-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, i02N8/ebSrjryEjfyTI1yrmLNFQ4W1swJuJychTMzzvLuLWS2jau9SwDYd8p5Iak fz+QASroBP+bO1zyNnaRVA== 0000020290-94-000023.txt : 19940815 0000020290-94-000023.hdr.sgml : 19940815 ACCESSION NUMBER: 0000020290-94-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000020290 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 310240030 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01232 FILM NUMBER: 94543313 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST, ROOM 362-ANNEX CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5132873852 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1994 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY (Exact name of registrant as specified in its charter) OHIO 31-0240030 (State of incorporation) (I.R.S. Employer Identification No.) 139 EAST FOURTH STREET, CINCINNATI, OHIO 45202 (Address of principal executive offices) (Zip Code) 513-381-2000 (Registrant's telephone number) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Common Shares, Par Value $8.50 Per Share 89,205,205 Shares Outstanding as of July 31, 1994
THE CINCINNATI GAS & ELECTRIC COMPANY and Subsidiary Companies CONSOLIDATED STATEMENT OF INCOME Three Months Ended Six Months Ended Twelve Months Ended June 30 June 30 June 30 1994 1993 1994 1993 1994 1993 (Thousands of Dollars) OPERATING REVENUES Electric........................................... $329,675 $297,875 $663,065 $598,708 $1,346,801 $1,193,418 Gas................................................ 61,565 69,595 290,716 262,238 497,774 440,073 -------- -------- -------- -------- ---------- ---------- Total operating revenues......................... 391,240 367,470 953,781 860,946 1,844,575 1,633,491 -------- -------- -------- -------- ---------- ---------- OPERATING EXPENSES Gas purchased...................................... 31,021 38,297 173,046 160,760 293,123 266,295 Fuel used in electric production................... 79,548 72,319 161,429 151,926 342,781 309,496 Other operation.................................... 73,035 65,367 148,984 133,327 295,523 263,822 Maintenance........................................ 26,859 30,535 52,802 51,604 110,055 102,164 Provision for depreciation......................... 39,050 37,307 77,820 74,473 155,407 147,391 Post-in-service deferred operating expenses--net... 823 (2,856) 1,645 (5,611) 785 (9,881) Phase-in deferred depreciation..................... (847) (2,131) (2,161) (5,306) (5,379) (11,697) Taxes other than income taxes...................... 49,204 45,322 99,137 92,564 189,940 178,393 Income taxes....................................... 10,675 7,261 52,752 38,856 82,905 63,928 Deferred income taxes--net......................... 11,550 12,397 11,917 15,018 36,859 33,089 -------- -------- -------- -------- ---------- ---------- Total operating expenses......................... 320,918 303,818 777,371 707,611 1,501,999 1,343,000 -------- -------- -------- -------- ---------- ---------- OPERATING INCOME..................................... 70,322 63,652 176,410 153,335 342,576 290,491 -------- -------- -------- -------- ---------- ---------- OTHER INCOME AND DEDUCTIONS Allowance for other funds used during construction. 433 1,375 892 2,349 1,696 4,374 Post-in-service carrying costs..................... -- 4,028 -- 8,028 4,072 12,885 Phase-in deferred return........................... 3,838 8,833 11,458 20,498 26,294 40,490 Write-off of a portion of Zimmer Station........... -- -- -- -- (234,844) -- Income taxes--credit Related to the write-off of a portion of Zimmer Station.......................................... -- -- -- -- 12,085 -- Other............................................. 1,677 1,653 3,533 3,000 9,937 10,845 Other--net......................................... 119 (1,419) 134 (1,943) (7,474) (1,600) -------- -------- -------- -------- ---------- ---------- Total other income and deductions................ 6,067 14,470 16,017 31,932 (188,234) 66,994 -------- -------- -------- -------- ---------- ---------- INCOME BEFORE INTEREST CHARGES....................... 76,389 78,122 192,427 185,267 154,342 357,485 -------- -------- -------- -------- ---------- ---------- INTEREST CHARGES Interest on long-term debt......................... 35,485 38,201 73,991 76,463 151,219 156,696 Other interest..................................... 821 409 1,702 1,163 2,989 2,327 Amortization of debt discount, premium and other... 1,270 809 2,387 1,619 4,119 3,478 Allowance for borrowed funds used during construction--credit.............................. (653) (1,225) (1,310) (2,307) (2,589) (4,471) -------- -------- -------- -------- ---------- ---------- Net interest charges............................. 36,923 38,194 76,770 76,938 155,738 158,030 -------- -------- -------- -------- ---------- ---------- NET INCOME (LOSS).................................... 39,466 39,928 115,657 108,329 (1,396) 199,455 Preferred dividends................................ 5,362 6,290 11,652 12,580 24,233 26,243 -------- -------- -------- -------- ---------- ---------- EARNINGS (LOSS) ON COMMON SHARES..................... $ 34,104 $ 33,638 $104,005 $ 95,749 $ (25,629) $ 173,212 ======== ======== ======== ======== ========== ========== AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000).................................. 88,895 87,143 88,630 86,932 88,184 86,478 EARNINGS (LOSS) PER COMMON SHARE..................... $ .38 $ .38 $ 1.17 $ 1.10 $ (.29) $ 2.00 DIVIDENDS DECLARED PER COMMON SHARE.................. $ .43 $.41-1/2 $ .86 $ .83 $ 1.70-1/2 $ 1.65-2/3
THE CINCINNATI GAS & ELECTRIC COMPANY and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS - --------------------- Electric operating revenues increased $32 million, $64 million and $153 million for the three, six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, due to rate increases which became effective in August 1993 and May 1994 and to increases in electric sales volumes of 3.6%, 2.4% and 4.7%. Gas operating revenues decreased $8 million for the three month period ended June 30, 1994, from the comparable period of 1993, due to a 7.2% decrease in total volumes sold and transported and the operation of adjustment clauses reflecting decreases in the average cost of gas purchased. Gas operating revenues increased $28 million and $58 million for the six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, due to the operation of adjustment clauses reflecting increases in the average cost of gas purchased, to rate increases which became effective in April and August 1993 and to increases in total volumes sold and transported of 3.7% and 4.9%. Gas purchased expense decreased $7 million for the three month period ended June 30, 1994, from the comparable period of 1993, due to a 14.7% decrease in the average cost per Mcf purchased and to a 5.1% decrease in volumes purchased. Gas purchased expense increased $12 million and $27 million for the six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, due to increases in the average cost per Mcf purchased of 3.7% and 6.6% and to increases in volumes purchased of 3.8% and 3.2%. Fuel used in electric production increased $7 million, $10 million and $33 million for the three, six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, primarily due to increases in the amount of electricity generated of 10.7%, 8.5% and 10.1%. Other operation expense increased $8 million, $16 million and $32 million for the three, six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, due to a number of factors, including wage increases, the adoption of an accounting standard involving postretirement benefits and increased demand side management programs. Also contributing to the increases in other operation expense for the six and twelve month periods were increases in gas production expenses. Maintenance expense decreased $4 million for the three month period ended June 30, 1994, from the comparable period of 1993, primarily due to decreased maintenance on electric generating units. Maintenance expense increased $8 million for the twelve month period ended June 30, 1994, over the comparable period of 1993, primarily due to increased maintenance on electric distribution facilities and electric generating units. Depreciation expense increased $8 million for the twelve month period ended June 30, 1994, primarily due to an increase in depreciable plant in service. Post-in-service deferred operating expenses (net) increased $4 million, $7 million and $11 million for the three, six and twelve month periods ended June 30, 1994, respectively, because the amortization of deferred depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes related to Woodsdale Station and Zimmer Station exceeded deferrals of these expenses made in accordance with orders of The Public Utilities Commission of Ohio (PUCO). CG&E had been deferring these costs until they were reflected in rates and ceased deferrals in August 1993 on Woodsdale and May 1992 on Zimmer. CG&E is amortizing the deferred expenses over 10-year periods. Phase-in deferred depreciation was $1 million, $2 million and $5 million for the three, six and twelve month periods ended June 30, 1994, respectively, as a result of a PUCO ordered phase-in plan, in which rates charged to customers in the early years of the plan are less than that required to fully recover the depreciation expenses related to Zimmer Station (see "Future Outlook" herein). Taxes other than income taxes increased $4 million, $7 million and $12 million for the three, six and twelve month periods ended June 30, 1994, respectively, over the comparable periods of 1993, primarily due to higher public utilities gross receipts taxes resulting from increased revenues and to increased property taxes resulting from a greater investment in taxable property (including Woodsdale Station) and higher property tax rates. Allowance for funds used during construction (AFC) decreased $5 million for the twelve month period ended June 30, 1994, from the comparable period of 1993, primarily due to a decrease in construction work in progress resulting from Woodsdale Station being placed in commercial operation. Post-in-service carrying costs decreased $4 million, $8 million and $9 million for the three, six and twelve month periods ended June 30, 1994, respectively, from the comparable periods of 1993, as a result of discontinuing the accrual of carrying costs on the first five units of Woodsdale Station between the time it began commercial operation in mid-1992 until the August 1993 effective date of new rates which reflect Woodsdale Station. Phase-in deferred return was $4 million, $11 million and $26 million for the three, six and twelve month periods ended June 30, 1994, respectively, as a result of the PUCO ordered phase-in plan, in which rates charged to customers in the early years of the plan will be less than that required to provide the authorized return on investment (see "Future Outlook" herein). In November 1993, CG&E wrote off costs associated with Zimmer Station of approximately $223 million, net of taxes. The write-off represents amounts disallowed from rate base by the PUCO in its May 1992 rate order. CG&E had appealed the rate order to the Supreme Court of Ohio; however, in November 1993, the Supreme Court upheld the PUCO on the issue of the disallowance, ruling that the PUCO properly excluded costs related to nuclear fuel, nuclear wind-down activities and AFC from CG&E's rate base. Other (net) decreased $6 million for the twelve month period ended June 30, 1994 due to a number of factors, including costs associated with IPALCO Enterprises, Inc.'s intervention in the proposed merger between CG&E and PSI Resources. Interest on long-term debt decreased $5 million for the twelve month period ended June 30, 1994, primarily due to refinancing of first mortgage bonds or pollution control revenue bonds at lower rates in November 1993, February 1994 and March 1994. FUTURE OUTLOOK - -------------- Merger Agreement - ---------------- CG&E has entered into a merger agreement with PSI Resources, Inc. (PSI) and PSI Energy, Inc., PSI's principal subsidiary, an Indiana electric utility (PSI Energy) with a service area contiguous to that of CG&E. Under the merger agreement, CG&E and PSI will become subsidiaries of a newly formed corporation named CINergy Corp., which will be a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). In order to effect the merger, each share of CG&E common stock will be converted into one share of CINergy common stock, and each share of PSI common stock will be converted into that number of shares of CINergy common stock obtained by dividing $30.69 by the average closing sale price of CG&E common stock for the 15 consecutive trading days preceding the fifth trading day prior to consummation of the merger, provided that the number of shares of CINergy stock to be exchanged for each share of PSI will be no greater than 1.023 and no less than .909. At June 30, 1994, CG&E and PSI had 89.1 million and 57.4 million common shares outstanding, respectively. The merger will be accounted for as a "pooling-of-interests", and will be tax-free for shareholders. The merger is subject to approval by the Securities and Exchange Commission (SEC) and the Federal Energy Regulatory Commission (FERC). Shareholders of each company have already approved the CINergy merger at special meetings held in November 1993. CG&E believes it is possible that all approvals needed for the merger may be received by the end of the third quarter of 1994. FERC issued conditional approval of the CINergy merger in August 1993, but several intervenors, including the PUCO and the Kentucky Public Service Commission (KPSC), filed for rehearing of that order. On January 12, 1994, FERC withdrew its conditional approval of the merger and ordered the setting of FERC-sponsored settlement procedures to be held. On March 4, 1994, CG&E reached a settlement agreement with the PUCO and the Ohio Office of Consumers' Counsel (OCC) on merger issues identified by FERC. On March 2, PSI Energy and Indiana's consumer representatives had reached a similar agreement. Both settlement agreements have been filed with FERC. These documents address, among other things, the coordination of state and federal regulation and the commitment that neither CG&E nor PSI electric base rates, nor CG&E's gas base rates, will rise because of the merger, except to reflect any effects that may result from the divestiture of CG&E's gas operations if ordered by the SEC in accordance with the requirements of PUHCA discussed below. CG&E also filed with FERC a unilateral offer of settlement addressing all issues raised in the KPSC's application for rehearing with FERC. The settlement offer commits CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company (Union Light), among other things, to "hold harmless" its retail gas customers from the effects of the merger on Union Light's retail gas base rates that become effective on or after the date of the merger and prior to January 1, 2003. However, Union Light's offer will not apply to any effects that may result from the divestiture of Union Light's gas operations, discussed below. Although it is the belief of CG&E and PSI that no state utility commissions have jurisdiction over approval of the proposed merger, an application was filed with the KPSC to comply with the Staff of the KPSC's position that the KPSC's authorization is required for the indirect acquisition of control of Union Light by CINergy. A hearing on the KPSC application was held on May 10, 1994. In testimony filed in the hearing, CG&E and Union Light made, in addition to other commitments, an offer to the KPSC that Union Light would also "hold harmless" retail electric customers through January 1, 2003 and would agree to an electric rate moratorium commencing after Union Light's next retail rate case and extending to January 1, 2000. On May 13, 1994, the KPSC issued an order approving the merger, subject to the condition that CG&E and Union Light must agree that, for 12 months from consummation of the merger, no filings will be made to adjust CG&E's base purchase power rate and Union Lights's base electric rates. On May 19, 1994, CINergy, CG&E and Union Light submitted letters to the KPSC accepting the commitments and condition set forth in its May 13, 1994 order approving the merger. Also included in the filings with FERC were settlement agreements with the city of Hamilton, Ohio, and the Wabash Valley Power Association in Indiana. These agreements resolve issues related to the transmission of power in Ohio and Indiana. On April 7, 1994, CG&E and the City of Cincinnati reached settlement in support of the merger and filed a Joint Stipulation and Agreement with FERC. CG&E has guaranteed, among other things, that its electric retail customer rates will not rise because of the merger and the City has agreed to support the merger and CG&E's efforts to retain its gas operations before the SEC. The 30-day period for commenting on settlements and agreements filed with FERC ended on April 21, 1994. During that period, the FERC trial staff filed comments with the commission recommending that FERC approve the settlements. However, the merger is still being opposed by various other parties. If the settlement agreements are not acceptable, FERC could set issues for hearing. If a hearing is held by FERC, the consummation of the merger would likely be extended beyond the third quarter of 1994. CG&E and PSI also submitted to FERC the operating agreement among CINergy Services, Inc., a subsidiary of CINergy, and CG&E and PSI Energy that provides for the coordinated planning and operation of the electric generation and transmission and other facilities of CG&E and PSI as an integrated utility system. It also establishes a framework for the equitable sharing of the benefits and costs of such coordinated operations between CG&E and PSI. The parties to the Ohio and Indiana FERC settlements have agreed to support or not oppose the operating agreement, and the settlements are conditioned upon FERC approving the filed operating agreement without material changes. CG&E's filing with FERC also references a separate agreement among CG&E, the Staff of the PUCO, the OCC, and other parties settling issues raised by a November 1993 ruling of the Supreme Court of Ohio on the phased-in electric rate increase ordered by the PUCO in May 1992. The agreement includes a moratorium on increases in base electric rates prior to January 1, 1999 (except under certain circumstances), authorization for CG&E to retain all non-fuel merger savings until 1999, and a commitment by the PUCO that it will support CG&E's efforts to retain CG&E's gas operations in its PUHCA filing with the SEC (see below). The PUCO approved this separate agreement on April 14, 1994. Reference is made to "Rate Matters" for additional information. On May 23, 1994, CINergy filed an application seeking approval by the SEC under PUHCA of the acquisition by CINergy of the common stock of CG&E and PSI Energy. PUHCA imposes restrictions on the operations of registered holding company systems. Among these are requirements that securities issuances, sales and acquisitions of utility assets or of securities of utility companies and acquisitions of interests in any other business be approved by the SEC. PUHCA also limits the ability of registered holding companies to engage in non-utility ventures and regulates the rendering of services by holding company affiliates to the system's utilities. PUHCA has been interpreted to preclude the ownership of both electric and gas utility systems. As a result, the SEC may require divestiture of the Company's gas properties within a reasonable time after the merger. CG&E believes good arguments exist to allow retention of its gas assets and CINergy has requested that it be allowed to do so. Intervention papers and hearing requests were filed by a number of parties during the period allowed by the SEC, which ended on July 1, 1994. Three of the filings raise a number of objections to the merger and request that the merger be disapproved or that approval be subject to a number of conditions, including, among other things, divestiture of the gas assets. CG&E has responded to arguments raised in the intervention papers and believes that good arguments exist in support of CINergy's request for authorization to retain the gas assets; however, the outcome of the proceedings cannot be predicted. Originally, the merger agreement provided that CG&E and PSI would be merged into CINergy as an Ohio corporation. Under this structure CG&E and PSI would have become operating divisions of CINergy, ceasing to exist as separate corporations, and CINergy would not have been subject to the restrictions imposed by PUHCA. However, The Indiana Utility Regulatory Commission (IURC) dismissed PSI's application for approval of the transfer of its license or property to a non-Indiana corporation. The IURC s decision has been appealed and the original merger structure could be reinstated if the appeal is successful. Unless otherwise noted, the following discussion pertains solely to CG&E and its subsidiary companies, and any projections or estimates contained therein do not reflect the pending merger. Liquidity and Capital Resources - ------------------------------- The construction expenditures for CG&E and its subsidiaries for the first six months of 1994 were approximately $80 million (including $2 million of AFC) and are expected to be $192 million for the year 1994. Over the next five years, 1994-1998, construction expenditures are expected to be $1,343 million (including AFC of $54 million). These estimates are under continuing review and subject to adjustment. During the five year period, a total of $142 million will be required for the redemption of long-term debt and cumulative preferred stock at maturity or in compliance with mandatory redemption requirements. CG&E contemplates future debt and equity financings in the capital markets and the issuance of additional shares of common stock through its employee stock purchase plans and Dividend Reinvestment and Stock Purchase Plan. Short-term indebtedness will be used to supplement internal sources of funds for the interim financing of the construction program. The Company may continue to sell additional securities, from time to time, beyond what is needed for capital requirements to allow the early refinancing of existing securities. Under the terms of CG&E's first mortgage indenture, at June 30, 1994, CG&E would have been able to issue approximately $880 million of additional first mortgage bonds. As a result of the write-off of a portion of Zimmer Station in November 1993, CG&E will have inadequate coverage to meet the requirements of its articles of incorporation for issuing additional shares of preferred stock until late December 1994. CG&E has a $200 million bank revolving credit agreement that will expire in September 1996. The agreement provides a back-up source of funds for CG&E's commercial paper program. CG&E has not made any borrowings under this agreement. CG&E and its subsidiaries had lines of credit at June 30, 1994, of $123 million, of which $118 million remained unused. CG&E and its subsidiaries are currently authorized to have a maximum of $235 million of short-term notes outstanding. Rate Matters - ------------ Over the past two years, the Company has received a number of electric and gas rate increases that will positively impact future earnings. The primary reasons for the electric rate increases were recovery of CG&E's investment in Zimmer Station, Woodsdale Station and other facilities used to serve customers. The gas rate increases reflect investments in new and replacement gas mains and facilities. As part of an August 1993 stipulation, CG&E has agreed not to increase electric or gas base rates prior to June 1, 1995, excluding rate filings made under certain circumstances, such as to address financial emergencies or to reflect savings associated with the merger with PSI. In August 1993, the PUCO approved a stipulation authorizing CG&E to increase annual electric revenues by $41.1 million and increase annual gas revenues by $19.1 million. In May 1992, the PUCO authorized CG&E to increase electric revenues by $116.4 million to be phased in over a three-year period through annual increases beginning each May of $37.8 million in 1992, $38.8 million in 1993 and $39.8 million in 1994. In response to an appeal by CG&E of the PUCO's May 1992 rate order, the Supreme Court of Ohio ruled, in November 1993, that the PUCO did not have authority to order the phased-in rate increase, and remanded the case to the PUCO to set rates that provide the gross annual revenues determined in accordance with Ohio statutes. The Court also said the PUCO must provide a mechanism which allows CG&E to recover costs being deferred under the phase-in plan through the date of the order on remand. At June 30, 1994, CG&E had deferred $81 million of costs, net of taxes, related to the phase-in plan. In April 1994, the PUCO approved a settlement agreement among CG&E, the PUCO Staff, the OCC and other intervenors addressing the November 1993 ruling by the Supreme Court of Ohio. As part of the settlement, CG&E has agreed not to seek early implementation of the third phase of the May 1992 rate increase, which means the $39.8 million increase became effective in May 1994 as originally scheduled. CG&E also agreed that it would not seek accelerated recovery of deferrals related to the phase- in plan. These deferrals will be recovered over the remaining seven year period contemplated in the May 1992 PUCO order. In addition, if the merger with PSI is consummated, CG&E has agreed not to increase base electric rates prior to January 1, 1999, except for increases in taxes, changes in federal or state environmental laws, PUCO actions affecting electric utilities in general and financial emergencies. The settlement agreement also permits CG&E to retain all non-fuel savings from the merger until 1999 and calls for merger- related transaction costs to be amortized by January 1, 1999. Other provisions of the agreement are: (i) if the merger is not completed by April 30, 1995, CG&E can raise electric rates in May 1995 by $21 million to provide accelerated recovery of phase- in deferrals; (ii) the PUCO and OCC will have access to information about CINergy and affiliated companies; (iii) the PUCO will support, before the SEC, CG&E's efforts to retain its gas operations and the other parties will not oppose efforts to retain the gas properties; and (iv) contracts of CG&E with affiliated companies under the merger that are to be filed with the SEC must first be filed with the PUCO for its review and copies provided to the OCC. Voluntary Workforce Reduction - ----------------------------- In June 1994, CG&E and its subsidiaries initiated a voluntary early retirement program for those management, supervisory, administrative and professional employees who are vested in its pension plan and are age 54 or older on or before December 31, 1994. There are approximately 160 employees who are eligible to participate in the program. In accordance with Statement of Financial Accounting Standards No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the one-time cost of termination benefits associated with the program will be recognized in the third quarter of 1994. The amount of such cost will depend on the number of employees who accept early retirement under the program.
THE CINCINNATI GAS & ELECTRIC COMPANY and Subsidiary Companies CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended Twelve Months Ended June 30 June 30 1994 1993 1994 1993 (Thousands of Dollars) Cash Flows From Operations: Net Income (Loss)..................................... $ 115,657 $ 108,329 $ (1,396) $ 199,455 Adjustments to reconcile net income to net cash: Deferred gas and electric fuel costs--net......... (3,831) 12,234 (12,152) (8,561) Depreciation...................................... 77,820 74,473 155,407 147,391 Post-in-service deferred operating expenses--net.. 1,645 (5,611) 785 (9,881) Phase-in deferred depreciation.................... (2,161) (5,306) (5,379) (11,697) Allowance for other funds used during construction................................... (892) (2,349) (1,696) (4,374) Post-in-service carrying costs.................... -- (8,028) (4,072) (12,885) Phase-in deferred return.......................... (11,458) (20,498) (26,294) (40,490) Deferred income taxes and investment tax credits--net................................... 12,570 14,966 33,324 36,744 Write-off of a portion of Zimmer Station.......... -- -- 234,844 -- Deferred income taxes and investment tax credits related to write-off of a portion of Zimmer Station................................. -- -- (12,085) -- Other--net........................................ 20,485 (1,367) 41,270 6,765 Change in current assets and liabilities: Receivables and unbilled revenues.............. 54,430 18,512 (2,122) (30,345) Materials and supplies......................... 30,208 12,157 21,618 (1,928) Other current assets........................... (11,738) (14,844) (1,437) (11,400) Accounts payable and other current liabilities. (40,015) (46,751) 27,300 24,505 ---------- ---------- ---------- ---------- Total adjustments........................... 127,063 27,588 449,311 83,844 ---------- ---------- ---------- ---------- Net cash provided by operations............. 242,720 135,917 447,915 283,299 ---------- ---------- ---------- ---------- Cash Flows From Investing: Construction expenditures (less allowance for other funds used during construction)..................... (79,011) (80,312) (197,422) (197,952) ---------- ---------- ---------- ---------- Cash Flows From Financing: Common stock proceeds................................. 23,505 22,289 45,201 43,577 Preferred stock proceeds.............................. -- -- -- 79,300 Long-term debt proceeds............................... 311,957 -- 608,957 359,614 Retirement of long-term debt and cumulative preferred stock..................................... (353,647) (13) (648,089) (377,979) Net short-term borrowings............................. (25,500) 5,080 (46,080) (25,420) Dividends paid on common shares....................... (75,999) (71,976) (149,964) (142,893) Dividends paid on preferred shares.................... (12,580) (12,580) (25,160) (26,652) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities..................... (132,264) (57,200) (215,135) (90,453) ---------- ---------- ---------- ---------- Net increase (decrease) in cash and temporary cash investments............... 31,445 (1,595) 35,358 (5,106) Cash and temporary cash investments--beginning of period............................................. 4,570 2,252 657 5,763 ---------- ---------- ---------- ---------- Cash and temporary cash investments--end of period....... $ 36,015 $ 657 $ 36,015 $ 657 ========== ========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest (net of allowance for borrowed funds used during construction)........................... $ 71,805 $ 75,087 $ 148,584 $ 151,734 Income taxes.......................................... $ 46,397 $ 28,457 $ 71,726 $ 42,567
THE CINCINNATI GAS & ELECTRIC COMPANY and Subsidiary Companies CONSOLIDATED BALANCE SHEET ASSETS June 30 December 31 1994 1993 (Thousands of Dollars) UTILITY PLANT In service............................................ $5,256,910 $5,188,602 Less--Accumulated provisions for depreciation......... 1,538,172 1,472,313 ---------- ---------- 3,718,738 3,716,289 Construction work in progress......................... 65,675 69,351 ---------- ---------- 3,784,413 3,785,640 ---------- ---------- CURRENT ASSETS Cash.................................................. 876 4,570 Short-term investments................................ 35,139 -- Accounts receivable--net.............................. 192,727 206,210 Accrued unbilled revenues............................. 65,008 105,955 Materials and supplies................................ 122,309 152,517 Prepayments........................................... 35,380 29,053 Other................................................. 112,954 107,543 ---------- ---------- 564,393 605,848 ---------- ---------- OTHER ASSETS Post-in-service carrying costs and deferred operating expenses............................................ 151,377 154,636 Phase-in deferred return and depreciation............. 97,050 83,431 Amounts due from customers-income taxes............... 381,377 387,748 Other................................................. 145,084 126,220 ---------- ---------- 774,888 752,035 ---------- ---------- $5,123,694 $5,143,523 ========== ========== LIABILITIES CAPITALIZATION Common shares......................................... $ 757,084 $ 748,528 Additional paid-in capital............................ 329,712 314,218 Retained earnings..................................... 483,564 456,511 Preferred shares-- Not subject to mandatory redemption................. 80,000 120,000 Subject to mandatory redemption..................... 210,000 210,000 Long-term debt........................................ 1,837,520 1,829,061 ---------- ---------- 3,697,880 3,678,318 ---------- ---------- CURRENT LIABILITIES Notes payable......................................... 5,500 31,013 Accounts payable...................................... 98,695 122,620 Dividends payable on preferred shares ................ 5,362 6,290 Accrued taxes......................................... 199,110 222,219 Accrued interest on debt.............................. 31,701 29,123 Other................................................. 33,937 29,496 ---------- ---------- 374,305 440,761 ---------- ---------- DEFERRED CREDITS AND OTHER Deferred income taxes................................. 743,097 733,224 Investment tax credits................................ 138,534 141,520 Accrued pension cost.................................. 45,923 41,826 Other................................................. 123,955 107,874 ---------- ---------- 1,051,509 1,024,444 ---------- ---------- $5,123,694 $5,143,523 ========== ==========
THE CINCINNATI GAS & ELECTRIC COMPANY and Subsidiary Companies NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accompanying information reflects, in the opinion of the management of the Company, all adjustments necessary to present fairly the results for the interim periods. All such adjustments are of a normal recurring nature. Reference should be made to the Company's Form 10-K for the year 1993 for additional footnote disclosure, including a summary of significant accounting policies. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein for information regarding the Company's merger with PSI Resources, Inc. (PSI) and a voluntary early retirement program. In April 1994, The Public Utilities Commission of Ohio (PUCO) approved a settlement agreement among CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel (OCC) and other intervenors addressing the November 1993 ruling by the Supreme Court of Ohio. As part of the settlement, CG&E has agreed not to seek early implementation of the third phase of the May 1992 rate increase, which means the $39.8 million increase became effective in May 1994 as originally scheduled. CG&E also agreed that it would not seek accelerated recovery of deferrals related to the phase-in plan. These deferrals will be recovered over the remaining seven year period contemplated in the May 1992 PUCO order. In addition, if the merger with PSI is consummated, CG&E has agreed not to increase base electric rates prior to January 1, 1999, except for increases in taxes, changes in federal or state environmental laws, PUCO actions affecting electric utilities in general and financial emergencies. The settlement agreement also permits CG&E to retain all non-fuel savings from the merger until 1999 and calls for merger- related transaction costs to be amortized by January 1, 1999. Other provisions of the agreement are: (i) if the merger is not completed by April 30, 1995, CG&E can raise electric rates in May 1995 by $21 million to provide accelerated recovery of phase- in deferrals; (ii) the PUCO and OCC will have access to information about CINergy and affiliated companies; (iii) the PUCO will support, before the Securities and Exchange Commission (SEC), CG&E's efforts to retain its gas operations and the other parties will not oppose efforts to retain the gas properties; and (iv) contracts of CG&E with affiliated companies under the merger that are to be filed with the SEC must first be filed with the PUCO for its review and copies provided to the OCC. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. - ------- --------------------------------------------------- (a) The annual meeting of shareholders of The Cincinnati Gas & Electric Company was held on May 18, 1994. (c) At the meeting, five directors were elected, as set forth below:
Votes Votes Term For Withheld Expiring ----- -------- -------- Phillip R. Cox 76,208,866 1,615,373 1996 Neil A. Armstrong 76,314,975 1,509,264 1997 C. Robert Everman 76,568,833 1,255,406 1997 John J. Schiff, Jr. 76,594,276 1,229,963 1997 Dudley S. Taft 76,458,263 1,365,976 1997
Also, at the meeting, the appointment of Arthur Andersen & Co. as auditors of CG&E was approved by shareholders. There were 76,109,282 common shares for the appointment, 1,176,610 against the appointment, and 538,347 abstentions. In addition, a shareholder proposal, intended to prohibit properly executed but unmarked proxies from being counted in voting for any matter described in the Company's proxy statement, was defeated. There were 8,121,398 common shares for the proposal, 58,297,969 against the proposal, and 2,576,594 abstentions. Item 5. Other Information. - ------- ----------------- Employee Relations - ------------------ A new three-year contract has been negotiated with the United Steelworkers of America, representing approximately 500 employees in gas operations. In addition to benefit improvements, the contract provides for wage increases of 3.5% in 1994 and 1995 and 3% in 1996. A new four-year contract has been negotiated with the Independent Utilities Union representing approximately 1,200 clerical and technical employees. In addition to benefit improvements, the contract provides for annual increases averaging 3.1% and lump sum adjustments. Unaudited Pro Forma Condensed Consolidated Financial Information: - ----------------------------------------------------------------- The following pro forma condensed consolidated financial information combines the historical consolidated statements of income and consolidated balance sheets of CG&E and PSI after giving effect to the merger. The unaudited Pro Forma Condensed Consolidated Statements of Income for the three, six and twelve month periods ended June 30, 1994, give effect to the merger as if it had occurred at July 1, 1993. The unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 1994, gives effect to the merger as if it had occurred at June 30, 1994. These statements are prepared on the basis of accounting for the merger as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the following pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and related notes thereto of CG&E and PSI. The following information is not necessarily indicative of the operating results or financial position that would have occurred had the merger been consummated at the beginning of the periods, or on the date, for which the merger is being given effect, nor is it necessarily indicative of future operating results or financial position. Pro Forma Condensed Consolidated Statements of Income (in millions, except per share amounts):
Three Months Ended June 30, 1994 ----------------------------------- Pro Historical Forma --------------------- ---------- CG&E PSI CINergy --------- --------- ---------- Operating revenues.............................. $ 391 $ 282 $ 673 Operating expenses.............................. 321 246 567 --------- -------- ---------- Operating income................................ 70 36 106 Other income and deductions -- net.............. 6 1 7 Interest charges -- net......................... 37 19 56 Preferred dividend requirement.................. 5 3 8 --------- -------- ---------- Net income...................................... $ 34 $ 15 $ 49 ========= ======== ========== Average common shares outstanding (1)........... 89 56 140/146 Earnings per common share (1)................... $ .38 $ .27 $ .35/.33
Six Months Ended June 30, 1994 ----------------------------------- Pro Historical Forma --------------------- ---------- CG&E PSI CINergy --------- --------- ---------- Operating revenues.............................. $ 954 $ 585 $ 1,539 Operating expenses.............................. 778 502 1,280 --------- -------- ---------- Operating income................................ 176 83 259 Other income and deductions -- net.............. 16 3 19 Interest charges -- net......................... 77 35 112 Preferred dividend requirement.................. 11 7 18 --------- -------- ---------- Net income...................................... $ 104 $ 44 $ 148 ========= ======== ========== Average common shares outstanding (1)........... 89 56 140/146 Earnings per common share (1)................... $ 1.17 $ .79 $1.06/1.01
Twelve Months Ended June 30, 1994 ----------------------------------- Pro Historical Forma --------------------- ---------- CG&E PSI CINergy --------- --------- ---------- Operating revenues.............................. $ 1,845 $ 1,161 $ 3,006 Operating expenses.............................. 1,502 994 2,496 --------- -------- ---------- Operating income................................ 343 167 510 Other income and deductions -- net.............. (189)* 13 (176) Interest charges -- net......................... 156 68 224 Preferred dividend requirement.................. 24 14 38 --------- -------- ---------- Net income (loss)............................... $ (26) $ 98 $ 72 ========= ======== ========== Average common shares outstanding (1)........... 88 56 139/145 Earnings (loss) per common share (1)............ $ (.29) $ 1.74 $ .52/.49 *Reflects the write-off of a portion of Zimmer Station of approximately $223 million, net of taxes.
Pro Forma Condensed Consolidated Balance Sheet (in millions): June 30, 1994 --------------------------------------- Historical Pro Forma ------------------------ --------- CG&E PSI CINergy --------- --------- --------- Assets Utility plant -- original cost In service...................................... $ 5,257 $ 3,514 $ 8,771 Accumulated depreciation........................ 1,538 1,510 3,048 --------- --------- --------- 3,719 2,004 5,723 Construction work in progress................... 65 305 370 --------- --------- --------- Total utility plant........................... 3,784 2,309 6,093 Current assets.................................... 565 236 801 Other assets...................................... 775 293 1,068 --------- --------- --------- Total assets.................................. $ 5,124 $ 2,838 $ 7,962 ========= ========= ========= Capitalization and Liabilities Common stock (2).................................. $ 757 $ 1 $ 1 Paid-in capital (2)............................... 330 259 1,346 Retained earnings................................. 483 460 943 --------- --------- --------- Total common stock equity..................... 1,570 720 2,290 Cumulative preferred stock........................ 290 188 478 Long-term debt.................................... 1,838 877 2,715 --------- --------- --------- Total capitalization.......................... 3,698 1,785 5,483 Current liabilities............................... 374 624 998 Deferred income taxes............................. 743 309 1,052 Other liabilities................................. 309 120 429 --------- --------- --------- Total capitalization and other liabilities.... $ 5,124 $ 2,838 $ 7,962 ========= ========= =========
Notes to Pro Forma Condensed Consolidated Financial Information: (1) The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of CG&E common stock outstanding into one share of CINergy common stock and each share of PSI common stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock. The actual PSI conversion ratio may be lower than 1.023 or higher than .909 depending upon the closing sales price of CG&E common stock during a period prior to the consummation of the merger. (2) The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed Consolidated Balance Sheet are based on the conversion of each share of CG&E common stock outstanding into one share of CINergy common stock ($.01 par value) and each share of PSI common stock outstanding into 1.023 shares of CINergy common stock ($.01 par value). Any PSI conversion ratio lower than 1.023 would result in a reallocation of amounts between "Common stock" and "Paid-in capital". However, any such reallocation would have no effect on "Total common stock equity". (3) Intercompany transactions (including purchased and exchanged power transactions) between CG&E and PSI during the periods presented were not material and accordingly no pro forma adjustments were made to eliminate such transactions. (4) Transaction costs, estimated to be approximately $47 million, are being deferred by CG&E and PSI. In a settlement agreement approved by the PUCO (as more fully discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Rate Matters" herein), CG&E has agreed to, among other things, amortize its portion of merger-related transaction costs by January 1, 1999. CG&E will also be permitted to retain all of its non-fuel savings from the merger until 1999. For additional information on the settlement agreement, see Notes to the Consolidated Financial Statements. PSI's portion of the costs are being deferred for post-merger recovery through customer rates. Item 6. Exhibits and Reports on Form 8-K. - ------- -------------------------------- (a) Exhibits: 2-A Amendment to Amended and Restated Agreement and Plan of Reorganization (Amended Merger Agreement) by and among CG&E, PSI Resources, Inc., PSI Energy, Inc., CINergy Corp., an Ohio corporation, CINergy Corp., a Delaware corporation, and CINergy Sub, Inc., dated as of December 11, 1992, as amended on July 2, 1993, September 10, 1993 and as of June 20, 1994. 2-B Amendment to Amended and Restated Agreement and Plan of Reorganization (Amended Merger Agreement) by and among CG&E, PSI Resources, Inc., PSI Energy, Inc., CINergy Corp., an Ohio corporation, CINergy Corp., a Delaware corporation, and CINergy Sub, Inc., dated as of December 11, 1992, as amended on July 2, 1993, September 10, 1993, June 20, 1994 and as of July 26, 1994. (b) Reports on Form 8-K filed: Date of Report Items Reported -------------- -------------- June 15, 1994 Item 7. Financial Statements and Exhibits SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CINCINNATI GAS & ELECTRIC COMPANY ------------------------------------- (Registrant) Date: August 9, 1994 Daniel R. Herche ------------------------------------- Daniel R. Herche, Controller (Duly Authorized Officer and Chief Accounting Officer) (Signature) EX-2.A 2 AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ This Amendment, dated as of June 20, 1994 (the "Amendment"), amends to the extent specified herein the Agreement and Plan of Reorganization, dated as of December 11, 1992, as amended and restated on July 2, 1993 and as of September 10, 1993 (the "Merger Agreement"), by and among The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Resources, Inc., an Indiana corporation ("PSI"), PSI Energy, Inc., an Indiana corporation ("Energy"), CINergy Corp., a Delaware corporation (the "Company") and CINergy Sub, Inc., an Ohio corporation ("CINergy Sub"). Capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have such meanings as are ascribed to such terms in the Merger Agreement. W I T N E S S E T H - - - - - - - - - - WHEREAS, the parties to the Merger Agreement are in the process of obtaining certain regulatory approvals which are conditions precedent to the consummation of the business combination transaction contemplated by the Merger Agreement; and WHEREAS, the parties to the Merger Agreement deem it to be in their best interest to amend Sections 1A.2(c) and 9.1(b) of the Merger Agreement in order to allow for additional time to obtain such required regulatory approvals. NOW, THEREFORE, in consideration of the premises and the representatives, warranties, covenants and agreements contained herein, the parties, each intending to be legally bound hereby, agree as follows: 1. Section 1A.2(c) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "(c) The date set forth in Sections 2, 7(a) and 7(d) of each of the PSI Stock Option Agreement and the CG&E Stock Option Agreement is amended to be September 30, 1994." 2. Section 9.1(b) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "(b) by any party hereto, by written notice to the other, if the Effective Time shall not have occurred on or before September 30, 1994; provided, however, that the right to terminate the Agreement under this Section 9.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before this date;" 3. Without limiting in any respect any of the representations and warranties set forth in the Merger Agreement, each party represents and warrants with respect to itself that this Amendment has been duly and validly authorized, executed and delivered and constitutes a valid and binding obligation of each such party enforceable against such party in accordance with its terms. 4. The Merger Agreement is hereby reaffirmed in its entirety, except to the extent specifically amended hereby. 5. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 6. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. IN WITNESS WHEREOF, CG&E, PSI, Energy, CINergy Sub and the Company have caused this Amendment to be signed by their respective officers thereunto duly authorized as of the date first written above. THE CINCINNATI GAS & ELECTRIC COMPANY By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: President and Chief Executive Officer PSI RESOURCES, INC. By: James E. Rogers ------------------------------- Name: James E. Rogers Title: Chairman and Chief Executive Officer PSI ENERGY, INC. By: James E. Rogers ------------------------------- Name: James E. Rogers Title: Chairman, President and Chief Executive Officer CINERGY CORP. By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: Chairman and Chief Executive Officer CINERGY SUB, INC. By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: Chairman and Chief Executive Officer EX-2.B 3 AMENDMENT TO AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ This Amendment, dated as of July 26, 1994 (the "Amendment"), amends to the extent specified herein the Agreement and Plan of Reorganization, dated as of December 11, 1992, as amended and restated on July 2, 1993 and as of September 10, 1993 and as further amended as of June 20, 1994 (the "Merger Agreement"), by and among The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Resources, Inc., an Indiana corporation ("PSI"), PSI Energy, Inc., an Indiana corporation ("Energy"), CINergy Corp., a Delaware corporation (the "Company") and CINergy Sub, Inc., an Ohio corporation ("CINergy Sub"). Capitalized terms used in this Amendment and not otherwise defined in this Amendment shall have such meanings as are ascribed to such terms in the Merger Agreement. W I T N E S S E T H - - - - - - - - - - WHEREAS, the parties to the Merger Agreement deem it to be in their best interest to amend Sections 2.3(c) and (d) and 6.1 (b), (c) and (h) of the Merger Agreement. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties, each intending to be legally bound hereby, agree as follows: 1. The last sentence of Section 2.3(c) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "Until surrendered as contemplated by this Section 2.3, each Certificate shall be deemed at any time after the Effective Time to represent (i) the right to receive upon such surrender the certificate representing Company Shares and cash in lieu of any fractional shares of Company Common Stock as contemplated by this Section 2.3 and (ii) all other rights attributable to the Company Shares including the payment of any dividend or other distribution declared or made with respect to Company Shares with a record date after the Effective Time." 2. Section 2.3(d) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "Notwithstanding the last sentence of Section 2.3(c), at any time after the Effective Time the Board of Directors of the Company may decide that no dividends or other distributions declared or made with respect to Company Shares with a record date after the time of said decision (the "Decision Time") shall be paid to the holder of any unsurrendered Certificate with respect to the Company Shares represented thereby. In such event, and subject to the effect of unclaimed property, escheat and other applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole Company Shares issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Decision Time theretofore paid with respect to such whole Company Shares and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Decision Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole Company Shares, as the case may be." 3. The last sentence of Section 6.1(b) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "Notwithstanding the foregoing, (i) Energy may redeem all or any portion of its (x) Energy Preferred Stock, 3.50% Series, of which 42,017 shares are outstanding, (y) Energy Preferred Stock, 8.52% Series, of which 211,190 shares are outstanding and (z) Energy Preferred Stock, 8.96% Series, of which 216,900 shares are outstanding and (ii) CG&E's redemption of 400,000 shares of its CG&E Preferred Stock, 9.28% Series, is permitted." 4. The first sentence of Section 6.1(c) is hereby amended to change the number 3,700,000 in clause (ii)(x) to 5,000,000. 5. Clause (ii) of section 6.1(h) of the Merger Agreement is hereby amended and restated to read in its entirety as follows: "(ii) long-term indebtedness not aggregating more than (x) in the case of PSI and its subsidiaries, $550 million and (y) in the case of CG&E and its subsidiaries, $300 million, in each case other than in connection with the refunding of outstanding long-term indebtedness which refunding is at a lower interest rate than that of the original indebtedness;" 6. Without limiting in any respect any of the representations and warranties set forth in the Merger Agreement, each party represents and warrants with respect to itself that this Amendment has been duly and validly authorized, executed and delivered and constitutes a valid and binding obligation of each such party enforceable against such party in accordance with its terms. 7. The Merger Agreement is hereby reaffirmed in its entirety, except to the extent specifically amended hereby. 8. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 9. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. IN WITNESS WHEREOF, CG&E, PSI, Energy, CINergy Sub and the Company have caused this Amendment to be signed by their respective officers thereunto duly authorized as of the date first written above. THE CINCINNATI GAS & ELECTRIC COMPANY By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: Chairman, President and Chief Executive Officer PSI RESOURCES, INC. By: James E. Rogers ------------------------------- Name: James E. Rogers Title: Chairman and Chief Executive Officer PSI ENERGY, INC. By: James E. Rogers ------------------------------- Name: James E. Rogers Title: Chairman, President and Chief Executive Officer CINERGY CORP. By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: Chairman and Chief Executive Officer CINERGY SUB, INC. By: Jackson H. Randolph ------------------------------- Name: Jackson H. Randolph Title: Chairman and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----