-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iXn+weEomK3EzLieKku6+zfo32pYNdtFUe4fMXD407nl5myKnuCfCxxcrXs52ekn Aco6XI1ZyyQZ5Hvs3VHuLw== 0000893220-95-000330.txt : 19950512 0000893220-95-000330.hdr.sgml : 19950512 ACCESSION NUMBER: 0000893220-95-000330 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950511 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA GAS SYSTEM INC CENTRAL INDEX KEY: 0000022099 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 131594808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01098 FILM NUMBER: 95536515 BUSINESS ADDRESS: STREET 1: 20 MONTCHANIN RD CITY: WILMINGTON STATE: DE ZIP: 19807 BUSINESS PHONE: 3024295000 10-Q 1 FORM 10-Q, THE COLUMBIA GAS SYSTEM INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) / X / OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 1995 -------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) / / OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to ------ ------ Commission file number 1-1098 ------ THE COLUMBIA GAS SYSTEM, INC. --------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 13-1594808 ------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 20 Montchanin Road, Wilmington, Delaware 19807 -------------------------------------------------------------- (Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (302) 429-5000 -------------- SINCE JULY 31, 1991, THE COLUMBIA GAS SYSTEM, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, COLUMBIA GAS TRANSMISSION CORPORATION, HAVE BEEN OPERATING UNDER BANKRUPTCY COURT PROTECTION PURSUANT TO CHAPTER 11 OF THE FEDERAL BANKRUPTCY CODE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $10 Par Value: 50,563,335 shares outstanding at March 31, 1995. 2 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 1995 TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION Item 1 Financial Statements Statements of Consolidated Income 1 Condensed Consolidated Balance Sheets 2 Consolidated Statements of Cash Flows 3 Consolidated Statements of Common Stock Equity 4 Notes 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II OTHER INFORMATION Item 1 Legal Proceedings 36 Item 2 Changes in Securities 40 Item 3 Defaults Upon Senior Securities 40 Item 4 Submission of Matters to a Vote of Security Holders 40 Item 5 Other Information 41 Item 6 Exhibits and Reports on Form 8-K 41 Signature 42
3 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS The Columbia Gas System, Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME (unaudited)
Three Months Ended March 31 ---------------------------------- 1995 1994 --------- --------- (millions) OPERATING REVENUES Gas sales $ 834.2 $ 906.6 Transportation 147.8 185.6 Other 69.9 66.7 ---------- ---------- Total Operating Revenues 1,051.9 1,158.9 ---------- ---------- OPERATING EXPENSES Products purchased 437.2 521.8 Operation 233.2 242.3 Maintenance 22.6 25.3 Depreciation and depletion 83.7 74.8 Other taxes 75.3 72.5 ---------- ---------- Total Operating Expenses 852.0 936.7 ---------- ---------- OPERATING INCOME 199.9 222.2 ---------- ---------- OTHER INCOME (DEDUCTIONS) Interest income and other, net 6.0 (13.4) Interest expense and related charges* (5.5) 16.8 Reorganization items, net 10.7 4.0 ---------- ---------- Total Other Income 11.2 7.4 ---------- ---------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 211.1 229.6 Income Taxes 82.3 89.4 ---------- ---------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 128.8 140.2 Cumulative effect of change in accounting for postemployment benefits - (5.6) ---------- ---------- NET INCOME $ 128.8 $ 134.6 ========== ========== EARNINGS PER SHARE OF COMMON STOCK (based on average shares outstanding) Before accounting change $ 2.55 $ 2.77 Change in accounting for postemployment benefits - (0.11) ---------- ---------- EARNINGS ON COMMON STOCK $ 2.55 $ 2.66 ========== ========== AVERAGE COMMON SHARES OUTSTANDING (thousands) 50,563 50,559
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. * Due to the bankruptcy filings, estimated interest expense of approximately $64 million and $54 million has not been recorded for the three months ended March 31, 1995 and 1994, respectively. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 1 4 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS
As of ------------------------------------------ March 31, 1995 December 31, 1994 ------------------- ----------------- (unaudited) ASSETS (millions) PROPERTY, PLANT AND EQUIPMENT Gas utility and other plant, at original cost $ 6,680.6 $ 6,637.5 Accumulated depreciation and depletion (3,233.8) (3,180.8) ---------- ---------- Net Gas Utility and Other Plant 3,446.8 3,456.7 ---------- ---------- Oil and gas producing properties, full cost method 1,264.8 1,261.9 Accumulated depletion (651.8) (637.6) ---------- ---------- Net Oil and Gas Producing Properties 613.0 624.3 ---------- ---------- Net Property, Plant and Equipment 4,059.8 4,081.0 ---------- ---------- INVESTMENTS AND OTHER ASSETS 296.2 306.4 ---------- ---------- CURRENT ASSETS Cash and temporary cash investments 1,823.6 1,481.8 Accounts receivable, net 631.0 561.4 Inventories 135.0 272.3 Prepayments 112.7 134.2 Other 50.8 35.4 ---------- ---------- Total Current Assets 2,753.1 2,485.1 ---------- ---------- DEFERRED CHARGES 287.9 292.4 ---------- ---------- TOTAL ASSETS $ 7,397.0 $ 7,164.9 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock equity $ 1,596.8 $ 1,468.0 Long-term debt 4.1 4.3 ---------- ---------- Total Capitalization 1,600.9 1,472.3 ---------- ---------- CURRENT LIABILITIES Accounts and drafts payable 111.9 153.2 Accrued taxes 213.9 175.2 Estimated rate refunds 76.0 92.2 Estimated supplier obligations 64.6 69.7 Overrecovered gas costs 178.8 59.5 Transportation and exchange gas payable 25.0 35.1 Other 265.1 275.0 ---------- ---------- Total Current Liabilities 935.3 859.9 ---------- ---------- LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS* 3,990.7 3,988.9 ---------- ---------- OTHER LIABILITIES AND DEFERRED CREDITS Income taxes, noncurrent 368.6 344.1 Postretirement benefits other than pensions 230.5 236.3 Other 271.0 263.4 ---------- ---------- Total Other Liabilities and Deferred Credits 870.1 843.8 ---------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $ 7,397.0 $ 7,164.9 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. * Due to the bankruptcy filings, estimated accrued interest of approximately $792 million and $728 million has not been recorded as of March 31, 1995 and December 31, 1994, respectively. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 2 5 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31 -------------------------- 1995 1994 --------- --------- (millions) OPERATIONS ACTIVITIES Net income $ 128.8 $ 134.6 Adjustments for items not requiring (providing) cash: Depreciation and depletion 83.7 74.8 Deferred income taxes 13.4 49.0 Loss on sale of partnership interest 2.9 - Change in accounting for postemployment benefits - 5.6 Other - net 0.3 (22.3) Change in components of working capital: Accounts receivable (55.8) (95.0) Gas inventory 139.9 190.5 Prepayments 27.2 21.4 Accounts payable (10.7) 13.7 Accrued taxes 30.6 5.1 Estimated rate refunds (16.1) 11.8 Estimated supplier obligations (5.0) (4.2) Overrecovered gas costs 119.3 0.9 Exchange gas payable (10.5) 12.7 Other working capital (1.4) 46.0 ----------- ---------- Net Cash From Operations 446.6 444.6 ----------- ---------- INVESTMENT ACTIVITIES Capital expenditures* (78.0) (72.6) Other investments - net 0.5 0.2 ----------- ---------- Net Investment Activities (77.5) (72.4) ----------- ---------- FINANCING ACTIVITIES Retirement of long-term debt (0.3) (0.2) Decrease in short-term debt and other financing activities (27.0) (29.6) ----------- ---------- Net Financing Activities (27.3) (29.8) ----------- ---------- Increase in Cash and Temporary Cash Investments 341.8 342.4 Cash and temporary cash investments at beginning of year 1,481.8 1,340.4 ----------- ---------- Cash and temporary cash investments at March 31** $ 1,823.6 $ 1,682.8 =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest 0.3 0.2 Cash paid for income taxes (net of refunds) (0.7) 0.4
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. * Includes amounts transferred from cash paid to employees and for other employee benefits and other operating cash payments. ** The Corporation considers all highly liquid debt instruments to be cash equivalents. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 3 6 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
As of ------------------------------------- March 31, December 31, 1995 1994 ----------------- ---------------- (unaudited) (millions) COMMON STOCK EQUITY Common stock, $10 par value, authorized 100,000,000 shares, outstanding 50,563,335 shares $ 505.6 $ 505.6 Additional paid in capital 601.9 601.9 Retained earnings 559.3 430.5 Unearned employee compensation (70.0) (70.0) ---------- ---------- TOTAL COMMON STOCK EQUITY $ 1,596.8 $ 1,468.0 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Reference is made to the accompanying Notes and Management's Discussion and Analysis for information related to the Chapter 11 bankruptcy filings made by The Columbia Gas System, Inc. and Columbia Gas Transmission Corporation (a wholly-owned subsidiary) on July 31, 1991. 4 7 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) The Columbia Gas System, Inc. and Subsidiaries NOTES 1. Basis of Accounting Presentation On July 31, 1991, The Columbia Gas System, Inc. (the Corporation) and its wholly-owned subsidiary, Columbia Gas Transmission Corporation (Columbia Transmission), filed separate petitions for protection under Chapter 11 of the Federal Bankruptcy Code. As a result, the two companies are operating their businesses as debtors-in-possession under the jurisdiction of the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court) and cannot engage in transactions outside the ordinary course of business without Bankruptcy Court approval. The accompanying consolidated financial statements reflect all adjustments necessary, in the opinion of management, to present fairly the results of operations in accordance with generally accepted accounting principles applicable to a going concern. Such presentation contemplates the realization of assets and payment of liabilities in the ordinary course of business. As a result of reorganization proceedings under Chapter 11, the debtor companies may take, or be required to take, actions which may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the financial statements. The appropriateness of continuing to present consolidated financial statements on a going concern basis is dependent upon, among other things, the terms of the ultimate plan of reorganization and the ability to generate sufficient cash from operations and financing sources to meet obligations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary as a result of the outcome of the uncertainties discussed herein. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation's 1994 Annual Report on Form 10-K. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors. Certain reclassifications have been made to the 1994 financial statements to conform to the 1995 presentation. 2. Bankruptcy Matters Reorganization Proceedings Under the Federal Bankruptcy Code, actions by creditors to collect prepetition indebtedness are stayed and other contractual obligations may not be enforced against either the Corporation or Columbia Transmission. As debtors-in-possession, both the Corporation and Columbia Transmission have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. In this context, "rejection" means that the debtor companies are relieved from their obligations to perform further under the contract or lease but are subject to a claim for damages for the breach thereof. Any damages resulting from rejection are treated as general unsecured claims 5 8 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) in the reorganization. The parties affected by rejections of contracts by Columbia Transmission have filed or may file claims with the Bankruptcy Court in accordance with bankruptcy procedures. Proposed Plans of Reorganization The Corporation and Columbia Transmission filed plans of reorganization (Plans) and related disclosure statements with the Bankruptcy Court on April 17, 1995. The Plans provide that Columbia Transmission will remain a wholly-owned subsidiary of the Corporation, will continue to offer an array of transportation and storage services, and will retain ownership of its approximately 19,000-mile pipeline network and related facilities. Assuming the filed Plans are confirmed as filed, management expects that the Corporation will emerge with investment-grade debt ratings and that the required majorities of creditors of each company and the Corporation's shareholders will vote to approve the Plans since they represent balanced business solutions to the complex bankruptcy proceedings. Both Plans, as filed, are contingent on numerous conditions being met including such items as SEC approval, Securities Litigation settlement, Internal Revenue Service ruling and approvals of customer and producer settlements all of which are discussed in more detail in the disclosure statements filed with the Plans. (The Corporation's Plan and Columbia Transmission's amended Plan, together with disclosure statements for both companies, were filed on Form 8-K on April 20, 1995.) Corporation's Plan The Corporation anticipates emergence by December 31, 1995, and proposes total distributions at that time of approximately $3.6 billion to its creditors, which includes $2.3 billion in payment of the Corporation's prepetition debt and $1.1 billion of interest on that debt. The Corporation's Plan proposes paying creditors the full amount of their principal balances and accrued prepetition and postpetition interest and interest on overdue interest through distribution of: - About $900 million in cash, to be funded in large part by new bank debt; - Approximately $2.1 billion in new debt securities, with maturities ranging from 5 to 30 years; and - About $200 million in preferred stock and $200 million in dividend enhanced convertible securities. The interest rate on the proposed new debt securities and the dividend rates and other financial terms of the proposed new equity securities will be based on market levels at the time of emergence. The Corporation's Plan also includes an offer of settlement for the Securities Litigation. 6 9 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Columbia Transmission's Amended Plan Columbia Transmission's amended Plan, which is supported financially by the Corporation, amends the Plan it filed January 18, 1994, and proposes a total distribution by December 31, 1995, of approximately $3.9 billion to its creditors, including approximately $2.2 billion to the Corporation to resolve its secured and unsecured claims; about $1.2 billion to resolve producer claims, and about $500 million to resolve other third party claims. The Official Committee of Unsecured Creditors of Columbia Transmission (Columbia Transmission Creditors' Committee) as well as major producer creditors subject to the producer settlement agreement, described below, support Columbia Transmission's amended Plan. In addition to incorporating terms of the producer settlement agreement, the amended Plan incorporates terms of a settlement with almost all firm customers, state regulatory agencies and consumer groups, also discussed below. The producer settlement agreement, which was filed with the Bankruptcy Court on April 27, 1995, reflects settlements and minimum distributions for claims filed against Columbia Transmission by 18 major gas producers and a group of Appalachian producers. These producers represent in excess of 80 percent of the producer claims filed against Columbia Transmission and 80 percent of the approximately $1.6 billion that Columbia Transmission's amended Plan proposes to recognize as the aggregate allowed claims level for all producer claims in excess of $25,000, payable at approximately 72.5 percent assuming 100 percent acceptance. Producers who reject the settlement offers contained in Columbia Transmission's amended Plan may continue to litigate their claims under the Bankruptcy Court approved estimation procedure and will receive the same percentage payout on their claims, when and if ultimately allowed, as received by the settling producers. The producer settlement agreement requires that the Bankruptcy Court approve the settlement amounts for those producers who are parties to it by October 31, 1995, and that distributions under Columbia Transmission's Plan occur by June 28, 1996. A major settlement between Columbia Transmission and almost all firm customers, state regulatory agencies and consumer groups resolves virtually all outstanding Order 636 transition cost, rate and bankruptcy matters pending before the Federal Energy Regulatory Commission (FERC). The settlement was filed with the FERC on April 17, 1995. Columbia Transmission's amended Plan monetizes the enterprise value of Columbia Transmission and provides for the Corporation's guaranty of all third-party distributions required under the amended Plan. Columbia Transmission's amended Plan proposes to pay: - 100 percent of all priority and administrative claims, which together amount to approximately $255 million; - 100 percent of the Corporation's secured claim of approximately $2 billion, including interest, which will be funded with new debt securities of reorganized Columbia Transmission and all of its equity; - 100 percent of all unsecured claims of $25,000 or less, which together amount to approximately $8 million; 7 10 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) - Approximately $40 million which represents 72.5 percent of all trade and other miscellaneous unsecured creditor claims in excess of $25,000; - Approximately $160 million in customer refunds as provided under terms of the settlement agreement between Columbia Transmission and its firm service customers and certain other parties; - 72.5 percent of the Corporation's $351 million unsecured claim; and - Total payout to producers is projected to be approximately $1.2 billion (assuming 100 percent acceptance). Columbia Transmission's amended Plan proposes total allowed contract rejection claims of approximately $1.4 billion and non-rejection producer claims of approximately $260 million and proposes to make distributions up to 72.5 percent to those creditors who have prepetition claims under those contracts in excess of $25,000. While the proposed total allowed amount for contract rejection claims is somewhat higher than the previous management projection of $1.3 billion, that has been proposed only as part of a consensual Plan which will permit the emergence of both Columbia Transmission and the Corporation from bankruptcy in 1995 or early 1996. Columbia Transmission's amended Plan provides that, until the total amount of contested producer claims is established, five percent of the amount distributable to all settling producer claimants will be withheld. If necessary, the five percent holdback will be used on a 50/50 basis with a like contribution by reorganized Columbia Transmission to fund distributions on contested producer claims in excess of those contemplated by Columbia Transmission's amended Plan. Any recoveries after the holdback fund is exhausted would be funded entirely by Columbia Transmission, backed by the Corporation's guaranty. After all producer claims are resolved, the final percentage payout on producer claims and on the Corporation's unsecured claim will be determined. Management believes that Columbia Transmission has established adequate reserves to reflect the final outcome of the bankruptcy proceedings based on its amended Plan as filed with the Bankruptcy Court on April 17, 1995. Exclusivity Period On April 18, 1995, the Bankruptcy Court issued a bridge order extending the exclusivity periods for the Plans for both the Corporation and Columbia Transmission to the next scheduled hearing on May 18, 1995, at which time the Bankruptcy Court will consider a requested extension of the exclusivity period for filing Plans or amendments to the Plans to October 16, 1995, and the period for soliciting acceptances to December 18, 1995. Approval Process The next steps in the bankruptcy process are for the Bankruptcy Court to approve the producer settlement and the customer settlement and the two companies' disclosure statements. In addition, the Corporation's Plan and the Corporation's financial participation in Columbia Transmission's amended Plan require SEC approval under the Public Utility Holding Company Act. FERC approval of the customer settlement is also necessary and has been requested. 8 11 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) After obtaining these approvals, some of which can occur concurrently, the Corporation will send a copy of its Plan and disclosure statement and a report of the SEC to each of its creditors and shareholders for voting purposes. Columbia Transmission will also send its Plan and disclosure statement to its creditors for voting purposes. Management believes that all regulatory, judicial, creditor and shareholder approvals can be obtained and that distributions can take place prior to December 31, 1995. Intercompany Complaint On March 19, 1992, Columbia Transmission Creditors' Committee filed a complaint (Intercompany Complaint) with the Bankruptcy Court alleging that the $1.7 billion of Columbia Transmission's secured and unsecured debt securities held by the Corporation should be recharacterized as capital contributions (rather than loans) and equitably subordinated to the claims of Columbia Transmission's other creditors. The Intercompany Complaint also challenged interest and dividend payments made by Columbia Transmission to the Corporation of approximately $500 million for the period from 1988 to the petition date and the 1990 property transfer from Columbia Transmission to Columbia Natural Resources, Inc. as an alleged fraudulent transfer. At the Bankruptcy Court's request, the trial proceedings for the Intercompany Complaint were transferred to the U.S. District Court for the District of Delaware (the District Court) and were concluded in 1994, and the District Court was expected to render a decision in the second quarter of 1995. The terms of Columbia Transmission's Plan provides for a resolution of this litigation. At an April 12, 1995, status conference with the District Court judge, counsel for the Corporation suggested, with the concurrence of the Columbia Transmission Creditors' Committee, that the District Court's decision in the Intercompany Complaint litigation be deferred because it would become moot if the Plans filed with the Bankruptcy Court on April 17, 1995, by the Corporation and Columbia Transmission are confirmed. Estimation Procedures As a result of the events that led to Columbia Transmission's bankruptcy petition filing in July 1991 and its rejection of more than 4,800 above-market gas purchase contracts with producers, Columbia Transmission had recorded liabilities of approximately one billion dollars for estimated contract rejection costs. In addition, approximately $255 million of take-or- pay and other miscellaneous producer claims had also been recorded. In 1992, the Bankruptcy Court approved the appointment of a claims mediator to implement a claims estimation procedure related to the rejected above-market producer contracts and other producer claims. On October 13, 1994, the claims mediator issued his Initial Report and Recommendation of the Claims Mediator on Generic Issues for Natural Gas Contract Claims (Report). The Report, which is subject to Bankruptcy Court review and approval, establishes the parameters within which producers must initially recalculate their contract rejection and take-or-pay claims. The recalculated claims will then be subject to challenge and audit and adjustment based upon claim specific issues. 9 12 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Columbia Transmission has been able to successfully use the Report, along with other information and its analyses of the numerous contract-specific issues, to generate reasonable ranges for settlement of particular claims of producers and then to use all of that information as the basis for the producer settlement embodied in Columbia Transmission's amended Plan. Moreover, the Report has enabled Columbia Transmission and the Columbia Transmission Creditors' Committee to agree upon a formula which Columbia Transmission has employed to generate settlement offers under its Plan for all other producer-creditors that it believes would result in fair and equitable treatment to those creditors and assure them of the same percentage distributions on their allowed claims as that afforded the settling producers. Columbia Transmission's amended Plan in no way restricts the maximum allowed claim of any non-settling producer and any such producer may elect to litigate its claim pursuant to the claims-estimation process. As a result of the filing of Columbia Transmission's amended Plan, the date initially established by the claims mediator for the filing of unaudited claims recalculations by producers has been extended from April 21, 1995, until June 30, 1995. The claims mediator has also deferred until further notice the continuation of the claims-estimation process to allow individual producers to consider whether to accept the proposed allowed amounts for their claims contained in Columbia Transmission's amended Plan. The claims mediator has requested that producers either file their claims recalculation forms or notify Columbia Transmission of their acceptance of the proposed allowed amounts for their claims by June 30, 1995. The Report does not address an alternative method for calculating contract rejection damages on a generic basis sponsored by Columbia Transmission. This methodology contemplates using the market value of the producers' reserves subject to the contracts rejected by Columbia Transmission as evidence of the economic value to producers of such contracts (Market Value Methodology). In light of the developments in connection with Columbia Transmission's amended Plan, briefings and hearings previously set for the Market Value Methodology have been deferred until further notice by the claims mediator and will be rescheduled later, if and when necessary. Interest Expense Interest expense of the Corporation is not being accrued during bankruptcy, but an estimate that totals approximately $792 million for the period from July 31, 1991, through March 31, 1995, is included in a footnote on the Consolidated Balance Sheets which was calculated based on the methodology outlined in the Corporation's Plan filed with the Bankruptcy Court on April 17, 1995. As explained in the Plan, the ultimate payout to creditors will depend on, among other items, obtaining necessary approvals and upon the acceptance of the Plan by the requisite number and amount of creditors. Securities Litigation After the announcement on June 19, 1991, regarding the Corporation's probable charge to second quarter earnings and the suspension of its dividend, 17 complaints including 10 13 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) purported class actions were filed against the Corporation and its directors and certain officers of the debtor companies in the District Court (Securities Litigation). The actions, which generally allege violations of certain anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, have been consolidated. On October 31, 1994, the class action plaintiffs filed an amended and consolidated complaint against the non-debtor defendants in the District Court essentially alleging the same causes of action as the previously filed complaints. In addition, these plaintiffs filed a motion for class certification in both the Bankruptcy Court and the District Court. On November 1, 1994, the Corporation filed a motion with the Bankruptcy Court that seeks to require the individual class action plaintiffs to file supplementary information with respect to the proofs of claims previously filed on their behalf. Persons not responding would be barred from asserting their claims pursuant to such procedures. In an order dated November 30, 1994, the District Court stayed both the District Court and Bankruptcy Court litigation until a final judgment is entered in the Intercompany Complaint litigation. On February 13, 1995, the Corporation, in order to promptly address the securities claims in its Plan, requested the District Court to modify the stay order by considering the Corporation's motion to supplement class proofs of claims. On April 10, 1995, counsel for the class action plaintiffs filed a motion requesting that the District Court lift the November 1994 stay order in its entirety. On April 20, 1995, the Corporation and individual defendants filed a memorandum in opposition to that motion. The Corporation disputes the assertion that there is any liability on the part of the Corporation or of its officers and directors who are defendants in this litigation and, therefore, no reserves have been established for this issue on its consolidated financial statements. The Corporation believes that its public disclosures were adequate and accurate. Nevertheless, in order to resolve outstanding disputes, the Corporation's Plan includes an offer of settlement. Under the Corporation's Plan, holders of Securities Litigation claims that timely file proper supplemental proofs of claim and accept the settlement offer proposed in the Corporation's Plan will be paid a settlement amount up to $18 million by the Corporation and various non-debtor contributors, subject to certain adjustments. The offer of settlement provides a range of amounts to those holders who purchased the Corporation's debt and equity securities between March 1, 1990, and June 18, 1991, and either continued to hold such securities through June 19, 1991, or sold such securities at a loss during the period from March 31, 1991, through June 18, 1991. Holders of Securities Litigation claims not satisfying these criteria would receive nothing under the Plan. If the proposed settlement amount is insufficient to satisfy the range of recoveries proposed in the Corporation's Plan, the Corporation at its option may increase such amount through additional cash contributions by the contributors or the issuance of debt and equity securities. Alternatively, the Corporation may choose to withdraw the offer of settlement. The offer of settlement is also conditioned upon acceptance by Securities Litigation claimants accounting for at least 75 percent of the total amount of claims allowed under the Corporation's Plan. However, the Corporation may waive this condition. 11 14 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Holders of Securities Litigation claims that timely file proper supplemental proofs of claim and reject the settlement offer may continue the Securities Litigation post-emergence, and the claims will be assumed by the reorganized Corporation. While the Corporation believes that it has meritorious defenses to this litigation, the outcome is uncertain at this time. Derivative Litigation Also in 1991, three derivative actions were filed in the Court of Chancery in and for New Castle County (Delaware) alleging that directors breached their fiduciary duties (Derivative Litigation). These suits have been stayed by either the bankruptcy filing or by stipulation of the parties. The Corporation's Plan treats the claims alleged in the Derivative Litigation as belonging to the Corporation in the bankruptcy proceeding. On March 15, 1995, the Corporation's Board of Directors formed a Special Litigation Committee to determine whether proceeding with the litigation is in the best interest of the Corporation. Once the Special Litigation Committee has completed its investigation and submitted its determination to the Corporation's Board of Directors, which determination shall be binding on the Board, the Corporation's Plan will be amended to incorporate such determination. The Corporation's Official Committee of Equity Security Holders has also commenced an investigation to assess the value of the contingent asset represented by those claims. The Corporation believes, and is advised that its officers and directors who are defendants in the litigation believe, that they have meritorious defenses to this litigation; however, the outcome is uncertain at this time. Prepetition Obligations of Debtor Companies The accompanying consolidated balance sheet as of March 31, 1995, includes approximately $4 billion of liabilities subject to the Chapter 11 proceedings of the Corporation and Columbia Transmission as follows:
($ in millions) ------------------------------------------------------------------------- Corporation Total payable (primarily debt obligations) 2,382.6 Less: payable to affiliates 5.2 -------- Payable to nonaffiliates 2,377.4 -------- Columbia Transmission Total payable 3,902.7 Less: payable to affiliates 2,289.4 -------- Payable to nonaffiliates 1,613.3 Liabilities Subject to Chapter 11 Proceedings 3,990.7 -------------------------------------------------------------------------
Columbia Transmission's prepetition obligations include secured and unsecured debt payable to the Corporation, estimated supplier obligations, estimated rate refunds, accrued taxes and other trade payables and liabilities. Prepetition obligations of the Corporation primarily represent debentures, notes, bank loans and commercial paper outstanding on the filing date together with accrued interest to that date. A substantial amount of Columbia Transmission's 12 15 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) liabilities subject to Chapter 11 proceedings relate to amounts owed to the Corporation. Columbia Transmission's borrowings have been funded by the Corporation on a secured basis since June 1985 and are secured by mortgages and a cash collateral order approved by the Bankruptcy Court. On the petition date, the principal amount of the First Mortgage Bonds outstanding was $930.4 million. A secured inventory financing agreement of $410 million was also outstanding on the petition date. Prepetition and postpetition interest on secured debt owed by Columbia Transmission to the Corporation was $526.1 million at March 31, 1995. In addition to these secured claims, the Corporation has an unsecured claim against Columbia Transmission of $351 million in installment notes issued prior to 1985 and accrued interest to the petition date. 13 16 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) Financial Information for the Debtor Companies Below is condensed financial information for the Corporation and Columbia Transmission as of, and for the three month period ended, March 31, 1995. Certain reclassifications have been made to the prior periods to conform to the 1995 presentation.
Corporation Columbia Transmission --------------------- --------------------- As of As of ------------------------------------- ----------------------------------- March 31, December 31, March 31, December 31, ($ in millions) 1995 1994 1995 1994 ------------------------------------------------------------------------------------------------------- Current assets Cash and temporary cash investments 17.7 218.5 1,331.7 1,253.5 Other 477.0 205.6 334.8 360.2 Total current assets 494.7 424.1 1,666.5 1,613.7 Current liabilities (14.0) (14.8) (314.3) (330.0) ------------------------------------------------------------------------------------------------------- Working capital 480.7 409.3 1,352.2 1,283.7 Noncurrent assets 3,747.0 3,669.8 2,319.7 2,321.5 Estimated liabilities subject to Chapter 11 proceedings (2,382.6) (2,382.5) (3,902.7) (3,862.3) Noncurrent liabilities (248.3) (228.6) (233.3) (232.0) ------------------------------------------------------------------------------------------------------- NET EQUITY 1,596.8 1,468.0 (464.1) (489.1) =======================================================================================================
Three Months Three Months Ended March 31 Ended March 31 -------------------------- ------------------------- ($ in millions) 1995 1994 1995 1994 ------------------------------------------------------------------------------------------------------- Operating revenues - - 181.6 220.1 Operating expenses 9.8 2.0 118.9 141.1 ------------------------------------------------------------------------------------------------------- Operating income (loss) (9.8) (2.0) 62.7 79.0 Other income (deductions) 154.8 162.6 (22.2) (24.4) Income taxes 16.2 26.0 15.6 17.3 Change in accounting - - - (3.1) ------------------------------------------------------------------------------------------------------- NET INCOME 128.8 134.6 24.9 34.2 ======================================================================================================= NET CASH FROM OPERATIONS 15.8 18.8 109.5 137.9 =======================================================================================================
3. Environmental Matters As discussed in the 1994 Form 10-K, the Corporation's subsidiaries are subject to extensive federal, state and local laws and regulations relating to environmental matters. These laws and regulations require expenditures for corrective action at various operating facilities, waste disposal sites and former gas manufacturing sites for conditions resulting from past practices that subsequently were determined to be environmentally unsound. Comprehensive reviews 14 17 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (CONTINUED) of compliance with existing environmental standards, including review of operating activities through site reviews, identification of potential site problems and formulation of remediation programs are being conducted. As these self-assessment programs continue, it is likely that additional compliance costs will be identified and become subject to reasonable quantification. Virtually all of Columbia Transmission's future remediation work for currently owned or operated facilities will be performed under a United States Environmental Protection Agency (EPA) Consent Order that details specific approvals and procedures that must be followed. A study previously undertaken for Columbia Transmission which quantified the scope of remediation activities to be undertaken in future years is being reviewed by an independent consultant in light of the order and additional information accumulated during 1994. The results of this study are not expected to be available until mid-1995. 4. Oil and Gas Producing Properties Under the full cost method of accounting for oil and gas properties, all productive and unproductive costs directly identified with acquisition, exploration, and development activities are capitalized in a countrywide cost center. At March 31, 1995, the capitalized costs exceeded the sum of the estimated present value of future oil and gas revenues. However, since that date, oil and gas prices recovered such that the present value of future revenues exceeded the capitalized costs and, therefore, no charge to earnings was required. 15 18 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATUS OF BANKRUPTCY PROCEEDINGS A summary of events relating to the bankruptcy proceedings that have occurred subsequent to the information reported in the 1994 Annual Report on Form 10-K follows. Plans of Reorganization On April 17, 1995, the Corporation and Columbia Transmission filed plans of reorganization and related disclosure statements with the Bankruptcy Court for consideration by their creditors and other interested parties (see Note 2 for additional information). The Corporation's plan of reorganization proposes distributions of approximately $3.6 billion including $2.3 billion in payment of the Corporation's prepetition debt and $1.1 billion of interest on that debt. Columbia Transmission's amended plan of reorganization amends its plan of reorganization filed January 18, 1994, and proposes a total distribution of $3.9 billion to its creditors, including approximately $2.2 billion to the Corporation to resolve its secured and unsecured debt claims; about $1.2 billion to resolve producer claims, and about $500 million to resolve other third party claims. Columbia Transmission's amended plan of reorganization is financially supported by the Corporation. On April 18, 1995, the Bankruptcy Court issued a bridge order extending the exclusivity periods for both the Corporation and Columbia Transmission to the next scheduled hearing on May 18, 1995. At that time the Bankruptcy Court will consider the extension of the exclusivity period for filing plans of reorganization or amendments to the plans of reorganization to October 16, 1995, and the period for soliciting acceptances to December 18, 1995. Intercompany Complaint At an April 12, 1995, status conference with the District Court judge, counsel for the Corporation suggested, with the concurrence of the Columbia Transmission Creditors' Committee, that the District Court's decision in the Intercompany Complaint litigation be deferred because such decision will become moot if the reorganization plans filed with the Bankruptcy Court on April 17, 1995, by the Corporation and Columbia Transmission are confirmed. 16 19 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GAS SALES AND TRANSPORTATION REVENUES
Three Months Ended March 31 ---------------------------------- 1995 1994 --------- --------- (millions) Residential $ 544.0 $ 576.3 Commercial 201.8 234.1 Industrial 50.1 63.7 Wholesale 24.1 26.4 Other 14.2 6.1 Transportation 147.8 185.6 ---------- ---------- TOTAL $ 982.0 $ 1,092.2 ========== ==========
OPERATING INCOME (LOSS) BY SEGMENT
Three Months Ended March 31 ---------------------------------- 1995 1994 --------- --------- (millions) Transmission $ 76.6 87.0 Distribution 116.2 112.4 Oil and Gas (0.1) 12.1 Other Energy 7.9 12.8 Corporate (0.7) (2.1) --------- -------- TOTAL $ 199.9 $ 222.2 ========= ==========
17 20 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) COMPARATIVE GAS OPERATIONS DATA
Three Months Ended March 31 ----------------------------------- 1995 1994 -------- --------- THROUGHPUT (BCF) - ---------------- SALES Residential 90.4 98.2 Commercial 36.6 42.7 Industrial 23.0 20.8 Wholesale 22.6 19.5 Other 11.7 8.2 Intersegment eliminations (10.5) (9.0) --------- --------- Total Sales Volumes 173.8 180.4 --------- --------- TRANSPORTATION Market Area Transmission 401.2 417.5 Distribution 76.8 62.7 Columbia Gulf Main line 154.9 173.4 Short-haul 183.4 194.1 Intersegment eliminations (461.1) (478.6) ------- --------- Total Transportation Volumes 355.2 369.1 ------- --------- TOTAL THROUGHPUT 529.0 549.5 ========= ========= SOURCES OF GAS SOLD (BCF) - ------------------------- Purchased 106.8 116.0 Produced 17.7 16.6 Exchange (2.5) 1.5 Storage withdrawals 69.0 72.9 Other, net (6.7) (17.6) Intersegment eliminations (10.5) (9.0) --------- --------- Total 173.8 180.4 ========= ========= DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY) - -------------------------------------------- Actual 2,758 3,147 Normal 2,947 2,947 % Colder (warmer) than normal (6) 7 % Colder (warmer) than prior period (12) 10
18 21 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS Net Income The Corporation's 1995 first quarter net income was $128.8 million, or $2.55 per share, down $5.8 million, or $0.11 per share from last year. After adjusting for unusual items, unrecorded interest and bankruptcy related costs net income was $95.7 million compared to $102.2 million in the same period last year. The decrease primarily reflects lower prices for natural gas production and the impact of warmer first quarter weather. Partially offsetting these decreases was the effect of improved rates for the distribution segment. The bankruptcy related and unusual items are as follows: Bankruptcy Related and Unusual Items After-tax effect on Net Income (millions)
Three Months Ended March 31 ------------------ 1995 1994 ------ ------ - - Estimated interest costs not recorded on prepetition debt 39.9 31.9 - - Professional fees and related expenses (6.8) (7.0) - - Reserve adjustment for IRS settlement - 10.3 - - Change in accounting for postemployment benefits - (5.6) - - Impact of transmission rate items - 2.8 ------- ------ Total adjustments 33.1 32.4 ======= ======
Revenues For the first three months of 1995 operating revenues of $1,051.9 million, decreased $107 million from the first three months of 1994, principally reflecting lower sales for the distribution segment attributable to warmer weather together with lower revenues for transportation services. Improved rates for the distribution segment partially offset the effect of lower sales volumes on gas sales revenues. In 1994, transportation revenue was higher due to the recovery of certain transportation costs that were offset in operating expense. In addition, $7.3 million of non-affiliate revenues were recorded last year because the cost of gas from an earlier period met certain competitive tests. The other revenue increased primarily reflecting $5.4 million for Ozark pipeline partnership exit fees recorded by Columbia Gulf Transmission Company (Columbia Gulf). (Beginning with this report, 1995 and 1994 results reflect equity earnings of unconsolidated affiliates in operating income.) Expenses Operating expenses of $852 million were down $84.7 million from last year due to reduced natural gas purchases resulting from lower sales requirements and decreased operation and maintenance expense primarily for lower transportation expense mentioned above. The increase in depreciation and depletion expense was primarily attributable to $5.9 million higher depletion expense, of which $8.1 million was attributable to a higher depletion rate during the current period due to lower natural gas prices, partially offset by the effect of lower depletable revenues. Increased plant in service led to a small increase in depreciation expense of $3 million. 19 22 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) Other Income (Deductions) Other Income (Deductions) improved income $11.2 million, an increase of $3.8 million over 1994. Income in both periods benefited from not accruing interest expense on prepetition debt obligations by $64 million in 1995 and $54 million last year. (Since the July 31, 1991 bankruptcy filing, the estimated effect of not accruing interest expense on prepetition debt obligations totals approximately $792 million. As explained in the Corporation's plan of reorganization, the ultimate payout to creditors will depend on, among other things, obtaining necessary approvals and upon the acceptance of the plan of reorganization by a requisite number and amount of creditors.) The $19.4 million improvement in interest income and other, net included higher interest earned on temporary cash investments partially offset by a decrease of $2.9 million recorded by Columbia Gulf to reflect a loss on the sale of its investment in the Ozark pipeline partnership. The prior period decrease was largely due to recording $8.7 million to reflect a FERC order that disallowed an earlier carrying charge adjustment associated with gas exchange activity. (This issue was reversed in the second quarter of 1994 as a result of a FERC rehearing order.) Also reducing interest income in 1994 was a $4 million adjustment for a FERC ruling regarding Order 94 that was offset by a reduction to interest expense for this same issue. Interest expense and related charges in the first quarter of this year reduced income $5.5 million compared to an income improvement of $16.8 million in the prior period. The 1994 improvement was primarily due to a reserve adjustment for lower interest costs for an IRS settlement. Increasing income in both periods was the net effect of reorganization items of $10.7 million and $4 million in 1995 and 1994, respectively, reflecting interest earned on accumulated cash of approximately $18.9 million in 1995 and $12.2 million in 1994, partially offset by professional fees and related expenses which were approximately $8.2 million for both periods. Liquidity and Capital Resources Cash flow from operations for the first quarter of 1995 was $446.6 million, essentially unchanged from the same period last year. The Corporation maintains a debtor-in-possession facility (DIP Facility) with Chemical Bank (Chemical) solely for the issuance of letters of credit of up to $25 million. The DIP Facility will expire on December 31, 1995, unless extended by mutual agreement between the Corporation and Chemical. As of April 30, 1995, $13.7 million of letters of credit were outstanding under the DIP Facility. The Corporation's liquidity needs are being satisfied by internally generated funds. As of April 30, 1995, the Corporation and its subsidiaries, excluding Columbia Transmission, had $524.8 million invested in money market instruments. 20 23 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CONSOLIDATED RESULTS (CONTINUED) The liquidity needs of Columbia Transmission are being satisfied by internally generated funds. As of April 30, 1995, Columbia Transmission had $1,241.4 million invested in money market instruments through a wholly owned subsidiary, Columbia Transmission Investment Corporation. Columbia Transmission also maintains a DIP Facility with Chemical solely for the issuance of letters of credit of up to $25 million. The expiration date of Columbia Transmission's DIP Facility is December 31, 1995, unless extended by mutual agreement between Columbia Transmission and Chemical. As of April 30, 1995, the balance of outstanding letters of credit under Columbia Transmission's DIP Facility was $1.8 million. 21 24 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS
Three Months Ended March 31 --------------------------------- 1995 1994 -------- --------- (millions) OPERATING REVENUES Transportation revenues $ 180.4 $ 236.5 Storage revenues 29.5 35.8 Other revenues 18.5 0.7 -------- -------- Total Operating Revenues 228.4 273.0 -------- -------- OPERATING EXPENSES Operation and maintenance 112.1 144.8 Depreciation 25.7 25.8 Other taxes 14.0 15.4 -------- -------- Total Operating Expenses 151.8 186.0 -------- -------- OPERATING INCOME $ 76.6 $ 87.0 ======== ======== THROUGHPUT (BCF) Transportation Columbia Transmission Market Area 401.2 417.5 Columbia Gulf Main-line 154.9 173.4 Short-haul 183.4 194.1 Intrasegment eliminations (284.0) (282.9) -------- -------- Total Throughput 455.5 502.1 ======== ========
22 25 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Plan of Reorganization On April 17, 1995, Columbia Transmission, with the Corporation as co-sponsor, filed with the Bankruptcy Court an amended plan of reorganization and disclosure statement. The provisions of the amended plan of reorganization reflect the results of extensive negotiations with creditors and other interested parties and are supported by claimants representing a significant portion of filed claims (see Note 2 for additional information). Customer Settlement On April 17, 1995, Columbia Transmission and Columbia Gulf Transmission Company (Columbia Gulf) filed a settlement (Settlement) encompassing virtually all outstanding regulatory proceedings before the FERC. Generally, the Settlement defines Columbia Transmission's and Columbia Gulf's refund obligations to their customers in pending regulatory proceedings, and determines Columbia Transmission's ability to recover costs associated with the restructuring of its services under FERC Order No. 636 (Order 636), including certain costs relating to issues pending in the bankruptcy proceedings. The Settlement contemplates payment of an estimated $170 million in refunds, including post-petition amounts, to Columbia Transmission's customers. In addition, an estimated $200 million will be collected from Columbia Transmission's customers, depending upon when the Settlement is implemented. Refunds to be paid under the Settlement resolve: (1) all issues involving the flowthrough of customer refunds involved in the bankruptcy reorganization; (2) all issues surrounding Columbia Transmission's ability to flowthrough upstream Order No. 528 amounts, including settlement of the Baltimore Gas & Electric vs. FERC litigation; and (3) implementation of a rate case settlement of Columbia Transmission and Columbia Gulf (Docket Nos. RP90-108 and RP90-107, respectively). As discussed above, the Settlement was incorporated in Columbia Transmission's amended plan of reorganization and its effectiveness is contingent upon approval of the amended plan of reorganization by the Bankruptcy Court. On April 21, 1995, the FERC issued a notice stating that comments to the Settlement are to be filed by May 17, 1995, with reply comments to be filed by May 31, 1995. Columbia Gulf Transmission Company's Rate Case As reported in the 1994 Form 10-K, Columbia Gulf previously filed a general rate case with the FERC which went into effect, subject to refund, on November 1, 1994. The rate case reflects the termination of its long-standing transportation contract with Columbia Transmission and seeks to recover increased costs since the last rate case. Settlement discussions with the FERC and interested parties have resulted in a tentative settlement that was filed with the FERC on May 1, 1995. Columbia Gulf expects to receive FERC approval later this year. 23 26 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Environmental Matters A study previously undertaken for Columbia Transmission which quantified the scope of remediation activities to be undertaken in future years is being reviewed by an independent consultant in light of an EPA order and additional information accumulated during 1994. The results of this study are not expected to be available until mid-1995. Upstream Pipeline Contracts Columbia Transmission has transportation contracts with certain pipeline companies that historically have been used to deliver gas to Columbia Transmission. Columbia Transmission has settled claims filed by some of these pipelines in the bankruptcy proceedings. These settlements provide for the assumption of certain contracts, the termination of certain other contracts that are no longer necessary for Columbia Transmission's operations, or the substantial reduction of the transportation contracts. As a result, approximately $463 million of claims filed by the pipelines against Columbia Transmission will be withdrawn when all settlements receive Bankruptcy Court and regulatory approvals. These settlements include projected exit fee payments of approximately $102 million by Columbia Transmission including amounts already paid to certain pipelines through March 1995. The projected exit fee payments will continue to decrease as additional monthly demand payments are made until the effective dates of the respective exit fee settlements. During the first quarter of 1995, Columbia Transmission reached a settlement agreement with Overthrust Pipeline Company which among other things provides for an exit fee payment of approximately $5 million (based on a March 1995 payment date). The settlement was filed with both the Bankruptcy Court and FERC in March 1995. The Bankruptcy Court approved the settlement on April 8, 1995, and it is still awaiting final FERC approval. The payments are conditioned upon Columbia Transmission's recovery of the exit fees through rates as stranded costs associated with its restructuring under Order 636. Under the customer settlement discussed above, Columbia Transmission will be permitted to recover a significant portion of upstream pipeline stranded costs. On March 1, 1995, Columbia Transmission made its annual filing to recover costs it continues to incur under transportation contracts with upstream pipelines. The filing reflected those costs Columbia Transmission projected it would incur under contracts it continues to utilize in system operations, costs associated with contracts for which exit fees had not yet been implemented, and continued amortization of exit fees paid to an upstream pipeline. In addition, the filing proposed to implement a surcharge under the tracking provision to recover an undercollection of transportation costs paid during 1994. This underrecovery was caused, in part, by amounts paid by Columbia Transmission to Columbia Gulf under the provisions of the cost of service contract between the two companies that terminated on November 1, 1994. Various parties protested Columbia Transmission's filing, and challenged among other things Columbia Transmission's ability to recover the costs attributable to Columbia Gulf. On March 31, 1995, FERC accepted the filing, subject to refund and to Columbia Transmission's filing of additional information regarding the payments made to Columbia Gulf. Under the customer settlement discussed above, 24 27 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) customers and others retain the right to challenge Columbia Transmission's recovery of approximately $39 million of Columbia Gulf costs it incurred between November 1, 1993, and October 31, 1994. Management believes that the resolution of this issue will not have a material impact on the consolidated financial statements. Marketing Initiatives In late 1994, Columbia Transmission announced a proposal to expand its pipeline and storage capacity to serve increased customer requirements in its market area. Substantial interest was expressed for additional firm transportation and storage services in an open season held in early 1995. In mid-April initial agreements for various levels of increased service were forwarded to prospective market expansion customers, many of which are current customers of Columbia Transmission. Responses were received on May 1, 1995. While it is not yet certain what the ultimate level of increased services will be under the proposed expansion, levels requested exceed 500,000 Mcf per day phased in over a three-year period beginning in 1997. Upon finalization of agreements, Columbia Transmission will make the necessary filings with FERC to construct the facilities required to provide the expanded services. It is also anticipated that authorization to proceed with the project will be requested from the Bankruptcy Court in mid-1995. Partnership Issues During 1994, various pipeline shippers, including Columbia Transmission, entered into negotiations and subsequently reached separate agreements with all three of Columbia Gulf's pipeline partnerships which, among other things, provide for exit fee payments to substantially reduce the cost of or provide for the release from transportation contracts. Of the three agreements, the Trailblazer settlement with Columbia Transmission has received both Bankruptcy Court and FERC (subject to rehearing) approval. The Ozark and Overthrust settlements with Columbia Transmission have been approved by the Bankruptcy Court and are now pending FERC approval. Columbia Gulf's investment in the remaining partnerships as of March 31, 1995, amounted to $26.3 million, net of valuation reserves and before related deferred taxes. On April 28, 1995, Columbia Gulf's partnership investment in Ozark was sold and did not have a material impact on the consolidated financial statements. Volumes For the first quarter of 1995, throughput of 455.5 Bcf, decreased 46.6 Bcf from the same period last year. The lower throughput was largely due to warmer weather which reduced customer demand for transportation services to receive gas from storage inventory and other gas supply to serve their markets. Since a substantial portion of the transmission companies' costs are now recovered through monthly demand charges, lower throughput for the current period had little effect on net revenues. 25 28 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) TRANSMISSION OPERATIONS (CONTINUED) Operating Revenues Total operating revenues for the first quarter of 1995 were $228.4 million, down $44.6 million from 1994. Of this decrease, $32 million is for the recovery of certain transportation costs and is fully offset by a corresponding reduction to operating expenses thereby having no effect on operating income. After adjusting for this issue, operating revenues decreased $12.6 million primarily due to revenues of $12.9 million which Columbia Transmission was allowed to collect in 1994 because its average cost of gas in a prior period met certain tests prescribed in a 1985 customer settlement. Improving operating revenues by $5.4 million was Columbia Gulf's portion of the Ozark partnership's exit fee receivable from Columbia Transmission and another pipeline. Operating Income Operating income of $76.6 million, decreased $10.4 million from the same period during 1994 primarily due to the $44.6 million change in total revenues as discussed above, partially offset by $32 million for reduced transportation costs, also mentioned above. 26 29 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS
Three Months Ended March 31 ----------------------------------- 1995 1994 -------- --------- (millions) NET REVENUES Sales revenues $ 767.1 $ 834.8 Less: Cost of gas sold 472.5 562.7 -------- -------- Net Sales Revenues 294.6 272.1 -------- -------- Transportation revenues 33.6 26.6 Less: Associated gas costs 2.2 1.9 -------- -------- Net Transportation Revenues 31.4 24.7 -------- -------- Net Revenue 326.0 296.8 -------- -------- OPERATING EXPENSES Operation and maintenance 122.1 103.6 Depreciation 30.9 28.3 Other taxes 56.8 52.5 -------- -------- Total Operating Expenses 209.8 184.4 -------- -------- OPERATING INCOME $ 116.2 $ 112.4 ======== ======== THROUGHPUT (BCF) Sales Residential 90.4 98.1 Commercial 36.6 42.7 Industrial and other 6.1 4.9 ------- ------- Total Sales 133.1 145.7 Transportation 76.8 62.7 -------- -------- Total Throughput 209.9 208.4 ======== ======== SOURCES OF GAS FOR THROUGHPUT (BCF) Sources of Gas Sold Spot Market* 46.6 62.1 Producers 19.8 20.6 Storage withdrawals 69.0 73.0 Other (2.3) (10.0) -------- -------- Total Sources of Gas Sold 133.1 145.7 Transportation received for delivery to customers 76.8 62.7 -------- -------- Total Sources 209.9 208.4 ======== ========
*Purchase contracts of less than one year 27 30 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) Market Conditions Weather in the distribution subsidiaries' (Distribution) service area for the first quarter was six percent warmer than normal and 12 percent warmer than last year. The 1994-95 winter heating season, November through March, was 11 percent warmer than normal and nearly 16 percent warmer than last year. Transportation deliveries remain high reflecting relatively robust economic conditions and low spot market gas prices. Distribution continues to develop new strategic marketing initiatives that involve studies to more clearly define customer groups and service needs. The project, which will run until June 1995, is slated to examine all portions of both existing and emerging markets. One aspect of the market assessment is reviewing opportunities available in the natural gas vehicle (NGV) market and testing whether a more targeted marketing approach, in selected locations, is more appropriate. The conclusions of these comprehensive marketing studies may result in modifying Distribution's marketing strategies and support structures. Columbia Gas of Ohio, Inc. (Columbia of Ohio) recently initiated a new commercial water heater financing program designed to assist food service operators in purchasing supplemental gas water heaters, to increase the temperature of water used in sanitizing dishware. This program will facilitate Columbia of Ohio's entry into a new market that has predominately been served by electricity. Distribution plans to expand this program to its other service areas later in 1995 and 1996. Distribution continues to aggressively support economic development activities in its operating areas as a strategic marketing tool. The strong trend in industrial economic development is expected to continue in much of Distribution's service areas throughout 1995. Integrated Resource Planning During the first quarter, the Virginia State Corporation Commission approved a two-year pilot program to promote the installation of high efficiency natural gas equipment in several of Commonwealth Gas Services, Inc.'s (Commonwealth Services) operating areas. The program will offer incentives toward the purchase of natural gas equipment, including furnaces, water heaters and the York Triathlon, the first commercial natural gas fueled year-round climate control system. The implementation of the program will be a significant step in the development of a comprehensive approach to integrated resource planning in Virginia. Regulatory Matters Columbia Gas of Maryland, Inc. (Columbia of Maryland) filed a rate case in March 1995, requesting a $1.9 million increase in base rates, effective October 1995. The filing was made utilizing a fully projected test period which permits a closer matching of revenues with expenses. As an alternative, Columbia of Maryland proposed that the rate increase be based on a partially 28 31 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) projected test year with the rates phased-in on a two step basis, October 1995 and April 1996. In addition, this alternative proposal would stipulate that no base rate filings will be effective before 1997. Columbia of Maryland is currently assisting the regulatory commission's staff and other interested parties to establish a framework for future regulation of gas services in the Order 636 environment. The approach under consideration is intended to stimulate more competition by providing all gas consumers with a broader array of service choices, while addressing fundamental issues such as the company's obligation to serve, gas supply management incentives, marketing incentives, and more flexible tariff provisions. It is a balanced approach that provides gas supply choices to customers while also providing an opportunity to add value for shareholders through new services and performance-based incentives. This forum will provide Columbia of Maryland an opportunity to assist in changing regulations that will enhance its marketing position. Commonwealth Services is expected to file a general rate case in May 1995, requesting an increase in base rates of approximately $15 million, to be effective in October 1995. The filing will likely incorporate specific regulatory initiatives related to gas supply issues, including capacity release and off-system sales. Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania) currently plans to file a base rate case in September 1995 with rates effective in June 1996. It is expected that a number of regulatory initiatives will be pursued in the filing, including a provision for weather normalization and a fully projected test year. Columbia of Pennsylvania has held a series of meetings with interested parties to resolve several issues prior to filing the rate case and submitted documents supporting estimated cost of service levels. Meetings with these interests are expected to continue throughout the summer. On March 31, 1995, Columbia of Pennsylvania made its annual gas cost recovery filing. In addition to a continuation of the gas cost incentive plan approved a year ago, Columbia of Pennsylvania is requesting a number of performance based mechanisms, including a sharing of capacity release revenues, a gas futures program and an off-system sales program. If approved, adjusted rates will go into effect in October 1995. Volumes Throughput for the three months ended March 31, 1995, of 209.9 Bcf was essentially unchanged due to lower sales being offset by higher transportation. The effect of the mild first quarter weather was tempered by increased overall demand for transportation services due primarily to relatively strong economic conditions throughout the service area, reduced spot market prices for natural gas, as well as increased service to the low-margin power generation markets. 29 32 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISTRIBUTION OPERATIONS (CONTINUED) Net Revenues First quarter net revenues of $326 million, increased $29.2 million over 1994. The increase was due largely to approximately $36 million for higher rates in effect during the current period and $7.8 million for increased transportation deliveries. Additionally, the higher revenues included $10.3 million for revenue surcharges that increased both revenues and operating expenses and therefore had no effect on operating income. These improvements were mitigated by a $24 million reduction in net revenue for the effect of lower sales volumes due to the warmer weather. Operating Income Operating income for the first three months of 1995 of $116.2 million reflected a small increase of $3.8 million over the same period last year. Higher net revenues were largely offset by increased operating expense. Included in the higher operating expense was the effect of the revenue surcharges mentioned above and previously capitalized benefit costs that are now expensed as they are included in rates. After adjusting for the effect of these issues operating expense was $10.9 million higher due to general increases in operation and maintenance expense as well as $6.9 million higher depreciation expense and property taxes attributable to additional plant investments. 30 33 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS
Three Months Ended March 31 ---------------------------------- 1995 1994 -------- --------- (millions) OPERATING REVENUES Gas $ 36.7 $ 41.9 Oil and liquids 11.9 12.0 -------- -------- Total Operating Revenues 48.6 53.9 -------- -------- OPERATING EXPENSES Operation and maintenance 21.0 19.8 Depreciation and depletion 24.9 19.0 Other taxes 2.8 3.0 -------- -------- Total Operating Expenses 48.7 41.8 -------- -------- OPERATING INCOME (LOSS) $ (0.1) $ 12.1 ======== ======== GAS PRODUCTION STATISTICS Production (Bcf) 17.7 16.6 Average Price ($/Mcf) 2.02 2.46 OIL AND LIQUIDS PRODUCTION STATISTICS Production (000Bbls) 742 880 Average Price ($/Bbl) 16.10 13.60
31 34 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS (CONTINUED) Drilling Activities During the first quarter of 1995, Columbia Gas Development Corporation (Columbia Development) began drilling on 21 (gross) wells in the Southwest. Of these, nine were productive including eight in the Austin Chalk formation. Of the remaining 12 wells, seven were still underway at the end of the quarter, three were shut-in pending evaluation and tests and two have been plugged and abandoned. Notable success continues with the Austin Chalk program as all wells drilled thus far in 1995 have been successful. Columbia Natural Resources, Inc. participated in the drilling of 13 (gross) Appalachian area development wells during the first quarter of 1995, with a success rate of 85 percent representing 11 wells that were successfully completed. Full Cost Method of Accounting Under the full cost method of accounting for oil and gas properties, all productive and unproductive costs directly identified with acquisition, exploration, and development activities are capitalized in a countrywide cost center. At March 31, 1995, the capitalized costs exceeded the sum of the estimated present value of future oil and gas revenues. However, since that date, oil and gas prices recovered such that the present value of future revenues exceeded the capitalized costs and, therefore, no charge to earnings was required. Volumes Gas production increased 1.1 Bcf for the three months ended March 31, 1995, reflecting new production offshore while oil and natural gas liquids production decreased 138,000 barrels due to normal declines in onshore wells. Revenues The favorable effect of increased gas production on gas revenues was more than offset by lower gas prices as 1995 average natural gas prices of $2.02 per Mcf were down 18 percent from the first quarter 1994 average price of $2.46 per Mcf. Included in the gas revenues was the favorable impact of hedging activities undertaken to reduce the risk of market fluctuations associated with the price of oil and gas production. These activities provided $4 million of revenues during the first quarter of 1995 and mitigated the effect of lower gas prices. Revenues from oil and liquids production were down $100,000 due to reduced production only partially offset by the improvement in average prices for oil and liquids in 1995 to $16.10 per barrel, up $2.50 per barrel. 32 35 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OIL AND GAS OPERATIONS (CONTINUED) Operating Income For the first quarter of 1995, the oil and gas segment had a small operating loss of $100,000 compared to operating income of $12.1 million last year. The decrease reflects lower operating revenues of $5.3 million and higher operating expense of $6.9 million due primarily to an increased depletion rate. 33 36 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER ENERGY OPERATIONS
Three Months Ended March 31 ---------------------------------- 1995 1994 -------- --------- (millions) NET REVENUES Gas marketing revenues $ 58.7 $ 67.9 Less: Products purchased 56.9 66.1 -------- -------- Net Gas Marketing Revenues 1.8 1.8 -------- -------- Propane revenues 25.5 27.3 Less: Products purchased 14.1 13.3 -------- -------- Net Propane Revenues 11.4 14.0 -------- -------- Other Revenues 19.8 21.2 -------- -------- Net Revenues 33.0 37.0 -------- -------- OPERATING EXPENSES Operation and maintenance 21.4 20.8 Depreciation and depletion 2.1 1.8 Other taxes 1.6 1.6 -------- -------- Total Operating Expenses 25.1 24.2 -------- -------- OPERATING INCOME $ 7.9 $ 12.8 ======== ======== PROPANE SALES (MILLIONS OF GALLONS) Retail 28.2 21.5 Wholesale and Other 1.1 8.4 -------- -------- Total Propane Sales 29.3 29.9 ======== ========
34 37 PART 1 - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER ENERGY OPERATIONS (CONTINUED) Net Revenues Net revenues for the three months ended March 31, 1995, declined from the same period last year primarily due to a decrease in net revenues from propane operations of $2.6 million as the propane profit margin decreased and throughput declined due to the milder weather this year. Net revenues for gas marketing activities were unchanged from a year ago while other revenues declined by $1.4 million largely due to reduced revenues for services provided to affiliated companies partially offset by higher revenues for cogeneration activities. Operating Income Operating income for the first quarter of 1995 was $7.9 million, down $4.9 million from last year. The decrease reflects the $4 million decline in net revenues and a small increase of $900,000 in operating expenses. 35 38 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS No new matters have arisen and there have been no material developments in any legal proceedings reported in Registrants Annual Report on Form 10-K for the year ended December 31, 1994, except as follows: I. Bankruptcy Matters On April 17, 1995 plans of reorganization were filed in the United States Bankruptcy Court for the District of Delaware for both the Corporation and Columbia Transmission. See the Management Discussion and Analysis for further details. A. Matters in the United States Bankruptcy Court for the District of Delaware 1. Motion to Fix Procedures to Establish Columbia Transmission's Liability to Third Party Beneficiary Investor Complaints. This matter involves investors in production companies that claim to be third party beneficiaries of the contracts between Columbia Transmission and the production companies. They filed a motion seeking to have their status as third party beneficiaries recognized and seeking to have their claims against Columbia Transmission liquidated separate from the Estimation Procedure established to deal with producer claims. In February the New Jersey State Court issued an order finding that plaintiffs were not entitled to third party beneficiary status. On March 23, 1995, Plaintiffs filed a notice of appeal in the New Jersey Superior Court, Appellate Division. B. Appeals to the United States Court of Appeals for the Third Circuit 1. Enterprise Energy Corporation, et al., v. United States of America, on behalf of its Internal Revenue Service, No. 93-7409. This matter involves an appeal of the Bankruptcy Court order denying Columbia Transmission's motion to require assumption or rejection of the executory settlement contract. On March 10, 1995, the Appeals Court issued an order affirming the District Court's decision affirming the Bankruptcy Court's order denying Columbia Transmission's motion to assume the obligations of the Ohio order dated June 6, 1991. C. Appeal to the United States Supreme Court 1. In re The Columbia Gas System, Inc. et al.; appeal sub nom. West Virginia Department of Tax and Revenue v. Internal Revenue Service, No. 94-1304 (U.S. S. Ct). This matter involved a decision of the United States Court of Appeals for the Third Circuit upholding the Memorandum Opinion and Order of the U.S. District Court (Delaware) affirming the Bankruptcy Court's ruling that the property taxes centrally assessed by West Virginia as public service business taxes for the "1992 tax year" were incurred by Columbia Transmission prepetition and denying Columbia Transmission's motion for authorization to pay the taxes. On April 24, 1995, the United States Supreme Court denied certiorari. 36 39 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS II. Regulatory Matters A. Take-or-Pay and Contract Reformation Costs Billed by Pipeline Suppliers 1. Columbia Gas Transmission Corp., FERC Dkt. No. RP91-41, reversed and remanded Baltimore Gas & Electric Co. v. FERC, 26 F.3rd 1129 (D.C. Cir 1994). On February 24, 1995, the Federal Energy Regulatory Commission (FERC) granted Columbia Transmission's motion for an extension of time for filing the evidentiary submission required by the December 1, 1994 order. The new filing date is May 15, 1995. On April 17, 1995, a settlement agreement was filed with FERC in Docket No. GP94-2, et al., which would resolve this proceeding and other regulatory issues raised by Columbia Transmission's customers in the bankruptcy proceedings. 2. Columbia Gas Transmission Corp., RP95-231. On April 12, 1995, Columbia Transmission filed to flow through additional Order No. 500/528 amounts and to reallocate certain costs previously collected. On or about April 17, 1995, various protests were filed. The recovery of these costs is resolved by the April 17, 1995 settlement filed in Docket No. GP94-2, et al. B. Direct Billing of Past Period Production and Production-Related Costs 1. Columbia Gas Transmission Corp. v. FERC., C.A. No. 94-1727 (U.S. Ct. of App., D.C. Circuit). The appeals of the Texas Eastern Transmission Corporation, Panhandle Eastern Corporation and Trunkline Gas Company orders requiring refund of principal accounts paid by Columbia Transmission without interest have been consolidated. Motions to govern the appellate procedures are currently pending before the Court. On May 1, 1995, the FERC issued its order on rehearing regarding Transcontinential Gas Pipe Line Company (Transco) Order 94 costs, which upheld its earlier decision to require refund of the principal paid by Columbia Transmission, but without interest. The FERC also required Transco to refund interest paid by Columbia Transmission, to pay interest from March 15, 1995, and to make the refund within 30 days. C. Pipeline Exit Fees 1. Columbia Gas Transmission Corp., Docket Nos. RP94-315, 316, 317, 318, RP95-98 and RP95-204. On February 10, 1995, the FERC approved Columbia Transmission's exit fee settlements with Wyoming Interstate Company Ltd. (WIC), Trailblazer Pipeline Company (Trailblazer), Natural Gas Pipeline Co. of America (NGPL), together with associated abandonment applications. On or about March 13, 1995, various parties filed requests seeking rehearing of the FERC's February 10, 1995 order approving the WIC, Trailblazer and NGPL exit fee settlements, which are pending before the FERC. 37 40 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS On March 14, 1995, Columbia Transmission filed a petition in Docket No. RP95-204 requesting that the FERC issue an order approving a stipulation entered into by Columbia Transmission and Overthrust on March 3, 1995. The filing is pending before the FERC. On February 27, 1995, Indicated Producers, Cincinnati Gas & Electric, and UGI Utilities, Inc. filed requests for rehearing in the Columbia Transmission-Transco exit fee proceeding. The FERC issued a notice of denial of rehearing by operation of law on March 29, 1995 of these requests for rehearing. On December 20, 1994, Columbia Transmission filed a petition in Docket No. RP95-98 requesting that the FERC issue an order approving a stipulation entered into by Columbia Transmission and Ozark Gas Pipeline on December 9, 1994. The filing is pending before the FERC. Pending FERC approval recovery of all of the exit fees will be resolved by the April 17, 1995 settlement filed in Docket No. GP94-2, et al. D. Transportation Costs Recovery Adjustment (TCRA) 1. On March 1, 1995, Columbia Transmission filed its semi-annual TCRA filing in Docket No. RP95-196 to recover operational and stranded Account No. 858 costs (including exit fees) paid to upstream pipelines. Numerous protests to the filing were made, particularly with regard to Columbia Transmission's recovery of certain costs paid to Columbia Gulf. On March 30, 1995, the FERC issued an order accepting the filing, subject to refund and subject to Columbia Transmission filing certain additional information. Columbia Transmission made its compliance filing on April 13, 1995 on or about April 26, 1995, numerous protests and a complaint were filed regarding Columbia Transmission's recovery of the costs paid to Columbia Gulf. These protests and the complaint are pending before the FERC. III. Environmental A. Columbia Gas Transmission Corp. v. Aetna Casualty & Surety Co., et al., C.A. No. 94-C-454 (Kanawha (W.Va) Cir. Ct. filed March 14, 1994). In this matter Columbia Transmission is seeking coverage from various insurers and under various insurance policies for environmental cleanup costs. Columbia Transmission prepared responses to discovery requests and submitted them to the insurers in February 1995. B. Columbia Gulf Transmission Company v. Aetna Casualty & Surety Co., et al., C.A. No. 95-C-177 (Kanawha (W.Va) Cir. Ct. filed January 19, 1995). In this matter Columbia Transmission is seeking coverage from various insurers and under various insurance policies for environmental cleanup costs. The time to answer the complaint has been extended to June 15, 1995 for all defendants. 38 41 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS C. In re Marcor Environmental, Inc. Columbia Gas Transmission Corporation, No. CAA-III-055 (filed September 30, 1994). This matter involves alleged violations of the Clean Air Act Amendments of 1990 arising from Marcor's removal of asbestos at Lanham Compressor Station at Lanham, West Virginia in 1993. On April 28, 1995, the Environmental Protection Agency issued an order assigning a Presiding Administrative Law Judge and directing counsel to file a status report or settlement negotiations by August 1, 1995. If a settlement is not reached by August 15, 1995, counsel has been directed to prepare for trial. 39 42 PART II - OTHER INFORMATION Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities As of March 31, 1995, there was $1,349.8 million of the Corporation's senior securities in default as a result of the Chapter 11 filing. In addition, at the end of the 1995 first quarter $488.9 million of short-term indebtedness was also in default for nonpayment. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of The Columbia Gas System, Inc. was held on April 28, 1995. Stockholders of record at the close of business on February 28, 1995, were entitled to notice of, and to vote at, the meeting. On the record date, the Corporation had outstanding 50,563,335 shares of common stock, each of which was entitled to one vote at the meeting. The election of five directors each to serve a term of three years and the election of Arthur Andersen LLP as independent public accountants were voted upon and approved by the requisite number of shares present in person or by proxy at the meeting. The proposed Amendment of the Certificate of Incorporation was voted upon and not approved by the requisite number of shares present in person or by proxy at the meeting. The following is a summary of the results of that meeting: 1. Election of Directors
Name of Director Votes For Votes Withheld - ---------------- --------- -------------- Richard F. Albosta 37,069,187 2,352,064 Malcolm Jozoff 37,158,181 2,351,132 George P. MacNichol, III 36,998,609 2,362,312 Gerald E. Mayo 37,140,131 2,358,065 Douglas E. Olesen 37,115,364 2,360,487
2. Election of Arthur Andersen LLP as independent public accountants:
Votes For Votes Against Abstain --------- ------------- ------- 38,359,526 726,502 133,983
3. The amendment of Articles Fourth and Eighth of the Certificate of Incorporation to: i) eliminate certain covenants and provisions governing the Corporation's authorized preferred stock and provide that such terms be established by the Board of Directors when preferred stock is issued, and 40 43 PART II - OTHER INFORMATION (CONTINUED) ii) change the par value of such preferred stock from $50 to $10 per share in order to permit issuance of such preferred stock pursuant to and in connection with a new shareholder rights plan.
Votes For Votes Against Abstain --------- ------------- ------- 22,243,301 12,259,658 500,796
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K
Exhibit Number ------- 10-BC Employment Agreement between Oliver G. Richard, III and The Columbia Gas System, Inc. 11 Statement re Computation of Per Share Earnings 12 Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 27 Financial Data Schedule
Reports on Form 8-K The following reports on Form 8-K were not previously reported.
Financial Item Statements Reported Included Date Filed -------- ---------- -------------- 5 No March 16, 1995 5 No April 17, 1995 5 No April 18, 1995 5 No April 20, 1995 5 No May 1, 1995
41 44 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Columbia Gas System, Inc. ----------------------------------- (Registrant) Date: May 11, 1995 By: /s/ Richard E. Lowe ---------------------------------- R. E. Lowe Vice President, Controller and Chief Accounting Officer 42 45 EXHIBIT INDEX Exhibit Number ------- 10-BC Employment Agreement between Oliver G. Richard, III and The Columbia Gas System, Inc. 11 Statement re Computation of Per Share Earnings 12 Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 27 Financial Data Schedule EX-10.BC 2 EMPLOYEE AGREEMENT 1 EMPLOYMENT AGREEMENT THIS AGREEMENT, made this 15th day of March, 1995 between Oliver G. Richard, III (the "Executive") and The Columbia Gas System, Inc. (the "Company"). W I T N E S S E T H: WHEREAS, the Company wishes to secure the services of the Executive as its Chairman, Chief Executive Officer and President; and WHEREAS, the Executive is willing to serve as Chairman, Chief Executive Officer and President of the Company and to enter into this Agreement on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises herein contained, the Company and the Executive hereby agree as follows: 1. Employment. The Company shall employ the Executive, and the Executive shall serve, as Chief Executive Officer and President of the Company and as Chairman of the Board of Directors. As Chairman, Chief Executive Officer and President, all operations and businesses of the Company (and its subsidiaries) shall report to the Executive. No officer of the Company shall be superior in authority to the Executive, and the Executive will report directly and solely to, and be subject solely to the direction of, the Board of Directors of the Company. The Executive agrees to faithfully perform the duties of Chairman, Chief Executive Officer and President to the best of his ability and, except for vacations and periods of temporary illness, to devote his full time and attention to the Company's business. If elected, the Executive also agrees to serve as a director and/or officer of any subsidiary or affiliate of the Company. 2. Compensation. For all services to be rendered by the Executive under this Agreement, the Executive shall be paid compensation and receive benefits from the Company as follows: 2 2 (a) Base Salary. A base salary of $750,000 per annum, payable in accordance with the usual manner of payment of executive salaries by the Company. Any increases that the Executive would be entitled to shall be administered in the same manner as is applicable to all other senior executives of the Company as shall be approved by the Board of Directors. (b) Incentive Compensation Plan. The Executive shall participate in the Company's incentive compensation plan and all other incentive programs for officers of the Company as appropriate for his status as Chairman, Chief Executive Officer and President of the Company. (c) Grant of Contingent Stock. Upon the Executive's commencing employment with the Company, the Company shall transfer to the Executive 10,000 shares of the Company's Common Stock, in consideration of the Executive's resignation from employment with his present employer and his willingness to accept employment with the Company. In addition, the Company shall transfer to the Executive the following number of shares of the Company's Common Stock in the event the following contingencies are met: (i) 5,000 shares of Common Stock if the Executive is employed by the Company on December 31, 1995. (iii) 5,000 shares of Common Stock if the Executive is employed by the Company on December 31, 1996. (vi) 5,000 shares of Common Stock if the Executive is employed by the Company on December 31, 1997. (d) Grant of Stock Options. The Board of Directors of the Company shall grant to the Executive, under the Company's existing stock option plan or under such other stock option plan as shall be adopted by the Company and approved by the Shareholders of the Company, stock options for an aggregate of 100,000 shares of the Company's Common Stock. Such options shall be granted to the Executive 30 days after the Company's discharge from 3 3 bankruptcy with an exercise price equal to 100% of the fair market value of a share of Common Stock on such date. The stock option for 50,000 shares of Common Stock shall vest and become fully exercisable one year after the Company's discharge from bankruptcy, and the stock option for the remaining 50,000 shares of Common Stock shall vest and become fully exercisable two years after the Company's discharge from bankruptcy. Such options shall remain exercisable, as adjusted for stock splits, stock dividends and the like, for the period ending ten years after the grant of such options, provided that the Executive remains in the Company's employ. Notwithstanding the foregoing, in the event that the Executive's employment is terminated by the Company for any reason other than cause, for purposes of determining whether such stock options have become exercisable and whether they remain exercisable, the Executive shall be deemed to be employed by the Company for the period during which the Executive is receiving severance benefit payments set forth in paragraph (a)(i) of Section 8 of this Agreement and for a period of 90 days following the end of such payments. In the event that 30 days after the Company's discharge from bankruptcy the Company is unable to grant such options under its then existing stock option plan, either such stock options shall be granted as of such date under a stock option plan adopted by the Board of Directors and recommended for approval at the next Annual Meeting of Shareholders, or, at the time when such stock options can be granted, the Executive shall receive a cash payment equal to the excess, if any, of the aggregate exercise price of such stock options as granted, over the fair market value of 100,000 shares of the Company's Common Stock 30 days after the Company's discharge from bankruptcy. 3. Additional Benefits. Within 10 days after the signing of this Agreement by the Company and the Executive, the Company shall pay to the Executive the sum of (1) an amount equal to the spread on the portion of the stock options 4 4 granted to him by his present employer which would have become exercisable during calendar year 1995 had he remained employed by his present employer that he will forfeit upon termination of his employment with his present employer, such spread to be the spread on the date he terminates employment with his present employer, (2) $35,000 which represent's the amount of a restricted stock award that he will forfeit upon termination of employment with his present employer and (3) an amount equal to that portion of his interest in his present employer's Employees' Retirement Savings Plan and Employees' Stock Ownership Plan in which he would have been vested had he remained employed by his present employer until December 31, 1995 that he will forfeit upon termination of employment with his present employer. 4. Reimbursement of Expenses. The parties recognize that in the course of performing his duties under this Agreement the Executive will incur out-of-pocket expenses for the account of the Company. The Executive shall be entitled to reimbursement for all reasonable out-of-pocket expenses so incurred, upon submission to the Company of an adequate, written accounting. 5. Fringe Benefits. The Executive shall be eligible to participate fully in all fringe benefits provided by the Company for its employees in general, or for its executives, or for its present Chief Executive Officer, including, but not limited to, the Pension Restoration Plan, the Thrift Restoration Plan, any pension plan or profit sharing plan, maintained from time to time by the Company, and any life, accident, health, hospitalization or long-term disability insurance, maintained from time to time by the Company. The eligibility requirements under the Company's Sick Leave Plan shall be waived so that the Executive shall at all times be eligible to receive the maximum benefits under such plan, i.e., twenty-six weeks at full pay. The Executive shall also be entitled to receive benefits under the Company's Transfer Personnel Plan, except that the requirement under such plan that the Executive move his principal residence to the metropolitan area 5 5 in which the Company's headquarters is located within one year of employment by the Company is waived; provided, however, that within a reasonable period of time after the end of such one year period of time, the Executive shall have established a residence and otherwise have become part of the general community in the area of the Company's headquarters. Subject to any applicable legal limitations, the Executive shall continue to participate in any such fringe benefits, or be provided an equivalent amount of cash payments, during the period the Executive is receiving the payments set forth in paragraph (a)(i) of Section 8 of this Agreement (Severance Benefit). 6. Vacation. The Executive shall be entitled to four weeks of paid vacation for each consecutive 12-month period during his employment by the Company. 7. Termination. The Executive's employment shall be terminated upon the first to occur of the following: (a) The Executive's death. (b) The Executive becoming permanently disabled. Permanent disability shall mean physical or mental incapacity of a nature which prevents the Executive, in the sole judgment of the Board of Directors of the Company, from performing his duties under this Agreement. (c) The Executive's employment being terminated by the Company for any reason other than for cause. Termination for cause shall mean termination by action of the Board of Directors of the Company because of the willful failure of the Executive to perform his duties and obligations under this Agreement or gross negligence in the performance of his duties under this Agreement or the commission by the Executive of a felony. (d) The 90th day after the Executive notifies the Company in writing that he is terminating his employment as a result of the Board of Directors of the Company failing to initially elect him to the position of 6 6 Chairman of the Board of Directors by no later than May 1, 1995, or failing to reelect him to, or removing him from, the position of Chairman, President or Chief Executive Officer, or a material reduction in his duties and responsibilities in any such position. Any notice pursuant to this paragraph must be given in writing no later than 90 days after the Board of Directors fails to initially elect, reelect, or removes, the Executive or after the material reduction in the Executive's duties or responsibilities. (e) The 90th day after the Executive notifies the Company (or any successor to the Company) in writing that he is terminating his employment as a result of one of the following events: (i) The Shareholders of the Company approve an agreement for the sale or other disposition of all or substantially all of the assets of the Company. (ii) The acquisition by any person or group of associated persons of beneficial ownership of 25% or more of the voting securities of the Company (other than a pro forma transaction for a purpose such as changing the name or state of incorporation of the Company). (iii) During any period of 24 consecutive months, individuals who at the beginning of such period constitute the Board of Directors and any new directors whose election by the Board of Directors or nomination for election by the Company's Shareholders was approved by a vote of at least 2/3 of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors. Any notice pursuant to this paragraph must be given in writing no later than 180 days after such event 7 7 (f) The Executive notifies the Company that he is terminating his employment, or the Company notifies the Executive that the Executive's employment is being terminated, for any reason not set forth in the preceding paragraphs of this Section. 8. Termination Benefits. (a) If the Executive's employment is terminated for any of the reasons set forth in paragraph (c) or (d) of Section 7 (termination by the Company without cause or termination by the Executive for cause), the Company shall pay, or provide, to the Executive the following termination benefits: (i) Severance Benefit. A severance benefit in an amount equal to the sum of (A) the Executive's then annual base salary for a period of 24 months, or, if the Executive's employment is terminated before the first anniversary of the signing of this Agreement by the Company and the Executive, a period of 24 months plus the number of months and days between the date the Executive's employment is terminated and the first anniversary of the signing of this Agreement by the Company and the Executive, and (B) a reasonable estimate of the incentive compensation the Executive would have received, under the Company's incentive compensation plan, during such 24 month or longer period if his employment had not terminated. Such benefit shall be paid in monthly installments over such 24 month or longer period and shall commence within a reasonable period of time after such termination. (ii) Supplemental Pension Payments. A monthly supplemental pension payment equivalent to the greater of the amount determined in (A) or (B) below, less the amount determined in (C) below: (A) the monthly benefit calculated under the Retirement Income Plan for Columbia Gas System Companies (the "System Plan") 8 8 formula which applies to the Executive at the date he elects to begin to receive his retirement benefits under such plan, but determined (I) without regard to compensation or benefit limitations prescribed by federal law or regulation and (II) by including for all purposes under such plan the period of the Executive's employment service and the compensation which the Executive earned with his present employer. (B) the actuarial equivalent (as determined under the actuarial assumptions in the System Plan) of the monthly benefit calculated under the terms of the pension plan of the Executive's present employer, as in effect on the date of the Executive's termination of employment with his present employer, as of the date the Executive begins to receive his retirement benefits under the System Plan, but with such monthly benefit being determined (I) without regard to compensation or benefit limitations prescribed by federal law or regulation and (II) by including for all purposes of such calculation his compensation history with both of his present employer and the Company and his period of employment service with both of his present employer and the Company. (C) the total amount of the benefit, or its equivalent straight life annuity amount, that the Executive in fact receives from the pension plan of his present employer and under the Company's Retirement Program. The Executive shall be entitled to receive the supplement pension payments described in this subparagraph only if the Executive has satisfied the vesting requirements as set forth in the System Plan. If the Executive dies prior to the beginning of his retirement benefits 9 9 under the System Plan and the Executive's surviving spouse or other beneficiary is entitled to receive a death benefit under the System Plan, this subparagraph shall be interpreted in a manner so as to provide the appropriate supplemental death benefit to the Executive's surviving spouse or other beneficiary. (iii) New Employment Assistance. Reasonable assistance in obtaining new employment, including, but not limited to, the use of an office, a telephone, and normal secretarial and other office services. (iv) Payment of Accrued Vacation. Payment for all vacation periods earned and accrued to the date of such termination but not taken. Such payment shall be made in a single sum within a reasonable period of time after such termination. (b) If the period of employment is terminated for the reason set forth in paragraph (a) of Section 7 (death), the Executive's designated beneficiary shall receive, in addition to the death and other benefits provided under the Company's fringe benefit programs, the termination benefits set forth in paragraphs (a)(ii) and (iv) of this Section (Supplemental Pension Payments and Payment of Accrued Vacation). (c) If the period of employment is terminated for the reason set forth in paragraph (b) of Section 7 (disability), the Executive shall receive, in addition to the disability benefits provided under the Company's fringe benefit programs, the termination benefits set forth in paragraphs (a)(ii) and (iv) of this Section (Supplemental Pension Payments and Payment of Accrued Vacation). (d) If the period of employment is terminated for the reason set forth in paragraph (e) of Section 7 (change in control), the Executive shall receive the termination benefits set forth in paragraphs (a)(i), (ii), (iii) 10 10 and (iv) of this Section (Severance Benefit, Supplemental Pension Payments, New Employment Assistance and Payment of Accrued Vacation), except that the amount to be paid under paragraph (a)(i) (Severance Benefit) shall be equal to the sum of (A) the Executive's then annual base salary for a period of 36 months, and (B) a reasonable estimate of the incentive compensation the Executive would have received, under the Company's incentive compensation plan, during such 36 month period if his employment had not terminated. Such benefit shall be paid in monthly installments over such 36 month period and shall commence within a reasonable period of time after such termination. Notwithstanding the preceding to the contrary, in the event that any payments or benefits received or to be received by the Executive in connection with the Executive's termination of employment (whether under the terms of this Agreement or any other plan, arrangement or agreement with the Company or any of its subsidiaries) would subject the Executive to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then to the extent necessary to eliminate the imposition of such an excise tax (and after taking into account any reduction in payments or benefits under any such other plan, arrangement or agreement), the payments under paragraph (a)(i) of this Section 7 (Severance Benefit) shall be reduced. (e) If the period of employment is terminated for the reason set forth in paragraph (f) of Section 7 (any other reason), the Executive shall receive only the termination benefit set forth in paragraph (a)(iv) of this Section (Payment of Accrued Vacation). 9. Payment of Legal Fees and Expenses. The Company shall also pay to the Executive reasonable legal fees and expenses incurred in good faith by the Executive as a result of a termination which entitles the Executive to benefits under the Agreement (including, but not limited to, all such fees and expenses incurred in disputing any such termination or in seeking in good faith to obtain 11 11 or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made within 5 business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 10. Designation of Beneficiary. The Executive may designate a beneficiary or beneficiaries, who may be designated contingently or successively and who may be an entity other than a natural person, to receive any termination benefits which may become payable under Section 8 in the event of the Executive's death. Any such designation may, from time to time and at any time, be changed or canceled by the Executive without the consent of any beneficiary. Any such designation must be by written notice delivered to the Company. If the Executive designates more than one beneficiary, any payments to the Executive's beneficiaries shall be made in equal shares unless the Executive designates otherwise. 11. Withholding of Taxes. Any payments to the Executive, or to his designated beneficiary or beneficiaries, pursuant to the terms of this Agreement shall be reduced by such amounts as are required to be withheld with respect thereto under all present and future federal, state and local tax laws and regulations and other laws and regulations. 12. Notices. Any notice to be given to the Executive by the Company under this Agreement shall be deemed to have been given by the Company and received by the Executive if and when it is hand delivered to the Executive or it is sent by registered or certified mail to the Executive at 8 Warrenton Lane, Colts Neck, New Jersey 07722, or such other address as may be given by the Executive in writing to the Company. Any notice to be given to the Company by the Executive under this Agreement shall be deemed to have been given by the Executive 12 12 and received by the Company if and when it is hand delivered by the Executive to the Secretary of the Company or it is sent by registered or certified mail, addressed to the Board of Directors of the Company at 20 Montchainin Road, Wilmington, DE 19807, or such other address as may be given by the Company in writing to the Executive. 13. Full and Complete Agreement; Amendment. This Agreement and the letter dated March 15, 1995 confirming the Executive's employment constitute the full and complete understanding and agreement of the parties and supersede all prior understandings and agreements. This Agreement may be modified only by a written instrument executed by both parties. 14. Nonassignability. This Agreement and the rights and benefits hereunder are personal to the Company and are not assignable or transferrable, nor may the services to be performed hereunder be assigned by the Company to any person, firm or corporation; provided, however, that this Agreement and the rights and benefits hereunder may be assigned by the Company to any corporation acquiring all or substantially all of the assets of the Company or to any corporation into which the Company may be merged or consolidated, and this Agreement and the rights and benefits hereunder will automatically be deemed assigned to any such corporation. The Executive's rights and interest under this Agreement may not be assigned, pledged or encumbered by Executive. The provisions of this Agreement shall enure to the benefit of Executive's heirs, executors, administrators and successors in interest. 15. Construction. This Agreement shall be construed under the laws of the State of Delaware. 16. Execution in Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 13 13 17. Titles and Headings. Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first set forth above. THE COLUMBIA GAS SYSTEM, INC. (Corporate Seal) ATTEST: By: /s/ Wilson K. Cadman ------------------------------- Chairman of the Compensation Committee /s/ Teji S. Bindra - ----------------------- Assistant Secretary /s/ Oliver G. Richard, III ------------------------------- Oliver G. Richard, III EX-11 3 COLUMBIA GAS STATEMENTS RE COMPUTATION 1 Exhibit 11 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES Statements Re Computation of Per Share Earnings
Three Months Twelve Months Ended Ended March 31, March 31, -------------------- ------------------- 1995 1994 1995 1994 ------ ------ ------ ------ Computation for Statements of Consolidated - ------------------------------------------ Income ($ in millions) - ---------------------- Income before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . 128.8 140.2 234.8 152.6 Cumulative effect of change in accounting for postemployment benefits . . . . . . . . . . . . - (5.6) - (5.6) - ------------------------------------------------------------------------------------------------------------------------------ Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128.8 134.6 234.8 147.0 - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) per share of common stock (based on average shares outstanding) ($) Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . 2.55 2.77 4.64 3.02 Cumulative effect of accounting change . . . . . . . . . . . . . . - (0.11) - (0.11) - ------------------------------------------------------------------------------------------------------------------------------ Earnings on common stock . . . . . . . . . . . . . . . . . . . . . 2.55 2.66 4.64 2.91 ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- Additional computation of average common shares outstanding (thousands) (NOTE) - ----------------------------------------------------------------------------------------------------------------------------- Average shares of common stock outstanding . . . . . . . . . . . . 50,563 50,559 50,561 50,559 Incremental common shares applicable to common stock based on the common stock daily average market price: Applicable to contingent stock awards . . . . . . . . . . . . . . - 4 2 4 - ----------------------------------------------------------------------------------------------------------------------------- Average common shares as adjusted . . . . . . . . . . . . . . . . . 50,563 50,563 50,563 50,563 ============================================================================================================================= Average shares of common stock outstanding . . . . . . . . . . . . 50,563 50,559 50,561 50,559 Incremental common shares applicable to common stock based on the more dilutive of the common stock ending or daily average market price during the year: Applicable to contingent stock awards . . . . . . . . . . . . . . - 4 2 4 - ----------------------------------------------------------------------------------------------------------------------------- Average common shares assuming full dilution . . . . . . . . . . . 50,563 50,563 50,563 50,563 Earnings per share of common stock as adjusted: Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . 2.55 2.77 4.64 3.02 Cumulative effect of accounting change . . . . . . . . . . . . . . - (0.11) - (0.11) - ----------------------------------------------------------------------------------------------------------------------------- Average common shares as adjusted ($) . . . . . . . . . . . . . . . 2.55 2.66 4.64 2.91 ============================================================================================================================= Earnings per common shares assuming full dilution: Before cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . 2.55 2.77 4.64 3.02 Cumulative effect of accounting change . . . . . . . . . . . . . . - (0.11) - (0.11) - ----------------------------------------------------------------------------------------------------------------------------- Average common shares assuming full dilution ($) . . . . . . . . . 2.55 2.66 4.64 2.91 =============================================================================================================================
NOTE These calculations are submitted in accordance with the Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of Accounting Principles Opinion No. 15 because they result in dilution of less than 3%. EX-12 4 COLUMBIA GAS STATEMENT OF RATIO EARNINGS 1 Exhibit 12 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES Statements of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends ($ in millions)
Twelve Months Ended March 31, ----------------------- 1995 1994 ------- -------- Consolidated Income (Loss) from Continuing Operations before Income Taxes and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.8 295.8 Adjustments: Interest during construction . . . . . . . . . . . . . . . . . . . . . . . . - - Distributed (Undistributed) equity income . . . . . . . . . . . . . . . . . . (6.8) (0.5) Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.1 79.8 --------- --------- Earnings Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265.1 375.1 --------- --------- Fixed Charges: Interest on long-term and short-term debt . . . . . . . . . . . . . . . . . . 0.2 2.3 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.9 77.5 --------- --------- Total Fixed Charges before Adjustments *, ** . . . . . . . . . . . . . . . 37.1 79.8 --------- --------- Adjustments: Gain/(Loss) on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . - - --------- --------- Total Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.1 79.8 --------- --------- Ratio of Earnings Before Taxes to Fixed Charges . . . . . . . . . . . . . . . . 7.14 4.70 ========= =========
Twelve Months Ended December 31, ------------------------------------ 1994 1993 1992 -------- -------- -------- Consolidated Income (Loss) from Continuing Operations before Income Taxes and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246.2 288.1 161.4 Adjustments: Interest during construction . . . . . . . . . . . . . . . . . . . . . . . . - - - Distributed (Undistributed) equity income . . . . . . . . . . . . . . . . . . (0.9) (0.1) (0.1) Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 101.5 13.7 -------- --------- --------- Earnings Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260.1 389.5 175.0 -------- --------- --------- Fixed Charges: Interest on long-term and short-term debt . . . . . . . . . . . . . . . . . . 0.8 3.1 4.9 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.0 98.4 8.8 -------- --------- --------- Total Fixed Charges before Adjustments *, ** . . . . . . . . . . . . . . . 14.8 101.5 13.7 -------- --------- --------- Adjustments: Gain/(Loss) on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . - - - -------- -------- --------- Total Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 101.5 13.7 -------- -------- --------- Ratio of Earnings Before Taxes to Fixed Charges . . . . . . . . . . . . . . . . 17.57 3.84 12.77 ======== ======== =========
Twelve Months Ended December 31, --------------------- 1991 1990 -------- ---- Consolidated Income (Loss) from Continuing Operations before Income Taxes and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,205.8) 162.6 Adjustments: Interest during construction . . . . . . . . . . . . . . . . . . . . . . . . (3.4) (10.0) Distributed (Undistributed) equity income . . . . . . . . . . . . . . . . . . (2.4) 2.9 Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.9 182.5 --------- --------- Earnings Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,071.7) 338.0 --------- --------- Fixed Charges: Interest on long-term and short-term debt . . . . . . . . . . . . . . . . . . 112.4 170.6 Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.6 10.5 --------- --------- Total Fixed Charges before Adjustments *, ** . . . . . . . . . . . . . . . 140.0 181.1 --------- --------- Adjustments: Gain/(Loss) on reacquired debt . . . . . . . . . . . . . . . . . . . . . . . (0.1) 1.4 --------- --------- Total Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.9 182.5 --------- --------- Ratio of Earnings Before Taxes to Fixed Charges . . . . . . . . . . . . . . . . N/A(a) 1.85 ========= =========
(a) To achieve a one-to-one coverage, the Corporation would need an additional $1,211.6 million of earnings. * This amount excludes approximately $212 million interest expense not recorded in the twelve months ended March 31, 1995, $177 million interest expense not recorded in the twelve months ended March 31, 1994 and $202 million, $174 million, $204 million and $86 million of interest expense not recorded for 1994, 1993, 1992 and 1991. Reference is made to the Statements of Consolidated Income for the quarterly period ended March 31, 1995, as reported in Form 10-Q ** This amount excludes $8.6 million of interest expense not recorded with respect to the registrant's guarantee of LESOP Trust's debentures for each of the twelve months ended March 31, 1995 and March 31, 1994. Also excluded are $8.6 million of interest expense not recorded with respect to the registrant's guarantee of LESOP Trust's debentures for each of the twelve months ended December 31, 1994, 1993, 1992, and 1991, and $6.7 million of interest expense not recorded with respect to the registrant's guarantee of LESOP Trust's debentures for the twelve months ended December 31, 1990. See Note 9 of Notes to Consolidated Financial Statements of the Corporation's Annual Report to Shareholders. EX-27 5 FINANCIAL DATA SCHEDULE
UT 0000022099 THE COLUMBIA GAS SYSTEM, INC. AND SUBSIDIARIES 1,000 YEAR DEC-31-1994 JAN-1-1995 MAR-31-1995 PER-BOOK 3,446,800 909,200 2,753,100 287,900 0 7,397,000 505,600 601,900 559,300 1,596,800 0 0 4,100 0 0 0 0 0 0 0 5,796,100 7,397,000 1,051,900 82,300 852,000 852,000 199,900 16,700 216,600 5,500 128,800 0 128,800 0 0 0 2.55 2.55
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