation from employment with his present employer and his willingness to accept employment with the Company. (d) Grant of Stock Options. The Board of Directors of the Company shall grant to the Executive, under the Company's existing stock option plan, stock options for 5,000 shares of the Company's Common Stock. Such options shall be granted on the Executive's employment date with an exercise price equal to 100% of the fair market value of a share of Common Stock on such date. Such options shall remain exercisable, as adjusted for stock splits, stock dividends and the like, for the period ending ten years after the grant of such options, provided that the Executive remains in the 3 3 Company's employ. Notwithstanding the foregoing, in the event that the Executive's employment is terminated by the Company for any reason other than cause, for purposes of determining whether such stock options have become exercisable and whether they remain exercisable, the Executive shall be deemed to be employed by the Company for the period during which the Executive is receiving severance benefit payments set forth in paragraph (a)(i) of Section 7 of this Agreement and for a period of ninety (90) days following the end of such payments. 3. Reimbursement of Expenses. The parties recognize that in the course of performing his duties under this Agreement the Executive will incur out-of-pocket expenses for the account of the Company. The Executive shall be entitled to reimbursement for all reasonable out-of-pocket expenses so incurred, upon submission to the Company of an adequate, written accounting. 4. Fringe Benefits. The Executive shall be eligible to participate fully in all fringe benefits provided by the Company for its employees in general, or for its executives, including, but not limited to, the Pension Restoration Plan, the Thrift Restoration Plan, any pension plan or profit sharing plan, maintained from time to time by the Company, and any life, accident, health, hospitalization or long-term disability insurance, maintained from time to time by the Company. The eligibility requirements under the Company's Sick Leave Plan shall be waived so that the Executive shall at all times be eligible to receive the maximum benefits under such plan, i.e., twenty-six weeks at full pay. The Executive shall also be entitled to receive benefits under the Company's Transfer Personnel Plan, except that the requirement under such plan that the Executive move his principal residence to or near the metropolitan area in which the Company's headquarters is located within one year of employment by the Company is waived; provided, however, that within a reasonable period of time after the end of such one year period of time, the Executive shall have established a residence 4 4 and otherwise have become part of the general community in the area of or near the Company's headquarters. Subject to any applicable legal limitations, the Executive shall continue to participate in any such fringe benefits, or be provided an equivalent amount of cash payments, during the period the Executive is receiving the payments set forth in paragraph (a)(i) of Section 7 of this Agreement (Severance Benefit). 5. Vacation. The Executive shall be entitled to four weeks of paid vacation for each consecutive 12-month period during his employment by the Company. 6. Termination. The Executive's employment shall be terminated upon the first to occur of the following: (a) The Executive's death. (b) The Executive becoming permanently disabled. Permanent disability shall mean physical or mental incapacity of a nature which prevents the Executive, in the sole judgment of the Board of Directors of the Company, from performing his duties under this Agreement. (c) The Executive's employment being terminated by the Company for any reason other than for cause. Termination for cause shall mean termination by action of the Board of Directors of the Company because of the willful failure of the Executive to perform his duties and obligations under this Agreement or gross negligence in the performance of his duties under this Agreement or the commission by the Executive of a felony. (d) The 90th day after the Executive notifies the Company in writing that he is terminating his employment as a result of the Board of Directors of the Company failing to elect him Chief Legal Officer within ninety (90) days of his employment, or subsequently failing to reelect him to, or removing him from, the position of Senior Vice President and Chief Legal Officer, or a material reduction in his duties and responsibilities in 5 5 any such position. Any notice pursuant to this paragraph must be given in writing no later than ninety (90) days after the Board of Directors fails to initially elect, reelect, or removes, the Executive or after the material reduction in the Executive's duties or responsibilities. (e) The 90th day after the Executive notifies the Company (or any successor to the Company) in writing that he is terminating his employment as a result of one of the following events: (i) The Shareholders of the Company approve an agreement for the sale or other disposition of all or substantially all of the assets of the Company through a sale, merger, consolidation, or other business combination transaction. (ii) The acquisition by any person or group of associated persons of beneficial ownership of 25% or more of the voting securities of the Company (other than a pro forma transaction for a purpose such as changing the name or state of incorporation of the Company). (iii) During any period of 24 consecutive months, individuals who at the beginning of such period constitute the Board of Directors and any new directors whose election by the Board of Directors or nomination for election by the Company's Shareholders was approved by a vote of at least 2/3 of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors. Any notice pursuant to this paragraph must be given in writing no later than 180 days after such event. (f) The Executive notifies the Company that he is terminating his employment, or the Company notifies the Executive that the Executive's 6 6 employment is being terminated, for any reason not set forth in the preceding paragraphs of this Section. 7. Termination Benefits. (a) If the Executive's employment is terminated for any of the reasons set forth in paragraph (c) or (d) of Section 6 (termination by the Company without cause or termination by the Executive for cause), the Company shall pay, or provide, to the Executive the following termination benefits: (i) Severance Benefit. A severance benefit in an amount equal to the sum of (A) the Executive's then annual base salary for a period of 24 months, or, if the Executive's employment is terminated before the first anniversary of the signing of this Agreement by the Company and the Executive, a period of 24 months plus the number of months and days between the date the Executive's employment is terminated and the first anniversary of the signing of this Agreement by the Company and the Executive, and (B) a reasonable estimate of the incentive compensation the Executive would have received, under the Company's incentive compensation plan, during such 24 month or longer period if his employment had not terminated. Such benefit shall be paid in monthly installments over such 24 month or longer period and shall commence within a reasonable period of time after such termination. (ii) Supplemental Pension Payments. A monthly supplemental pension payment equivalent to the greater of the amount determined in (A) or (B) below, less the amount determined in (C) below: (A) the monthly benefit calculated under the Retirement Income Plan for Columbia Gas System Companies (the "System Plan") formula which applies to the Executive at the date he elects to begin to receive his retirement benefits under such plan, but determined (I) without regard to compensation or benefit 7 7 limitations prescribed by federal law or regulation and (II) by including for all purposes under such plan the period of the Executive's employment service and the compensation which the Executive earned with his present employer. (B) the actuarial equivalent (as determined under the actuarial assumptions in the System Plan) of the monthly benefit calculated under the terms of the pension plan of the Executive's present employer, as in effect on the date of the Executive's termination of employment with his present employer, as of the date the Executive begins to receive his retirement benefits under the System Plan, but with such monthly benefit being determined (I) without regard to compensation or benefit limitations prescribed by federal law or regulation and (II) by including for all purposes of such calculation his compensation history with both of his present employer and the Company and his period of employment service with both of his present employer and the Company. (C) the total amount of the benefit, or its equivalent straight life annuity amount, that the Executive in fact receives from the pension plan of his present employer and under the Company's Retirement Program. The Executive shall be entitled to receive the supplement pension payments described in this subparagraph only if the Executive has satisfied the vesting requirements as set forth in the System Plan. If the Executive dies prior to the beginning of his retirement benefits under the System Plan and the Executive's surviving spouse or other beneficiary is entitled to receive a death benefit under the System Plan, this subparagraph shall be interpreted in a manner so as to 8 8 provide the appropriate supplemental death benefit to the Executive's surviving spouse or other beneficiary. (iii) New Employment Assistance. Reasonable assistance in obtaining new employment, including, but not limited to, the use of an office, a telephone, and normal secretarial and other office services. (iv) Payment of Accrued Vacation. Payment for all vacation periods earned and accrued to the date of such termination but not taken. Such payment shall be made in a single sum within a reasonable period of time after such termination. (b) If the period of employment is terminated for the reason set forth in paragraph (a) of Section 6 (death), the Executive's designated beneficiary shall receive, in addition to the death and other benefits provided under the Company's fringe benefit programs, the termination benefits set forth in paragraphs (a)(ii) and (iv) of this Section (Supplemental Pension Payments and Payment of Accrued Vacation). (c) If the period of employment is terminated for the reason set forth in paragraph (b) of Section 6 (disability), the Executive shall receive, in addition to the disability benefits provided under the Company's fringe benefit programs, the termination benefits set forth in paragraphs (a)(ii) and (iv) of this Section (Supplemental Pension Payments and Payment of Accrued Vacation). (d) If the period of employment is terminated for the reason set forth in paragraph (e) of Section 6 (change in control), the Executive shall receive the termination benefits set forth in paragraphs (a)(i), (ii), (iii) and (iv) of this Section (Severance Benefit, Supplemental Pension Payments, New Employment Assistance and Payment of Accrued Vacation), except that the amount to be paid under paragraph (a)(i) (Severance Benefit) shall be equal to the sum of (A) the Executive's then annual base salary for a period of 36 9 9 months, and (B) a reasonable estimate of the incentive compensation the Executive would have received, under the Company's incentive compensation plan, during such 36 month period if his employment had not terminated. Such benefit shall be paid in monthly installments over such 36 month period and shall commence within a reasonable period of time after such termination. Notwithstanding the preceding to the contrary, in the event that any payments or benefits received or to be received by the Executive in connection with the Executive's termination of employment (whether under the terms of this Agreement or any other plan, arrangement or agreement with the Company or any of its subsidiaries) would subject the Executive to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then to the extent necessary to eliminate the imposition of such an excise tax (and after taking into account any reduction in payments or benefits under any such other plan, arrangement or agreement), the payments under paragraph (a)(i) of this Section 6 (Severance Benefit) shall be reduced. (e) If the period of employment is terminated for the reason set forth in paragraph (f) of Section 6 (any other reason), the Executive shall receive only the termination benefit set forth in paragraph (a)(iv) of this Section (Payment of Accrued Vacation). 8. Payment of Legal Fees and Expenses. The Company shall also pay to the Executive reasonable legal fees and expenses incurred in good faith by the Executive as a result of a termination which entitles the Executive to benefits under the Agreement (including, but not limited to, all such fees and expenses incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within 5 business days after delivery of the Executive's 10 10 written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 9. Designation of Beneficiary. The Executive may designate a beneficiary or beneficiaries, who may be designated contingently or successively and who may be an entity other than a natural person, to receive any termination benefits which may become payable under Section 7 in the event of the Executive's death. Any such designation may, from time to time and at any time, be changed or canceled by the Executive without the consent of any beneficiary. Any such designation must be by written notice delivered to the Company. If the Executive designates more than one beneficiary, any payments to the Executive's beneficiaries shall be made in equal shares unless the Executive designates otherwise. 10. Withholding of Taxes. Any payments to the Executive, or to his designated beneficiary or beneficiaries, pursuant to the terms of this Agreement shall be reduced by such amounts as are required to be withheld with respect thereto under all present and future federal, state and local tax laws and regulations and other laws and regulations. 11. Notices. Any notice to be given to the Executive by the Company under this Agreement shall be deemed to have been given by the Company and received by the Executive if and when it is hand delivered to the Executive or it is sent by registered or certified mail to the Executive at 22 Constitution Hill West, Princeton, NJ 08540, or such other address as may be given by the Executive in writing to the Company. Any notice to be given to the Company by the Executive under this Agreement shall be deemed to have been given by the Executive and received by the Company if and when it is hand delivered by the Executive to the Secretary of the Company or it is sent by registered or certified mail, addressed to the Board of Directors of the Company at 20 Montchanin Road, 11 11 Wilmington, DE 19807, or such other address as may be given by the Company in writing to the Executive. 12. Full and Complete Agreement; Amendment. This Agreement constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements. This Agreement may be modified only by a written instrument executed by both parties. 13. Nonassignability. This Agreement and the rights and benefits hereunder are personal to the Company and are not assignable or transferrable, nor may the services to be performed hereunder be assigned by the Company to any person, firm or corporation; provided, however, that this Agreement and the rights and benefits hereunder may be assigned by the Company to any corporation acquiring all or substantially all of the assets of the Company or to any corporation into which the Company may be merged or consolidated, and this Agreement and the rights and benefits hereunder will automatically be deemed assigned to any such corporation. The Executive's rights and interest under this Agreement may not be assigned, pledged or encumbered by Executive. The provisions of this Agreement shall enure to the benefit of Executive's heirs, executors, administrators and successors in interest. 14. Construction. This Agreement shall be construed under the laws of the State of Delaware. 15. Execution in Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 12 12 16. Titles and Headings. Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first set forth above. THE COLUMBIA GAS SYSTEM, INC. (Corporate Seal) ATTEST: By: /s/ Oliver G. Rochard, III ------------------------------ Chairman, President and Chief Executive Officer /s/ T. S. Bindra - ------------------------ Assistant Secretary /s/ Peter M. Schwolsky ----------------------------- Peter M. Schwolsky EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES Statements Re Computation of Per Share Earnings
Three Months Six Months Ended Ended June 30, June 30, ----------------- ----------------- 1995 1994 1995 1994 ------ ------ ------ ------ Computation for Statements of Consolidated Income ($ in millions) - ------------------------------------------ Income (loss) before cumulative effect of accounting change . . . . . . . . . . . . . . 30.9 47.8 159.7 188.0 Cumulative effect of change in accounting for postemployment benefits . . . . . . . . . - - - (5.6) ------ ------ ------ ------ Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.9 47.8 159.7 182.4 ------ ------ ------ ------ Earnings (loss) per share of common stock (based on average shares outstanding ($) Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72 Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11) ------ ------ ------ ------ Earnings (loss) on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61 ====== ====== ====== ====== Additional computation of average common shares outstanding (thousands) (NOTE) Average shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . 50,568 50,559 50,566 50,559 Incremental common shares applicable to common stock based on the common stock daily average market price: Applicable to contingent stock awards . . . . . . . . . . . . . . . . . . . . . . . . 10 4 5 4 ------ ------ ------ ------ Average common shares as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,578 50,563 50,571 50,563 ====== ====== ====== ====== Average shares of common stock outstanding . . . . . . . . . . . . . . . . . . . . . . 50,568 50,559 50,571 50,559 Incremental common shares applicable to common stock based on the more dilutive of the common stock ending or daily average market price during the year: Applicable to contingent stock awards . . . . . . . . . . . . . . . . . . . . . . . . 10 4 5 4 ------ ------ ------ ------ Average common shares assuming full dilution . . . . . . . . . . . . . . . . . . . . . 50,578 50,563 50,571 50,563 ====== ====== ====== ====== Earnings (loss) per share of common stock as adjusted: Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72 Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11) ------ ------ ------ ------ Average common shares as adjusted ($) . . . . . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61 ====== ====== ====== ====== Earnings (loss) per common shares assuming full dilution: Average common shares assuming full dilution ($) . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61 ====== ====== ====== ====== Earnings (loss) per common shares assuming full dilution: Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.72 Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.11) ------ ------ ------ ------ Average common shares assuming full dilution ($) . . . . . . . . . . . . . . . . . . . 0.61 0.95 3.16 3.61 ====== ====== ====== ======
NOTE These calculations are submitted in accordance with the Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15 because they result in dilution of less than 3%. EX-12 4 STATEMENTS OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES Statements of Ratio of Earnings to Fixed Charges ($ in millions)
Twelve Months Twelve Months Ended June 30, Ended December 31, --------------- ------------------------------------------------ 1995 1994 1994 1993 1992 1991 1990 ----- ----- ----- ----- ----- -------- ----- Consolidated Income (Loss) from Continuing Operations before Income Taxes and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . 341.6 371.4 392.2 288.1 161.4 (1,205.8) 162.6 Adjustments: Interest during construction . . . . . . . . . . . . . . - - - - - (3.4) (10.0) Distributed (Undistributed) equity income . . . . . . . . (3.1) (0.8) (0.9) (0.1) (0.1) (2.4) 2.9 Fixed charges . . . . . . . . . . . . . . . . . . . . . 37.2 76.5 14.8 101.5 13.7 139.9 182.5 ----- ----- ----- ----- ----- -------- ----- Earnings Available . . . . . . . . . . . . . . . . . . 375.7 447.1 406.1 389.5 175.0 (1,071.7) 338.0 ----- ----- ----- ----- ----- -------- ----- Fixed Charges: Interest on long-term and short-term debt . . . . . . . . 0.2 1.3 0.7 3.1 4.9 112.4 170.6 Other interest . . . . . . . . . . . . . . . . . . . . . 37.0 75.2 14.1 98.4 8.8 27.6 10.5 ----- ----- ----- ----- ----- -------- ----- Total Fixed Charges before Adjustments*,** . . . . . . 37.2 76.5 14.8 101.5 13.7 140.0 181.1 ----- ----- ----- ----- ----- -------- ----- Adjustments: Gain/(Loss) on reacquired debt . . . . . . . . . . . . . - - - - - (0.1) 1.4 ----- ----- ----- ----- ----- -------- ----- Total Fixed Charges . . . . . . . . . . . . . . . . . . 37.2 76.5 14.8 101.5 13.7 139.9 182.5 ----- ----- ----- ----- ----- -------- ----- Ratio of Earnings Before Taxes to Fixed Charges . . . . . . 10.10 5.84 27.44 3.84 12.77 N/A(a) 1.85 ===== ===== ===== ===== ===== ======== =====
(a) To achieve a one-to-one coverage, the Corporation would need an additional $1,211.6 million of earnings. * This amount excludes approximately $253 million interest expense not recorded in the twelve months ended June 30, 1995, $216 million interest expense not recorded in the twelve months ended June 30, 1994, $230 million, and $210 million, $204 million and $86 million of interest expenses not recorded for the twelve months ended 1994, 1993, 1992 and 1991. Reference is made to the Statements of Consolidated Income for the quarterly period ended June 30, 1995, as reported in Form 10-Q and to Note 2 of Notes to Consolidated Financial Statements of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. EX-27 5 FINANCIAL DATA SCHEDULE
UT 0000022099 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES 1,000 3-MOS 6-MOS DEC-31-1994 DEC-31-1994 APR-01-1995 JAN-01-1995 JUN-30-1995 JUN-30-1995 PER-BOOK PER-BOOK 3,462,900 3,462,900 888,900 888,900 2,699,200 2,699,200 285,600 285,600 0 0 7,336,600 7,336,000 505,700 505,700 602,100 602,100 590,200 590,200 1,628,000 1,628,000 0 0 0 0 4,000 4,000 0 0 0 0 0 0 1,200 1,200 0 0 2,400 2,400 0 0 5,703,400 5,703,400 7,336,600 7,336,600 474,700 1,526,600 13,900 96,200 447,800 1,299,800 447,800 1,299,800 26,900 226,800 24,600 41,300 51,500 268,100 6,700 12,200 30,900 159,700 0 0 30,900 159,700 0 0 0 0 0 0 0.61 3.16 0.61 3.16
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