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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission file number 1-1098
COLUMBIA ENERGY GROUP
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1594808
--------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 East 86th Avenue
Merrillville, Indiana 46410
--------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (877) 647-5990
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
As of November 1, 2000, all shares of the registrant's Common Shares, $.01 par
value, were issued and outstanding, all held beneficially and of record by
NiSource Inc.
The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income (Loss)................................ 3
Consolidated Balance Sheets............................................. 4
Statements of Consolidated Cash Flows................................... 6
Statements of Comprehensive Income (Loss)............................... 7
Notes................................................................... 8
Item 2. Management's Narrative Analysis of Results of Operations................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............. 15
Item 4. Controls and Procedures................................................. 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 17
Item 2. Changes in Securities and Use of Proceeds............................... 19
Item 3. Defaults Upon Senior Securities......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders..................... 19
Item 5. Other Information....................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................ 19
Signature........................................................................ 20
Certifications................................................................... 21
2
PART I
ITEM 1. FINANCIAL STATEMENTS
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (LOSS) (unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
(in millions) 2002 2001 2002 2001
-------- -------- -------- --------
NET REVENUES
Gas distribution $ 235.3 $ 418.7 $1,270.2 $2,256.5
Gas transmission and storage 133.4 134.8 444.5 445.5
Exploration and Production 37.3 54.6 146.9 150.4
Other products and services 10.8 5.4 38.8 31.9
-------- -------- -------- --------
Gross Revenues 416.8 613.5 1,900.4 2,884.3
Cost of Sales 64.4 242.1 515.9 1,459.7
-------- -------- -------- --------
Total Net Revenues 352.4 371.4 1,384.5 1,424.6
-------- -------- -------- --------
OPERATING EXPENSES
Operation and maintenance 163.3 307.2 544.4 713.7
Depreciation, amortization and depletion 44.5 65.2 153.6 173.8
(Gain) loss on sale or impairment of assets (1.7) -- (5.2) 89.2
Other taxes 29.5 29.1 129.5 128.5
-------- -------- -------- --------
Total Operating Expenses 235.6 401.5 822.3 1,105.2
-------- -------- -------- --------
OPERATING INCOME (LOSS) 116.8 (30.1) 562.2 319.4
-------- -------- -------- --------
OTHER INCOME (DEDUCTIONS)
Interest expense, net (26.1) (40.3) (84.7) (125.9)
Other, net 3.9 2.7 15.5 6.1
-------- -------- -------- --------
Total Other Income (Deductions) (22.2) (37.6) (69.2) (119.8)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 94.6 (67.7) 493.0 199.6
INCOME TAXES (BENEFIT) 34.7 (22.2) 185.1 79.0
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 59.9 (45.5) 307.9 120.6
-------- -------- -------- --------
Loss from Discontinued Operations - net of tax -- (61.1) -- (62.1)
Change in Accounting - net of tax -- -- -- 4.0
-------- -------- -------- --------
NET INCOME (LOSS) $ 59.9 $ (106.6) $ 307.9 $ 62.5
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(in millions) 2002 2001
-------- --------
(unaudited)
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant $8,414.7 $8,267.0
Accumulated depreciation and amortization (3,991.2) (3,879.1)
-------- --------
Net utility plant 4,423.5 4,387.9
-------- --------
Gas and oil producing properties, successful efforts method
United States cost center 975.7 934.2
Canadian cost center 6.2 14.2
Accumulated depletion (429.5) (407.4)
-------- --------
Net gas and oil producing properties 552.4 541.0
-------- --------
Net Property, Plant and Equipment 4,975.9 4,928.9
-------- --------
INVESTMENTS AND OTHER ASSETS
Net assets of discontinued operations -- 30.0
Unconsolidated affiliates 58.0 52.9
Assets held for sale 1.9 --
Other investments 18.8 16.8
-------- --------
Total Investments 78.7 99.7
-------- --------
CURRENT ASSETS
Cash and cash equivalents 218.5 53.8
Accounts receivable (less reserves of $17.4 and $25.3, respectively) 261.0 496.2
Gas inventory 320.6 195.7
Underrecovered gas and fuel costs 101.0 60.1
Materials and supplies, at average cost 15.0 14.5
Price risk management assets 16.5 65.8
Exchange gas receivable 144.7 186.8
Prepayments and other 168.2 260.3
-------- --------
Total Current Assets 1,245.5 1,333.2
-------- --------
OTHER ASSETS
Price risk management assets 107.0 0.1
Regulatory assets 363.1 364.2
Deferred charges and other 119.0 169.2
-------- --------
Total Other Assets 589.1 533.5
-------- --------
TOTAL ASSETS $6,889.2 $6,895.3
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31,
(in millions) 2002 2001
-------- --------
(unaudited)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $2,262.4 $2,177.1
Long-term debt, excluding amounts due within one year 1,388.1 1,356.9
-------- --------
Total Capitalization 3,650.5 3,534.0
-------- --------
CURRENT LIABILITIES
Current portion of long-term debt 281.7 281.7
Accounts payable 162.7 244.5
Customer deposits 18.4 14.0
Taxes accrued 245.4 232.8
Interest accrued 75.0 28.6
Overrecovered gas and fuel costs 24.2 45.6
Price risk management liabilities 12.1 4.8
Exchange gas payable 410.9 285.1
Current deferred revenue 126.2 89.0
Other accruals 379.9 525.4
-------- --------
Total Current Liabilities 1,736.5 1,751.5
-------- --------
OTHER LIABILITIES AND DEFERRED CREDITS
Price risk management liabilities -- 0.6
Deferred income taxes 774.7 759.4
Deferred investment tax credits 28.7 29.8
Deferred credits 125.3 114.0
Noncurrent deferred revenue 338.3 435.4
Accrued liability for postretirement and pension benefits 112.4 116.2
Other noncurrent liabilities 122.8 154.4
-------- --------
Total Other 1,502.2 1,609.8
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $6,889.2 $6,895.3
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited)
Nine Months Ended September 30, ( in millions) 2002 2001
------ ------
OPERATING ACTIVITIES
Net Income $307.9 $ 62.5
Adjustments to reconcile net income to net cash from continuing operations:
Loss from disposal of discontinued operations -- 62.1
Cumulative effect of accounting change, net of tax -- (4.0)
Depreciation and depletion 153.6 173.8
Deferred income taxes 66.6 (35.6)
Price risk management activity (19.8) --
Earnings from equity investment, net of distributions (7.2) (43.0)
Loss on impairment of telecommunications asset -- 89.2
(Gain)/loss on sale of assets (5.2) --
Deferred revenue (60.0) (33.4)
Other - net -- 52.6
------ ------
435.9 324.2
------ ------
Changes in components of working capital:
Accounts receivable, net 235.2 237.4
Gas inventory (125.3) (146.4)
Accounts payable (81.8) (38.0)
Accrued taxes (26.2) (55.8)
Under/Overrecovered gas costs (66.0) 158.7
Exchange gas receivable/payable 165.7 193.0
Other working capital 18.7 (122.8)
------ ------
Net Cash from Continuing Operations 556.2 550.3
Net Cash from Discontinued Operations -- 178.9
------ ------
Net Cash from Operating Activities 556.2 729.2
------ ------
INVESTMENT ACTIVITIES
Capital expenditures (189.4) (253.4)
Purchases and sales of investments - net -- 8.2
------ ------
Net Investment Activities (189.4) (245.2)
------ ------
FINANCING ACTIVITIES
Issuance (repayment) of short-term debt -- (521.0)
Dividend to NiSource (202.1) --
Other financing activities -- 5.8
------ ------
Net Financing Activities (202.1) (515.2)
------ ------
Increase (Decrease) in cash and cash equivalents 164.7 (31.2)
Cash and cash investments at beginning of year 53.8 73.5
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $218.5 $ 42.3
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest 53.8 9.8
Cash paid for income taxes (net of refunds) 6.9 8.9
------ ------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
(in millions) 2002 2001 2002 2001
------- ------- ------- -------
Net Income (Loss) $ 59.9 $(106.6) $ 307.9 $ 62.5
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment (0.7) (0.7) -- (1.6)
Net unrealized gains (losses) on cash flow hedges (7.7) 7.4 3.5 76.7
Minimum pension liability adjustment (20.9) -- (20.9) --
------- ------- ------- -------
Total other comprehensive income (loss) (29.3) 6.7 (17.4) 75.1
------- ------- ------- -------
Total Comprehensive Income (Loss) $ 30.6 $ (99.9) $ 290.5 $ 137.6
------- ------- ------- -------
7
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF ACCOUNTING PRESENTATION
The accompanying unaudited consolidated financial statements for Columbia Energy
Group (Columbia) reflect all normal recurring adjustments that are necessary, in
the opinion of management, to present fairly the results of operations in
accordance with accounting principles generally accepted in the United States.
The accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Columbia's
Annual Report on Form 10-K (Form 10-K) for the fiscal year ended December 31,
2001. Income (loss) for interim periods may not be indicative of results for the
calendar year due to weather variations and other factors. Certain
reclassifications have been made to the 2001 financial statements to conform to
the 2002 presentation. During the fourth quarter of 2001, Columbia changed its
method of accounting for exploration and development activities related to oil
and gas reserves from the full cost method to the successful efforts method. The
2001 results have been adjusted to reflect the change to successful efforts
accounting in Columbia's Exploration and Production segment.
2. RESTRUCTURING ACTIVITIES
During 2000, Columbia developed and began the implementation of a plan to
restructure its operations as a result of the acquisition of Columbia by
NiSource Inc. (NiSource). The restructuring plan included a severance program, a
transition plan to implement operational efficiency throughout Columbia's
operations and a voluntary early retirement program. During 2001, the
restructuring initiative was continued with the addition of a plan to
restructure the operations within the Distribution segment.
During the third quarter of 2002, Columbia carried out the first phase of a
reorganization initiative, which resulted in the elimination of approximately 13
executive and other management-level positions throughout the organization.
Columbia has accrued approximately $1.7 million of salaries and benefits
associated with the eliminated positions. As of September 30, 2002, 8 of the
approximately 13 employees were terminated.
For all of the plans, a total of approximately 835 management, professional,
administrative and technical positions have been identified for elimination. As
of September 30, 2002, approximately 676 employees had been terminated, of whom
approximately 143 employees and 233 employees were terminated during the quarter
and nine months ended September 30, 2002, respectively. At September 30, 2002
and December 31, 2001, the consolidated balance sheets reflected liabilities of
$20.7 million and $31.4 million related to the restructuring plans,
respectively. During the quarter and nine months ended September 30, 2002, $6.5
million and $10.8 million of benefits were paid, respectively, as a result of
the restructuring plan. Additionally, during the third quarter and nine months
ended September 30, 2002, the restructuring plan liability was reduced by $2.0
million and $1.6 million, respectively. The net adjustment during the third
quarter was recorded to accommodate revisions to the estimated amounts to be
paid under the 2001 and 2000 plans.
During the fourth quarter of 2002, Columbia expects to complete the
reorganization initiative, which began in the third quarter. It is expected that
a charge of approximately $20 million to $25 million will be recorded in the
fourth quarter related to employee severance and the consolidation of
facilities.
A portion of the liability related to the 2000 charge was transferred to
NiSource. This related to the merger of Columbia Energy Group Services, Inc.
with NiSource Corporate Services, Inc. The reported liabilities and employee
counts have been reduced to take into account the effect of the merger.
3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
On August 21 2001, Columbia sold the stock and assets of Columbia Propane to
AmeriGas Partners L.P. (AmeriGas) for approximately $196.0 million, consisting
of $152.0 million in cash and $44.0 million of AmeriGas partnership common
units. The sale of Columbia Propane resulted in an after-tax loss of $50.6
million. Columbia has also sold substantially all the assets of Columbia
Petroleum Corporation.
8
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The loss from discontinued operations are provided in the following table:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
(in millions) 2002 2001 2002 2001
------- ------- ------- -------
REVENUES FROM DISCONTINUED OPERATIONS $ -- $ -- $ -- $ --
------- ------- ------- -------
Loss from discontinued operations -- (94.0) -- (95.5)
Income tax benefit -- (32.9) -- (33.4)
------- ------- ------- -------
NET LOSS FROM DISCONTINUED OPERATIONS $ -- $ (61.1) $ -- $ (62.1)
------- ------- ------- -------
Columbia Energy Resources, Inc. has entered into an agreement to sell a portion
of its Canadian oil and gas properties. This transaction is expected to occur in
the fourth quarter of 2002. The agreement calls for the sale of the majority of
the Ontario assets for approximately $2.0 million. Because the fair value is
lower than the book value of the assets, Columbia Resources has written down the
value of the held-for-sale assets by $0.3 million in the second quarter of 2002.
An additional charge of $0.5 million was recorded in the second quarter of 2002
as a result of a determination that the remaining Ontario assets were impaired.
The net assets of assets held for sale and discontinued operations were as
follows:
SEPTEMBER 30, December 31,
(in millions) 2002 2001
----- ------
NET ASSETS OF ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
Gas and oil producing properties $ 1.9 $ -
Other assets - 30.0
Accounts payable - -
----- ------
NET ASSETS OF ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS $ 1.9 $ 30.0
----- ------
4. RISK MANAGEMENT ACTIVITIES
Columbia uses commodity-based derivative financial instruments to manage certain
risks inherent in its business. Columbia accounts for its derivatives under
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting
for Derivative Instruments and Hedging Activities."
HEDGING ACTIVITIES. The activity for 2002 with respect to cash flow hedges
included the following:
Three Months Ended Nine Months Ended
(in millions, net of tax) September 30, 2002 September 30, 2002
------------------ ------------------
Net unrealized gains on derivatives qualifying as cash flow hedges
at the beginning of the period $ 63.6 $ 52.4
Unrealized hedging gains (losses) arising during the period on derivatives
qualifying as cash flow hedges (7.8) 26.0
Reclassification adjustment for net loss (gain) included in net income 0.1 (22.5)
------ ------
Net unrealized gains on derivatives qualifying as cash flow hedges,
net of tax $ 55.9 $ 55.9
------ ------
9
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unrealized gains and losses on Columbia's cash flow and fair value hedges were
recorded as price risk management assets and liabilities. The accompanying
Consolidated Balance Sheets reflected price risk management assets related to
unrealized gains and losses on hedges of $123.5 million and $65.9 million at
September 30, 2002 and December 31, 2001, respectively, of which $16.5 million
and $65.8 million were included in "Current Assets" and $107.0 million and $0.1
million were included in "Other Assets." Price risk management liabilities
related to unrealized gains and losses on hedges were $12.1 million and $5.4
million at September 30, 2002 and December 31, 2001, respectively, of which
$12.1 million and $4.8 million were included in "Current Liabilities" and zero
and $0.6 million were included in "Other Liabilities and Deferred Credits."
During the third quarter of 2002, a net loss of $0.3 million, net of tax, was
recognized in earnings due to the change in value of certain derivative
instruments primarily representing time value, and there were no components of
the derivatives' fair values excluded in the assessment of hedge effectiveness.
Also during the third quarter, Columbia reclassified an insignificant amount
related to its cash flow hedges of natural gas production from other
comprehensive income to earnings due to the probability that certain forecasted
transactions would not occur. It is anticipated that during the next twelve
months the expiration and settlement of cash flow hedge contracts will result in
net income recognition of amounts currently classified in other comprehensive
income of approximately $6.9 million, net of tax.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS NOS. 141 AND 142 - BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE
ASSETS. In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No.
141), and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).
The key requirements of the two interrelated Statements include mandatory use of
the purchase method of accounting for business combinations, discontinuance of
goodwill amortization, revised framework for testing goodwill impairment at a
"reporting unit" level, and new criteria for the identification and potential
amortization of other intangible assets. Other changes to existing accounting
standards involve the amount of goodwill to be used in determining the gain or
loss on the disposal of assets and a requirement to test goodwill for impairment
at least annually. SFAS No. 141 is generally effective for combinations
initiated after June 30, 2001. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Columbia has no goodwill recorded, and
therefore, these new statements do not presently affect the company.
SFAS NO. 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. In July 2001, the
FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS
No. 143). SFAS No. 143 requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred. When
the liability is initially recorded, the entity capitalizes a cost by increasing
the carrying amount of the related long-lived asset. Over time, the liability is
accreted to its then present value, and the capitalized cost is depreciated over
the useful life of the related asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002, with earlier application encouraged. Columbia is
currently evaluating the impact of SFAS No. 143 and does not expect the adoption
of the statement to have a material effect on its financial condition or results
of operations.
6. TELECOMMUNICATIONS NETWORK
Columbia, through its subsidiary Columbia Transmission Communications (Transcom)
has built a dark-fiber optics telecommunications network primarily along its
pipeline rights-of-way between New York and Washington D.C. For the year ending
December 31, 2002, the network is projected to incur a pre-tax operating loss of
approximately $10.7 million. Due to the current oversupply of dark fiber in
Transcom's market area, management projects that the company will continue to
operate at a loss. The company's future profitability will be dependent on,
among other factors, a recovery in the telecommunication market. Columbia is
currently reviewing the carrying value of its investment in Transcom and whether
an impairment charge will be required. Management continues to pursue and
evaluate strategic alternatives, including a sale.
10
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM NOTES RECEIVABLE
In 1999, Columbia Transmission sold certain gathering facilities to a third
party for approximately $22 million. The buyer executed a promissory note, which
provides for payment of the purchase price to Columbia Transmission over a
five-year period. In the second quarter of 2002, an appropriate reserve was
recorded against the receivable in light of the failure to receive timely
payments from the counterparty. During the third quarter, management was able to
negotiate a new payment schedule and secure a guarantee from the third party's
parent company as security for the loan. At September 30, 2002, the balance of
the note was approximately $11.0 million, including interest.
8. MINIMUM PENSION LIABILITY
Due to the decline in the equity markets, the fair value of Columbia's pension
fund assets has decreased since September 30, 2001. In addition, the discount
rate used to measure the accumulated benefit obligation has decreased, resulting
in an increase in the estimated minimum liability. In accordance with FASB
Statement No. 87, "Employers' Accounting for Pensions," Columbia recorded a
minimum pension liability adjustment at September 30, 2002. The adjustment
resulted in a decrease to prepaid pension costs of $28.9 million, an increase in
intangible assets of $5.3 million, an increase to retirement benefit liabilities
of $9.9 million, an increase to deferred income tax assets of $12.6 million, and
a decrease to other comprehensive income of $20.9 million after-tax.
9. SALE OF EXPLORATION AND PRODUCTION BUSINESS
On October 11, 2002, NiSource announced its intention to sell Columbia Energy
Resources, Inc., and its affiliates, including Columbia Natural Resources, Inc.,
its natural gas exploration and production business. The decision to sell the
exploration and production business is part of NiSource's business strategy of
focusing on its core, regulated assets and strengthening its balance sheet by
reducing debt. NiSource intends to enter into a definitive sale agreement for
the exploration and production business by the end of 2002. The results of
operations related to the exploration and production business will be displayed
as discontinued operations in the fourth quarter 2002 and prior period financial
statements will be adjusted to conform to the discontinued operations
presentation.
10. LEGAL PROCEEDINGS
In the normal course of its business, Columbia and its subsidiaries have been
named as defendants in various legal proceedings. In the opinion of management,
the ultimate disposition of these currently asserted claims would not have a
material adverse impact on Columbia's consolidated financial position.
11
ITEM 1. FINANCIAL STATEMENTS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. PRESENTATION OF SEGMENT INFORMATION
Columbia manages its operations in four primary segments: 1) Distribution, 2)
Transmission and Storage, 3) Exploration and Production, and 4) Other Products
and Services. The following table provides information concerning these major
business segments. Revenues include intersegment sales to affiliated
subsidiaries, which are eliminated when consolidated. Affiliated sales are
recognized on the basis of prevailing market or regulated prices. Operating
income (loss) is derived from revenues and expenses directly associated with
each segment.
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
(in millions) 2002 2001 2002 2001
-------- -------- -------- --------
REVENUES
DISTRIBUTION
Unaffiliated $ 232.0 $ 409.4 $1,253.7 $2,232.3
Intersegment and affiliates -- 3.1 8.4 3.0
-------- -------- -------- --------
Total 232.0 412.5 1,262.1 2,235.3
-------- -------- -------- --------
TRANSMISSION AND STORAGE
Unaffiliated 134.6 131.2 449.1 461.1
Intersegment and affiliates 54.1 54.9 180.2 181.4
-------- -------- -------- --------
Total 188.7 186.1 629.3 642.5
-------- -------- -------- --------
EXPLORATION AND PRODUCTION
Unaffiliated 39.1 43.5 136.0 117.7
Intersegment and affiliates 3.0 17.3 28.1 45.8
-------- -------- -------- --------
Total 42.1 60.8 164.1 163.5
-------- -------- -------- --------
OTHER PRODUCTS AND SERVICES
Unaffiliated 6.3 6.2 18.5 20.0
Intersegment and affiliates 0.1 0.1 0.2 0.2
-------- -------- -------- --------
Total 6.4 6.3 18.7 20.2
-------- -------- -------- --------
Adjustments and eliminations (52.4) (52.2) (173.8) (177.2)
-------- -------- -------- --------
CONSOLIDATED REVENUES $ 416.8 $ 613.5 $1,900.4 $2,884.3
-------- -------- -------- --------
OPERATING INCOME (LOSS)
Distribution $ 17.9 $ (49.4) $ 208.0 $ 156.7
Transmission and Storage 85.1 30.0 286.5 242.7
Exploration and Production 7.5 1.4 58.3 32.3
Other Products and Services 5.4 (2.8) 10.6 (101.5)
Corporate 0.9 (9.3) (1.2) (10.8)
-------- -------- -------- --------
CONSOLIDATED $ 116.8 $ (30.1) $ 562.2 $ 319.4
-------- -------- -------- --------
12
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
Columbia meets the conditions specified in General Instruction H(1)(a) and (b)
to Form 10-Q and is permitted to use the reduced disclosure format for
wholly-owned subsidiaries of companies, such as NiSource, that are reporting
companies under the Securities Exchange Act of 1934. Accordingly, this Columbia
Management's Narrative Analysis of Results of Operations is included in this
report, and Columbia has omitted from this report the information called for by
Part I. Item 2 (Management's Discussion and Analysis of Financial Condition and
Results of Operations).
Forward Looking Statements
The Management's Narrative Analysis, including statements regarding market risk
sensitive instruments, contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Investors and prospective investors
should understand that many factors govern whether any forward-looking statement
contained herein will be or can be achieved. Any one of those factors could
cause actual results to differ materially from those projected. These
forward-looking statements include, but are not limited to, statements
concerning Columbia's plans, proposed dispositions, objectives, expected
performance, expenditures and recovery of expenditures through rates, stated on
either a consolidated or segment basis, and any and all underlying assumptions
and other statements that are other than statements of historical fact. From
time to time, Columbia may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of Columbia, are also
expressly qualified by these cautionary statements. All forward-looking
statements are based on assumptions that management believes to be reasonable;
however, there can be no assurance that actual results will not differ
materially. Realization of Columbia's objectives and expected performance is
subject to a wide range of risks and can be adversely affected by, among other
things, increased competition in deregulated energy markets, weather,
fluctuations in supply and demand for energy commodities, successful
consummation of proposed acquisitions and dispositions, growth opportunities for
Columbia's regulated and nonregulated businesses, dealings with third parties
over whom Columbia has no control, actual operating experience of acquired
assets, Columbia's ability to integrate acquired operations into its operations,
the regulatory process, regulatory and legislative changes, changes in general
economic, capital and commodity market conditions and counter-party credit risk,
many of which are beyond the control of Columbia.
The following Management's Narrative Analysis should be read in conjunction with
the Columbia Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
THIRD QUARTER 2002 CONSOLIDATED RESULTS
Net Income
Columbia reported net income for the third quarter 2002 of $59.9 million versus
an operating loss of $106.6 million from the third quarter of 2001. The $166.5
million increase in net income was primarily due to lower operating expenses
resulting from a reduction in estimated environmental and litigation
expenditures, lower depreciation and depletion expenses, as a result of an
impairment of Exploration and Production assets in 2001, a reduction in
estimated sales taxes payable related to previous sales of natural gas to retail
and wholesale gas marketing customers, lower corporate overhead and insurance
recoveries of environmental expenses. In addition, the 2001 period was impacted
by a $61.1 million loss from discontinued operations, which reflects the sale of
Columbia's propane operations. Slightly offsetting the increase was a decrease
in net revenues, which was a result of lower pricing related to increased
deliveries of natural gas production under forward sales agreements. The 2001
results reflect the change to successful efforts accounting in the company's
Exploration and Production segment.
Net Revenues
Third quarter 2002 consolidated net revenues (operating revenues less cost of
sales) were $352.4 million, a $19.0 million decrease over the same period last
year. The decrease in net revenues was a result of lower pricing related to
increased deliveries of natural gas production under forward sales agreements
and decreased off-system natural gas sales at the gas distribution companies.
Expenses
Operating expenses for the third quarter of 2002 were $235.6 million, a decrease
of $165.9 million from the same period last year. Operating expenses decreased
primarily as a result of a reduction in estimated environmental and litigation
expenditures, lower depreciation and depletion expenses, as a result of an
impairment of Exploration and Production assets in 2001, a reduction in
estimated sales taxes payable related to previous sales of natural gas to retail
and wholesale gas marketing customers, lower corporate overhead and insurance
recoveries of environmental expenses.
Other Income (Deductions)
Interest expense was $26.1 million for the quarter, a decrease of $14.2 million
compared to the third quarter of 2001. The decrease was due to lower short-term
interest rates. Other, net for the third quarter of 2002 was $3.9 million, an
increase of $1.2 million compared to the prior year.
Income Taxes
Income tax expense of $34.7 million for the third quarter of 2002 increased
$56.9 million due higher pre-tax income.
Discontinued Operations
For the third quarter of 2002, Columbia had no activity for discontinued
operations. During the comparable period in 2001, Columbia recorded an after-tax
loss of $61.1 million associated with the sale of its propane business.
13
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
NINE MONTHS CONSOLIDATED RESULTS
Net Income
Columbia reported net income for the first nine months of 2002 of $307.9
million, an increase of $245.4 million from the same period in 2001. The
increase was primarily due to lower operating expenses resulting from the $89.2
million write-down related to Columbia's telecommunications network that
occurred in the 2001 period, a reduction in estimated environmental and
litigation expenditures, insurance recoveries of environmental expenses, lower
depreciation and depletion expenses, as a result of an impairment of Exploration
and Production assets in 2001, lower corporate overhead, a reduction in
estimated sales taxes payable related to previous sales of natural gas to retail
and wholesale gas marketing customers and lower amounts for uncollectible
customer receivables. In addition, the 2001 period was impacted by a $62.1
million loss on discontinued operations associated with the sale of Columbia's
propane operations. Slightly offsetting the increase was a decrease in net
revenues, which was a result of the impact of unfavorable weather during the
heating season, lower pricing related to increased deliveries of natural gas
production under forward sales agreements and a gain of $11.4 million from the
sale of base which occurred in the 2001 period. The 2001 results reflect the
change to successful efforts accounting in the company's Exploration and
Production segment.
Net Revenues
For the first nine months of 2002, consolidated net revenues (operating revenues
less cost of sales) were $1,384.5 million, a $40.1 million decrease over the
same period last year. This decrease was primarily attributable to 10% warmer
weather during the heating season compared to the same period last year, lower
pricing related to increased deliveries of natural gas production under forward
sales agreements, a reduction in off-system sales and incentive program revenues
at the gas distribution companies and a gain of $11.4 million from the sale of
base gas that occurred in 2001. Partly offsetting the decrease was increased gas
production in the company's Exploration and Production segment.
Expenses
Operating expenses for the first nine months of 2002 were $822.3 million, a
decrease of $282.9 million from the same period last year. The decrease was
mainly due to lower operating expenses resulting from the $89.2 million
write-down related to Columbia's telecommunications network that occurred in the
2001 period, a reduction in estimated environmental and litigation expenditures,
insurance recoveries of environmental expenses, lower depreciation and depletion
expenses, as a result of an impairment of Exploration and Production assets in
2001, lower corporate overhead, a reduction in estimated sales taxes payable
related to previous sales of natural gas to retail and wholesale gas marketing
customers and lower amounts for uncollectible customer receivables.
Other Income (Deductions)
Interest expense was $84.7 million for the nine months, a decrease of $41.2
million compared to the first nine months of 2001. The decrease was due to lower
short-term interest rates. Other, net for the first nine months of 2002 was
$15.5 million, an increase of $9.4 million compared to the prior year.
Income Taxes
Income tax expense of $185.1 million for the first nine months of 2002 increased
$106.1 million due to higher pre-tax income.
Discontinued Operations
For the first nine months in 2002, Columbia had no activity for discontinued
operations. During the first nine months of 2001, Columbia recorded an after-tax
loss of $62.1 million associated with the sale of its propane business.
14
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
A significant portion of Columbia's operations is subject to seasonal
fluctuations in cash flow. During the heating season, which is primarily from
November through March, cash receipts from sales and transportation services
typically exceed cash requirements. Conversely, during the remainder of the
year, cash on hand together with external short-term financing, as needed, is
used to purchase gas to place in storage for heating season deliveries, perform
necessary maintenance of facilities, make capital improvements in plant and
expand service.
Columbia satisfies its liquidity requirements primarily through internally
generated funds and through intercompany borrowing from the NiSource Money Pool.
Columbia may borrow on an intercompany basis a maximum of one billion dollars
through the NiSource Money Pool as approved by the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935. NiSource
Finance Corp. (NFC) provides funding to the NiSource Money Pool from external
borrowing sources and maintains an aggregate $1.75 billion revolving credit
facility with a syndicate of banks. The credit facility is guaranteed by
NiSource.
As of September 30, 2002, Columbia did not have any intercompany short-term
borrowings with NFC outstanding. At September 30, 2002, Columbia had letters of
credit issued and outstanding of $170.6 million.
Columbia has entered into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. Under the terms of the swap
agreements, Columbia pays interest based on a floating rate index and receives
interest based on a fixed rate. The effect of these agreements is to modify the
interest rate characteristics of a portion of Columbia's long-term debt from
fixed to variable and to hedge the fair value of the underlying debt. On
September 3, 2002, Columbia entered into "receive fixed" and "pay floating"
interest rate swap agreements totaling $281.5 million with three counterparties
effective as of September 5, 2002. According to the agreements, Columbia will
receive payments based upon a fixed 7.32% interest rate and will pay a floating
interest amount based on U.S. 6-month LIBOR-BBA plus 2.66% per annum. In total,
Columbia has entered into fixed-to-variable interest rate swaps on $863.0
million of its long-term debt.
On November 28, 2002, $281.7 million of Columbia's outstanding 6.61% Series B
Debentures will be redeemed using funds from the net proceeds of the November 6,
2002 NiSource common stock offering.
Columbia Gas of Ohio is a party to an agreement to sell, without recourse,
substantially all of its trade receivables to Columbia Accounts Receivable
Corporation (CARC), a wholly owned subsidiary of Columbia. CARC, in turn, is
party to an agreement in which it sells a percentage ownership interest in a
defined pool of the accounts receivable to a commercial paper conduit. Under
these agreements, CARC may not sell any new affiliate receivables to the conduit
if Columbia's debt rating falls below BBB or Baa2 at Standard and Poor's and
Moody's, respectively. In addition, if Columbia's debt rating falls below
investment grade, the agreements terminate and CARC may not sell any new
receivables to the conduit. As of September 30, 2002, Columbia Gas of Ohio has
sold $32.5 million to the conduit.
Management believes that its sources of funding are sufficient to meet the
short- and long-term liquidity needs of Columbia.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H(2)(c).
15
ITEM 4. CONTROLS AND PROCEDURES
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
Evaluation of Disclosure Controls and Procedures
Columbia's president and chief executive officer and its principal financial
officer, after evaluating the effectiveness of Columbia's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) on
November 7, 2002, have concluded that, as of such date, Columbia's disclosure
controls and procedures were adequate and effective to ensure that material
information relating to Columbia and its consolidated subsidiaries would be made
known to them by others within those entities.
Changes in Internal Controls
There were no significant changes in Columbia's internal controls or in other
factors that could significantly affect Columbia's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in Columbia's internal controls.
As a result, no corrective actions were required or undertaken.
16
PART II
ITEM 1. LEGAL PROCEEDINGS
NISOURCE INC.
1. CANADA SOUTHERN PETROLEUM LTD. V. COLUMBIA GAS DEVELOPMENT OF CANADA LTD.
This action was originally filed March 7, 1990. The plaintiffs asserted,
among other things, that the defendant working interest owners, including
Columbia Gas Development of Canada Ltd. (Columbia Canada) and various
Amoco affiliates, breached an alleged fiduciary duty to ensure the
earliest feasible marketing of gas from the Kotaneelee field (Yukon
Territory, Canada). The plaintiffs sought, among other remedies, the
return of the defendants' interests in the Kotaneelee field to the
plaintiffs, a declaration that such interests are held in trust for the
plaintiffs and an order requiring the defendants to promptly market
Kotaneelee gas or assessing damages.
In November 1993, the plaintiffs amended their Amended Statement of Claim
to include allegations that the balance in the Carried Interest Account
(an account for operating costs, which are recoverable, by working
interest owners), which is in excess of the balance as of November 1988,
should be reduced to zero. Columbia Canada consented to the amendment in
consideration of the plaintiffs' acknowledgment that approximately $63
million was properly charged to the account.
Pursuant to an Indemnification Agreement regarding the Kotaneelee
Litigation entered into when Columbia Canada was sold to Anderson
Exploration Ltd. (Anderson), Columbia agreed to indemnify and hold
Anderson harmless for losses due to this litigation arising out of actions
occurring prior to December 31, 1991. An escrow account provides security
for the indemnification obligation and is funded by a letter of credit
with a face amount of approximately $35,835,000 (Cdn).
A trial commenced in the third quarter of 1996 in the Court of Queen's
Bench for the Province of Alberta and judgment was issued in September
2001. The court dismissed most of the plaintiffs' claims, including the
fiduciary duty claim, but did order a reduction of the Carried Interest
Account in the amount of $5.3 million (Cdn.) and ordered that the
defendants were not entitled to charge the plaintiffs processing fees. The
inability to charge the plaintiffs processing fees does not affect
Columbia. The monetary value of these two items has not been determined.
The plaintiffs have filed an appeal of the judgment. The Court has not yet
set a date when it will hear the appeal; however, it has established a
schedule for the filing of the arguments and responses of the parties, all
of which must be completed by December 31, 2002.
2. UNITED STATES OF AMERICA EX REL. JACK J. GRYNBERG V. COLUMBIA GAS
TRANSMISSION CORP., ET AL.
Plaintiff originally filed a complaint under the False Claims Act, on
behalf of the United States of America, against approximately seventy
pipelines. Plaintiff claimed that the defendants had submitted false
royalty reports to the government (or caused others to do so) by
mismeasuring the volume and heating content of natural gas produced on
Federal land and Indian lands. Plaintiff's original complaint was
dismissed without prejudice for misjoinder of parties and for failing to
plead fraud with specificity. In 1997, plaintiff then filed over
sixty-five new False Claims Act complaints against over 330 defendants in
numerous Federal courts. One of those complaints was filed in the Federal
District Court for the Eastern District of Louisiana against Columbia and
thirteen affiliated entities. Plaintiff's second complaint repeats the
mismeasurement claims previously made and adds valuation claims alleging
that the defendants have undervalued natural gas for royalty purposes in
various ways, including by making sales to affiliated entities at
artificially low prices. Most of the Grynberg cases were transferred to
Federal court in Wyoming in 1999. In December 1999, the Columbia
defendants filed a motion to dismiss plaintiff's second complaint
primarily based on a failure to plead fraud with specificity. In May 2001,
the Court denied the Columbia defendants' motion to dismiss. The Columbia
defendants joined together with numerous other defendants and filed a
motion requesting the district court to amend its order to include a
certification so that the defendants could request permission from the
United States Court of Appeals for the Tenth Circuit to appeal a
controlling question of law. That motion was denied on July 2, 2001.
Pretrial proceedings continue.
3. PRICE ET AL V. GAS PIPELINES, ET AL.
Plaintiff filed an amended complaint in Stevens County, Kansas state court
on September 23, 1999, against over 200 natural gas measurers, mostly
natural gas pipelines, including Columbia and thirteen affiliated
entities. The allegations in Price (formerly known as Quinque) are similar
to those made in Grynberg; however, Price broadens the claims to cover all
oil and gas leases (other than the Federal and Indian leases that are the
subject
17
ITEM 1. LEGAL PROCEEDINGS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
of Grynberg). Price asserts a breach of contract claim, negligent or
intentional misrepresentation, civil conspiracy, common carrier liability,
conversion, violation of a variety of Kansas statutes and other common law
causes of action. Price purports to be a nationwide class action filed on
behalf of all similarly situated gas producers, royalty owners, overriding
royalty owners, working interest owners and certain state taxing
authorities. The defendants had previously removed the case to Federal
court. On January 12, 2001, the Federal court remanded the case to state
court. In June 2001, the plaintiff voluntarily dismissed ten of the
fourteen Columbia entities. Discovery relating to personal jurisdiction
has begun. On September 12, 2001 the four remaining Columbia defendants
along with other defendants filed a joint motion to dismiss the amended
complaint. That motion is currently pending before the court.
4. VIVIAN K. KERSHAW ET AL. V. COLUMBIA NATURAL RESOURCES, INC., ET AL.
In February 2000, plaintiff filed a complaint in New York state court
against Columbia, Columbia Natural Resources, Inc. (Columbia Natural
Resources) and Columbia Transmission. The complaint alleges that Kershaw
owns an interest in an oil and gas lease in New York and that the
defendants have underpaid royalties on the lease by, among other things,
failing to base royalties on the price at which natural gas is sold to the
end user and by improperly deducting post-production costs. The complaint
also seeks class action status on behalf of all royalty owners in oil and
gas leases operated by Columbia Natural Resources. Plaintiff seeks the
alleged royalty underpayments and punitive damages. Columbia Natural
Resources and Columbia Transmission removed the case to Federal court in
March 2000. The Federal court has remanded Kershaw back to New York state
court. The Columbia defendants' motion to dismiss was partially granted
and partially denied by the New York state court judge on September 24,
2001. On December 3, 2001, the defendants filed an answer to the
plaintiffs' complaint. Discovery regarding class certification is ongoing.
5. ANTHONY GONZALEZ, ET AL. V. NATIONAL PROPANE CORPORATION, ET AL.
On December 11, 1997, plaintiffs Anthony Gonzalez, Helen Pieczynski, as
Special Administrator of the Estate of Edmund Pieczynski, deceased,
Michael Brown and Stephen Pieczynski filed a multiple-count complaint for
personal injuries in the Circuit Court of Cook County, Illinois against
National Propane Corporation and the Estate of Edmund Pieczynski sounding
in strict tort liability and negligence. National Propane Corporation was
acquired by Columbia in 1999, and this litigation was retained by Columbia
when Columbia sold its propane operations in 2001. Plaintiff's complaint
arises from an explosion and fire, which occurred in a Wisconsin vacation
cottage in 1997. National Propane, L.P. filed a third-party complaint for
contribution against Natural Gas Odorizing and Phillips Petroleum Company.
Written discovery has been completed and expert discovery is to be
completed by October 25, 2002. The case has a scheduled trial date of
March 31, 2003.
6. COLUMBIA GAS TRANSMISSION CORP. V. CONSOLIDATION COAL CO., ET AL.
On December 21, 1999, Columbia Transmission filed a complaint in Federal
court in Pittsburgh, Pennsylvania against Consolidation Coal Co. and
McElroy Coal Co. (collectively, Consol), seeking declaratory and permanent
injunctive relief enjoining Consol from pursuing its current plan to
conduct longwall mining through Columbia Transmission's Victory Storage
Field (Victory) in northern West Virginia. The complaint was served on
April 10, 2000. On September 18, 2002, the parties executed a settlement
agreement with respect to this matter and the related case described
below, allowing Columbia Transmission to continue operating Victory at
full capacity during long wall mining. Technical teams from the parties
continue to finalize exhibits to the settlement agreement. Once these
exhibits are final, the parties will move to dismiss the litigation.
7. MCELROY COAL COMPANY V. COLUMBIA GAS TRANSMISSION CORPORATION
On February 12, 2001, McElroy Coal Company (McElroy), an affiliate of
Consolidation Coal Co., filed a complaint against Columbia Transmission in
Federal court in Wheeling, West Virginia. The West Virginia complaint
seeks declaratory and injunctive relief as to McElroy's alleged right to
mine coal within Victory, and Columbia Transmission's obligation to take
all necessary measures to permit McElroy to longwall mine. The complaint
also seeks compensation for the inverse condemnation of any coal that
cannot be mined due to Columbia Transmission's Victory operations. Except
for the claim of inverse condemnation, McElroy's West Virginia complaint
appears to be virtually identical to Consol's original counterclaim to
Columbia Transmission's Federal court action in Pennsylvania. On April 10,
2001, the West Virginia case was dismissed
18
ITEM 1. LEGAL PROCEEDINGS (continued)
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
without prejudice. On September 18, 2002, the parties executed a
settlement agreement with respect to this matter and the related case
described above, allowing Columbia Transmission to continue operating
Victory at full capacity during long wall mining. Technical teams from the
parties continue to finalize exhibits to the settlement agreement. Once
these exhibits are final, the parties will move to dismiss the litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Omitted pursuant to General Instruction H(2)(b)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted pursuant to General Instruction H(2)(b)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction H(2)(b)
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS TO FORM 10-Q
(a) Exhibits
(12) Statements of Ratio of Earnings to Fixed Charges (filed
herewith).
(99.1) Certification of Michael W. O'Donnell, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
(99.2) Certification of Dennis W. McFarland, Principal Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third quarter of 2002.
19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Columbia Energy Group
---------------------------------------
(Registrant)
Date: November 14, 2002 By: /s/ Jeffrey W. Grossman
---------------------------------------
Jeffrey W. Grossman
Vice President
(Principal Accounting Officer
and Duly Authorized Officer)
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael W. O'Donnell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Columbia
Energy Group;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Michael W. O'Donnell
-------------------------------------
Michael W. O'Donnell
President and Chief Executive Officer
21
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis McFarland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Columbia
Energy Group;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Dennis McFarland
-------------------------------------
Dennis McFarland
Principal Financial Officer
22