-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UviCFPCXoew1UBu8W7NT8X8J3YQTsfdjGSs6flMV8heIzAUn5hlpI8AA2ggi0RSG 5azcsiCYRfY95MLcQ9kYqg== 0000823392-94-000013.txt : 19941111 0000823392-94-000013.hdr.sgml : 19941111 ACCESSION NUMBER: 0000823392-94-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIPSCO INDUSTRIES INC CENTRAL INDEX KEY: 0000823392 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 351719974 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09779 FILM NUMBER: 94558469 BUSINESS ADDRESS: STREET 1: 5265 HOHMAN AVE CITY: HAMMOND STATE: IN ZIP: 46320 BUSINESS PHONE: 2198535200 MAIL ADDRESS: STREET 1: 5265 HOHMAN AVENUE CITY: HAMMOND STATE: IN ZIP: 46320-1775 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1994 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________ Commission file number 1-9779 NIPSCO Industries, Inc. (Exact name of registrant as specified in its charter) Indiana 35-1719974 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5265 Hohman Avenue, Hammond, Indiana 46320-1775 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (219) 853-5200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___________ No __________ As of October 31, 1994, 64,071,691 common shares were outstanding. NIPSCO Industries, Inc. Part I. Financial Information Report Of Independent Public Accountants To The Board of Directors of NIPSCO Industries, Inc.: We have audited the accompanying consolidated balance sheet of NIPSCO Industries, Inc. (an Indiana corporation) and subsidiaries as of September 30, 1994, and December 31, 1993, and the related consolidated statements of income, common shareholders' equity and cash flows for the three, nine, and twelve month periods ended September 30, 1994, and 1993. These consolidated financial statements are the responsibility of Industries' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NIPSCO Industries, Inc. and subsidiaries as of September 30, 1994, and December 31, 1993, and the results of their operations and their cash flows for the three, nine, and twelve month periods ended September 30, 1994, and 1993, in conformity with generally accepted accounting principles. As discussed in Notes 7 and 9 to the consolidated financial statements, effective January 1, 1993, NIPSCO Industries, Inc. and subsidiaries changed their methods of accounting for income taxes and postretirement benefits other than pensions. Arthur Andersen LLP Chicago, Illinois November 2, 1994
Consolidated Balance Sheet September 30, December 31, ASSETS 1994 1993 ============== ============= (Dollars in thousands) Utility Plant, at original cost (including construction work in progress of $210,031 and $189,634, respectively) (Notes 2 and 4): Electric $ 3,832,427 $ 3,778,016 Gas 1,243,298 1,216,178 Common 315,267 289,242 ______________ _____________ 5,390,992 5,283,436 Less - Accumulated provision for depreciation and amortization 2,162,251 2,052,221 ______________ _____________ Total utility plant 3,228,741 3,231,215 ______________ _____________ Other Property and Investments: Other property, at cost, less accumulated provision for depreciation 123,518 124,184 Investments, at equity 16,750 19,142 Investments, at cost 9,456 6,189 ______________ _____________ Total other property and investments 149,724 149,515 ______________ _____________ Current Assets: Cash and cash equivalents 36,747 16,140 Accounts receivable, less reserve of $7,181 and $4,855, respectively (Note 2) 43,184 115,129 Fuel adjustment clause (Note 2) 4,888 6,440 Gas cost adjustment clause (Note 2) - 35,659 Materials and supplies, at average cost 68,825 67,120 Electric production fuel, at average cost 20,597 21,533 Natural gas in storage, at last-in, first-out cost (Note 2) 86,962 62,870 Prepayments and other 10,231 11,118 ______________ _____________ Total current assets 271,434 336,009 ______________ _____________ Other Assets: Regulatory assets (Note 2) 231,220 177,728 Deferred charges and other 18,139 17,857 ______________ _____________ Total other assets 249,359 195,585 ______________ _____________ $ 3,899,258 $ 3,912,324 ============== ============= The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Balance Sheet September 30, December 31, CAPITALIZATION AND LIABILITIES 1994 1993 ============== ============== (Dollars in thousands) Capitalization: Common shareholders' equity (See accompanying statement) $ 1,089,838 $ 1,094,672 Cumulative preferred stocks (Note 11) - Northern Indiana Public Service Company Series without mandatory redemption provisions (Note 12) 94,854 97,753 Series with mandatory redemption provisions (Note 13) 66,612 68,462 NIPSCO Industries Inc.: Series with mandatory redemption provisions (Note 13) 35,000 35,000 Long-term debt excluding amounts due within one year (Note 17) 1,187,164 1,192,500 ______________ ______________ Total capitalization 2,473,468 2,488,387 ______________ ______________ Current Liabilities: Obligations due within one year - Northern Indiana Public Service Company Commercial paper 128,200 27,895 First mortgage bonds - Series N, 4-5/8% - due May 15, 1995 22,436 - Medium-term note - 9.15% - due April 11, 1994 - 65,000 Notes payable - Issued at interest rates between 4.98% and 5.23% with a weighted average interest rate of 5.08% and various maturities between October 6, 1994 and October 27,1994 82,050 110,000 NIPSCO Capital Markets Inc.: Commercial paper 54,500 47,000 Elm Energy and Recycling (UK), Ltd. Term loan facility 2,608 3,766 NDC Douglas Properties, Inc. Notes payable 666 - ______________ ______________ 290,460 253,661 ______________ ______________ Other current liabilities - Accounts payable 148,218 192,543 Sinking funds due within one year (Notes 13 and 17) 2,035 3,413 Dividends declared on common and preferred stocks 25,487 26,165 Customer deposits 9,100 9,471 Taxes accrued 28,279 74,562 Gas cost adjustment clause 20,502 - Interest accrued 15,918 12,253 Other accruals 45,633 45,296 ______________ ______________ 295,172 363,703 ______________ ______________ Total current liabilities 585,632 617,364 ______________ ______________ Other: Deferred income taxes (Note 7) 594,494 576,071 Deferred investment tax credits, being amortized over life of related property (Note 7) 125,009 129,681 Deferred credits 39,993 37,767 Regulatory income tax liability (Note 7) 20,654 25,371 Other noncurrent liabilities 60,008 37,683 ______________ ______________ Total other 840,158 806,573 ______________ ______________ Commitments and Contingencies (Notes 3,5,6,19 and 20) $ 3,899,258 $ 3,912,324 ============== ============== The accompanying notes to financial statements are an integral part of this statement.
Consolidated Statement of Income Three Months Nine Months Ended September 30, Ended September 30, _______________________ _________________________ 1994 1993 1994 1993 ========== ========== ========== ========== (Dollars in thousands) Operating Revenues: (Notes 2, 5 and 22) Gas $ 71,795 $ 77,634 $ 493,016 $ 483,305 Electric 262,803 264,904 755,142 729,675 __________ __________ __________ __________ 334,598 342,538 1,248,158 1,212,980 __________ __________ __________ __________ Cost of Energy: (Note 2) Gas costs 36,887 42,823 291,452 291,121 Fuel for electric generation 62,140 66,472 184,938 183,313 Power purchased 9,143 5,287 27,985 12,989 __________ __________ ___________ __________ 108,170 114,582 504,375 487,423 __________ __________ ___________ __________ Operating Margin 226,428 227,956 743,783 725,557 __________ __________ ___________ __________ Operating Expenses and Taxes (except income): Operation 69,661 73,691 218,920 215,241 Maintenance (Note 2) 18,988 17,792 60,147 60,028 Depreciation and amortization (Note 2) 48,606 46,484 144,819 139,020 Taxes (except income) 16,890 16,998 54,866 54,334 __________ __________ ___________ __________ 154,145 154,965 478,752 468,623 __________ __________ ___________ __________ Operating Income Before Utility Income Taxes 72,283 72,991 265,031 256,934 __________ __________ ___________ __________ Utility Income Taxes (Note 7) 19,233 19,493 72,528 69,856 __________ __________ ___________ __________ Operating Income 53,050 53,498 192,503 187,078 __________ __________ ___________ __________ Other Income (Deductions): Allowance for funds, other than borrowed funds, used during construction (Note 2) - - - 1 Other, net (Note 2) (7) 172 (2,928) (1,058) __________ __________ __________ __________ (7) 172 (2,928) (1,057) __________ __________ __________ __________ Income Before Interest and Other Charges 53,043 53,670 189,575 186,021 __________ __________ __________ __________ Interest and Other Charges: Interest on long-term debt 18,965 20,821 59,189 61,126 Other interest 3,175 2,273 7,746 7,503 Allowance for borrowed funds used during construction (Note 2) (1,181) (184) (2,869) (572) Amortization of premium, reacquisition premium, discount and expense on debt, net 1,029 889 2,839 2,687 Dividend requirements on preferred stocks of subsidiary 2,520 2,578 7,616 7,768 __________ __________ __________ ___________ 24,508 26,377 74,521 78,512 __________ __________ __________ ___________ Net Income 28,535 27,293 115,054 107,509 Dividend requirements on preferred shares 766 766 2,297 2,297 __________ __________ __________ ___________ Balance available for common shareholders $ 27,769 $ 26,527 $ 112,757 $ 105,212 ========== ========== ========== =========== Average common shares outstanding 64,513,779 66,263,651 65,089,547 66,195,739 Earnings per average common share $ 0.43 $ 0.40 $ 1.73 $ 1.58 ========== ========== ========== =========== Dividends declared per common share $ 0.36 $ 0.33 $ 1.08 $ 0.99 ========== ========== ========== =========== Twelve Months Ended September 30, _______________________ 1994 1993 ========== ========== (Dollars in thousands) Operating Revenues: (Notes 2, 5 and 22) Gas $ 723,940 $ 713,904 Electric 989,110 961,652 __________ __________ 1,713,050 1,675,556 __________ __________ Cost of Energy (Note 2) Gas costs 429,976 433,988 Fuel for electric generation 246,177 246,608 Power purchased 33,221 15,778 __________ __________ 709,374 696,374 __________ __________ Operating Margin 1,003,676 979,182 __________ __________ Operating Expenses and Taxes Except income): Operation 288,085 279,832 Maintenance 83,667 78,140 Depreciation and amortization (Note 2) 192,799 186,034 Taxes (except income) 72,153 71,944 __________ __________ 636,704 615,950 __________ __________ Operating Income Before Utility Income Taxes 366,972 363,232 __________ __________ Utility Income Taxes (Note 7) 99,502 98,524 __________ __________ Operating Income 267,470 264,708 __________ __________ Other Income (Deductions): Allowance for funds, other than borrowed funds, used during construction (Note 2) - 10 Other, net (Note 2) (3,941) (2,125) __________ __________ (3,941) (2,115) __________ __________ Income Before Interest and Other Charges 263,529 262,593 __________ __________ Interest and Other Charges: Interest on long-term debt 80,184 82,141 Other interest 9,481 10,762 Allowance for borrowed funds used during construction (Note 2) (3,744) (414) Amortization of premium, reacquisition premium, discount and expense on debt, net 3,734 3,531 Dividend requirements on preferred stocks of subsidiary 10,189 9,993 __________ __________ 99,844 106,013 __________ __________ Net Income 163,685 156,580 Dividend requirements on preferred shares 3,063 3,063 __________ __________ Balance available for common shareholders $ 160,622 $ 153,517 ========== ========== Average common shares outstanding 65,309,025 66,237,085 Earnings per average common share $ 2.45 $ 2.31 ========== ========== Dividends declared per common share $ 1.44 $ 1.32 ========== ========== The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Common Shareholders' Equity Dollars in Thousands __________________________________________________ Additional Common Paid-In Retained Three Months Ended Total Shares Capital Earnings ====================== =========== =========== =========== =========== Balance, July 1, 1993 $ 1,085,300 $ 870,930 $ 27,485 $ 351,829 Net income 27,293 27,293 Dividends: Preferred shares (766) (766) Common shares (21,809) (21,809) Treasury shares acquired (8,905) Issued: Employee stock purchase plan 269 138 Long-term incentive plan 1,355 85 Other 249 15 ___________ ___________ ___________ ___________ Balance, September 30, 1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562 =========== =========== =========== =========== Dollars in Thousands Shares ______________________________________ __________ Currency Three Months Ended Treasury Unearned Translation Common (continued) Shares Compensation Adjustment Shares ====================== =========== ============ =========== ========== Balance, July 1, 1993 $ (160,821) $ (2,087) $ (2,036) 73,892,109 Net income Dividends: Preferred shares Common shares Treasury shares acquired (8,905) Issued: Employee stock purchase plan 131 Long-term incentive plan 1,270 Other 195 39 ___________ ___________ __________ __________ Balance, September 30, 1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109 =========== =========== ========== ========== Shares ___________ Three Months Ended Treasury (continued) Shares ====================== =========== Balance, July 1, 1993 (7,502,343) Net income Dividends: Preferred shares Common shares Treasury shares acquired (270,401) Issued: Employee stock purchase plan 8,254 Long-term incentive plan 57,850 Other ___________ Balance, September 30, 1993 (7,706,640) =========== Dollars in Thousands __________________________________________________ Additional Three Months Ended Common Paid-In Retained (continued) Total Shares Capital Earnings ====================== =========== =========== =========== =========== Balance, July 1, 1994 $ 1,102,698 $ 870,930 $ 27,825 $ 418,983 Net income 28,535 28,535 Dividends: Preferred shares (766) (766) Common shares (23,073) (23,073) Treasury shares acquired (18,503) Issued: Employee stock purchase plan 293 135 Long-term incentive plan 222 Other 432 357 (12) ___________ ___________ ___________ ___________ Balance, September 30, 1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667 =========== =========== =========== =========== Dollars in Thousands Shares _______________________________________ __________ Currency Three Months Ended Treasury Unearned Translation Common (continued) Shares Compensation Adjustment Shares ====================== =========== ============ ============ ========== Balance, July 1, 1994 $ (211,790) $ (1,359) $ (1,891) 73,892,109 Net income Dividends: Preferred shares Common shares Treasury shares acquired (18,503) Issued: Employee stock purchase plan 158 Long-term incentive plan 222 Other 196 (109) ___________ ___________ ___________ ___________ Balance, September 30, 1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109 =========== =========== ========== =========== Shares ___________ Three Months Ended Treasury (concluded) Shares ====================== =========== Balance, July 1, 1994 (9,106,152) Net income Dividends: Preferred shares Common shares Treasury shares acquired (642,159) Issued: Employee stock purchase plan 9,962 Long-term incentive plan 9,350 Other ___________ Balance, September 30, 1994 (9,728,999) =========== Dollars in Thousands __________________________________________________ Additional Common Paid-In Retained Nine Months Ended Total Shares Capital Earnings ======================= =========== =========== =========== =========== Balance, January 1, 1993 $ 1,034,530 $ 870,930 $ 20,775 $ 317,195 Net income 107,509 107,509 Dividends: Preferred shares (2,297) (2,297) Common shares (65,707) (65,707) Treasury shares acquired (27,808) Issued: Employee stock purchase plan 433 138 Long-term incentive plan 4,708 140 NIFL acquisition 30,172 6,655 Other 1,446 (138) ___________ ___________ ___________ ___________ Balance, September 30, 1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562 =========== =========== =========== =========== Dollars in Thousands Shares __________________________________________________ Currency Nine Months Ended Treasury Unearned Translation Common (continued) Shares Compensation Adjustment Shares ===================== =========== ============ ============ ========== Balance, January 1, 1993 $ (168,990) $ (3,034) $ (2,346) 73,892,109 Net income Dividends: Preferred shares Common shares Treasury shares acquired (27,808) Issued: Employee stock purchase plan 295 Long-term incentive plan 4,661 (93) NIFL acquisition 23,517 Other 1,235 349 __________ ___________ __________ ___________ Balance, September 30, 1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109 =========== =========== ========== =========== Shares ___________ Nine Months Ended Treasury (continued) Shares ====================== =========== Balance, January 1, 1993 (8,133,759) Net income Dividends: Preferred shares Common shares Treasury shares acquired (922,554) Issued: Employee stock purchase plan 18,561 Long-term incentive plan 218,250 NIFL acquisition 1,112,862 Other ___________ Balance, September 30, 1993 (7,706,640) =========== Dollars in Thousands ___________________________________________________ Additional Nine Months Ended Common Paid-In Retained (continued) Total Shares Capital Earnings ======================= =========== =========== =========== ============ Balance, January 1, 1994 $ 1,094,672 $ 870,930 $ 27,631 $ 380,888 Net income 115,054 115,054 Dividends: Preferred shares (2,297) (2,297) Common shares (69,913) (69,913) Treasury shares acquired (51,133) Issued: Employee stock purchase plan 598 293 Long-term incentive plan 1,143 29 Other 1,714 364 (65) ___________ ___________ ___________ ___________ Balance, September 30, 1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667 =========== =========== =========== =========== Dollars in Thousands Shares _______________________________________ __________ Currency Nine Months Ended Treasury Unearned Translation Common (continued) Shares Compensation Adjustment Shares ===================== =========== ============ ============ ========== Balance, January 1, 1994 $ (180,212) $ (1,684) $ (2,881) 73,892,109 Net income Dividends: Preferred shares Common shares Treasury shares acquired (51,133) Issued: Employee stock purchase plan 305 Long-term incentive plan 1,127 (13) Other 534 881 __________ ___________ __________ ___________ Balance, September 30, 1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109 =========== =========== ========== =========== Shares ___________ Nine Months Ended Treasury (concluded) Shares ====================== =========== Balance, January 1, 1994 (8,063,271) Net income Dividends: Preferred shares Common shares Treasury shares acquired (1,732,165) Issued: Employee stock purchase plan 19,248 Long-term incentive plan 47,189 Other ___________ Balance, September 30, 1994 (9,728,999) =========== Dollars in Thousands __________________________________________________ Additional Common Paid-In Retained Twelve Months Ended Total Shares Capital Earnings ======================= =========== =========== =========== =========== Balance, October 1, 1992 $ 1,038,175 $ 870,930 $ 22,273 $ 291,411 Net income 156,580 156,580 Dividends: Preferred shares (3,063) (3,063) Common shares (87,430) (87,430) Treasury shares acquired (54,259) Issued: Employee stock purchase plan 433 138 Long-term incentive plan 5,390 140 NIFL acquisition 30,172 6,655 Other (3,012) (1,498) (936) ___________ ___________ ___________ ___________ Balance, September 30, 1993 $ 1,082,986 $ 870,930 $ 27,708 $ 356,562 ___________ ___________ ___________ ___________ Net income 163,685 163,685 Dividends: Preferred shares (3,063) (3,063) Common shares (93,590) (93,590) Treasury shares acquired (64,055) Issued: Employee stock purchase plan 598 293 Long-term incentive plan 2,103 (46) Other 1,174 362 73 ___________ ___________ ___________ ___________ Balance, September 30, 1994 $ 1,089,838 $ 870,930 $ 28,317 $ 423,667 =========== =========== =========== =========== Dollars in Thousands Shares _______________________________________ __________ Currency Twelve Months Ended Treasury Unearned Translation Common (continued) Shares Compensation Adjustment Shares ===================== =========== ============ ============ ========== Balance, October 1, 1992 $ (143,221) $ (3,304) $ 86 73,892,109 Net income Dividends: Preferred shares Common shares Treasury shares acquired (54,259) Issued: Employee stock purchase plan 295 Long-term incentive plan 5,343 (93) NIFL acquisition 23,517 Other 1,505 (2,083) ___________ ___________ __________ __________ Balance, September 30, 1993 $ (168,325) $ ( 1,892) $ (1,997) 73,892,109 ___________ ___________ __________ ___________ Net income Dividends: Preferred shares Common shares Treasury shares acquired (64,055) Issued: Employee stock purchase plan 305 Long-term incentive plan 2,162 (13) Other 742 (3) ___________ ___________ __________ ___________ Balance, September 30, 1994 $ (229,913) $ ( 1,163) $ (2,000) 73,892,109 =========== =========== ========== =========== Shares ___________ Twelve Months Ended Treasury (concluded) Shares ====================== =========== Balance, October 1, 1992 (7,127,738) Net income Dividends: Preferred shares Common shares Treasury shares acquired (1,961,575) Issued: Employee stock purchase plan 18,561 Long-term incentive plan 251,250 NIFL acquisition 1,112,862 Other ___________ Balance, September 30, 1993 (7,706,640) ___________ Net income Dividends: Preferred shares Common shares Treasury shares acquired (2,134,696) Issued: Employee stock purchase plan 19,248 Long-term incentive plan 93,089 Other ___________ Balance, September 30, 1994 (9,728,999) =========== The accompanying notes to consolidated financial statements are an integral part of this statement.
Consolidated Statement of Cash Flows Three Months Nine Months Ended September 30, Ended September 30, ____________________ ____________________ 1994 1993 1994 1993 ========= ========= ========= ========= (Dollars in thousands) Cash flows from operating activities: Net income $ 28,535 $ 27,293 $ 115,054 $ 107,509 Adjustments to reconcile net income to net cash: Depreciation and amortization 48,606 46,484 144,819 139,020 Deferred federal and state operating income taxes, net 7,523 3,164 (7,904) (12,071) Deferred investment tax credits, net (1,854) (1,850) (4,671) (5,550) Change in certain assets and liabilities* - Accounts receivable, net 34,928 25,994 71,945 60,507 Electric production fuel 2,244 18,409 936 17,211 Materials and supplies (1,603) 1,553 (1,705) 5,354 Natural gas in storage (40,805) (43,398) (24,092) (33,324) Accounts payable (4,530) (20,831) (44,325) (40,350) Taxes accrued (24,174) (11,874) (46,283) (15,633) Fuel adjustment clause 2,445 2,871 1,552 2,012 Gas cost adjustment clause (5,179) (11,127) 56,161 21,657 Other accruals 768 (3,312) 337 1,119 Other, net 15,153 10,477 23,113 40,834 _________ _________ _________ _________ Net cash provided by operating activities 62,057 43,853 284,937 288,295 _________ _________ _________ _________ Cash flows provided by (used in) investing activities: Utility construction expenditures (54,983) (43,298) (154,658) (115,514) Acquisition and construction expenditures related to Crossroads Pipeline Company 94 - (1,286) - Purchase of Northern Indiana Fuel and Light Company, Inc., net of cash acquired - - - (30,137) Return of capital from equity investments - 32,435 8,000 32,435 Other, net (7,900) (9,081) (14,880) (49,402) _________ _________ _________ _________ Net cash used in investing activities (62,789) (19,944) (162,824) (162,618) _________ _________ _________ _________ Cash flows provided by (used in) financing activities: Issuance of long-term debt 187,207 326,946 213,846 451,218 Issuance of short-term debt 295,125 320,352 741,977 983,355 Issuance of preferred shares - - - - Net change in commercial paper 38,800 (88,500) 107,805 (61,800) Retirement of long-term debt (67,546) (90,111) (258,091) (312,951) Retirement of short-term debt (409,903) (462,952) (782,804)(1,139,655) Retirement of preferred stock (891) (206) (2,050) (1,640) Issuance of common shares 515 1,638 1,754 35,302 Acquisition of treasury shares (18,503) (8,905) (51,133) (27,808) Cash dividends paid on common shares (23,311) (21,881) (70,513) (65,627) Cash dividends paid on preferred shares (766) (766) (2,297) (2,297) _________ _________ _________ _________ Net cash provided by (used in) financing activities 727 (24,385) (101,506) (141,903) _________ _________ _________ _________ Net increase (decrease) in cash and cash equivalents (5) (476) 20,607 (16,226) Cash and cash equivalents at beginning of period 36,752 25,308 16,140 41,058 _________ _________ _________ _________ Cash and cash equivalents at end of period $ 36,747 $ 24,832 $ 36,747 $ 24,832 ========= ========= ========= ========= Twelve Months Ended September 30, ____________________ 1994 1993 ========= ========= (Dollars in thousands) Cash flows from operating activities: Net income $ 163,685 $ 156,580 Adjustments to reconcile net income to net cash: Depreciation and amortization 192,799 186,034 Deferred federal and state operating income taxes, net 6,289 1,684 Deferred investment tax credits, net (6,567) (7,413) Change in certain assets and liabilities* - Accounts receivable, net (817) (9,096) Electric production fuel 4,137 19,492 Materials and supplies 285 7,635 Natural gas in storage (15,453) (15,746) Accounts payable 19,532 (14,107) Taxes accrued (30,109) (5,169) Fuel adjustment clause (2,565) (1,638) Gas cost adjustment clause 45,145 (7,185) Other accruals (782) 9,859 Other, net (5,960) 32,398 _________ _________ Net cash provided by operating activities 369,619 353,328 _________ _________ Cash flows provided by (used in) investing activities: Utility construction expenditures (219,996) (168,207) Acquisition and construction expenditures related to Crossroads Pipeline Company (25,647) - Purchase of Northern Indiana Fuel and Light Company, Inc., net of cash acquired - (30,137) Return of capital from equity investments 8,000 32,435 Other, net (18,539) (66,516) _________ _________ Net cash used in investing activities (256,182) (232,425) _________ _________ Cash flows provided by (used in) financing activities: Issuance of long-term debt 230,897 501,302 Issuance of short-term debt 1,013,129 1,582,456 Issuance of preferred shares - 43,000 Net change in commercial paper 168,000 (86,150) Retirement of long-term debt (322,209) (320,005) Retirement of short-term debt (1,031,357)(1,704,367) Retirement of preferred stock (2,580) (30,335) Issuance of common shares 2,816 35,951 Acquisition of treasury shares (64,055) (54,259) Cash dividends paid on common shares (93,100) (86,317) Cash dividends paid on preferred shares (3,063) (3,063) _________ _________ Net cash provided by (used in) financing activities (101,522) (121,787) _________ _________ Net increase (decrease) in cash and cash equivalents 11,915 (884) Cash and cash equivalents at beginning of period 24,832 25,716 _________ _________ Cash and cash equivalents at end of period $ 36,747 $ 24,832 ========= ========= *Net of effects from purchase of Northern Indiana Fuel and Light Company, Inc. The accompanying notes to consolidated financial statements are an integral part of this statement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) was incorporated in Indiana on September 22, 1987, and became the parent of Northern Indiana Public Service Company (Northern Indiana) on March 3, 1988, after the shareholders of Northern Indiana approved a corporate restructuring pursuant to which Northern Indiana's outstanding common shares were exchanged on a share-for-share basis with common shares of Industries. The other securities of Northern Indiana, including its first mortgage bonds, pollution control notes and bonds, other debt securities and each series of preferred stock, were not changed by the restructuring and they continue to be outstanding obligations and securities of Northern Indiana. Northern Indiana is a public utility operating company supplying electricity and gas to the public in the northern third of Indiana. Wholly-owned subsidiaries of Industries in addition to Northern Indiana, include NIPSCO Development Company, Inc. (Development), NIPSCO Energy Services, Inc. (Services), NIPSCO Capital Markets, Inc. (Capital Markets), Kokomo Gas and Fuel Company (Kokomo Gas) and Northern Indiana Fuel and Light Company, Inc. (NIFL), which are all Indiana corporations. Kokomo Gas is a public utility operating company incorporated in Indiana in 1917, engaged in supplying natural gas to the public. It operates in the city of Kokomo, Indiana and the surrounding area in six counties having a population of approximately 100,000 and served approximately 30,800 customers at September 30, 1994. The Kokomo Gas service territory is contiguous to Northern Indiana's gas service territory. On March 31, 1993, Industries acquired NIFL, a natural gas utility headquartered in Auburn, Indiana, that served approximately 29,200 customers at September 30, 1994, in the northeast corner of the state, contiguous to Northern Indiana's service territory. Industries issued 1,112,862 common shares and $26,311 cash in exchange for all of the common shares of NIFL. Development makes various investments, including real estate. Services coordinates the energy-related diversification ventures and has four wholly-owned subsidiaries: NIPSCO Fuel Company, Inc. (Fuel) which makes investments in gas and oil exploration and development ventures; NIPSCO Energy Trading Corp. (NETCO) which is engaged in gas and other energy brokering businesses; NI-TEX, Inc. (NI-TEX) which is an intrastate natural gas transmission and supply company; and Crossroads Pipeline Company (Crossroads), a natural gas transmission company. Capital Markets handles financing for the ventures of Industries other than Northern Indiana. Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd., which owns and operates a tire-fueled generating plant in Wolverhampton, England, that began operating in late 1993. Northern Indiana has two subsidiaries: Shore Line Shops, Inc. (Shore Line) and NIPSCO Exploration Company, Inc. (Exploration). Shore Line undertakes the purchase and sale of transferred employees' residences on behalf of Northern Indiana. Exploration has investment interests, which are subject to Indiana Utility Regulatory Commission (Commission) rate treatment, in off-shore Gulf of Mexico oil and gas leases. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation. The consolidated financial statements include the accounts of NIPSCO Industries, Inc., its utility subsidiaries Northern Indiana, Kokomo Gas, NIFL and Crossroads (Utilities), and all non-utility subsidiaries. In addition, the consolidated financial statements of Northern Indiana include its consolidated subsidiaries, Shore Line and Exploration. The operating results of all non-utility subsidiaries are included in "Other, net" under the caption "Other Income (Deductions)" in the Consolidated Statement of Income (except for Exploration's net results of operations, which are reported as a component of "Gas costs," since Exploration is subject to Commission rate treatment). Interest on long-term debt, other interest, and amortization of debt discount and expense are reflected as a component of "Interest and Other Charges." All significant intercompany items have been eliminated in consolidation. Certain reclassifications were made to conform the prior years' financial statements to the current presentation. OPERATING REVENUES. Revenues are recorded based on estimated service rendered, but are billed to customers monthly on a cycle basis. DEPRECIATION AND MAINTENANCE. Northern Indiana provides depreciation on a straight-line method over the remaining service lives of the electric, gas, and common properties. The provisions as a percentage of the cost of depreciable utility plant were approximately 4.0%, for the three, nine, and twelve month periods ended September 30, 1994, and 3.9% for the three, nine, and twelve month periods ended September 30, 1993, respectively. The depreciation rates for electric and gas properties were 3.55% and 4.92%, respectively. Kokomo Gas provides depreciation on the original cost of utility plant in service using straight-line rates that averaged approximately 3.4% for the three, nine and twelve month periods ended September 30, 1994, and 3.2% for the three, nine, and twelve month periods ended September 30, 1993. NIFL provides depreciation on the original cost of utility plant in service using straight-line rates that averaged approximately 2.75%. The Utilities follow the practice of charging maintenance and repairs, including the cost of renewals of minor items of property, to maintenance expense accounts, except that repairs of transportation and service equipment are charged to clearing accounts and redistributed to operating expense and other accounts. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant, and such cost, together with the cost of removal less salvage, is charged to the accumulated provision for depreciation. COAL RESERVES. Northern Indiana has a long-term mining contract to mine its coal reserves through the year 2001. The costs of these reserves are being recovered through the rate making process as such coal reserves are used to produce electricity. OIL AND NATURAL GAS ACCOUNTING. Fuel uses the full cost method of accounting for its oil and natural gas production activities. Under this method all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized and amortized on the units of production basis. POWER PURCHASED. Power purchases and net interchange power with other electric utilities under interconnection agreements are included in Cost of Energy under the caption "Power purchased." ACCOUNTS RECEIVABLE. At September 30, 1994, Northern Indiana had sold $100 million of certain of its accounts receivable under a sales agreement which expires May 31, 1997. STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement of Cash Flows, Industries considers temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash paid during the periods reported for income taxes and interest was as follows:
Three Months Nine Months Twelve Months Ended Ended Ended September 30, September 30, September 30, __________________ __________________ __________________ 1994 1993 1994 1993 1994 1993 ======== ======== ======== ======== ======== ======== (Dollars in thousands) Income taxes $ 20,520 $ 24,975 $ 96,596 $ 79,057 $110,694 $ 85,459 Interest, net of amounts capitalized $ 13,078 $ 14,437 $ 57,837 $ 60,135 $ 85,299 $ 91,754
FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision for adjustment in charges for electric energy to reflect increases and decreases in the cost of fuel and the fuel cost of purchased power through operation of a fuel adjustment clause. As prescribed by order of the Commission applicable to metered retail rates, the adjustment factor has been calculated based on the estimated cost of fuel and the fuel cost of purchased power in a future three-month period. If two statutory requirements relating to expense and return levels are satisfied, any under or overrecovery caused by variances between estimated and actual cost in a given three month period will be included in a future filing. Northern Indiana records any under or overrecovery as a current asset or current liability until such time as it is billed or refunded to its customers. The fuel adjustment factor is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. GAS COST ADJUSTMENT CLAUSE. All metered gas rates contain an adjustment factor which reflects the cost of purchased gas, contracted gas storage and storage transportation charges. The Utilities record any under or overrecovery as a current asset or current liability until such time as it is billed or refunded to their customers. The gas cost adjustment factor for Northern Indiana is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. The gas cost adjustment factors for Kokomo Gas and NIFL are subject to a semi-annual hearing by the Commission and remain in effect for a six-month period. If the statutory requirement relating to the level of return is satisfied, any under or overrecovery caused by variances between estimated and actual cost in a given three or six month period will be included in a future filing. See Note 5, Rate Matters (Take-or-Pay Pipeline Gas Costs) for a discussion of take-or-pay charges. NATURAL GAS IN STORAGE. Based on the average cost of gas purchased in September, 1994, and December, 1993, the estimated replacement cost of gas in storage (current and non-current) at September 30, 1994, and December 31, 1993, exceeded the stated LIFO cost by approximately $28 million and $55 million, respectively. REGULATORY ASSETS. The Utilities' operations are subject to the regulation of the Commission and the Federal Energy Regulatory Commission (FERC). Accordingly, the Utilities' accounting policies are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71 "Accounting for the Effects of Certain Types of Regulation". The regulatory assets below represent probable future revenue to the Utilities associated with certain incurred costs as these costs are recovered through the rate making process. Regulatory assets were comprised of the following items, and were reflected in the Consolidated Balance Sheet as follows:
September 30, December 31, 1994 1993 ============= ============ (Dollars in thousands) Unamortized reacquisition premium on debt (Note 17) $ 55,070 $ 48,033 Unamortized R.M. Schahfer Unit 17 and Unit 18 carrying charges and deferred depreciation (See below) 76,035 79,198 Bailly scrubber carrying charges and deferred depreciation (See below) 7,078 4,711 Deferral of SFAS No. 106 expense not recovered (Note 9) 39,537 22,410 FERC Order No. 636 transition costs (Note 5) 53,500 23,376 _____________ ____________ $ 231,220 $ 177,728 ============= ============
CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M. Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges and deferred depreciation in accordance with orders of the Commission until the cost of each unit was allowed in rates. Such carrying charges and deferred depreciation are being amortized over the remaining life of each unit. Northern Indiana began capitalizing carrying charges and deferring depreciation and certain operating expenses relating to its scrubber service agreement upon completion of the flue gas desulfurization plant in June, 1992, at Northern Indiana's Bailly Generating Station in accordance with an order of the Commission. Capitalization of carrying charges and deferral of depreciation and certain operating expenses will continue until the earlier of December 31, 1995, or the date a final order considering the costs in rates is approved by the Commission. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Allowance for funds used during construction (AFUDC) is charged to construction work in progress during the period of construction and represents the net cost of borrowed funds used for construction purposes and a reasonable rate upon other (equity) funds. Under established regulatory rate practices, after the construction project is placed in service, Northern Indiana is permitted to include in the rates charged for utility services (a) a fair return on and (b) depreciation of such AFUDC included in plant in service. At January 1, 1992, a pretax rate of 4.0% for all construction was being used; effective January 1, 1993, the rate decreased to 3.7% and effective January 1, 1994, the rate increased to 5.0%. FOREIGN CURRENCY TRANSLATION. Translation gains or losses are based upon the end-of-period exchange rate and are recorded as a separate component of shareholders' equity. INCOME TAXES. Deferred income taxes are recognized as costs in the rate making process by the commissions having jurisdiction over the rates charged by the Utilities. Deferred income taxes are provided as a result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. These taxes are reversed by a debit or credit to deferred income tax expense as the temporary differences reverse. Investment tax credits have been deferred and are being amortized to income over the life of the related property. For additional information relating to income taxes, including information related to Industries' adoption of SFAS No. 109 effective January 1, 1993, which requires an asset and liability approach to accounting for income taxes, see Note 7. (3) PENDING TAX MATTER: On August 1, 1991, the Internal Revenue Service (IRS) issued a notice of deficiency for Northern Indiana's taxes for the years 1982 through 1985 ($3,785,250 per year plus interest) relating to interest payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's foreign subsidiary, Northern Indiana Public Service Finance N.V. (Finance). The IRS believes that interest paid on the Notes should have been subject to United States tax withholding. The Notes were redeemed in 1985 and Finance was subsequently liquidated. On October 25, 1991, Northern Indiana filed its petition challenging the assessment in the United States Tax Court. The matter was tried on May 31 and June 1, 1994, and briefing was completed September 30, 1994. Northern Indiana estimates that the IRS claim approximates $44 million of principal and interest at September 30, 1994. Northern Indiana's management and general counsel believe Northern Indiana will be successful in establishing that no tax withholding was required for the period. (4) ACQUISITION OF NIFL: On March 31, 1993, Industries acquired NIFL. Industries issued 1,112,862 common shares and $26,311 cash in exchange for all of the common shares of NIFL. The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16. The excess of the total acquisition costs over the recorded value of net assets acquired (approximately $18 million) was recorded as a plant acquisition adjustment. (5) RATE MATTERS: TAKE-OR-PAY PIPELINE GAS COSTS. The FERC has allowed certain interstate pipeline suppliers to pass on to their customers a portion of costs for contracted gas not purchased (take-or-pay), contract reformation and associated interest charges through direct billing to their customers, including the Utilities. Northern Indiana records take-or-pay costs as they are billed by the respective pipeline, and in an order dated September 28, 1988, the Commission allowed Northern Indiana to recover these additional gas costs on a volumetric basis from all customers, including transport customers. The Utilities have recovered approximately $190.9 million of take-or-pay costs and interest from their customers through September 30, 1994. As of September 30, 1994, an additional $7.3 million was scheduled to be billed to the Utilities and recovered from customers over a period of one to four years. FERC ORDER NO. 636. On April 8, 1992, the FERC issued Order No. 636 which required interstate pipelines to restructure their services. Under the Order, existing pipeline sales services have "unbundled" such that gas supplies are being sold separately from interstate transportation services. The Utilities' interstate pipeline suppliers have filed new tariffs with the FERC to implement Order No. 636, and the Utilities have contracted for a mix of transportation and storage services which allows them to meet the needs of their customers. Customers, such as the Utilities, are expected to benefit from enhanced access to competitively priced gas supplies as well as from more flexible transportation services. Pipelines are seeking to recover from their customers certain transition costs associated with restructuring under the Order No. 636 regulation. Any such recovery is subject to established review procedures at the FERC. Also, mandated changes in pipeline rate design could increase the cost of firm transportation service on interstate pipelines. All interstate pipelines are now operating under Order No. 636 regulation. The Utilities' pipeline suppliers have made certain filings with the FERC to begin collecting their respective transition costs. The Utilities expect that the total transition costs from all suppliers will approximate $96-$107 million. However, the ultimate level of costs will depend on future events, including the market price of natural gas. Approximately $54 million of such costs have been recorded, a portion of which has been paid to the pipeline suppliers, subject to refund. On November 2, 1994, the Commission issued an order which approved the recovery of these FERC-allowed transition costs on a volumetric basis from Northern Indiana's sales and transportation customers (which is consistent with what the Commission authorized for the recovery of take-or-pay pipeline gas costs). This order is subject to rehearing or appeal by other parties within 20 days of its issuance. Regulatory assets, in amounts corresponding to the costs recorded, have been recorded to reflect the ultimate recovery of these costs. (6) ENVIRONMENTAL MATTERS: Because of major investments made in modern environmental control facilities and the use of low sulfur coal, all of Northern Indiana's electric production facilities now comply with the sulfur dioxide limitations contained in acid rain provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern Indiana is now using low sulfur coal at Unit 12 at the Michigan City Generating Station, the only generating unit that had not been in compliance with future sulfur dioxide limitations. Northern Indiana estimates that total costs of compliance with the CAAA sulfur dioxide regulations will impact electric rates by less than 5% in the future. The CAAA contain provisions that could lead to strict limitations on emissions of nitrogen oxides and hazardous air pollutants, which may require significant capital expenditures for control of these emissions. Northern Indiana cannot predict the costs of complying with them, but Northern Indiana believes that any such mandated costs would be recoverable through the rate making process. The Environmental Protection Agency (EPA) and Indiana have promulgated an air operating permit program to meet the requirements of the CAAA. This permit program increases the fees associated with operating permits for air emissions, but the increase is not significant. Northern Indiana has received notices from the EPA that it is a "potentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and the Superfund Amendment and Reauthorization Act (SARA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation and analysis to determine the amount of remedial costs necessary to clean up the sites. At each of the sites, Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA and SARA, will be shared among them. At some sites Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the site and avoid the imposition of fines or added costs. While remedial costs at these sites are not presently determinable, Northern Indiana's preliminary analysis indicates its share of such costs should not have a significant impact on the results of future operations. Northern Indiana was notified by the Indiana Department of Environmental Management (IDEM) of the release of a petroleum substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a former manufactured gas plant formerly owned by Northern Indiana. In cooperation with IDEM, Northern Indiana has taken steps to investigate and contain the substance. Northern Indiana is continuing to monitor and investigate the site to determine what further remedial action, if any, will be required. Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana Gas) that the site of a former manufactured gas plant in Lafayette, Indiana, believed to have been formerly owned by Northern Indiana, was being investigated and partially remediated by Indiana Gas pursuant to an administrative order issued by IDEM. Northern Indiana is investigating its potential liability and evaluating appropriate action. The Utilities have an ongoing program to remain aware of laws and regulations involved with hazardous waste. It is the Utilities' intent to continue to evaluate their facilities and properties with respect to these rules and identify any sites that would require corrective action. Northern Indiana has commenced a program of investigating its former manufactured gas plant sites in order to determine what, if any, remediation of any potential remaining waste materials may be required. Since this program is in its early stages, it is not possible at this time to estimate what, if any, remedial costs may be incurred. The possibility that exposure to electric and magnetic fields emanating from power lines, household appliances and other electric sources may result in adverse health effects has been the subject of increased public, governmental and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing to resolve scientific uncertainties. (7) INCOME TAXES. Effective January 1, 1993, Industries adopted SFAS No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for income taxes. Under the liability method, deferred income taxes are recognized, at currently enacted income tax rates, to reflect the tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. To implement SFAS No. 109, certain adjustments were made to deferred income taxes. To the extent such income taxes are recoverable or payable through future rates, regulatory assets and liabilities have been recorded in the Consolidated Balance Sheet. These adjustments include the amounts reflecting the Utilities' obligation to credit to ratepayers deferred income taxes provided at rates higher than the current federal tax rate which are currently being credited to ratepayers using the average rate assumption method required by the Tax Reform Act of 1986 and the Commission. The initial application of this statement was reflected in the January 1, 1993, Consolidated Balance Sheet, with no impact on results of operations or cash flow. The effect of the implementation entry on regulated activities was to record a net decrease in deferred income taxes and provide a net regulatory income tax liability of approximately $52 million. On August 10, 1993, the Federal statutory income tax rate was increased to 35%, a change of 1%, effective January 1, 1993. The impact of this change reduced the balance of the net regulatory liability approximately $22.1 million during 1993. The net regulatory income tax liability is derived from regulatory assets primarily attributable to undepreciated AFUDC-equity and the cumulative net amount of other income tax timing differences for which deferred taxes had not been provided in the past when regulators did not recognize such taxes as costs in the rate making process and regulatory liabilities primarily attributable to deferred taxes provided at rates in excess of the current statutory rate, as discussed above, and unamortized deferred investment tax credits. The components of the net deferred income tax liability at September 30, 1994, and December 31, 1993, are as follows:
September 30, 1994 December 31, 1993 ================== ================= (Dollars in thousands) Deferred tax liabilities - Accelerated depreciation and other property differences $ 683,873 $ 677,493 AFUDC-equity 43,105 44,863 Adjustment clauses - 16,876 Take-or-pay gas costs 1,520 4,234 Other regulatory assets 35,246 17,364 Reacquisition premium on debt 19,480 16,844 Deferred tax assets - Deferred investment tax credits (47,402) (49,174) Removal costs (101,923) (93,279) Adjustment clauses (6,085) - FERC Order No. 636 transition costs (6,486) (7,111) Other postretirement benefits (14,994) (8,499) Regulatory income tax liability (7,834) (9,582) Other, net (14,289) (22,511) __________________ _________________ 584,211 587,518 Less: Deferred income taxes related to current assets and liabilities (10,283) 11,447 __________________ _________________ Deferred income taxes - noncurrent $ 594,494 $ 576,071 ================== =================
Federal and state income taxes as set forth in the Consolidated Statement of Income are comprised of the following:
Three Months Nine Months Ended September 30, Ended September 30, ____________________ _____________________ 1994 1993 1994 1993 ======== ======== ======== ======== (Dollars in thousands) Current income taxes - Federal $ 11,625 $ 16,225 $ 73,784 $ 76,574 State 1,939 1,954 11,319 10,903 ________ ________ ________ ________ 13,564 18,179 85,103 87,477 ________ ________ ________ ________ Deferred income taxes, net- Federal and State- Accelerated depreciation and other property differences 3,277 3,629 9,832 9,347 Removal costs (2,808) (2,101) (8,425) (7,951) Adjustment clauses 458 3,293 (21,003) (8,624) FERC Order No. 636 transition costs 3,718 - 11,873 - Take-or-pay gas costs (363) (7,270) (1,833) (8,187) Reacquisition premium on debt 1,382 3,294 2,451 2,772 Other 1,859 2,319 (799) 572 ________ ________ ________ ________ 7,523 3,164 (7,904) (12,071) ________ ________ ________ ________ Deferred investment tax credits, net (1,854) (1,850) (4,671) (5,550) ________ ________ ________ ________ Total utility operating income taxes 19,233 19,493 72,528 69,856 Income tax applicable to non- operating activities and income of non-utility subsidiaries (1,600) (2,047) (4,777) (5,158) ________ ________ ________ ________ Total income taxes $ 17,633 $ 17,446 $ 67,751 $ 64,698 ======== ======== ======== ======== Twelve Months Ended September 30, ____________________ 1994 1993 ======== ======== (Dollars in thousands) Current income taxes - Federal $ 86,232 $ 90,595 State 13,548 13,658 ________ ________ 99,780 104,253 ________ ________ Deferred income taxes, net- Federal and State- Accelerated depreciation and other property differences 13,696 11,107 Removal costs (9,234) (10,926) Adjustment clauses (14,845) 3,434 FERC Order No. 636 transition costs 11,873 - Take-or-pay gas costs 555 842 Reacquisition premium on debt 2,503 2,327 Other 1,741 (5,100) ________ ________ 6,289 1,684 ________ ________ Deferred investment tax credits, net (6,567) (7,413) ________ ________ Total utility operating income taxes 99,502 98,524 Income tax applicable to non- operating activities and income of non-utility subsidiaries (5,156) (6,776) ________ ________ Total income taxes $ 94,346 $ 91,748 ======== ========
A reconciliation of total tax expense to an amount computed by applying the statutory federal income tax rate to pretax income is as follows:
Three Months Nine Months Ended September 30, Ended September 30, ____________________ _____________________ 1994 1993 1994 1993 ======== ======== ======== ======== (Dollars in thousands) Net Income $ 28,535 $ 27,293 $115,054 $107,509 Add-Income taxes 17,633 17,446 67,751 64,698 Dividend requirements on preferred stocks of subsidiary 2,520 2,578 7,616 7,768 ________ ________ ________ ________ Income before preferred dividend requirements of subsidiary and income taxes $ 48,688 $ 47,317 $190,421 $179,975 ======== ======== ======== ======== Amount derived by multiplying pretax income by statutory rate $ 17,040 $ 16,561 $ 66,647 $ 62,928 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation 967 962 2,902 2,920 Amortization of deferred investment tax credits (1,854) (1,850) (5,637) (5,550) State income taxes, net of federal income tax benefit 1,849 1,363 6,654 5,995 Reversal of deferred taxes provided at rates in excess of the current federal income tax rate (1,298) (1,143) (3,895) (3,906) Other, net 929 1,553 1,080 2,311 ________ ________ ________ ________ Total income taxes $ 17,633 $ 17,446 $ 67,751 $ 64,698 ======== ======== ======== ======== Twelve Months Ended September 30, ____________________ 1994 1993 ======== ======== (Dollars in thousands) Net Income $163,685 $156,580 Add-Income taxes 94,346 91,748 Dividend requirements on preferred stocks of subsidiary 10,189 9,993 ________ ________ Income before preferred dividend requirements of subsidiary and income taxes $268,220 $258,321 ======== ======== Amount derived by multiplying pretax income by statutory rate $ 93,940 $ 89,566 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation 3,875 4,026 Amortization of deferred investment tax credits (7,533) (7,413) State income taxes, net of federal income tax benefit 9,227 8,734 Reversal of deferred taxes provided at rates in excess of the current federal income tax rate (5,069) (5,136) Other, net (94) 1,971 ________ ________ Total income taxes $ 94,346 $ 91,748 ======== ========
(8) PENSION PLANS. Industries and its subsidiaries have four noncontributory, defined benefit retirement plans covering substantially all employees. Benefits under the plans reflect the employees' compensation, years of service and age at retirement. The plans' funded status as of January 1, 1994 and 1993 are as follows:
1994 1993 ========= ========= (Dollars in thousands) Vested benefit obligation $ 481,755 $ 429,359 Nonvested benefit 86,373 75,815 _________ _________ Accumulated benefit obligation $ 568,128 $ 505,174 ========= ========= Projected benefit obligation for service rendered to date $ 657,068 $ 588,800 Plan assets at fair market value 605,379 539,387 _________ _________ Projected benefit obligation in excess of plan assets 51,689 49,413 Unrecognized transition obligation at January 1, being recognized over 17 years (54,055) (59,933) Unrecognized prior service cost (31,464) (23,100) Unrecognized gains 51,154 50,033 _________ _________ Accrued pension costs $ 17,324 $ 16,413 ========= =========
The accumulated benefit obligation is the present value of future pension benefit payments and is based on the plan benefit formula without considering expected future salary increases. The projected benefit obligation considers estimated future salary increases. Discount rates of 7.50% and 7.75% and rates of increase in compensation levels of 5.5% were used to determine the accumulated benefit obligation and projected benefit obligation at January 1, 1994, and 1993, respectively. The reduction of the discount rate, as discussed above, along with certain plan changes increased the accumulated benefit obligation as of January 1, 1994, by approximately $31 million. The following items are the components of provisions for pensions for the three and nine month periods ended September 30, 1994:
Three Nine Months Months ========= ========= (Dollars in thousands) Service costs $ 4,598 $ 11,852 Interest costs 12,020 36,120 Estimated return on plan assets (13,022) (36,884) Amortization of transition obligation 1,347 4,041 Other net amortization and deferral 621 1,863 _________ _________ $ 5,564 $ 16,992 ========= =========
Assumptions used in the valuation and determination of 1994 and 1993 pension expenses were as follows:
1994 1993 ========= ========= Discount rate 7.50% 7.75% Rate of increase in compensation levels 5.50% 5.50% Expected long-term rate of return on assets 8.25% 8.25%
The plans' assets are invested primarily in common stocks, bonds and notes. Industries recorded provisions for pension costs as follows:
September 30, September 30, 1994 1993 ============= ============= (Dollars in thousands) Three months ended $ 5,564 $ 5,708 Nine months ended $ 16,992 $ 17,080 Twelve months ended $ 22,820 $ 21,950
(9) POSTRETIREMENT BENEFITS. Industries provides certain health care and life insurance benefits for retired employees. Substantially all of Industries' employees may become eligible for those benefits if they reach retirement age while working for Industries. Those and similar benefits for active employees are provided through insurance plans whose premiums are based on the benefits to active employees and retirees paid during the year. Prior to January 1, 1993, the Utilities recognized the cost of providing those benefits by expensing insurance premiums, which is consistent with current rate making practices. The annual cost of providing those benefits for retirees and/or their surviving spouses was $6.3 million for the year ended December 31, 1992. Effective January 1, 1993, Industries adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which establishes accounting and reporting standards for such postretirement benefits. This standard requires the accrual of the expected cost of such benefits during the employee's years of service. The assumptions and calculations involved in determining the accrual closely parallel pension accounting requirements. The following table sets forth the plans' accumulated postretirement benefit obligation as of January 1, 1994, and January 1, 1993.
January 1, January 1, 1994 1993 ============= ============= (Dollars in thousands) Retirees $ 89,650 $ 86,318 Fully eligible active plan participants 30,501 26,748 Other active plan participants 150,215 118,802 _____________ _____________ Accumulated postretirement benefit obligation 270,366 231,868 Unrecognized transition obligation (220,274) (231,868) Unrecognized actuarial loss (20,737) - _____________ _____________ Accrued liability for postretirement health care benefit obligation $ 29,355 $ - ============= =============
Discount rates of 7.5% and 8% at January 1, 1994, and January 1, 1993, respectively, and a pre-Medicare medical trend rate of 13% declining to a long-term rate of 7% were used to determine the accumulated postretirement benefit obligation at January 1, 1994, and January 1, 1993. The transition obligation at January 1, 1993, for accumulated postretirement benefits earned and not recognized is being amortized over twenty years as allowed by SFAS No. 106. Net periodic postretirement benefits costs for the three and nine month periods ended September 30, 1994, include the following components:
Three Nine Months Months ========= ========= (Dollars in thousands) Service costs $ 2,045 $ 6,135 Interest costs 4,962 14,886 Amortization of transition obligation over 20 years 2,882 8,646 _________ _________ $ 9,889 $ 29,667 ========= =========
Industries recorded net periodic postretirement benefit costs of $39,009,000 for the twelve months ended September 30, 1994. The net periodic postretirement benefit costs were determined assuming a 7.5% discount rate for 1994 and an 8% discount rate for 1993, a 5% rate of compensation increase and a pre-Medicare medical trend rate of 13% declining to a long-term rate of 7%. The effect of a 1% increase in the assumed health care cost trend rates for each future year would increase the accumulated postretirement benefit obligation at January 1, 1994, by approximately $45 million and increase the aggregate of the service and interest cost components of plan costs by approximately $1.2 million and $3.6 million and for the three and nine month periods ended September 30, 1994. Amounts disclosed above could be changed significantly in the future by changes in health care costs, work force demographics, interest rates or plan changes. Northern Indiana joined with other Indiana utilities and requested that the Commission conduct generic hearings to approve the accrual method of accounting for postretirement benefits for rate making purposes and to authorize the deferral, as a regulatory asset to be recovered through future revenues, of the net increase in cost until such time as the new accrual cost method may be reflected in the rate making process in the next general rate proceeding. Generic hearings were conducted by the Commission during October, 1992, and, in an order issued on December 30, 1992, the Commission authorized the deferral accounting and stated that a deferral period of four years or less would be rebuttably presumed to be reasonable; Northern Indiana expects to request recovery of such costs within that period. The Commission also indicated each utility would have to demonstrate its postretirement benefit costs were prudent and reasonably incurred at the time such costs were proposed to be recovered in the rate making process. In addition, while the Commission stated it was hopeful something less than full accrual of such costs in rates would be possible under generally accepted accounting principles, Northern Indiana believes the Commission recognizes the full accrual of such postretirement benefits may be required in future rate proceedings in order to avoid any negative impact on a utility's earnings. Northern Indiana will defer as a regulatory asset the difference between the amount that would have been charged to expense under pay-as-you-go accounting and the amount accrued in accordance with the new standard. Accordingly, Northern Indiana believes SFAS No. 106 will not have a material effect on future results of operations. (10) POSTEMPLOYMENT BENEFITS. In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires Industries to accrue the estimated cost of benefits provided to former or inactive employees after employment but before retirement. Industries adopted SFAS No. 112 effective January 1, 1994, and its adoption did not have a material impact on financial position or results of operations. (11) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS: Industries - 20,000,000 shares - Preferred - without par value Effective March 2, 1990, 2,000,000 shares of Industries' Series A Junior Participating Preferred Shares were reserved for issuance pursuant to the Share Purchase Rights Plan described in Note 15, Common Shares. Northern Indiana - 2,400,000 shares - Cumulative Preferred - $100 par value 3,000,000 shares - Cumulative Preferred - no par value 2,000,000 shares - Cumulative Preference - $50 par value (none outstanding) 3,000,000 shares - Cumulative Preference - no par value (none issued) Note 12 sets forth the preferred stocks which are redeemable solely at the option of the issuer, and Note 13 sets forth the preferred stocks which are subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. The Preferred shareholders of Industries and Northern Indiana have no voting rights except in the event of default on the payment of four consecutive quarterly dividends or as required by Indiana law to authorize additional preferred shares or by the Articles of Incorporation in the event of certain merger transactions. (12) PREFERRED STOCKS, Redeemable Solely at the Option of the Issuer, Outstanding at September 30, 1994, and December 31, 1993 (see Note 11):
Redemption Price at September 30, December 31, September 30, 1994 1993 1994 ============= ============ ============= (Dollars in thousands) Northern Indiana Public Service Company Cumulative preferred stock - $100 par value - 4-1/4% series - 211,266 and 211,298 shares outstanding, respectively $ 21,127 $ 21,130 $ 101.20 4-1/2% series - 79,996 shares outstanding 8,000 8,000 100.00 4.22% series - 106,200 shares outstanding 10,620 10,620 101.60 4.88% series - 100,000 shares outstanding 10,000 10,000 102.00 7.44% series - 41,900 shares outstanding 4,190 4,190 101.00 7.50% series - 34,842 shares outstanding 3,484 3,484 101.00 Premium on preferred stock 254 254 Cumulative preferred stock - no par value - Adjustable rate (6.00% at September 30, 1994), Series A (stated value $50 per share) - 743,585 and 801,500 shares outstanding,respectively 37,179 40,075 50.00 ____________ ____________ $ 94,854 $ 97,753 ============ ============
During the period October 1, 1992, to September 30, 1994, there were no issuances of the above preferred stocks. The foregoing preferred stocks are redeemable in whole or in part at any time upon 30 days notice at the option of Northern Indiana at the redemption prices shown, except that the redemption price for the Adjustable Rate Preferred will be reduced periodically in the future. (13) Redeemable PREFERRED STOCKS OUTSTANDING AT SEPTEMBER 30, 1994, AND DECEMBER 31, 1993 (SEE NOTE 11):
September 30, December 31, 1994 1993 ============= ============ (Dollars in thousands) Preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of issuer: Northern Indiana Public Service Company: Cumulative preferred stock - $100 par value - 8.85% series - 100,000 and 112,500 shares outstanding, respectively, excluding sinking fund payments due within one year $ 10,000 $ 11,250 7-3/4% series - 61,122 shares outstanding, excluding sinking fund payments due within one year 6,112 6,112 8.35% series - 75,000 and 81,000 shares outstanding, respectively, excluding sinking fund payments due within one year 7,500 8,100 Cumulative preferred stock - no par value - 6.50% series - 430,000 shares outstanding 43,000 43,000 _____________ _____________ 66,612 68,462 _____________ _____________ NIPSCO Industries, Inc.: Cumulative preferred shares - without par value - 8.75% series (stated value - $100 per share), 350,000 shares outstanding 35,000 35,000 _____________ _____________ $ 101,612 $ 103,462 ============= =============
On October 13, 1992, Northern Indiana issued and sold through an underwritten public offering 430,000 shares of 6.50% Series Cumulative Preferred Stock for $43 million. The shares are subject to mandatory redemption in whole by Northern Indiana on October 14, 2002. The redemption prices at September 30, 1994, as well as sinking fund provisions for the cumulative preferred stock subject to mandatory redemption requirements, or whose redemption is outside the control of Northern Indiana and Industries are as follows:
Series Redemption Price Per Share Annual Sinking Fund Provisions ====== ============================== ================================== Northern Indiana Public Service Company: Cumulative preferred stock - $100 par value - 8.85% $102.59, reduced periodically 12,500 shares on or before April 1. 8.35% $104.43, reduced periodically 3,000 shares on or before July 1; 6,000 shares beginning in 2004; noncumulative option to double amount each year. 7-3/4% $104.94, reduced periodically 2,777 shares on or before December 1; noncumulative option to double amount each year. Cumulative preferred stock - no par value - 6.50% $100.00 on October 14, 2002 430,000 shares on October 14, 2002. NIPSCO Industries, Inc.: Cumulative preferred shares - without par value - 8.75% $100.00 on January 14, 1996 350,000 shares on January 14, 1996.
Sinking fund requirements with respect to redeemable preferred stocks outstanding at September 30, 1994, for each of the twelve month periods subsequent to September 30, 1995, are as follows:
Twelve Months Ended September 30:* ================================== 1996 $ 36,827,700 1997 $ 1,827,700 1998 $ 1,827,700 1999 $ 1,827,700 * Table does not reflect redemptions made after September 30, 1994. /TABLE (14) COMMON SHARE DIVIDEND: During the next few years, Industries expects that the great majority of earnings available for distribution of dividends will depend upon dividends paid to Industries by Northern Indiana. Northern Indiana's Indenture provides that it will not declare or pay any dividends on any class of capital stock (other than preferred or preference stock) except out of earned surplus or net profits of Northern Indiana. At September 30, 1994, Northern Indiana had approximately $139.4 million of retained earnings (earned surplus) available for the payment of dividends. Future dividends will depend upon adequate retained earnings, adequate future earnings and the absence of adverse developments. (15) COMMON SHARES: Industries has 200,000,000 common shares authorized without par value. SHARE PURCHASE RIGHTS PLAN. On February 27, 1990, the Board of Directors of Industries declared a dividend distribution of one Right for each outstanding common share of Industries to shareholders of record on March 12, 1990. The Rights are not currently exercisable. Each Right, when exercisable, would initially entitle the holder to purchase from Industries one one-hundredth of a share of Series A Junior Participating Preferred Shares, without par value, of Industries at a price of $60 per one one-hundredth of a share. In certain circumstances, if an acquirer obtained 25% of Industries' outstanding shares, or merged into Industries or Industries into the acquirer, the Rights would entitle the holders to purchase Industries' or the acquirer's common shares for one-half of the market price. The Rights will not dilute Industries' common shares nor affect earnings per share unless they become exercisable for common shares. The Plan was not adopted in response to any specific attempt to acquire control of Industries. COMMON SHARE REPURCHASES. On October 25, 1994, the Board of Directors of Industries has authorized the repurchase of an additional 3.5 million common shares. The total shares authorized to be repurchased are approximately 14.6 million common shares in addition to those required in connection with the acquisitions of Kokomo Gas and NIFL. At September 30, 1994, Industries had purchased 13,629,234 shares at an average price of $22.66 per share of which 1,848,588 shares and 1,112,862 shares were reissued in connection with the Kokomo Gas and NIFL acquisitions, respectively. Approximately 3.9 million additional common shares may be repurchased under the Board's authorization. (16) LONG-TERM INCENTIVE PLAN: Industries' Long-Term Incentive Plan (the 1988 Plan) for key management employees, which was approved by shareholders on April 13, 1988, provides for the issuance of up to 2,500,000 of Industries' common shares to key employees through 1998. At September 30, 1994, there were 785,000 shares reserved for future awards under the 1988 Plan. The 1988 Plan permits the following types of grants, separately or in combination: nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights and performance units. No incentive stock options or performance units were outstanding at September 30, 1994. The stock appreciation rights (SARs) may be exercised only in tandem with stock options on a one-for-one basis and are payable in cash, Industries stock or a combination thereof. Restricted stock awards are restricted as to transfer and subject to forfeiture for specific periods from the date of grant. Restrictions on the shares awarded during 1990 and 1991 lapse five years from date of grant and vest subject to specific share price appreciation conditions. If a participant's employment is terminated other than by reason of death, disability or retirement, restricted shares are forfeited. There were 150,500 and 157,500 restricted shares outstanding at September 30, 1994, and December 31, 1993, respectively. Changes in outstanding shares under option and SARs for three, nine, and twelve month periods ended September 30, 1994, and 1993, are as follows:
Nonqualified Stock Options ______________________________________________________ Three Months Ended Option Option September 30, 1994 Price 1993 Price ====================== ========= =============== ======= =============== Balance beginning of 832,700 $10.94 - $33.19 706,050 $10.94 - $26.06 period Granted 294,650 $28.75 288,500 $33.19 Exercised (9,350) $17.06 - $26.06 (57,850) $10.94 - $26.06 Cancelled (5,750) $28.75 - $33.19 - _________ _______ Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19 ========= ======= Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06 Nonqualified Stock Options ______________________________________________________ Nine Months Ended Option Option September 30, 1994 Price 1993 Price ====================== ========= =============== ======= =============== Balance beginning of 890,800 $10.94 - $33.19 869,150 $10.94 - $26.06 period Granted 294,650 $28.75 288,500 $33.19 Exercised (49,150) $10.94 - $26.06 (215,250) $10.94 - $26.06 Cancelled (24,050) $28.75 - $33.19 (5,700) $26.06 _________ _______ Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19 ========= ======= Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06 Nonqualified Stock Options _____________________________________________________ _ Twelve Months Ended Option Option September 30, 1994 Price 1993 Price ====================== ========= =============== ======= =============== Balance beginning of 936,700 $10.94 - $33.19 902,150 $10.94 - $26.06 period Granted 294,650 $28.75 288,500 $33.19 Exercised (95,050) $10.94 - $26.06 (248,250) $10.94 - $26.06 Cancelled (24,050) $28.75 - $33.19 (5,700) $26.06 _________ _______ Balance end of period 1,112,250 $10.94 - $33.19 936,700 $10.94 - $33.19 ======== ======= Shares exercisable 819,850 $10.94 - $33.19 648,200 $10.94 - $26.06 Nonqualified Stock Options With SARs _____________________________________________________ Three Months Ended September 30, 1994 Option Price 1993 Option Price ====================== ========================= ========================= Balance beginning of 9,900 $10.94 9,900 $10.94 period Granted - - Exercised - - Cancelled - - ________ ________ Balance end of period 9,900 $10.94 9,900 $10.94 ======== ======== Shares exercisable 9,900 $10.94 9,900 $10.94 Nonqualified Stock Options With SARs _____________________________________________________ Nine Months Ended September 30, 1994 Option Price 1993 Option Price ====================== ========================= ========================= Balance beginning of 9,900 $10.94 11,500 $10.94 period Granted - - Exercised - - Cancelled - (1,600) ________ _________ Balance end of period 9,900 $10.94 9,900 $10.94 ======== ========= Shares exercisable 9,900 $10.94 9,900 $10.94 Nonqualified Stock Options With SARs _____________________________________________________ Twelve Months Ended September 30, 1994 Option Price 1993 Option Price ====================== ========================= ========================= Balance beginning of 9,900 $10.94 11,500 $10.94 period Granted - - Exercised - - Cancelled - (1,600) ________ ________ Balance end of period 9,900 $10.94 9,900 $10.94 ======== ======== Shares exercisable 9,900 $10.94 9,900 $10.94
Industries' 1994 Long-Term Incentive Plan (1994 Plan) was adopted by the shareholders on April 13, 1994. It is similar to the 1988 Plan and provides an additional 2.5 million common shares available for issuance to key employees through 2004. No shares have been issued under the 1994 Plan. The Industries Nonemployee Director Stock Incentive Plan, which was approved by shareholders, provides for the issuance of up to 100,000 of Industries' common shares to nonemployee directors of Industries. The Plan provides for awards of common shares which vest in 20% per year increments, with full vesting after five years. The Plan also allows the award of nonqualified stock options in the future. If a director's service on the Board is terminated for any reason other than death or disability, any common shares not vested as of the date of termination are forfeited. As of September 30, 1994, 24,750 shares were issued under the Plan. (17) LONG TERM DEBT: At September 30, 1994, and December 31, 1993, Industries' long-term debt, excluding amounts due within one year, issued and not retired or cancelled was as follows:
Amount Outstanding ______________________________ September 30, December 31, 1994 1993 ============= ============= (Dollars in thousands) Northern Indiana Public Service Company First mortgage bonds - Series N, 4-5/8%, due May 15, 1995 $ - $ 22,436 Series O, 6-3/8%, due September 1, 1997 27,300 27,507 Series P, 6-7/8%, due October 1, 1998 14,509 15,671 Series S, 8-1/8%, due May 1, 2001 - 41,000 Series T, 7-1/2%, due April 1, 2002 40,643 40,643 Series U, 8-1/8%, due July 15, 2003 55,739 55,739 Series Y, 8-3/8%, due October 15, 2006 - 50,575 Series Z, 8-1/8%, due August 15, 2007 43,069 43,069 Series AA,8-1/2%, due November 1, 2007 - 33,407 Series LL,7-1/2%, due October 15, 2014 - 41,000 Series MM,7-1/2%, due October 15, 2004 - 10,000 Series NN,7.10%, due July 1, 2017 55,000 55,000 _____________ ____________ Total 236,260 436,047 _____________ ____________ Pollution control notes and bonds - Series A note - City of Michigan City, 5.70% due October 1, 2003 21,500 21,500 Series 1978 note - County of Jasper, 6.70% due November 1, 2008 - 18,000 Series 1988 bonds - Jasper County - Series A, B and C 3.17% weighted average at September 30, 1994, due November 1, 2016 130,000 130,000 Series 1988 bonds - Jasper County - Series D 3.22% weighted average at September 30, 1994, due November 1, 2007 24,000 24,000 Series 1994 Bonds - Jasper County - Series A - 3.60% weighted average at September 30, 1994, due August 1, 2010 10,000 - Series 1994 Bonds - Jasper County - Series B - 3.60% weighted average at September 30, 1994, due June 1, 2013 18,000 - Series 1994 Bonds - Jasper County - Series C - 3.60% weighted average at September 30, 1994, due April 1, 2019 41,000 - _____________ ____________ Total 244,500 193,500 _____________ ____________ Medium-term notes - Issued at interest rates between 4.94% and 7.64% with a weighted average interest rate of 6.47% and various maturities between July 25, 1996 and January 19, 2024 594,750 454,200 _____________ ___________ Unamortized premium and discount on long-term debt, net (3,869) (4,663) _____________ ___________ Total long-term debt of Northern Indiana Public Service Company 1,071,641 1,079,084 _____________ ___________ NIPSCO Capital Markets, Inc. Medium-term note - 9.95% - due June 10, 1996 7,500 7,500 Unamortized discount (11) (16) Zero coupon notes - 7.57%, $72,500 at maturity, due December 1, 1997 57,302 54,191 _____________ ___________ Total long-term debt of NIPSCO Capital Markets, Inc. 64,791 61,675 _____________ ___________ NIPSCO Development Company, Inc. Lake Erie Land Company - Notes Payable - Interest rates between 7.75% and 8.75% with a weighted average interest rate of 8.17% and various maturities between July 5, 1996 and June 30, 1998 3,168 3,256 Elm Energy and Recycling (UK), Ltd. Term Loan Facility - 6.79% - due December 31, 2004 41,878 41,577 Metals Technology Corporation - Notes Payable - Mortgage note, 8.25% - due September 25, 2005 108 108 NDC Douglas Properties, Inc. Notes Payable - Interest rates of 6.72% and 7.58% with a weighted average interest rate of 7.16% and maturities through January 1, 2004 5,578 - _____________ ___________ Total long-term debt of NIPSCO Development Company, Inc. 50,732 44,941 _____________ ___________ Northern Indiana Fuel and Light Company, Inc. Sinking Fund Debentures - Series G, 9.50%, - due August 1, 2001 - 3,000 Series H, 10.80%, - due August 1, 2008 - 3,800 _____________ ___________ Total long-term debt of Northern Indiana Fuel and Light Company, Inc. - 6,800 _____________ ___________ Total long-term debt, excluding amounts due in one year $ 1,187,164 $ 1,192,500 ============= ===========
The sinking fund requirements of long-term debt outstanding at September 30, 1994, (including the maturity of Northern Indiana's first mortgage bonds: Series O, 6-3/8%, due September 1, 1997; Series P, 6-7/8%, due October 1, 1998; Northern Indiana's medium-term notes due from April 6, 1998 to April 13, 1998; NIPSCO Capital Markets' medium-term note due June 10, 1996, and Zero Coupon Notes due December 1, 1997; and Lake Erie Land Company's notes payable due July 5, 1996 to June 30, 1998), for each of the twelve month periods subsequent to September 30, 1995, are as follows:
Twelve Months Ended September 30, ========================================== 1996 $ 93,054,657 1997 $ 76,563,816 1998 $ 115,358,345 1999 $ 21,946,793
Unamortized debt expense, premium and discount on long-term debt, applicable to outstanding bonds are being amortized over the lives of such bonds. Reacquisition premiums are being deferred and amortized. Northern Indiana's Indenture dated August 1, 1939, as amended and supplemented, securing the first mortgage bonds issued by Northern Indiana, constitutes a direct first mortgage lien upon substantially all property and franchises, other than expressly excepted property, owned by Northern Indiana. On June 2, 1993, Northern Indiana received authorization from the Commission to issue up to $349,750,000 of Medium-Term Notes, Series C, due from 1 year to 30 years from date of issue for refinancing purposes and paying outstanding long-term debt at maturity. A portion of the proceeds was used to repay short-term debt which was incurred in connection with the April, 1993, redemption of first mortgage bonds, and a portion was used for early redemption on August 2, 1993, of $88 million of Northern Indiana's medium-term notes due in 1996. As of January 19, 1994, all of the Medium-Term Notes, Series C, have been issued. On March 4, 1994, the Commission authorized Northern Indiana to issue up to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30 years, for purposes of refinancing certain first mortgage bonds and paying short-term debt used to pay at maturity medium-term notes due in January and April, 1994. On May 23, 1994, Northern Indiana exercised its option to redeem all the outstanding First Mortgage Bonds, Series S, Y and AA aggregating $125.5 million, through the use of working capital and the proceeds of short-term debt. As of July 31, 1994, $120.0 million of the Medium-Term Notes, Series D, have been issued to complete the permanent refinancing of those first mortgage bonds. On August 25, 1994, Jasper County, Indiana issued Pollution Control Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company Project) (the "Series 1994 bonds"), including $10 million of Series 1994A Bonds, due August 1, 2010; $18 million of Series 1994B Bonds; due June 1, 2013; and $41 million of Series 1994C Bonds, due April 1, 2019. The proceeds of these issuances were loaned to Northern Indiana under similar terms. The initial interest rate on Series 1994 Bonds was 3.10%, which resets daily. The proceeds of the Series 1994A and Series 1994C issues were placed in an escrow account for the purpose of retiring on October 15, 1994, $10 million of Series MM First Mortgage Bonds, 7-1/2%, due October 15, 2004 and $41 million of Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014. The proceeds of the Series 1994B Bonds were used to retire the $18 million Series 1978 Note, 6.70%, on August 25, 1994. Accordingly, the accompanying financial statements reflect these first mortgage bonds and notes as being retired. The Series 1994 Bonds are secured by Letters of Credit from Union Bank of Switzerland. The obligations of Capital Markets are subject to a Support Agreement between Industries and Capital Markets, under which Industries has committed to make payments of interest and principal on Capital Markets' securities in the event of a failure to pay by Capital Markets. Restrictions in the Support Agreement prohibit recourse on the part of Capital Markets' investors against the stock and assets of Northern Indiana which are owned by Industries. Under the terms of the Support Agreement, in addition to the cash flow of cash dividends paid to Industries by any of its consolidated subsidiaries, the assets of Industries, other than the stock and assets of Northern Indiana, are available as recourse to holders of Capital Markets' securities. The carrying value of those assets other than Northern Indiana, reflected in the consolidated financial statements of Industries, is approximately $303.7 million at September 30, 1994. (18) SHORT-TERM BORROWINGS: Northern Indiana has a $250 million revolving Credit Agreement with several banks which terminates September 21, 1996, unless extended by its terms. As of September 30, 1994, there were no borrowings outstanding under this agreement. In addition, Northern Indiana has $14.2 million in lines of credit which run to May 31, 1995. The credit pricing of each of the lines varies from either the lending banks' commercial prime or market rates. Northern Indiana has agreed to compensate the participating banks with arrangements that vary from no commitment fee to a combination of fees which are mutually satisfactory to both parties. As of September 30, 1994, there were no borrowings under these lines of credit. The Credit Agreement and lines of credit are also available to support the issuances of commercial paper. Northern Indiana also has $238.5 million of money market lines of credit. As of September 30, 1994, $82.1 million of borrowings were outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1994, there were no borrowings outstanding under this facility. On April 5, 1993, Northern Indiana executed a 364-day, $50 million private placement loan. The loan was repaid April 4, 1994. Northern Indiana uses commercial paper to fund short-term working capital requirements. As of September 30, 1994, Northern Indiana had $128.2 million in commercial paper outstanding, having a weighted average interest rate of 4.94%. Capital Markets has a $150 million revolving Credit Agreement which will terminate October 21, 1995, unless extended by its terms. This facility provides short-term financing flexibility to Industries and also serves as the back-up instrument for a commercial paper program. As of September 30, 1994, there were no borrowings outstanding under this agreement. Capital Markets also has $50 million of money market lines of credit. As of September 30, 1994, there were no borrowings outstanding under these lines of credit. As of September 30, 1994, Capital Markets had $54.5 million in commercial paper outstanding, having a weighted average interest rate of 5.06%. NIFL has an unsecured revolving credit agreement with a bank for $2 million. Borrowings bear interest at the bank's prevailing prime rate. As of September 30, 1994, there were no borrowings under this agreement. (19) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a 20-year agreement for the rental of office facilities from Development at a current annual rental payment of approximately $3.0 million. The following is a schedule, by years, of future minimum rental payments, excluding those to associated companies, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 1994:
Twelve Months Ended September 30, ======================================================== (Dollars in thousands) 1995 $ 5,246 1996 3,019 1997 2,733 1998 2,208 1999 1,758 Later years 23,730 ________ Total minimum payments required $ 38,694 ========
The consolidated financial statements include rental expense for all operating leases as follows:
September 30, September 30, 1994 1993 ============= ============= (Dollars in thousands) Three months ended $ 2,058 $ 1,890 Nine months ended $ 6,282 $ 5,370 Twelve months ended $ 8,163 $ 6,238
(20) COMMITMENTS: Northern Indiana estimates that approximately $738 million will be expended for construction purposes for the period from January 1, 1994, to December 31, 1998. Substantial commitments have been made by Northern Indiana in connection with this program. Northern Indiana has entered into a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and Mitsubishi Heavy Industries America, Inc., under which Pure Air will provide scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly Generating Station. Services under this contract commenced on June 15, 1992, with annual charges approximating $20 million. The scrubber will receive $14.4 million in government funding for operating and maintenance expenses during a three-year demonstration period. Pure Air is required to meet certain performance standards during the demonstration period commencing with the date above. During this period, either Northern Indiana or Pure Air can terminate this agreement unilaterally. The agreement provides that, assuming various performance standards are met by Pure Air, a termination payment would be due if Northern Indiana terminates the agreement prior to the end of the 20-year contract period. Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of Development, has invested in a partnership to finance, construct, own and operate a $65 million pulverized coal injection facility which began commercial operation in August, 1993. The facility receives raw coal, pulverizes it and delivers it to Inland Steel Company for use in the operation of their blast furnaces. Harbor Coal is a 50% partner in the project with an Inland Steel affiliate. Industries has guaranteed the payment and performance of the partnership's obligations under a sale and leaseback of a 50% undivided interest in the facility. (21) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of those instruments. Investments at cost: The fair value of some investments are estimated based on market prices for those or similar investments. Long-term debt/Preferred stock: The fair value of long-term debt and preferred stock are estimated based on the quoted market prices for the same or similar issues or on the rates offered to Industries for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. The carrying values and estimated fair values of Industries' financial instruments are as follows:
September 30, 1994 December 31, 1993 ______________________ _____________________ Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ========== ========== ========= ========== (Dollars in thousands) Cash and cash equivalents $ 36,747 $ 36,747 $ 16,140 $ 16,140 Investments at cost 9,456 9,894 6,189 6,474 Long-term debt (including current portion) 1,213,235 1,098,896 1,263,029 1,267,728 Preferred stock 198,294 137,061 203,043 185,368
The majority of the long-term debt relates to utility operations. The Utilities are subject to regulation and gains or losses may be included in rates over a prescribed amortization period, if in fact settled at amounts approximating those above. (22) CUSTOMER CONCENTRATIONS: Northern Indiana is a public utility operating company supplying natural gas and electrical energy in the northern third of Indiana. Although Northern Indiana has a diversified base of residential and commercial customers, a substantial portion of its electric and gas industrial deliveries are dependent upon the basic steel industry. The basic steel industry accounted for 2% of gas revenue (including transportation services) and 25% of electric revenue for the twelve months ended September 30, 1994, as compared to 3% and 23%, respectively, for the twelve months ended September 30, 1993. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS HOLDING COMPANY - NIPSCO Industries, Inc. (Industries), an Indiana corporation, became a holding company on March 3, 1988. Northern Indiana Public Service Company (Northern Indiana), Northern Indiana Fuel and Light Company, Inc. (NIFL), Kokomo Gas and Fuel Company (Kokomo Gas), NIPSCO Development Company, Inc., (Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO Capital Markets, Inc. (Capital Markets) are direct subsidiaries of Industries. NIPSCO Fuel Company, Inc. (Fuel), NI-TEX Inc. (NI-TEX), NIPSCO Energy Trading Corp. (NETCO) and Crossroads Pipeline Company (Crossroads) are direct subsidiaries of Services. The following discussion, except where noted, is attributable to the utility operations of Northern Indiana, Kokomo Gas, NIFL and Crossroads (the Utilities). REVENUES - Total operating revenues for the twelve months ended September 30, 1994, increased $37.5 million as compared to the twelve months ended September 30, 1993. Gas revenues increased $10.0 million and electric revenues increased $27.5 million. The increase in gas revenues was largely attributable to increased sales to residential and commercial customers due to colder weather, inclusion of NIFL for the entire twelve month period, increased deliveries of gas transported to others partially offset by decreased purchase gas cost per dekatherm (dth). Gas transportation customers purchase much of their gas directly from producers and marketers and then pay a transportation fee to have their gas delivered over the Utilities' systems. The Utilities had approximately 682,200 gas customers at September 30, 1994. The increase in electric revenues for the twelve months ended September 30, 1994, was mainly due to increased sales to industrial customers and higher fuel cost per kilowatt-hour (kwh), and was partially offset by decreased sales to wholesale customers. At September 30, 1994, Northern Indiana had approximately 399,300 electric customers. Total operating revenue for the nine months ended September 30, 1994, increased $35.2 million as compared to the nine months ended September 30, 1993. Gas revenues increased $9.7 million and electric revenues increased $25.5 million as compared to the same period in 1993. The increase in gas revenues was mainly due to increased sales to residential and commercial customers due to colder weather and the inclusion of Crossroads this year and was partially offset by reduced gas costs per dth. The increase in electric revenue for the nine months ended September 30, 1994, was mainly due to higher sales to commercial customers, increased industrial demands and higher fuel costs per kwh, which were partially offset by decreased sales to wholesale customers. Total operating revenue for the three months ended September 30, 1994, decreased $7.9 million as compared to the three months ended September 30, 1993. Gas revenues decreased $5.8 million and electric revenues decreased $2.1 million as compared to the same period in 1993. The decrease in gas revenues was mainly due to decreased gas costs per dth. The decrease in electric revenue for the three months ended September 30, 1994, was mainly due to decreased sales to residential and commercial customers as a result of milder weather and decreased sales to wholesale customers partially offset by increased sales to industrial customers. The basic steel industry accounted for 37% of natural gas delivered (including volumes transported) and 40% of electric sales during the twelve months ended September 30, 1994. The components of the variations in gas and electric revenues are shown in the following tables:
Variations from Prior Periods ___________________________________________ September 30, 1994 Compared to September 30, 1993 Three Months Nine Months Twelve Months ============ =========== ============= (Dollars in thousands) Gas Revenue - Pass through of net changes in purchased gas costs, gas storage and storage transportation costs $ (4,349) $ (13,027) $ (22,962) Take-or-pay costs (41) 1,669 2,736 Changes in sales levels (1,955) 19,465 19,504 Gas transport levels 506 1,604 2,336 NIFL acquisition - - 8,422 ____________ ___________ _____________ Gas Revenue Change $ (5,839) $ 9,711 $ 10,036 ____________ ___________ _____________ Electric Revenue - Pass through of net changes in fuel costs $ 568 $ 6,186 $ 3,991 Changes in sales levels (2,669) 19,281 23,467 ____________ ___________ _____________ Electric Revenue Change $ (2,101) $ 25,467 $ 27,458 ____________ ___________ _____________ Total Revenue Change $ (7,940) $ 35,178 $ 37,494 ============ =========== ============= See Note 5 to the consolidated financial statements (Rate Matters), regarding gas take-or-pay costs.
GAS COSTS - The Utilities' gas costs decreased $4.0 million for the twelve month period ended September 30, 1994, due to decreased gas costs per dth partially offset by the inclusion of purchased gas costs related to NIFL and increased purchases. The average cost for the Utilities purchased gas for the three, nine, and twelve month periods ended September 30, 1994, after adjustment for take-or-pay charges billed to transport customers, was $2.93, $3.01 and $3.03 per dth as compared to $3.42, $3.30 and $3.37 per dth for the same periods in 1993. FUEL AND PURCHASED POWER - The cost of fuel for electric generation decreased for the three month period ended September 30, 1994, compared to 1993 periods, mainly as the result of decreased production. Power purchased increased $3.8, $15.0 and $17.4 million for the three, nine, and twelve month periods ended September 30, 1994, respectively. Power purchased increased mainly due to purchases required to replace R. M. Schahfer Generating Station Unit 15 generation from February 1 to July 5, 1994, while this unit was down on an extended outage as part of the Powder River Basin coal conversion project. OPERATING MARGINS - Operating margins increased $24.5 million for the twelve months ended September 30, 1994, over the same period a year ago. The operating margin from gas deliveries increased $14.1 million, due to the inclusion of NIFL for the entire twelve month period, increased sales to residential and commercial customers due to the colder weather and increased deliveries of gas transported to others. The operating margins from electric sales increased $10.4 million, due to increased sales to industrial customers, partially offset by decreased sales to wholesale customers. Operating margins increased $18.2 million for the nine months ended September 30, 1994, over the same period a year ago. The operating margins from gas increased $9.4 million reflecting increased sales to residential and commercial customers due to colder weather during the first quarter of 1994. Operating margins on electric sales increased $8.8 million reflecting increased sales to commercial and industrial customers partially offset by decreased sales to wholesale customers. Operating margins decreased $1.5 million for the three months ended September 30, 1994, over the same period a year ago. Gas operating margin remained relatively unchanged. Operating margins on electric sales decreased $1.6 million reflecting decreased sales to residential and commercial customers as a result of milder weather and decreased sales to wholesale customers partially offset by increased sales to industrial customers. OPERATING EXPENSES AND TAXES - Operation expenses decreased $4.0 and increased $3.7 and $8.3 million for the three, nine, and twelve month periods ended September 30, 1994, respectively. Operation expense increased for the twelve month period mainly due to increased operating costs of pollution control facilities, NIFL operating expenses for the entire twelve month period, and operating expenses in connection with Crossroads beginning in January, 1994. Maintenance expenses increased $5.5 million for the twelve month period ended September 30, 1994, mainly as a result of a higher level of overall maintenance activity at the electric production facilities. Depreciation and amortization expense increased for the three, nine, and twelve month periods ended September 30, 1994, as a result of net plant additions. Utility income taxes increased for the nine and twelve month periods ended September 30, 1994, as a result of increased pre-tax income and the increased Federal income tax rate which was enacted into law in August, 1993. The operating results of all non-utility subsidiaries are included in "Other, net" under the caption, "Other Income (Deductions)" in the Consolidated Statement of Income (except for Exploration's net results of operations, which are reported as a component of gas purchased for resale, since Exploration is subject to Commission rate treatment.) Interest on long-term debt, other interest and amortization of debt discount and expense are reflected as components of "Interest and Other Charges." Interest charges (net) decreased for the nine and twelve month periods ended September 30, 1994, reflecting Northern Indiana's reduced interest rates on long-term debt outstanding and favorable interest rates on short-term borrowings. See Notes to Consolidated Financial Statements (Summary of Significant Accounting Policies) for a discussion of Carrying Charges and Deferred Depreciation and Allowance for Funds Used During Construction. Also, see Notes 5, 7, 9 and 10 for a discussion of FERC Order No. 636, Income Taxes, Postretirement Benefits and Postemployment Benefits, respectively. NET INCOME - Industries' net income for the twelve month period ended September 30, 1994, was $163.7 million compared to $156.6 million for the twelve month period ended September 30, 1993. Net income for the nine months ended September 30, 1994, was $115.1 million compared to $107.5 million for the nine months ended September 30, 1993. Net income for the three months ended September 30, 1994, was $28.5 million compared to $27.3 million for the three months ended September 30, 1993. ENVIRONMENTAL MATTERS Because of major investments made in modern environmental control facilities and the use of low sulfur coal, all of Northern Indiana's electric production facilities comply with the sulfur dioxide limitations contained in acid rain provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern Indiana is now using low sulfur coal at Unit 12 at the Michigan City Generating Station, the only generating unit that had not been in compliance with future sulfur dioxide limitations. Northern Indiana estimates that total costs of compliance with the CAAA sulfur dioxide regulations will impact electric rates by less than 5% in the future. The CAAA contain provisions that could lead to strict limitations on emissions of nitrogen oxides and hazardous air pollutants, which may require significant capital expenditures for control of these emissions. Northern Indiana cannot predict the costs of complying with them, but Northern Indiana believes that any such mandated costs would be recoverable through the rate making process. The Environmental Protection Agency (EPA) and Indiana have promulgated an air operating permit program to meet the requirements of the CAAA. This permit program increases the fees associated with operating permits for air emissions, but the increase is not significant. Northern Indiana has received notices from the EPA that it is a "potentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and the Superfund Amendment and Reauthorization Act (SARA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation and analysis to determine the amount of remedial costs necessary to clean up the sites. At each of the sites Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA and SARA, will be shared among them. At some sites Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the site and avoid the imposition of fines or added costs. While remedial costs at these sites are not presently determinable, Northern Indiana's preliminary analysis indicates its share of such costs should not have a significant impact on the results of future operations. Northern Indiana was notified by the Indiana Department of Environmental Management (IDEM) of the release of a petroleum substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a former manufactured gas plant formerly owned by Northern Indiana. In cooperation with IDEM, Northern Indiana has taken steps to investigate and contain the substance. Northern Indiana is continuing to monitor and investigate the site to determine what further remedial action, if any, will be required. Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana Gas) that the site of a former manufactured gas plant in Lafayette, Indiana, believed to have been formerly owned by Northern Indiana, was being investigated and partially remediated by Indiana Gas pursuant to an administrative order issued by IDEM. Northern Indiana is investigating its potential liability and evaluating appropriate action. The Utilities have ongoing programs to remain aware of laws and regulations involved with hazardous waste. It is the Utilities' intent to continue to evaluate their facilities and properties with respect to these rules and identify any sites that would require corrective action. Northern Indiana has commenced a program of investigating its former manufactured gas plant sites in order to determine what, if any, remediation of any potential remaining waste materials may be required. Since this program is in its early stages, it is not possible at this time to estimate what, if any, remedial costs may be incurred. The possibility that exposure to electric and magnetic fields emanating from power lines, household appliances and other electric sources may result in adverse health effects has been the subject of increased public, governmental and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing to resolve scientific uncertainties. LIQUIDITY AND CAPITAL RESOURCES During the next few years, it is anticipated that the great majority of earnings available for distribution of dividends will depend upon dividends paid to Industries by Northern Indiana. See Notes to Consolidated Financial Statements for a discussion of the Common Share Dividend. On June 2, 1993, Northern Indiana received authorization from the Commission to issue up to $349,750,000 of Medium-Term Notes, Series C, due from 1 year to 30 years from date of issue for refinancing purposes and paying outstanding long-term debt at maturity. A portion of the proceeds was used to repay short-term debt which was incurred in connection with the April, 1993 redemption of first mortgage bonds, and a portion was used for early redemption on August 2, 1993, of $88 million of Northern Indiana's medium-term notes due in 1996. As of January 19, 1994, all of the Medium-Term Notes, Series C, have been issued. On March 4, 1994, the Commission authorized Northern Indiana to issue up to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30 years, for purposes of refinancing certain first mortgage bonds and paying short-term debt used to pay at maturity medium-term notes due in January and April, 1994. On May 23, 1994, Northern Indiana exercised its option to redeem all the outstanding First Mortgage Bonds, Series S, Y and AA aggregating $125.5 million, through the use of working capital and the proceeds of short-term debt. As of July 31, 1994, $120.0 million of the Medium-Term Notes, Series D, had been issued to complete the permanent refinancing of those first mortgage bonds. On August 25, 1994, Jasper County, Indiana issued Pollution Control Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company Project) (the "Series 1994 bonds"), including $10 million of Series 1994A Bonds, due August 1, 2010; $18 million of Series 1994B Bonds; due June 1, 2013; and $41 million of Series 1994C Bonds, due April 1, 2019. The proceeds of these issuances were loaned to Northern Indiana under similar terms. The initial interest rate on Series 1994 Bonds was 3.10%, which resets daily. The proceeds of the Series 1994A and Series 1994C issues were placed in an escrow account for the purpose of retiring on October 15, 1994, $10 million of Series MM First Mortgage Bonds, 7-1/2%, due October 15, 2004 and $41 million of Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014. The proceeds of the Series 1994B Bonds were used to retire the $18 million Series 1978 Note, 6.70%, on August 25, 1994. Accordingly, the accompanying financial statements reflect these first mortgage bonds and notes as being retired. The Series 1994 Bonds are secured by Letters of Credit from Union Bank of Switzerland. Capital Markets has a $150 million revolving Credit Agreement which will terminate October 21, 1995, unless extended by its terms. This facility provides short-term financing flexibility at the holding company level and also serves as the back-up instrument for a commercial paper program. As of September 30, 1994, there were no borrowings outstanding under this agreement. Capital Markets also has $50 million of money market lines of credit. As of September 30, 1994, there were no borrowings outstanding under these lines of credit. As of September 30, 1994, Capital Markets had $54.5 million in commercial paper outstanding, having a weighted average interest rate of 5.06%. The obligations of Capital Markets are subject to a Support Agreement between Industries and Capital Markets, under which Industries has committed to make payments of interest and principal on Capital Markets securities in the event of a failure to pay by Capital Markets. Restrictions in the Support Agreement prohibit recourse on the part of Capital Markets' investors against the stock and assets of Northern Indiana which are owned by Industries. Under the terms of the Support Agreement, in addition to the cash flow of cash dividends paid to Industries by any of its consolidated subsidiaries, the assets of Industries, other than the stock and assets of Northern Indiana, are available as recourse to holders of Capital Markets' securities. The carrying value of those assets other than Northern Indiana, reflected in the consolidated financial statements of Industries, is approximately $303.7 million at September 30, 1994. NIFL has an unsecured revolving credit agreement with a bank for $2 million. Borrowings bear interest at the bank's prevailing prime rate. As of September 30, 1994, there were no borrowings under this agreement. Cash flow from operations has provided sufficient liquidity to meet current operating requirements. Because of the seasonal nature of the utility business and the construction program, Northern Indiana makes use of commercial paper intermittently as short-term financing. As of September 30, 1994, Northern Indiana had $128.2 million in commercial paper outstanding, having a weighted average interest rate of 4.94%. Northern Indiana has a $250 million revolving Credit Agreement with several banks which terminates September 21, 1996, unless extended by its terms. As of September 30, 1994, there were no borrowings outstanding under this agreement. In addition, Northern Indiana has $14.2 million in lines of credit which run to May 31, 1995. As of September 30, 1994, there were no borrowings under these lines of credit. The Credit Agreement and lines of credit are also available to support the issuances of commercial paper. Northern Indiana also has $238.5 million of money market lines of credit. As of September 30, 1994, $82.1 million of borrowings were outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1994, there were no borrowings outstanding under this facility. On April 5, 1993, Northern Indiana executed a 364-day $50 million private placement loan. The loan was repaid on April 4, 1994. During recent years, Northern Indiana has been able to finance its construction program with internally generated funds and expects to be able to meet future commitments through such funds. The Utilities do not expect the effects of inflation at current levels to have a significant impact on their results of operations, ability to contain cost increases or need to seek timely and adequate rate relief. The Utilities do not anticipate the need to file for gas or electric base rate increases in the near future. COMPETITION The Energy Policy Act of 1992 (Energy Act) allows FERC to order electric utilities to grant access to transmission systems by third party power producers. The Energy Act specifically prohibits federally mandated wheeling of power for retail customers. That authority lies with the individual states several of which are considering opening the transmission network to retail customers. The Energy Act will stimulate greater competition in the wholesale electric markets. This competition will create opportunities to compete for new customers and revenues, as well as increase the risk of the loss of customers. Although wholesale customers represent a relatively small portion of Northern Indiana's sales (6% for 1993), Northern Indiana will continue its efforts to retain and add customers by offering competitive rates. Competitive forces have also begun to influence retail pricing in the industry. In some instances, industrial customers, threatening to pursue cogeneration, self-generation, retail wheeling or relocation to other service territories, have obtained price concessions from utilities. Operating in a competitive environment will place added pressures on utility profit margins and credit quality. Increasing competition in the electric utility industry has already led the credit rating agencies to apply more stringent guidelines in making credit rating determinations. Northern Indiana's management has taken steps to make the company more competitive and profitable in the changing utility environment, including partnering on energy projects with major industrial customers and conversions of some of its generating units to allow use of lower cost low sulfur coal. FERC Order No. 636 effective in late 1993 shifted primary responsibility for gas acquisition, transportation and peak days' supply from pipelines to local gas distribution companies, such as the Utilities. Although pipelines continue to transport gas, they no longer provide sale service. The Utilities believe they have taken appropriate steps to insure the continued acquisition of adequate gas supplies at reasonable prices. The mix of gas revenues from retail sales, interruptible retail sales, firm transportation service and interruptible transportation services has changed significantly over the past several years. The deregulation of the gas industry, since the mid-1980's, allows large industrial and commercial customers to purchase their gas supplies directly from producers and use the Utilities' facilities to transport the gas. Transportation customers pay the Utilities only for transporting their gas from the pipeline to the customers' premises. To date, the Utilities' system has not been materially affected by competition, and management does not foresee substantial adverse effect in the near future, unless the current regulatory structure is substantially altered. Northern Indiana believes the steps it is taking to deal with increased competition will have significant, positive effects in the next few years. Item 1. Legal Proceedings. Industries and Northern Indiana are parties to various legal or administrative proceedings before courts and agencies with respect to matters occurring in the ordinary course of business. Although management of Industries cannot predict the ultimate outcome of these matters, it believes the final disposition of these matters will not have a material adverse effect on the financial position or results of operations of Industries. Information regarding various matters involving federal and state environmental laws and regulations and a pending tax matter is included in Notes 6 and 3, respectively, of Industries' financial statements under Part I, Item 1 of this Report on Form 10-Q. Item 2. Changes in Securities. None Item 3. Defaults upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit 23-Consent of Arthur Andersen LLP (b) Reports on Form 8-K. None Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NIPSCO Industries, Inc. (Registrant) /s/Jerry M. Springer Jerry M. Springer, Controller and Chief Accounting Officer Date November 10, 1994 EX-27 2
UT This schedule contains summary financial information extracted from the financial statements of NIPSCO Industries, Inc. for nine months ended September 30, 1994, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 PER-BOOK 3,228,741 149,724 271,434 18,139 231,220 3,899,258 641,017 27,154 421,667 1,089,838 101,612 94,854 1,187,164 82,050 3,428 182,700 22,643 1,828 0 0 1,133,141 3,899,258 1,248,158 72,528 983,127 1,055,655 192,503 (2,928) 189,575 74,521 115,054 2,297 112,757 69,913 0 284,937 1.73 1.73
EX-23 3 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-Q into NIPSCO Industries, Inc.'s previously filed Form S-8 Registration Statement, No. 33-30619; and Form S-8 Registration Statement, No. 33-30621. Arthur Andersen LLP Chicago, Illinois November 10, 1994 -----END PRIVACY-ENHANCED MESSAGE-----