10-Q 1 c78916e10vq.txt FORM 10-Q 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, 2003 [ ] 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] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] or No [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 MARCH 31, 2003 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 Comprehensive Income (Loss)..................~~.............~~ 7 Notes................................................................... 8 Item 2. Management's Narrative Analysis of Results of Operations................ 1315 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............. 1521 Item 4. Controls and Procedures................................................. 1621 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................................... 1722 Item 2. Changes in Securities and Use of Proceeds............................... 1924 Item 3. Defaults Upon Senior Securities......................................... 1924 Item 4. Submission of Matters to a Vote of Security Holders..................... 1924 Item 5. Other Information....................................................... 1924 Item 6. Exhibits and Reports on Form 8-K........................................ 1924 Signature........................................................................ ~~20 Certifications................................................................... 21~~25

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) 2003 2002 2003 2002 --------------------------- ~~(in millions) 2002 2001 2002 2001~~ -------- -------- -------- -------------------------------------------------------------------- NET REVENUES ~~Gas~~Distribution ~~distribution~~ $ ~~235~~326.36 $ ~~418~~251.70 $1,~~270~~348.21 $~~2,256~~ 839.5 ~~Gas~~Transmission ~~transmission~~ and ~~storage~~Storage ~~133~~204.43 ~~134~~201.8 ~~444~~511.53 ~~445~~495.57 ~~Exploration~~Other ~~and~~5.8 ~~Production 37~~8.3 ~~54.~~6 ~~146~~.95 ~~150~~14.46 ~~Other~~Affiliated ~~products~~revenues ~~and services 10~~2.85 5.42 384.83 3113.90 -------- -------- -------- ----------------------------------------------------------------------------------------------- Gross Revenues ~~416~~539.82 ~~613~~466.53 1,~~900~~870.4 2 1,~~884~~362.38 Cost of Sales 64180.49 ~~242~~105.7 882.1 ~~515~~448.92 ~~1,459~~Cost of Sales - Affiliated - - 4.78 3.4 -------- -------- -------- ----------------------------------------------------------------------------------------------- Total Net Revenues ~~352~~358.43 ~~371~~360.46 ~~1,384~~983.53 ~~1,424~~911.62 -------- -------- -------- ----------------------------------------------------------------------------------------------- OPERATING EXPENSES Operation and maintenance ~~163~~146.31 ~~307~~178.21 ~~544~~334.46 ~~713~~335.78 Depreciation, ~~amortization~~ and ~~depletion~~amortization 4441.50 6538.27 ~~153~~82.62 ~~173~~87.81 Loss (Gain) ~~loss~~ on sale ~~or impairment~~ of assets (10.7)2 -- (50.21) 890.2 (3.9) Other taxes 2937.54 2933.14 ~~129~~106.57 ~~128~~91.59 -------- -------- -------- ----------------------------------------------------------------------------------------------- Total Operating Expenses ~~235~~224.67 ~~401~~250.51 ~~822~~523.37 ~~1,105~~510.29 -------- -------- -------- ----------------------------------------------------------------------------------------------- OPERATING INCOME ~~(LOSS) 116~~133.86 ~~(30~~110.1)5 ~~562~~459.26 ~~319~~400.43 -------- -------- -------- ----------------------------------------------------------------------------------------------- OTHER INCOME (DEDUCTIONS) Interest expense, ~~net~~(20.7) (2627.7) (42.4) (55.6) Interest expense - affiliated (1.1) (400.39) (842.7) (~~125~~2.97) ~~Other,~~Interest ~~net~~income 31.95 21.7 153.5 3.8 Interest income - affiliated 3.8 3.5 6.9 7.2 Other, net - 0.5 0.2 (0.1) -------- -------- -------- ----------------------------------------------------------------------------------------------- Total Other Income (Deductions) (2216.25) (3722.69) (6934.25) (~~119~~47.84) -------- -------- -------- ----------------------------------------------------------------------------------------------- INCOME ~~(LOSS)~~ FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 94117.61 ~~(67~~87.7)6 ~~493~~425.01 ~~199~~352.69 INCOME TAXES ~~(BENEFIT) 34~~46.70 ~~(22~~32.2)5 ~~185~~161.17 79132.06 -------- -------- -------- ----------------------------------------------------------------------------------------------- INCOME ~~(LOSS)~~ FROM CONTINUING OPERATIONS 5971.91 ~~(45~~55.5)1 ~~307~~263.94 ~~120~~220.63 -------- -------- -------- ----------------------------------------------------------------------------------------------- Income (Loss) from Discontinued Operations - net of ~~tax~~taxes (0.7) 6.1 (1.4) 27.7 Loss on Disposition of Discontinued Operations -- net of taxes (61125.14) -- (6281.10) - Change in Accounting - net of ~~tax~~taxes - - (16.8) -- -- ~~4.0~~ -------- -------- -------- --------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 59(55.90) $ ~~(106~~61.6)2 $ ~~307~~164.92 $ 62248.50 ======== ======== ======== ===============================================================================================

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) 2003 2002 ~~2001~~ -------- ----------------------------------------------------------------------------------------------------------- (unaudited) ASSETS PROPERTY, PLANT AND EQUIPMENT Utility ~~plant~~Plant $ 8,~~414~~163.74 $ 8,~~267~~119.02 Accumulated depreciation and amortization (3,~~991~~931.27) (3,~~879~~886.1) -------- ----------------------------------------------------------------------------------------------------------- Net utility plant 4,~~423~~231.57 4,~~387~~233.91 -------- ----------------------------------------------------------------------------------------------------------- ~~Gas~~Other ~~and oil producing properties~~property, ~~successful~~at ~~efforts method United States~~ cost, ~~center~~less ~~975.7~~accumulated ~~934.2~~depreciation ~~Canadian cost center 6~~1.29 141.28 ~~Accumulated depletion (429.5) (407.4)~~ -------- -------- ~~Net gas and oil producing properties 552.4 541.0~~ -------- ------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 4,~~975~~233.96 4,~~928~~234.9 -------- ----------------------------------------------------------------------------------------------------------- INVESTMENTS AND OTHER ASSETS ~~Net~~Assets ~~assets~~ of discontinued operations --and ~~30.0~~assets ~~Unconsolidated~~held ~~affiliates~~for 58sale 811.04 52836.93 ~~Assets~~Unconsolidated ~~held~~affiliates ~~for~~33.2 ~~sale 1~~35.90 -- Other investments 1840.83 1621.82 -------- ----------------------------------------------------------------------------------------------------------- Total Investments 78884.79 99892.75 -------- ----------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents ~~218~~16.58 5338.87 Cash invested in the NiSource money pool 274.7 - Accounts receivable (less reserves of $1725.46 and $2513.31, respectively) ~~261~~341.2 307.7 Unbilled revenue (less reserves of $0.1 ~~496~~and $2.2, respectively) 52.1 173.4 Gas inventory ~~320~~123.61 ~~195~~214.7 Underrecovered gas and fuel costs ~~101~~52.06 6090.1 Materials and supplies, at average cost 15.09 1415.53 Price risk management assets 1635.54 6525.84 Exchange gas receivable ~~144~~210.70 ~~186~~103.89 Prepayments and other ~~168~~156.2 ~~260~~156.36 -------- ----------------------------------------------------------------------------------------------------------- Total Current Assets 1,~~245~~278.50 1,~~333~~125.28 -------- ----------------------------------------------------------------------------------------------------------- OTHER ASSETS Price risk management assets ~~107~~151.03 0111.1 Regulatory assets ~~363~~355.15 ~~364~~359.4 Intangible assets, less accumulated amortization 2.9 2.9 Deferred charges and other ~~119~~79.04 ~~169~~81.20 -------- ----------------------------------------------------------------------------------------------------------- Total Other Assets 589.1 ~~533~~554.54 -------- ----------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 6,~~889~~985.26 $ 6,~~895~~807.36 ======== ===========================================================================================================

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) 2003 2002 ~~2001~~ -------- ---------------------------------------------------------------------------------------------------------- (unaudited) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity $ 2,~~262~~591.42 $ 2,~~177~~396.12 Long-term debt, excluding amounts due within one year 1,~~388~~390.1 1,~~356~~387.98 -------- ---------------------------------------------------------------------------------------------------------- Total Capitalization 3,~~650~~981.53 3,~~534~~784.0 -------- ---------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Current portion of long-term debt ~~281~~0.72 ~~281~~0.72 Short-term borrowings - 0.8 Accounts payable ~~162~~240.72 ~~244~~204.52 Accounts payable-Affiliated 24.2 122.7 Customer deposits 1820.45 1421.0 Taxes accrued ~~245~~265.48 ~~232~~169.84 Interest accrued 7531.0 2818.68 Overrecovered gas and fuel costs 2429.28 4513.61 Price risk management liabilities 122.12 43.83 Exchange gas payable ~~410~~362.96 ~~285~~411.19 Current deferred revenue ~~126~~16.29 8916.09 Accrued liability for postretirement and postemployment benefits 32.8 27.4 Other accruals ~~379~~307.93 ~~525~~316.41 -------- ---------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,~~736~~333.5 1,~~751~~325.58 -------- ---------------------------------------------------------------------------------------------------------- OTHER LIABILITIES AND DEFERRED CREDITS ~~Price risk management liabilities -- 0.6~~ Deferred income taxes ~~774~~723.73 ~~759~~649.45 Deferred investment tax credits 2827.76 2928.83 Deferred credits ~~125~~47.3 ~~114~~41.06 Noncurrent deferred revenue ~~338~~127.32 ~~435~~130.41 Accrued liability for postretirement and ~~pension~~postemployment benefits ~~112~~95.42 ~~116~~103.2 Liabilities of discontinued operations and liabilities held for sale 458.2 539.0 Other noncurrent liabilities ~~122~~192.80 ~~154~~206.41 -------- ---------------------------------------------------------------------------------------------------------- Total Other 1,~~502~~670.28 1,~~609~~697.8 -------- ---------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES - - -- -------- -------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $ 6,~~889~~985.26 $ 6,~~895~~807.36 ======== ==========================================================================================================

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) 2003 2002 ~~2001~~ ------ ------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income $~~307~~ 164.92 $ 62248.50 Adjustments to reconcile net income to net cash from continuing operations: ~~Loss~~Depreciation ~~from~~and ~~disposal~~amortization of82.2 ~~discontinued operations -- 62~~87.1 ~~Cumulative~~Net ~~effect~~changes ofin ~~accounting~~price ~~change,~~risk ~~net~~management ofactivities ~~tax --~~ (19.4) (46.05) ~~Depreciation~~Deferred income taxes and ~~depletion~~investment ~~153~~tax credits 59.69 ~~173~~43.8 Deferred ~~income~~revenue ~~taxes 66.6~~ (352.69) ~~Price risk management activity~~ (~~19.~~8.0) --Gain ~~Earnings~~on ~~from~~sale ~~equity investment, net~~ of ~~distributions~~assets (70.2) (433.09) Change in accounting 16.8 - Loss on ~~impairment~~sale of ~~telecommunications~~discontinued ~~asset~~assets 81.0 -- ~~89.2~~Loss (~~Gain~~Income)~~/loss~~ onfrom ~~sale~~discontinued ofoperations ~~assets~~1.4 (527.27) --Other ~~Deferred~~assets ~~revenue (60~~7.0) (3311.43) Other -liabilities ~~net -- 52~~(32.62) ~~------ ------ 435~~(5.95) ~~324.2 ------ ------~~ Changes in ~~components~~assets ofand ~~working capital~~liabilities: Accounts receivable, net ~~235~~80.21 ~~237~~470.41 ~~Gas~~Inventories ~~inventory (125~~91.3)1 ~~(146~~65.4)5 Accounts payable (8162.82) (38228.01) ~~Accrued~~Taxes ~~taxes~~accrued (2614.26) ~~(55~~44.8)7 Under/Overrecovered gas and fuel costs 54.2 (6650.01) ~~158.7~~ Exchange gas receivable/payable ~~165~~(155.75) ~~193~~53.03 Other ~~working~~accruals ~~capital~~(61.2) 18(125.73) Other assets (~~122~~10.89) 5.2 Other liabilities 11.7 17.1 ------ ------------------------------------------------------------------------------------------------------------- Net Cash from Continuing ~~Operations~~Activities ~~556~~290.29 ~~550~~528.34 Net Cash from Discontinued ~~Operations~~Activities --(58.8) ~~178~~(41.95) ------ ------------------------------------------------------------------------------------------------------------- Net Cash from Operating Activities ~~556~~232.21 ~~729~~486.29 ------ ------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES Capital expenditures (~~189~~74.4) (~~253~~77.42) ~~Purchases~~Proceeds ~~and~~from ~~sales~~disposition of ~~investments~~assets 95.9 - ~~net~~ -- ~~8.2~~ ------ ----------------------------------------------------------------------------------------------------------- Net Investment Activities ~~(189~~21.4)5 (~~245~~77.2) ------ ------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES ~~Issuance~~Changes ~~(repayment)~~in of short-term debt -- (~~521.~~0.8) ~~Dividend~~- toDividends ~~NiSource~~paid - common shares - (~~202~~201.18) -- Other financing ~~activities~~activity -- 57.8 ------ ------------------------------------------------------------------------------------------------------------- Net Financing Activities (~~202~~0.18) (~~515~~194.20) ------ ------------------------------------------------------------------------------------------------------------- Increase ~~(Decrease)~~ in cash and temporary cash ~~equivalents~~investments ~~164~~252.78 ~~(31~~215.2)7 Cash and temporary cash investments at beginning of year 5338.87 7352.54 ------ ------------------------------------------------------------------------------------------------------------- CASH AND TEMPORARY CASH ~~EQUIVALENTS~~INVESTMENTS AT END OF PERIOD $~~218~~ 291.5 $ 42268.31 ====== ============================================================================================================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest, ~~53.8~~net of amounts capitalized 32.9 25.86 Interest capitalized 0.7 1.4 Cash paid for income taxes (net of refunds) 6101.96 86.94 ------ -------------------------------------------------------------------------------------------------------------

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~~Six Months Ended ~~September~~June 30, Ended ~~September~~June 30, ---------------------~~----~~ ---------------------~~----~~ (in millions) 2003 2002 ~~2001~~2003 2002 ~~2001~~ ------- ------- ------- ---------------------------------------------------------------------------------------------- Net Income (Loss) $ 59(55.90) $~~(106~~ 61.6)2 $ ~~307~~164.92 $ 62248.50 Other comprehensive income ~~(loss)~~, net of tax Foreign currency translation adjustment (0.7)6 (0.7)1 --1.5 (1.6)0 Net unrealized gains ~~(losses)~~ on cash flow hedges (720.7)5 727.40 329.53 7611.72 ~~Minimum pension liability adjustment (20.9)~~ -- ~~(20.9)~~ -- ------- ------- ------- ------------------------------------------------------------------------------------------ Total other comprehensive income ~~(loss) (29~~21.3)1 627.71 ~~(17~~30.4)8 7512.12 ------- ------- ------- ---------------------------------------------------------------------------------------------- Total Comprehensive Income (Loss) $ 30(33.69) $ ~~(99~~88.9)3 $ ~~290~~195.50 $ ~~137~~260.62 ------- ------- ------- ----------------------------------------------------------------------------------------------

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 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 of America. 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, 2002. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors. Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation. 2. RESTRUCTURING ACTIVITIES Since 2000, Columbia has implemented restructuring initiatives to streamline its operations and realize efficiencies from the acquisition of Columbia by NiSource Inc. (NiSource). For all of the plans, a total of approximately 1,000 management, professional, administrative and technical positions have been identified for elimination. As of June 30, 2003, approximately 860 employees were terminated, of whom approximately 65 employees were terminated during the six months ended June 30, 2003. At June 30, 2003 and December 31, 2002, the consolidated balance sheets reflected liabilities of $26.4 million and $35.4 million related to the restructuring plans, respectively. During the quarter and six months ended June 30, 2003, $3.4 million and $8.9 million of benefits were paid, respectively, as a result of the restructuring plans. Additionally, during the quarter and six months ended June 30, 2003, the restructuring plan liability was increased by $0.2 million and decreased $0.1 million, respectively, due to adjustments in estimated costs related to the reorganization initiatives. 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE On July 3, 2003, Columbia announced that it reached an agreement to sell its exploration and production subsidiary, Columbia Energy Resources, Inc. (CER). Under the CER sales agreement, Triana Energy Holdings, an exploration and production company based in Charleston, WV and an affiliate of Morgan Stanley Dean Witter Capital Partners IV, L.P. (MSCP), agreed to purchase all of the stock of CER for $330.0 million in cash, plus the assumption of obligations to deliver approximately 94.0 billion cubic feet (Bcf) of natural gas pursuant to existing forward sales contracts. The sale will bring about the transfer of 1.1 trillion cubic feet of natural gas reserves. The transaction is expected to be completed in the third quarter 2003. The cash proceeds from the sales will be used to reduce Columbia's debt. Columbia has accounted for CER as discontinued operations as of June 30, 2003 and has adjusted all periods presented accordingly. During the second quarter of 2003, Columbia recognized an after-tax loss of $122.9 million related to the pending sale. On January 28, 2003, Columbia's subsidiary Columbia Natural Resources, Inc. (CNR) sold its interest in certain natural gas exploration and production assets in New York State representing 39.3 billion cubic feet in reserves and approximately 6.0 Bcf of production for approximately $95.0 million. Columbia recognized an after-tax gain on the disposition of $44.4 million in the first quarter 2003. In accordance with the presentation of Columbia's exploration and production business, CNR's interest in the assets is reported as discontinued operations. All periods presented have been adjusted to conform to the revised presentation. During 2002, Columbia decided to exit the telecommunications business. The results of operations related to Columbia Transmission Communications Corporation (Transcom) were displayed as discontinued operations on Columbia's consolidated income statement and its assets and liabilities were separately aggregated and reflected as assets and liabilities of discontinued operations on the consolidated balance sheets for all periods presented. On July 3, 2003, Columbia executed an agreement for the sale of 100% of its shares in Transcom. The transaction is expected to be completed in the third quarter of 2003. During the second quarter of 2003, Columbia recognized an after-tax loss of $2.5 million loss related to the pending sale. 8 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Columbia has decided to sell Columbia Service Partners, Inc. (Columbia Service Partners), a subsidiary of Columbia. The net assets and net liabilities of Columbia Service Partners were reported as held for sale at June 30, 2003. The income (loss) from discontinued operations are provided in the following table:

Three Months ~~Nine~~Six Months Ended ~~September~~June 30, Ended ~~September~~June 30, ---------------------~~---~~ --------------------~~----~~ (in millions) 2003 2002 ~~2001~~2003 2002 ~~2001~~ ------- ------- ------- --------------------------------------------------------------------------------------------- REVENUES FROM DISCONTINUED OPERATIONS $ --35.5 48.7 $ --78.0 $122.5 -- $ -- ------- ------- ------- ----------------------------------------------------------------------------------------- ~~Loss~~Income from discontinued operations --$ ~~(94~~1.0)7 --9.9 ~~(95~~$ 5.2 45.5) Income ~~tax~~taxes ~~benefit~~2.4 --3.8 ~~(32~~6.9)6 ~~-- (33~~17.4)8 ------- ------- ------- --------------------------------------------------------------------------------------------- NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS $ ~~-- $~~ (610.17) $ --6.1 $ (~~62.~~1.4) $ 27.7 ------- ------- ------- ---------------------------------------------------------------------------------------------

The assets and liabilities of discontinued operations and assests and liabilities held for sales were as follows:

~~SEPTEMBER~~JUNE 30, December 31, (in millions) 2003 2002 ~~2001~~ ----- ----------------------------------------------------------------------------------------------------- ~~NET~~ ASSETS ~~OF ASSETS~~ HELD FOR SALE AND ASSETS OF DISCONTINUED OPERATIONS ~~Gas~~Accounts ~~and~~receivable, ~~oil~~net ~~producing~~$ ~~properties~~36.9 $ 144.9 $Property, -plant and equipment, net 683.3 682.2 Other assets 91.2 109.2 ------------------------------------------------------------------------------------------------------- 30Assets Held for Sale and Assets of Discontinued Operations 811.4 836.3 ------------------------------------------------------------------------------------------------------- LIABILITIES HELD FOR SALE AND LIABILITIES OF DISCONTINUED OPERATIONS Debt (0.1) ~~Accounts~~(0.1) ~~payable~~Current -liabilities -(146.1) (191.9) Other liabilities (312.0) (347.0) ------------------------------------------------------------------------------------------------------- Liabilities Held for Sale and Liabilities of Discontinued Operations (458.2) (539.0) ------------------------------------------------------------------------------------------------------- NET ASSETS OFAND ~~ASSETS~~NET LIABILITIES HELD FOR SALE AND NET ASSETS AND NET LIABILITIES OF DISCONTINUED OPERATIONS $ 1353.92 $ 30297.03 ----- --------------------------------------------------------------------------------------------------

4. RISK MANAGEMENT ACTIVITIES Columbia is exposed to market risk due to fluctuations in commodity prices, primarily at its exploration and production subsidiary, which is currently classified as a discontinued operation. Columbia uses commodity-based derivative financial instruments to manage certain risks in its business and accounts for its derivatives under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activity." Financial instruments authorized for use by Columbia for hedging include futures, swaps and options. Columbia is also exposed to interest rate risk and has entered into interest rate swaps to hedge a portion of the interest rate risk associated with its long-term debt. 9 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) HEDGING ACTIVITIES. The activity for the quarter and six months ended June 30, 2003 and June 30, 2002 affecting other comprehensive income, with respect to cash flow hedges included the following:

Three Months Six Months Ended ~~Nine~~June ~~Months~~30, Ended June 30, ----------------- ----------------- (in millions, net of tax) ~~September~~2003 ~~30,~~ 2002 ~~September~~2003 ~~30,~~ 2002 ------------------ -------------------------------------------------------------------------------------------------- Net unrealized gains on derivatives qualifying as cash flow hedges at the beginning of the period $ 6373.8 $ 36.6 $ 65.0 $ 52.4 Unrealized hedging gains ~~(losses)~~ arising during the period on derivatives qualifying as cash flow hedges (723.8)9 2624.06 34.7 33.8 Reclassification adjustment for net ~~loss~~gain (~~gain~~loss) included in net income 0(loss) (3.14) 2.4 (5.4) (22.56) ------ ------------------------------------------------------------------------------------------------------------- Net unrealized gains on derivatives qualifying as cash flow hedges, ~~net~~at the end of ~~tax~~the period $ 5594.93 $ 5563.96 $ 94.3 $ 63.6 ------ -------------------------------------------------------------------------------------------------------------

Unrealized gains and losses on Columbia's hedges were recorded as price risk management assets and liabilities. The accompanying Consolidated Balance Sheets reflected price risk management assets related to unrealized gains on hedges of $186.8 million and $136.8 million at June 30, 2003 and December 31, 2002, respectively, of which $35.4 million and $25.4 million were included in "Current Assets," $151.3 million and $111.1 million were included in "Other Assets" and $0.1 million and $0.3 million were included in "Assets of discontinued operations." Price risk management liabilities related to unrealized losses on hedges of $12.1 million and $10.0 million at June 30, 2003 and December 31, 2002, respectively, of which $2.2 million and $3.3 million were included in "Current Liabilities" and $9.9 million and $6.7 million were included in "Liabilities of discontinued operations." During the second quarter 2003, a net gain of $0.1 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 second quarter, Columbia reclassified no amounts 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 income recognition of amounts currently classified in other comprehensive income of approximately $18.0 million, net of tax. 10 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS NO. 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. In July 2001, the Financial Accounting Standards Board 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 the cost, thereby increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted, and the capitalized cost is depreciated over the useful life of the related asset. The rate-regulated subsidiaries defer the difference between the amount recognized for depreciation and accretion and the amount collected in rates as required pursuant to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." Columbia's asset retirement obligations liability was mainly comprised of obligations for plugging and abandonment costs related to the exploration and production operations, which is currently classified as a discontinued operation. Significant liabilities were also calculated for the pipeline operations related to disposing of offshore platforms, cutting, capping and filling offshore pipelines and certain storage facilities planned for abandonment. Minor liabilities were identified for the telecommunications network, which is currently classified as a discontinued operation. Asset retirement obligations related to the gas distribution facilities and gas pipeline networks were identified, however the associated liabilities were not quantifiable due to the indeterminate lives of the associated assets. Columbia adopted the provisions of SFAS No. 143 on January 1, 2003, and as a result Columbia recognized an asset retirement obligations liability of $49.2 million. In addition, Columbia capitalized $19.3 million in additions to plant assets, net of accumulated amortization. An expense of $1.7 million was recognized immediately upon adoption related to discontinued operations. The cumulative after-tax effect of adopting SFAS No. 143 amounted to $16.8 million. Certain costs of removal, that have been and continue to be included in depreciation rates and collected in the service rates of the rate-regulated subsidiaries, did not meet the definition of an asset retirement obligation pursuant to SFAS No. 143. The amount of the other costs of removal reflected as a component of Columbia's accumulated depreciation and amortization was approximately $280.8 million at June 30, 2003. For the quarter and six months ended June 30, 2003, Columbia recognized accretion expense of $0.8 million and $1.6 million, respectively. The asset retirement obligations liability totaled $42.6 million at June 30, 2003, $34.6 million of which was reported in discontinued operations. In addition, the liability was reduced by $8.2 million in the second quarter of 2003 as a result of a change in the estimated plugging and abandonment cost related to the exploration and production business. Had Columbia adopted SFAS No. 143 at the dates the actual liabilities were incurred, the asset retirement obligations liability would have been $44.7 million and $40.8 million at December 31, 2001 and 2000, respectively, of which $35.3 million and $31.9 million would have been reported in discontinued operations. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 149 - AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Effective July 1, 2003, Columbia adopted Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (SFAS No. 149). SFAS No. 149 codifies and clarifies financial accounting and reporting for derivative instruments and hedging activities under Statement of Financial Accounting Standards No. 133, "Derivative Instruments and Hedging Activities," primarily in connection with decisions made by the Derivatives Implementation Group and for implementation issues raised in the application of SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The impact on Columbia's existing contracts at June 30, 2003 is not material. Because the effect of SFAS No. 149 is dependent upon the terms of contracts the company enters into after June 30, 2003, Columbia cannot determine the impact of adopting SFAS No. 149 on a prospective basis. 11 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. STOCK OPTIONS AND AWARDS NiSource currently issues long-term incentive grants to key management employees, including the management of Columbia. SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), encourages, but does not require, entities to adopt the fair value method of accounting for stock-based compensation plans. The fair value method would require the amortization of the fair value of stock-based compensation at the date of grant over the related vesting period. Columbia continues to apply the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," for awards granted under the stock-based compensation plans. The following table illustrates the effect on net income as if Columbia had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

Three Months ~~Nine~~Six Months Ended ~~September~~June 30, Ended ~~September~~June 30, ---------------------~~------~~ ---------------------~~------~~ (in millions) 2003 2002 ~~2001~~2003 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~~ -------- -------- --~~------~~ ~~--------~~NET ~~Total~~INCOME ~~188~~(LOSS) As reported $ (55.70) ~~186~~$ 61.12 ~~629~~$ 164.32 ~~642~~$ 248.50 ~~--------~~Less: ~~--------~~Total stock-~~-------~~based ~~--------~~employee ~~EXPLORATION~~compensation ~~AND~~expense ~~PRODUCTION~~determined ~~Unaffiliated~~under ~~39.1~~the ~~43.5~~fair ~~136.0~~value ~~117.7~~method ~~Intersegment~~for ~~and~~all ~~affiliates~~awards, 3net of tax 1.0 171.31 282.14 451.87 -------- -------- -------- -------- ~~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~~ -------- -------- ----~~----~~ ~~--------~~Pro ~~Adjustments~~forma ~~and~~$ ~~eliminations~~ (5256.40) ~~(52~~$ 60.2)1 ~~(173~~$ 161.8) ~~(177~~$ 246.2)3 -------- -------- -------- -------- ~~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~~ -------- -------- ----~~---- --------~~

7. LEGAL PROCEEDINGS In the normal course of its business, Columbia and its subsidiaries have been named as defendants in various legal proceedings. In the opinion of management, the ultimate disposition of these currently asserted claims would not have a material adverse impact on Columbia's consolidated financial position or results of operations. 8. ACCUMULATED OTHER COMPREHENSIVE INCOME The following table displays the components of Accumulated Other Comprehensive Income, included in "Common Stock Equity," on the consolidated balance sheets.

9. GUARANTEES AND INDEMNITIES As a part of normal business, Columbia and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of other subsidiaries. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries' intended commercial purposes. The total commercial commitments in existence at June 30, 2003 and the years in which they expire were:

12 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Columbia has issued guarantees, which support up to approximately $1.1 billion of commodity-related payments for its subsidiaries involved in satisfying requirements under forward gas sales agreements. These guarantees were provided to counterparties in order to facilitate the transactions. To the extent liabilities exist under the commodity-related contracts subject to these guarantees, such liabilities are included in the consolidated balance sheets. Columbia has purchase and sales agreement guarantees totaling $142.5 million, which guarantee performance of the seller's covenants, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the consolidated balance sheets. Management believes that the likelihood Columbia would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote. Within the sales agreement of CER that is expected to be sold in the third quarter of 2003, Columbia has made certain operational and financial guarantees. Certain guarantees by Columbia within the CER sales agreement were related to the CNR forward gas sales agreements with Mahonia II Limited (Mahonia) and the associated surety bonds will remain in place after the consummation of the acquisition and will decline over time as volumes (approximately 94.0 Bcf) are delivered in satisfaction of the contractual obligations, ending in February 2006. Offsetting certain amounts that may be owed by Columbia under the guarantees, Columbia will be indemnified by Triana and MSCP will fund up to a maximum of $221.0 million (as of August 31, 2003) of additional equity to Triana to support Triana's indemnity, for Triana's gas delivery and related obligation to Mahonia. The MSCP commitment declines over time in concert with the surety bonds and the guaranteed obligation to deliver gas to Mahonia. After the close of the transaction, Triana will own approximately 1.1 Tcf of proved reserves, and will be capitalized with $330.0 million, approximately $200.0 million of which will be provided a as initial equity by MSCP and the remainder of which will be provided as part of $500.0 million revolving credit facility. Columbia believes that the combination of Triana's proved reserves, sufficient capitalization, and access to the credit facility, combined with the Triana indemnity and the $221.0 million of further commitments to Triana from MSCP, will adequately offset any losses that may be incurred by Columbia due to Triana's non-performance under the Mahonia agreements. Accordingly, Columbia has not recognized a liability related to the retention of the Mahonia guarantees. 13 ITEM 1. FINANCIAL STATEMENTS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. PRESENTATION OF SEGMENT INFORMATION Columbia manages its operations in three primary segments: Distribution, Transmission and Storage, and Other. 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. During the second quarter 2003, Columbia re-aligned its reportable segments to reflect the announced sale of its exploration and production operations. As of the second quarter 2003, Columbia will no longer report an Exploration and Production segment. All periods have been adjusted to conform with the realignment.

14 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Columbia Energy Group (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 Inc. (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 of Results of Operations, including statements regarding market risk sensitive instruments, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be 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 dispositions, growth opportunities for Columbia's 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, 2002. SECOND QUARTER 2003 CONSOLIDATED RESULTS Net Income (Loss) Columbia reported a net loss of $55.0 million for the three months ended June 30, 2003, compared to net income of $61.2 million for the second quarter in 2002. Operating income was $133.6 million, an increase of $23.1 million from the same period in 2002. Net Revenues Total consolidated net revenues (gross revenues less cost of sales) for the three months ended June 30, 2003, were $358.3 million, a $2.3 million decrease over the same period last year. The decrease in net revenues was due to lower natural gas sales of $5.6 million as a result of unfavorable weather and lower interruptible service revenues of $1.6 million resulting from higher gas commodity costs and early storage refills by firm customers, which reduce available capacity for interruptible customers, partly offset by an adjustment recorded in the second quarter of 2003 for gas costs associated with certain customers. Expenses Operating expenses for the second quarter 2003 were $224.7 million, a decrease of $25.4 million from the 2002 period. The decrease was primarily due to a reduction in employee-related and administrative expenses of $15.7 million and by a reversal of a litigation reserve of $6.6 million relating to a lawsuit that was settled in the second quarter of 2003. The 2002 period was unfavorably impacted by the recognition of a reserve of $6.0 million related to a long-term note receivable. 15 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Other Income (Deductions) Interest expense was $21.8 million for the quarter, a decrease of $6.8 million compared to the second quarter of 2002. The decrease was primarily due to lower interest rates on long-term debt. Income Taxes Income tax expense for the second quarter 2003 was $46.0 million, an increase of $13.5 million compared to the 2002 period, due to higher pre-tax income. Discontinued Operations Loss from discontinued operations was $126.1 million for the second quarter of 2003 versus income form discontinued operations of $6.1 million in the second quarter of 2002. In early July, Columbia announced that it reached an agreement to sell its exploration and production subsidiary, Columbia Energy Resources, Inc. (CER). An after-tax loss of $122.9 million, related to the sale was recorded in the second quarter. On July 3, 2003, Columbia executed an agreement for the sale of 100% of its shares in Columbia Transmission Communications Corp. (Transcom). The transaction is expected to be completed in the third quarter of 2003. An after-tax loss of $2.5 million, related to the sale was recorded in the second quarter. SIX MONTHS CONSOLIDATED RESULTS Net Income Columbia reported net income of $164.2 million for the six months ended June 30, 2003, compared to net income of $248.0 million for the same period in 2002, a decrease of $83.8 million. Operating income was $459.6 million, an increase of $59.3 million from the same period in 2002. Net Revenues Total consolidated net revenues (gross revenues less cost of sales) for the six months ended June 30, 2003, were $983.3 million, a $72.1 million increase over the same period last year. The increase in net revenues was a result of increased natural gas sales and deliveries due to colder weather amounting to $31.2 million, net of $20.2 million from lower interruptible service revenues and lower firm service revenues due to measures taken to meet customer demand during a period of sustained cold weather in the northeast market areas early in the year, $13.5 million in higher non-weather related gas sales and higher gross receipts taxes, which were offset in operating expenses. Expenses Operating expenses for the first half of 2003 were $523.7 million, an increase of $12.8 million from the 2002 period. Other taxes increased $14.8 million, which were partly offset by decreased operation and maintenance expenses of $1.2 million. Other taxes increased due to the effects of higher commodity prices on gross receipts taxes and are generally offset in revenues. The decrease in operation and maintenance expenses was primarily due to a reduction in employee-related and administrative expenses of $18.4 million, a reversal of a litigation reserve of $6.6 million relating to a lawsuit that was settled in the second quarter of 2003 and a $4.8 million decrease in weather insurance premiums. Partly offsetting the decrease in operation and maintenance was increased uncollectible receivables of $13.5 million from a modification in the method of calculation and the effects of weather-driven higher gas costs on the residential customer base and increased pension and postretirement expenses of $3.4 million. The 2002 period was favorably impacted by $12.5 million in insurance recoveries and unfavorably impacted by $6.0 million from the recognition of a reserve related to a long-term note receivable. Other Income (Deductions) Interest expense was $45.1 million for the first half 2003, a decrease of $13.2 million compared to the same period in 2002. The decrease was primarily due to lower interest rates on long-term debt. 16 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Income Taxes Income tax expense for the first six months of 2003 was $161.7 million, an increase of $29.1 million compared to the 2002 period, due to higher pre-tax income. Discontinued Operations Loss from discontinued operations was $82.4 million for the first six months of 2003 versus income from discontinued operations of $27.7 in the prior-year period. An after-tax loss of $125.4 million, related to the pending sales of CER and Transcom was recorded in the second quarter, slightly offset by a first quarter 2003 gain on the sale of CER's interest in natural gas production properties in New York State. Columbia accounted for CER as discontinued operation as of June 30, 2003, and adjusted all periods presented accordingly. Change in Accounting The change in accounting of $16.8 million, net-of-tax, resulted from the cumulative effect of adopting the Financial Accounting Standards Board statement on asset retirement obligations. LIQUIDITY AND CAPITAL RESOURCES A significant portion of Columbia's operations is subject to seasonal fluctuations in cash flows. During the heating season, which is primarily from November through March, cash receipts from natural gas 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. Net cash from continuing operations for the quarter ended June 30, 2003 was $290.9 million. Cash used from working capital was $67.3 million, principally driven by a decrease in exchange gas payables, accounts payable and other accruals, partly offset by decreased accounts receivable, inventories and underrecovered gas and fuel costs. Columbia satisfies its liquidity requirements primarily through internally generated funds and through intercompany borrowings from the NiSource Money Pool. Columbia may borrow, on an intercompany basis, a maximum of $1.0 billion 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 $1.25 billion revolving credit facility with a syndicate of banks. The credit facility is guaranteed by NiSource. As of June 30, 2003, Columbia had no intercompany short-term borrowings with NFC outstanding. On July 3, 2003, Columbia announced that it reached an agreement to sell its exploration and production subsidiary, CER. Under the CER agreement, Triana Energy Holdings, an exploration and production company based in Charleston, WV and an affiliate of Morgan Stanley Dean Witter Capital Partners IV, L.P., agreed to purchase all of the stock of CER for $330.0 million in cash, plus the assumption of obligations to deliver approximately 94.0 billion cubic feet (Bcf) of natural gas pursuant to existing forward sales contracts. The sale will bring about the transfer of 1.1 trillion cubic feet of natural gas reserves. The transaction is expected to be completed in the third quarter of 2003. The cash proceeds from the sales will be used to reduce Columbia's debt. On January 28, 2003, Columbia's subsidiary Columbia Natural Resources, Inc. sold its interest in certain natural gas exploration and production assets in New York State representing 39.3 Bcf in reserves and approximately 6.0 Bcf of production for approximately $95.0 million. Columbia recognized an after-tax gain of $44.4 million related to the sale in the first quarter 2003. 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 hedge the fair value of the underlying debt. On April 11, 2003, Columbia entered into fixed-to-variable interest rate swap agreements in a notional amount of $100.0 million with two counterparties. Columbia will receive payments based upon a fixed 7.42% interest rate and 17 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES pay a floating interest amount based on U.S. 6-month LIBOR-BBA plus 2.38 percent per annum. There was no exchange of premium at the initial date of the swaps. The swaps contain mirror-image call provisions that allow the counterparties to cancel the agreements beginning November 28, 2005 through the stated maturity date. In addition, each party has the right to cancel the swaps on either April 15, 2008 or April 15, 2013 at mid-market. Effectiveness of the swaps was determined using the short-cut method pursuant to Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activity" as subsequently amended by SFAS No. 137 and SFAS No. 138 (collectively referred to as SFAS No. 133). On April 4, 2003, Columbia terminated a fixed-to-variable interest rate swap agreement containing a notional amount of $100.0 million. Columbia received a settlement payment from the counterparty amounting to $8.2 million, which will be amortized to interest expense over the remaining term (2.5 years) of the underlying debt. Columbia Gas of Ohio, Inc. is a party to an agreement to sell, without recourse, up to $200.0 million 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. As of June 30, 2003, CARC had $50.0 million accounts receivable under the conduit. Management believes that its sources of funding are sufficient to meet the short- and long-term liquidity needs of Columbia. Credit Ratings On July 8, 2003, Moody's Investors Service affirmed the senior unsecured ratings of NiSource at Baa3, and the existing ratings of all other subsidiaries including Columbia, concluding a review for possible downgrade that began on May 13, 2003. Moody's ratings outlook for NiSource and all of its subsidiaries is now "stable". On June 30, 2003, Fitch Ratings affirmed their BBB senior unsecured rating for NiSource and the BBB+ rating for the Columbia subsidiary. Fitch's rating outlook for all entities is stable. On June 16, 2003, Standard and Poor's affirmed its senior unsecured ratings of NiSource at BBB, and the existing ratings of all other subsidiaries including Columbia. Standard and Poor's outlook for NiSource and all of its subsidiaries were revised to stable from negative. OTHER INFORMATION Critical Accounting Policies Columbia applies certain accounting policies based on the accounting requirements discussed below that have had, and may continue to have, significant impacts on Columbia's results of operations and consolidated balance sheets. SFAS NO. 71 - ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION. SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), provides that rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. Columbia's rate-regulated subsidiaries follow the accounting and reporting requirements of SFAS No. 71. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the balance sheet and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. In the event that regulation significantly changes the opportunity for Columbia to recover its costs in the future, all or a portion of Columbia's regulated operations may no longer meet the criteria for the application of SFAS No. 71. In such event, a write-down of all or a portion of Columbia's existing regulatory assets and liabilities could result. If transition cost recovery is approved by the appropriate regulatory bodies that would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If unable to continue to apply the provisions of SFAS No. 71, Columbia would be required to apply the provisions of SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of Financial Accounting Standards Board Statement No. 71." In management's opinion, Columbia's regulated subsidiaries will be subject to SFAS No. 71 for the foreseeable future. 18 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES Certain of the regulatory assets reflected on Columbia's Consolidated Balance Sheets require specific regulatory action in order to be included in future service rates. Although recovery of these amounts is not guaranteed, Columbia believes that these costs meet the requirements for deferral as regulatory assets under SFAS No. 71. HEDGING ACTIVITIES. Under SFAS No. 133, the accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation. Unrealized and realized gains and losses are recognized each period as components of other comprehensive income, earnings, or regulatory assets and liabilities depending on the nature of such derivatives. For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the gains and losses are recorded to other comprehensive income and are recognized in earnings concurrent with the disposition of the hedged risks. For fair value hedges, the gains and losses are recorded in earnings each period along with the change in the fair value of the hedged item. As a result of the rate-making process, the rate-regulated subsidiaries generally record gains and losses as regulatory liabilities or assets and recognize such gains or losses in earnings when recovered in revenues. In order for a derivative contract to be designated as a hedge, the relationship between the hedging instrument and the hedged item or transaction must be highly effective. The effectiveness test is performed at the inception of the hedge and each reporting period thereafter, throughout the period that the hedge is designated. Any amounts determined to be ineffective are recorded currently in earnings. Although Columbia applies some judgment in the assessment of hedge effectiveness to designate certain derivatives as hedges, the nature of the contracts used to hedge the underlying risks is such that the correlation of the changes in fair values of the derivatives and underlying risks is high. Columbia generally uses NYMEX exchange-traded natural gas futures and options contracts and over-the-counter swaps based on published indices to hedge the risks underlying its natural-gas-related businesses. PENSIONS AND POSTRETIREMENT BENEFITS. Columbia has defined benefit plans for both pensions and other postretirement benefits. The plans are accounted for under SFAS No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The calculation of the net obligations and annual expense related to the plans requires a significant degree of judgment regarding the discount rates to be used in bringing the liabilities to present value, long-term returns on plan assets and employee longevity, amongst other assumptions. Due to the size of the plans and the long-term nature of the associated liabilities, changes in the assumptions used in the actuarial estimates could have material impacts on the measurement of the net obligations and annual expense recognition. Refer to "Recently Issued Accounting Pronouncements" in Note 5 of the Notes of Consolidated Financial Statements for information regarding recently issued accounting standards. Regulatory Matters Changes in gas industry regulation, which began in the mid-1980s at the federal level, has broadened to retail customers at the state level. For many years, large industrial and commercial customers have had the ability to purchase natural gas directly from marketers and to use Distribution's facilities for transportation services. Additionally, as of June 30, 2003, approximately 0.8 million of Distribution's residential and commercial customers had selected an alternate supplier. Distribution continues to explore customer choice opportunities through regulatory initiatives in all of its jurisdictions. However, Columbia Gas of Kentucky has filed to terminate its choice program for residential and commercial customers and discussions are ongoing. While customer choice programs are intended to provide all customer classes with the opportunity to obtain gas supplies from alternative merchants, Distribution expects to play a substantial role in supplying gas commodity services to its customers in the foreseeable future. As customers enroll in these programs and purchase their gas from other suppliers, the Distribution subsidiaries are sometimes left with pipeline capacity they have contracted for, but no longer need. The state commissions in jurisdictions served by Distribution are at various stages in addressing these issues and other transition considerations. Distribution is currently recovering, or has the opportunity to recover, the costs resulting from the unbundling of its services and believes that most of such future costs will be mitigated or recovered. Methodologies for mitigating or recovering transition costs include incentive sharing mechanisms, temporarily reducing levels of reserved pipeline capacity and 19 ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES mandatory assignment of pipeline capacity to alternative suppliers. Environmental Matters Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce so-called "greenhouse gases" such as carbon dioxide, a by-product of burning fossil fuels. Certain Columbia affiliates engage in efforts to voluntarily report and reduce their greenhouse gas emissions. Columbia will monitor and participate in developments related to efforts to register and potentially regulate greenhouse gas emissions. Certain Columbia affiliates use various combustion equipment in the generation, distribution and transmission of energy, including turbines, boilers and various reciprocating engines. Within the period December 2002 to January 2003, the U.S. Environmental Protection Agency proposed maximum achievable control technology (MACT) standards to meet national emission standards for hazardous air pollutants for stationary combustion turbines, industrial boilers and reciprocating internal combustion engines. Columbia will continue to monitor the proposed MACT standards for potential applicability and cost impact to its operations. Pending finalization of the proposed standards, Columbia is unable to predict what, if any, additional compliance costs may result. In connection with the sale of CER, Columbia will retain responsibility for remediation of approximately 140 metering stations where mercury was utilized, and certain other environmental issues. An estimated liability has been recorded. The EPA issued final rules revising the National Ambient Air Quality Standards for ozone and particulate matter in July 1997. These rules were widely challenged. On March 26, 2002, the United States Court of Appeals for the D.C. Circuit largely upheld the ambient air standards as challenged. Consequently, designation of areas not attaining the standards, promulgation of rules specifying a compliance level, compliance deadline, and controls necessary for compliance will be completed over the next few years, which will likely change air emissions compliance requirements. In the interim, existing ozone ambient air quality standards will remain in place and may require imposition of additional controls in areas of non-attainment. Resulting rules could require additional reductions in NOx emissions from reciprocating engines and turbines at pipeline compressor stations (including compressor stations owned by Columbia Gas Transmission Corporation and Columbia Gulf Transmission). The EPA and state regulatory authorities will set final implementation requirements. Certain states have already begun to propose new NOx emission requirements that may be applicable to pipeline engines and turbines. Columbia believes that the costs relating to compliance with any new limits may be significant but are dependent upon the ultimate control program agreed to by the targeted states and the EPA, and are currently not reasonably estimable. Columbia will continue to closely monitor developments in this area. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COLUMBIA ENERGY GROUP AND SUBSIDIARIES Omitted pursuant to General Instruction H(2)(c). ITEM 4. CONTROLS AND PRODEDURES 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-15(e) and 15d-15(e)), have concluded based on the evaluation required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15 that, as of the end of the period covered by this report, 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 internal controls subsequent to the date of the most recent 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. 21 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 set a hearing date of December 1, 2, and 3, 2003; however, an earlier hearing may be possible. 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. 22 ITEM 1. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES 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 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. 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. On April 10, 2003, the judge denied Plaintiffs motion for class certification. On July 28, 2003, the court granted plaintiffs' Motion for Leave to File a Fourth Amended Complaint. This complaint only names one Columbia entity, Columbia Energy Services Corporation, as a defendant. 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. (CNR) and Columbia Gas Transmission Corporation (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 CNR. Plaintiff seeks the alleged royalty underpayments and punitive damages. CNR 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. This matter has been resolved through a settlement. 6. ATLANTIGAS CORPORATION V. NISOURCE, INC., ET AL, U.S. DISTRICT COURT, DISTRICT OF COLUMBIA AND TRIAD ENERGY RESOURCES, ET AL. V. NISOURCE INC., ET AL. U.S. DISTRICT COURT, DISTRICT OF COLUMBIA In June 2002, Atlantigas Corporation filed a complaint alleging that NiSource, certain of its subsidiaries and other defendants illegally discounted services to select shippers and sought damages under anti-trust, RICO, and state law totaling $18 million ($54 million if trebled). The activities about which the plaintiff is complaining were the subject of a FERC enforcement staff investigation and subsequent settlement approved in October 2000. NiSource and its affiliates filed a motion to dismiss the complaint for lack of personal jurisdiction and oral argument on that motion was held on April 8. At the hearing, plaintiff's counsel raised some new issues on personal jurisdiction. Supplemental briefing was completed on these issues and we are awaiting the court's ruling. 23 ITEM 1. LEGAL PROCEEDINGS (continued) COLUMBIA ENERGY GROUP AND SUBSIDIARIES On March 18, 2003, a related suit was filed by Triad Energy Resources. This new case purports to be a class action covering customers of Columbia Gas Transmission who were allegedly damaged by the same activities complained of in the Atlantigas litigation. The named defendants include NiSource Inc., certain of its subsidiaries and other unrelated parties, including shippers who allegedly benefited from the complained of activities. The plaintiffs claim that all defendants engaged in vertical restraint of trade by conspiring to provide scarce transportation/storage capacity to a select group of shippers who in turn agreed to fix the price of gas. The plaintiffs also claim that the defendant shippers engaged in horizontal restraint of trade by conspiring with each other to gain preferential treatment from the pipeline defendants. There is also a separate count alleging tortious interference against all defendants. The Company intends to vigorously defend this matter. However, due to the relationship between this case and the Atlantigas case, all responses in this matter are deferred until the court rules on the jurisdictional motions pending in Atlantigas. 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 ON FORM 8-K (a) Exhibits (12) Statements of Ratio of Earnings to Fixed Charges (filed herewith). (31.1) Certification of Michael W. O'Donnell, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). (31.2) Certification of David J. Vajda, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). (32.1) Certification of Michael W. O'Donnell, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (32.2) Certification of David J. Vajda, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). (b) Reports on Form 8-K There were no reports on Form 8-K filed during the second quarter 2003. 24 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 11, 2003 By: /s/ Jeffrey W. Grossman ------------------------------- Jeffrey W. Grossman Vice President (Principal Accounting Officer and Duly Authorized Officer) 25

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