10-Q 1 w63056ae10vq.txt COLUMBIA ENERGY GROUP 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 JUNE 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 (IRS Employer incorporation or organization) Identification No.) 801 East 86th Avenue, Merrillville, IN 46410 ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (877) 647-5990 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 1, 2000, all shares of the registrant's Common Shares, $.01 par value, were issued and outstanding, all held beneficially and of record by NiSource Inc. The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. COLUMBIA ENERGY GROUP AND SUBSIDIARIES FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 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 Consolidated Common Stock Equity~~ .....~~.......~~ 76 ~~Statements of Consolidated Comprehensive Income~~ Notes........... ~~7 Notes~~ ...............................................~~......~~ 87 Item 2. Management's Narrative Analysis of Results of Operations ....... 1411 Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 1713 PART II OTHER INFORMATION Item 1. ~~Proceedings~~Legal Proceedings............................................... 1813 Item 2. Changes in Securities and Use of Proceeds ...................... 2015 Item 3. Defaults Upon Senior Securities ................................ 2015 Item 4. Submission of Matters to a Vote of Security Holders ............ 2015 Item 5. Other Information .............................................. 2015 Item 6. Exhibits and Reports on Form 8-K ............................... 2015 Signature .............................................................. 2117

2 PART I ITEM 1. FINANCIAL STATEMENTS COLUMBIA ENERGY GROUP AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (LOSS) (unaudited)

Three Months ~~Nine~~Six Months Ended ~~September~~June 30, Ended ~~September~~June 30, ------------------ ----------------------- (in millions) 2002 2001 ~~2000~~2002 2001 ~~2000~~ ------------------------------------------------------------------------------------------------------------------ NET REVENUES ~~Energy~~Gas ~~sales~~distribution ~~390~~$431.28 ~~159~~$688.3 $1,294.2 $2,~~082~~116.18 ~~1,020~~Gas transmission and storage 24.9 26.2 51.8 52.6 ~~Less:~~Exploration ~~Products~~and ~~purchased~~Production ~~238~~43.3 21.7 25109.36 ~~1,446~~69.9 Other products and services 13.8 4.5 ~~468~~28.30 26.5 ------------------------------------------------------------------------------------------------------------------ Gross ~~Margin~~Revenues ~~151~~513.58 ~~133~~740.97 ~~635~~1,483.6 ~~552~~2,265.38 ~~Transportation~~Cost ~~151.9~~of ~~147.5~~Sales ~~574~~105.57 ~~563~~355.32 ~~Production gas sales 36~~451.~~0 33.~~5 ~~103.4 115.3 Other 31.9 39.~~1 ~~111~~,212.06 ~~129.1~~ ------------------------------------------------------------------------------------------------------------------ Total Net Revenues ~~371~~408.31 ~~354~~385.05 1,~~424~~032.51 1,~~360~~053.02 ------------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Operation and maintenance ~~225~~198.9 ~~204~~205.95 ~~622~~380.83 ~~638~~406.95 Depreciation, amortization and depletion 5250.34 4350.50 ~~165~~109.41 ~~153~~108.06 Loss (gain) on sale or impairment of ~~telecommunication~~ assets --0.8 -- 89.2 --(2.7) 89.2 Other taxes 2937.18 3234.02 ~~128~~100.50 ~~141~~99.34 ------------------------------------------------------------------------------------------------------------------ Total Operating Expenses ~~307~~287.39 ~~280~~378.49 ~~1,005~~586.97 ~~933~~703.27 ------------------------------------------------------------------------------------------------------------------ OPERATING INCOME 64120.02 736.6 ~~418~~445.64 ~~426~~349.85 ------------------------------------------------------------------------------------------------------------------ OTHER INCOME (DEDUCTIONS) Interest ~~Income and other~~expense, net 2(28.79) 5(38.78) 6(58.16) ~~103~~(85.86) ~~Interest~~Other, ~~expense~~net ~~and related charges (40~~6.4)2 ~~(48~~4.3)6 ~~(125~~11.9)6 ~~(139~~3.2)4 ------------------------------------------------------------------------------------------------------------------ Total Other Income (Deductions) (3722.7) (4234.62) (~~119~~47.80) (3582.42) ------------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2697.35 31(27.06) ~~298~~398.84 ~~391~~267.43 INCOME ~~TAX~~TAXES ~~EXPENSE~~ (BENEFIT) 1236.53 11(9.54) ~~116~~150.24 ~~145~~101.62 -------------------------------------------------------------------------------------------------------------- ~~INCOME FROM CONTINUING OPERATIONS 13.8 19.5 182.6 245.8~~ ----~~----------------------------------------------------------------------------------------------------------~~ ~~DISCONTINUED~~INCOME ~~OPERATIONS - NET OF TAXES~~ (~~Loss~~LOSS) ~~from~~FROM ~~operations~~CONTINUING --OPERATIONS ~~-- -- (1~~61.5)2 ~~Estimated~~ (~~loss) on disposal (30~~18.82) ~~(83~~248.3)0 ~~(31~~166.8)1 ~~(110.7)~~ ------------------------------------------------------------------------------------------------------------------ (Loss) from Discontinued Operations - net of ~~taxes~~tax ~~(30.8) (83.3) (31.8) (112.2)~~ -- -- --~~--------------------------------------------------------------------------------------------------------~~ ~~INCOME~~ (~~LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (17~~1.0) ~~(63.8)~~Change ~~150.8~~in ~~133.6 Cumulative Effect of~~ Accounting ~~Change~~ - net of ~~taxes~~tax -- -- -- 4.0 -- ---------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ~~(17~~$ 61.0)2 $(6318.82) ~~154~~$ 248.80 ~~133~~$ 169.61 ==================================================================================================================

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~~JUNE 30, December 31, (in millions) 2002 2001 ~~2000~~ --------------------------------------------------------------------------------------------------------- (unaudited) ASSETS PROPERTY, PLANT AND EQUIPMENT ~~Gas~~Utility ~~utility and other~~ plant, ~~at original cost~~ $ 8,~~192~~355.92 $ 8,~~174~~267.20 Accumulated depreciation and amortization (3,~~852~~961.83) (3,~~778~~879.31) --------------------------------------------------------------------------------------------------------- Net ~~Gas~~utility ~~Utility~~plant ~~and Other Plant~~ 4,~~340~~393.19 4,~~395~~387.9 --------------------------------------------------------------------------------------------------------- Gas and oil producing properties, ~~full~~successful ~~cost~~efforts method United States cost center ~~975~~948.2 ~~913~~934.62 Canadian cost center 229.01 2014.2 Accumulated depletion (~~311~~422.12) (~~272~~407.74) --------------------------------------------------------------------------------------------------------- Net ~~Gas~~gas and ~~Oil~~oil ~~Producing~~producing ~~Properties~~properties ~~686~~535.1 ~~661~~541.10 --------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 54,~~026~~929.20 54,~~057~~928.09 --------------------------------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS ~~Unconsolidated affiliates 75.8 28.1~~ Net assets of discontinued operations ~~24.1~~-- ~~236~~30.30 ~~Affiliated~~Unconsolidated ~~notes~~affiliates ~~receivable~~57.7 2652.9 Assets held for sale 2.0 -- Other ~~17.3~~investments 2716.4 16.8 --------------------------------------------------------------------------------------------------------- Total Investments ~~and Other Assets 143~~76.41 ~~291~~99.87 --------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and ~~temporary~~ cash ~~investments~~equivalents 42267.3 7353.58 Accounts receivable, ~~net~~(less ~~356~~reserves of $25.58 ~~683~~and $25.3, ~~Affiliated~~respectively) ~~receivable 60~~270.07 2496.72 Gas inventory ~~293~~129.8 ~~147~~195.47 ~~Other~~Underrecovered ~~inventories~~gas -and atfuel ~~average~~costs ~~cost 13~~93.94 1460.51 ~~Prepayments~~Materials ~~90.5~~and ~~73.8~~supplies, ~~Regulatory~~at ~~assets~~average ~~72.6~~cost 5715.40 ~~Underrecovered gas costs 10~~14.35 ~~169.0~~Price ~~Deferred~~risk ~~property~~management ~~taxes~~assets 15.08 4565.28 Exchange gas receivable ~~275~~157.57 ~~615~~186.98 ~~Price~~Prepayments ~~risk~~and ~~management~~other ~~asset~~273.1 ~~122~~311.45 -- ~~Other 63.8 (2.3)~~ ------------------------------------------------------------------------------------------------------- Total Current Assets 1,~~416~~222.68 1,~~880~~384.4 --------------------------------------------------------------------------------------------------------- ~~REGULATORY~~OTHER ASSETS ~~348~~Price risk management assets 95.25 ~~351~~0.81 ~~DEFERRED~~Regulatory ~~CHARGES~~assets 60365.52 45364.2 Deferred charges and other 67.9 118.0 --------------------------------------------------------------------------------------------------------- Total Other Assets 528.6 482.3 --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 6,~~994~~756.95 $7 6,~~626~~895.23 =========================================================================================================

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~~JUNE 30, December 31, (in millions) 2002 2001 ~~2000~~ ------------------------------------------------------------------------------------- (unaudited) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common ~~stock~~Stock ~~equity~~Equity $2,~~266~~231.23 $2,~~035~~177.91 Long-term debt, excluding amounts due within one year 1,~~648~~365.41 1,~~639~~356.19 ------------------------------------------------------------------------------------- Total Capitalization 3,~~914~~596.64 3,~~675~~534.0 ------------------------------------------------------------------------------------- CURRENT LIABILITIES ~~Short term debt -- 521.0~~ Current ~~maturities~~portion of long-term debt 0281.27 0281.27 ~~Accounts~~Short-term ~~and~~borrowings ~~drafts payable 238.~~0 ~~398~~.08 ~~Affiliated~~-- Accounts payable ~~126~~174.79 7244.25 ~~Accrued~~Customer ~~taxes~~deposits ~~148~~19.60 ~~177~~14.10 ~~Accrued~~Taxes ~~interest~~accrued 51267.47 17232.78 ~~Estimated~~Interest ~~rate~~accrued ~~refunds 8~~40.38 628.86 Overrecovered gas and fuel costs ~~155~~28.89 --45.6 ~~Transportation~~Price ~~and~~risk ~~exchange~~management liabilities 9.5 4.8 Exchange gas payable ~~211~~306.1 ~~358~~285.51 ~~Deferred~~Current deferred revenue 91120.63 ~~451~~89.50 Other ~~365~~accruals 317.6 ~~366~~525.04 ------------------------------------------------------------------------------------- Total Current Liabilities 1,~~397~~567.3 21,~~304~~751.05 ------------------------------------------------------------------------------------- OTHER LIABILITIES AND DEFERRED CREDITS Price risk management liabilities -- 0.6 Deferred income taxes, ~~noncurrent 833~~812.9 ~~766~~759.84 ~~Investment~~Deferred investment tax credits 3029.10 3129.28 ~~Postretirement~~Deferred ~~benefits~~credits ~~other than pensions 108~~117.18 114.70 ~~Regulatory~~Noncurrent ~~liabilities~~deferred 33revenue 371.2 32435.4 ~~Deferred~~Accrued ~~revenue~~liability ~~464~~for postretirement benefits 115.68 ~~498~~116.02 Other ~~213~~noncurrent liabilities 146.1 ~~204~~154.14 ------------------------------------------------------------------------------------- Total Other ~~Liabilities and Deferred Credits~~ 1,~~683~~592.08 1,~~647~~609.28 ------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES -- -- ------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $6,~~994~~756.95 $76,~~626~~895.23 =====================================================================================

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~~Six Months Ended ~~September~~June 30, ( in millions) 2002 2001 ~~2000~~ -----------------------------------------------------------------------------------------------------------~~------~~ OPERATING ACTIVITIES Net Income ~~154~~$ 248.80 ~~133~~$ 169.61 Adjustments to reconcile net income to net cash from continuing operations: Loss from ~~discontinued operations -- 1.5 Loss from~~ disposal of discontinued operations ~~31.8~~-- ~~110~~1.70 ~~Cumulative~~Cummulative effect of accounting change, net of tax -- (4.0) -- Depreciation and depletion ~~165~~109.41 ~~153~~108.06 Deferred income taxes 47.9 (3561.64) ~~64.6~~Price ~~Gain~~risk onmanagement ~~sale~~activity ~~of partnership~~ (9040.57) -- Loss/Earnings from equity investment, net of distributions (434.08) ~~(9.7) Loss on impairment of telecommunication assets~~ 89.2 -- Deferred revenue (3332.49) ~~211~~(177.46) Other - net 5245.80 2175.46 -----------------------------------------------------------------------------------------------------------~~------~~ ~~378~~371.06 ~~596~~200.05 -----------------------------------------------------------------------------------------------------------~~------~~ Changes in components of working capital: Accounts receivable, net ~~320~~225.~~9 112.2 Affiliated receivable (83.~~5) 77148.7 Gas inventory ~~(146~~65.4)9 ~~(91~~81.6)4 ~~Other inventories - at average cost 0.6 1.5 Prepayments (16.7) (9.3)~~ Accounts payable (~~160~~69.06) ~~(12~~47.~~3) Affiliated payable 119.~~5 -- Accrued taxes ~~(28~~34.6)9 ~~(71~~41.6)0 Accrued interest 3312.~~7 43.~~2 ~~Estimated rate refunds 1~~0.53 ~~(14.1)~~ Under/Overrecovered gas costs ~~158.7~~ (5750.60) 271.0 Exchange gas receivable/payable ~~193~~50.01 (~~256~~9.86) ~~Deferred revenue (359.9) 396.0~~ Other working capital ~~143~~(107.17) 41(143.30) -----------------------------------------------------------------------------------------------------------~~------~~ Net Cash from ~~Continuing~~Operating ~~Operations~~Activities ~~553~~532.9 ~~754~~637.6 Net Cash from Discontinued Operations 178.9 17.9 ----------------------------------------------------------------------------------------------------------------- Net Cash from Operating Activities 732.8 ~~772.5~~ -----------------------------------------------------------------------------------------------------------~~------~~ INVESTMENT ACTIVITIES Capital expenditures (~~257~~126.82) (~~305~~145.91) ~~Capital~~Purchases ~~expenditures~~and -sales ~~assets~~of ~~held~~investments ~~for~~- ~~sale~~net -- ~~(41~~7.~~1) Sale and purchase of investments~~ 8.2 ~~107.5~~ -----------------------------------------------------------------------------------------------------------~~------~~ Net Investment Activities (~~249~~126.62) (~~239~~137.53) -----------------------------------------------------------------------------------------------------------~~------~~ FINANCING ACTIVITIES ~~Dividends paid -- (54.1)~~ Issuance ~~of common stock -- 5.4 Issuance~~ (repayment) of short-term debt 0.8 (521.0) ~~(411.4)~~Dividend ~~Purchase~~to ofNiSource ~~treasury stock --~~ (~~114~~201.18) -- Other financing activities 57.8 13(14.47) -----------------------------------------------------------------------------------------------------------~~------~~ Net Financing Activities (~~515~~193.2) (~~560~~535.87) -----------------------------------------------------------------------------------------------------------~~------~~ Increase (Decrease) in cash and ~~temporary~~ cash ~~investments~~equivalents ~~(31~~213.1)5 (2735.82) Cash and ~~temporary~~ cash ~~investments~~equivalents at beginning of year 53.8 73.5 ~~58.1~~ -----------------------------------------------------------------------------------------------------------~~------~~ ~~CASH~~Cash ~~AND~~and ~~TEMPORARY~~cash ~~CASH~~equivalents ~~INVESTMENTS~~at ATend ~~SEPTEMBER~~of 30*period 42$ 267.43 30$ 38.3 ===========================================================================================================~~======~~ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest 927.80 898.03 Cash paid for income taxes (net of refunds) 86.94 687.29 -----------------------------------------------------------------------------------------------------------~~------~~

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 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. For all of the plans, a total of approximately 790 management, professional, administrative and technical positions have been identified for elimination. As of June 30, 2002, approximately 530 employees had been terminated, of which approximately 77 employees and 80 employees were terminated during the quarter and six months ended June 30, 2002, respectively. At June 30, 2002 and December 31, 2001, the consolidated balance sheets reflected liabilities of $27.5 million and $31.4 million related to the restructuring plans, respectively. During the quarter and six months ended June 30, 2002, $4.3 million of benefits were paid as a result of the restructuring plan. Additionally, during the six months ended June 30, 2002, the restructuring plan liability was decreased by $0.4 million. 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 loss on the sale of Columbia Propane amounted to an after-tax loss of $50.6 million. Columbia has also sold substantially all the assets of Columbia Petroleum Corporation. The loss from discontinued operations are provided in the following table: 7 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES

~~SEPTEMBER~~Three Months Six Months Ended June 30, ~~December~~Ended 31June 30, ----------------------------------------------- (in millions) 2002 2001 ~~2000~~2002 2001 --------------------------------------------------------------------------------------------- ~~(unaudited)~~REVENUES ~~Common~~FROM ~~stock,~~DISCONTINUED OPERATIONS $~~.01~~ ~~par~~-- ~~value,~~$ ~~authorized~~-- ~~and~~$ ~~issued~~-- ~~3,000 shares~~ $ -- $--------------------------------------------------------------------------------------------- ~~0.8~~Loss ~~Additional~~from ~~paid~~discontinued inoperations ~~capital~~$ ~~1,369.8~~-- ~~1,369.0~~$ ~~Retained~~-- ~~earnings~~$ ~~821.0~~-- ~~666~~$(1.5) ~~Accumulated~~Income ~~other~~tax ~~comprehensive~~benefit ~~income~~-- ~~75.4~~-- -- (0.45) --------------------------------------------------------------------------------------------- ~~TOTAL~~NET ~~COMMON~~LOSS ~~STOCK~~FROM ~~EQUITY~~DISCONTINUED OPERATIONS $~~2,266.2~~ -- $~~2,035~~ -- $-- $(1.90) =============================================================================================

Columbia Resources has entered into an agreement to sell a portion of its Canadian oil and gas properties. This transaction is expected to occur during the third quarter of 2002. The agreement calls for the sale of the majority of the Ontario assets for approximately $2.0 million. Because the selling price 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 addition, the remaining Ontario assets were impaired, resulting in a $0.5 million charge to operating income. The net assets of assets held for sale and discontinued operations were as follows:

~~SEPTEMBER~~JUNE 30, December 31, ~~For the Year to Date Period Ended,~~ (in millions) 2002 2001 ~~2000~~ --------------------------------------------------------------------------------------------~~-------~~ ~~(unaudited)~~NET ~~COMPREHENSIVE~~ASSETS ~~INCOME~~OF ~~Net~~ASSETS ~~income~~HELD $FOR ~~154.8~~SALE $AND ~~133.7~~DISCONTINUED ~~Other~~OPERATIONS ~~comprehensive~~Gas ~~income~~and ~~(loss)~~oil -producing ~~net~~properties of$ ~~tax Foreign currency translation adjustment (1~~2.~~3) (~~0~~.7)~~ ~~Change~~$ on-- ~~value~~Other ofassets ~~marketable~~-- ~~securities 3~~30.0 --Accounts ~~Net~~payable ~~gain on cash flow hedges 73.7~~ -- --------------------------------------------------------------------------------------------~~-------~~ ~~COMPREHENSIVE~~NET ~~INCOME~~ASSETS OF ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS $ ~~230.~~2.0 $ ~~133~~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." SFAS NO. 133. The activity for 2002 with respect to cash flow hedges included the following:

Three Months ~~Nine Months~~ Ended ~~September~~Six ~~30,~~Months Ended ~~September 30, ------------------------ ---------------------------~~ ($ in millions), ~~2001~~net ~~2000~~of ~~2001~~tax) ~~2000~~June ~~------------------------------------------------------------------------------------------------------------~~30, ~~REVENUES~~2002 ~~TRANSMISSION~~June ~~AND~~30, ~~STORAGE~~2002 ~~Unaffiliated 129.0 133.9 453.9 444.3 Intersegment and affiliates 54.9 53.2 181.4 176.4~~ ------------------------------------------------------------------------------------------------------------ ~~Total 183.9 187.1 635.3 620.7~~ ------~~------------------------------------------------------------------------------------------------------~~ ~~DISTRIBUTION~~Net ~~Unaffiliated~~unrealized ~~410.5~~gains ~~196.7~~on ~~2,237.8~~derivatives ~~1,233.3~~qualifying ~~Intersegment~~as ~~and~~cash ~~affiliates~~flow ~~3.0~~hedges ~~0.1~~at ~~3.0~~the ~~0.9~~beginning ~~------------------------------------------------------------------------------------------------------------~~of ~~Total~~the ~~413.5~~period ~~196.8~~$ ~~2,240~~36.86 ~~1,234.2~~$ ~~------------------------------------------------------------------------------------------------------------ EXPLORATION AND PRODUCTION Unaffiliated 43~~52.~~5 39.~~4 ~~117.7~~Unrealized ~~131.3~~hedging ~~Intersegment~~gains ~~and~~arising ~~affiliates~~during ~~17.3~~the ~~0.5~~period ~~45.8~~on ~~1.4~~derivatives ~~------------------------------------------------------------------------------------------------------------~~qualifying ~~Total~~as ~~60.8~~cash ~~39.9~~flow ~~163.5~~hedges ~~132~~24.~~7 ------------------------------------------------------------------------------------------------------------ OTHER PRODUCTS AND SERVICES Unaffiliated~~ 6.2 1033.48 ~~20.0~~Reclassification ~~38.9~~adjustment ~~Intersegment~~for ~~and~~net ~~affiliates~~loss ~~0.1~~ (~~0.2~~gain) ~~0.2~~included ~~(0.2)~~in ~~------------------------------------------------------------------------------------------------------------~~net ~~Total~~income ~~6.3 10.~~2 20.24 ~~38.7 ------------------------------------------------------------------------------------------------------------ Adjustments and eliminations~~ (5322.56) ~~(53.3) (178.5) (178.2)~~ ------------------------------------------------------------------------------------------------------------ ~~CONSOLIDATED 611.0 380.7 2,881.3 1,848.1~~ ------~~------------------------------------------------------------------------------------------------------~~ ~~OPERATING~~Net ~~INCOME~~unrealized ~~(LOSS)~~gains ~~Transmission~~on ~~and~~derivatives ~~Storage~~qualifying ~~50.5~~as ~~61.3~~cash ~~263.3~~flow ~~252.1~~hedges, ~~Distribution~~net ~~(1.4)~~of ~~12.3~~tax ~~204.7~~$ ~~149~~63.96 ~~Exploration~~$ ~~and Production 21~~63.1 15.5 57.1 51.3 Other Products and Services (2.8) (15.8) (101.5) (14.5) Corporate (3.4) 0.3 (5.0) (12.0) ------------------------------------------------------------------------------------------------------------ CONSOLIDATED 64.0 73.6 ~~418.6 426.8 ------------------------------------------------------------------------------------------------------------~~==================================================================================================================

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 $111.3 million and $65.9 million at June 30, 2002 and December 31, 2001, respectively, of which $15.8 million and $65.8 million were included in "Current Assets" and $95.5 million and $0.1 million were included in "Other Assets." Price risk management liabilities related to unrealized gains and losses on hedges were $9.5 million and $5.4 million at June 30, 2002 and December 31, 2001, respectively, of which $9.5 million and $4.8 million were included in "Current Liabilities" and zero and $0.6 million were included in "Other Liabilities and Deferred Credits." 8 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES During the second quarter of 2002, no amounts were 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 second quarter, Columbia reclassified $0.4 million, net of tax, related to its cash flow hedges of natural gas production, from other comprehensive income to earnings due to the probability that 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 $11.5 million, net of tax. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) NISOURCE INC. TRANSMISSION AND STORAGE OPERATIONS 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, a 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 presently has no goodwill recorded, and therefore, these new statements do not presently affect the company. 6. TELECOMMUNICATIONS NETWORK Columbia, through its subsidiary Columbia Transmission Communications Corporation (Transcom), has built a dark-fiber optics telecommunications network primarily along its pipeline rights-of-way between New York and Washington D.C. In August 2001, Transcom invited potential buyers to submit bids for the assets. Based on the results of the bids, management decided to operate the network while continuing to evaluate the possibility of a sale based on conditions in the telecommunications market. The anticipated cash flow from Transcom's most recent business plan indicated that the asset's current carrying value was ultimately realizable. The realizability of the asset's carrying value is dependent upon management's ability to execute the business plan or alternative strategies. However, the unfavorable market conditions remain and continue to adversely impact Transcom's ability to implement its business plan. Management is continuing to pursue and evaluate strategic alternatives, including a sale. 7. LONG-TERM NOTES RECEIVABLE In 1999, Columbia Gas Transmission Corp. (Columbia Transmission) sold certain gathering facilities to a third-party for approximately $22 million. The two parties executed a promissory note, which provides for payment of the purchase price to Columbia Transmission over a five-year period. The balance, including interest, is approximately $18 million. The counterparty is currently behind schedule in making payments under the note, which is secured by the facilities conveyed to the purchaser. In the second quarter, an appropriate reserve was recorded against the receivable in light of the failure to receive timely payments from the counterparty. Management is continuing to review the realizability of the note and the security provided thereon. Once this review is complete, management will evaluate the need for any adjustment to the reserve. However, it is not anticipated that this matter will have a significant impact on Columbia's results of operations. 10 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES 11 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES 8. 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~~Six Months Ended ~~September~~June 30, Ended ~~September~~June 30, ---------------------- -------------------------- ($ in millions) 2002 2001 ~~2000~~2002 2001 ~~2000~~ ---------------------------------------------------------------------------------------------------- ~~Propane~~REVENUES 20DISTRIBUTION Unaffiliated $312.8 49$546.5 $1,021.7 $1,822.9 ~~229~~Intersegment and affiliates 3.68 ~~213~~(0.74) ~~Petroleum~~8.4 (0.1) ---------------------------------------------------------------------------------------------------- 73Total 316.6 48546.81 ~~217~~1,030.41 ~~Gas~~1,822.8 ---------------------------------------------------------------------------------------------------- 20TRANSMISSION AND STORAGE Unaffiliated 140.5 141.8 314.5 324.9 Intersegment and affiliates 54.9 54.1 126.1 126.5 ---------------------------------------------------------------------------------------------------- ~~186~~Total 195.4 195.9 ~~Other~~440.6 451.4 ---------------------------------------------------------------------------------------------------- 8EXPLORATION AND PRODUCTION Unaffiliated 38.7 21.0 96.9 74.2 Intersegment and affiliates 9.7 26.7 25.1 28.5 ---------------------------------------------------------------------------------------------------- Total 48.4 47.7 122.0 102.7 ---------------------------------------------------------------------------------------------------- OTHER PRODUCTS AND SERVICES Unaffiliated 6.7 4.6 12.2 13.8 Intersegment and affiliates -- 39-- 0.1 0.1 ---------------------------------------------------------------------------------------------------- Total 6.7 4.6 12.3 13.9 ---------------------------------------------------------------------------------------------------- ~~TOTAL~~Adjustments 20and eliminations (53.3) (53.6) (121.4) (125.0) ---------------------------------------------------------------------------------------------------- CONSOLIDATED REVENUES $513.8 ~~153~~$740.7 $1,483.6 ~~278~~$2,265.8 ---------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) Distribution $ 38.4 ~~657~~$ 15.9 $ 190.1 $ 206.1 Transmission and Storage 75.6 72.3 201.4 212.7 Exploration and Production 12.4 13.1 50.8 30.9 Other Products and Services (4.5) (93.9) 5.2 (98.7) Corporate (1.7) (0.8) (2.1) (1.5) ---------------------------------------------------------------------------------------------------- CONSOLIDATED $120.2 $ 6.6 $ 445.4 $ 349.5 ----------------------------------------------------------------------------------------------------

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. SECOND QUARTER 2002 CONSOLIDATED RESULTS Net Income Columbia reported net income for the second quarter 2002 of $61.2 million, an increase of $79.4 million from the second quarter of 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 and increased net revenues resulting from weather that was 41% colder for the second quarter of 2002 when compared to the same period in 2001. Net Revenues Second quarter 2002 consolidated net revenues (operating revenues less cost of sales) were $408.1 million, a $22.6 million increase over the same period last year. This increase was primarily attributable to 41% colder weather as compared to the second quarter of 2001. Expenses Operating expenses for the second quarter of 2002 were $287.9 million, a decrease of $91.0 million from the same period last year. The decrease was primarily due to the $89.2 million write-down related to Columbia's telecommunications network investment that occurred in the 2001 period. 13 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Other Income (Deductions) Other Income (Deductions) reduced pre-tax income by $22.7 million for the second quarter of 2002 compared to a reduction of $34.2 million in the same period last year. The $11.5 million improvement was due to a reduction in interest expense of $9.9 million resulting from a reduction in long-term debt and lower short-term interest rates. Income Taxes Income tax expense of $36.3 million for the second quarter of 2002 increased $45.7 million due to higher pre-tax income. SIX MONTHS CONSOLIDATED RESULTS Net Income Columbia reported net income for the first six months of 2002 of $248.0 million, an increase of $78.9 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, lower interest expense, increased exploration and production net revenues reflecting the benefits of favorable pricing associated with hedge positions for production in the first quarter of the 2002 period and insurance recoveries for environmental expenses. Net Revenues The first half of 2002 consolidated net revenues (operating revenues less cost of sales) were $1,032.1 million, a $21.1 million decrease over the same period last year. This decrease was primarily attributable to 8% warmer weather compared to the prior period, reduced off-system sales and a 2001 $11.4 million gain on the sale of base gas. Partially offsetting the decreases was increased exploration and production net revenues reflecting the benefits of favorable pricing associated with hedge positions for production in the 2002 period. Expenses Operating expenses for the first six months of 2002 were $586.7 million, a decrease of $117.0 million from the same period last year. The decrease was mainly due to the $89.2 million write-down related to Columbia's telecommunications network investment that occurred in the 2001 period, lower amounts provided for uncollectible customer receivables and insurance recoveries for environmental expenses. Other Income (Deductions) Other Income (Deductions) reduced pre-tax income by $47.0 million for the first half of 2002 compared to a reduction of $82.2 million in the same period last year. This change is primarily due to a reduction in interest expense of $27.0 million resulting from a decrease in long-term debt and lower short-term interest rates. Income Taxes Income tax expense of $150.4 million for the first half of 2002 increased $49.2 million due to higher pre-tax income. Discontinued Operations For the first six months in 2002, Columbia had no activity for discontinued operations. During the first six months of 2001, Columbia recorded an after-tax loss on disposal of $1.0 million relating to its propane business. LIQUIDITY AND CAPITAL RESOURCES A significant portion of Columbia's operations is subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from sales and transportation services typically exceed cash requirements. Conversely, during the remainder of the year, cash on hand together with external short-term financing, as needed, is used to purchase gas to place in storage for heating season deliveries, perform necessary maintenance of facilities, make capital improvements in plant and expand service. 14 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Columbia satisfies its liquidity requirements primarily through internally generated funds and through intra-system financing arrangements with NiSource Finance Corp. (NFC), NiSource's financing subsidiary. NFC borrows funds through its revolving credit facility and through the commercial paper markets. NFC maintains a $1.75 billion revolving credit facility with a syndicate of banks for advance purposes and for back-up liquidity purposes for its commercial paper program. The credit facility is guaranteed by NiSource. As of June 30, 2002, Columbia did not have any intercompany short-term borrowings with NFC outstanding. In addition, at June 30, 2002, Columbia had letters of credit issued and outstanding of $49.5 million. Columbia has entered into interest rate swap agreements to modify the interest characteristics of its outstanding long-term debt. Under the terms of all the swap agreements, Columbia pays interest based on a floating rate index and receives interest based on a fixed rate. The effect of these agreements is to modify the interest rate characteristics of a portion of Columbia's long-term debt from fixed to variable. 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 June 30, 2002, Columbia Gas of Ohio has sold $79.1 million to the conduit. Management believes that its sources of funding are sufficient to meet the short-term and long-term liquidity needs of Columbia. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omitted pursuant to General Instruction H(2)(c). 15 PART II ITEM 1. LEGAL PROCEEDINGS COLUMBIA ENERGY GROUP AND SUBSIDIARIES 1. CANADA SOUTHERN PETROLEUM LTD. V. COLUMBIA GAS DEVELOPMENT OF CANADA LTD. This action was originally filed March 7, 1990. The plaintiffs asserted, among other things, that the defendant working interest owners, including Columbia Gas Development of Canada Ltd. (Columbia Canada) and various Amoco affiliates, breached an alleged fiduciary duty to ensure the earliest feasible marketing of gas from the Kotaneelee field (Yukon Territory, Canada). The plaintiffs sought, among other remedies, the return of the defendants' interests in the Kotaneelee field to the plaintiffs, a declaration that such interests are held in trust for the plaintiffs and an order requiring the defendants to promptly market Kotaneelee gas or assessing damages. In November 1993, the plaintiffs amended their Amended Statement of Claim to include allegations that the balance in the Carried Interest Account (an account for operating costs, which are recoverable, by working interest owners), which is in excess of the balance as of November 1988, should be reduced to zero. Columbia 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. The plaintiff filed a complaint under the False Claims Act, on behalf of the United States of America, against approximately seventy pipelines. The plaintiff claimed that the defendants had submitted false royalty reports to the government (or caused others to do so) by mismeasuring the volume and heating content of natural gas produced on Federal land and Indian lands. Plaintiff's original complaint was dismissed without prejudice for misjoinder of parties and for failing to plead fraud with specificity. In 1997, the plaintiff then filed over sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal courts. One of those complaints was filed in the Federal District Court for the Eastern District of Louisiana against Columbia and 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 16 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. and Columbia Transmission. The complaint alleges that Kershaw owns an interest in an oil and gas lease in New York and that the defendants have underpaid royalties on those leases by, among other things, failing to base royalties on the price at which natural gas is sold to the end user and by improperly deducting post-production costs. The complaint also seeks class action status on behalf of all royalty owners in oil and gas leases operated by Columbia Resources. Plaintiff seeks the alleged royalty underpayments and punitive damages. Columbia Resources and Columbia Transmission removed the case to Federal court in March 2000. The Federal court has 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. Recovery regarding claim 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 Propane was sold in 2001. Plaintiff's complaint arises from an explosion and fire, which occurred in a Wisconsin vacation cottage in 1997. National Propane, L.P. filed a third-party complaint for contribution against Natural Gas Odorizing and Phillips Petroleum Company. Written discovery has been completed and 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. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described below. 7. MCELROY COAL COMPANY V. COLUMBIA GAS TRANSMISSION CORPORATION. On February 12, 2001, McElroy Coal Company (McElroy), an affiliate of Consolidation Coal Co., filed a complaint against Columbia Transmission in Federal court in Wheeling, West Virginia. The West Virginia complaint seeks declaratory and injunctive relief as to McElroy's alleged right to mine coal within Victory, and Columbia Transmission's obligation to take all necessary measures to permit McElroy to longwall mine. The complaint also seeks compensation for the inverse condemnation of any coal that cannot be mined due to Columbia Transmission's Victory operations. Except for the claim of inverse condemnation, McElroy's West Virginia complaint appears to be virtually identical to Consol's original counterclaim to Columbia Transmission's Federal court action in Pennsylvania. On April 10, 2001, the West Virginia case was dismissed without prejudice. In October 2001, the parties reached an agreement in principle to settle this matter and the related case described above. 17 COLUMBIA ENERGY GROUP AND SUBSIDIARIES 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 second quarter of 2002. 18 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: August 9, 2002 By: /s/ Jeffrey W. Grossman ----------------------------------- Jeffrey W. Grossman Vice President and Controller (Principal Accounting Officer and Duly Authorized Officer) 19

Three Months Nine Months Ended September 30, Ended September 30, --------------------------- -------------------------- ($ in millions) 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------------- Loss from discontinued operations -- -- -- 2.0 Income tax benefit -- -- -- 0.5 ---------------------------------------------------------------------------------------------------------------- NET LOSS FROM DISCONTINUED OPERATIONS -- -- -- 1.5 ---------------------------------------------------------------------------------------------------------------- Loss on disposal (47.4) 128.2 (48.9) 166.3 Income tax benefits (16.6) 44.9 (17.1) 55.6 ---------------------------------------------------------------------------------------------------------------- NET LOSS ON DISPOSAL (30.8) 83.3 (31.8) 110.7 ----------------------------------------------------------------------------------------------------------------

SEPTEMBER 30, December 31, ($ in millions) 2001 2000 ----------------------------------------------------------------------------- NET ASSETS OF DISCONTINUED OPERATIONS Accounts receivable, net -- 91.3 Property, plant and equipment, net -- 212.2 Other assets 8.7 70.2 Accounts payable (0.6) (68.3) Other liabilities 15.9 (69.1) ----------------------------------------------------------------------------- NET ASSETS OF DISCONTINUED OPERATIONS 24.0 236.3 -----------------------------------------------------------------------------

(in millions) ASSETS LIABILITIES ----------------------------------------------------------------------------------- Price Risk Management $ 153.6 $ 209.8 Deferred Taxes -- (16.0) Regulatory 6.6 -- Debt -- (3.8) ----------------------------------------------------------------------------------- TOTAL $ 160.2 $ 190.0 -----------------------------------------------------------------------------------

Three Months Nine Months Ended September 30, Ended September 30, ------------------- -------------------- (in millions) 2001 2001 ---------------------------------------------------------------------------------------------------------------------- UNREALIZED GAINS ON DERIVATIVES QUALIFYING AS CASH FLOW HEDGES: Unrealized holding gain (loss) arising during the period due to cumulative effect of a change in accounting principle, recognized at January 1, 2001, net of tax $ -- $ (33.6) Unrealized holding gains arising during the period on derivatives qualifying as cash flow hedges, net of tax 11.4 95.8 Reclassification adjustment for net loss (gain) included in net income, net of tax (including gains of $4.4 and losses of $14.7 million, respectively, related to the cumulative effect of change in accounting principle) (7.1) 11.5 ---------------------------------------------------------------------------------------------------------------------- Net unrealized gains on derivatives qualifying as cash flow hedges, net of tax $ 4.3 $ 73.7 ----------------------------------------------------------------------------------------------------------------------

Exhibit Number ------ 10-P Pension Restoration Plan of the Columbia Gas System, Inc., amended and restated March 1, 1997, hereby incorporated by reference in NiSource's Quarterly Report on Form 10-Q for the period ended September 30, 2001, in exhibit 10.27. 10-Q Thrift Restoration Plan of the Columbia Gas System, Inc., amended and restated January 1, 2000, hereby incorporated by reference in NiSource's Quarterly Report on Form 10-Q for the period ended September 30, 2001, in exhibit 10.28. 12* Statements of Ratio of Earnings to Fixed Charges *Filed herewith

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