-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CbcHrqnefrMZVnM4SEfYvZAaT/OnoKlEoXd/AxreLm8zHoM+Sp1TYjKIk5R189XC m6VdNSOl892IU21eLJxMOQ== 0000893220-02-000323.txt : 20020415 0000893220-02-000323.hdr.sgml : 20020415 ACCESSION NUMBER: 0000893220-02-000323 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA ENERGY GROUP CENTRAL INDEX KEY: 0000022099 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 131594808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01098 FILM NUMBER: 02588947 BUSINESS ADDRESS: STREET 1: 13880 DULLES CORNER LANE STREET 2: SUITE 300 CITY: HENDERON STATE: VA ZIP: 20171-4600 BUSINESS PHONE: 7035616000 MAIL ADDRESS: STREET 1: 13880 DULLES CORNER LANE STREET 2: SUITE 300 CITY: HERNDON STATE: VA ZIP: 20171-4600 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA GAS SYSTEM INC DATE OF NAME CHANGE: 19920703 10-K405 1 w58831e10-k405.txt FORM 10-K405 COLUMBIA ENERGY GROUP As filed with the United States Securities and Exchange Commission on March 27, 2002. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR | | 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 001-16189 COLUMBIA ENERGY GROUP ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-1594808 - ---------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 801 East 86th Avenue Merrillville, Indiana 46410 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (877) 647-5990 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Registered ----------------------------------------- New York Stock Exchange Debentures - -------------------------------------------------------------------------------- 6.61% Series B due November 28, 2002 7.32% Series E due November 28, 2010 6.80% Series C due November 28, 2005 7.42% Series F due November 28, 2015 7.05% Series D due November 28, 2007 7.62% Series G due November 28, 2025 Securities registered pursuant to Section 12(g) of the Act: None 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 proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| or No | | Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| As of November 1, 2000, all shares of the registrant's Common Shares, $.01 par value, were issued and outstanding, all held beneficially and of record by NiSource, Inc. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I. (1) (A) AND (B) OF FORM 10-K AND IS FILING THIS FORM 10-K UNDER THE REDUCED DISCLOSURE FORMAT. Documents Incorporated by Reference ----------------------------------- None CONTENTS
Page Part I No. ---- Item 1. Business........................................................................... 3 Item 2. Properties......................................................................... 4 Item 3. Legal Proceedings.................................................................. 5 Item 4. Submission of Matters to a Vote of Security Holders................................ 7 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......... 7 Item 6. Selected Financial Data............................................................ 7 Item 7. Management's Narrative and Analysis of Results of Operations....................... 8 Item 8. Financial Statements and Supplementary Data........................................ 12 Item 9. Change In and Disagreements with Accountants on Accounting and Financial Disclosure............................................................... 44 Part III Item 10. Directors and Executive Officers of the Registrant................................. 44 Item 11. Executive Compensation............................................................. 44 Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 44 Item 13. Certain Relationships and Related Transactions..................................... 44 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 45 Signatures.................................................................................. 46 Exhibits.................................................................................... 47
2 PART I ITEM 1. BUSINESS COLUMBIA ENERGY GROUP AND SUBSIDIARIES Columbia Energy Group (Columbia) and its subsidiaries are primarily engaged in natural gas transmission, natural gas distribution, and exploration for and production of natural gas and oil. Columbia, organized under the laws of the State of Delaware on September 30, 1926, is a registered holding company under the Public Utility Holding Company Act of 1935, as amended, (1935 Act) and derives substantially all its revenues and earnings from the operating results of its 19 direct subsidiaries. Merger with NiSource Inc. On November 1, 2000, NiSource Inc. (NiSource) completed the acquisition of Columbia for an aggregate consideration of approximately $6 billion, with 30% of the consideration paid in NiSource common stock and the remaining 70% paid in cash and Stock Appreciation Income Linked SecuritiesSM (SAILSSM). In addition, NiSource assumed approximately $2 billion in Columbia debt. Presentation of Segment Information Columbia meets the conditions specified in General Instruction I(1)(a) and (b) to Form 10-K and is permitted to use the reduced disclosure format for wholly owned subsidiaries of companies, such as NiSource, that are reporting companies under the Securities Exchange Act of 1934. Accordingly, the Narrative and Analysis of Results of Operations is included in this report, and Columbia has omitted from this report the information called for by Item 7 (Management's Narrative and Analysis of Results of Operations). Columbia operates in four segments: Gas Distribution, Gas Transmission and Storage, Exploration and Production and Other. Distribution Operations Columbia's five distribution subsidiaries provide natural gas service to nearly 2.1 million residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland. These operations include 33,215 miles of pipelines, 3,300 acres of underground storage, 8 storage wells and one compressor station with 800 horsepower (hp) of installed capacity. The distribution subsidiaries are currently pursuing transportation programs that allow residential and small commercial customers the opportunity to choose their natural gas suppliers and to use the distribution subsidiaries for transportation service only. Transmission and Storage Operations Columbia's gas transmission and storage subsidiaries own and operate approximately 15,846 miles of interstate pipelines and operate one of the nation's largest underground natural gas storage systems capable of storing approximately 670 billion cubic feet (Bcf) of natural gas. Through its subsidiaries, Columbia Gas Transmission Corporation (Columbia Transmission) and Columbia Gulf Transmission Company (Columbia Gulf), it owns and operates an interstate pipeline network extending from offshore in the Gulf of Mexico to Lake Erie, New York and the eastern seaboard. Together, these companies serve customers in 15 northeastern, mid-Atlantic, midwestern and southern states and the District of Columbia. The gas transmission and storage subsidiaries are engaged in several projects that will expand their service territory and throughput. The largest such project is Millennium Pipeline, which will replace parts of an existing Columbia Transmission pipeline and will transport 700,000 Dekatherms (Dth) of natural gas per day to growing markets in New York and the northeast United States. Exploration and Production Operations Columbia Energy Resources, Inc. (Columbia Resources), is one of the largest independent natural gas and oil producers in the Appalachian Basin and also has production operations in Canada. Columbia Resources produced nearly 54.1 billion cubic feet equivalent (Bcfe) of natural gas and oil for the twelve months ended December 31, 2001. Columbia Resources has financial interests in over 8,000 wells, and has net proven gas and oil reserve holdings of 1.1 trillion cubic feet equivalent (Tcfe). Columbia Resources also owns and operates approximately 6,200 miles of gathering pipelines. Columbia Resources seeks to achieve asset and profit growth primarily through aggressive drilling activities. For the year ended 2001, Columbia Resource discovered 70 net Bcfe of gas and oil reserves and participated in 183 gross (172.2 net) wells with a success rate of 94 percent. 3 ITEM 1. BUSINESS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Other Products and Services Columbia Transmission Communications Corporation (Transcom), a wholly owned subsidiary of Columbia, owns a dark-fiber optics telecommunications network primarily along pipeline rights-of-way between New York and Washington, D.C. The route covers 260 miles and provides access to 16 million people in the busiest telecommunications corridor in the United States. For additional discussion of Columbia's business segments, including financial information for the last three fiscal years, see the Notes to Consolidated Financial Statements. Competition The regulatory frameworks applicable to Columbia's operations, at both the state and federal levels, are undergoing fundamental changes. These changes have had and will continue to have an impact on Columbia's operations, structure and profitability. At the same time, competition within the gas industries will create opportunities to compete for new customers and revenues. Management continually seeks new ways to be more competitive and profitable in this changing environment, including providing its gas customers with increased customer choice for new products and services and acquiring companies that will provide improved economies of scale and efficiencies. Open access to natural gas supplies over interstate pipelines and the deregulation of the commodity price of gas has led to tremendous change in the energy markets, which continue to evolve. During the past few years, LDC customers and marketers began to purchase gas directly from producers and marketers and an open competitive market for gas supplies emerged. This separation or "unbundling" of the transportation and other services offered by pipelines and LDCs allows customers to select the service they want independent from the purchase of the commodity. Columbia's gas distribution subsidiaries are involved in programs that provide residential customers the opportunity to purchase their natural gas requirements from third parties and use the Columbia gas distribution subsidiaries for transportation services only. Columbia's other operations also experience competition for energy sales and related services from third party providers. Columbia meets these challenges through innovative programs aimed at providing energy products and services at competitive prices while also providing new services that are responsive to the evolving energy market and customer requirements. Other Relevant Business Information Columbia's customer base is broadly diversified, with no single customer accounting for a significant portion of revenues. As of January 31, 2002, Columbia had 4,798 full-time employees of which 1,803 are subject to collective bargaining agreements. Columbia's subsidiaries are subject to extensive federal, state and local laws and regulations relating to environmental matters. These laws and regulations, which are constantly changing, require expenditures for corrective action at various operating facilities, waste disposal sites and former gas manufacturing sites for conditions resulting from past practices that have subsequently become subject to environmental regulation. Information relating to environmental matters is detailed in Note 14G of the Notes to Consolidated Financial Statements. ITEM 2. PROPERTIES Information relating to properties is included in Item 1, Business and is incorporated by reference herein. Assets under lien and other guarantees are described in Note 14D of the Notes to Consolidated Financial Statements. Neither Columbia nor any subsidiary knows of material defects in the title to any real properties of the subsidiaries of Columbia or any material adverse claim of any right, title, or interest therein, pending or contemplated. Substantially all of Columbia Transmission's property has been pledged to Columbia as security for First Mortgage Bonds issued by Columbia Transmission to Columbia. 4 ITEM 3. LEGAL PROCEEDINGS COLUMBIA ENERGY GROUP AND SUBSIDIARIES 1. CANADA SOUTHERN PETROLEUM LTD. V. COLUMBIA GAS DEVELOPMENT OF CANADA LTD. This action was originally filed March 7, 1990. The plaintiffs asserted, among other things, that the defendant working interest owners, including Columbia Gas Development of Canada Ltd. (Columbia Canada) and various Amoco affiliates, breached an alleged fiduciary duty to ensure the earliest feasible marketing of gas from the Kotaneelee field (Yukon Territory, Canada). The plaintiffs sought, among other remedies, the return of the defendants' interests in the Kotaneelee field to the plaintiffs, a declaration that such interests are held in trust for the plaintiffs and an order requiring the defendants to promptly market Kotaneelee gas or assessing damages. In November 1993, the plaintiffs amended their Amended Statement of Claim to include allegations that the balance in the Carried Interest Account (an account for operating costs, which are recoverable, by working interest owners), which is in excess of the balance as of November 1988, should be reduced to zero. Columbia, on behalf of Columbia Canada, consented to the amendment in consideration of the plaintiffs' acknowledgment that approximately $63 million was properly charged to the account. Pursuant to an Indemnification Agreement regarding the Kotaneelee Litigation entered into when Columbia Canada was sold to Anderson Exploration Ltd. (Anderson), Columbia agreed to indemnify and hold Anderson harmless for losses due to this litigation arising out of actions occurring prior to December 31, 1991. An escrow account provides security for the indemnification obligation and is funded by a letter of credit with a face amount of approximately $35,835,000 (Cdn). A trial commenced in the third quarter of 1996 in the Court of Queen's Bench for the Province of Alberta and judgment was issued in September 2001. The court has finalized a judgment dismissing most of the plaintiffs' claims, including the fiduciary duty claim, but did order a reduction of the Carried Interest Account in the amount of $5.3 million (Cdn.) and ordered that the defendants were not entitled to charge the plaintiffs processing fees. The inability to charge the plaintiffs processing fees does not affect Columbia. The monetary value of these two items has not been determined. The plaintiffs have filed an appeal of the judgment. The Court has not yet set a date when it will hear the appeal; however, it has established a schedule for the filing of the arguments and responses of the parties, all of which must be completed by November 30, 2002. 2. TRANSCOM. On March 17, April 11 and April 21, 2000, one of Columbia's subsidiaries, Transcom, received directives from the Philadelphia District of the U.S. Army Corps of Engineers (Philadelphia District) and an administrative order from the Pennsylvania Department of Environmental Protection (PA DEP) addressing alleged violations of federal and state laws resulting from construction activities associated with Transcom's laying fiber optic cable along portions of a route between Washington, D.C. and New York City. The order and directives required Transcom to largely cease construction activities. On September 18, 2000, Transcom entered into a voluntary settlement agreement with the Philadelphia District under which Transcom contributed $1.2 million to the Pennsylvania chapter of the Nature Conservancy and the Philadelphia District lifted its directives. As a result of the voluntary agreement with the Philadelphia District and communications with the PA DEP, the Maryland Department of the Environment and the Baltimore District of the U.S. Army Corps of Engineers, work in Pennsylvania and Maryland was allowed to continue and has been completed. On October 25, 2001, Transcom entered into a Consent Order and Agreement with PA DEP in settlement of its enforcement action under which Transcom paid $80,633 in penalties and $223,567 to fund six community environmental projects. 3. UNITED STATES OF AMERICA EX REL. JACK J. GRYNBERG V. COLUMBIA GAS TRANSMISSION CORP., ET AL. The plaintiff filed a complaint under the False Claims Act, on behalf of the United States of America, against approximately seventy pipelines. The plaintiff claimed that the defendants had submitted false royalty reports to the government (or caused others to do so) by mismeasuring the volume and heating content of natural gas produced on Federal land and Indian lands. Plaintiff's original complaint was dismissed without prejudice for misjoinder of parties and for failing to plead fraud with specificity. In 1997, the plaintiff then filed over sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal courts. One of those complaints was filed in the Federal District Court for the Eastern District of Louisiana against Columbia and twelve affiliated entities. Plaintiff's second complaint repeats the mismeasurement claims previously made and adds valuation claims alleging that the defendants have undervalued natural gas for royalty purposes in various ways, including by making sales to affiliated entities at artificially low prices. Most of the Grynberg cases were 5 ITEM 3. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES transferred to Federal court in Wyoming in 1999. In December 1999, the Columbia defendants filed a motion to dismiss plaintiff's second complaint primarily based on a failure to plead fraud with specificity. In May 2001, the Court denied the Columbia defendants' motion to dismiss. The Columbia defendants joined together with numerous other defendants and filed a motion requesting the district court to amend its order to include a certification so that the defendants could request permission from the United States Court of Appeals for the Tenth Circuit to appeal a controlling question of law. That motion was denied on July 2, 2001. 4. QUINQUE OPERATING CO. ET AL V. GAS PIPELINES, ET AL. Plaintiff filed an amended complaint in Stevens County, Kansas state court on September 23, 1999, against over 200 natural gas measurers, mostly natural gas pipelines, including Columbia and fourteen affiliated entities. The allegations in Quinque are similar to those made in Grynberg; however, Quinque broadens the claims to cover all oil and gas leases (other than the Federal and Indian leases that are the subject of Grynberg). Quinque asserts a breach of contract claim, negligent or intentional misrepresentation, civil conspiracy, common carrier liability, conversion, violation of a variety of Kansas statutes and other common law causes of action. Quinque purports to be a nationwide class action filed on behalf of all similarly situated gas producers, royalty owners, overriding royalty owners, working interest owners and certain state taxing authorities. The defendants had previously removed the case to Federal court. On January 12, 2001, the Federal court remanded the case to state court. In June 2001, the plaintiff voluntarily dismissed nine of the thirteen Columbia entities. Discovery relating to personal jurisdiction has begun. 5. VIVIAN K. KERSHAW ET AL. V. COLUMBIA NATURAL RESOURCES, INC., ET AL. In February 2000, plaintiff filed a complaint in New York state court against Columbia, Columbia Natural Resources, Inc. and Columbia Transmission. The complaint alleges that Kershaw owns an interest in an oil and gas lease in New York and that the defendants have underpaid royalties on those leases by, among other things, failing to base royalties on the price at which natural gas is sold to the end user and by improperly deducting post-production costs. The complaint also seeks class action status on behalf of all royalty owners in oil and gas leases operated by Columbia Resources. Plaintiff seeks the alleged royalty underpayments and punitive damages. Columbia Resources and Columbia Transmission removed the case to Federal court in March 2000. The Federal court has now remanded Kershaw back to New York state court. The Columbia defendants' motion to dismiss was partially granted and partially denied by the New York state court judge on September 24, 2001. 6. ANTHONY GONZALEZ, ET AL. V. NATIONAL PROPANE CORPORATION, ET AL. On December 11, 1997, plaintiffs Anthony Gonzalez, Helen Pieczynski, as Special Administrator of the Estate of Edmund Pieczynski, deceased, Michael Brown and Stephen Pieczynski filed a multiple-count complaint for personal injuries in the Circuit Court of Cook County, Illinois against National Propane Corporation and the Estate of Edmund Pieczynski sounding in strict tort liability and negligence. National Propane Corporation was acquired by Columbia in 1999, and this litigation was retained by Columbia when Columbia Propane was sold in 2001. Plaintiff's complaint arises from an explosion and fire, which occurred in a Wisconsin vacation cottage in 1997. National Propane, L.P. filed a third-party complaint for contribution against Natural Gas Odorizing and Phillips Petroleum Company. Written discovery has been completed and the parties are conducting oral discovery of the fact witnesses. The case has a scheduled trial date of October 17, 2002. 7. COLUMBIA GAS TRANSMISSION CORP. V. CONSOLIDATION COAL CO., ET AL. On December 21, 1999, Columbia Transmission filed a complaint in Federal court in Pittsburgh, Pennsylvania against Consolidation Coal Co. and McElroy Coal Co. (collectively, Consol), seeking declaratory and permanent injunctive relief enjoining Consol from pursuing its current plan to conduct longwall mining through Columbia Transmission's Victory Storage Field (Victory) in northern West Virginia. The complaint was served on April 10, 2000. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described below. 8. MCELROY COAL COMPANY V. COLUMBIA GAS TRANSMISSION CORPORATION. On February 12, 2001, McElroy Coal Company (McElroy), an affiliate of Consolidation Coal Co., filed a complaint against Columbia Transmission in Federal court in Wheeling, West Virginia. The West Virginia complaint seeks declaratory and injunctive relief as to McElroy's alleged right to mine coal within Victory, and Columbia Transmission's obligation to take all necessary measures to permit McElroy to longwall mine. The complaint also seeks compensation for the inverse condemnation of any coal that cannot be mined due to 6 ITEM 3. LEGAL PROCEEDINGS COLUMBIA ENERGY GROUP AND SUBSIDIARIES Columbia Transmission's Victory operations. Except for the claim of inverse condemnation, McElroy's West Virginia complaint appears to be virtually identical to Consol's original counterclaim to Columbia Transmission's Federal court action in Pennsylvania. On April 10, 2001, the West Virginia case was dismissed without prejudice. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS NiSource is the holder of record of all the outstanding common equity securities of Columbia. ITEM 6. SELECTED FINANCIAL DATA Omitted pursuant to General Instruction I(2)(A). 7 ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS COLUMBIA ENERGY GROUP AND SUBSIDIARIES
INDEX PAGE - -------------------------------------------------------------------------------- Consolidated Review................................................... 8 Liquidity and Capital Resources....................................... 11 - --------------------------------------------------------------------------------
The information required by this Item is presented in a reduced disclosure format pursuant to General Instruction I to Form 10-K. The notes to our consolidated financial statements contain information that is pertinent to the following analysis. The Management's Narrative and Analysis of Results of Operations, including statements regarding market risk sensitive instruments, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning Columbia's plans, dispositions, objectives, expected performance, expenditures and recovery of expenditures through rates, stated on a consolidated basis, any and all underlying assumptions and other statements that are other than historical fact. From time to time, Columbia may publish or otherwise make available forward-looking statements of this nature. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of Columbia, are also expressly qualified by these cautionary statements. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially. Realization of Columbia's objective and expected performance is subject to a wide range of risks and can be adversely affected by, among other things, increased competition in deregulated energy markets, weather conditions, fluctuations in supply and demand for energy commodities, service territories, successful consummation of dispositions, growth opportunities for Columbia's regulated and non-regulated businesses, dealings with third parties over whom Columbia has no control, the regulatory process, regulatory and legislative changes, changes in general economic, capital and commodity market conditions and counter-party credit risk, many of which are beyond the control of Columbia. CONSOLIDATED REVIEW Columbia's income from continuing operations for 2001 was $236.5 million, a decrease of $36.2 million from 2000. The decrease is largely due to environmental and litigation expenditures, a one-time charge of $58.0 million after-tax for the impairment of assets related to Transcom, record setting warm weather and the continuing economic downturn in the industrial and manufacturing sectors. In addition, 2000 was favorably impacted by the sales of Columbia Electric and Cove Point LNG resulting in after-tax gains of $86.4 and $58.9 million, respectively. Tempering these reductions in income were a reduction in property taxes, reduction in operations and maintenance costs resulting from restructuring initiatives implemented during 2000 and increased gas production revenues, net of associated depletion. In addition, the results for 2000 included approximately $160 million after-tax of merger-related expenditures. Discontinued operations, which reflect Columbia's propane operations that were sold on August 21, 2001, incurred an after-tax loss of $50.6 million in 2001, which includes a litigation contingency. Taking into account income from continuing operations and the loss from discontinued operations, Columbia reported net income of $189.9 million in 2001, versus $111.8 million in the prior year. Income from continuing operations for 2000 of $272.7 million decreased $109.2 million from 1999. The decrease primarily reflected approximately $160 million after-tax of merger-related expenditures in 2000, partially offset by gains on the sales of Columbia Electric and the Cove Point LNG facilities, which improved after-tax income by $86.4 million and $58.9 million, respectively. Also improving 2000 results was 9% colder weather compared to 1999. Net Revenues Total net revenues of $1,977.4 million for 2001 reflected an increase of approximately $40.9 million over 2000 primarily due to 6% colder weather during the first half of 2001. Also contributing to this increase was the increase in gas production with increases in both volumes and prices. Offsetting these increases to net revenues was a decrease due to the sales of Columbia Electric and Cove Point LNG. 8 ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES For 2000, total net revenues of $1,936.5 million increased $28.5 million over 1999, primarily due to the effect of colder weather during the fourth quarter, an improvement in transportation revenue and increased natural gas prices and production for Columbia Resources' operations. Tempering these improvements was a 1999 gain recorded on the termination of a co-generation power purchase contract and a decline in off-system sales. Expenses Total operating expenses for 2001 were $1,432.4 million, a decrease of $121.8 million from 2000, due primarily to lower operations and maintenance costs relating to merger-related savings. Also contributing to this decrease was lower payroll and benefits costs, which resulted from the 2000 Voluntary Incentive Retirement Program (VIRP). Other taxes decreased $23.3 million, primarily due to lower property taxes. Offsetting these decreases were environmental and litigation contingencies and the $89.2 million impairment charge relating to Transcom. Depreciation and depletion expenses increased $11.1 million, due in part to the write down of certain impaired assets in Columbia Resources' Canadian producing region and higher depletion expense. In addition, higher uncollectibles in the Distribution Operations subsidiaries increased $24.6 million over the prior year, primarily resulting from the higher cost of gas in the 2000-2001 heating period. This negative variance was reduced by the impact of a favorable order that allows regulatory recovery of customer bad debts totaling approximately $19.5 million. Total operating expenses for 2000 were $1,554.2 million, an increase of $331.6 million compared to 1999, reflecting higher expenses in 2000 attributable to merger-related activities and employee-related costs for Columbia Electric's projects. Partially offsetting this increase were reduced labor and benefits cost as a result of implementing the 2000 VIRP and the positive impact of the 1997 Columbia of Ohio regulatory settlement.
Twelve Months Ended December 31, (in millions) 2001 2000 1999 - ----------------------------------------------------------------------------------------- Interest income and other, net $ 14.3 $ 236.3 $ 34.9 Interest expense and related charges (170.1) (169.6) (164.2) - ----------------------------------------------------------------------------------------- TOTAL OTHER INCOME (DEDUCTIONS) $(155.8) $ 66.7 $(129.3) - -----------------------------------------------------------------------------------------
Other income (deductions) decreased income by $155.8 million in 2001 compared to an increase to net income of $66.7 million in 2000. Interest income and other, net, of $14.3 million was $222.0 million less than the year earlier, due to the earlier period having been favorably impacted by a $130.5 million and $90.5 million pre-tax gain on the sales of Columbia Electric and Cove Point LNG, respectively. Interest expense and related charges of $170.1 million remained relatively constant. For 2000, other income (deductions) improved income by $66.7 million compared to a reduction of $129.3 million in 1999. Interest income and other, net, of $236.3 million was $201.4 million greater than in the year earlier, due largely to the gain from the sale of Columbia Electric and the Cove Point facilities in 2000. Tempering this increase was an improvement in 1999 from the sale of Columbia's interests in a pipeline partnership amounting to $12.1 million and from the sale of coal properties for $2.9 million. Interest expense and related charges of $169.6 million increased $5.4 million due largely to higher short-term borrowings to finance acquisitions and fund Columbia's stock repurchase program, as discussed below, tempered by lower interest on contingent taxes. Income Taxes Income tax expense in 2001 totaled $152.7 million, a decrease of $23.6 million from 2000; primarily due to tax benefits and 2000 income tax expense was higher as a result of the gain on the sales of Columbia Electric and Cove Point LNG. Income tax expense of $176.3 million for 2000 increased $2.1 million from 1999. Lower pre-tax income for 2000 was offset by utilization of certain tax benefits and state tax planning initiatives during 1999. Discontinued Operations During 2000, Columbia undertook an evaluation of the appropriateness of remaining in certain businesses given the rapidly changing energy industry and the pending merger with NiSource. As a result of this assessment, Columbia decided to exit the energy marketing operations, which included the propane, petroleum and Columbia Energy Services' mass marketing business, as discussed below. In accordance with generally accepted accounting principles, the results from these businesses were reported as discontinued operations. 9 ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Discontinued operations reflected an after-tax loss of $50.6 million in 2001 compared to an after-tax loss of $160.9 million in 2000. The loss was primarily related to an additional loss recorded for the sale of the propane operations. In May 2000, Columbia Energy Services sold its internet-based energy marketing operation, Energy.com. Also in May 2000, Columbia announced that it was in the process of preparing its propane and petroleum businesses for sale. In August 2001, NiSource sold Columbia Propane Corporation and incurred an after-tax loss of $50.6 million. In the third quarter of 2000, Columbia sold its retail energy mass marketing business to The New Power Company, a national residential and small business energy provider. Late in 2000, Columbia sold its interest in Columbia Electric's four power generation plants to a partnership between Delta Power Company and John Hancock Life Insurance Company and the remainder of Columbia Electric to Orion Power. The gain of the sale of these assets resulted in an improvement to consolidated net income of approximately $86.4 million. Accounting Change Effective January 1, 2001, Columbia adopted the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as subsequently amended by SFAS No. 137 and SFAS No. 138 (collectively referred to as SFAS No. 133). These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation. The adoption of this statement on January 1, 2001, resulted in a cumulative after-tax increase to net income of approximately $4.0 million and an after-tax reduction to accumulated other comprehensive income (OCI) of approximately $33.6 million. The adoption also resulted in the recognition of $160.2 million of assets and $193.8 million of liabilities on the consolidated balance sheet. Additionally, the adoption resulted in the reduction of the carrying value of certain long-term debt by $3.8 million. Approximately $6.4 million of the net losses included in the cumulative effect of a change in accounting principle component of OCI were reclassified into earnings during 2001. Refer to "Summary of Significant Accounting Policies - Accounting for Risk Management Activities" and "Risk Management Activities" in the Notes to the Consolidated Financial Statements for further discussion of Columbia's risk management. Change in Accounting Method During the fourth quarter of 2001, Columbia changed its method of accounting for acquisition, exploration and development activities related to oil and gas reserves from the full cost method to the successful efforts method. Under the successful efforts method of accounting, except for property acquisition costs, only costs associated with specific discovered reserves are capitalized. Capitalized costs include mineral interests in properties, wells and related equipment and facilities, support equipment, and uncompleted wells. Depletion expense is equal to annual production multiplied by the depletion rate per unit that is derived by spreading the total costs capitalized under successful efforts over the number of units expected to be extracted over the life of the reserves on a lease basis. Compared to the full cost method, the change to successful efforts reduced operating income by $28.0 million, $36.0 million and $9.8 million for 2001, 2000 and 1999, respectively. 10 ITEM 7. MANAGEMENT'S NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES A significant portion of Columbia's operations is subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from sales and transportation services typically exceed cash requirements. Conversely, during the remainder of the year, cash on hand together with external short-term and long-term financing, as needed, is used to purchase gas to place in storage for heating season deliveries, perform necessary maintenance of facilities, make capital improvements in plant and expand service. Net cash from continuing operations for the year ended December 31, 2001 was $743.9 million, a $210.7 million increase from the same period in 2000. The increase was primarily due to the increase of cash receipts from accounts receivable, previously underrecovered gas cost, and exchange gas receivable, partially offset by the receipt of cash for forward gas sales in 2000. Columbia satisfies its liquidity requirements primarily through internally generated funds and through intercompany borrowings from NiSource Finance Corp. (NFC), NiSource's financing subsidiary. NFC actively borrows funds in the commercial paper market and maintains a $2.5 billion revolving credit facility with a syndicate of banks for back-up liquidity purposes. The credit facility is guaranteed by NiSource. As of December 31, 2001, Columbia had $72.5 million of intercompany short-term borrowings with NiSource Finance Corp. outstanding at a weighted average interest rate of 2.88%. In addition, at December 31, 2001, Columbia had letters of credit outstanding issued and outstanding of $47.7 million. Columbia has entered into interest rate swap agreements to modify the interest characteristics of its outstanding long-term debt. At December 31, 2001, Columbia had four interest rate swap agreements outstanding effective through November 28, 2002, on $200.0 million notional amount of its 6.61% Series B Debentures due November 28, 2002. In addition, Columbia has two other outstanding interest rate swap agreements, including a $100.0 million notional value swap effective through November 28, 2005 on its 6.80% Series C Debentures due November 28, 2005 and a $281.5 million notional value swap effective through November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The Series D swap can be terminated at the option of the counter party at any time between the optional termination date of November 28, 2005 and the stated termination date of November 28, 2007. Under the terms of all the swap agreements, Columbia pays interest based on a floating rate index and receives interest based on a fixed rate. The effect of these agreements is to modify the interest rate characteristics of a portion of Columbia's long-term debt from fixed to variable. Columbia has an effective shelf registration statement on file with the Securities and Exchange Commission (SEC) for the issuance of up to $1 billion in aggregate of debentures, common stock or preferred stock in one or more series. Currently, Columbia has $750 million available under the shelf registration. In October 1999, Columbia of Ohio entered into an agreement to sell, without recourse, substantially all of its trade accounts receivable to Columbia Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia. At the same time, CARC entered into an agreement, with a third party, Canadian Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a defined pool of accounts receivable (Sales Program). Under this Sales Program, CARC can transfer an undivided interest in a designated pool of its accounts receivable on an ongoing basis up to a maximum of either $125.0 million or $100.0 million, as determined by the seasonal fluctuation in Columbia of Ohio's account receivable balances and the mutual consent of both parties. The amount available at any measurement date varies based upon the level of eligible receivables. Under these agreements, CARC may not sell any new affiliate receivables to the conduit if Columbia's debt rating falls below BBB or Baa2 at Standard and Poor's and Moody's, respectively. In addition, if Columbia's debt rating falls below investment grade, the agreements terminate and CARC may not sell any new affiliate receivables to the conduit. Under this agreement, approximately $82.8 million of receivables were sold as of December 31, 2001. Management believes that its sources of funding are sufficient to meet the short-term and long-term liquidity needs of Columbia. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 8, Note 7 for a discussion of risk management activities. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA COLUMBIA ENERGY GROUP AND SUBSIDIARIES
INDEX PAGE - ------------------------------------------------------------------------------- Report of Independent Public Accountants............................. 13 Statements of Consolidated Income.................................... 14 Consolidated Balance Sheets.......................................... 15 Statements of Consolidated Cash Flows................................ 17 Statements of Consolidated Common Stock Equity....................... 18 Notes of Consolidated Financial Statements........................... 19 Schedule II - Valuation and Qualifying Accounts...................... 44 - -------------------------------------------------------------------------------
12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Columbia Energy Group: We have audited the accompanying consolidated balance sheets of Columbia Energy Group (a Delaware corporation, the "Corporation" and a wholly owned subsidiary of NiSource Inc.) and subsidiaries as of December 31, 2001, and 2000, and the related statements of consolidated income, cash flows and common stock equity for the three years then ended December 31, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation and subsidiaries as of December 31, 2001, and 2000, and the results of their operations and their cash flows for the three years then ended, in conformity with accounting principles generally accepted in the United States. As explained in Note 1E to the financial statements, the Corporation has given retroactive effect to the change in accounting for acquisition, exploration and development activities related to oil and gas reserves from the full cost method to the successful efforts method. Further, as explained in Note 7 to the financial statements, effective January 1, 2001, the Corporation adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments and Hedging Activities," as amended. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the Index to Item 8, Financial Statements and Supplementary Data, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York January 29, 2002 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME
Year ended December 31, (in millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ NET REVENUES Energy sales $ 2,566.0 $ 1,723.1 $ 1,717.8 Less: Products purchased 1,692.5 922.5 905.6 - ------------------------------------------------------------------------------------------------------ Gross Margin 873.5 800.6 812.2 Transportation 801.3 801.2 719.2 Production gas sales 153.0 154.9 120.2 Other 149.6 179.8 256.4 - ------------------------------------------------------------------------------------------------------ Total Net Revenues 1,977.4 1,936.5 1,908.0 - ------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Operation and maintenance 937.8 1,136.6 852.9 Settlement of gas supply charges -- -- (31.7) Depreciation and depletion 226.2 215.1 198.3 Loss on impairment of telecommunications assets 89.2 -- -- Other taxes 179.2 202.5 203.1 - ------------------------------------------------------------------------------------------------------ Total Operating Expenses 1,432.4 1,554.2 1,222.6 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ OPERATING INCOME 545.0 382.3 685.4 - ------------------------------------------------------------------------------------------------------ OTHER INCOME (DEDUCTIONS) Interest income and other, net 14.3 236.3 34.9 Interest expense and related charges (170.1) (169.6) (164.2) - ------------------------------------------------------------------------------------------------------ Total Other Income (Deductions) (155.8) 66.7 (129.3) - ------------------------------------------------------------------------------------------------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 389.2 449.0 556.1 INCOME TAXES 152.7 176.3 174.2 - ------------------------------------------------------------------------------------------------------ INCOME FROM CONTINUING OPERATIONS 236.5 272.7 381.9 - ------------------------------------------------------------------------------------------------------ DISCONTINUED OPERATIONS - NET OF TAXES Income (Loss) from operations -- (1.6) (112.9) Estimated (loss) on disposal (50.6) (159.3) (25.8) - ------------------------------------------------------------------------------------------------------ Loss from Discontinued Operations - net of taxes (50.6) (160.9) (138.7) - ------------------------------------------------------------------------------------------------------ Cumulative effect of change in accounting principle 4.0 -- -- - ------------------------------------------------------------------------------------------------------ NET INCOME $ 189.9 $ 111.8 $ 243.2 ======================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, (in millions) 2001 2000 - ---------------------------------------------------------------------------------------------- ASSETS PROPERTY, PLANT AND EQUIPMENT Gas utility and other plant, at original cost $ 8,267.0 $ 8,174.2 Accumulated depreciation (3,879.1) (3,778.3) - ---------------------------------------------------------------------------------------------- Net Gas Utility and Other Plant 4,387.9 4,395.9 - ---------------------------------------------------------------------------------------------- Gas and oil producing properties, successful efforts method United States cost center 934.2 779.4 Canadian cost center 14.2 12.5 Accumulated depletion (407.4) (319.2) - ---------------------------------------------------------------------------------------------- Net Gas and Oil Producing Properties 541.0 492.7 - ---------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 4,928.9 4,888.6 - ---------------------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS Unconsolidated affiliates 28.9 28.1 Net assets of discontinued operations 30.0 236.3 Affiliated Notes Receivable 23.9 -- Other 16.8 27.4 - ---------------------------------------------------------------------------------------------- Total Investments and Other Assets 99.6 291.8 - ---------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and temporary cash investments 53.8 73.5 Accounts receivable Customer (less allowance for doubtful accounts of $25.3 and $15.8, respectively) 385.0 569.8 Affiliated 81.3 2.7 Other 29.9 113.5 Gas inventory 195.7 147.4 Other inventories - at average cost 14.5 14.5 Prepayments 84.4 73.8 Regulatory assets 75.4 57.4 Underrecovered gas costs 60.1 169.0 Deferred property taxes 48.7 45.2 Exchange gas receivable 186.8 615.9 Price risk management assets 65.8 -- Other 103.1 (2.3) - ---------------------------------------------------------------------------------------------- Total Current Assets 1,384.5 1,880.4 - ---------------------------------------------------------------------------------------------- REGULATORY ASSETS 364.2 351.8 DEFERRED CHARGES 117.5 45.2 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $ 6,894.7 $ 7,457.8 ==============================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, (in millions) 2001 2000 - ------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES COMMON STOCK EQUITY Common stock, par value $.01 per share - issued 3,000 and 79,539,295 shares, respectively $ -- $ 0.7 Additional paid in capital 1,370.5 1,369.1 Retained earnings 755.3 565.7 Accumulated other comprehensive income 51.3 (0.4) - ------------------------------------------------------------------------------------- Total Common Stock Equity 2,177.1 1,935.1 Long-Term Debt 1,356.9 1,639.1 - ------------------------------------------------------------------------------------- Total Capitalization 3,534.0 3,574.2 - ------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term debt -- 521.0 Current maturities of long-term debt 281.7 0.2 Accounts and drafts payable 214.1 398.0 Affiliated payable 103.2 7.2 Accrued taxes 232.8 177.1 Accrued interest 28.6 17.7 Estimated rate refunds 9.1 6.8 Overrecovered gas costs 45.6 -- Transportation and exchange gas payable 285.1 358.5 Deferred revenue 89.0 451.5 Customer accounts receivable credit balances 120.6 45.9 Other 341.7 320.1 - ------------------------------------------------------------------------------------- Total Current Liabilities 1,751.5 2,304.0 - ------------------------------------------------------------------------------------- OTHER LIABILITIES AND DEFERRED CREDITS Deferred income taxes, noncurrent 759.4 699.3 Investment tax credits 29.8 31.2 Postretirement benefits other than pensions 104.9 114.7 Regulatory liabilities 32.9 32.4 Deferred revenue 435.4 498.0 Other 246.8 204.0 - ------------------------------------------------------------------------------------- Total Other Liabilities and Deferred Credits 1,609.2 1,579.6 - ------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $ 6,894.7 $ 7,457.8 =====================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31, (in millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net Income $ 189.9 $ 111.8 $ 243.2 Adjustments to reconcile net income to net cash from continuing operations: Loss from discontinued operations -- 1.5 112.8 Estimated loss on disposal 50.6 159.4 25.8 Depreciation and depletion 226.2 215.1 198.3 Deferred income taxes (51.1) 119.5 47.6 Gain on sale of investments 4.8 (221.0) -- Loss/Earnings from equity investment, net of distributions (0.8) (16.4) 23.3 Loss on impairment of telecommunications asset 89.2 -- -- Deferred revenue (362.5) 197.2 109.4 Other - net 91.8 47.9 (59.0) - ------------------------------------------------------------------------------------------------------------------------ 238.1 615.0 701.4 - ------------------------------------------------------------------------------------------------------------------------ Changes in components of working capital: Accounts receivable, net 155.8 (200.6) (145.9) Sale of accounts receivable -- -- 81.1 Gas inventory (48.3) (2.5) 41.1 Prepayments (10.6) (3.1) (7.4) Accounts payable (87.8) 142.4 87.6 Accrued taxes 55.7 (58.1) (2.5) Accrued interest 10.9 (13.6) 15.1 Estimated rate refunds 2.3 (14.6) (37.8) Estimated supplier obligations -- -- (40.6) Under/Overrecovered gas costs 108.9 (143.0) (35.7) Exchange gas receivable/payable 355.7 (279.5) 78.4 Deferred revenue (62.6) 411.5 27.9 Other working capital 25.8 79.3 9.9 - ------------------------------------------------------------------------------------------------------------------------ Net Cash from Continuing Operations 743.9 533.2 772.6 Net Cash from Discontinued Operations 154.2 12.8 (246.3) - ------------------------------------------------------------------------------------------------------------------------ Net Cash from Operating Activities 898.1 546.0 526.3 - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES Capital expenditures (371.1) (464.0) (437.2) Purchases and sales of investments - net 12.4 312.9 (62.1) - ------------------------------------------------------------------------------------------------------------------------ Net Investment Activities (358.7) (151.1) (499.3) - ------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Retirement of long-term debt -- (310.9) (52.5) Dividends paid (0.3) (54.1) (71.8) Issuance of common stock -- 6.5 15.5 Issuance (repayment) of short-term debt (521.0) 55.5 320.7 Purchase of treasury stock -- (114.1) (135.0) Other financing activities (37.8) 37.6 (66.6) - ------------------------------------------------------------------------------------------------------------------------ Net Financing Activities (559.1) (379.5) 10.3 - ------------------------------------------------------------------------------------------------------------------------ Increase (Decrease) in cash and temporary cash investments (19.7) 15.4 37.3 Cash and temporary cash investments at beginning of year 73.5 58.1 20.8 - ------------------------------------------------------------------------------------------------------------------------ CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 53.8 $ 73.5 $ 58.1 ======================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest 98.8 162.7 148.6 Cash paid for income taxes (net of refunds) 143.5 69.2 61.6 - ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
Common Stock* ----------------------------- Accumulated Shares Additional Unearned Other Outstanding Par Treasury Paid In Retained Employee Comprehensive (in millions, except for share amounts) (Thousands) Value Stock Capital Earnings Compensation Income (Loss) Total - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 81,308 $ 0.8 $(135.0) $1,611.6 $508.0 $(0.6) $ 0.3 $1.985.1 Comprehensive Income: -- Net income 111.8 111.8 Loss on foreign currency translation (0.7) (0.7) Comprehensive Income 111.1 Cash dividends: -- Common stock (54.1) (54.1) Common stock issued: -- Long-term incentive plan 120 6.6 0.6 7.2 Reduction in par value (0.1) (0.1) Purchase of treasury stock (1,889) (114.1) (114.1) Retirement of treasury stock 249.1 (249.1) -- - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 79,539 $ 0.7 $ -- $1,369.1 $565.7 $ -- $(0.4) $1,935.1 - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive Income: -- Net income 189.9 189.9 Net unrealized gains on derivatives** 52.4 52.4 Loss on foreign currency translation (0.7) (0.7) Comprehensive Income 241.6 Cash dividends: -- Common stock (0.3) (0.3) Common stock issued: -- Long-term incentive plan 0.1 (0.1) -- Reduction in issued shares (79,536) (0.8) 0.8 -- Purchase of treasury stock -- Retirement of treasury stock 0.7 0.7 Recapitalization -- Tax savings allocation -- - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2001 3 $ -- $ -- $1,370.5 $755.3 $ -- $51.3 $2,177.1 - ------------------------------------------------------------------------------------------------------------------------------------
* Effective May 19, 1999, the authorized number of shares of common stock increased from 100 million to 200 million and the par value of common stock decreased from $10 to $.01 per share. ** Net of taxes amounting to $36.4 million. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Columbia Energy Group (Columbia) and all subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to the prior period financial statements to conform to the 2001 presentation. B. CASH AND CASH EQUIVALENTS. Columbia considers all investments with original maturities of three months or less to be cash equivalents. C. BASIS OF ACCOUNTING FOR RATE-REGULATED SUBSIDIARIES. Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), provides that rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. Columbia's rate-regulated subsidiaries follow the accounting and reporting requirements of SFAS No. 71. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. In the event that regulation significantly changes the opportunity for Columbia to recover its costs in the future, all or a portion of Columbia's regulated operations may no longer meet the criteria for the application of SFAS No. 71. In such event, a write-down of all or a portion of Columbia's existing regulatory assets and liabilities could result. If transition cost recovery is approved by the appropriate regulatory bodies that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If Columbia would not be able to continue to apply the provisions of SFAS No. 71, Columbia would have to apply the provisions of SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71." In management's opinion, Columbia's regulated subsidiaries will be subject to SFAS No. 71 for the foreseeable future. Regulatory assets and liabilities were comprised of the following items:
At December 31, (in millions) 2001 2000 - ------------------------------------------------------------------------------------------------------------------- ASSETS Environmental costs $ 69.2 $ 82.8 Postemployment and postretirement benefits costs 137.1 149.6 Percent of income plan receivables 24.5 6.4 Retirement income plan costs 14.3 21.1 Regulatory effects of accounting for income taxes 80.2 77.0 Post in-service carrying charges 13.2 15.3 Underrecovered gas costs 60.1 169.0 Depreciation 64.5 39.9 Other 36.6 17.1 - ------------------------------------------------------------------------------------------------------------------- TOTAL REGULATORY ASSETS $ 499.7 $ 578.2 - ------------------------------------------------------------------------------------------------------------------- LIABILITIES Rate refunds and reserves $ 9.1 $ 6.8 Overrecovered gas costs 45.6 -- Regulatory effects of accounting for income taxes 30.0 32.6 Other 8.5 8.4 - ------------------------------------------------------------------------------------------------------------------- TOTAL REGULATORY LIABILITIES $ 93.2 $ 47.8 - -------------------------------------------------------------------------------------------------------------------
19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Regulatory assets of $135.5 million and $ 226.4 million and regulatory liabilities of $60.3 million and $15.4 million at December 31, 2001 and 2000, respectively, are included in current assets and current liabilities. Regulatory assets of approximately $238.5 million are not presently included in the rate base and consequently are not earning a return on investment. These regulatory assets are being recovered through cost of service. The remaining recovery periods generally range from one to fifteen years. Regulatory assets of approximately $96.4 million require specific rate action. The Public Utility Commission of Ohio (PUCO) authorized Columbia of Ohio to revise its depreciation accrual rates for the period January 1, 1999 through December 31, 2004. The revised depreciation rates are lower than those which would have been utilized if Columbia of Ohio were not subject to regulation. The amount of depreciation that would have been recorded for 2001 had Columbia of Ohio not been subject to rate regulation is $34.0 million, a $24.6 million increase over the $9.4 million reflected in rates. Including amounts for years prior to 2001, a regulatory asset has been established in the amount of $64.5 million at December 31, 2001. D. UTILITY PLANT AND OTHER PROPERTY AND RELATED DEPRECIATION. Property, plant and equipment (principally utility plant) are stated at cost. The cost of gas utility and other plant of the rate-regulated subsidiaries includes an allowance for funds used during construction (AFUDC). Property, plant and equipment of other subsidiaries include interest during construction (IDC). The 2001 before-tax rates for AFUDC and IDC were 7.56% and 6.82%, respectively. The 2000 and 1999 before-tax rates for AFUDC were 6.84% and 5.91%, respectively, and for IDC were 6.82% and 6.94%, respectively. Improvements and replacements of retirement units are capitalized at cost. When units of property are retired, the accumulated provision for depreciation is charged with the cost of the units and the cost of removal, net of salvage. Maintenance, repairs and minor replacements of property are charged to expense. Columbia's subsidiaries provide for annual depreciation on a composite straight-line basis. The average annual depreciation rate for the distribution subsidiaries' property was 2.8% in 2001, 2000, and 1999. The average annual depreciation rate for the transmission subsidiaries' property was 2.4% in 2001, 2000 and 1999. E. GAS AND OIL PRODUCING PROPERTIES. During the fourth quarter of 2001, Columbia changed its method of accounting for acquisition, exploration and development activities related to oil and gas reserves from the full cost method to the successful efforts method. Under the successful efforts method of accounting, except for property acquisition costs, only costs associated with specific discovered reserves are capitalized. Capitalized costs include mineral interests in properties, wells and related equipment and facilities, support equipment and uncompleted wells. Depletion expense is equal to annual production multiplied by the depletion rate per unit that is derived by spreading the total costs capitalized under successful efforts over the number of units expected to be extracted over the life of the reserves on a lease basis. The costs capitalized using the successful efforts method, net of accumulated depletion, are subject to impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), through 2001. Beginning January 1, 2002, the net capitalized costs will be subject to impairment testing under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), which supercedes SFAS No. 121. Columbia, as well as the Securities Exchange Commission (SEC), believes that the successful efforts method is preferable when compared with the full cost method. The accounting change requires that the financial statements of all periods presented be restated to take into account the effect of the change. Compared to full cost, the change to successful efforts reduced operating income by $28.0 million, $36.0 million and $9.8 million for 2001, 2000 and 1999, respectively. F. INTANGIBLE ASSETS. Intangible assets are recorded at cost (i.e. estimated fair value) and are amortized on a straight-line basis. Customer lists are being amortized over periods of 10 to 20 years. Intangible assets are immaterial to the consolidated financial statements. G. REVENUE RECOGNITION. Columbia's gas distribution subsidiaries bill customers on a monthly cycle billing basis. Revenues are recorded on the accrual basis and include an estimate for gas delivered but unbilled at the end of each accounting period. Cash received in advance from sales of commodities to be delivered in the future is deferred and recognized as income upon delivery of the commodity. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) H. ESTIMATED RATE REFUNDS. Certain rate-regulated subsidiaries collect revenues subject to refund pending final determination in rate proceedings. In connection with such revenues, estimated rate refund liabilities are recorded which reflect management's current judgment of the ultimate outcome of the proceedings. No provisions are made when, in the opinion of management, the facts and circumstances preclude a reasonable estimate of the outcome. I. ACCOUNTS RECEIVABLE SALES PROGRAM. Columbia enters into agreements with third parties to sell certain accounts receivable without recourse. These sales are reflected as reductions of accounts receivable in the accompanying consolidated balance sheets and as operating cash flows in the accompanying consolidated statements of cash flows. The costs of this program, which are based upon the purchasers' level of investment and borrowing costs, are charged to other income in the accompanying consolidated statements of income. J. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. K. GAS COST ADJUSTMENT CLAUSE. Columbia's gas distribution subsidiaries defer differences between gas purchase costs and the recovery of such costs in revenues, and adjust future billings for such deferrals on a basis consistent with applicable tariff provisions. L. GAS INVENTORY. The distribution subsidiaries' gas inventory is carried at cost on a last-in, first-out (LIFO) basis. The excess of replacement cost of gas inventory at December 31, 2001, over the carrying value is approximately $37.2 million. Liquidation of LIFO layers related to gas delivered by the distribution subsidiaries does not affect income since the effect is passed through to customers as part of purchased gas adjustment tariffs. M. ACCOUNTING FOR RISK MANAGEMENT ACTIVITIES. Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as subsequently amended by SFAS No. 137 and SFAS No. 138 (collectively referred to as SFAS No. 133), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation. Unrealized and realized gains and losses are recognized each period as components of accumulated other comprehensive income (OCI), regulatory assets and liabilities or earnings depending on the nature of such derivatives. For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the gains and losses are recorded to OCI and are recognized in earnings concurrent with the disposition of the hedged risks. If a forecasted transaction does not occur, the gains or losses are recognized currently in earnings. For fair value hedges, the gains and losses are recorded in earnings each period along with the change in the fair value of the hedged item. For hedges of foreign currency the accounting treatment generally follows the treatment for cash flow hedges or fair value hedges depending on the nature of the foreign currency hedge. As a result of the rate-making process, the rate-regulated subsidiaries generally record gains and losses as regulatory liabilities or assets and recognize such gains or losses in earnings when recovered in revenues. In order for a derivative contract to be designated as a hedge, the relationship between the hedging instrument and the hedged item or transaction must be highly effective. The effectiveness test is performed at the inception of the hedge and each reporting period thereafter, throughout the period that the hedge is designated. Any amounts determined to be ineffective are recorded currently in earnings. 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) N. INCOME TAXES AND INVESTMENT TAX CREDITS. Columbia and its subsidiaries record income taxes to recognize full interperiod tax allocations. Under the liability method of income tax accounting, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Previously recorded investment tax credits of the regulated subsidiaries were deferred and are being amortized over the life of the related properties to conform to regulatory policy. Columbia joins in the filing of consolidated federal and state income tax returns with its parent company, NiSource Inc., and certain of NiSource's other affiliated companies. On January 14, 2002, NiSource Inc. and its subsidiaries filed an application with the Securities Exchange Commission to request approval for a proposed Tax Allocation Agreement. Under the proposed Tax Allocation Agreement, which would apply to 2001 and later tax years, the consolidated tax would be allocated among the members of the group in proportion to each member's relative contribution to the group's consolidated tax liability. O. ENVIRONMENTAL EXPENDITURES. Columbia accrues for costs associated with environmental remediation obligations when such costs are probable and can be reasonably estimated, regardless of when expenditures are made. The undiscounted estimated future expenditures are based on currently enacted laws and regulations, existing technology and, when possible, site-specific costs. The liability is adjusted as further information is discovered or circumstances change. Rate-regulated subsidiaries applying SFAS No. 71 establish a regulatory asset on the balance sheet to the extent that future recovery of environmental remediation costs is probable through the regulatory process. P. AFFILIATED COMPANY TRANSACTIONS. Columbia receives executive, financial, sales and marketing, and administrative and general services from an affiliate, NiSource Corporate Services Company (NSC), a wholly-owned subsidiary of NiSource. The costs of these services are charged to Columbia based on payroll costs and expenses incurred by NSC employees for the benefit of Columbia. These costs totaled $199.2 million for 2001 consisting primarily of employee compensation and benefits. Columbia recorded gas sales, transportation and storage revenues from affiliates of $74.2 million and purchased natural gas from affiliated companies in the amount of $17.7 million during 2001. Columbia had notes receivable from NSC totaling $26.2 million, of which $2.3 million is current at December 31, 2001. The interest is payable semi-annually and is based on rates ranging from 7.1% to 8.1%. The maturities range from November 2002 to November 2025. 2. REGULATORY MATTERS Columbia's Distribution Operations (Distribution) subsidiaries continue to develop customer choice opportunities through regulatory initiatives in all of its jurisdictions. While these programs are intended to provide all customer classes with the opportunity to obtain gas supplies from alternative marketers, Distribution expects to play a substantial role in supplying gas commodity services to its customers in the foreseeable future. As customers enroll in these programs and purchase their gas from other suppliers, the Distribution subsidiaries are left with pipeline capacity they have contracted for, but no longer need. The state commissions in jurisdictions served by Distribution are at various stages in addressing these issues and other transition considerations. Distribution is currently recovering, or has the opportunity to recover, the costs resulting from the unbundling of its services and believes that most of such future costs will be mitigated or recovered. Regulations will have to be implemented to provide for the recovery of transition capacity costs and other costs incurred by a utility serving as the supplier of last resort if the marketing company cannot supply the gas. Methodologies for mitigating or recovering transition costs include incentive sharing mechanisms, decontracting of pipeline capacity and mandatory assignment of pipeline capacity to alternative suppliers. In December 1999, the Public Utilities Commission of Ohio (PUCO) approved a request from Columbia Gas of Ohio, Inc. (Columbia of Ohio) that extends Columbia of Ohio's Customer CHOICESM program through October 31, 2004, freezes base rates through October 31, 2004 and resolves the issue of transition costs from pipeline capacity. Under the agreement, Columbia of Ohio assumes total financial risk for mitigation of transition capacity costs at no additional cost to customers. Columbia of Ohio has the opportunity to utilize non-traditional revenue sources as a means of offsetting the costs. On November 20, 2001, PUCO issued final rules to implement the provisions of choice legislation enacted by the Ohio General Assembly on March 27, 2001. The new rules establish the process for PUCO certification and regulation of competitive retail natural gas suppliers, establish minimum service standards for competitive natural gas suppliers, and specify the procedures for establishment of governmental aggregation programs, in which consumers have the right to "opt-out" of the program. The new rules are expected to become effective in mid-2002. A number of parties, including Columbia of Ohio, have requested rehearing on certain provisions of these rules. The PUCO has granted a rehearing. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As part of the Kentucky Public Service Commission order approving the acquisition of Columbia, Columbia of Kentucky is required to file a rate case that includes an estimate of net merger savings and a mechanism to reflect merger savings on customers' bills. 3. NISOURCE ACQUISITION On November 1, 2000, NiSource Inc. (NiSource) completed its acquisition of Columbia for an aggregate consideration of approximately $6 billion, primarily consisting of 72.4 million shares of common stock valued at $1,761 million, with the remaining approximately $3,888 million paid in cash and Stock Appreciation Income Linked Securities(SM), referred to as SAILS(SM), (units each consisting of zero coupon debt security coupled with a forward equity contract) valued at $114 million. NiSource also assumed approximately $2 billion in Columbia debt. As part of the Merger Agreement, the stock options under Columbia's Long-Term Incentive Plans were cancelled. The holders of the stock options received approximately $120.6 million from the cash-out of the stock options. The acquisition of Columbia by NiSource triggered change in control payments of approximately $44.5 million under certain employment agreements. The cost of the cash-out of the stock options and the change of control payments of approximately $155.9 million were charged to 2000. As provided for in the Merger Agreement, NiSource organized a new company that serves as the holding company for Columbia and its subsidiaries. 4. RESTRUCTURING ACTIVITIES During 2000, Columbia developed and began the implementation of a plan to restructure its operations as a result of the acquisition of Columbia by NiSource. The restructuring plan included a severance program, a transition plan to implement operational efficiency throughout Columbia's operations and a voluntary early retirement program. During 2001, the restructuring initiative was continued with the addition of a plan to restructure the operations within Distribution. As a result of the restructuring plan initiated during 2001, approximately 200 positions will be eliminated. For all of the plans, a total of approximately 750 management, professional, administrative and technical positions will be eliminated. As of December 31, 2001, approximately 450 employees had been terminated. During 2001, Columbia recorded a pre-tax charge amounting to $10.8 million comprised primarily of severance and related benefits costs for the plans to restructure the operations within Distribution. In October 2000, a pre-tax charge of $66.9 million was recorded for severance and related benefits costs. Adjustments to the October 2000 charge amounting to $6.8 million were recorded during 2001 to take into account a reduction in the estimated future payments under the plan. At December 31, 2001 and 2000, the consolidated balance sheets reflected liabilities of $31.4 million and $61.7 million related to the restructuring plans, respectively. A portion of the liability related to the October 2000 charge was transferred to NiSource. This related to the merger of Columbia Energy Group Services, Inc. with NiSource Corporate Services, Inc. The reported liabilities and employee counts have been reduced to take into account the effect at the merger. 5. DISCONTINUED OPERATIONS On August 21 2001, Columbia sold the stock and assets of Columbia Propane to AmeriGas Partners L.P. (AmeriGas) for approximately $196.0 million, consisting of $152.0 million in cash and $44.0 million of AmeriGas partnership common units. The loss on the sale of Columbia Propane amounted to an after-tax loss of $50.6 million. Columbia has also sold substantially all the assets of Columbia Petroleum Corporation. At December 31, 2000, Columbia Propane and Columbia Petroleum were reported as net assets of discontinued operations on the consolidated balance sheet. Remaining assets are reported as net assets of discontinued operations on the December 31, 2001 consolidated balance sheet. In the third quarter 2000, Columbia sold Columbia Energy Services' Retail Mass Marketing business to The New Power Company. The proceeds from the sale were $44.2 million. Columbia Energy Services ceased operations of its Major Accounts business during the third quarter of 2000. Columbia Energy Services' Wholesale and Trading operations, Major Accounts and Retail Mass Markets businesses are reported as discontinued operations and, as of December 31, 2000, essentially ceased all operations. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The loss from discontinued operations and the estimated loss on disposal information are provided in the following table:
($ in millions) 2001 2000 1999 - ---------------------------------------------------------------------------------- Loss from discontinued operations -- (2.1) (176.0) Income tax benefit -- (0.5) (63.1) - ---------------------------------------------------------------------------------- NET LOSS FROM DISCONTINUED OPERATIONS -- (1.6) (112.9) Estimated loss on disposal (95.6) (226.6) (39.5) Income tax benefits (45.0) (67.3) (13.7) - ---------------------------------------------------------------------------------- NET LOSS ON DISPOSAL (50.6) (159.3) (25.8) - ----------------------------------------------------------------------------------
The net assets of the discontinued operations were as follows:
($ in millions) 2001 2000 1999 - ---------------------------------------------------------------------------------- NET ASSETS OF DISCONTINUED OPERATIONS Accounts receivable, net $ -- $ 91.3 $ 416.7 Property, plant and equipment, net -- 212.2 212.0 Other assets 30.0 70.2 239.6 Accounts payable -- (68.3) (388.4) Other liabilities -- (69.1) (69.9) - ---------------------------------------------------------------------------------- NET ASSETS OF DISCONTINUED OPERATIONS $ 30.0 $ 236.3 $ 410.0 - ----------------------------------------------------------------------------------
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS A. SFAS NOS. 141 AND 142 - BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS. In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The key requirements of the two interrelated Statements include mandatory use of the purchase method of accounting for business combinations, discontinuance of goodwill amortization, a revised framework for testing for goodwill impairment at a "reporting unit" level, and new criteria for the identification and potential amortization of other intangible assets. Other changes to existing accounting standards involve the amount of goodwill to be used in determining the gain or loss on the disposal of assets and a requirement to test goodwill for impairment at least annually. The Business Combinations Statement is generally effective for combinations initiated after June 30, 2001. The Statement on Goodwill and Other Intangible Assets is effective for fiscal years beginning after December 15, 2001; however, for business combinations consummated after June 30, 2001 the requirements to discontinue goodwill amortization are effective upon issuance of the Statements. The first part of the annual impairment test is to be performed within six months of adopting the Statement on Goodwill and Other Intangible Assets. Northern Indiana adopted the provisions of the Business Combinations Statement on July 1, 2001, and adopted the Goodwill and Other Intangible Assets Statement on January 1, 2002. The statements do not have a material impact on its results of operations. B. SFAS NO. 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The Statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its then present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss. The Statement is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. Northern Indiana is currently evaluating the impact that the Statement will have on its financial position and results of operations. C. SFAS NO. 144 - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). The Statement replaces SFAS No. 121, although it retains the two-step impairment testing methodology used in SFAS No. 121. The accounting and reporting provisions of Accounting Principals Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APBO No. 30), are superceded by SFAS No. 144, except that the Statement preserves the requirement of APBO No. 30 to report discontinued operations separately from continuing operations. The Statement covers a variety of implementation issues inherent in SFAS No. 121, unifies the framework used in accounting for assets to be disposed of and discontinued operations and broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Statement is effective for fiscal years beginning after December 15, 2001. Northern Indiana adopted SFAS No. 144 on January 1, 2002. Northern Indiana does not expect the adoption of the Statement to have a material impact on its financial position and results of operations. 7. RISK MANAGEMENT ACTIVITIES Columbia is exposed to market risk due to fluctuations in commodity prices, primarily at its exploration and production subsidiary. In order to help minimize this risk, Columbia has adopted a policy that provides for commodity hedging activities to help ensure stable cash flow, favorable prices and margins. Financial instruments authorized for use by Columbia for hedging include futures, swaps and options. Columbia is also exposed to interest rate risk and has entered into interest rate swaps to hedge a portion of the interest rate risk associated with its long-term debt. ACCOUNTING CHANGE - SFAS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." Effective January 1, 2001, Columbia adopted the Financial Accounting Standards Board's (SFAS) No. 133 which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation. The adoption of this statement on January 1, 2001, resulted in a cumulative after-tax increase to net income of approximately $4.0 million and an after-tax reduction to OCI of approximately $33.6 million. The adoption also resulted in the recognition of $160.2 million of assets and $193.8 million of liabilities on the consolidated balance sheet. Additionally, the adoption resulted in the reduction of the carrying value of certain long-term debt by $3.8 million. During 2001, approximately $6.4 million of the net losses previously included in the cumulative effect of a change in accounting principle component of OCI were reclassified into earnings. Further detail of the assets and liabilities recorded on the consolidated financial statements for the adoption of SFAS No. 133 is as follows: 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions) ASSETS LIABILITIES - ------------------------------------------------------------------------------ Price Risk Management $ 153.6 $ 209.8 Deferred Taxes -- (16.0) Regulatory 6.6 -- Debt -- (3.8) - ------------------------------------------------------------------------------ TOTAL $ 160.2 $ 190.0 - ------------------------------------------------------------------------------
As stated above, the initial recording of the cumulative effect of this accounting change included unrealized holding losses in OCI of $33.6 million. However, the activity for 2001 resulted in unrealized gains on qualifying derivatives of $52.4 million. The activity for 2001 included:
(in millions) 2001 - ---------------------------------------------------------------------------------------------------- Unrealized gains (losses) on derivatives qualifying as cash flow hedges: Unrealized hedging losses arising as a result of the cumulative effect of a change in accounting principle, recognized at January 1, 2001, net of tax $ (33.6) Unrealized hedging gains arising during the period on derivatives qualifying as cash flow hedges, net of tax 87.8 Reclassification adjustment for net (gain) included in net income, net of tax (including losses of $6.4 million related to the cumulative effect a of change in accounting principle) (1.8) - ---------------------------------------------------------------------------------------------------- Net unrealized gains on derivatives qualifying as cash flow hedges, net of tax $ 52.4 - ----------------------------------------------------------------------------------------------------
Columbia's senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. In recognition of the increasingly varied and complex nature of the energy business, Columbia's risk management policies and procedures continue to evolve and are subject to ongoing review and modification. Following is additional information regarding the impact of SFAS No. 133 by segment. GAS DISTRIBUTION. For regulatory incentive purposes, the Columbia gas distribution subsidiaries (Columbia LDCs) enter into contracts that allow counterparties the option to sell gas to Columbia LDCs at first of the month prices for a particular month of delivery. Columbia LDCs charge the counterparties a fee for this option. The changes in the fair value of the options are primarily due to the changing expectations of the future intra-month volatility of gas prices. Columbia LDCs defer a portion of the change in the fair value of the options as either a regulatory asset or liability in accordance with SFAS No. 71. The remaining change is recognized currently in earnings. EXPLORATION AND PRODUCTION. In conjunction with certain fixed price gas delivery commitments, Columbia Resources has purchased financial basis swaps to transfer basis risk from the counterparty back to Columbia Resources. Because these transactions by definition are derivatives and do not qualify for hedge accounting, the changes in the fair value of these swaps directly impact earnings. Additionally, Columbia Resources has engaged in commodity and basis swaps to hedge the anticipated future sale of natural gas. These contracts are derivatives and are designated as cash flow hedges of anticipated future sales. The fair value of the effective portions of these derivatives are recorded in OCI until the related sale. Any ineffectiveness is charged to earnings. Columbia Resources has a net gain of approximately $0.7 million recognized in earnings due to time value in the reporting period and has not excluded components of the derivatives' values in its assessment of hedge effectiveness. It is anticipated that during the next 12 months, expiration of derivatives contracts will result in income recognition for 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) amounts currently classified in OCI of approximately $17.6 million, net of tax, which will be included in net income. Columbia Resources has forward derivative contracts designated as cash flow hedges through December 2002. During 2001, Columbia Resources reclassified $2.4 million of certain cash flow hedges into earnings due to the probability that the forecasted transaction would not occur. OTHER. Columbia Energy Services, Inc. (Columbia Energy Services) has fixed price gas delivery commitments to three municipalities in the United States. Columbia Energy Services entered into a forward purchase agreement with a gas supplier, wherein the supplier will fulfill the delivery obligation requirements at a slight premium to index. In order to hedge this anticipated future purchase of gas from the gas supplier, Columbia Energy Services entered into pay fixed/receive floating swaps priced at the locations designated for physical delivery. These swaps are designated as cash flow hedges of the anticipated purchases. Changes in the effective portions of the swaps' fair values are included in OCI until the sales are completed. Any ineffectiveness is included in earnings. Columbia Energy Services has no net gain or loss recognized in earnings due to ineffectiveness. It is anticipated that during the next 12 months, expiration of forward swap contracts will result in income recognition of amounts currently classified in OCI of approximately $1.5 million, net of tax. Columbia Energy Services has forward swap contracts designated as cash flow hedges through December 2008. At this time, Columbia Energy Services expects to continue its cash flow hedges due to the probability that the forecasted transactions will occur. Interest Rate Swaps Columbia has entered into interest rate swap agreements to modify the interest characteristics of its outstanding long-term debt. At December 31, 2001, Columbia had four interest rate swap agreements outstanding effective through November 28, 2002, on $200.0 million notional amount of its 6.61% Series B Debentures due November 28, 2002. In addition, Columbia has two other outstanding interest rate swap agreements, including a $100.0 million notional value swap effective through November 28, 2005 on its 6.80% Series C Debentures due November 28, 2005 and a $281.5 million notional value swap effective through November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The Series D swap can be terminated at the option of the counter party at any time between the optional termination date of November 28, 2005 and the stated termination date of November 28, 2007. Under the terms of all the swap agreements, Columbia pays interest based on a floating rate index and receives interest based on a fixed rate. The effect of these agreements is to modify the interest rate characteristics of a portion of Columbia's long-term debt from fixed to variable. As a result of these transactions, $581.5 million of Columbia's long-term debt is now subject to fluctuations in interest rates. These interest rate swaps are designated as fair value hedges. The effectiveness of the interest rate swaps in offsetting the exposure to changes in the debt's fair value is measured using the short-cut method. Columbia had no net gain or loss recognized in earnings due to ineffectiveness during 2001. 8. INCOME TAXES The components of income tax expense are as follows:
Year Ended December 31, (in millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- INCOME TAXES Current Federal $ 178.6 $ 63.4 $ 125.7 State 25.2 7.4 4.8 - ------------------------------------------------------------------------------------------------------------------------- Total Current 203.8 70.8 130.5 - ------------------------------------------------------------------------------------------------------------------------- Deferred Federal (54.2) 87.9 67.5 State 4.5 19.0 (22.3) - ------------------------------------------------------------------------------------------------------------------------- Total Deferred (49.7) 106.9 45.2 - ------------------------------------------------------------------------------------------------------------------------- Deferred Investment Credits (1.4) (1.4) (1.5) - ------------------------------------------------------------------------------------------------------------------------- Income Taxes Included in Continuing Operations 152.7 176.3 174.2 - ------------------------------------------------------------------------------------------------------------------------- Income Taxes Related to Discontinued Operations (45.0) (67.7) (76.8) - ------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME TAXES $ 107.7 $ 108.6 $ 97.4 - -------------------------------------------------------------------------------------------------------------------------
26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Total income taxes from continuing operations are different from the amount that would be computed by applying the statutory Federal income tax rate to book income before income tax. The major reasons for this difference are as follows:
Year Ended December 31, (in millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ Income before income taxes from continuing operations $ 389.2 $ 449.0 $ 556.1 Tax expense at statutory federal income tax rate 136.2 35.0% 157.2 35.0% 194.6 35.0% Increases (reductions) in taxes resulting from: State income taxes, net of federal income tax benefit 19.3 4.9 17.2 3.8 (11.4) (2.1) Estimated non-deductible expenses 1.4 0.4 17.5 3.9 1.4 0.2 Effect of change in deferred taxes previously provided -- -- (3.3) (0.7) (3.5) (0.6) Other (4.2) (1.1) (12.3) (2.7) (6.9) (1.2) - ------------------------------------------------------------------------------------------------------------------------------ Income Taxes from Continuing Operations $ 152.7 39.2% $ 176.3 39.3% $ 174.2 31.3% - ------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The principal components of Columbia's net deferred tax liability are as follows:
At December 31, (in millions) 2001 2000 - ------------------------------------------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES Property basis differences $ 749.4 $ 701.4 Gas purchase costs 33.9 80.1 Investment in Partnerships 2.7 2.9 Other 42.3 33.5 - ------------------------------------------------------------------------------------------------------------------- Gross Deferred Tax Liabilities 828.3 817.9 - ------------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS Estimated rate refunds (4.3) (5.9) Inventory (18.2) (15.9) Benefit plan accruals (3.8) (7.2) Contingent liabilities (52.1) (7.1) State tax loss carryforwards (19.0) (33.6) Deferred revenue -- (6.0) Other (57.2) (32.9) - ------------------------------------------------------------------------------------------------------------------- Gross Deferred Tax Assets (154.6) (108.6) - ------------------------------------------------------------------------------------------------------------------- Deferred Tax Asset Valuation Allowance* -- 7.7 - ------------------------------------------------------------------------------------------------------------------- Total Net Deferred Tax Liability 673.7 717.0 - ------------------------------------------------------------------------------------------------------------------- Deferred income taxes related to current assets and liabilities 85.7 (17.7) - ------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES - NONCURRENT $ 759.4 $ 699.3 - -------------------------------------------------------------------------------------------------------------------
* As reflected by the valuation allowance in the table above, Columbia had potential tax benefits of $7.7 million at December 31, 2000, which were not recognized in the statements of consolidated income when generated. These benefits resulted primarily from state income tax operating loss carryforwards, which were available to reduce future tax liabilities. This valuation allowance is zero at December 31, 2001. The net decrease of $7.7 million in the valuation allowance reflects the write-off of deferred tax assets related to net operating loss carryforwards in states where certain Columbia subsidiaries no longer have operations. The tax loss carryforward benefits of $19 million shown in the table above expire after 2006. 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. PENSION AND OTHER POSTRETIREMENT BENEFITS Columbia has a noncontributory, qualified defined benefit pension plan covering essentially all employees. Benefits are based primarily on years of credited service and employees' highest three-year average annual compensation in the final five years of service. Effective January 1, 2000, Columbia adopted a cash balance feature to the pension plan that provides benefits based on a percentage, which may vary with age and years of service, of current eligible compensation and current interest credits. Columbia's funding policy complies with Federal law and tax regulations. In addition, Columbia has a nonqualified pension plan that provides benefits to some employees in excess of the qualified plan's Federal tax limits. Columbia also provides medical coverage and life insurance to retirees. Essentially all active employees are eligible for these benefits upon retirement after completing ten consecutive years of service after age 45. Normally, spouses and dependents of retirees are also eligible for medical benefits. Columbia is reflecting the information presented below as of September 30, rather than December 31. The effect of utilizing September 30, rather than December 31, is not significant. In 2001, Columbia recorded a reduction in its pension benefit obligation amounting to $23.9 million due to the finalization of the number of employees who elected to convert to an account balance plan from the previous final pay benefit structure. Columbia recorded curtailment gains to net periodic benefits cost in 2001 amounting to $3.3 million and $8.9 million for pensions and other benefits, respectively, related to the reduction in future benefit accruals associated with employees of Columbia Propane. Also, in 2001 a settlement gain of $8.4 million was recorded related to terminated employees who elected to receive lump-sum payments from the pension plan. During 2000, Columbia announced the introduction of a voluntary incentive retirement program (VIRP). Approximately 1,880 employees were eligible for the VIRP, which provides a retirement incentive for active employees who were age fifty and above with at least five years of service as of certain retirement-window dates. During the acceptance periods, approximately 1,337 employees elected early retirement. The majority of the retirements occurred during 2000. The VIRP resulted in special termination benefits of $59.3 million and curtailment losses of $47.7 million. The curtailment losses were offset by previously unrecognized actual gains. As a result of the VIRP, Columbia recognized $35.7 million of net settlement gains. On October 13, 2000, the Columbia Retirement Board determined that, under the terms of the Retirement Plan of Columbia Energy Group Companies (The Plan), a partial plan termination had occurred. As a result, participants in the Plan will be granted additional vesting service if they have terminated their employment with Columbia Energy Group or any of its subsidiaries between January 1, 1999 and June 30, 2001. Employees who have terminated employment during this time period with less than 5 years of plan participation will be 100% vested in the Plan as of their date of termination. As a result, Columbia recorded additional expense of approximately $3.1 million in October 2000. 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following tables provide a reconciliation of the plans' funded status and amounts reflected in Columbia's consolidated balance sheets at December 31:
PENSION BENEFITS OTHER BENEFITS -------------------------- ------------------------- (in millions) 2001 2000 2001 2000 ======================================================================================================================== CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 776.6 $ 883.8 $ 260.0 $ 182.2 Service cost 27.6 29.5 9.1 11.1 Interest cost 61.8 65.0 21.2 16.6 Plan participants' contributions -- -- 12.1 2.6 Plan amendments (23.9) -- -- -- Actuarial (gain) loss (50.1) 13.3 -- (10.5) Additional liability for disabled participants -- -- (8.2) -- Partial plan termination -- 3.1 -- -- Curtailments (5.0) 47.7 (11.2) 35.4 Settlement payments (76.2) (269.2) -- -- Settlement (gain) or loss 15.8 -- -- -- Special termination benefits -- 59.3 -- 31.9 Benefits paid (46.1) (55.9) (11.6) (9.3) - ------------------------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 680.5 776.6 271.4 260.0 - ------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 1,012.1 1,201.1 140.3 115.8 Actual return on plan assets (90.8) 135.7 (29.1) 13.6 Columbia contributions 1.8 0.4 24.8 17.5 Plan participants' contributions -- -- -- 2.6 Settlements (76.2) (269.2) -- -- Benefits paid (46.1) (55.9) (11.6) (9.2) - ------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 800.8 1,012.1 124.4 140.3 - ------------------------------------------------------------------------------------------------------------------------ Funded status of plan at end of year 120.3 235.5 (147.0) (119.7) Unrecognized actuarial net gain (94.4) (266.8) (2.9) (32.3) Unrecognized prior service cost 5.8 41.3 13.8 2.4 Unrecognized transition obligation 0.9 2.3 -- -- Fourth quarter contributions -- 0.4 5.9 7.0 - ------------------------------------------------------------------------------------------------------------------------ PREPAID (ACCRUED) BENEFIT COST $ 32.6 $ 12.7 $ (130.2) $ (142.6) - ------------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS ---------------------- --------------------- (in millions) 2001 2000 2001 2000 ======================================================================================================================== WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30, Discount rate assumption 7.50% 8.00% 7.50% 8.00% Compensation growth rate assumption 4.50% 4.50% 4.50% 4.50% Medical cost trend assumption -- -- 6.00% 5.50% Assets earnings rate assumption* 9.00% 9.00% 9.00% 9.00% - ------------------------------------------------------------------------------------------------------------------------
* One of the several established medical trusts and the trust established for life insurance are subject to taxation which results in an after-tax asset earnings rate that is less than 9.00% 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table provides the components of the plans expense for each of the three years:
PENSION BENEFITS OTHER BENEFITS ------------------------------- -------------------------------- (in millions) 2001 2000 1999 2001 2000 1999 =============================================================================================================================== NET PERIODIC COST Service cost $ 27.6 $ 29.5 $ 30.6 $ 9.1 $ 11.1 $ 12.6 Interest cost 61.8 65.0 62.9 21.2 16.6 14.0 Expected return on assets (88.3) (98.0) (94.1) (9.2) (7.7) (9.4) Amortization of transition obligation 1.2 1.2 1.2 -- -- -- Recognized gain (12.6) (18.3) (10.2) (1.1) (1.7) (2.1) Prior service cost amortization 3.9 3.9 3.7 0.2 0.2 (0.4) Special charge for partial plan termination -- 3.1 -- -- -- -- Special termination benefit charge -- 59.3 -- -- 31.9 -- Curtailment credit (3.3) -- -- (8.9) -- -- Settlement gain (8.4) (95.0) -- -- -- (6.1) - ------------------------------------------------------------------------------------------------------------------------------- NET PERIODIC BENEFITS COST (BENEFIT) $ (18.1) $ (49.3) $ (5.9) $ 11.3 $ 50.4 $ 8.6 - -------------------------------------------------------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1% point 1% point (in millions) increase decrease =============================================================================================================================== Effect on service and interest components of net periodic cost $ 4.4 $ (3.6) Effect on accumulated postretirement benefit obligation $ 24.6 $ (21.0) - -------------------------------------------------------------------------------------------------------------------------------
During 1999, Columbia and the trusts established by Columbia purchased insurance policies that provide both medical and life insurance with respect to liabilities to a selected class of current retirees. As a result, pre-tax gains in the amount of $6.1 million were recorded in 1999. Such gain is reflected in the consolidated financial statements as a $5.7 million reduction to benefits expense, and a $0.4 million liability of certain rate-regulated companies. 10. COMMON STOCK EQUITY TREASURY STOCK. In March 2000, Columbia announced that it had restarted its open market share repurchase program that was authorized by Columbia's Board. Under the recommenced program, Columbia was allowed to repurchase up to $300 million of its common shares through July 14, 2000. The repurchase program authorized Columbia to make purchases in the open market or otherwise. The timing and terms of purchases, and the number of shares actually purchases, were determined by management based on several factors including market conditions. Purchased shares were held in treasury at cost and were available for general corporate purposes, resale or retirement. During 2000, Columbia purchased 1,889,800 common shares at a cost of $114.1 million under the recommenced program. As of July 14, 2000, Columbia had purchased 4,368,300 common shares at a cost of $249.1 million. In November 2000, as part of the merger of Columbia with NiSource, the Treasury Stock was retired. 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. LONG-TERM DEBT The long-term debt (exclusive of current maturities) of Columbia and its subsidiaries is as follows:
At December 31, (in millions) 2001 2000 ================================================================================================================ COLUMBIA ENERGY GROUP DEBENTURES 6.61% Series B due November 28, 2002 $ -- $ 281.5 6.80% Series C due November 28, 2005 281.5 281.5 7.05% Series D due November 28, 2007 281.5 281.5 7.32% Series E due November 28, 2010 281.5 281.5 7.42% Series F due November 28, 2015 281.5 281.5 7.62% Series G due November 28, 2025 229.2 229.2 - ---------------------------------------------------------------------------------------------------------------- Total Debentures 1,355.2 1,636.7 Subsidiary Debt: Capitalized lease obligations 2.2 2.4 Fair Value of Interest Rate Swaps (0.5) -- - ---------------------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT $ 1,356.9 $ 1,639.1 - ----------------------------------------------------------------------------------------------------------------
Columbia has entered into interest rate swap agreements to modify the interest characteristics of its outstanding long-term debt. At December 31, 2001, Columbia had four interest rate swap agreements outstanding effective through November 28, 2002, on $200.0 million notional amount of its 6.61% Series B Debentures due November 28, 2002. In addition, Columbia has two other outstanding interest rate swap agreements, including a $100.0 million notional value swap effective through November 28, 2005 on its 6.80% Series C Debentures due November 28, 2005 and a $281.5 million notional value swap effective through November 28, 2007 on its 7.05% Series D Debentures due November 28, 2007. The Series D swap can be terminated at the option of the counter party at any time between the optional termination date of November 28, 2005 and the stated termination date of November 28, 2007. Under the terms of all the swap agreements, Columbia pays interest based on a floating rate index and receives interest based on a fixed rate. The effect of these agreements is to modify the interest rate characteristics of a portion of Columbia's long-term debt from fixed to variable. The aggregate maturities of long-term debt and capitalized lease obligations during the next five years are as follows:
($ in millions) ================================================================================================================ 2002 281.7 2003 0.2 2004 0.3 2005 281.9 2006 0.4 After 1,074.6 - ----------------------------------------------------------------------------------------------------------------
12. SHORT-TERM DEBT AND CREDIT FACILITIES At the beginning of 2001, Columbia had two unsecured bank revolving credit facilities available that totaled $900 million (Credit Facilities). The Credit Facilities consisted of a 364-day facility totaling $850 million and a two-year facility totaling $50 million. The Credit Facilities were terminated during 2001 and replaced with NiSource revolving credit facilities. No borrowings were outstanding under the Credit Facilities at December 31, 2000. At December 31, 2001, Columbia had $47.7 million of letters of credit outstanding. Of the letters of credit outstanding, $17.0 million was issued under the NiSource revolving credit facilities. Fees on the letters of credit issued ranged from 0.8% to 1.0%. At December 31, 2001, approximately $19.9 million of investments were pledged as collateral on outstanding letters of credit related to Columbia's wholly owned insurance company. 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value: INVESTMENTS. Where feasible, the fair value of investments is estimated based on market prices for those or similar investments. LONG-TERM DEBT. The fair values of these securities are estimated based on the quoted market prices for the same or similar issues or on the rates offered for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. The carrying values and estimated fair values of financial instruments were as follows:
CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE Amount Fair Value At December 31, ($ in millions) 2001 2001 2000 2000 ==================================================================================================== Long-term investments 5.4 5.2 17.5 17.2 Long-term debt (including current portion) 1,638.6 1,676.6 1,647.4 1,586.7 - ----------------------------------------------------------------------------------------------------
A portion of the long-term debt relates to utility operations. The utilities are subject to regulation and gains or losses may be included in rates over a prescribed amortization period, if in fact settled at amounts approximating those above. In October 1999, Columbia of Ohio entered into an agreement to sell, without recourse, substantially all of its trade accounts receivable to Columbia Accounts Receivable Corporation (CARC), a wholly owned subsidiary of Columbia. At the same time, CARC entered into an agreement, with a third party, Canadian Imperial Bank of Commerce (CIBC), to sell a percentage ownership interest in a defined pool of accounts receivable (Sales Program). Under this Sales Program, CARC can transfer an undivided interest in a designated pool of its accounts receivable on an ongoing basis up to a maximum of either $125.0 million or $100.0 million, as determined by the seasonal fluctuation in Columbia of Ohio's account receivable balances and the mutual consent of both parties. The amount available at any measurement date varies based upon the level of eligible receivables. Under these agreements, CARC may not sell any new affiliate receivables to the conduit if Columbia's debt rating falls below BBB or Baa2 at Standard and Poor's and Moody's, respectively. In addition, if Columbia's debt rating falls below investment grade, the agreements terminate and CARC may not sell any new affiliate receivables to the conduit. Under this agreement, approximately $82.8 million of receivables were sold as of December 31, 2001. Under a separate agreement, in conjunction with the Sales Program, Columbia of Ohio acts as agent for CIBC, the ultimate purchaser of the receivables, by performing record keeping and cash collection functions for the accounts receivable sold by CARC. Columbia of Ohio receives a fee, which provides adequate compensation, for such services. 14. OTHER COMMITMENTS AND CONTINGENCIES A. BANKRUPTCY MATTERS. On November 28, 1995, Columbia and its wholly owned subsidiary, Columbia Transmission emerged from Chapter 11 protection of the United States Bankruptcy Code under the jurisdiction of the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court). Both Columbia and Columbia Transmission had operated under Chapter 11 protection from July 31, 1991, until emergence. B. CAPITAL EXPENDITURES. Capital expenditures for 2002 are currently estimated at $325.7 million. Of this amount, $130.8 million is for transmission and storage operations, $103.9 million for distribution operations and $91.0 is million for exploration and production operations. C. OTHER LEGAL PROCEEDINGS. In the normal course of its business, Columbia and its subsidiaries have been named as defendants in various legal proceedings. In the opinion of management, the ultimate disposition of these currently asserted claims would not have a material adverse impact on Columbia's consolidated financial position or results of operations. 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. ASSETS UNDER LIEN. Substantially all of Columbia Transmission's properties have been pledged to Columbia as security for debt owed by Columbia Transmission to Columbia. E. GUARANTEES AND INDEMNITIES. At December 31, 2001, Columbia had $1,727.8 million in guarantees outstanding, the majority of which expire in 2006 and beyond. These guarantees were primarily related to forward sales agreements. In connection with the purchase of National Propane Partners, L.P. (National Propane) interests, Columbia has provided an indemnity to reimburse the former Managing General Partner for income taxes that would be due if certain actions by Columbia result in the recognition of certain types of income or gain by the former Managing General Partner. F. INTERNAL REVENUE SERVICE (IRS) AUDIT. On June 19, 2001, Columbia received a refund of $24.7 million in final settlement of tax issues related to its 1995 federal income tax return. The 1995 tax year is now closed. The field audit of tax years 1996 and 1997 was completed on January 28, 2002 with the issuance of the Revenue Agent's Report on that date. A payment of $826,000 was made to the United States Treasury on December 11, 2001 in settlement of tax and interest related to the agreed issues for those years. Settlement of the unagreed issues in that report will be pursued through administrative and judicial channels. The field audit of Columbia's 1998 through 2000 tax years commenced on February 19, 2002. Management believes adequate reserves have been established for issues related to these returns. G. ENVIRONMENTAL MATTERS. GENERAL. Columbia's subsidiaries are subject to extensive federal, state and local laws and regulations relating to environmental matters. These laws and regulations, which are constantly changing, require expenditures for corrective action at various operating facilities, waste disposal sites and former gas manufacturing sites for conditions resulting from past practices that have subsequently become subject to environmental regulation. Columbia's subsidiaries have implemented programs to continually review compliance with existing environmental standards and have reviewed past operational activities and conducted remediation programs where necessary. DISTRIBUTION OPERATIONS. Several Columbia Distribution subsidiaries are a "potentially responsible party" (PRP) at waste disposal sites under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) (commonly known as Superfund) and similar state laws, including at former manufactured gas plant (MGP) sites which such subsidiaries, or their corporate predecessors, own or owned and operated. Distribution subsidiaries may be required to share in the cost of clean-up of such sites. In addition, some Distribution subsidiaries have corrective action liability under the Resource Conservation and Recovery Act (RCRA) for closure and clean-up costs associated with underground storage tanks, and under the Toxic Substances Control Act (TSCA) for cleanup of polychlorinated biphenyls (PCBs) released at various facilities. Distribution is party to or otherwise involved in the clean-up of one waste disposal site under Superfund. The potential liability at this site is de minimis. A program has been instituted to identify and investigate former MGP sites where Distribution subsidiaries or predecessors are the current or former owner. The investigation has identified 39 such sites. Initial investigation has been conducted at 7 sites. Investigation activities have been completed or are in progress at 5 sites. Remedial measures have been implemented or completed at 3 sites. Only those site investigation, characterization and remediation costs currently known and determinable can be considered "probable and reasonably estimable" under Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5). As costs become probable and reasonably estimable, the associated reserves will be adjusted as appropriate. Distribution is unable, at this time, to accurately estimate the time frame and potential costs of the entire program. Management expects that as characterization is completed and additional remediation work is performed and more facts become available, Distribution will be able to develop a probable and reasonable estimate for the entire program or a major portion thereof consistent with Securities and Exchange Commission's Staff Accounting Bulletin No. 92, SFAS No. 5, and American Institute of Certified Public Accountants Statement of Position 96-1. 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of December 31, 2001, a reserve of approximately $49.7 million has been recorded to cover probable environmental response actions. The ultimate liability in connection with these sites will depend upon many factors, including the volume of material contributed to the site, years of ownership or operation, the number of other PRPs and their financial viability and the extent of environmental response actions required. Based upon investigations and management's understanding of current environmental laws and regulations, Distribution believes that any environmental response actions required, after consideration of insurance coverage, contributions from other PRPs and rate recovery, will not have a material effect on its financial position. Until the 1960s, gas regulators containing small quantities of mercury were installed in homes on some natural gas systems. The purpose of these regulators was to reduce the pressure of the natural gas flowing from the service line for use inside of the home. In 2000, several unaffiliated gas distribution companies were involved in highly publicized testing and clean-up programs resulting from mercury spills associated with the removal of gas regulators containing mercury. Some Distribution subsidiaries historically utilized gas regulators that contained small quantities of mercury. All Distribution subsidiaries have implemented programs to investigate, maintain and/or remove and replace gas regulators containing mercury, including procedures ensuring that any accidental mercury spills are detected and properly cleaned up. To date no significant problems associated with past or current use or removal of mercury regulators have been identified. As a result, Distribution believes it is unlikely that any financial exposure from this matter would have a material effect on its financial position or results of operations of its Distribution subsidiaries. TRANSMISSION AND STORAGE OPERATIONS. Columbia Transmission continues to conduct characterization and remediation activities at specific sites under a 1995 EPA Administrative Order by Consent (AOC). The program pursuant to the AOC covers approximately 240 facilities, approximately 13,000 liquid removal points, approximately 2,200 mercury measurement stations and about 3,700 storage well locations. As of December 31, 2001, field characterization has been performed at all sites. Site characterization reports and remediation plans, which must be submitted to the EPA for approval, are in various stages of development and completion. Remediation has been completed at the mercury measurement stations, liquid removal point sites, storage well locations and at a number of the 240 facilities. Only those site investigation, characterization and remediation costs currently known and determinable can be considered "probable and reasonably estimable" under Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5). As costs become probable and reasonably estimable, the associated reserves will be adjusted as appropriate. Columbia Transmission is unable, at this time, to accurately estimate the time frame and potential costs of the entire program. Management expects that as characterization reports and remediation plans are completed and approved by the EPA and additional remediation work is performed, Columbia Transmission should be able to develop a probable and reasonable estimate for the entire program or a major portion thereof, consistent with Securities and Exchange Commission's Staff Accounting Bulletin No. 92, SFAS No. 5, and American Institute of Certified Public Accountants Statement of Position 96-1. Columbia Transmission and Columbia Gulf are PRPs at several waste disposal sites. The potential liability is believed to be de minimis, however, the final allocation of clean-up costs has yet to be determined. As site investigations and clean-ups proceed, waste disposal site liability is reviewed periodically and adjusted as additional information becomes available. At the end of 2001, the remaining environmental liability recorded on the balance sheet for the gas transmission and storage operations was $90.5 million. Columbia Transmission's environmental cash expenditures are expected to be approximately $12.5 million in 2002. These expenditures will be charged against the previously recorded liability. A regulatory asset has been recorded to the extent environmental expenditures are expected to be recovered through rates. Management does not believe that Columbia Transmission's environmental expenditures will have a material adverse effect on NiSource's operations, liquidity or financial position, based on known facts, existing laws, regulations, Columbia Transmission's cost recovery settlement with customers and the time period over which expenditures will be made. 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) TRANSCOM. In spring 2000, one of Columbia's subsidiaries, Transcom received directives from the Philadelphia District of the U.S. Army Corps of Engineers (Philadelphia District) and an administrative order from Pennsylvania Department of Environmental Protection (PA DEP) addressing alleged violations of federal and state laws resulting from construction activities associated with Transcom's laying fiber optic cable along portions of a route between Washington, D.C. and New York City. The order and directives required Transcom to largely cease construction activities. On September 18, 2000, Transcom entered into a voluntary settlement agreement with the Philadelphia District under which Transcom contributed $1.2 million to the Pennsylvania chapter of the Nature Conservancy and the Philadelphia District lifted its directives. As a result of the voluntary agreement with the Philadelphia District and communications with the PA DEP, the Maryland Department of the Environment and the Baltimore District of the US Army Corps of Engineers, work in Pennsylvania and Maryland was allowed to be continued and has been completed. On October 25, 2001, Transcom entered into a Consent Order and Agreement with PA DEP in settlement of its enforcement action under which Transcom paid $80,633 in penalties and $223,567 to fund six community environmental projects. DISCONTINUED OPERATIONS. Columbia affiliates have retained environmental cleanup liability associated with some its former companies including Columbia Propane, Columbia Petroleum, and some local gas distribution companies. The primary environmental liability associated with former propane operations pertains to a former MGP site in Wisconsin for which accruals have been made. In addition, three other MGP sites are being evaluated for potential liability, one of which is owned by a Columbia affiliate. Environmental liability associated with former petroleum operations includes relatively minor cleanups of product spills at third party properties and liability for pre-existing environmental conditions at former petroleum terminals pursuant to sale agreements. A Columbia affiliate may retain liability for two former MGP sites associated with a previously divested local gas distribution company for which accruals have been made. The ultimate liability in connection with these sites will depend upon many factors including the extent of environmental response actions required, other PRPs and their financial viability, and indemnification from previous facility owners. Only those corrective action costs currently known and determinable can be considered "probable and reasonably estimable" under Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" (SFAS No. 5) and consistent with American Institute of Certified Public Accountants Statement of Position 96-1. As costs become probable and reasonably estimable, the associated reserves will be accrued as appropriate. As of December 31, 2001, a reserve of approximately $6.5 million has been recorded to cover probable environmental response actions associated with former Columbia companies. Columbia believes that any environmental response actions required at former operations for which it is ultimately liable, after consideration of insurance coverage and contributions from other PRPs, will not have a material adverse effect on its consolidated financial results. ENVIRONMENTAL RESERVES. The eventual total cost of full future environmental compliance for Columbia is difficult to estimate due to, among other things: (1) the possibility of as yet unknown contamination, (2) the possible effect of future legislation and new environmental agency rules, (3) the possibility of future litigation, (4) the possibility of future designations as a potential responsible party by the EPA and the difficulty of determining liability, if any, in proportion to other responsible parties, (5) possible insurance and rate recoveries, and (6) the effect of possible technological changes relating to future remediation. However, reserves have been established based on information currently available, which resulted in a total recorded net liability of approximately $146.7 million for Columbia at December 31, 2001. As new issues are identified, additional liabilities will be recorded. It is management's continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects most environmental assessment and remediation costs to be recoverable through rates. 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) H. OPERATING LEASES. Payments made in connection with operating leases are primarily charged to operation and maintenance expense as incurred. Such amounts were $32.6 million in 2001, $71.6 million in 2000 and $61.5 million in 1999. Future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year are:
($ in millions) ================================================================================ 2002 20.4 2003 20.5 2004 20.2 2005 19.8 2006 18.8 After 65.3 - --------------------------------------------------------------------------------
I. PURCHASE COMMITMENTS. Columbia has service agreements that provide for pipeline capacity, transportation and storage services. These agreements, which have expiration dates ranging from 2002 to 2014, provide for Columbia to pay fixed monthly charges. The estimated aggregate amounts of such payments at December 31, 2001, were:
($ in millions) ================================================================================ 2002 49.0 2003 37.1 2004 32.5 2005 27.4 2006 21.4 After 132.1 - --------------------------------------------------------------------------------
Costs incurred under these contracts are generally recovered under Columbia's regulatory cost recovery mechanisms (See Note 2). 15. TELECOMMUNICATION NETWORK (TRANSCOM) In September and October 2000, management held discussions with investment banking firms seeking strategic options for the Transcom assets. Although significant uncertainties existed surrounding the estimated costs to complete the fiber optic network, time to market in a competitive environment, and delays due to construction deficiencies and environmental issues, management decided to complete the Transcom network and sell the completed network. The Company received subsequent information pertaining to the estimated construction costs and delays. Consequently, management concluded that the carrying value of the telecommunication assets exceeded the realizable value by approximately $89.2 million. During 2001, Columbia recorded a charge for such excess carrying amount. In August 2001, Transcom invited potential buyers to submit bids for the assets. Based on these bids, present market conditions preclude Transcom from realizing the carrying value of the assets by selling at the present time. Therefore management has decided to operate the network, while continuing to evaluate market conditions for possible sale. At December 31, 2001, the anticipated cash flow from Transcom's business plan indicates that the asset's current carrying value is realizable. However, economic and other events may adversely affect Transcom's ability to achieve such plan. 36 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. INTEREST INCOME AND OTHER, NET
Year Ended December 31, (in millions) 2001 2000 1999 =========================================================================================== Interest income $ 16.5 $ 22.8 $ 20.0 Gain on sale of assets 4.8 221.0 -- Miscellaneous (7.0) (7.5) 14.9 - ------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME AND OTHER, NET $ 14.3 $ 236.3 $ 34.9 - -------------------------------------------------------------------------------------------
17. INTEREST EXPENSE AND RELATED CHARGES
Year Ended December 31, (in millions) 2001 2000 1999 =========================================================================================== Interest on debentures $ 117.0 $ 134.6 $ 138.0 Interest on short-term debt 15.3 26.3 18.2 Discount on prepayment transactions 27.1 22.6 2.3 Interest on rate refunds (0.6) 0.6 3.1 Interest on prior years' taxes 14.3 (11.5) 6.2 Allowance for borrowed funds used and interest during construction (3.0) (3.0) (3.6) - ------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE AND RELATED CHARGES $ 170.1 $ 169.6 $ 164.2 - -------------------------------------------------------------------------------------------
37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. SEGMENTS OF BUSINESS Columbia is a registered holding company under the Public Utility Holding Company Act of 1935, as amended, and derives substantially all of its revenues and earnings from the operating results of its 19 direct subsidiaries. During 2000, Columbia revised the presentation of its business segments and, in accordance with generally accepted accounting principles; all prior periods have been restated. Columbia's operations are divided into four primary business segments. The transmission and storage segment offers transportation and storage services for local distribution companies, marketers and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern and southern states and the District of Columbia. The distribution segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and Maryland. The exploration and production segment explores for, develops, produces and markets gas and oil in the United States and in Canada. The other products and services segment primarily engages in the operation of a dark-fiber optics telecommunications network along its pipeline rights-of-way between Washington, D.C. and New York City.
(in millions) 2001 2000 1999 ============================================================================================================ REVENUES DISTRIBUTION Unaffiliated $ 2,787.0 $ 2,037.9 $ 2,021.9 Intersegment and affiliates 7.4 (2.0) 1.0 - ------------------------------------------------------------------------------------------------------------ Total 2,794.4 2,035.9 2,022.9 - ------------------------------------------------------------------------------------------------------------ TRANSMISSION AND STORAGE Unaffiliated 615.7 607.7 571.5 Intersegment and affiliates 254.0 248.1 264.9 - ------------------------------------------------------------------------------------------------------------ Total 869.7 855.8 836.4 - ------------------------------------------------------------------------------------------------------------ EXPLORATION AND PRODUCTION Unaffiliated 170.4 176.5 143.5 Intersegment and affiliates 65.3 2.0 1.4 - ------------------------------------------------------------------------------------------------------------ Total 235.7 178.5 144.9 - ------------------------------------------------------------------------------------------------------------ OTHER PRODUCTS AND SERVICES Unaffiliated 27.2 49.9 96.6 Intersegment and affiliates 0.2 0.2 (0.3) - ------------------------------------------------------------------------------------------------------------ Total 27.4 50.1 96.3 - ------------------------------------------------------------------------------------------------------------ Adjustments and eliminations (249.3) (237.0) (267.0) - ------------------------------------------------------------------------------------------------------------ Tranportation Cost * (8.0) (24.3) (19.9) - ------------------------------------------------------------------------------------------------------------ CONSOLIDATED REVENUES $ 3,669.9 $ 2,859.0 $ 2,813.6 - ------------------------------------------------------------------------------------------------------------
* Tranportation revenues on consolidated income statement were reduced by these costs.
(in millions) 2001 2000 1999 ============================================================================================================ OPERATING INCOME (LOSS) Distribution $ 248.8 $ 176.0 $ 254.6 Transmission and Storage 362.2 264.9 350.1 Exploration and Production 51.0 13.3 34.4 Other Products and Services (112.3) (32.3) 63.9 Corporate (4.7) (39.6) (17.6) - ------------------------------------------------------------------------------------------------------------ CONSOLIDATED $ 545.0 $ 382.3 $ 685.4 - ------------------------------------------------------------------------------------------------------------
38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data does not always reveal the trend of Columbia's business operations due to nonrecurring transactions and seasonal weather patterns, which affect earnings, related components of net revenues and operating income.
First Second Third Fourth ($ in millions, except per share data) Quarter Quarter Quarter Quarter ========================================================================================================== 2001 Net Revenues 667.6 385.6 356.3 567.9 Operating Income (Loss) 342.8 6.7(c) (30.1) 225.6 Income from Continuing Operations 184.3 (18.2) (45.5) 115.9 Gain (Loss) from Discontinued Operations - net of taxes (1.0) -- (61.1) 11.5 Net Income (Loss) 187.3 (18.2) (106.6) 127.4 2000 Net Revenues 619.4 386.6 354.0 576.5 Operating Income 273.7 79.6 73.6 (44.6) Income from Continuing Operations 143.4 82.9 19.5 26.9 (Loss) from Discontinued Operations - net of taxes 6.3 (35.2) (83.3) (48.7) Net Income (Loss) 149.7 47.7(a) (63.8) (21.8) - ----------------------------------------------------------------------------------------------------------
(a) Includes $58.9 million gain on the sale of Cove Point LNG (b) Includes $86.4 million gain on the sale of Columbia Electric's four power generation plants and the remainder of Columbia Electric. (c) Includes $89.2 million loss on impairment of telecommunications assets. 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. EXPLORATION AND PRODUCTION ACTIVITIES (UNAUDITED) Reserve information contained in the following tables for the U.S. and Canadian properties is management's estimate, which was reviewed by the independent consulting firms of Ryder Scott Company Petroleum Engineers for the U.S. reserves and Sproule Associates Limited for the Canadian reserves. Reserves are reported as net working interest. Gross revenues are reported after deduction of royalty interest payments. RESERVE QUANTITY INFORMATION
United States Canada -------------------------- ------------------------ Oil & Other Oil & Other Gas Liquids Gas Liquids Proved Reserves (Bcf) (000 Bbls) (Bcf) (000 Bbls) ========================================================================================================================= Reserves as of December 31, 1998 789.5 1,771 1.0 64 Revisions of previous estimate 34.4 99 - 9 Extensions, discoveries and other additions 116.8 38 0.3 40 Production (45.6) (175) (0.2) (10) Purchase of reserves-in-place 58.2 539 - - Sale of reserves-in-place (2.8) -- - - - ------------------------------------------------------------------------------------------------------------------------- Reserves as of December 31, 1999 950.5 2,272 1.1 103 Revisions of previous estimate 82.2 (764) -- (9) Extensions, discoveries and other additions 120.1 30 -- 95 Production (52.3) (204) (0.1) (11) Purchase of reserves-in-place 2.5 4 -- -- Sale of reserves-in-place (4.4) (117) -- -- - ------------------------------------------------------------------------------------------------------------------------- Reserves as of December 31, 2000 1,098.6 1,221 1.0 178 Revisions of previous estimate (90.9) (106) -- (63) Extensions, discoveries and other additions 62.2 -- -- -- Production (53.9) (213) (0.1) (7) Purchase of reserves-in-place -- -- -- -- Sale of reserves-in-place (3.2) (7) -- -- - ------------------------------------------------------------------------------------------------------------------------- RESERVES AS OF DECEMBER 31, 2001 1,012.8 895 0.9 108 - ------------------------------------------------------------------------------------------------------------------------- Proved developed reserves as of December 31, 1999 697.2 1,953 1.1 103 2000 820.6 1,043 1.0 178 2001 729.0 728 0.9 108 - -------------------------------------------------------------------------------------------------------------------------
40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CAPITALIZED COSTS
United States Canada Total ----------------------------- ------------------------- ----------------------------- ($ in millions) 2001 2000 1999 2001 2000 1999 2001 2000 1999 ================================================================================================================================== CAPITALIZED COSTS AT YEAR END Proved properties 889.1 762.6 729.1 10.3 4.5 1.7 899.4 767.1 730.8 Unproved properties (a) 45.1 36.8 30.7 3.9 8.0 8.7 49.0 44.8 39.4 - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalized costs 934.2 799.4 759.8 14.2 12.5 10.4 948.4 811.9 770.2 Accumulated depletion (399.7) (314.8) (317.5) (7.7) (4.4) -- (407.4) (319.2) (317.5) - ---------------------------------------------------------------------------------------------------------------------------------- NET CAPITALIZED COSTS 534.5 484.6 442.3 6.5 8.1 10.4 541.0 492.7 452.7 - ---------------------------------------------------------------------------------------------------------------------------------- COSTS CAPITALIZED DURING YEAR Acquisition properties Proved 2.0 1.6 0.5 -- -- -- 2.0 1.6 0.5 Unproved 6.7 14.5 0.8 -- 1.1 1.4 6.7 15.6 2.2 Exploration 7.2 25.1 5.0 1.5 2.2 1.3 8.7 27.3 6.3 Development 75.7 45.9 99.4 2.4 -- 2.9 78.1 45.9 102.3 - ---------------------------------------------------------------------------------------------------------------------------------- COSTS CAPITALIZED 91.6 87.1 105.7 3.9 3.3 5.6 95.5 90.4 111.3 - ----------------------------------------------------------------------------------------------------------------------------------
(a) Represents expenditures associated with properties on which evaluations have not been completed. OTHER EXPLORATION AND PRODUCTION DATA
United States Canada ------------------------ ----------------------------- ($ in millions) 2001 2000 1999 2001 2000 1999 ================================================================================================================================== Average sales price per Mcf of gas ($)(a) 4.04 2.99 2.66 3.99 3.79 2.25 Average sales price per barrel of oil and other liquids ($) 22.52 25.01 14.69 23.63 30.86 19.43 Production (lifting) cost per dollar of gross revenue ($) 0.16 0.18 0.19 1.14 0.38 0.20 Depletion rate per dollar of gross revenue ($) 0.25 0.22 0.23 5.43 5.38 -- - ----------------------------------------------------------------------------------------------------------------------------------
(a) Includes the effect of hedging activities HISTORICAL RESULTS OF OPERATIONS
United States Canada Total ----------------------------- ------------------------- ----------------------------- ($ in millions) 2001 2000 1999 2001 2000 1999 2001 2000 1999 ================================================================================================================================== Gross revenues Unaffiliated 157.4 159.6 122.4 0.7 0.8 0.5 158.1 160.4 122.9 Affiliated 65.3 2.0 1.4 -- -- -- 65.3 2.0 1.4 Production costs 35.7 28.4 23.7 0.8 0.3 0.1 36.5 28.7 23.8 Depletion 54.7 35.2 28.4 3.8 4.3 -- 58.5 39.5 28.4 Exploratory expense 21.9 18.9 12.8 3.8 7.2 1.5 25.7 26.1 14.3 Income tax expense 42.5 29.8 21.6 (2.7) (3.9) (0.5) 39.8 25.9 21.1 - ---------------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS 67.9 49.3 37.3 (5.0) (7.1) (0.6) 62.9 42.2 36.7 - ----------------------------------------------------------------------------------------------------------------------------------
41 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Results of operations for exploration and production activities exclude administrative and general costs, corporate overhead and interest expense. Income tax expense is expressed at statutory rates less Section 29 credits.
United States Canada Total ------------------------------ ------------------------- -------------------------------- ($ in millions) 2001 2000 1999 2001 2000 1999 2001 2000 1999 ================================================================================================================================= Future cash inflows 3,158.8 11,475.5 2,805.4 4.7 14.5 5.5 3,163.5 11,490.0 2,810.9 Future production costs (793.5) (1,608.9) (739.8) (2.1) (2.9) (2.1) (795.6) (1,611.8) (741.9) Future development costs (311.8) (302.7) (258.3) (0.1) (0.2) (0.1) (311.9) (302.9) (258.4) Future income tax expense (792.1) (3,835.1) (692.1) 2.5 (3.0) (1.2) (789.6) (3,838.1) (693.3) - --------------------------------------------------------------------------------------------------------------------------------- Future net cash flows 1,261.4 5,728.8 1,115.2 5.0 8.4 2.1 1,266.4 5,737.2 1,117.3 Less: 10% discount 712.4 3,420.4 603.6 2.1 3.5 0.7 714.5 3,423.9 604.3 - --------------------------------------------------------------------------------------------------------------------------------- STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 549.0 2,308.4 511.6 2.9 4.9 1.4 551.9 2,313.3 513.0 - ---------------------------------------------------------------------------------------------------------------------------------
Future cash inflows are computed by applying year-end prices to estimated future production of proved gas and oil reserves. Future expenditures (based on year-end costs) represent those costs to be incurred in developing and producing the reserves. Discounted future net cash flows are derived by applying a 10% discount rate, as required by the Financial Accounting Standards Board, to the future net cash flows. This data is not intended to reflect the actual economic value of Columbia's gas and oil producing properties or the true present value of estimated future cash flows since many arbitrary assumptions are used. The data does provide a means of comparison among companies through the use of standardized measurement techniques. A reconciliation of the components resulting in changes in the standardized measure of discounted cash flows attributable to proved gas and oil reserves for the three years ending December 31, follows:
United States Canada Total -------------------------------- ------------------------- --------------------------------- ($ in millions) 2001 2000 1999 2001 2000 1999 2001 2000 1999 =================================================================================================================================== BEGINNING OF YEAR 2,308.4 511.6 380.6 4.9 1.4 0.8 2,313.3 513.0 381.4 - ----------------------------------------------------------------------------------------------------------------------------------- Gas and oil sales net of production costs (187.0) (133.2) (100.1) 0.1 (0.5) (0.4) (186.9) (133.7) (100.5) Net changes in prices and production costs (2,789.9) 2,828.2 74.7 (5.0) 4.5 0.6 (2,794.9) 2,832.7 75.3 Change in future development costs (14.1) (19.0) (35.8) 0.1 (0.2) -- (14.0) (19.2) (35.8) Extensions, discoveries and other additions, net of related costs 55.7 448.2 107.5 -- 1.2 0.6 55.7 449.4 108.1 Revisions of previous estimates, net of related costs (85.2) 314.9 33.7 (0.4) (0.1) 0.1 (85.6) 314.8 33.8 Sales of reserves-in- place (17.2) (5.9) (2.9) -- -- -- (17.2) (5.9) (2.9) Purchases of reserves- in-place -- 16.3 54.6 -- -- -- -- 16.3 54.6 Accretion of discount 384.9 82.0 60.0 0.7 0.2 0.1 385.6 82.2 60.1 Net change in income taxes 1,197.2 (1,233.1) (88.9) 3.1 (0.9) (0.3) 1,200.3 (1,234.0) (89.2) Timing of production and other changes (303.8) (501.6) 28.2 (0.6) (0.7) (0.1) (304.4) (502.3) 28.1 - ----------------------------------------------------------------------------------------------------------------------------------- END OF YEAR 549.0 2,308.4 511.6 2.9 4.9 1.4 551.9 2,313.3 513.0 - -----------------------------------------------------------------------------------------------------------------------------------
42 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SCHEDULE II -- Valuation and Qualifying Accounts
Additions - Charged to ------------------------ Beginning Other Ending Year Ended December 31, ($ in millions) Balance Income Accounts Deductions Balance - ------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts (a) 2001 15.8 24.9 60.7 76.1 25.3 2000 11.3 19.7 28.3 43.5 15.8 1999 13.4 17.4 30.6 50.1 11.3 Restructuring Activities (b) 2001 61.7 4.0 (23.6) 10.7 31.4 Environmental 2001 106.4 35.0 -- 1.1 140.2 2000 123.6 0.5 -- 17.7 106.4 1999 140.9 0.2 -- 17.5 123.6 - -------------------------------------------------------------------------------------------------------------------
(a) Other Accounts primarily reflect reclassifications to a regulatory asset of the uncollectible accounts related to the Percent of Income Plan (PIP) of Columbia Gas of Ohio, Inc. and Deductions principally reflect amounts charged off as uncollectible less amounts recovered. (b) Deductions primarily reflect payments of severance and related termination benefits. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has not been a change of accountants nor any disagreements concerning accounting and financial disclosure within the past two years. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Omitted pursuant to General Instruction I. (2) (c). ITEM 11. EXECUTIVE COMPENSATION Omitted pursuant to General Instruction I. (2) (c). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Omitted pursuant to General Instruction I. (2) (c). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to General Instruction I. (2) (c). 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K COLUMBIA ENERGY GROUP AND SUBSIDIARIES Exhibits Reference is made to the list of exhibits filed as part of this Annual Report on Form 10-K. Pursuant to Item 601(b), paragraph (4)(iii)(A) of Regulation S-K, certain instruments representing long-term debt of Columbia or its subsidiaries have not been included as Exhibits because such debt does not exceed 10% of the total assets of Columbia and its subsidiaries on a consolidated basis. Columbia agrees to furnish a copy of any such instrument to the U.S. Securities and Exchange Commission upon request. Financial Statement Schedules All of the financial statements and financial statement schedules filed as a part of this Annual Report on Form 10-K are included in Item 8. Reports on Form 8-K None. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBIA ENERGY GROUP ------------------------------------- (Registrant) Dated: March 27, 2002 By: /s/ Michael W. O'Donnell ------------------------ ------------------------------------- Michael W. O'Donnell President and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: March 27, 2002 By: /s/ Michael W. O'Donnell ------------------------ ------------------------------------- Michael W. O'Donnell President and Director (Principal Executive Officer) Dated: March 27, 2002 By: /s/ Dennis W. McFarland ------------------------ ------------------------------------- Dennis W. McFarland Vice President and Treasurer (Principal Financial Officer) Dated: March 27, 2002 By: /s/ Jeffrey W. Grossman ------------------------ ------------------------------------- Jeffrey W. Grossman Vice President (Principal Accounting Officer) Dated: March 27, 2002 By: /s/ Stephen P. Adik ------------------------ ------------------------------------- Stephen P. Adik Director 45 EXHIBITS Reference is made in the two right-hand columns below to those exhibits, which have heretofore been filed with the U.S. Securities and Exchange Commission. Exhibits so referred to are incorporated herein by reference.
NiSource Reference ------------------------- Exhibit Description of Item File No. Exhibit - ------- ------------------- --------- ------- 3-A - Restated Certificate of Incorporation of The Columbia 1-1098 3-A Gas System, Inc., as amended dated as of November 28, 1995. 3-B - By-Laws of The Columbia Gas System, Inc., as amended 1-1098 3-B dated November 18, 1987. 3-C - Certificate of Ownership and Merger, Merging Columbia 1-1098 3-C Energy Group, Inc. into The Columbia Gas System, Inc. 3-D - Amended and Restated By-Laws of Columbia Energy Group as 1-1098 3-D of February 22, 2000. 4-A - Indenture between The Columbia Gas System, Inc. and 33-64555 4-S Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-B - First Supplemental Indenture, between The Columbia Gas 33-64555 4-T System, Inc. and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-C - Second Supplemental Indenture, between The Columbia Gas 33-64555 4-U System, Inc., and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-D - Third Supplemental Indenture, between The Columbia Gas 33-64555 4-V System, Inc. and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-E - Fourth Supplemental Indenture, between The Columbia Gas 33-64555 4-W System, Inc. and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-F - Fifth Supplemental Indenture, between The Columbia Gas 33-64555 4-X System, Inc. and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-G - Sixth Supplemental Indenture, between The Columbia Gas 33-64555 4-Y System, Inc. and Marine Midland Bank, N.A. Trustee, dated as of November 28, 1995. 4-H - Seventh Supplemental Indenture, between The Columbia Gas 33-64555 4-Z System, Inc. and Marine Midland Bank, N.A., Trustee, dated as of November 28, 1995. 4-I - Instrument of Resignation, Appointment and Acceptance 1-1098 4-I dated as of March 1, 1999, between Columbia Energy Group and Marine Midland Bank, as Resigning Trustee and The First National Bank of Chicago, as Successor Trustee. 10-P(a) - Pension Restoration Plan of The Columbia Gas System, 1-1098 10-P Inc., amended October 9, 1991. 10-Q(a) - Thrift Restoration Plan of The Columbia Gas System, Inc. 1-1098 10-Q dated January 1, 1989. 10-T - Agreement and Bridge Agreement dated December 1, 1993, 1-1098 10-T between Columbia Gas Transmission Corporation and Consol Pennsylvania Coal Company. 10-AE - U.S. Environmental Protection Agency Administrative 1-1098 10-AE Order by Consent for Removal Actions for Columbia Gas Transmission Corporation dated September 22,1994.
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K. 46 EXHIBITS (continued)
NiSource Reference ------------------------- Exhibit Description of Item File No. Exhibit - ------- ------------------- --------- ------- 10-AF - Amended and Restated Indenture of Mortgage and Deed of 1-1098 10-AF Trust by Columbia Gas Transmission Corporation to Wilmington Trust Company, dated as of November 28, 1995. 10-BB(a) - Annual Incentive Compensation Plan of The Columbia Gas 1-1098 10-BB System, Inc., as amended, dated as of November 16, 1988. 10-BC(a) - Employment Agreement between Oliver G. Richard III and 1-1098 10-BC The Columbia Gas System, Inc., dated March 15, 1995. 10-BE(a) - Employment Agreement between Peter M. Schwolsky and The 1-1098 10-BE Columbia Gas System, Inc., dated May 30, 1995. 10-BF(a) - Employment Agreement between Catherine Good Abbott and 1-1098 The Columbia Gas System, Inc., dated January 17, 1996. 10-BG - Third amendment to employment agreement by and between 1-1098 the Columbia Energy Group and Oliver G. Richard III, effective July 21, 2000. 10-BH - Second amendment to employment agreement by and between 1-1098 the Columbia Energy Group and Peter M. Schwolsky, effective July 21, 2000. 10-BI - Second amendment to employment agreement by and between 1-1098 the Columbia Energy Group and Catherine Good Abbott, effective July 21, 2000. 10-BU - Share Sale and Purchase Agreement between The Columbia 1-1098 10-BU Gas System, Inc. and Anderson Exploration Ltd. dated November 25, 1991. 10-BV - Security Agreement dated as of January 15, 1992, between 1-1098 10-BV The Columbia Gas System, Inc. and Anderson Exploration Ltd. and Montreal Trust Company of Canada. 10-BW - Kotaneelee Litigation Indemnity Agreement dated as of 1-1098 10-BW December 31, 1991, among The Columbia Gas System, Inc. and Columbia Gas Development of Canada Ltd. and Anderson Exploration Ltd. 10-BX - Specified Litigation Indemnity Agreement made as of 1-1098 10-BX December 31, 1991, among The Columbia Gas System, Inc. and Columbia Gas Development of Canada Ltd. and Anderson Exploration Ltd. 10-BY(a) - Columbia Gas Restoration Security Trust Agreement dated 1-1098 10-BY June 1, 1991, with Dauphin Deposit Bank and Trust Company. 10-BZ - Natural Gas Advance Sale Contract dated August 24, 2000, between Columbia Natural Resources, Inc., and Mahoma II Limited. 10-CA(a) - The Columbia Gas System, Inc. Retirement Plan for 1-1098 10-CA Outside Directors, as amended, August 21, 1991. 10-CB - Credit Agreement, dated as of November 28, 1995, among 1-1098 10-CB The Columbia Gas System, Inc., certain banks party thereto and Citibank, N.A. 10-CC - First Amendment and Supplement to Credit Agreement, 1-1098 10-CC dated December 6, 1995.
(a) Executive Compensation arrangements filed pursuant to Item 14 of Form 10-K. 47 EXHIBITS (continued)
NiSource Reference ------------------------- Exhibit Description of Item File No. Exhibit - ------- ------------------- --------- ------- 10-CD - Credit Agreement for $450,000,000, dated March 11, 1998, 1-1098 10-CD among Columbia Energy Group and certain banks party thereto and Citibank, N.A. as Administrative and Syndication Agent. 10-CE - Credit Agreement for $900,000,000, dated March 11, 1998, 1-1098 10-CE among Columbia Energy Group and certain banks party thereto and Citibank, N.A. as Administrative and Syndication Agent. 10-CF - Memorandum of Understanding among the Millennium 1-1098 10-CF Pipeline Project partners (Columbia Transmission, West Coast Energy, MCN Investment Corp. and TransCanada Pipelines Limited) dated December 1, 1997. 10-CG - Agreement of Limited Partnership of Millennium Pipeline 1-1098 10-CG Company, L.P. dated May 31, 1998. 10-CH - Contribution Agreement Between Columbia Gas Transmission 1-1098 10-CH Corporation and Millennium Pipeline Company, L.P. dated July 31, 1998. 10-CI - Regulations of Millennium Pipeline Management Company, 1-1098 10-CI L.L.C. dated May 31, 1998. 10-CJ - Amended and Restated Agreement of Cove Point LNG Limited 1-1098 10-CJ Partnership between Columbia LNG and PEPCO Energy Company, Inc. dated January 27, 1994. 10-CK - Amended and Restated 364-Day Credit Agreement among 1-1098 10-CK Columbia Energy Group and certain banks party thereto and Citibank, N. A. as Administrative and Syndication Agent dated as of March 10, 1999. 10-CM - Plan of Reorganization for Columbia Gas Transmission 1-1098 10-CM Corporation as filed with the United States Bankruptcy Court for the District of Delaware on January 18, 1994. 10-CQ - $50,000,000 Amended and Restated Credit Agreement dated 1-1098 10-CQ October 11, 2000, among Columbia Energy Group and certain banks party thereto and Citibank, N.A. as Administrative and Syndication Agent. 10-CR - $850,000,000 Amended and Restated Credit Agreement dated 1-1098 10-CR October 11, 2000, among Columbia Energy Group and certain banks party thereto and Citibank, N.A. as Administrative and Syndication Agent. 10-DA - Natural Gas Advance Sale Contract dated December 1, 001-16189 10.30 1999, between Columbia Natural Resources, Inc. and Mahonia II Limited 10-DB - First Amendment to Natural Gas Advance Sale Contract 001-16189 10.31 (dated December 1, 1999), effective March 30, 2001, between Columbia Natural Resources, Inc. and Mahonia II Limited. 10-DC - Natural Gas Advance Sale Contract dated August 24, 2000, 001-16189 10.32 between Columbia Natural Resources, Inc. and Mahonia II Limited 10-DD - First Amendment to Natural Gas Advance Sale Contract 001-16189 10.33 (dated August 24, 2000), effective March 30, 2001, between Columbia Natural Resources, Inc. and Mahonia II Limited.
48 EXHIBITS (continued)
NiSource Reference ------------------------- Exhibit Description of Item File No. Exhibit - ------- ------------------- --------- ------- 10-P - Pension Restoration Plan of the Columbia Gas System, 001-16189 10.27 Inc., amended and restated March 1, 1997. 10-Q - Thrift Restoration Plan of the Columbia Gas System, 001-16189 10.28 Inc., amended and restated January 1, 2000. 12* - Statements of Ratio of Earnings to Fixed Charges 23-A - Written consent, dated February 1, 2002, to the filing 001-16189 23.2 and use of information contained in such letter report, in Reports and Registration Statements filed during 2001, of Ryder Scott Company Petroleum Engineers, independent petroleum and natural gas cons 23-B - Written consent, dated January 24, 2002, to the filing 001-16189 23.3 and use of information contained in such letter report, in Reports and Registration Statements filed during 2001, of Sproule Associates Limited, independent petroleum and natural gas consultants.
* Filed herewith 49 EX-12 3 w58831ex12.txt STATEMENT OF RATIO OF EARNINGSTO FIXED CHARGES EXHIBIT 12 COLUMBIA ENERGY GROUP AND SUBSIDIARIES Statements of Ratio of Earnings to Fixed Charges ($ in millions)
Twelve Months Ended December 31, ------ ------------------------------------------------ 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Consolidated Income (Loss) from Continuing Operations before Income Taxes 389.2 449.0 556.1 461.1 397.0 Adjustments: Interest during construction (2.2) (2.2) (2.8) (2.1) (3.0) Distributed (Undistributed) equity income 2.2 (5.5) (5.8) (0.4) 3.6 Fixed charges 177.9 192.8 183.8 163.3 180.5 ------ ------ ------ ------ ------ Earnings Available 567.1 634.1 731.3 621.9 578.1 ------ ------ ------ ------ ------ Fixed Charges: Interest on long-term and short-term debt 123.6 154.3 152.9 145.4 145.6 Other interest 45.9 18.3 14.9 1.4 15.2 Portion of rentals representing interest 8.4 20.2 16.0 16.5 19.7 ------ ------ ------ ------ ------ Total Fixed Charges 177.9 192.8 183.8 163.3 180.5 ------ ------ ------ ------ ------ Ratio of Earnings to Fixed Charges 3.19 3.29 3.98 3.81 3.20 ====== ====== ====== ====== ======
Prior periods have been restated to reflect discontinued operations. -----END PRIVACY-ENHANCED MESSAGE-----