-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EgCgpM7kNytnZOf9j+GpOdbKrqUNMN8q089rEH4TJ8S0mh19hG8HZWovvebi6egY 4mlSKZwW2bVWo7RviKeNCA== 0000081020-96-000005.txt : 19960814 0000081020-96-000005.hdr.sgml : 19960814 ACCESSION NUMBER: 0000081020-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSI ENERGY INC CENTRAL INDEX KEY: 0000081020 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 350594457 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03543 FILM NUMBER: 96611124 BUSINESS ADDRESS: STREET 1: 1000 E MAIN ST CITY: PLAINFIELD STATE: IN ZIP: 46168 BUSINESS PHONE: 3178399611 FORMER COMPANY: FORMER CONFORMED NAME: PUBLIC SERVICE CO OF INDIANA INC DATE OF NAME CHANGE: 19900509 10-Q 1 PSI 10-Q FOR 06/30/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of July 31, 1996, shares of Common Stock outstanding for each registrant were as listed: Company Shares Cinergy Corp., par value $.01 per share 157,679,129 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333 TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . Statements of Income. . . . . . . . . . . . . . . . . Statements of Cash Flows. . . . . . . . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . Notes to Financial Statements . . . . . . . . . . . . . 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 5 Other Information . . . . . . . . . . . . . . . . . . . 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . Signatures. . . . . . . . . . . . . . . . . . . . . . . GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION 1995 Form Combined 1995 Annual Report on Form 10-K filed separately by 10-K Cinergy, as amended, CG&E, PSI, and ULH&P AEP American Electric Power Company, Inc. Articles Amended Articles of Incorporation Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a subsidiary of Power International CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) Cinergy or Cinergy Corp. Company Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a Project 262-mw clean coal power generating facility located at Wabash River Generating Station, which was placed in service in November 1995 CWIP Construction work in progress D&P Duff & Phelps Credit Rating Co. DSM Demand-side management FASB Financial Accounting Standards Board February 1995 An IURC order issued in February 1995 Order FERC Federal Energy Regulatory Commission FERC Order 888 FERC order which opens wholesale power sales to competition FERC Order 889 FERC order requiring utilities to establish an electronic system for sharing information on available transmission capacity Fitch Fitch Investors Service, Inc. GPU General Public Utilities Corporation IBEW International Brotherhood of Electrical Workers Investments Cinergy Investments, Inc. (a subsidiary of Cinergy) IURC Indiana Utility Regulatory Commission GLOSSARY OF TERMS (Continued) TERM DEFINITION KO Transmission KO Transmission Company, a subsidiary of CG&E KPSC Kentucky Public Service Commission kwh Kilowatt-hour May 1992 Order A PUCO order issued in May 1992 Mcf Thousand cubic feet M.E. Holdings M.E. Holdings, Inc. (a subsidiary of Investments) which holds Cinergy's 50% investment in Avon Energy Mega-NOPR FERC's Notice of Proposed Rulemaking Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities Merger Costs Merger transaction costs and costs to achieve merger savings Merger Order The FERC's order approving the merger of CG&E and Resources to form Cinergy Midlands Midlands Electricity plc Money Pool Participants with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that approximate the costs of the funds in the money pool Moody's Moody's Investors Service mw Megawatt NOPR FERC's Notice of Proposed Rulemaking Order 636 FERC order regarding gas purchases and transportation Power International Power International, Inc., a subsidiary of Investments PSI PSI Energy, Inc. (a subsidiary of Cinergy) PUCO Public Utilities Commission of Ohio PUHCA Public Utility Holding Company Act of 1935 RUS Rural Utilities Service, previously called the Rural Electrification Administration S&P Standard & Poor's SEC Securities and Exchange Commission GLOSSARY OF TERMS (Continued) TERM DEFINITION Statement 121 Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", issued in March 1995 by the FASB, is a new accounting standard requiring impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) WVPA Wabash Valley Power Association, Inc. Zimmer William H. Zimmer Generating Station CINERGY CORP. AND SUBSIDIARY COMPANIES CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $8 690 023 $8 617 695 Gas 693 032 680 339 Common 185 749 184 694 9 568 804 9 482 728 Accumulated depreciation 3 475 410 3 367 432 6 093 394 6 115 296 CWIP 148 826 135 852 Total utility plant 6 242 220 6 251 148 Current Assets Cash and temporary cash investments 61 326 35 052 Restricted deposits 1 675 2 336 Accounts receivable less accumulated provision of $12,492 at June 30, 1996, and $10,360 at December 31, 1995, for doubtful accounts 141 125 371 150 Materials, supplies, and fuel - at average cost Fuel for use in electric production 107 082 122 409 Gas stored for current use 24 237 21 493 Other materials and supplies 85 477 85 076 Property taxes applicable to subsequent year 58 411 116 822 Prepayments and other 42 851 32 347 522 184 786 685 Other Assets Regulatory assets Amounts due from customers - income taxes 382 974 423 493 Post-in-service carrying costs and deferred operating expenses 187 967 187 190 Phase-in deferred return and depreciation 97 776 100 388 Deferred DSM costs 128 610 129 400 Deferred merger costs 81 093 56 824 Unamortized costs of reacquiring debt 73 457 73 904 Other 68 561 74 911 Investment in Avon Energy 457 567 - Other 188 979 136 121 1 666 984 1 182 231 $8 431 388 $8 220 064 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements. CINERGY CORP. CAPITALIZATION AND LIABILITIES June 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,679,129 at June 30, 1996, and 157,670,141 at December 31, 1995 $ 1 577 $ 1 577 Paid-in capital 1 594 920 1 597 050 Retained earnings 981 003 950 216 Cumulative foreign currency translation adjustment (567) -___ Total common stock equity 2 576 933 2 548 843 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 213 090 227 897 Subject to mandatory redemption 160 000 160 000 Long-term Debt 2 523 300 2 530 766 Total capitalization 5 473 323 5 467 506 Current Liabilities Long-term debt due within one year 50 400 201 900 Notes payable 573 500 165 800 Accounts payable 257 952 268 139 Litigation settlement 80 000 80 000 Accrued taxes 245 277 317 185 Accrued interest 57 743 55 995 Other 57 785 57 202 1 322 657 1 146 221 Other Liabilities Deferred income taxes 1 119 325 1 120 900 Unamortized investment tax credits 180 387 185 726 Accrued pension and other postretirement benefit costs 211 103 171 771 Other 124 593 127 940 1 635 408 1 606 337 $8 431 388 $8 220 064
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date Twelve Months Ended June 30 June 30 June 30 1996 1995 1996 1995 1996 1995 (in thousands, except per share amounts) Operating Revenues Electric $650 714 $609 024 $1 335 554 $1 241 490 $2 706 643 $2 468 710 Gas 66 120 56 975 265 275 232 186 443 941 383 868 716 834 665 999 1 600 829 1 473 676 3 150 584 2 852 578 Operating Expenses Fuel used in electric production 163 805 169 194 355 257 355 103 716 908 723 749 Gas purchased 39 955 22 587 133 180 117 080 222 350 192 327 Purchased and exchanged power 30 802 11 641 58 423 17 307 88 748 31 155 Other operation 148 626 123 791 294 760 240 530 574 820 551 614 Maintenance 48 164 43 661 91 806 87 983 186 003 193 764 Depreciation 70 597 68 215 140 792 141 671 278 880 291 043 Amortization of phase-in deferrals 3 399 2 273 6 799 2 273 13 617 2 273 Post-in-service deferred operating expenses - net (864) (65) (1 707) (2 069) (2 138) (5 090) Income taxes 33 020 40 699 107 003 103 218 225 214 160 342 Taxes other than income taxes 66 809 63 738 132 546 127 686 260 393 246 794 604 313 545 734 1 318 859 1 190 782 2 564 795 2 387 971 Operating Income 112 521 120 265 281 970 282 894 585 789 464 607 Other Income and Expenses - Net Allowance for equity funds used during construction 497 931 848 1 885 927 3 755 Post-in-service carrying costs 494 13 837 2 581 1 442 8 055 Phase-in deferred return 2 093 2 134 4 186 4 268 8 455 8 161 Income taxes 2 068 2 490 5 286 3 584 9 060 11 045 Other - net (3 256) (1 880) (10 932) (2 931) (11 052) (27 637) 1 896 3 688 225 9 387 8 832 3 379 Income Before Interest and Other Charges 114 417 123 953 282 195 292 281 594 621 467 986 Interest and Other Charges Interest on long-term debt 48 021 51 439 97 156 106 500 204 567 215 748 Other interest 5 321 5 817 8 192 11 128 17 890 23 639 Allowance for borrowed funds used during construction (1 642) (1 986) (2 780) (4 297) (6 548) (10 542) Preferred dividend requirements of subsidiaries 6 677 8 657 13 446 17 314 26 985 34 630 58 377 63 927 116 014 130 645 242 894 263 475 Net Income $ 56 040 $ 60 026 $ 166 181 $ 161 636 $ 351 727 $ 204 511 Average Common Shares Outstanding 157 679 156 333 157 677 156 009 157 448 152 331 Earnings Per Common Share $.35 $.39 $1.05 $1.04 $2.23 $1.33 Dividends Declared Per Common Share $.43 $.43 $ .86 $ .86 $1.72 $1.60 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Cumulative Foreign Currency Common Paid-in Retained Translation Total Common Stock Capital Earnings Adjustment Stock Equity (dollars in thousands) Quarter Ended June 30, 1996 Balance April 1, 1996 $1 577 $1 595 435 $ 992 558 $ $2 589 570 Net income 56 040 56 040 Dividends on common stock (See page 9 for per share amounts) (67 801) (67 801) Translation adjustments (567) (567) Other (515) 206 (309) Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933 Quarter Ended June 30, 1995 Balance April 1, 1995 $1 559 $1 553 478 $ 911 857 $ $2 466 894 Net income 60 026 60 026 Issuance of 646,854 shares of common stock - net 7 16 133 16 140 Common stock issuance expenses (5) (5) Dividends on common stock (See page 9 for per share amounts) (67 078) (67 078) Other 1 267 (4 711) (3 444) Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533 Six Months Ended June 30, 1996 Balance January 1, 1996 $1 577 $1 597 050 $ 950 216 $ $2 548 843 Net income 166 181 166 181 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (See page 9 for per share amounts) (135 600) (135 600) Translation adjustments (567) (567) Other (2 441) 206 (2 235) Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933 Six Months Ended June 30, 1995 Balance January 1, 1995 $1 552 $1 535 658 $ 877 061 $ $2 414 271 Net income 161 636 161 636 Issuance of 1,369,293 shares of common stock - net 14 34 137 34 151 Common stock issuance expenses (189) (189) Dividends on common stock (See page 9 for per share amounts) (133 892) (133 892) Other 1 267 (4 711) (3 444) Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533 Twelve Months Ended June 30, 1996 Balance July 1, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533 Net income 351 727 351 727 Issuance of 1,111,798 shares of common stock - net 11 26 517 26 528 Common stock issuance expenses (40) (40) Dividends on common stock (See page 9 for per share amounts) (270 559) (270 559) Translation adjustments (567) (567) Other (2 430) (259) (2 689) Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933 Twelve Months Ended June 30, 1995 Balance July 1, 1994 $1 466 $1 345 023 $ 943 659 $ $2 290 148 Net income 204 511 204 511 Issuance of 9,790,238 shares of common stock - net 100 229 949 230 049 Common stock issuance expenses (5 388) (5 388) Dividends on common stock (See page 9 for per share amounts) (243 797) (243 797) Other 1 289 (4 279) (2 990) Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date Twelve Months Ended June 30 June 30 1996 1995 1996 1995 (in thousands) Operating Activities Net income $ 166 181 $ 161 636 $ 351 727 $ 204 511 Items providing (using) cash currently Depreciation 140 792 141 671 278 880 291 043 Deferred income taxes and investment tax credits - net 32 783 (11 584) 72 778 (9 224) Allowance for equity funds used during construction (848) (1 885) (927) (3 755) Regulatory assets - net 3 023 (2 728) 6 777 (53 891) Changes in current assets and current liabilities Restricted deposits (312) 14 (1 361) 10 186 Accounts receivable, net of reserves on receivables sold 195 707 47 621 76 445 54 146 Materials, supplies, and fuel 12 182 4 920 58 476 (15 419) Accounts payable (10 187) (82 067) 73 552 (44 564) Accrued taxes and interest (70 160) 1 982 (15 507) 23 696 Other items - net 41 956 11 386 42 706 80 875 Net cash provided by (used in) operating activities 511 117 270 966 943 546 537 604 Financing Activities Issuance of common stock 311 33 962 26 488 224 661 Issuance of long-term debt - 149 025 195 255 208 935 Funds on deposit from issuance of long-term debt 973 6 628 4 332 22 124 Retirement of preferred stock of subsidiaries (15 114) (7) (108 573) (23) Redemption of long-term debt (161 120) (217 251) (342 702) (217 686) Change in short-term debt 407 700 15 100 329 500 (75 713) Dividends on common stock (135 600) (133 892) (270 559) (243 797) Net cash provided by (used in) financing activities 97 150 (146 435) (166 259) (81 499) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (125 785) (160 564) (290 126) (430 199) Deferred DSM costs - net 790 (10 641) (13 842) (43 056) Investment in Avon Energy (456 998) - (456 998) - Equity investment in Argentine utility - - 19 799 - __ Net cash provided by (used in) investing activities (581 993) (171 205) (741 167) (473 255) Net increase (decrease) in cash and temporary cash investments 26 274 (46 674) 36 120 (17 150) Cash and temporary cash investments at beginning of period 35 052 71 880 25 206 42 356 Cash and temporary cash investments at end of period $ 61 326 $ 25 206 $ 61 326 $ 25 206 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter, six months, and twelve months ended June 30, 1996. For information concerning the results of operations for each of the other registrants for the same quarter and six months ended, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 Kwh Sales Kwh sales increased 11.2% for the quarter ended June 30, 1996, from the comparable period of last year partially reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Higher sales to residential and commercial customers reflected cooler than normal weather early in the second quarter and an increase in the average number of customers. Sales to industrial customers increased due to growth in the primary metals sector. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the second quarter of 1996 increased 17.3% as compared to the same period in 1995. Cooler than normal weather during the second quarter of 1996 and increases in the average number of customers led to higher gas sales to retail customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals and chemicals sectors. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended June 30, 1996, increased $42 million (6.8%) as compared to the same period last year primarily as a result of the higher kwh sales previously discussed. This increase was partially offset by the operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production. An analysis of electric operating revenues is shown below: Quarter Ended June 30 (in millions) Electric operating revenues - June 30, 1995 $609 Increase (Decrease) due to change in: Price per kwh Retail (8) Sales for resale Firm power obligations 4 Non-firm power transactions (1) Total change in price per kwh (5) Kwh sales Retail 28 Sales for resale Firm power obligations 4 Non-firm power transactions 15 Total change in kwh sales 47 Electric operating revenues - June 30, 1996 $651 Gas Operating Revenues Gas operating revenues increased $9 million (16.1%) in the second quarter of 1996 when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales volumes and the operation of fuel adjustment clauses reflecting a higher average cost of gas purchased for the period. Operating Expenses Gas Purchased Gas purchased for the quarter ended June 30, 1996, increased $17 million (76.9%) when compared to the same period last year reflecting a higher average cost per Mcf of gas purchased and an increase in volumes purchased. Purchased and Exchanged Power Purchased and exchanged power increased $19 million for the quarter ended June 30, 1996, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. Other Operation Other operation expenses for the quarter ended June 30, 1996, increased $25 million (20.1%) as compared to the same period last year. This increase is due to a number of factors, including higher administrative and general expenses reflecting, in part, charges of $17.4 million for early retirement and severance program costs. Maintenance The $5 million (10.3%) increase in maintenance expense for the second quarter of 1996 as compared to the same period of 1995 is primarily due to increased maintenance on CG&E's electric production facilities. The commercial operation of the Clean Coal Project in November 1995 also contributed to the increased maintenance expenses. Phase-in Deferred Return and Amortization of Phase-in Deferrals Phase-in deferred return and amortization of phase-in deferrals reflect a PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the first three years of the rate phase-in plan, rates charged to customers did not fully recover depreciation expense and return on investment. This deficiency was deferred and is being recovered over a seven-year period that began in May 1995. Interest and Other Charges Interest on Long-term Debt and Other Interest Interest charges decreased $4 million (6.8%) for the three months ended June 30, 1996, from the same period of 1995 primarily due to the redemption of $161.5 million of long-term debt by CG&E and ULH&P during the period from January 1996 through May 1996. Additionally, interest on short-term debt decreased as PSI and ULH&P borrowed funds through an internally funded Money Pool, reducing outside borrowings at higher interest rates. Preferred Dividend Requirements of Subsidiaries The decrease in the preferred dividend requirement of $2 million (22.9%) for the quarter ended June 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 Kwh Sales Kwh sales increased 12.0% for the six months ended June 30, 1996, from the comparable period of last year partially reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased sales to residential and commercial customers as a result of colder weather in the first quarter of 1996 and cooler than normal weather early in the second quarter of 1996. Additionally, the increase reflects a higher average number of residential and commercial customers, while industrial sales increased primarily due to growth in the primary metals sector. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first six months of 1996 increased 14.0% as compared to the same period in 1995. Colder weather during the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to higher gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals and chemicals sectors. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the six months ended June 30, 1996, increased $95 million (7.6%) reflecting the increased kwh sales, as previously discussed. In addition, PSI's 4.3% retail rate increase approved in the February 1995 Order and a 1.9% increase for carrying costs on CWIP property which was approved by the IURC in March 1995 contributed to the increase. The aforementioned operation of fuel adjustment clauses partially offset these increases. An analysis of electric operating revenues is shown below: Six Months Ended June 30 (in millions) Electric operating revenues - June 30, 1995 $1 241 Increase (Decrease) due to change in: Price per kwh Retail (14) Sales for resale Firm power obligations (1) Non-firm power transactions 3 Total change in price per kwh (12) Kwh sales Retail 70 Sales for resale Firm power obligations 8 Non-firm power transactions 29 Total change in kwh sales 107 Electric operating revenues - June 30, 1996 $1 336 Gas Operating Revenues Gas operating revenues increased $33 million (14.3%) in the first six months of 1996 when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased for the period. Operating Expenses Gas Purchased Gas purchased for the six months ended June 30, 1996, increased $16 million (13.8%) when compared to the same period last year. This increase was attributable to an increase in volumes purchased and a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $41 million for the six months ended June 30, 1996, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. Other Operation Other operation expenses for the six months ended June 30, 1996, increased $54 million (22.5%), as compared to the same period last year. This increase is due to a number of factors, including higher administrative and general expenses reflecting, in part, charges of $17.4 million for early retirement and severance programs. Other factors include the recognition by PSI of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs and deferred DSM costs, which are being recovered in revenues pursuant to the February 1995 Order. Phase-in Deferred Return and Amortization of Phase-in Deferrals As previously discussed, phase-in deferred return and amortization of phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service deferred operating expenses - net reflects the deferral of depreciation on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates, net of amortization of these deferrals as they are recovered. Other - net The $8 million change in other - net is due, in part, to expenses associated with CG&E's and ULH&P's sales of accounts receivables. These expenses were partially offset by Cinergy's equity in the earnings of Avon Energy. Interest and Other Charges Interest on Long-term Debt and Other Interest Interest charges decreased $12 million (10.4%) for the six months ended June 30, 1996, from the same period of 1995 primarily due to the refinancing of over $330 million of long-term debt during the period from March 1995 through November 1995 and the redemption of $161.5 million during the period from January 1996 through May 1996. Additionally, interest on short-term debt decreased as PSI and ULH&P borrowed funds through an internally funded Money Pool, reducing outside borrowings at higher interest rates. Preferred Dividend Requirements of Subsidiaries The decrease in the preferred dividend requirement of $4 million (22.3%) for the six months ended June 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1996 Kwh Sales Kwh sales increased 11.8% for the twelve months ended June 30, 1996, from the comparable period of last year partially reflecting increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased sales to residential and commercial customers as a result of warmer weather in the third quarter of 1995, colder weather during the fourth quarter of 1995 and the first quarter of 1996, and cooler than normal weather during the second quarter of 1996. Additionally, the increase reflects a higher average number of residential and commercial customers, while industrial sales increased primarily due to growth in the primary metals sector. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the twelve months ended June 30, 1996, increased 17.4% as compared to the same period in 1995. Colder weather during the winter heating season and increases in the average number of customers led to higher gas sales to retail customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals sector. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the twelve months ended June 30, 1996, increased $238 million (9.6%), reflecting increased kwh sales and PSI's rate increases, as previously discussed. The aforementioned operation of fuel adjustment clauses partially offset these increases. An analysis of electric operating revenues is shown below: Twelve Months Ended June 30 (in millions) Electric operating revenues - June 30, 1995 $2 469 Increase (Decrease) due to change in: Price per kwh Retail (3) Sales for resale Firm power obligations (6) Non-firm power transactions 11 Total change in price per kwh 2 Kwh sales Retail 181 Sales for resale Firm power obligations 15 Non-firm power transactions 40 Total change in kwh sales 236 Electric operating revenues - June 30, 1996 $2 707 Gas Operating Revenues Gas operating revenues increased $60 million (15.6%) for the twelve months ended June 30, 1996, when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales volumes. Operating Expenses Gas Purchased Gas purchased for the twelve months ended June 30, 1996, increased $30 million (15.6%) when compared to the same period last year. This increase was attributed to an increase in volumes purchased which was partially offset by a lower average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $58 million for the twelve months ended June 30, 1996, when compared to the same period of last year, primarily reflecting increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. Phase-in Deferred Return and Amortization of Phase-in Deferrals As previously discussed, phase-in deferred return and amortization of phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. Post-in-service Deferred Operating Expenses - Net Post-in-service deferred operating expenses - net reflects, in large part, the deferral of depreciation on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates, net of amortization of these deferrals as they are recovered. Taxes Other than Income Taxes Taxes other than income taxes increased $14 million (5.5%) over the same period of 1995 primarily due to increased property taxes resulting from a greater investment in taxable property and higher property tax rates. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service carrying costs decreased $7 million (82.1%) for the twelve months ended June 30, 1996, from the comparable period of last year. This decrease is a result of PSI's discontinuing the accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects pursuant to the February 1995 Order. Partially offsetting the decrease is the accrual of the aforementioned costs on the Clean Coal Project which began commercial operation in November 1995. Other - net Other - net increased $17 million (60.0%) for the twelve months ended June 30, 1996, from the comparable period of 1995, reflecting $4 million of interest on an income tax refund related to prior years, a $10 million gain on the sale of an Argentine utility, Cinergy's equity in the earnings of Avon Energy, and charges of $14 million in 1994 for merger-related and other expenditures which cannot be recovered from customers. These items were partially offset by a number of factors, including charges associated with winding-down certain non- utility activities during 1995 and expenses associated with CG&E's and ULH&P's sales of accounts receivables. Interest and Other Charges Interest on Long-term Debt and Other Interest Interest charges decreased $17 million (7.1%) for the twelve months ended June 30, 1996, from the same period of 1995 primarily due to the refinancing of over $330 million of long-term debt by CG&E and ULH&P during the period from March 1995 through November 1995 and the redemption of $161.5 million during the period from January 1996 through May 1996. Additionally, interest on short-term debt decreased as PSI and ULH&P borrowed funds through an internally funded Money Pool, reducing outside borrowings at higher interest rates. Preferred Dividend Requirements of Subsidiaries The decrease in the preferred dividend requirement of $8 million (22.1%) for the twelve months ended June 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $4 604 245 $4 564 711 Gas 693 032 680 339 Common 184 477 183 422 5 481 754 5 428 472 Accumulated depreciation 1 802 626 1 730 232 3 679 128 3 698 240 CWIP 77 271 77 661 Total utility plant 3 756 399 3 775 901 Current Assets Cash and temporary cash investments 31 855 6 612 Restricted deposits 1 170 1 144 Notes receivable from affiliated companies 105 741 24 715 Accounts receivable less accumulated provision of $11,988 at June 30, 1996, and $9,615 at December 31, 1995, for doubtful accounts 75 488 292 493 Accounts receivable from affiliated companies 13 511 17 162 Materials, supplies, and fuel - at average cost Fuel for use in electric production 30 169 40 395 Gas stored for current use 24 237 21 493 Other materials and supplies 51 862 55 388 Property taxes applicable to subsequent year 58 411 116 822 Prepayments and other 39 303 30 572 431 747 606 796 Other Assets Regulatory assets Amounts due from customers - income taxes 350 555 397 155 Post-in-service carrying costs and deferred operating expenses 144 903 148 316 Phase-in deferred return and depreciation 97 776 100 388 Deferred DSM costs 25 264 19 158 Deferred merger costs 19 482 14 538 Unamortized costs of reacquiring debt 40 243 39 428 Other 31 252 41 025 Other 87 059 54 691 796 534 814 699 $4 984 680 $5 197 396 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements. THE CINCINNATI GAS & ELECTRIC COMPANY CAPITALIZATION AND LIABILITIES June 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at June 30, 1996, and December 31, 1995 $ 762 136 $ 762 136 Paid-in capital 339 099 339 101 Retained earnings 464 351 427 226 Total common stock equity 1 565 586 1 528 463 Cumulative Preferred Stock Not subject to mandatory redemption 40 000 40 000 Subject to mandatory redemption 160 000 160 000 Long-term Debt 1 694 627 1 702 650 Total capitalization 3 460 213 3 431 113 Current Liabilities Long-term debt due within one year - 151 500 Accounts payable 139 793 138 735 Accounts payable to affiliated companies 7 668 20 468 Accrued taxes 180 019 250 189 Accrued interest 32 144 31 299 Other 41 594 40 409 401 218 632 600 Other Liabilities Deferred income taxes 782 088 795 385 Unamortized investment tax credits 125 834 129 372 Accrued pension and other postretirement benefit costs 143 941 117 641 Other 71 386 91 285 1 123 249 1 133 683 $4 984 680 $5 197 396
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1996 1995 1996 1995 (in thousands) Operating Revenues Electric (including revenues from affiliated companies of $7,987 and $8,110 for quarter ended and $20,335 and $15,059 year- to-date for 1996 and 1995, respectively) $371 208 $336 523 $ 746 837 $686 479 Gas 66 121 56 975 265 276 232 186 437 329 393 498 1 012 113 918 665 Operating Expenses Fuel used in electric production 87 451 84 464 184 558 168 537 Gas purchased 39 955 22 587 133 180 117 080 Purchased and exchanged power Non-affiliated companies 7 233 1 780 13 666 2 696 Affiliated companies 2 019 9 132 8 755 18 721 Other operation 89 147 65 801 168 727 134 723 Maintenance 24 922 21 446 45 901 44 979 Depreciation 40 248 39 687 80 235 79 224 Amortization of phase-in deferrals 3 399 2 273 6 799 2 273 Amortization of post-in-service deferred operating expenses 822 822 1 645 1 645 Income taxes 19 337 24 217 74 227 67 563 Taxes other than income taxes 53 344 50 331 104 913 100 987 367 877 322 540 822 606 738 428 Operating Income 69 452 70 958 189 507 180 237 Other Income and Expenses - Net Allowance for equity funds used during construction 497 281 848 877 Phase-in deferred return 2 093 2 134 4 186 4 268 Income taxes 1 799 1 620 3 480 2 827 Other - net (3 904) (560) (4 590) 405 485 3 475 3 924 8 377 Income Before Interest 69 937 74 433 193 431 188 614 Interest Interest on long-term debt 30 988 33 490 63 088 70 601 Other interest 482 1 421 944 2 247 Allowance for borrowed funds used during construction (962) (900) (1 785) (1 880) 30 508 34 011 62 247 70 968 Net Income 39 429 40 422 131 184 117 646 Preferred Dividend Requirement 3 474 5 362 6 948 10 724 Net Income Applicable to Common Stock $ 35 955 $ 35 060 $ 124 236 $106 922 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1996 1995 (in thousands) Operating Activities Net income $ 131 184 $ 117 646 Items providing (using) cash currently Depreciation 80 235 79 224 Deferred income taxes and investment tax credits - net 29 939 (15 959) Allowance for equity funds used during construction (848) (877) Regulatory assets - net 12 951 2 803 Changes in current assets and current liabilities Restricted deposits (26) (2) Accounts and notes receivable, net of reserves on receivables sold 117 341 51 246 Materials, supplies, and fuel 11 008 11 423 Accounts payable (11 742) (34 987) Accrued taxes and interest (69 325) 5 628 Other items - net 44 276 (3 746) Net cash provided by (used in) operating activities 344 993 212 399 Financing Activities Issuance of long-term debt - 149 025 Redemption of long-term debt (161 120) (217 196) Change in short-term debt - (1 000) Dividends on preferred stock (6 948) (10 724) Dividends on common stock (87 111) (107 550) Net cash provided by (used in) financing activities (255 179) (187 445) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (58 465) (69 726) Deferred DSM costs - net (6 106) (4 244) Net cash provided by (used in) investing activities (64 571) (73 970) Net increase (decrease) in cash and temporary cash investments 25 243 (49 016) Cash and temporary cash investments at beginning of period 6 612 52 516 Cash and temporary cash investments at end of period $ 31 855 $ 3 500 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 Kwh Sales Kwh sales for the quarter ended June 30, 1996, increased 12.8% over the same period of 1995. This increase was due to higher kwh sales to all customer classes. Increased residential and commercial sales resulted from cooler than normal weather early in the second quarter and increases in the average number of customers. Increased industrial sales primarily reflects growth in the primary metals sector. Also contributing to the higher kwh sales levels was increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the second quarter of 1996 increased 17.3% as compared to the same period in 1995. Cooler than normal weather during the second quarter of 1996 and increases in the average number of customers led to higher gas sales to retail customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals and chemicals sectors. Operating Revenues Electric Operating Revenues Electric operating revenues increased $34 million (10.3%) for the quarter ended June 30, 1996, over the comparable period of 1995. This increase was primarily attributable to higher kwh sales as previously discussed. An analysis of electric operating revenues is shown below: Quarter Ended June 30 (in millions) Electric operating revenues - June 30, 1995 $337 Increase (Decrease) due to change in: Price per kwh Retail 3 Sales for resale Non-firm power transactions (6) Total change in price per kwh (3) Kwh sales Retail 31 Sales for resale Non-firm power transactions 6 Total change in kwh sales 37 Electric operating revenues - June 30, 1996 $371 Gas Operating Revenues Gas operating revenues increased $9 million (16.1%) in the second quarter of 1996 when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales volumes and the operation of fuel adjustment clauses reflecting a higher average cost of gas purchased for the period. Operating Expenses Gas Purchased Gas purchased for the quarter ended June 30, 1996, increased $17 million (76.9%) when compared to the same period last year reflecting a higher average cost per Mcf of gas purchased and an increase in volumes purchased. Purchased and Exchanged Power Purchased and exchanged power for the quarter ended June 30, 1996, decreased $2 million (15.2%) over the comparable period of 1995 reflecting decreased power purchases from PSI. The decrease is partially offset by increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. Other Operation For the three months ended June 30, 1996, other operation expenses increased $23 million (35.5%) due to a number of factors, including higher administrative and general expenses reflecting, in part, $16.2 million for early retirement and severance program costs. Maintenance The $3 million (16.2%) increase in maintenance expense for the second quarter of 1996 as compared to the same period of 1995 is primarily due to increased maintenance on electric production facilities. Phase-in Deferred Return and Amortization of Phase-in Deferrals Phase-in deferred return and amortization of phase-in deferrals reflect a PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the first three years of the rate phase-in plan, rates charged to customers did not fully recover depreciation expense and return on investment. This deficiency was deferred and is being recovered over a seven-year period that began in May 1995. Interest Interest on Long-term debt Interest charges decreased $3 million (7.5%) for the three months ended June 30, 1996, from the same period of 1995 primarily due to the redemption of $161.5 million of long-term debt during the period from January 1996 through May 1996. Preferred Dividend Requirement The decrease in the preferred dividend requirement of $2 million (35.2%) for the quarter ended June 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 Kwh Sales Kwh sales for the six months ended June 30, 1996, increased 13.3% over the same period of 1995. This increase was due to higher kwh sales to all customer classes. Increased residential and commercial sales resulted from colder weather in the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers. Increased industrial sales primarily reflects growth in the primary metals sector. Increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale also contributed to the increase. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first six months of 1996 increased 14.0% as compared to the same period in 1995. Colder weather during the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to higher gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers, using transportation services provided by CG&E. The increase in transportation volumes, which more than offset the decline in industrial sales, mainly reflects demand for gas transportation services in the primary metals and chemicals sectors. Operating Revenues Electric Operating Revenues Electric operating revenues increased $61 million (8.8%) for the six months ended June 30, 1996, over the comparable period of 1995. This increase primarily reflects the higher kwh sales discussed above. An analysis of electric operating revenues is shown below: Six Months Ended June 30 (in millions) Electric operating revenues - June 30, 1995 $686 Increase (Decrease) due to change in: Price per kwh Retail 2 Sales for resale Non-firm power transactions (12) Total change in price per kwh (10) Kwh sales Retail 52 Sales for resale Firm power obligations 1 Non-firm power transactions 18 Total change in kwh sales 71 Electric operating revenues - June 30, 1996 $747 Gas Operating Revenues Gas operating revenues increased $33 million (14.3%) in the first six months of 1996 when compared to the same period last year. This increase was primarily a result of the previously discussed changes in gas sales volumes. Also contributing to the increase was the operation of fuel adjustment clauses reflecting a higher cost of gas purchased for the period. Operating Expenses Gas Purchased Gas purchased for the six months ended June 30, 1996, increased $16 million (13.8%) when compared to the same period last year. This increase was attributable to an increase in volumes purchased and a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the six months ended June 30, 1996, increased $1 million (4.7%) over the comparable period of 1995. This increase primarily reflects increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. This increase is partially offset by a decrease in purchases from PSI. Other Operation For the six months ended June 30, 1996, other operation expenses increased $34 million (25.2%) due to a number of factors, including higher administrative and general expenses reflecting, in part, $16.2 million of early retirement and severance program costs. Phase-in Deferred Return and Amortization of Phase-in Deferrals As previously discussed, phase-in deferred return and amortization of phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. Interest Interest on Long-term Debt Interest charges decreased $8 million (10.6%) for the six months ended June 30, 1996, from the same period of 1995 primarily due to the refinancing of over $330 million of long-term debt during the period from March 1995 through November 1995 and the redemption of $161.5 million of long-term debt during the period from January 1996 through May 1996. Preferred Dividend Requirement The decrease in the preferred dividend requirement of $4 million (35.2%) for the six months ended June 30, 1996, from the same period of 1995 was due to the early redemption in July 1995 of all 400,000 shares and 500,000 shares of CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred stock, respectively. PSI ENERGY, INC. AND SUBSIDIARY COMPANIES PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1996 1995 (dollars in thousands) Electric Utility Plant - Original Cost In service $4 085 778 $4 052 984 Accumulated depreciation 1 672 690 1 637 169 2 413 088 2 415 815 CWIP 70 846 58 191 Total electric utility plant 2 483 934 2 474 006 Current Assets Cash and temporary cash investments 6 498 15 522 Restricted deposits 505 1 187 Accounts receivable less accumulated provision of $308 at June 30, 1996, and $468 at December 31, 1995, for doubtful accounts 60 545 73 419 Accounts receivable from affiliated companies 1 638 20 568 Materials, supplies, and fuel - at average cost Fuel 76 913 82 014 Other materials and supplies 33 382 29 462 Prepayments and other 3 052 1 234 182 533 223 406 Other Assets Regulatory assets Amounts due from customers - income taxes 32 419 26 338 Post-in-service carrying costs and deferred operating expenses 43 064 38 874 Deferred DSM costs 103 346 110 242 Deferred merger costs 61 611 42 286 Unamortized costs of reacquiring debt 33 214 34 476 Other 37 309 33 886 Other 109 379 92 056 420 342 378 158 $3 086 809 $3 075 570 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements. PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES June 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at June 30, 1996, and December 31, 1995 $ 539 $ 539 Paid-in capital 402 945 403 253 Accumulated earnings subsequent to November 30, 1986, quasi-reorganization 616 182 625 275 Total common stock equity 1 019 666 1 029 067 Cumulative Preferred Stock Not subject to mandatory redemption 173 090 187 897 Long-term Debt 828 673 828 116 Total capitalization 2 021 429 2 045 080 Current Liabilities Long-term debt due within one year 50 400 50 400 Notes payable 99 500 165 800 Notes payable to affiliated companies 88 407 32 731 Accounts payable 108 304 116 817 Accounts payable to affiliated companies 14 066 - Litigation settlement 80 000 80 000 Accrued taxes 65 208 65 851 Accrued interest 24 556 24 696 Other 16 191 16 000 546 632 552 295 Other Liabilities Deferred income taxes 344 830 331 876 Unamortized investment tax credits 54 553 56 354 Accrued pension and other postretirement benefit costs 67 162 54 130 Other 52 203 35 835 518 748 478 195 $3 086 809 $3 075 570
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1996 1995 1996 1995 (in thousands) Operating Revenues (including revenues from affiliated companies of $2,019 and $9,132 for quarter ended and $8,755 and $18,721 year-to-date for 1996 and 1995, respectively) $289 512 $289 743 $617 807 $588 791 Operating Expenses Fuel 76 354 84 730 170 699 186 566 Purchased and exchanged power Non-affiliated companies 23 569 9 861 44 757 14 611 Affiliated companies 7 987 8 110 20 335 15 059 Other operation 59 458 57 944 126 009 105 759 Maintenance 23 242 22 215 45 905 43 004 Depreciation 30 349 28 528 60 557 62 447 Post-in-service deferred operating expenses - net (1 686) (887) (3 352) (3 714) Income taxes 13 269 16 482 32 152 35 655 Taxes other than income taxes 13 464 13 407 27 632 26 699 246 006 240 390 524 694 486 086 Operating Income 43 506 49 353 93 113 102 705 Other Income and Expenses - Net Allowance for equity funds used during construction - 650 - 1 008 Post-in-service carrying costs 494 13 837 2 581 Income taxes (1 654) 349 (894) 46 Other - net 1 798 (384) (1 860) (2 296) 638 628 (1 917) 1 339 Income Before Interest 44 144 49 981 91 196 104 044 Interest Interest on long-term debt 17 033 17 949 34 068 35 899 Other interest 3 128 3 896 6 596 7 873 Allowance for borrowed funds used during construction (680) (1 086) (995) (2 417) 19 481 20 759 39 669 41 355 Net Income 24 663 29 222 51 527 62 689 Preferred Dividend Requirement 3 203 3 295 6 498 6 590 Net Income Applicable to Common Stock $ 21 460 $ 25 927 $ 45 029 $ 56 099 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1996 1995 (in thousands) Operating Activities Net income $ 51 527 $ 62 689 Items providing (using) cash currently Depreciation 60 557 62 447 Deferred income taxes and investment tax credits - net 4 078 6 597 Allowance for equity funds used during construction - (1 008) Regulatory assets - net (9 928) (5 531) Changes in current assets and current liabilities Restricted deposits (291) 16 Accounts receivable, net of reserves on receivables sold 19 775 (12 051) Materials, supplies, and fuel 1 181 (6 779) Accounts payable 5 553 (35 975) Accrued taxes and interest (783) (2 581) Other items - net 4 647 12 273 Net cash provided by (used in) operating activities 136 316 80 097 Financing Activities Funds on deposit from issuance of long-term debt 973 6 628 Retirement of preferred stock (15 114) (7) Redemption of long-term debt - (55) Change in short-term debt (10 624) 15 927 Dividends on preferred stock (6 589) (6 590) Dividends on common stock (54 052) - Net cash provided by (used in) financing activities (85 406) 15 903 Investing Activities Construction expenditures (less allowance for equity funds used during construction) (66 830) (90 838) Deferred DSM costs - net 6 896 (6 397) Net cash provided by (used in) investing activities (59 934) (97 235) Net increase (decrease) in cash and temporary cash investments (9 024) (1 235) Cash and temporary cash investments at beginning of period 15 522 6 341 Cash and temporary cash investments at end of period $ 6 498 $ 5 106 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 Kwh Sales Kwh sales for the second quarter of 1996 increased 12.5% when compared to the same period last year. Increased activity in Cinergy's power marketing operations led to higher non-firm power sales for resale. This increase also reflects higher kwh sales to retail customers as a result of cooler weather early in the second quarter of 1996 and an increase in the number of customers in all customer classes. The increased industrial sales primarily reflects growth in the transportation equipment and food products sectors. Operating Revenues Total operating revenues remained relatively unchanged for the quarter ended June 30, 1996, showing less than a 0.1% decrease when compared to the same period last year. This slight decrease reflects, in part, the operation of fuel clause adjustment factors reflecting a lower average cost of kwh generated. These decreases were almost wholly offset by the change in kwh sales, as previously discussed. An analysis of operating revenues is shown below: Quarter Ended June 30 (in millions) Operating revenues - June 30, 1995 $290 Increase (Decrease) due to change in: Price per kwh Retail (15) Sales for resale Firm power obligations 4 Non-firm power transactions (8) Total change in price per kwh (19) Kwh sales Retail 1 Sales for resale Firm power obligations 3 Non-firm power transactions 15 Total change in kwh sales 19 Operating revenues - June 30, 1996 $290 Operating Expenses Fuel Fuel costs, PSI's largest operating expense, decreased $9 million (9.9%) for the second quarter of 1996 as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended June 30 (in millions) Fuel expense - June 30, 1995 $ 85 Increase (Decrease) due to change in: Price of fuel (11) Kwh generation 2 Fuel expense - June 30, 1996 $ 76 Purchased and Exchanged Power For the quarter ended June 30, 1996, purchased and exchanged power increased $14 million, as compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations. Maintenance The $1 million (4.6%) increase in maintenance expense for the second quarter of 1996, as compared to the same period of 1995, is primarily a result of maintenance on the Clean Coal Project which began commercial operation in November 1995. Depreciation Depreciation expense increased $2 million (6.4%) for the quarter ended June 30, 1996, as compared to the second quarter of last year. This increase primarily reflects additions to utility plant in service. Post-in-service Deferred Operating Expenses - Net Post-in-service deferred operating expenses - net reflects the deferral of depreciation on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates, net of amortization of these deferrals as they are recovered. Interest Other interest Other interest decreased $1 million (19.7%) for the second quarter of 1996, as compared to the second quarter of 1995. The decrease was driven primarily by lower interest rates and a decrease in the average short-term debt outstanding. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 Kwh Sales For the six months ended June 30, 1996, kwh sales increased 15.4% when compared to the same period last year due, in large part, to increased activity in Cinergy's power marketing operations which led to higher non-firm power sales for resale. Also contributing to the total kwh sales levels were increased sales to all retail customer classes. Higher residential and commercial sales resulted from colder weather in the first quarter, cooler than normal weather early in the second quarter, and increases in the number of residential and commercial customers. Increased industrial sales reflects growth in the food products, primary metals, and transportation equipment sectors. Operating Revenues Total operating revenues increased $29 million (4.9%) for the six months ended June 30, 1996, when compared to the same period last year. This increase primarily reflects the increase in kwh sales previously discussed. Also contributing to the increase was a 4.3% retail rate increase approved in the February 1995 Order and a 1.9% rate increase for carrying costs on CWIP property which was approved by the IURC in March 1995. Partially offsetting these increases was the operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production. An analysis of operating revenues is shown below: Six Months Ended June 30 (in millions) Operating revenues - June 30, 1995 $589 Increase (Decrease) due to change in: Price per kwh Retail (19) Sales for resale Firm power obligations (1) Non-firm power transactions (11) Total change in price per kwh (31) Kwh sales Retail 21 Sales for resale Firm power obligations 8 Non-firm power transactions 32 Total change in kwh sales 61 Other (1) Operating revenues - June 30, 1996 $618 Operating Expenses Fuel Fuel costs for the six months ended June 30, 1996, decreased $16 million (8.5%) when compared to the same period last year. An analysis of fuel costs is shown below: Six Months Ended June 30 (in millions) Fuel expense - June 30, 1995 $187 Increase (Decrease) due to change in: Price of fuel (19) Kwh generation 3 Fuel expense - June 30, 1996 $171 Purchased and Exchanged Power For the six months ended June 30, 1996, purchased and exchanged power increased $35 million, as compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to other utilities as a result of increased activity in Cinergy's power marketing operations and increased purchases from CG&E as a result of the coordination of PSI's and CG&E's electric dispatch systems. Other Operation Other operation expenses increased $20 million (19.1%) for the six months ended June 30, 1996, as compared to the same period last year. This increase was due to a number of factors, including the recognition of postretirement benefit costs on an accrual basis, an increase in the ongoing level of DSM expenses, and the amortization of deferred postretirement benefit costs and deferred DSM costs, all of which are being recovered in revenues pursuant to the February 1995 Order. Increased production and transmission expenses also contributed to the higher level of other operation expenses. Maintenance Maintenance expenses for the first six months of 1996, as compared to the same period last year, increased $3 million (6.7%) due in part to increases in production and distribution expenses. Other Income and Expenses - Net Post-in-service Carrying Costs Post-in-service carrying costs decreased $2 million (67.6%) for the six months ended June 30, 1996, from the comparable period of 1995 as a result of discontinuing the accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects pursuant to the February 1995 Order. Interest Other interest Other interest decreased $1 million (16.2%) for the six month period ended June 30, 1996, as compared to the same period of 1995. The decrease was primarily due to lower interest rates and a decrease in the average short-term debt outstanding. THE UNION LIGHT, HEAT AND POWER COMPANY THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1996 1995 (dollars in thousands) Utility Plant - Original Cost In service Electric $191 920 $188 508 Gas 144 163 140 604 Common 19 036 19 068 355 119 348 180 Accumulated depreciation 118 076 112 812 237 043 235 368 CWIP 7 846 7 863 Total utility plant 244 889 243 231 Current Assets Cash and temporary cash investments 688 1 750 Accounts receivable less accumulated provision of $1,523 in 1996, and $1,035 in 1995 for doubtful accounts 3 646 37 895 Accounts receivable from affiliated companies 669 - Materials, supplies, and fuel - at average cost Gas stored for current use 4 656 4 513 Other materials and supplies 1 373 1 215 Property taxes applicable to subsequent year 1 175 2 350 Prepayments and other 435 485 12 642 48 208 Other Assets Regulatory assets Deferred merger costs 1 785 1 785 Unamortized costs of reacquiring debt 3 848 2 526 Other 2 525 2 548 Other 5 788 1 499 13 946 8 358 $271 477 $299 797 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements. THE UNION LIGHT, HEAT AND POWER COMPANY CAPITALIZATION AND LIABILITIES June 30 December 31 1996 1995 (dollars in thousands) Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at June 30, 1996, and December 31, 1995 $ 8 780 $ 8 780 Paid-in capital 18 839 18 839 Retained earnings 93 075 82 863 Total common stock equity 120 694 110 482 Long-term Debt 44 590 54 377 Total capitalization 165 284 164 859 Current Liabilities Long-term debt due within one year - 15 000 Notes payable to affiliated companies 5 558 - Accounts payable 6 308 11 057 Accounts payable to affiliated companies 25 113 44 708 Accrued taxes 2 426 1 993 Accrued interest 1 326 1 549 Other 6 302 5 505 47 033 79 812 Other Liabilities Deferred income taxes 30 467 23 728 Unamortized investment tax credits 4 938 5 079 Accrued pension and other postretirement benefit costs 13 041 12 202 Income taxes refundable through rates 4 901 4 717 Other 5 813 9 400 59 160 55 126 $271 477 $299 797
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1996 1995 1996 1995 (in thousands) Operating Revenues Electric $42 933 $47 823 $ 95 266 $ 87 382 Gas 11 076 9 372 45 134 39 875 54 009 57 195 140 400 127 257 Operating Expenses Electricity purchased from parent company for resale 31 887 36 936 69 487 66 975 Gas purchased 5 125 4 156 24 123 21 716 Other operation 7 149 7 258 16 396 15 053 Maintenance 1 186 984 2 352 2 137 Depreciation 2 967 2 871 5 874 5 646 Income taxes 1 246 873 6 757 3 961 Taxes other than income taxes 1 035 971 2 106 1 979 50 595 54 049 127 095 117 467 Operating Income 3 414 3 146 13 305 9 790 Other Income and Expense - Net Allowance for equity funds used during construction - 67 (21) 56 Income taxes 31 (34) 27 (38) Other - net (424) 71 (643) 67 (393) 104 (637) 85 Income Before Interest 3 021 3 250 12 668 9 875 Interest Interest on long-term debt 960 1 914 2 254 3 953 Other interest 159 54 266 219 Allowance for borrowed funds used during construction (54) (31) (64) (96) 1 065 1 937 2 456 4 076 Net Income $ 1 956 $ 1 313 $ 10 212 $ 5 799 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1996 1995 (in thousands) Operating Activities Net income $ 10 212 $ 5 799 Items providing (using) cash currently Depreciation 5 874 5 646 Deferred income taxes and investment tax credits - net 6 782 (342) Allowance for equity funds used during construction 21 (56) Regulatory assets - net 22 85 Changes in current assets and current liabilities Accounts receivable, net of reserves on receivables sold 30 029 8 091 Materials, supplies, and fuel (301) 2 084 Accounts payable (24 344) 1 240 Accrued taxes and interest 210 2 159 Other items - net (302) 3 973 Net cash provided by (used in) operating activities 28 203 28 679 Financing Activities Redemption of long-term debt (26 863) (15 734) Change in short-term debt 5 558 (1 000) Net cash provided by (used in) financing activities (21 305) (16 734) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (7 960) (9 768) Net cash provided by (used in) investing activities (7 960) (9 768) Net increase (decrease) in cash and temporary cash investment (1 062) 2 177 Cash and temporary cash investments at beginning of period 1 750 1 071 Cash and temporary cash investments at end of period $ 688 $ 3 248 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996 Mcf Sales and Transportation Mcf gas sales and transportation volumes for the second quarter ended June 30, 1996, increased 17.4% as compared to the same period in 1995. Cooler than normal weather during the second quarter of 1996 and increases in the average number of customers led to higher gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers using transportation services provided by ULH&P. The increase in transportation volumes, which more than offset the decline in industrial sales, was primarily a result of growth in the chemicals and primary metals sectors. Operating Revenues Electric Operating Revenues Electric operating revenues decreased $4.9 million (10.2%) for the quarter ended June 30, 1996, from the comparable period of 1995. This decrease primarily reflects a lower average cost of electricity purchased. On July 3, 1996, the KPSC issued an order authorizing a decrease in electric rates of approximately $1.8 million annually to reflect a reduction in the cost of electricity purchased from CG&E, retroactive to July 3, 1995. In June 1996, ULH&P accrued the retroactive portion of this rate reduction. Gas Operating Revenues Gas operating revenues increased $1.7 million (18.2%) in the second quarter of 1996 when compared to the same period of last year. This increase was primarily a result of the previously discussed changes in gas sales volumes and an increase in the average cost per Mcf purchased. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense, ULH&P's largest operating expense, decreased $5.0 million (13.7%) for the quarter ended June 30, 1996, as compared to the same period last year. This decrease reflects, in part, the aforementioned reduction in the cost of electricity purchased from CG&E. Gas Purchased Gas purchased for the quarter increased $1.0 million (23.3%) from the second quarter of last year reflecting an increase in the average cost per Mcf purchased and an increase in volumes purchased. Maintenance The $.2 million (20.5%) increase in maintenance expense for the second quarter of 1996, as compared to the same period of 1995, is primarily due to increased maintenance expenses associated with gas distribution facilities. Taxes Other than Income Taxes Taxes other than income taxes increased $.1 million (6.6%) for the second quarter of 1996, as compared to same period of 1995, primarily due to increased property taxes resulting from a greater investment in taxable property. Other Income and Expenses - Net Other - net The change of $.5 million for other - net for the quarter ended June 30, 1996, as compared to the same period of 1995, is primarily attributable to expenses associated with the sales of accounts receivables. Interest Interest on Long-term Debt Interest charges decreased $1.0 million (49.8%) for the three months ended June 30, 1996, from the same period of 1995, primarily due to the redemption of $25 million of long-term debt from January 1996 to May 1996. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 Kwh Sales Kwh sales for the six months ended June 30, 1996, increased 12.6% when compared to the same period of 1995. This increase was due to higher kwh sales to all customer classes. Increased residential and commercial sales reflects colder weather during the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the six months ended June 30, 1996, increased 15.8% as compared to the same period in 1995. Colder weather during the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increases in gas sales to residential and commercial customers. Industrial sales decreased as customers continued to purchase gas directly from suppliers using transportation services provided by ULH&P. The increase in transportation volumes, which more than offset the decline in industrial sales, was primarily a result of growth in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues increased $7.9 million (9.0%) for the six months ended June 30, 1996, over the comparable period of 1995. This increase primarily reflects the previously discussed increase in kwh sales. Partially offsetting this increase is a lower average cost of electricity purchased due, in part, to the aforementioned reduction in the cost of electricity purchased from CG&E. Gas Operating Revenues Gas operating revenues increased $5.3 million (13.2%) for the first six months of 1996 when compared to the same period of last year. This increase was primarily a result of the previously discussed changes in gas sales volumes. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense increased $2.5 million (3.8%) for the first six months as compared to the same period last year. This increase is primarily attributable to higher kwh purchased. Partially offsetting this increase is the aforementioned reduction in the cost of electricity purchased from CG&E. Gas Purchased Gas purchased increased $2.4 million for the six months ended June 30, 1996, as compared to the prior year. This increase reflects higher volumes purchased which was slightly offset by a decline in the average cost per Mcf purchased. Other Operation The increase in other operation expenses of $1.3 million (8.9%) for the six months ended June 30, 1996, from the same period of 1995 is due to a number of factors, including higher administrative and general expenses and increased gas distribution expenses. Maintenance Maintenance expenses for the six months ended June 30, 1996, increased $.2 million (10.1%) when compared to the six months ended June 30, 1995. This increase was due, in large part, to higher expenses associated with gas distribution facilities. Taxes Other than Income Taxes Taxes other than income taxes increased $.1 million (6.4%) for the six months ended June 30, 1996, as compared to the same period of 1995, primarily as a result of a greater investment in taxable property. Other Income and Expenses - Net Other - net The change of $.7 million for other - net for the six months ended June 30, 1996, as compared to the same period of 1995, is primarily attributable to expenses associated with the sales of accounts receivables. Interest Interest on Long-term Debt Interest charges decreased $1.7 million (43.0%) for the six months ended June 30, 1996, from the same period of 1995, primarily due to the refinancing of $35 million during the period from June 1995 through September 1995 and the redemption of $25 million during the period from January 1996 to May 1996. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1995 Form 10-K of the registrants. Certain amounts in the 1995 Financial Statements have been reclassified to conform to the 1996 presentation. Cinergy, CG&E, PSI, and ULH&P 2. On May 1, 1996, ULH&P redeemed the entire $10 million principal amount of its 9 1/2% Series First Mortgage Bonds due December 1, 2008, at the redemption price of 104.35%. A portion of PSI's 7.44% Series Cumulative Preferred Stock (591,000 shares representing 15%), totaling $15 million, was reacquired by PSI at a per share price of $25.50 and $25.65 on May 23 and May 24, 1996, respectively. Cinergy and PSI 3. As discussed in Cinergy's and PSI's 1995 Form 10-K, RUS requested a rehearing on the affirmation by the Seventh Circuit Court of Appeals of WVPA's plan of reorganization which has been approved by the United States Bankruptcy Court for the Southern District of Indiana and upheld by the United States District Court for the Southern District of Indiana. In April 1996, the Seventh Circuit Court of Appeals denied RUS' request for rehearing. RUS' remaining option is to appeal this decision to the United States Supreme Court. RUS has until August 30, 1996, to file any appeal. PSI cannot predict whether RUS will appeal this decision and if appealed, the outcome of such appeal. Cinergy, CG&E, PSI, and ULH&P 4. In March 1995, the FASB issued Statement 121, which became effective in January 1996 for Cinergy and its subsidiaries. Statement 121, which addresses the identification and measurement of asset impairments for all enterprises, is particularly relevant for electric utilities as a result of the potential for deregulation of the generation segment of the business. Statement 121 requires recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. Based on the regulatory environment in which Cinergy's utility subsidiaries currently operate, compliance with the provisions of Statement 121 has not had nor is it expected to have an adverse effect on their financial condition or results of operations. However, this conclusion may change in the future as competitive pressures and potential restructuring influence the electric utility industry. Cinergy and CG&E 5. In July 1996, Cinergy and CG&E filed an application with the SEC under the PUHCA seeking approval for Cinergy's proposed offer to purchase for cash any and all outstanding shares of preferred stock of CG&E. The application also requests, among other things, authority for the Board of Directors of CG&E to solicit proxies, concurrently with Cinergy's tender offer, for use at a planned special meeting of shareholders of CG&E to be held in September 1996. The special meeting would be held to consider an amendment to CG&E's Articles which would remove a provision of the Articles that limits CG&E's ability to issue unsecured debt, including short-term debt. In addition, CG&E has filed its preliminary proxy materials with the SEC pursuant to the Securities Exchange Act of 1934. Cinergy's proposed offer is conditioned upon, among other things, the proposed Articles amendment being approved and adopted at the special meeting. In addition, preferred shareholders would have the right to vote for the proposed amendment regardless of whether they tender their shares. If the proposed amendment is approved and adopted, CG&E would make a special cash payment to each preferred shareholder who voted in favor of the proposed amendment, provided that such shares are not tendered pursuant to Cinergy's offer. Those preferred shareholders who validly tender their shares would be entitled only to the indicated purchase price per share plus an amount in cash equivalent to accrued and unpaid dividends to the date of payment. At this time, Cinergy and CG&E cannot predict what action the SEC may take with respect to the proposed tender offer and proxy solicitation. Cinergy, CG&E, PSI, and ULH&P 6. In January 1996, Cinergy announced a voluntary workforce reduction program for non-union employees. Under the program, 419 non-union employees elected to terminate their employment with Cinergy resulting in a pre-tax cost of approximately $38.2 million (allocated $19.1 million each to CG&E and PSI). Cinergy has classified these costs as costs to achieve merger savings which, consistent with the merger savings sharing mechanisms previously approved by regulators, has resulted in approximately $14.6 million (pretax) being charged to earnings in the second quarter of 1996 representing the portion allocable to Ohio electric jurisdictional customers. The remaining costs have been deferred for future recovery through rates as an offset against merger savings. A significant portion of these benefits are eligible for funding from qualified retirement plan assets. As a part of the labor agreement reached between PSI and IBEW Local No. 1393, effective May 24, 1996, union employees agreed to participate in a voluntary workforce reduction program similar to the program offered to non-union employees. There are 235 PSI union employees who meet certain age and service requirements and are eligible for enhanced retirement benefits under this program. Eligible employees who do not meet age and service requirements will receive severance benefits upon resignation from their employment. Program costs will not be known until after the participation election period ends September 16, 1996. Cinergy intends to classify the costs of the PSI union program as costs to achieve merger savings and as a result these costs will be deferred for future recovery through rates as an offset against merger savings. A significant portion of these benefits will be eligible for funding from qualified retirement plan assets. Cinergy is continuing to discuss the offer of a similar voluntary workforce reduction program with CG&E's unions. Cinergy and PSI 7. As discussed in Cinergy's and PSI's 1995 Form 10-K, PSI currently has pending before the IURC a retail rate increase request of 10.3% ($102.9 million annually). An order in the rate proceeding is anticipated by the end of August 1996. Cinergy cannot predict what action the IURC may take with respect to this proposed rate increase. Cinergy and CG&E 8. On July 12, 1996, the Staff of the PUCO issued its Report of Investigation on CG&E's gas rate increase request of 7.8% ($26.7 million annually) filed in January 1996. The increase is being requested, in part, to recover capital investments made since CG&E's last gas rate increase in 1993. The Staff recommended that CG&E receive an annual increase in gas revenues ranging from $3.5 million to $6.3 million. The differences between the Staff's recommendation and CG&E's request are primarily attributable to a decrease in working capital allowance, a lower rate of return and a reduction in operating expenses. Cinergy cannot predict what action the PUCO may take with respect to this proposed rate increase. Cinergy 9. During the second quarter of 1996, Avon Energy, a 50/50 joint venture between Cinergy and GPU, began to acquire all of the outstanding common stock of Midlands. The total consideration to be paid by Avon Energy is estimated to be approximately $2.6 billion. The funds for the acquisition will be obtained from Cinergy's and GPU's investment in Avon Energy of $500 million each, with the remainder being obtained by Avon Energy through the issuance of non-recourse debt. Cinergy will use debt to fund its entire investment in Avon Energy, which will be accounted for under the equity method of accounting. Based on a preliminary allocation of the purchase price, Avon Energy will record goodwill of approximately $1.7 billion in connection with this acquisition. The pro forma financial information presented below assumes Midlands was acquired on the first day of each respective period. The pro forma adjustments include recognition of equity in the estimated earnings of Avon Energy, an adjustment for interest expense on debt associated with Cinergy's investment in Avon Energy, and related income taxes. The estimated earnings of Avon Energy include the historical earnings of Midlands adjusted for the estimated effect of purchase accounting (including the amortization of goodwill) and conversion to United States generally accepted accounting principles, interest expense on debt issued by Avon Energy associated with the acquisition, and related income taxes. Cinergy's equity in the resulting earnings is 50%, the same as its ownership share of Avon Energy. Sales of electricity are affected by seasonal weather patterns, and therefore the results of Avon Energy/Midlands will not be distributed evenly during the year. (All dollar amounts have been converted using the average exchange rates for the quarter, six month, and twelve month period of $1.540/, $1.543/, and $1.576/, respectively.)
Quarter Ended Six Months Ended Twelve Months Ended June 30, 1996 June 30, 1996 June 30, 1996 Net Earnings Net Earnings Net Earnings Income Per Share Income Per Share Income Per Share (millions) (millions) (millions) (unaudited) Cinergy $56 $.35 $166 $1.05 $352 $2.23 Pro forma adjustments: Equity in Earnings of Avon Energy 5 34 82 Interest expense (9) (18) (33) Income taxes (1) (6) (18) Pro forma result $51 $.33 $176 $1.12 $383 $2.43 * Based on the average number of common shares outstanding for the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Recent Developments Cinergy Joint Venture In May 1996, Cinergy, GPU, and Midlands announced the terms of a recommended cash offer for Midlands to be made by Avon Energy. Midlands, one of 12 regional electric companies in the United Kingdom, is headquartered in Birmingham, England. Midlands' principal business is the distribution of electricity to approximately 2.2 million customers. For further information, reference is made to Cinergy's Current Reports on Form 8-K dated May 7, 1996, and June 6, 1996, as amended. Cinergy and GPU each own 50% of Avon Energy. Avon Energy commenced the offer to acquire all of the shares of Midlands on the terms and subject to conditions set out in an offering document. On June 6, 1996, Cinergy and GPU announced that Avon Energy declared the cash offer wholly unconditional in all respects and thereby is committed to purchase all outstanding shares of Midlands. As of August 13, 1996, Avon Energy owns 381.3 million of Midlands' shares, representing approximately 97.1% of the issued share capital of Midlands. The remaining shares are expected to be acquired during the third quarter of 1996. The total acquisition cost of Midlands is expected to be approximately (Pound Sterling) 1.7 billion (or approximately $2.6 billion - U.S.). See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information" for pro forma financial information relating to the acquisition of Midlands. Cinergy, CG&E, PSI, and ULH&P Securities Ratings Following the announcement of the potential acquisition of Midlands, major credit rating agencies, D&P, Fitch, and S&P, affirmed the current ratings of Cinergy's operating subsidiaries, after their consideration of the effects of the potential acquisition. The other major credit rating agency, Moody's, placed the credit ratings of Cinergy's operating subsidiaries, CG&E, PSI, and ULH&P, under review for possible downgrade. Moody's indicated that its review will focus on the likelihood of the transaction being completed and will assess the operating strategies of the combined companies and the anticipated benefits of the transaction. It will also focus on the financial impact the transaction will have on Cinergy and its operating subsidiaries, including the credit implications. Cinergy cannot predict the outcome of this review. Cinergy, CG&E, PSI, and ULH&P Competitive Pressures As discussed in the 1995 Form 10-K, the primary factor influencing the future profitability of Cinergy is the changing competitive environment for energy services, including the impact of emerging technologies, and the related commoditization of electric power markets. Changes in the industry include increased competition in wholesale power markets and ongoing pressure for "customer choice" by large industrial customers, and ultimately, by all retail customers. Cinergy supports increased competition in the electric utility industry and has chosen to take a leadership role in state and Federal debates on industry reform. As the electric utility industry moves toward a competitive environment, Cinergy is reassessing its corporate structure, including the issue of whether to remain vertically integrated. As a first step toward "unbundling" the business for a competitive environment, Cinergy announced its intention to reorganize into strategic business units. This functional reorganization will separate Cinergy's utility businesses into an energy services business unit, an energy delivery business unit, and an energy commodities business unit. The design of these new organizations is expected to be completed by the end of the year. Cinergy continues to analyze what benefits, if any, may exist in the future for its various stakeholders of separating the business units into different corporations. Cinergy and PSI Contract Negotiations As previously reported, the Labor Agreement between PSI and IBEW Local No. 1393 was scheduled to expire May 1, 1996. On May 24, 1996, union members ratified a new labor agreement effective May 24, 1996, and expiring April 30, 1999. Regulatory Matters Cinergy, CG&E, PSI, and ULH&P FERC Orders 888 and 889 In April 1996, the FERC issued final orders relating to its previously issued mega-NOPR (FERC Orders 888 and 889). The unanimously-passed final rules, contain essentially the same provisions as the mega-NOPR. Additionally, the FERC concurrently issued a related NOPR which establishes a new system for utilities to use in reserving capacity on their own and others' transmission lines. Cinergy is currently evaluating its position with respect to the related NOPR and the potential effects upon the Company if adopted. The final rules provide for mandatory filing of open access/comparability transmission tariffs, provide for functional unbundling of all services, require utilities to use the filed tariffs for their own bulk power transactions, establish an electronic bulletin board for transmission availability and pricing information, and establish a contract-based approach to recovering any potential stranded costs as a result of customer choice at the wholesale level. The FERC expects the rules to "accelerate competition and bring lower prices and more choices to energy customers". The final rules became effective on July 9, 1996. CG&E, PSI, and ULH&P have made compliance filings with the FERC and are now operating under open access/comparability tariffs. Cinergy and CG&E Legislation On June 18, 1996, House Bill 476 (HB 476) was signed into law by the Governor of Ohio. HB 476 addresses regulatory reform of the natural gas industry at the state level and thus is an extension of Order 636 for local distribution companies. The Ohio law, among other things, provides that natural gas commodity sales services may be exempted from PUCO regulation and that the PUCO allow alternative ratemaking methodologies in connection with other regulated services. The PUCO has initiated a rulemaking proceeding to promulgate administrative rules necessary to implement the law. Cinergy and PSI PSI's Retail Rate Proceeding See Note 7 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy and CG&E CG&E's Gas Rate Proceeding See Note 8 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standard See Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL REQUIREMENTS Cinergy and CG&E Proposed Proxy Solicitation See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information." Other Commitments Cinergy and PSI WVPA Litigation See Note 3 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy, CG&E, PSI, and ULH&P 1996 Voluntary Workforce Reduction Program See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL RESOURCES Cinergy, CG&E, PSI, and ULH&P Long-term Debt and Preferred Stock For information regarding recent securities redemptions, see Note 2 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy, CG&E, PSI, and ULH&P Short-term Debt The operating subsidiary companies of Cinergy have the following short-term debt authorizations and lines of credit: Committed Unused Authorized Lines__ Lines (in millions) Cinergy & Subsidiaries $838 $281 $202 CG&E 400 80 80 PSI 400 200 121 ULH&P 35 - - Additionally, in connection with the tender offer to purchase Midlands, Cinergy has established a $600 million credit facility, which expires in May 2001, of which $462 million remained unused as of August 12, 1996. This new credit facility was established, in part, to fund the acquisition of Midlands through Avon Energy ($500 million has been designated for this purpose) with the remaining portion available for general corporate purposes. The prior $100 million credit facility, which would have expired in September 1997, has been terminated. In addition, M.E. Holdings, entered into a $40 million non-recourse credit agreement which will also be used to fund the acquisition of Midlands. Cinergy expects to borrow approximately $500 million under the two agreements to fund its equity investment in Avon Energy. Cinergy, CG&E, PSI, and ULH&P Sales of Accounts Receivables As discussed in each registrant's 1995 Form 10- K, in January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a revolving basis, undivided percentage interests in certain of their accounts receivables. Under the agreement, the companies have the authority to sell up to an aggregate maximum of $350 million of which $257 million has been sold as of July 31, 1996. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL INFORMATION." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Merger Litigation In August 1995, AEP filed a petition in the United States Court of Appeals for the District of Columbia Circuit for review of the FERC's Merger Order. AEP has objected to the Merger Order alleging that the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP contends that the FERC, in issuing the Merger Order, did not adequately evaluate the impact on AEP or whether the need to use AEP's transmission facilities would interfere with Cinergy achieving merger benefits. In addition, AEP claims that the FERC failed to evaluate the extent to which the merged facilities' operations would be consistent with the integrated public utility concept of the PUHCA. CG&E and PSI have intervened in this action and have filed a Motion to Dismiss, which Motion was denied on July 17, 1996. At this time, Cinergy, CG&E, and PSI cannot predict the outcome of the appeal. Additionally, see Notes 3, 7, and 8 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 5. OTHER INFORMATION Cinergy On June 25, 1996, Power International sold its ownership interest in Bruwabel and its subsidiaries, including Power Development s.r.o. which owns the Vytopna Kromeriz Heating Plant. Power International (formerly Enertech Associates International, Inc.) had acquired Bruwabel and its subsidiaries in July 1994 for the purpose of pursuing design, engineering, and development work involving energy privatization projects, primarily in the Czech Republic. Cinergy, CG&E, and ULH&P KO Transmission acquired a 32.67% interest in a 90-mile interstate natural gas pipeline and began flowing gas June 1, 1996, from southeast Kentucky northward to the service territories of CG&E and ULH&P. Cinergy, CG&E, PSI, and ULH&P Additionally, refer to the "Recent Developments" and "Regulatory Matters" sections in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" for information concerning contract negotiations between PSI and IBEW Local No. 1393, Cinergy's Joint Venture, the status of the CG&E and PSI retail rate proceedings, and the Company's functional restructuring. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit Cinergy 10-a Amendment to Cinergy's Employee Stock Purchase and Savings Plan, adopted April 26, 1996. Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy (b) The following reports on Form 8-K were filed during the quarter or prior to the filing of this Form 10-Q for the quarter ended June 30, 1996: Date of Report Item Filed___________________ May 7, 1996 Item 5. Other Events (Announcement of the offer to acquire Midlands.) June 6, 1996 Item 2. Acquisition or Disposition of Assets (Announcement of the cash offer to purchase Midlands as wholly unconditional.) June 6, 1996 Item 7. Financial Statements and Exhibits (Amendment to the June 6, 1996, Form 8-K filing - Financial Statements of Midlands for the most recent fiscal year and pro forma financial information of Cinergy for the acquisition of Midlands by Avon Energy.) SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: August 12, 1996 J. Wayne Leonard _________ Duly Authorized Officer Date: August 12, 1996 Charles J. Winger __ Chief Accounting Officer EX-27 2 PSI 06/30/96 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1996 JAN-01-1996 JUN-30-1996 6-MOS PER-BOOK 2,483,934 0 182,533 310,963 109,379 3,086,809 539 402,945 616,182 1,019,666 0 173,090 828,673 187,907 0 0 50,400 0 0 0 827,073 3,086,809 617,807 32,152 492,542 524,694 93,113 (1,917) 91,196 39,669 51,527 6,498 45,029 54,052 34,068 136,316 0.00 0.00 -----END PRIVACY-ENHANCED MESSAGE-----