-----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, SaDYbMoPbwmlgub7sdeXIALr/kdttMqmtFxRnF45YA1zZ91iaDoa/f0DucKepLNM 2Jpu/Bq0zkCegSgBejy+HQ== 0000950131-94-000429.txt : 19940330 0000950131-94-000429.hdr.sgml : 19940330 ACCESSION NUMBER: 0000950131-94-000429 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 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-K SEC ACT: 34 SEC FILE NUMBER: 001-09779 FILM NUMBER: 94518710 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-K 1 FORM 10-K NIPSCO Industries, Inc. FORM 10-K 1993 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 5265 HOHMAN AVENUE HAMMOND, INDIANA 46320 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 219-853-5200 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- COMMON NEW YORK AND CHICAGO PREFERRED SHARE PURCHASE RIGHTS NEW YORK AND CHICAGO
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AS OF FEBRUARY 28, 1994 65,507,643 COMMON SHARES (NOT INCLUDING 8,384,466 SHARES HELD IN TREASURY), WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE FEBRUARY 28, 1994 CLOSING PRICE OF $30 1/4 ON THE NEW YORK STOCK EXCHANGE) HELD BY NONAFFILIATES WAS APPROXIMATELY $1,973,615,000. DOCUMENTS INCORPORATED BY REFERENCE 1993 NIPSCO INDUSTRIES, INC. ANNUAL REPORT TO SHAREHOLDERS INCORPORATED FOR PARTS I, II AND IV OF THE FORM 10-K, AND PORTIONS OF THE REGISTRANT'S NOTICE OF ANNUAL MEETING AND PROXY STATEMENT DATED MARCH 11, 1994 FOR ANNUAL MEETING TO BE HELD APRIL 13, 1994 FOR PART III OF THE FORM 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 ITEM 1. BUSINESS NIPSCO INDUSTRIES, INC. AND ITS SUBSIDIARIES. NIPSCO Industries, Inc. (Industries) was incorporated in Indiana on September 22, 1987, as a wholly- owned subsidiary of Northern Indiana Public Service Company (Northern Indiana). Industries became the parent of Northern Indiana on March 3, 1988, after the shareholders of Northern Indiana approved the formation of a holding company in December, 1987. Northern Indiana's outstanding common shares were exchanged on a share-for-share basis with common shares of Industries effective March 3, 1988. 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 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. At December 31, 1993, Industries had five direct, wholly-owned subsidiaries in addition to Northern Indiana, which are all Indiana corporations: 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). Northern Indiana, Industries' largest and dominant subsidiary, is a public utility operating company, incorporated in Indiana on August 2, 1912, engaged in supplying natural gas and electric energy to the public. It operates in 30 counties in the northern part of Indiana, serving an area of about 12,000 square miles with a population of approximately 2,188,000. At December 31, 1993, Northern Indiana serves approximately 622,500 customers with gas and approximately 395,100 with electricity. 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. 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 6 counties having a population of approximately 100,000, and serves approximately 31,000 customers at December 31, 1993. 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 serves approximately 28,700 customers at December 31, 1993, 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 ventures of Industries and its subsidiaries other than Northern Indiana. 1 Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd. (Elm Energy), which was formed to develop, own and operate a waste-to-energy generating plant in Wolverhampton, England. The 30 megawatt tire-fueled generating station is expected to use about 8-10 million automobile and truck tires a year and began operations in late 1993. The majority of the "Business" discussion of this report relates to Northern Indiana, Kokomo Gas, NIFL and Crossroads (Utilities). See "Selected Supplemental Information--Gas Statistics and Electric Statistics" in the 1993 Annual Report to Shareholders, which information is incorporated by reference, (see Exhibit 13) regarding classes of customers served. BUSINESS OF THE COMPANY. ELECTRIC OPERATIONS. Northern Indiana owns and operates four coal fired electric generating stations with net capability of 3,179,000 kilowatts (kw). Northern Indiana also owns and operates two hydroelectric generating plants with rated net capability of 10,000 kw, and four gas fired combustion turbine generating units with net capability of 203,000 kw. During the year ended December 31, 1993, Northern Indiana generated 92% and purchased 8% of its electric energy requirements. Northern Indiana's 1993 electric control area peak of 2,953,600 kw, which includes Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency (IMPA) for which Northern Indiana controls interchange operation, was set on August 27, 1993. The 1993 peak established a new all-time peak, exceeding the old peak of 2,738,550 kw established on September 6, 1990. The electric system 1993 peak internal load, which excludes WVPA and IMPA, was 2,736,100 kw on August 27, 1993. This also established a new internal peak for Northern Indiana. Northern Indiana's electric system is interconnected with that of Indiana Michigan Power Company, Commonwealth Edison Company, PSI Energy, Inc., Consumers Power Company, WVPA, IMPA, and Central Illinois Public Service Company. Electric energy is purchased from, sold to, or exchanged with these and other utilities. Northern Indiana provides WVPA with transmission and distribution service, operating reserve requirements and capacity deficiency service, and provides IMPA with transmission, operating reserve requirements and capacity deficiency service, in Northern Indiana's control area. Northern Indiana also engages in sales and services under the interconnection agreements with WVPA and IMPA. WVPA provides service to twelve Rural Electric Membership Corporations (REMC's) located in Northern Indiana's control area. IMPA provides service to the municipal electric system of the city of Rensselaer located in Northern Indiana's control area. Northern Indiana and WVPA executed a supplemental agreement in 1990 which provides WVPA with intermediate-term capacity and energy service, and unit peaking capacity and energy service. Under the unit peaking capacity and energy service, WVPA purchased 90,000 kw per month beginning January, 1992, which purchases will extend through December 2001. Northern Indiana has full requirements agreements with each of its eight municipal wholesale customers. These full requirements contracts became effective October 1, 1987, and extend through January 31, 1998. 2 Northern Indiana is a member of the East Central Area Reliability Coordination Agreement (ECAR). ECAR is one of nine regional electric reliability councils established to coordinate planning and operations of member companies regionally and nationally. FUEL SUPPLY. The generating units of Northern Indiana are located at Bailly, Mitchell, Michigan City and Schahfer Generating Stations. Thirteen steam generating units have a net capability of 3,179,000 kw. Coal is the primary source of fuel for all units, except for three, which utilize natural gas. In addition, Northern Indiana's four combustion turbine generating units with a net capability of 203,000 kw are fired by gas. Fuel requirements for Northern Indiana's generation for 1993 were supplied as follows: Coal................................................................ 97.3% Natural Gas......................................................... 2.7%
In 1993, Northern Indiana used approximately 7.1 million tons of coal at its generating stations. Northern Indiana has established a normal level of coal stock which provides adequate fuel supply during the year under all conditions. Annual coal requirements for Northern Indiana's electric generating units through 1998 are estimated to range from 7.1 million tons to 8.5 million tons, depending from year to year upon anticipated sales levels, scheduled maintenance and other variables. These requirements are being or will be met in part under long-term contracts as follows:
MILLION TONS/YEAR SULFUR CONTENT EXPIRATION --------- -------------- ---------- 0.75 Low 1994 1.0 High 1998 Requirements(a) High 1998 1.3 Low 2001
- -------- (a) Contract calls for requirements up to 1.0 million tons. The average cost of coal consumed in 1993 was $32.90 per ton or 16.65 mills per kilowatt-hour (kwh) generated as compared to $33.66 per ton or 16.82 mills per kwh generated in 1992. Northern Indiana's forecasts indicate that its coal costs will remain at the current level or be slightly lower over the next two years. COAL RESERVES. Included in the previous table of coal contracts is a coal mining contract with Cyprus Shoshone Coal Corporation (Cyprus) under which Cyprus is mining Northern Indiana's coal reserves in the Cyprus mine through the year 2001. The costs of the reserves are being recovered through the rate making process as the coal is burned to produce electricity. FUEL ADJUSTMENT CLAUSE. See "Fuel Adjustment Clause" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (see Exhibit 13). GAS OPERATIONS. Northern Indiana supplies natural gas of about 1,000 Btu per cubic foot. In a 24-hour period ending February 18, 1993, Northern Indiana's 1993 maximum day sendout was 1,444,714 dekatherms (dth). The maximum day's sendout of gas to date in 1994, is preliminarily estimated to be 1,775,227 dth during the 24-hour period ending at noon, January 19, 1994. In 1993, most of the gas supplied by Northern Indiana was purchased from Natural Gas Pipeline Company of America (Natural), Midwestern Gas Transmission Company (Midwestern), Panhandle Eastern Pipe Line Company (Panhandle), Trunkline Gas Company (Trunkline), ANR Pipeline Company (ANR) and various producers under separate service agreements with each of these suppliers. Approximately 28% of Northern Indiana's 1993 gas supply was purchased on the spot market, generally on a 30-day agreement. 3 The average price per dth (including take-or-pay charges) in 1993 decreased from $3.32 to $3.25, and the average cost of purchased gas, after adjustment for take-or-pay charges billed to transport customers, was $3.21 per dth as compared to $3.16 per dth in 1992. The wholesale rates of Natural, Midwestern, Panhandle, Trunkline and ANR to Northern Indiana are subject to change either in accordance with purchased gas adjustment procedures established by the Federal Energy Regulatory Commission (FERC), or in rate proceedings filed with the FERC, or both. Northern Indiana has had service agreements with the pipeline suppliers which provide for daily purchases of natural gas in specified quantities. New agreements have been negotiated with the natural gas suppliers to replace former pipeline supplier contracts pursuant to the requirements of FERC Order No. 636 (See "Rate Matters--FERC Order No. 636" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference, see Exhibit 13.) Northern Indiana also has firm transportation agreements with the pipelines, which allow Northern Indiana to move third party gas through a pipeline's transmission system. Northern Indiana also has producer agreements which allow for the purchase of gas either from gas marketers or directly from companies that drill and process gas for commercial use. Northern Indiana has a curtailment plan approved by the Commission. Effective on August 11, 1981, the plan allows unrestricted gas sales by Northern Indiana. In 1993, Northern Indiana added 8,971 new gas customers. There were no firm sales curtailments in 1993 and none are expected during 1994. Northern Indiana has in operation an underground gas storage field at Royal Center, Indiana, which currently has a storage capacity of 6.75 million dth. Withdrawals have been made in the 1993-94 winter of up to 73,586 dth per day. In addition, Northern Indiana and NI-TEX have several gas storage service agreements which make possible the withdrawal of substantial quantities of gas from other storage facilities. All of the storage agreements have limitations on daily withdrawal volumes and the timing thereof. These contracts provide in the aggregate for approximately 32,287,004 dth of annual stored volume, and allow for approximately 637,529 dth of maximum daily withdrawal. Northern Indiana has a liquefied natural gas plant in LaPorte County which is designed for peak shaving and has the following capacities: maximum storage of 4,000,000 dth; maximum liquefaction rate (gas to liquid), 20,000 dth per day; maximum vaporization rate (output to distribution system), 400,000 dth per day. GAS EXPLORATION. Northern Indiana has participated in successful gas exploration projects which have produced additional gas supplies. NIPSCO Exploration Company, Inc., a wholly-owned subsidiary of Northern Indiana, was formed in 1973. As of December 31, 1993, Northern Indiana had a remaining investment of $1,400,000 in the subsidiary for two projects. The first project is participation by Exploration with others in the acquisition of interests in leases sold by the Department of Interior in the Gulf of Mexico. Exploration originally invested $7.6 million, of $16.8 million authorized by the Commission, in this project and has an interest in several tracts. The second project is participation by Exploration in an off-shore oil and gas development venture with Natural, Chevron U.S.A., Inc. and other distribution customers of Natural. This venture also involves exploring and developing oil and gas leases in the Gulf of Mexico. Exploration was authorized to invest $15 million in this project and has invested $8.4 million. 4 KOKOMO GAS. Kokomo Gas' total gas send-out for 1993 was 8,122,208 dth, compared to 7,586,788 dth for 1992. Total transportation volumes handled for industrial customers in 1993 were 1,785,329 dth, compared to 1,675,546 dth in 1992. Kokomo Gas purchased gas on the spot market from a number of suppliers including NI-TEX, a subsidiary of Services, to satisfy some of its system requirements; the balance was purchased from Panhandle. Spot market purchases accounted for 99% of total system requirements in 1993. The wholesale rates of Panhandle to Kokomo Gas are subject to change either in accordance with purchased gas adjustment procedures established by the FERC, in rate proceedings filed with the FERC, or both. NIFL. NIFL's total gas send-out for 1993 was 7,881,513 dth. Total transportation volumes handled for industrial customers in 1993 were 3,227,853 dth. NIFL purchased gas on the spot market from a number of suppliers including NI-TEX, a subsidiary of Services, to satisfy some of its system requirements; the balance was purchased from ANR and Panhandle. Spot market purchases accounted for 50% of total system requirements in 1993. The wholesale rates of ANR and Panhandle to NIFL are subject to change either in accordance with purchased gas adjustment procedures established by the FERC, in rate proceedings filed with the FERC, or both. GAS COST ADJUSTMENT CLAUSE. See "Gas Cost Adjustment Clause" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (see Exhibit 13). TAKE-OR-PAY PIPELINE GAS COSTS. See "Take-or-Pay Pipeline Gas Costs" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (see Exhibit 13). FERC ORDER NO. 636. See "FERC Order No. 636" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (see Exhibit 13). BUSINESS OF OTHER SUBSIDIARIES CAPITAL MARKETS. Capital Markets was formed in 1989 to serve as the funding agent for ventures of Industries and its subsidiaries other than Northern Indiana. Capital Markets has a $150 million revolving Credit Agreement, which provides short-term financing flexibility to Industries and also serves as the back up instrument for a commercial paper program. As of December 31, 1993, there were no borrowings outstanding under this agreement. Capital Markets also has $50 million of money market lines of credit. As of December 31, 1993, there were no borrowings under these lines of credit. As of December 31, 1993 Capital Markets had $47.0 million in commercial paper outstanding, having a weighted average interest rate of 3.48%. 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 $299.1 million at December 31, 1993. DEVELOPMENT. Development looks for partnerships with customers on energy projects, seeks environmental project opportunities and coordinates the real estate diversification of Industries. 5 Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd. (Elm Energy), which was formed to develop, own and operate a waste-to-energy generating plant in Wolverhampton, England. The 30 megawatt tire-fueled generating station is expected to use about 8-10 million automobile and truck tires a year and began operations in late 1993. In conjunction with EER, Ltd., Development is evaluating similar tires-to- energy projects in Scotland and Belgium. In 1993, Development, through its various real estate partnerships, completed three multiple-family residential housing communities in Hammond, Fort Wayne and Mishawaka, while similar joint projects are being considered in Portage, East Chicago and other communities in Northern Indiana's service territories. These projects are part of a commitment by Development to provide high-quality, energy efficient, affordable housing to the residents of a variety of geographic and economic regions served by Northern Indiana. 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 blast furnaces 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. Development is also evaluating potential partnerships with Northern Indiana customers for using waste gases from steelmaking and other processes for power generation. Low BTU blast furnace gases and other fuels, in amounts which could fuel up to 250 megawatts of new generation, are produced at industries served by Northern Indiana. SERVICES. Services coordinates energy-related diversification and has four wholly-owned subsidiaries: NETCO. NETCO provides natural gas brokering and transportation management services to customers within Northern Indiana's service territory. During the last quarter of 1993, NETCO expanded its transportation management services to include imbalance exchange services for its customers. Operating revenues for the year totalled $1.9 million. NI-TEX. NI-TEX is an intrastate natural gas transmission and supply company providing gas sales, transportation and storage services. NI-TEX continues to provide flexible city gate gas supply to Northern Indiana, Kokomo Gas and NIFL under term contracts. NI-TEX, through joint ventures with industry partners, also owns natural gas transmission and storage facilities located in Texas. Its Laredo-Nueces pipeline affiliate transported 16.2 million dth of natural gas in 1993. Its Coastline Gas Storage Company affiliate operates a salt dome gas storage facility with a Phase I operating capacity of 2.9 billion cubic feet, and provides contract storage services to Northern Indiana and other third parties. Phase II, which is projected to increase total storage capacity to 5.3 billion cubic feet, is expected to be completed during the fourth quarter of 1995. Operating income from NI-TEX sales arrangements, combined with joint venture earnings, totalled $3.0 million for the year. FUEL. Fuel is an oil and gas exploration and production company with activities concentrated in the mid-continent region of the United States and offshore in the Gulf of Mexico. As of December 31, 1993, $35.8 million has been invested in exploration and development projects. Fuel's share of estimated proved reserves at year-end totalled 1.2 million barrels of oil and 23.8 million dth of natural gas. 6 CROSSROADS. In April 1993, NI purchased a 20-inch crude-oil pipeline that extends from the Illinois-Indiana state line east 202 miles to Cygnet, Ohio. The Crossroads line has been converted from oil to natural gas and was approved by the Commission as an intrastate pipeline. The line provides: (1) access to major gas supplies in the United States; (2) enhanced ability to negotiate for gas supplies at the most competitive price; (3) a northern hub in the Midwest gas market; and (4) increased reliability for customers in extreme weather conditions such as those occurring in January 1994. TRIUMPH NATURAL GAS, INC. (TRIUMPH). Services also owns a 51 percent interest in Triumph, a Dallas-based full service natural gas marketing company. Triumph specializes in the purchase, transportation and sale of natural gas to utility, industrial and commercial customers in the upper midwest region of the United States, as well as supply and transportation management services to Northern Indiana. Triumph also owns interests in gas gathering facilities in Oklahoma. In December 1993, Services entered into a Letter of Intent with Eastex Energy Inc. (Eastex) to sell its entire ownership interest in NETCO and its 51 percent ownership interest in Triumph in exchange for a combination of Eastex common and preferred stock, representing an equity ownership of approximately 25 percent. Eastex is a nationwide natural gas merchant specializing in purchase, gathering, transportation, storage and sale of natural gas, and related services. On March 4, 1994, Services entered into a definitive agreement with Eastex for the sale and exchange of its ownership interests in NETCO and Triumph, subject to certain conditions precedent to closing. Services was unable to meet the conditions precedent to closing and, as a result, the definitive agreement will expire March 31, 1994. REGULATION Holding Company Act. Industries is exempt from registration with the Securities and Exchange Commission (the "SEC") as a "registered holding company" under the Public Utility Holding Company Act of 1935, as amended (the "Holding Company Act"). Prior approval of the SEC under the Holding Company Act is, however, required if Industries proposes to acquire, directly or indirectly, additional utility securities. There may also be limits on the extent to which Industries and its non-utility subsidiaries can enter into businesses which are not "functionally related" to the electric and gas businesses without raising questions about Industries' exempt status under the Holding Company Act. SEC guidelines established in prior decisions of the SEC require Industries to remain engaged primarily and predominantly in the electric and gas businesses and to limit the size of its activities outside of such businesses relative to Industries as a whole. Industries has no present intention of becoming a registered holding company subject to regulation by the SEC under the Holding Company Act. Indiana Utility Regulatory Commission. Northern Indiana and Industries have been advised by their counsel that Industries will not be subject to regulation by the Commission as long as it is not a public utility. Under existing law, Industries and its non-utility subsidiaries are subject to Commission regulation with respect to transactions and contracts with the Utilities, and are subject to certain reporting and information access requirements under Indiana law. The Utilities are subject to regulation by the Commission as to rates, service, accounts, issuance of securities, and in other respects. See "Rate Matters" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (see Exhibit 13). The Utilities are also subject to limited regulation by local public authorities. 7 Federal Energy Regulatory Commission. Industries is not regulated by the FERC, but any subsidiary, including Northern Indiana, that engages in FERC jurisdictional sales or activities will continue to be subject to such regulation. Northern Indiana's restructuring under Industries was approved by a February 29, 1988 order of the FERC. The FERC's February 29, 1988 order is conditioned upon the FERC's continuing authority to examine the books and records of Industries and its subsidiaries, upon further order of the FERC, and to make such supplemental orders, for good cause, as it may find necessary or appropriate regarding the restructuring. In 1993, about 3% of Northern Indiana's electric revenues were derived from electric service it furnished at wholesale in interstate commerce to other utility companies, municipalities and WVPA (see Item 1. Business--Electric Operations regarding WVPA). Northern Indiana's wholesale rates and operations are subject to the jurisdiction of the FERC. The jurisdiction of the FERC does not extend to the issuance of securities by Northern Indiana since it is a public utility organized and operating in the State of Indiana, under the laws of which its security issues are regulated by the Commission. The FERC on October 21, 1954, declared Northern Indiana exempt from the provisions of the Natural Gas Act. Kokomo Gas, NIFL and Crossroads are also exempt from the provisions of the Natural Gas Act. RATE MATTERS. For information regarding Northern Indiana's gas rates, and the Utilities' take-or-pay pipeline gas costs and potential gas transition costs, see "Rate Matters" and "FERC Order No. 636" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which notes are incorporated herein by reference (see Exhibit 13). CONSTRUCTION BUDGET. The Utilities 1994-98 construction budget (including allowance for funds used during construction) is estimated at approximately $748 million, including $178 million in 1994, $160 million in 1995, $137 million in 1996, $132 million in 1997 and $141 million in 1998. The Utilities construction estimates include adjustments for anticipated inflation. No new electric generating units are planned in the 1994-98 budget. Northern Indiana does not have, and has no plans to construct, a nuclear generating unit. COMPETITION. In municipalities where Northern Indiana renders electric service to the general public as a public utility, no other utility renders electric or gas service, except in Angola, DeMotte, Rome City, Wanatah and Waterloo. In certain municipalities where electric service is supplied by Northern Indiana, NIFL provides competing gas utility service. In localities where Northern Indiana renders gas service only, it competes with electric utilities, municipal or private, for the business for which they render alternative electric service. Kokomo Gas and NIFL service territories are contiguous to Northern Indiana's gas service territory, but Northern Indiana, Kokomo Gas and NIFL do not compete for any of the same customers. Kokomo Gas and NIFL compete with other electric utilities serving customers in their respective service territories. All electric service territories within the State of Indiana are assigned to the existing suppliers, and boundaries of new territories outside existing municipalities are assigned to the utility having the nearest existing electric distribution lines. Only existing municipal electric utilities may expand their service areas and then only into areas that have been annexed by the municipality, subject to the approval of the Commission and certain other conditions. Northern Indiana makes no representation as to the possible effect upon its business of present or future competition by private or municipal utilities or governmental agencies, instrumentalities or authorities within the territory now served. 8 Northern Indiana is also subject to competition for gas sales to industrial customers through their ability, under Northern Indiana's rate provisions, to make their own purchases of gas and have Northern Indiana transport the gas to the customers. During 1993, gas transportation represented 59% of Northern Indiana's total gas sendout. Indiana law requires Commission approval before a gas customer of a utility may bypass the utility and make other arrangements for gas service. Any entity which transports gas from outside Indiana for direct sale or delivery to itself or other end-users within the state will be considered a public utility and must obtain a necessity certificate from the Commission in order to engage in such activities. EMPLOYEE RELATIONS. Northern Indiana had 4,417 employees at December 31, 1993. Approximately 65% of the Company's employees (physical and clerical workers) are represented by two local unions of the United Steelworkers of America, AFL-CIO-CLC. Effective June 1, 1993, the bargaining unit employees ratified new four-year agreements which continue until June 1, 1997. The new agreements provide for base wage increases of two percent in 1993, three percent in 1994 and 1995, and three and one-half percent in 1996. Additional economic provisions include an early signing bonus of four percent and a variable compensation plan linked to improvements in productivity. Certain officers of Northern Indiana are also officers of Industries. Industries currently has 30 employees in its diversified operations. Kokomo Gas had 75 full-time employees at December 31, 1993. Of these, 55 employees are represented by the Oil, Chemical and Atomic Workers International Union, AFL-CIO. New collective bargaining agreements covering these employees were negotiated in early 1992 and will expire February 15, 1995. NIFL had 80 full-time employees at December 31, 1993. ENVIRONMENTAL MATTERS. Northern Indiana is subject to regulation with regard to environmental matters by various federal, state and local authorities. Northern Indiana cannot forecast the effect of all such regulation upon its generating, transmission and other facilities, or its operations. Northern Indiana intends to comply with all applicable governmental requirements but also intends to contest any it deems to be unreasonable or impossible of compliance or otherwise invalid or contrary to the public interest. The application of federal and state restrictions to protect the environment, including but not limited to those hereinafter described, involves or may involve review, certification or issuance of permits by various federal, state and local authorities. Such restrictions, particularly in regard to emissions into the air and water, and disposal of solid wastes, may limit or prevent operations, or substantially increase the cost of operation of Northern Indiana's facilities, and may also require substantial investments above the amounts presently estimated for proposed new projects and may delay or prevent authorization and completion of the projects. Northern Indiana's total capital expenditures from January 1, 1989, through December 31, 1993, for pollution control facilities were approximately $75 million, which have been financed in part by the sale of Pollution Control Notes and Bonds--Jasper County. Northern Indiana anticipates expenditures of approximately $40 million for pollution control equipment in the 1994-98 period which includes anticipated expenditures of $8 million for the year 1994 and $8 million for the year 1995. Air. The Indiana Department of Environmental Management (IDEM) Office of Air Management has submitted to the U.S. Environmental Protection Agency (EPA) a State Implementation Plan (SIP) in accordance with the requirements of the Clean Air Act Amendments of 1977. As part of the sulfur dioxide SIP, the IDEM adopted a short-term compliance methodology that could make compliance with the applicable standards more difficult from time to time. The result could be the potential increase in costs of fuel incurred by Northern Indiana. 9 Attainment-Nonattainment. Under the Clean Air Act Amendments of 1977, the State has identified various areas which are in compliance with the National Ambient Air Quality Standards (NAAQS) (attainment areas), and those that are not (nonattainment areas), with respect to sulfur dioxide, particulate matter and other pollutants. Portions of Lake, Porter and LaPorte Counties in which Northern Indiana operates electric generating facilities remain designated as nonattainment for sulfur dioxide. The control plans for each county are being implemented. Any reductions required by Northern Indiana have been made and no increased costs are anticipated for compliance. Lake County, Indiana, is designated as a nonattainment area for particulate or PM-10. The State of Indiana promulgated a new PM-10 SIP rule, which became effective on June 11, 1993. The regulations require reduced opacity and mass emissions limits at Dean H. Mitchell Station as well as the establishment of a fugitive dust control and continuous compliance plans. Northern Indiana invested $2.8 million to rebuild the Unit 5 electrostatic precipitator during 1993 to help meet the new PM-10 emission limits. The cost of compliance with the fugitive dust control requirements in the PM-10 rules cannot be firmly established at this time, but is expected to require minimal additional cost beyond those incurred for fugitive dust control measures historically undertaken at the Mitchell Generating Station. Porter County has been determined to have an unclassified status for PM-10. According to state requirements, the area will be monitored for PM-10 impacts to determine the appropriate classification with respect to the NAAQS. All other counties where Northern Indiana operates electric production facilities have an unclassified status for PM-10. Under Title I of the Clean Air Act Amendments of 1990 (CAAA) Lake and Porter Counties are classified as severe nonattainment areas for ozone. Passage of the CAAA results in new provisions applicable to mobile and stationary sources in Lake and Porter Counties. Transportation control measures required by the Employee Commute Options (ECO) rules will affect seven Northern Indiana facilities by late 1996. These measures will include plans to reduce the number of vehicles used by employees during their daily commutes to work and programs that promote the use of alternative fuel vehicles. Control measures requiring reduction of emissions of nitrogen oxides from the Mitchell and Bailly Generating Stations as a consequence of the Lake Michigan Ozone Control Program have yet to be determined. Northern Indiana is proactively undertaking efforts to evaluate potential least-cost methods to reduce emissions of nitrogen oxides from the generating stations. Northern Indiana cannot determine the cost impact of the future provisions. Acid Rain. Title IV of the CAAA addresses the acid rain issue by targeting large sources of sulfur dioxide and nitrogen oxides for significant reductions. The core acid rain rules for sulfur dioxide were promulgated by the EPA January 11, 1993. According to the regulations, Bailly Units 7 and 8 and Michigan City Unit 12 will be required to reduce their sulfur dioxide emissions below 2.5 pounds per million British thermal units (lbs/mmBtu) by January 1, 1995. These units, along with the remainder of Northern Indiana's coal-fired units, will require sulfur dioxide reductions below 1.2 lbs/mmBtu by January 1, 2000. Presently, all of Northern Indiana's eleven coal-fired generating units except Unit 12 utilize low sulfur fuel or flue gas desulfurization units to control sulfur dioxide emissions below the 1.2 lbs/mmBtu level. The EPA approved Northern Indiana's Acid Rain permits for the Bailly and Michigan City Generating Stations on August 31, 1993. The Phase I Acid Rain permits for the stations are effective from January 1, 1995 through December 31, 1999. One component of the permit is the Phase I extension plan for Bailly. Northern Indiana was eligible for and received the extension because of the construction and operation of the Bailly scrubber. This extension plan allocates additional allowances above the basic allowances applicable to Bailly and Michigan City Generating Stations. 10 Northern Indiana has successfully tested the use of low sulfur coal at Unit 12 and expects that unit to be able to meet the limits with low sulfur coal. 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. Additional Air Issues. The CAAA contain provisions that could lead to strict limitations on emissions of nitrogen oxides and "air toxics," 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 EPA has promulgated a permit program to meet the requirements of Title V of the CAAA. The IDEM, on November 3, 1993, proposed an Air Operating permit program to meet the requirements of Title V to the Air Pollution Control Board. The program contains fee increases which will be charged when the program is promulgated during the first half of 1994. Water. The Clean Water Act, as amended, subjects point source dischargers to technology and water quality based controls through the National Pollution Discharge Elimination System (NPDES) permit program. Northern Indiana is required to have NPDES permits for discharges from its generating stations into the waters of the United States. The IDEM Office of Water Management has issued renewal NPDES permits effective as follows: Schahfer Station, November 1, 1993; Mitchell Station, November 1, 1993 and Michigan City Generating Station, November 1, 1993. The renewed Bailly Station NPDES permit is expected to be issued in the early portion of 1994. Northern Indiana received NPDES permit modifications for intermittent chemical treatment of the main discharge at the Mitchell and Michigan City Stations for zebra mussel control. Bailly Station utilizes thermal treatment in its water systems to control zebra mussels. Schahfer Station has not presently experienced operational impacts due to zebra mussels. Rather, Schahfer Station has experienced equipment problems due to an asiatic clam infestation. Alternate forms of control are being investigated by Northern Indiana in an effort to prevent any impact on plant operations relating to these infestations, while also minimizing the environmental impact of the controls. Superfund Sites. 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 PRP's, 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 PRP's 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. Manufactured Gas Plant Sites. Northern Indiana was notified by 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, is required to be taken by it. 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 11 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. Northern Indiana has commenced a voluntary 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, remediation costs may be incurred. Electric And Magnetic Fields. 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. ---------------- 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. It is not possible to predict the scope, enforceability or financial impact of other environmental regulations or standards which may be established in the future. ITEM 2. PROPERTIES. The physical properties of the Utilities are located in the State of Indiana. Crossroads owns a 202-mile natural gas pipeline running from northwest Indiana to Cygnet, Ohio. Only the Indiana portion of the line is presently in service as an intrastate gas pipeline. The only significant properties owned by other subsidiaries of Industries are: the Southlake Complex, a 325,000 square foot office building in Merrillville, Indiana, leased to Northern Indiana and owned by Development; a 36-mile intrastate natural gas pipeline, located in southern Texas and half- owned by NI-TEX, Inc.; a golf course and surrounding residential development in Chesterton, Indiana, owned by Lake Erie Land Company (a subsidiary of Development); a waste-to-energy generating plant in Wolverhampton, England owned by Elm Energy; and commercial real estate joint ventures, half-owned by KOGAF Enterprises, located in Kokomo, Indiana. ELECTRIC. Northern Indiana owns and operates four electric generating stations, with generating units using fossil fuels, with net capability of 3,179,000 kw. Northern Indiana also owns and operates two hydroelectric generating plants with rated net capability of 10,000 kw, and four gas fired combustion turbine generating units with net capability of 203,000 kw, an aggregate of 3,392,000 kw. Northern Indiana has 290 substations with an aggregate transformer capacity of 22,449,000 kva. Its transmission system with voltages from 34,500 to 345,000 consists of approximately 3,050 circuit miles of line, of which 2,073 miles are on wood poles, 823 miles are on steel towers, 133 miles are on steel poles, 19 miles are on concrete poles and 2 miles are in underground conduits. The electric distribution system extends into 21 counties and consists of approximately 7,669 circuit miles of overhead and approximately 1,108 cable miles of underground primary distribution lines operating at various voltages from 2,400 to 12,500 volts. Of approximately 306,097 poles on which Northern Indiana has transmission and distribution circuits, about 49,502 poles are owned by other utilities. Northern Indiana has distribution transformers having an aggregate capacity of approximately 10,597,576 kva and 425,031 electric watt-hour meters. 12 GAS. Northern Indiana has an underground storage field at Royal Center and a liquefied natural gas plant in LaPorte County both described under "Item 1. Business--Gas Operations." Northern Indiana has approximately 12,266 miles of gas mains. Kokomo Gas has a liquified natural gas plant in Howard County which has the following capacities: maximum storage of 400,000 mcf; maximum liquefaction rate (gas to liquid), 2,850 mcf per day; maximum vaporization rate (output to distribution system), 30,000 mcf per day. Kokomo Gas also has a gas holder with a storage capacity of 12,000 mcf. Kokomo Gas has approximately 709 miles of gas mains. NIFL has approximately 732 miles of gas mains. OTHER PROPERTIES. Northern Indiana owns offices and service buildings, salesrooms, garages, repair shops, motor vehicles, construction equipment and tools, and office furniture and equipment, and also leases offices in various localities. It also owns miscellaneous parcels of real estate not now used in utility operations. PENDING DONATION OF PROPERTY. Northern Indiana announced during 1991 the planned donation of approximately 2,150 acres of land, including 60 miles of lake and river frontage, to the Indiana Natural Resources Foundation. The property frames and includes the resort areas of Lake Shafer and Lake Freeman in White and Carroll Counties, near the cities of Monticello and Delphi in central Indiana. Northern Indiana acquired the property in 1944 as part of the purchase of dams and two small hydroelectric plants and has maintained the area since that time. Northern Indiana is continuing to pursue the donation of this property to ensure the land is managed to enhance its preservation and recreational value. The dams and hydroelectric plants will be retained for Northern Indiana operations. CHARACTER OF OWNERSHIP. The properties of Northern Indiana are subject to the lien of its First Mortgage Indenture. The principal offices and properties are held in fee and are free from other encumbrances, subject to minor exceptions, none of which is of such a nature as substantially to impair the usefulness to Northern Indiana of such properties. Many of the offices in the various communities served are occupied by Northern Indiana under leases. All properties are subject to liens for taxes, assessments and undetermined charges (if any) incidental to construction, which it is Northern Indiana's practice regularly to pay, as and when due, unless contested in good faith. In general, the electric and gas lines and mains are located on land not owned in fee but are covered by necessary consents of various governmental authorities or by appropriate rights obtained from owners of private property. These consents and rights are deemed adequate for the purposes for which they are being used. Northern Indiana does not, however, generally have specific easements from the owners of the property adjacent to public highways over, upon or under which its electric and gas lines are located. At the time each of the principal properties was purchased a title search was made. In general, no examination of titles as to rights-of-way for electric and gas lines and mains was made, other than examination, in certain cases, to verify the grantors' ownership and the lien status thereof. ITEM 3. LEGAL PROCEEDINGS. Industries and Northern Indiana are parties to various pending proceedings, including suits and claims against it for personal injury, death and property damage, but, in the opinion of their counsel, the nature of such proceedings and suits, and the amounts involved, do not depart from the routine litigation and proceedings incident to the kind of business conducted by Northern Indiana, except as set forth above under "Item 1. Business--subcaption Environmental Matters," and as described under the captions "Pending Tax Matter" and "Environmental Matters" in the 13 Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which notes are incorporated herein by reference (see Exhibit 13). No other proceedings against Industries, Northern Indiana or their subsidiaries are contemplated by governmental authorities to the knowledge of Industries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT.
DATE OF ASSUMING NAME AGE OFFICE PRESENT POSITION ---- --- ------ ---------------- Gary L. Neale 54 Chairman, President, Chief March 1, 1993 Executive Officer and Director Stephen P. Adik 50 Executive Vice President, Chief January 1, 1994 Financial Officer and Treasurer Patrick J. Mulchay 52 Executive Vice President, Chief January 1, 1994 Operating Officer, Electric Jeffrey W. Yundt 48 Executive Vice President, Chief January 1, 1994 Operating Officer, Gas Owen C. Johnson 47 Vice President, Human January 1, 1994 Resources David A. Kelly 55 Vice President, Real January 1, 1994 Estate and Taxes Jerry M. Springer 61 Controller September 22, 1987 Dennis E. Senchak 48 Assistant Treasurer January 1, 1994 Nina M. Rausch 50 Secretary July 1, 1992
Throughout the past five years, each of the executive officers of Industries has been continuously active in the business of Industries or Northern Indiana except as follows: Prior to August 15, 1989, Gary L. Neale was Chairman, President and Chief Executive Officer of Planmetrics, Inc., a consulting and computer software firm; prior to July 30, 1990, Owen C. Johnson was Senior Vice President, Administration of LIT America, Inc. and prior to December 31, 1991, David A. Kelly was Partner, Tax Division of Arthur Andersen & Co. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS. Industries' common shares are listed and traded on both the New York and Chicago stock exchanges. The table below indicates the high and low sales price of Industries' common shares, on the composite tape, during the periods indicated.
1993 1992 ------------- ------------- HIGH LOW HIGH LOW ------ ------ ------ ------ First Quarter...... 30 1/4 26 1/8 26 3/8 22 1/2 Second Quarter..... 32 7/8 29 1/8 25 1/8 22 5/8 Third Quarter...... 34 7/8 31 5/8 26 5/8 25 Fourth Quarter..... 34 1/4 30 1/2 26 1/2 24 7/8
As of February 28, 1994, Industries had 40,793 common shareholders of record. The policy of the Board of Directors has been to declare dividends on a quarterly basis payable on or about the 20th day of February, May, August and November. Industries paid quarterly common dividends of $0.31 per share during 1992; and quarterly common dividends of $0.33 per share during 1993. At its December 20, 1993 meeting Industries' Board of Directors increased the quarterly common dividend to $0.36 per share, payable February 18, 1994. Holders of Industries' common shares will be entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. Although the Board of Directors of Industries currently intends to consider the payment of regular quarterly cash dividends on common shares, the timing and amount of future dividends will depend on the earnings of Northern Indiana and other subsidiaries, their financial condition, cash requirements, any restrictions in financing agreements and other factors deemed relevant by the Board of Directors. During the next few years, it is expected that the great majority of earnings available for distribution of dividends will depend upon dividends paid to Industries by Northern Indiana. The following limitations on payment of dividends and issuance of preferred stock applies to Northern Indiana: When any bonds are outstanding under its First Mortgage Indenture, Northern Indiana may not pay cash dividends on its stock (other than preferred or preference stock) or purchase or retire common shares, except out of earned surplus or net profits computed as required under the provisions of the maintenance and renewal fund. At December 31, 1993, Northern Indiana had approximately $144.1 million of retained earnings (earned surplus) available for the payment of dividends. Future common share dividends by Northern Indiana will depend upon adequate retained earnings, adequate future earnings and the absence of adverse developments. So long as any shares of Northern Indiana's cumulative preferred stock are outstanding, no cash dividends shall be paid on its common shares in excess of 75% of the net income available therefor for the preceding calendar year unless the aggregate of the capital applicable to stocks subordinate as to assets and dividends to the cumulative preferred stock plus the surplus, after giving effect to such dividends, would equal or exceed 25% of the sum of all obligations evidenced by bonds, notes, debentures or other securities, plus the total capital and surplus. At December 31, 1993, the sum of the capital applicable to stocks subordinate to the cumulative preferred stock plus the surplus was equal to 41% of the total capitalization including surplus. In connection with the foregoing discussion, see "Common Share Dividend" in the Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which note is incorporated herein by reference (See Exhibit 13). 15 ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Operating revenues (000's)................ $1,677,872 $1,582,356 $1,535,161 $1,520,995 $1,559,565 Net income (000's)...... $ 156,140 $ 136,648 $ 133,388 $ 125,361 $ 72,112(a) Earnings per average common share .......... $2.31 $2.00 $1.94 $1.81 $1.00(a) Total assets (000's).... $3,912,324 $3,807,941 $3,647,557 $3,625,181 $3,657,718 Long-term obligations and redeemable pre- ferred stock (000's)... $1,295,962 $1,160,122 $1,157,686 $1,260,040 $1,328,069 Cash dividends declared per common share....... $1.35 $1.26 $1.18 $1.07 $0.89
- -------- (a) Earnings per share were reduced by $0.72 due to the $82.0 million refund, less associated tax benefits of $30.3 million, related to the Bailly N1 generating unit. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information regarding results of operations, liquidity and capital resources and environmental matters is reported in the 1993 Annual Report to Shareholders under "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference (see Exhibit 13). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following Consolidated Financial Statements and Supplementary Data are included in the 1993 Annual Report to Shareholders and are hereby incorporated by reference and made a part of this report (see Exhibit 13).
(1) Consolidated Financial Statements-- Consolidated Statement of Income for the years ended December 31, 1993, 1992 and 1991 Consolidated Balance Sheet at December 31, 1993 and 1992 Consolidated Statement of Capitalization at December 31, 1993 and 1992 Consolidated Statement of Long-term Debt at December 31, 1993 and 1992 Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991 Consolidated Statement of Common Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial Statements Report of Independent Public Accountants (includes an explanatory paragraph referring to changes in the methods of accounting for postretirement benefits other than pensions and income taxes) (2) Supplementary Data-- Selected Supplemental Information
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding executive officers is included as a supplemental item at the end of Item 4 of Part I of this Form 10-K. Information regarding directors is included at pages 2-5 in the Notice of Annual Meeting and Proxy Statement dated March 11, 1994, for Annual Meeting to be held April 13, 1994, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation is included at pages 11-17 in the Notice of Annual Meeting and Proxy Statement dated March 11, 1994, for Annual Meeting to be held April 13, 1994, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management is included at pages 6-7 in the Notice of Annual Meeting and Proxy Statement dated March 11, 1994, for Annual Meeting to be held April 13, 1994, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (1) The Financial Statements filed herewith as a part of this report on Form 10-K are listed on the Index to Financial Statements under Item 8 on page 16. (2) The following is a list of the Financial Statement Schedules filed herewith as part of this report on Form 10-K:
SCHEDULE PAGE OF NUMBER DESCRIPTION 1993 10-K -------- ----------- --------- III Condensed Financial Information of Registrant.. 18, 19, 20 & 21 V Utility Plant and Other Property at Original Cost........................................... 22, 23 & 24 VI Accumulated Depreciation and Amortization...... 25, 26 & 27 VIII Valuation and Qualifying Accounts.............. 28, 29 & 30 IX Short-Term Borrowings.......................... 31 X Supplementary Income Statement Information..... 32
(3) Exhibits-- The exhibits filed herewith as a part of this report on Form 10-K are listed on the Exhibit Index included on pages 35-37. Each management contract or compensatory plan or arrangement of Industries listed on the Exhibit Index is separately identified by an asterisk. (b) Reports on Form 8-K: None. 17 NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEET
DECEMBER 31, --------------------- 1993 1992 ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS - ------ Property: Property in service.......................................... $ 2,464 $ 2,428 Construction work in progress................................ 97 30 Less: accumulated depreciation............................... 266 256 ---------- ---------- Total property........................................... 2,295 2,202 ---------- ---------- Investments (principally investments in wholly-owned subsidiar- ies).......................................................... 1,080,460 1,059,671 ---------- ---------- Current Assets: Cash and cash equivalents.................................... 2,371 1,581 Amounts receivable from subsidiaries......................... 60,809 47,297 Prepayments.................................................. 2,781 2,758 ---------- ---------- Total current assets..................................... 65,961 51,636 ---------- ---------- Other (principally notes receivable--associated companies)..... 135,947 109,599 ---------- ---------- $1,284,663 $1,223,108 ========== ========== CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shares................................................ $ 870,930 $ 870,930 Cumulative preferred shares with mandatory redemption provisions.................................................. 35,000 35,000 Additional paid-in capital................................... 27,631 20,775 Retained earnings............................................ 380,888 317,195 Less: Treasury shares........................................ 180,212 168,990 Unearned compensation...................................... 1,684 3,034 Currency translation adjustment............................ 2,881 2,346 ---------- ---------- Total capitalization..................................... 1,129,672 1,069,530 ---------- ---------- Current Liabilities: Dividends declared on common and preferred stock............. 24,345 22,375 Other........................................................ 16,434 15,443 ---------- ---------- Total current liabilities................................ 40,779 37,818 ---------- ---------- Other (principally notes payable to associated companies)...... 114,212 115,760 ---------- ---------- Commitments and Contingencies (Note 3): $1,284,663 $1,223,108 ========== ==========
The accompanying notes to condensed financial statements are an integral part of this statement. 18 NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Equity in net earnings of subsidiaries...... $ 158,222 $ 141,115 $ 135,531 ---------- ---------- ---------- Other income (deductions): Administrative and general expense........ (6,031) (4,469) (3,350) Interest income........................... 9,576 5,345 5,959 Interest expense.......................... (9,339) (7,919) (6,235) Other, net................................ 203 (75) (920) ---------- ---------- ---------- (5,591) (7,118) (4,546) ---------- ---------- ---------- Net income before income taxes.............. 152,631 133,997 130,985 Income taxes................................ (3,509) (2,651) (2,403) ---------- ---------- ---------- Net income.................................. 156,140 136,648 133,388 Dividend requirements on preferred shares... 3,063 3,063 3,063 ---------- ---------- ---------- Balance available for common shareholders... $ 153,077 $ 133,585 $ 130,325 ========== ========== ========== Average common shares outstanding........... 66,136,396 66,715,941 67,035,495 Earnings per average common share........... $ 2.31 $ 2.00 $ 1.94 ========== ========== ==========
The accompanying notes to condensed financial statements are an integral part of this statement. 19 NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- (DOLLARS IN THOUSANDS) Net cash provided by operating activities........ $153,788 $133,392 $147,263 -------- -------- -------- Cash flows used in investing activities: Purchase of Kokomo Gas and Fuel Co., net of cash acquired................................. -- (43,752) -- Purchase of Northern Indiana Fuel and Light Company, Inc., net of cash acquired........... (30,137) -- -- Capital expenditures........................... (103) (418) (1,738) -------- -------- -------- Net cash used in investing activities........ (30,240) (44,170) (1,738) -------- -------- -------- Cash flows provided by (used in) financing activ- ities: Issuance of common shares...................... 36,364 53,911 10,453 Increase (decrease) in notes payable to subsid- iaries........................................ (703) 67,031 (14,478) Increase in notes receivable from subsidiaries. (26,412) (53,768) (20,732) Cash dividends paid on common shares........... (88,214) (83,379) (77,832) Cash dividends paid on preferred shares........ (3,063) (3,063) (2,690) Acquisition of treasury shares................. (40,730) (76,281) (55,606) Other.......................................... -- (1,467) (1,191) -------- -------- -------- Net cash used in financing activities........ (122,758) (97,016) (162,076) -------- -------- -------- Net increase (decrease) in cash and cash equiva- lents........................................... 790 (7,794) (16,551) Cash and cash equivalents at beginning of year... 1,581 9,375 25,926 -------- -------- -------- Cash and cash equivalents at end of year......... $ 2,371 $ 1,581 $ 9,375 ======== ======== ========
The accompanying notes to condensed financial statements are an integral part of this statement. 20 NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS 1. DIVIDENDS FROM SUBSIDIARIES Cash dividends paid to NIPSCO Industries, Inc. (Industries) by its consolidated subsidiaries were (in thousands of dollars): $155,224, $138,676 and $155,813 in 1993, 1992 and 1991, respectively. 2. SUPPORT AGREEMENT The obligations of NIPSCO Capital Markets, Inc. (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 Public Service Company (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 $299.1 million at December 31, 1993. 3. CONTINGENCIES No proceedings against Industries or any of its subsidiaries other than Northern Indiana are pending or contemplated to the knowledge of Industries. The Company is a party to various pending proceedings, including suits and claims against it for personal injury, death and property damage, but, in the opinion of counsel for Northern Indiana, the nature of such proceedings and suits, and the amounts involved, do not depart from the routine litigation and proceedings incident to the kind of business conducted by Northern Indiana. 4. CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1993, Industries adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". The adoption of these standards did not have a significant impact on the condensed financial statements. - -------- See also Notes to Consolidated Financial Statements in the 1993 Annual Report to Shareholders, which are incorporated herein by reference. (See Exhibit 13). 21 SCHEDULE V NIPSCO INDUSTRIES, INC. SCHEDULE V--UTILITY PLANT AND OTHER PROPERTY AT ORIGINAL COST TWELVE MONTHS ENDED DECEMBER 31, 1993 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ------------ ----------------- ----------- ------- ------------- ADDITIONS AT COST ----------------- NORTHERN INDIANA FUEL AND LIGHT RETIREMENTS BALANCE COMPANY, AT ORIGINAL OTHER BALANCE CLASSIFICATION OF PROPERTY JAN. 1, 1993 INC.(A) OTHER COST CHANGES DEC. 31, 1993 - -------------------------- ------------ -------- -------- ----------- ------- ------------- (DOLLARS IN THOUSANDS) Utility Plant: Electric Utility Plant In Service-- Intangible........... $ 1 $ -- $ -- $ -- $-- $ 1 Production........... 2,094,900 -- 58,972 (14,647) -- 2,139,225 Transmission......... 522,698 -- 35,517 (2,572) -- 555,643 Distribution......... 596,079 -- 48,490 (3,687) -- 640,882 General.............. 80,549 -- 5,396 (861) (5) 85,079 Property Held for Fu- ture Use.............. 4,741 -- -- -- -- 4,741 Completed Construction not Classified........ 256,099 -- (53,871) -- -- 202,228 Construction Work in Progress.............. 72,176 -- 6,490 -- -- 78,666 Coal Reserves.......... 71,551 -- -- -- -- 71,551 ---------- ------- -------- -------- ---- ---------- Total Electric...... 3,698,794 -- 100,994 (21,767) (5) 3,778,016 ---------- ------- -------- -------- ---- ---------- Gas Utility Plant In Service-- Intangible........... 27 65 169 -- -- 261 Production........... 19 293 -- (19) -- 293 Storage.............. 111,934 -- 2,576 (1,057) -- 113,453 Transmission......... 132,760 1,070 5,114 (35) -- 138,909 Distribution......... 670,776 32,080 49,826 (2,637) (82) 749,963 General.............. 66,011 1,755 8,030 (1,658) 87 74,225 Property Held for Fu- ture Use.............. 151 -- -- -- -- 151 Completed Construction not Classified........ 65,022 -- (19,250) -- -- 45,772 Construction Work in Progress.............. 18,859 -- 25,855 -- -- 44,714 Gas Stored Under- ground................ 8,491 -- 53 -- -- 8,544 Plant Acquisition Ad- justment.............. 22,417 17,476 -- -- -- 39,893 ---------- ------- -------- -------- ---- ---------- Total Gas........... 1,096,467 52,739 72,373 (b) (5,406) 5 1,216,178 ---------- ------- -------- -------- ---- ---------- Common Utility Plant In Service-- Intangible........... 734 -- 2,749 -- -- 3,483 Land and Structures.. 78,339 -- 2,500 (112) -- 80,727 General Equipment.... 64,953 -- 15,766 (778) 1 79,942 Property Held for Fu- ture Use.............. 28 -- -- -- -- 28 Completed Construction not Classified........ 61,038 -- (2,230) -- -- 58,808 Construction Work in Progress.............. 53,193 -- 13,061 -- -- 66,254 ---------- ------- -------- -------- ---- ---------- Total Common........ 258,285 -- 31,846 (890) 1 289,242 ---------- ------- -------- -------- ---- ---------- Total Utility Plant.............. $5,053,546 $52,739 $205,213 (b) $(28,063) $ 1 $5,283,436 ========== ======= ======== ======== ==== ========== Other Property........... $ 119,309 $ 453 $ 32,460 $ (558) $-- $ 151,664 ========== ======= ======== ======== ==== ==========
NOTES: (a) Northern Indiana Fuel and Light Company, Inc. purchased on March 31, 1993. (b) Includes acquisition and construction expenditures related to Crossroads Pipeline Company of $24,361,000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22 SCHEDULE V NIPSCO INDUSTRIES, INC. SCHEDULE V--UTILITY PLANT AND OTHER PROPERTY AT ORIGINAL COST TWELVE MONTHS ENDED DECEMBER 31, 1992 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ------------ ---------------- ----------- -------- ------------- ADDITIONS AT COST ---------------- KOKOMO GAS AND RETIREMENTS BALANCE FUEL AT ORIGINAL OTHER BALANCE CLASSIFICATION OF PROPERTY JAN. 1, 1992 CO.(A) OTHER COST CHANGES DEC. 31, 1992 - -------------------------- ------------ ------- -------- ----------- -------- ------------- (DOLLARS IN THOUSANDS) Utility Plant: Electric Utility Plant In Service-- Intangible........... $ 1 $ -- $ -- $ -- $ -- $ 1 Production........... 2,104,992 -- -- (10,092) -- 2,094,900 Transmission......... 525,960 -- -- (3,262) -- 522,698 Distribution......... 600,638 -- (259) (4,300) -- 596,079 General.............. 80,639 -- -- (90) -- 80,549 Property Held for Fu- ture Use.............. 4,741 -- -- -- -- 4,741 Completed Construction not Classified........ 144,743 -- 111,356 -- -- 256,099 Construction Work in Progress.............. 65,372 -- (14,878) -- 21,682 72,176 Coal Reserves.......... 71,551 -- -- -- -- 71,551 ---------- ------- -------- -------- -------- ---------- Total Electric...... 3,598,637 -- 96,219 (17,744) 21,682 (b) 3,698,794 ---------- ------- -------- -------- -------- ---------- Gas Utility Plant In Service-- Intangible........... 21 6 -- -- -- 27 Production........... -- 19 -- -- -- 19 Storage.............. 104,977 7,272 -- (315) -- 111,934 Transmission......... 131,965 940 -- (145) -- 132,760 Distribution......... 641,715 29,240 1,477 (1,656) -- 670,776 General.............. 62,786 3,299 223 (297) -- 66,011 Property Held for Fu- ture Use.............. 151 -- -- -- -- 151 Completed Construction not Classified........ 35,311 -- 29,711 -- -- 65,022 Construction Work in Progress.............. 13,963 -- 4,896 -- -- 18,859 Gas Stored Under- ground................ 8,371 -- 120 -- -- 8,491 Plant Acquisition Ad- justment.............. -- 22,417 -- -- -- 22,417 ---------- ------- -------- -------- -------- ---------- Total Gas........... 999,260 63,193 36,427 (2,413) -- 1,096,467 ---------- ------- -------- -------- -------- ---------- Common Utility Plant In Service-- Intangible........... 734 -- -- -- -- 734 Land and Structures.. 88,194 -- -- (230) (9,625) 78,339 General Equipment.... 65,548 -- -- (595) -- 64,953 Property Held for Fu- ture Use.............. 28 -- -- -- -- 28 Completed Construction not Classified........ 47,595 -- 13,443 -- -- 61,038 Construction Work in Progress.............. 28,692 -- 26,240 -- (1,739) 53,193 ---------- ------- -------- -------- -------- ---------- Total Common........ 230,791 -- 39,683 (825) (11,364)(c) 258,285 ---------- ------- -------- -------- -------- ---------- Total Utility Plant.............. $4,828,688 $63,193 $172,329 $(20,982) $ 10,318 $5,053,546 ========== ======= ======== ======== ======== ========== Other Property........... $ 57,492 $ 1,434 $ 49,019 $ -- $ 11,364 (c) $ 119,309 ========== ======= ======== ======== ======== ==========
NOTES: (a) Kokomo Gas and Fuel Company purchased on February 10, 1992. (b) Reconstruction costs associated with Bailly Generating Station pipe collapse, net of insurance recoveries. (c) Office building transferred to non-utility property. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 SCHEDULE V NIPSCO INDUSTRIES, INC. SCHEDULE V--UTILITY PLANT AND OTHER PROPERTY AT ORIGINAL COST TWELVE MONTHS ENDED DECEMBER 31, 1991 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ------------ --------- ---------- ------- ------------- RETIREMENT AT BALANCE ADDITIONS ORIGINAL OTHER BALANCE CLASSIFICATION OF PROPERTY JAN. 1, 1991 AT COST COST CHANGES DEC. 31, 1991 - -------------------------- ------------ --------- ---------- ------- ------------- (DOLLARS IN THOUSANDS) Utility Plant: Electric Utility Plant In Service-- Intangible........... $ 1 $ -- $ -- $-- $ 1 Production........... 2,078,580 29,650 (3,238) -- 2,104,992 Transmission......... 521,222 6,640 (1,902) -- 525,960 Distribution......... 571,296 32,157 (2,815) -- 600,638 General.............. 77,174 4,381 (916) -- 80,639 Property Held for Fu- ture Use.............. 3,771 970 -- -- 4,741 Completed Construction not Classified........ 144,586 157 -- -- 144,743 Construction Work in Progress.............. 40,714 24,658 -- -- 65,372 Coal Reserves.......... 71,551 -- -- -- 71,551 ---------- -------- -------- ---- ---------- Total Electric...... 3,508,895 98,613 (8,871) -- 3,598,637 ---------- -------- -------- ---- ---------- Gas Utility Plant In Service-- Intangible........... 21 -- -- -- 21 Storage.............. 101,947 3,068 (38) -- 104,977 Transmission......... 124,918 7,212 (165) -- 131,965 Distribution......... 614,012 29,599 (1,896) -- 641,715 General.............. 56,410 7,257 (881) -- 62,786 Property Held for Fu- ture Use.............. 151 -- -- -- 151 Completed Construction not Classified........ 43,503 (8,192) -- -- 35,311 Construction Work in Progress.............. 18,182 (4,219) -- -- 13,963 Gas Stored Under- ground--Non-current... 8,248 123 -- -- 8,371 ---------- -------- -------- ---- ---------- Total Gas........... 967,392 34,848 (2,980) -- 999,260 ---------- -------- -------- ---- ---------- Common Utility Plant In Service-- Intangible........... 127 607 -- -- 734 Land and Structures.. 87,398 920 (124) -- 88,194 General Equipment.... 62,485 3,618 (555) -- 65,548 Property Held for Fu- ture Use.............. 28 -- -- -- 28 Completed Construction not Classified........ 36,124 11,471 -- -- 47,595 Construction Work in Progress.............. 9,811 18,881 -- -- 28,692 ---------- -------- -------- ---- ---------- Total Common........ 195,973 35,497 (679) -- 230,791 ---------- -------- -------- ---- ---------- Total Utility Plant.............. $4,672,260 $168,958 $(12,530) $-- $4,828,688 ========== ======== ======== ==== ========== Other Property........... $ 42,574 $ 14,918 $ -- $-- $ 57,492 ========== ======== ======== ==== ==========
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 24 SCHEDULE VI NIPSCO INDUSTRIES, INC. SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION TWELVE MONTHS ENDED DECEMBER 31, 1993 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ---------- ----------------- ----------- ------- ---------- ADDITIONS CHARGED TO COSTS AND EXPENSES ----------------- NORTHERN INDIANA FUEL AND OTHER BALANCE LIGHT CHANGES BALANCE JAN. 1, COMPANY, OTHER RETIREMENTS (NOTE DEC. 31, DESCRIPTION 1993 INC.(A) (NOTE A) (NOTE B) C) 1993 ----------- ---------- -------- -------- ----------- ------- ---------- (DOLLARS IN THOUSANDS) Utility Plant: Electric............... $1,369,516 $ -- $125,315 $(29,285) $ 7,713 $1,473,259 Gas.................... 455,351 12,105 52,714 (8,119) 1,871 513,922 Common................. 55,030 -- 7,792 (1,270) 1,818 63,370 Retirement work in progress.............. (3,279) -- -- 4,949 -- 1,670 ---------- ------- -------- -------- ------- ---------- Total Utility Plant.. $1,876,618 $12,105 $185,821 $(33,725) $11,402 $2,052,221 ========== ======= ======== ======== ======= ========== Other Property.......... $ 22,839 $ 158 $ 4,730 $ (247) $ -- $ 27,480 ========== ======= ======== ======== ======= ========== Note A: Depreciation and amortization per consolidated statement of income...... $ 187,000 Add: Bailly Generating Station deferred depreciation.................. 2,336 Amortization of utility plant acquisition adjustment............. 702 Less: Amortization of Schahfer Generating Station Unit 17 and 18 car- rying charges and deferred depreciation............................ 4,217 ---------- $ 185,821 ========== Note B: Retirements credited to Utility Plant................................... $ (28,063) Less: Retirements charged to other accounts........................... (14) ---------- Retirements charged to Accumulated Depreciation and Amortization........ (28,049) Add: Cost of removal less salvage..................................... (10,625) Fluctuation in retirement work in progress....................... 4,949 ---------- $ (33,725) ========== Note C: Additions: Charged to clearing accounts.......................................... $ 5,801 Depletion expense of coal reserves.................................... 5,601 ---------- $ 11,402 ==========
- -------- (a) Northern Indiana Fuel and Light Company, Inc. purchased on March 31, 1993. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 25 SCHEDULE VI NIPSCO INDUSTRIES, INC. SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION TWELVE MONTHS ENDED DECEMBER 31, 1992 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ---------- ---------------- ----------- ------- ---------- ADDITIONS CHARGED TO COSTS AND EXPENSES ---------------- KOKOMO OTHER BALANCE GAS & CHANGES BALANCE JAN. 1, FUEL OTHER RETIREMENTS (NOTE DEC. 31, DESCRIPTION 1992 CO. (A) (NOTE A) (NOTE B) C) 1992 ----------- ---------- ------- -------- ----------- ------- ---------- (DOLLARS IN THOUSANDS) Utility Plant: Electric............... $1,260,685 $ -- $122,878 $(22,441) $ 8,394 $1,369,516 Gas.................... 387,463 20,018 49,233 (3,341) 1,978 455,351 Common................. 49,897 -- 6,591 (1,176) (282) 55,030 Retirement work in progress.............. (4,818) -- -- 1,539 -- (3,279) ---------- ------- -------- -------- ------- ---------- Total Utility Plant.. $1,693,227 $20,018 $178,702 $(25,419) $10,090 $1,876,618 ========== ======= ======== ======== ======= ========== Other Property.......... $ 17,733 $ 504 $ 3,017 $ -- $ 1,585 $ 22,839 ========== ======= ======== ======== ======= ========== Note A: Depreciation and amortization per consolidated statement of income..... $ 182,717 Add: Bailly Generating Station deferred depreciation................. 202 Less: Amortization of Schahfer Generating Station Unit 17 and 18 car- rying charges and deferred depreciation............................. 4,217 ---------- $ 178,702 ========== Note B: Retirements credited to Utility Plant.................................. $ (20,982) Less: Retirements charged to other accounts.......................... -- ---------- Retirements charged to Accumulated Depreciation and Amortization....... (20,982) Add: Cost of removal less salvage.................................... (5,976) Fluctuation in retirement work in progress...................... 1,539 ---------- $ (25,419) ========== Note C: Additions: Charged to clearing accounts......................................... $ 5,847 Depletion expense of coal reserves................................... 5,747 Accumulated provision for depreciation of utility plant transferred to accumulated provision for depreciation of non-utility property... (1,585) Other................................................................ 81 ---------- $ 10,090 ==========
- -------- (a) Kokomo Gas and Fuel Company purchased on February 10, 1992. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 26 SCHEDULE VI NIPSCO INDUSTRIES, INC. SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION TWELVE MONTHS ENDED DECEMBER 31, 1991 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F ------ ------------ ---------- ----------- ------- ------------- ADDITIONS CHARGED TO OTHER COSTS AND CHANGES BALANCE EXPENSES RETIREMENTS (NOTE BALANCE DESCRIPTION JAN. 1, 1991 (NOTE A) (NOTE B) C) DEC. 31, 1991 ----------- ------------ ---------- ----------- ------- ------------- (DOLLARS IN THOUSANDS) Utility Plant: Electric.............. $1,143,359 $119,225 $(11,700) $ 9,801 $1,260,685 Gas................... 343,257 46,240 (4,318) 2,284 387,463 Common................ 43,736 6,039 (882) 1,004 49,897 Retirement work in progress............... (3,420) -- (1,398) -- (4,818) ---------- -------- -------- ------- ---------- $1,526,932 $171,504 $(18,298) $13,089 $1,693,227 ========== ======== ======== ======= ========== Other Property.......... $ 16,022 $ 1,711 $ -- $ -- $ 17,733 ========== ======== ======== ======= ========== Note A: Depreciation and amortization per consolidated statement of in- come.............................................................. $ 175,721 Less: Amortization of Schahfer Generating Station Unit 17 and 18 carrying charges and deferred depreciation...................... 4,217 ---------- $ 171,504 ========== Note B: Retirements credited to Utility Plant.............................. $ (12,530) Less: Retirements charged to other accounts...................... -- ---------- Retirements charged to Accumulated Depreciation and Amortization... (12,530) Add: Cost of removal less salvage................................ (4,370) Fluctuation in retirement work in progress.................. (1,398) ---------- $ (18,298) ========== Note C: Additions: Charged to clearing accounts..................................... $ 6,018 Depletion expense of coal reserves............................... 6,222 Other............................................................ 849 ---------- $ 13,089 ==========
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 27 SCHEDULE VIII NIPSCO INDUSTRIES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS TWELVE MONTHS ENDED DECEMBER 31, 1993 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E ------ ------- --------------------------- ------------ -------- ADDITIONS --------------------------- NORTHERN INDIANA DEDUCTIONS FUEL AND CHARGED FOR PURPOSES BALANCE LIGHT TO CHARGED FOR WHICH BALANCE JAN. 1, COMPANY, COSTS AND TO OTHER RESERVES DEC. 31, DESCRIPTION 1993 INC.(A) EXPENSES ACCOUNTS WERE CREATED 1993 ----------- ------- -------- --------- -------- ------------ -------- (DOLLARS IN THOUSANDS) Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply: Reserve for accounts receivables........... $5,121 $ 93 $5,254 $-- $5,613 $4,855 Reserve for invest- ments, at equity...... $1,200 $-- $2,300 $-- $1,000 $2,500 Reserve for invest- ments, at cost........ $ -- $-- $2,500 $-- $ -- $2,500 Reserves Classified Un- der Reserve Section of Consolidated Balance Sheet: Injuries and damages reserve............... $4,367 $-- $4,450 $-- $4,823 $3,994 Miscellaneous operating reserves.............. $4,424 $-- $1,502 $-- $ 521 $5,405
(a) Northern Indiana Fuel and Light Company, Inc. purchased on March 31, 1993. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 28 SCHEDULE VIII NIPSCO INDUSTRIES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS TWELVE MONTHS ENDED DECEMBER 31, 1992 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E ------ ------- ------------------------------ ------------ -------- ADDITIONS ------------------------------ DEDUCTIONS CHARGED FOR PURPOSES BALANCE KOKOMO GAS TO CHARGED FOR WHICH BALANCE JAN. 1, AND COSTS AND TO OTHER RESERVES DEC. 31, DESCRIPTION 1992 FUEL CO.(A) EXPENSES ACCOUNTS WERE CREATED 1992 ----------- ------- ----------- --------- -------- ------------ -------- (DOLLARS IN THOUSANDS) Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply: Reserve for accounts receivables........... $3,387 $ 175 $7,315 $-- $5,756 $5,121 Reserve for invest- ments, at equity...... $1,200 $ -- $ -- $-- $ -- $1,200 Reserves Classified Un- der Reserve Section of Consolidated Balance Sheet: Injuries and damages reserve............... $4,008 $ -- $2,975 $-- $2,616 $4,367 Miscellaneous operating reserves.............. $4,132 $1,319 $1,146 $-- $2,173 $4,424
(a) Kokomo Gas and Fuel Company purchased on February 10, 1992. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 29 SCHEDULE VIII NIPSCO INDUSTRIES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS TWELVE MONTHS ENDED DECEMBER 31, 1991 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E ------ ------- ------------------ ------------ -------- ADDITIONS ------------------ DEDUCTIONS CHARGED FOR PURPOSES BALANCE TO CHARGED FOR WHICH BALANCE JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31, DESCRIPTION 1991 EXPENSES ACCOUNTS WERE CREATED 1991 ----------- ------- --------- -------- ------------ -------- (DOLLARS IN THOUSANDS) Reserves Deducted in Consoli- dated Balance Sheet from As- sets to Which They Apply: Reserve for accounts receiv- ables...................... $3,944 $5,950 $ -- $6,507 $3,387 Reserve for investments, at equity..................... $ -- $1,200 $ -- $ -- $1,200 Reserves Classified Under Re- serve Section of Consoli- dated Balance Sheet: Injuries and damages re- serve...................... $3,317 $4,375 $ -- $3,684 $4,008 Miscellaneous operating re- serves..................... $2,882 $1,302 $ -- $ 52 $4,132
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 30 SCHEDULE IX NIPSCO INDUSTRIES, INC. SCHEDULE IX--SHORT-TERM BORROWINGS TWELVE MONTHS ENDED DECEMBER 31, 1993, 1992 AND 1991 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F - ------------------- --------- ----------- ----------- ----------- ------------- WEIGHTED MAXIMUM AVERAGE WEIGHTED AVERAGE AMOUNT AMOUNT AVERAGE CATEGORY OF AGGREGATE BALANCE INTEREST OUTSTANDING OUTSTANDING INTEREST SHORT- AT END OF RATE AT END DURING THE DURING THE RATE DURING TERM BORROWINGS(1) PERIOD OF PERIOD PERIOD PERIOD(2) THE PERIOD(3) - --------------------- --------- ----------- ----------- ----------- ------------- (DOLLARS IN THOUSANDS) YEAR 1993 - --------- Commercial paper... $ 74,895 3.50% $157,800 $ 46,265 3.48% Bank notes......... $110,000 3.78% $386,301 $194,840 3.85% YEAR 1992 - --------- Commercial paper... $ 76,500 4.15% $111,260 $ 74,913 4.08% Bank notes......... $243,701 4.09% $346,401 $190,926 4.22% YEAR 1991 - --------- Commercial paper... $ 97,540 5.40% $140,115 $ 62,634 6.37% Bank notes......... $122,800 5.48% $129,800 $ 36,869 5.93%
NOTE: (1) Commercial paper is generally issued for short-term working capital requirements. Individual issues of commercial paper generally remain outstanding for less than thirty days. Bank notes represent borrowing under Credit Agreements and Lines of Credit with a consortium of local, domestic and international banks. (2) The average amount of short-term borrowing is determined by a weighted monthly average based on number of days outstanding. (3) The weighted average interest rates, except for commercial paper, represent the actual fixed rates applicable during the time period the borrowings were outstanding. The commercial paper interest rate was determined by dividing the aggregate annualized commercial paper interest expense by the actual aggregate principal outstanding during the period. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 31 SCHEDULE X NIPSCO INDUSTRIES, INC. SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION TWELVE MONTHS ENDED DECEMBER 31, 1993, 1992 AND 1991 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The amounts of maintenance and repairs and depreciation which are charged to expenses, other than those set forth in the Consolidated Statement of Income, or are charged to other accounts, are not significant. Advertising is not considered to be significant, and Northern Indiana pays no royalties. Provisions for taxes, other than payroll and income taxes, are summarized as follows:
1993 1992 1991 ------- ------- ------- (Dollars in Thousands) Real estate and personal property............ $37,059 $35,611 $32,514 Indiana gross income......................... 20,218 18,921 18,259 Other........................................ 1,909 2,893 3,255 ------- ------- ------- $59,186 $57,425 $54,028 ------- ------- ------- ------- ------- -------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of NIPSCO Industries, Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in NIPSCO Industries, Inc.'s annual report to shareholders for the year ended December 31, 1993, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 26, 1994. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedules listed on Page 17, Item 14(a)(2) are the responsibility of NIPSCO Industries, Inc.'s management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. As discussed in the notes to consolidated financial statements, effective January 1, 1993, NIPSCO Industries, Inc. and subsidiaries changed their methods of accounting for postretirement benefits other than pensions and income taxes. Arthur Andersen & Co. Chicago, Illinois January 26, 1994 33 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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) March 28, 1994 /s/ Gary L. Neale Date_______________________________ By_________________________________ Gary L. Neale, Its Chairman and President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gary L. Neale Chairman, President, Principal - ------------------------------------ Executive Officer and Gary L. Neale Director /s/ Stephen P. Adik Executive Vice President and - ------------------------------------ Principal Financial Officer Stephen P. Adik /s/ Jerry M. Springer Controller and Principal - ------------------------------------ Accounting Officer Jerry M. Springer /s/ Steven C. Beering Director - ------------------------------------ Steven C. Beering /s/ Arthur J. Decio Director - ------------------------------------ Arthur J. Decio /s/ Ernestine M. Raclin Director - ------------------------------------ Ernestine M. Raclin March 28, 1994 /s/ Denis E. Ribordy Director - ------------------------------------ Denis E. Ribordy /s/ Ian M. Rolland Director - ------------------------------------ Ian M. Rolland /s/ Edmund A. Schroer Director - ------------------------------------ Edmund A. Schroer /s/ John W. Thompson Director - ------------------------------------ John W. Thompson /s/ Robert J. Welsh, Jr. Director - ------------------------------------ Robert J. Welsh, Jr.
34 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF ITEM PAGE -------- ------------------- ------------ (3.(i)) Articles of Incorporation of September 22, 1987, and all Articles of Amendment thereto (incorporated by reference to Exhibit 1 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25, 1992). (3.(ii)) Amended By-laws effective May 25, 1993 (incorporated by reference to Exhibit (3)(ii) to the NIPSCO Industries, Inc. Form 8-K dated July 13, 1993). (4.1) Indenture dated August 1, 1939 between Registrant and Trustees (in- corporated by reference to Exhibit 7 to Northern Indiana Public Service Company ("Northern Indiana") Registration Statement (Regis- tration No. 2-5178)). (4.2) Third Supplemental Indenture dated August 1, 1943 (incorporated by reference to Exhibit 7-C to Northern Indiana Registration Statement (Registration No. 2-5178)). (4.3) Fifteenth Supplemental Indenture dated April 15, 1963 (incorporated by reference to Exhibit 2.03 to Northern Indiana Registration Statement (Registration No. 2-21125)). (4.4) Seventeenth Supplemental Indenture dated May 15, 1965 (incorporated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated June 8, 1965). (4.5) Eighteenth Supplemental Indenture dated September 1, 1967 (incorpo- rated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated October 9, 1967). (4.6) Nineteenth Supplemental Indenture dated October 1, 1968 (incorporated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated November 8, 1968). (4.7) Twenty-second Supplemental Indenture dated May 1, 1971 (incorporated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated June 8, 1971). (4.8) Twenty-third Supplemental Indenture dated March 31, 1972 (incorporated by reference to Exhibit 2 to Northern Indiana Current Report on Form 8-K dated May 5, 1972). (4.9) Twenty-fourth Supplemental Indenture dated July 15, 1973 (incorporated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated August 7, 1973). (4.10) Twenty-eighth Supplemental Indenture dated October 15, 1976 (incorpo- rated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated November 8, 1976). (4.11) Twenty-ninth Supplemental Indenture dated August 15, 1977 (incorpo- rated by reference to Exhibit 1 to Northern Indiana Current Report on Quarterly Report on Form 10-Q for the quarter ended September 30, 1977). (4.12) Thirtieth Supplemental Indenture dated November 1, 1977 (incorporated by reference to Exhibit 1 to Northern Indiana Annual Report on Form 10-K for year ended December 31, 1977).
35
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF ITEM PAGE ------- ------------------- ------------ (4.13) Thirty-third Supplemental Indenture dated June 1, 1980 (incorporated by reference to Exhibit 1 to Northern Indiana Quarterly Report on Form 10-Q for the quarter ended June 30, 1980). (4.14) Fortieth Supplemental Indenture dated July 1, 1989 (incorporated by reference to Exhibit 3 to Northern Indiana Current Report on Form 8-K dated March 14, 1990). (4.15) Forty-first Supplemental Indenture dated July 1, 1991 (incorporated by reference to Exhibit 1 to Northern Indiana Current Report on Form 8-K dated March 25, 1992). (4.16) Indenture, dated as of March 1, 1988, between Northern Indiana and Manufacturers Hanover Trust Company, as Trustee (incorporated by reference to Exhibit 4 to Northern Indiana Registration Statement (Registration No. 33-44193)). (4.17) First Supplemental Indenture dated December 1, 1991, between Northern Indiana and Manufacturers Hanover Trust Company, as Trustee (incor- porated by reference to Exhibit 4.1 to Northern Indiana Registration Statement (Registration No. 33-63870)). (4.18) Memorandum of Agreement with City of Michigan City, Indiana (incorpo- rated by reference to Exhibit 7 to Northern Indiana Registration Statement (Registration No. 2-48531)). (4.19) Loan Agreement dated November 1, 1978 with Jasper County, Indiana (incorporated by reference to Exhibit 1 to Northern Indiana Annual Report on Form 10-K for year ended December 31, 1978). (4.20) Financing Agreement No. 1 dated November 1, 1988 with Jasper County, Indiana regarding $37,000,000 Series 1988A Pollution Control Re- funding Revenue Bonds. Identical financing agreements between Regis- trant and Jasper County provide for the issuance of $47,000,000 Se- ries 1988B, $46,000,000 Series 1988C and $24,000,000 Series 1988D Pollution Control Refunding Revenue Bonds (incorporated by reference to Exhibit 8 to Northern Indiana Current Report on Form 8-K dated March 16, 1989). (4.21) Financing Agreement dated July 1, 1989, with Jasper County, Indiana regarding $41,000,000 Series 1989A Collateralized Pollution Control Refunding Revenue Bonds. An identical financing agreement between Registrant and Jasper County provides for the issuance of $10,000,000 Series 1989B Collateralized Pollution Control Refunding Revenue Bonds (incorporated by reference to Exhibit 2 to Northern Indiana Current Report on Form 8-K dated March 25, 1992). (4.22) Financing Agreement dated July 1, 1991, with Jasper County, Indiana regarding $55,000,000 Series 1991 Collateralized Pollution Control Refunding Revenue Bonds (incorporated by reference to Exhibit 3 to Northern Indiana Current Report on Form 8-K dated March 25, 1992). (4.23) Rights Agreement between Registrant and Harris Trust and Savings Bank, dated February 27, 1990 (incorporated by reference to Exhibit 4.1 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 7, 1990).
36
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF ITEM PAGE ------- ------------------- ------------ (10.1) Supplemental Life Insurance Plan effective January 1, 1991 (incorpo- rated by reference to Exhibit 2 to the NIPSCO Industries, Inc. Cur- rent Report on Form 8-K dated March 25, 1992).* (10.2) Executive Deferred Compensation Plan effective December 1, 1990 (in- corporated by reference to Exhibit 3 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25, 1992).* (10.3) Form of Change in Control and Termination Agreements (incorporated by reference to Exhibit 4 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25, 1992).* (10.4) Nonemployee Director Stock Incentive Plan effective February 1, 1992 (incorporated by reference to Exhibit 5 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25, 1992).* (10.5) NIPSCO Industries, Inc. Long-Term Incentive Plan (incorporated by ref- erence to Exhibit 6 to the NIPSCO Industries, Inc. Current Report on Form 8-K dated March 25, 1992).* (10.6) Amended and Restated Pension Plan Provisions effective January 1, 1989 (incorporated by reference to Exhibit 17 to Northern Indiana Current Report on Form 8-K dated March 25, 1992).* (11) Computation of Per Share Earnings. (13) 1993 Annual Report to Shareholders for pages 26-53. (21) List of Subsidiaries. (23) Consent of Arthur Andersen & Co. (99) Amended Articles of Incorporation of Northern Indiana Public Service Company (incorporated by reference to Exhibit 1 to the Northern Indi- ana Current Report of Form 8-K dated May 5, 1982).
- -------- *Management contract or compensatory plan arrangement of NIPSCO Industries, Inc. 37 EX-11 2 COMPUTATION/SHARE EARNINGS EXHIBIT 11 NIPSCO INDUSTRIES, INC. COMPUTATION OF PER SHARE EARNINGS TWELVE MONTHS ENDED DECEMBER 31, 1993 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FULLY PRIMARY DILUTED ---------- ---------- Weighted Average Number of Shares Average Common Shares Outstanding at 12/31/93.... 66,136,396 66,136,396 Dilutive Effect for Nonqualified Stock Options at 12/31/93........................................ 173,417 193,693 ---------- ---------- Weighted Average Shares at 12/31/93.............. 66,309,813 66,330,089 ========== ========== Net Income to be Used to Compute Earnings Per Average Common Share (DOLLARS IN THOUSANDS) Net Income....................................... $ 156,140 $ 156,140 Dividend Requirements on Preferred Shares........ 3,063 3,063 ---------- ---------- Balance Available for Common Shareholders........ $ 153,077 $ 153,077 ========== ========== Earnings Per Average Common Share.................. $ 2.31(a) $ 2.31(a) ========== ==========
Note: (a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 11 NIPSCO INDUSTRIES, INC. COMPUTATION OF PER SHARE EARNINGS TWELVE MONTHS ENDED DECEMBER 31, 1992 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FULLY PRIMARY DILUTED ---------- ---------- Weighted Average Number of Shares Average Common Shares Outstanding at 12/31/92.... 66,715,941 66,715,941 Dilutive Effect for Nonqualified Stock Options at 12/31/92........................................ 115,467 144,072 ---------- ---------- Weighted Average Shares at 12/31/92.............. 66,831,408 66,860,013 ========== ========== Net Income to be Used to Compute Earnings Per Average Common Share (DOLLARS IN THOUSANDS) Net Income....................................... $ 136,648 $ 136,648 Dividend Requirements on Preferred Shares........ 3,063 3,063 ---------- ---------- Balance Available for Common Shareholders........ $ 133,585 $ 133,585 ========== ========== Earnings Per Average Common Share.................. $ 1.99(a) $ 1.99(a) ========== ==========
Note: (a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 11 NIPSCO INDUSTRIES, INC. COMPUTATION OF PER SHARE EARNINGS TWELVE MONTHS ENDED DECEMBER 31, 1991 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
FULLY PRIMARY DILUTED ---------- ---------- Weighted Average Number of Shares Average Common Shares Outstanding at 12/31/91 Be- fore Conversion................................. 67,035,495 67,035,495 Common Shares Reserved for Conversion of 4 1/4% Convertible Debentures at 12/31/91.............. -- 219,359 Dilutive Effect for Nonqualified Stock Options at 12/31/91........................................ 157,939 174,969 ---------- ---------- Weighted Average Shares at 12/31/91.............. 67,193,434 67,429,823 ========== ========== Net Income to be Used to Compute Earnings Per Average Common Share (DOLLARS IN THOUSANDS) Net Income....................................... $ 133,388 $ 133,388 Plus: Interest Expense--Net of Income Tax Ef- fect............................................ -- 115 ---------- ---------- Net Income....................................... 133,388 133,503 Dividend Requirements on Preferred Shares........ 3,063 3,063 ---------- ---------- Balance Available for Common Shareholders........ $ 130,325 $ 130,440 ========== ========== Earnings Per Average Common Share.................. $ 1.93(a) $ 1.93(a) ========== ==========
Note: (a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-13 3 ANNUAL REPORT EXCERPTS EXHIBIT 13 1993 FINANCIAL REVIEW Management's Discussion and Analysis of Financial Condition and 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 subsidiaries of Industries. The following discussion, except where noted, is attributable to the utility operations of Northern Indiana, Kokomo Gas, NIFL and Crossroads Pipeline Company (Utilities). NET INCOME For 1993, net income of Industries increased to $156.1 million, or earnings of $2.31 per average common share, compared to $136.6 million, or earnings of $2.00 per average common share, for 1992. In 1991, net income was $133.4 million, or earnings of $1.94 per average common share. See Notes to Consolidated Financial Statements for Segments of Business regarding the revenue and utility operating income derived from the delivery of gas and electricity. REVENUES Operating revenues increased $95.5 million, or 6.0%, from 1992. Operating revenues in 1992 increased $47.2 million, or 3.1%, from 1991. During 1993, gas deliveries in dekatherms (dth), which include transportation services, increased 9.8%. The increase in gas deliveries was largely attributable to increased deliveries to residential, commercial and transportation customers and the addition of 27,500 customers acquired through the purchase of NIFL in March, 1993. The Utilities had approximately 682,200 gas customers at December 31, 1993. During 1992, gas deliveries increased 8.9%, mainly due to the addition of 30,000 customers acquired through the purchase of Kokomo Gas in February, 1992, and increased deliveries to residential, commercial and industrial customers. Gas revenues were $714.2 million in 1993, an increase of $48.0 million from 1992. The increase in gas revenues was mainly due to increased sales to residential and commercial customers due to the colder weather this year, and the inclusion of NIFL, and was partially offset by decreased transportation revenue per dth delivered due to lower take-or-pay costs. Gas revenues were $666.2 million in 1992, an increase of $64.3 million from 1991. The increase in gas revenues was mainly due to the inclusion of Kokomo customers, increased sales to residential and commercial customers due to the colder heating season and higher gas costs per dth and was partially offset by the replacement of sales with transportation service and lower revenue per dth transported. The large commercial and industrial customers continued to utilize transportation services provided by the Utilities. 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 transported 167.9, 149.5 and 135.9 million dth in 1993, 1992 and 1991, respectively. In 1993, sales of electricity in kilowatt-hours (kwh) increased 5.1% over 1992 mainly due to higher sales to residential and commercial customers due to warmer weather in the second and third quarters and increased industrial demands. Northern Indiana had approximately 395,100 electric customers at December 31, 1993. In 1992, sales of electricity in kwh increased 5.5% over 1991 mainly due to higher sales to industrial and wholesale customers partially offset by decreased sales to residential and commercial customers due to the significantly cooler summer of 1992 compared to 1991. In 1993, electric revenues were $963.7 million, an increase of $47.5 million from 1992. The increase in electric revenue was mainly due to higher sales to residential and commercial customers due to warmer weather in the second and third quarters and increased industrial demands. In 1992, electric revenues were $916.2 million, a decrease of $17.1 million from 1991. The decrease in electric revenue was mainly due to reduced fuel costs per kwh. Decreased revenues due to lower sales to residential and commercial customers due to the much cooler summer weather were offset by increased sales to industrial and wholesale customers. The components of the changes in gas and electric revenues are shown in the following tables:
Year 1993 Year 1992 Compared to Compared to Year 1992 Year 1991 ----------- ----------- (Dollars in millions) Gas Revenue Rate changes....................................... $ _ $ 0.6 Pass through of net changes in purchased gas costs, gas storage and storage transportation costs..... 27.1 28.6 Take-or-pay costs.................................. (27.0) (11.8) Changes in sales levels............................ 19.3 15.0 Gas transported.................................... 2.9 1.8 Kokomo and NIFL acquisitions....................... 25.7 30.1 ------ ------ Gas Revenue Change................................... $ 48.0 $ 64.3 ------ ------
26
Year 1993 Year 1992 Compared to Compared to Year 1992 Year 1991 ----------- ----------- (Dollars in millions) Electric Revenue Pass through of net changes in fuel costs.......... $(10.4) $(17.6) Changes in sales levels............................ 57.9 0.5 ------ ------ Electric Revenue Change.............................. $ 47.5 $(17.1) ------ ------ Total Revenue Change............................... $ 95.5 $ 47.2 ====== ======
- ---------------- See Rate Matters in Notes to Consolidated Financial Statements regarding changes in gas rates and gas take-or-pay costs. The basic steel industry accounted for 39% of natural gas delivered (including volumes transported) and 39% of electric sales during 1993. The Utilities' rate schedules for gas and electric service to their customers contain electric rate adjustment clauses for changes in the cost of fuel and firm purchases of electric energy and gas rate adjustment clauses to reflect changes in the cost of gas purchased and contracted gas storage and storage transportation costs. (See Fuel Adjustment Clause and Gas Cost Adjustment Clause under Summary of Significant Accounting Policies in Notes to Consolidated Financial Statements.) PURCHASED GAS The Utilities purchased gas costs increased $20.0 million (5.3%) in 1993 due to increased purchases resulting from the colder weather of 1993, and the inclusion of $16.1 million of purchased gas costs related to NIFL. The average cost for the Utilities purchased gas in 1993, after adjustment for take-or-pay charges billed to transport customers, was $3.23 per dth as compared to $3.16 per dth in 1992. Purchased gas costs increased $40.4 million (11.9%) in 1992, due to $19 million of purchased gas costs related to Kokomo Gas and increased costs per dth. The average cost for the Utilities purchased gas in 1992, after adjustment for take-or-pay charges billed to transport customers, was $3.16 per dth as compared to $2.93 per dth in 1991. FUEL AND POWER PURCHASED Cost of fuel for electric generation in 1993 increased mainly as a result of increased production partially offset by decreased fuel costs per kwh produced. The average cost per kwh generated decreased 1.0% from 1992 to 16.65 mills. The cost of fuel for electric generation in 1992 decreased $6.0 million as a result of lower fuel costs per kwh generated. The average cost per kwh generated decreased 5.8% from 1991 to 16.82 mills. Purchased power costs increased $7.2 million in 1993, as a result of increased power purchases from other utilities. Purchased power costs increased $2.9 million in 1992, as a result of increased power purchases from other utilities. OPERATING MARGINS Operating margins increased $66.1 million in 1993 to $1.0 billion. The operating margin from gas deliveries increased $28.0 million mainly due to the increased sales to residential and commercial customers due to colder weather during this year and the addition of 27,500 gas customers due to the purchase of NIFL. Operating margins from electric sales increased $38.1 million mainly reflecting increased sales to residential and commercial customers due to warmer weather in the second and third quarters and increased industrial demands. Operating margins increased $10.0 million in 1992 to $949.4 million. The operating margin from gas deliveries increased $23.9 million mainly due to the increased sales to residential and commercial customers and the addition of 30,000 gas customers due to the purchase of Kokomo Gas. Operating margins from electric sales decreased $13.9 million due to reduced sales to residential and commercial customers during the second and third quarters and were partially offset by increased sales to industrial and wholesale customers. OPERATING EXPENSES AND TAXES Operating expenses and taxes in 1993 increased 7.1% from 1992 to $753.5 million and in 1992 increased 2.6% from 1991 to $703.2 million. The increase in 1993 from 1992 is mainly due to a full year of the service agreement associated with the Bailly scrubber, increased gas storage costs reflecting changes in the Utilities' gas supply arrangements, higher employee related expenses and the addition of operating expenses of NIFL. The increase in 1992 from 1991 was mainly due to the service agreement associated with the Bailly scrubber, which went into service in June, 1992, increased gas storage and transmission costs reflecting changes in the Utilities' gas supply arrangements, higher employee related expenses and the addition of operating expenses of Kokomo Gas. Payroll costs charged to Operations and Maintenance were $194 million in 1993, $190 million in 1992 and $187 million in 1991. Depreciation and amortization expenses increased $4.3 million compared to 1992 as a result of net plant additions. Income and other tax provisions charged to operations amounted to $168.5 million in 1993, $149.9 million in 1992 and $144.5 million in 1991 and represent 10.0% of operating revenues for 1993. Taxes, except income taxes, increased primarily due to higher property tax requirements in 1993. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (Continued) 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 NIPSCO Exploration Company, Inc.'s [Exploration] net results of operations, which are reported as a component of gas purchased for resale, since Exploration is subject to Indiana Utility Regulatory Commission [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." Interest and other charges decreased $7.2 million and $10.2 million in 1993 and 1992, respectively. The 1993 decrease reflects Northern Indiana's reduced interest rates on long-term debt outstanding and favorable interest rates on short-term borrowings. The 1992 decrease reflects reduced long-term debt outstanding and favorable interest rates on short-term borrowings. Preferred dividend requirements of Northern Indiana decreased $1.0 million in 1992, primarily due to the redemption of 276,800 shares of 12.55% Series Cumulative Preferred Stock on October 15, 1992, with a portion of the proceeds from the issue of 430,000 shares of 6.50% Series Cumulative Preferred Stock on October 13, 1992. See Notes to Consolidated Financial Statements for a discussion of Postretirement Benefits, Postemployment Benefits, Income Taxes, Allowance for Funds Used During Construction, Carrying Charges and Deferred Depreciation, and FERC Order No. 636. ENVIRONMENTAL MATTERS Because of major investments made in modern environmental control facilities and the use of low sulfur coal, substantially all of Northern Indiana's electric production facilities already comply with the future sulfur dioxide limitations contained in acid deposition provisions of the Clean Air Act Amendments of 1990 (CAAA), which became law on November 15, 1990. Northern Indiana has successfully tested the use of low sulfur coal at Unit 12 at the Michigan City Generating Station, the only generating unit not in compliance with the future sulfur dioxide limitations, and expects that unit to be able to meet the limits with low sulfur coal. 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 "air toxics," 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) has promulgated a permit program to meet the requirements of the CAAA. This permit program, when enacted by Indiana, will increase the fees associated with operating permits for air emissions. 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 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, is required to be taken by it. 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 voluntary program of investigating its former manufactured gas plant sites in order to determine what, if any, remediation of any potential 28 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, remediation 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. Utility construction expenditures by Industries for 1993, 1992 and 1991 were approximately $181 million, $172 million and $169 million, respectively. Industries' total utility plant investment on December 31, 1993, was $5.3 billion. 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. A portion of the proceeds was used to redeem the 12.55% Series Cumulative Preferred Stock on October 15, 1992, with the remainder used for general corporate purposes. The 6.50% Preferred shares are subject to mandatory redemption in whole on October 14, 2002. On April 5, 1993, Series V, First Mortgage Bonds, 8.90% of 2004, Series BB, First Mortgage Bonds, 9 7/8% of 2004 and the Series KK, First Mortgage Bonds, 9 1/4% of 2016 were redeemed in total at the option of Northern Indiana. Redemption was accomplished through the issuance of short-term debt. In April 1993, Northern Indiana sold $125,000,000 in Medium-Term Notes, Series B, due from 1 year to 30 years from date of issue. The proceeds from the sale of the notes were used to repay short-term debt which was incurred to pay at maturity certain of Northern Indiana's previously outstanding medium-term notes and First Mortgage Bonds. 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 First Mortgage Bonds redeemed on April 5, 1993, 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. Through December 31, 1993, $329.2 million of Medium-Term Notes, Series C, have been issued. On December 9, 1992, Capital Markets issued $72.5 million (at maturity) of Zero Coupon Notes, due December 1, 1997 which are not redeemable prior to maturity. The proceeds from the sale of the notes were used to repay Capital Markets' short-term bank borrowings. The notes are unsecured debt obligations of Capital Markets. 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 December 31, 1993, there were no borrowings outstanding under this agreement. Capital Markets also has $50 million of money market lines of credit. As of December 31, 1993, there were no borrowings outstanding under these lines of credit. As of December 31, 1993, Capital Markets had $47.0 million in commercial paper outstanding, having a weighted average interest rate of 3.48%. 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 $299.1 million at December 31, 1993. 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 December 31, 1993, 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 December 31, 1993, Northern Indiana had $27.9 million in commercial paper outstanding, having a weighted average interest rate of 3.56%. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (Concluded) Northern Indiana has a $250 million revolving Credit Agreement with several banks which terminates September 21, 1996, unless extended by its terms. As of December 31, 1993, 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, 1994. As of December 31, 1993, 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 $173.5 million of money market lines of credit. As of December 31, 1993, $40.0 million of borrowings were outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At December 31, 1993, $20.0 million of borrowings were outstanding under this facility. On April 5, 1993, Northern Indiana executed a 364-day $50 million private placement loan. 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 and electric base rate increases in the near future. (Selected Statistical Charts) (Capitalization Ratios Chart)
COMMON PREFERRED AND LONG-TERM SHARE PREFERENCE YEAR DEBT EQUITY STOCK TOTAL - ---- --------- ------ ------------- ------- 1984 48.9% 38.8% 12.3% 100.0% 1985 53.6% 34.8% 11.6% 100.0% 1986 55.3% 33.6% 11.1% 100.0% 1987 52.7% 36.1% 11.2% 100.0% 1988 52.0% 41.0% 7.0% 100.0% 1989 52.3% 40.8% 6.9% 100.0% 1990 49.2% 42.6% 8.2% 100.0% 1991 47.1% 44.6% 8.3% 100.0% 1992 46.0% 45.1% 8.9% 100.0% 1993 47.9% 44.0% 8.1% 100.0%
(Cost of Fuel for Electric Generation Chart)
YEAR (MILLS PER KWH) ---- --------------- 1984 26.89 1985 27.85 1986 23.92 1987 21.02 1988 19.09 1989 18.01 1990 18.13 1991 17.86 1992 16.82 1993 16.65
(Cost of Gas Purchased for Resale Chart)
DOLLARS YEAR PER DTH ---- ------- 1984 3.37 1985 3.42 1986 3.20 1987 2.94 1988 3.03 1989 3.21 1990 3.40 1991 3.16 1992 3.31 1993 3.27
30 CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------- Operating Revenues: (Dollars in thousands) Gas....................................... $ 714,229 $ 666,221 $ 601,920 Electric.................................. 963,643 916,135 933,241 ---------- ---------- ---------- 1,677,872 1,582,356 1,535,161 ---------- ---------- ---------- Cost of Energy: Gas purchased for resale.................. 399,590 379,564 339,206 Fuel for electric generation.............. 244,552 242,385 248,428 Power purchased........................... 18,225 11,028 8,151 ---------- ---------- ---------- 662,367 632,977 595,785 ---------- ---------- ---------- Operating Margin............................ 1,015,505 949,379 939,376 ---------- ---------- ---------- Operating Expenses and Taxes (except income): Operation................................. 314,461 285,131 271,298 Maintenance............................... 83,548 85,451 93,508 Depreciation and amortization............. 187,000 182,717 175,721 Taxes (except income)..................... 71,621 69,555 65,731 ---------- ---------- ---------- 656,630 622,854 606,258 ---------- ---------- ---------- Operating Income Before Utility Income Taxes 358,875 326,525 333,118 ---------- ---------- ---------- Utility Income Taxes........................ 96,830 80,308 78,764 ---------- ---------- ---------- Operating Income............................ 262,045 246,217 254,354 ---------- ---------- ---------- Other Income (Deductions): Allowance for funds, other than borrowed funds, used during construction......... 1 30 (5) Other, net................................ (2,071) 1,454 258 ---------- ---------- ---------- (2,070) 1,484 253 ---------- ---------- ---------- Income Before Interest and Other Charges.... 259,975 247,701 254,607 ---------- ---------- ---------- Interest and Other Charges: Interest on long-term debt................ 82,121 87,660 100,381 Other interest............................ 9,238 9,955 7,094 Allowance for borrowed funds used during construction and carrying charges....... (1,447) (543) (1,346) Amortization of premium, reacquisition premium, discount and expense on debt, net..................................... 3,582 3,323 3,404 Dividend requirements on preferred stocks of subsidiary.................... 10,341 10,658 11,686 ---------- ---------- ---------- 103,835 111,053 121,219 ---------- ---------- ---------- Net Income.................................. 156,140 136,648 133,388 Dividend requirements on preferred shares... 3,063 3,063 3,063 ---------- ---------- ---------- Balance available for common shareholders... $ 153,077 $ 133,585 $ 130,325 ========== ========== ========== Average common shares outstanding........... 66,136,396 66,715,941 67,035,495 Earnings per average common share........... $2.31 $2.00 $1.94 ========== ========== ========== Dividends declared per common share......... $1.35 $1.26 $1.18 ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. 31 CONSOLIDATED BALANCE SHEET
December 31, 1993 1992 - -------------------------------------------------------------------------------- ASSETS (Dollars in thousands) Utility Plant, at original cost (including construction work in progress of $189,634 and $144,228, respectively): Electric........................................... $3,778,016 $3,698,794 Gas................................................ 1,216,178 1,096,467 Common............................................. 289,242 258,285 ---------- ---------- 5,283,436 5,053,546 Less--Accumulated provision for depreciation and amortization..................................... 2,052,221 1,876,618 ---------- ---------- Total utility plant............................ 3,231,215 3,176,928 ---------- ---------- Other Property and Investments: Other property, at cost, less accumulated provision for depreciation....................... 124,184 96,470 Investments, at equity............................. 19,142 33,479 Investments, at cost............................... 6,189 6,404 ---------- ---------- Total other property and investments........... 149,515 136,353 ---------- ---------- Current Assets: Cash and cash equivalents.......................... 16,140 41,357 Accounts receivable, less reserve of $4,855 and $5,121, respectively............................. 115,129 99,673 Fuel adjustment clause............................. 6,440 4,335 Gas cost adjustment clause......................... 35,659 45,358 Materials and supplies, at average cost............ 67,120 73,883 Electric production fuel, at average cost.......... 21,533 41,945 Natural gas in storage, at last-in, first-out cost. 62,870 36,653 Prepayments and other.............................. 11,118 12,466 ---------- ---------- Total current assets........................... 336,009 355,670 ---------- ---------- Deferred Charges: Unamortized reacquisition premium on debt and debt expenses......................................... 54,078 43,903 Unamortized R.M. Schahfer Unit 17 and Unit 18 carrying charges and deferred depreciation....... 79,198 83,415 Other.............................................. 62,309 11,672 ---------- ---------- Total deferred charges......................... 195,585 138,990 ---------- ---------- $3,912,324 $3,807,941 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. 32
December 31, 1993 1992 - -------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES (Dollars in thousands) Capitalization: Common shareholders' equity........................... $1,094,672 $1,034,530 Preferred stocks-- Northern Indiana Public Service Company: Series without mandatory redemption provisions.... 97,753 97,917 Series with mandatory redemption provisions....... 68,462 70,668 NIPSCO Industries, Inc.: Series with mandatory redemption provisions....... 35,000 35,000 Long-term debt, excluding amounts due within one year. 1,192,500 1,054,454 ---------- ---------- Total capitalization............................ 2,488,387 2,292,569 ---------- ---------- Current Liabilities: Obligations due within one year-- Northern Indiana Public Service Company: Commercial paper.................................. 27,895 76,500 First mortgage bonds-- Series M, 4 1/2%--due April 15, 1993............. -- 21,916 Medium-term notes-- Issued at interest rates between 9.15% and 9.50% with a weighted average interest rate of 9.18% and various maturities between January 14, 1994 and April 11, 1994....................... 65,000 53,000 Notes payable-- Issued at interest rates between 3.30% and 4.05% with a weighted average interest rate of 3.78% and various maturities between January 3, 1994 and April 4, 1994............................. 110,000 208,701 NIPSCO Capital Markets, Inc.: Commercial paper.................................. 47,000 -- Note payable-- 4.06%--due January 25, 1993..................... -- 35,000 Medium-term notes-- Issued at interest rates between 8.95% and 9.45% with a weighted average interest rate of 9.12% and various maturities between July 28, 1993 and September 8, 1993......................... -- 15,000 ---------- ---------- 249,895 410,117 ---------- ---------- Other current liabilities-- Accounts payable.................................. 192,543 166,832 Sinking funds due within one year................. 7,357 4,611 Dividends declared on common and preferred stocks. 26,165 24,241 Customer deposits................................. 9,471 9,103 Taxes accrued..................................... 74,562 73,621 Interest accrued.................................. 12,253 13,991 Other accruals.................................... 45,118 39,556 ---------- ---------- 367,469 331,955 ---------- ---------- Total current liabilities....................... 617,364 742,072 ---------- ---------- Other: Deferred income taxes................................. 576,071 586,178 Deferred investment tax credits, being amortized over life of related property....................... 129,681 136,428 Deferred credits...................................... 37,767 41,257 Regulatory income tax liability....................... 25,371 -- Other noncurrent liabilities.......................... 37,683 9,437 ---------- ---------- Total other..................................... 806,573 773,300 ---------- ---------- Commitments and Contingencies (see notes) $3,912,324 $3,807,941 ========== ==========
33 CONSOLIDATED STATEMENT OF CAPITALIZATION
December 31, 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Common shareholders' equity................................................................ $1,094,672 44.0% $1,034,530 45.1% ---------- ---------- Preferred Stocks, which are redeemable solely at option of issuer: Northern Indiana Public Service Company Cumulative preferred stock--$100 par value-- 4 1/4% series--211,298 and 211,341 shares outstanding, respectively.................. 21,130 21,134 4 1/2% series--79,996 shares outstanding............................................. 8,000 8,000 4.22% series--106,200 shares outstanding............................................. 10,620 10,620 4.88% series--100,000 shares outstanding............................................. 10,000 10,000 7.44% series--41,900 shares outstanding.............................................. 4,190 4,190 7.50% series--34,842 shares outstanding.............................................. 3,484 3,484 Premium on preferred stock........................................................... 254 254 Cumulative preferred stock--no par value-- Adjustable Rate (6.00% at December 31, 1993)-- Series A (stated value--$50 per share), 801,500 and 804,700 shares outstanding, respectively....................................................................... 40,075 40,235 ---------- ---------- 97,753 3.9% 97,917 4.3% ---------- ---------- Redeemable 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--112,500 and 125,000 shares outstanding, respectively................... 11,250 12,500 7 3/4% series--61,122 and 66,676 shares outstanding, respectively.................... 6,112 6,668 8.35% series--81,000 and 85,000 shares outstanding, respectively..................... 8,100 8,500 Cumulative preferred stock--no par value-- 6.50% series--430,000 shares outstanding............................................. 43,000 43,000 ---------- ---------- 68,462 2.7% 70,668 3.1% ---------- ---------- NIPSCO Industries, Inc. Cumulative preferred shares--without par value-- 8.75% series (stated value--$100 per share), 350,000 shares outstanding.............. 35,000 1.4% 35,000 1.5% ---------- ---------- Long-term debt............................................................................. 1,192,500 48.0% 1,054,454 46.0% ---------- ------ ---------- ------ Total capitalization............................................................... $2,488,387 100.0% $2,292,569 100.0% ========== ====== ========== ======
The accompanying notes to consolidated financial statements are an integral part of this statement. 34
CONSOLIDATED STATEMENT OF LONG-TERM DEBT December 31, 1993 1992 (Dollars in thousands) Northern Indiana Public Service Company First mortgage bonds-- Series N, 4 5/8%--due May 15, 1995............................... $ 22,436 $ 22,436 Series O, 6 3/8%--due September 1, 1997.......................... 27,507 27,507 Series P, 6 7/8%--due October 1, 1998............................ 15,671 15,671 Series S, 8 1/8%--due May 1, 2001................................ 41,000 41,485 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 V, 8.90%--due April 1, 2004............................... -- 56,584 Series Y, 8 3/8%--due October 15, 2006........................... 50,575 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 33,407 Series BB, 9 7/8%--due June 15, 2004.............................. -- 13,500 Series KK, 9 1/4%--due December 1, 2016........................... -- 114,500 Series LL, 7 1/2%--due October 15, 2014........................... 41,000 41,000 Series MM, 7 1/2%--due October 15, 2004........................... 10,000 10,000 Series NN, 7.10%--due July 1, 2017................................ 55,000 55,000 ---------- ---------- Total......................................................... 436,047 621,116 ---------- ---------- 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 18,000 Series 1988 bonds--Jasper County--Series A, B and C 2.44% weighted average at December 31, 1993, due November 1, 2016 130,000 130,000 Series 1988 bonds--Jasper County--Series D 2.46% weighted average at December 31, 1993, due November 1, 2007 24,000 24,000 ---------- ---------- Total......................................................... 193,500 193,500 ---------- ---------- Medium-term notes-- Issued at interest rates between 5.83% and 7.64%, with a weighted average interest rate of 6.82% and various maturities between April 6, 1998 and August 17, 2023................................. 454,200 153,000 ---------- ---------- Unamortized premium and discount on long-term debt, net.............. (4,663) (3,156) ---------- ---------- Total long-term debt of Northern Indiana Public Service Company 1,079,084 964,460 ---------- ---------- NIPSCO Capital Markets, Inc. Medium-term note--9.95%--due June 10, 1996......................... 7,500 7,500 Unamortized discount............................................... (16) (31) Zero Coupon Notes--7.57%, $72,500 at maturity, due December 1, 1997 54,191 50,306 ---------- ---------- Total long-term debt of NIPSCO Capital Markets, Inc........... 61,675 57,775 ---------- ---------- NIPSCO Development Company, Inc. Lake Erie Land Company--Notes Payable-- Interest rates between 6.00% and 7.00% with a weighted average interest rate of 6.42% and various maturities between July 5, 1996 and June 30, 1998................................. 3,256 3,809 Elm Energy and Recycling (UK), Ltd. Term Loan Facility--6.79%--due December 31, 2004................. 41,577 28,292 Metals Technology Corporation--Notes Payable-- Mortgage note, 6.50%--due September 25, 2005..................... 108 118 ---------- ---------- Total long-term debt of NIPSCO Development Company, Inc....... 44,941 32,219 ---------- ---------- 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....... $1,192,500 $1,054,454 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. 35
CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 1993 1992 1991 (Dollars in thousands) Cash flows from operating activities: Net income................................................... $ 156,140 $ 136,648 $ 133,388 Adjustments to reconcile net income to net cash: Depreciation and amortization................................ 187,000 182,717 175,721 Deferred federal and state operating income taxes, net....... 2,122 14,503 6,769 Deferred investment tax credits, net......................... (7,446) (7,452) (6,295) Change in certain assets and liabilities*-- Accounts receivable, net................................... (12,255) 18,284 (45,804) Electric production fuel................................... 20,412 (10,861) 5,376 Materials and supplies..................................... 7,344 2,394 2,513 Natural gas in storage..................................... (24,685) 3,074 4,962 Accounts payable........................................... 23,507 (4,521) (1,670) Taxes accrued.............................................. 541 16,593 (9,667) Fuel adjustment clause..................................... (2,105) 6,965 (12,571) Gas cost adjustment clause................................. 10,641 (43,565) 3,475 Other, net................................................... 11,462 3,638 (13,564) ----------- ----------- --------- Net cash provided by operating activities................ 372,678 318,417 242,633 ----------- ----------- --------- Cash flows provided by (used in) investing activities: Utility construction expenditures............................ (180,852) (172,329) (168,958) Acquisition and construction expenditures related to Crossroads Pipeline Company................................ (24,361) -- -- Purchase of Kokomo Gas and Fuel Company, net of cash acquired -- (43,752) -- Purchase of Northern Indiana Fuel and Light Company, net of cash acquired....................................... (30,137) -- -- Return of Capital to Harbor Coal Company..................... 32,435 -- -- Other, net................................................... (53,061) (78,566) (13,658) ----------- ----------- --------- Net cash used in investing activities.................... (255,976) (294,647) (182,616) ----------- ----------- --------- Cash flows provided by (used in) financing activities: Issuance of long-term debt................................... 468,269 82,456 55,000 Issuance of short-term debt.................................. 1,254,507 1,865,713 398,175 Issuance of preferred shares................................. -- 43,000 -- Net change in commercial paper............................... (1,605) (21,040) 24,036 Retirement of long-term debt................................. (377,069) (91,319) (155,408) Retirement of short-term debt................................ (1,388,208) (1,744,812) (275,375) Retirement of preferred stock................................ (2,170) (30,478) (5,833) Issuance of common shares.................................... 36,364 53,911 10,453 Acquisition of treasury shares............................... (40,730) (76,281) (55,606) Cash dividends paid on common shares......................... (88,214) (83,379) (77,832) Cash dividends paid on preferred shares...................... (3,063) (3,063) (2,690) Other, net................................................... -- 582 1,240 ----------- ----------- --------- Net cash used in financing activities.................... (141,919) (4,710) (83,840) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents........... (25,217) 19,060 (23,823) Cash and cash equivalents at beginning of period............... 41,357 22,297 46,120 ----------- ----------- --------- Cash and cash equivalents at end of period..................... $ 16,140 $ 41,357 $ 22,297 =========== =========== =========
*Net of effects from purchase of Kokomo Gas and Fuel Company and Northern Indiana Fuel and Light Company. The accompanying notes to consolidated financial statements are an integral part of this statement. 36 CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Dollars in Thousands Shares --------------------------------------------------------------------------------------------------- Additional Unearned Currency Common Paid-In Retained Treasury Compen- Translation Common Treasury Total Shares Capital Earnings Shares sation Adjustment Shares Shares ========================= ========== ======== ========== ======== ======== ======== =========== ========= ========== Balance, January 1, 1991... $1,005,982 $860,776 $11,323 $217,636 $ (81,670) $(2,083) $ -- 73,375,371 (4,501,142) Net income................. 133,388 133,388 Dividends: Preferred shares......... (3,063) (3,063) Common shares............ (78,509) (78,509) Treasury shares acquired... (55,606) (55,606) (2,762,153) Issued: Employee stock purchase plan.................... 434 434 27,280 Long-term incentive plan. 1,677 408 3,505 (2,236) 185,875 Conversion of 4 1/4% convertible debentures.. 6,806 6,806 346,384 Other...................... 557 210 (291) 638 ---------- -------- ------- -------- --------- ------- ------- ---------- ---------- Balance, December 31, 1991. $1,011,666 $867,582 $11,941 $269,161 $(133,337) $(3,681) $ -- 73,721,755 (7,050,140) ---------- -------- ------- -------- --------- ------- ------- ---------- ---------- Net income................. 136,648 136,648 Dividends: Preferred shares......... (3,063) (3,063) Common shares............ (84,437) (84,437) Treasury shares acquired... (76,281) (76,281) (3,135,902) Issued: Employee stock purchase plan.................... 327 327 20,614 Long-term incentive plan. 3,307 51 3,705 (449) 183,125 Kokomo Gas acquisition... 46,828 10,232 36,596 1,848,588 Conversion of 4 1/4% convertible debentures.. 3,348 3,348 170,354 Other...................... (3,813) (1,449) (1,114) 1,096 (2,346) (44) ---------- -------- ------- -------- --------- ------- ------- ---------- ---------- Balance, December 31, 1992. $1,034,530 $870,930 $20,775 $317,195 $(168,990) $(3,034) $(2,346) 73,892,109 (8,133,759) ---------- -------- ------- -------- --------- ------- ------- ---------- ---------- Net income................. 156,140 156,140 Dividends: Preferred shares......... (3,063) (3,063) Common shares............ (89,384) (89,384) Treasury shares acquired... (40,730) (40,730) (1,325,085) Issued: Employee stock purchase plan.................... 433 138 295 18,561 Long-term incentive plan. 5,666 63 5,696 (93) 264,150 NIFL acquisition......... 30,172 6,655 23,517 1,112,862 Other...................... 908 1,443 (535) ---------- -------- ------- -------- --------- ------- ------- ---------- ---------- Balance, December 31, 1993. $1,094,672 $870,930 $27,631 $380,888 $(180,212) $(1,684) $(2,881) 73,892,109 (8,063,271) ========== ======== ======= ======== ========= ======= ======= ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. At December 31, 1993, Industries had five direct, wholly-owned subsidiaries in addition to Northern Indiana, which are all Indiana corporations: 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). 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 6 counties having a population of approximately 100,000, and serves approximately 31,000 customers at December 31, 1993. 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 serves approximately 28,700 customers at December 31, 1993, 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 diversifi- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) cation 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 non-utility ventures of Industries and subsidiaries. In December, 1993, Industries signed a letter of intent for the sale of NETCO and Services' 51 percent ownership in Triumph Natural Gas, Inc., to Houston based Eastex Energy, Inc., (Eastex). The proposed transaction will have an anticipated value in excess of $10 million. Industries would acquire a 25 percent equity ownership of Eastex through common and preferred stock. Development is a 95% shareholder in Elm Energy and Recycling (UK) Ltd. (Elm Energy), which was formed to develop, own and operate a waste-to-energy generating plant in Wolverhampton, England. The 30 megawatt tire-fueled generating station is expected to use about 8-10 million automobile and truck tires a year and began operations 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. 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 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 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 year 1993, 4.0% for year 1992 and 3.9% for year 1991. The depreciation rates for electric and gas properties are 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 3.2% for the years 1993 and 1992. 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 December 31, 1993, 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 years reported for income taxes and interest was as follows:
1993 1992 1991 -------- -------- -------- (Dollars in thousands) Income taxes.............. $ 93,155 $ 65,532 $ 90,136 Interest, net of amounts capitalized............. $ 88,353 $ 96,909 $104,985
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 38 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 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 December, 1993 and 1992, the estimated replacement cost of gas in storage (current and non-current) at December 31, 1993 and 1992, exceeded the stated LIFO cost by approximately $55 million and $65 million, respectively. 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, 1991, a pretax rate of 6.5% for all construction was being used; effective January 1, 1992, the rate decreased to 4.0% and effective January 1, 1993, the rate decreased to 3.7%. CARRYING CHARGES AND DEFERRED DEPRECIATION Upon completion of each of 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. 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 Effective January 1, 1993, Industries adopted Statement of Financial Accounting Standards (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. Such temporary differences are the 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. 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 and the change in temporary differences through December 31, 1993, has reduced the balance of the net regulatory liability to $25 million at December 31, 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. 39 - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- The components of the net deferred income tax liability at January 1, 1993, and December 31, 1993, are as follows:
Jan. 1, Dec. 31, 1993 1993 --------- -------- (Dollars in thousands) Deferred tax liabilities-- Accelerated depreciation and other property differences................................... $641,209 $677,493 AFUDC-equity.................................... 46,065 44,863 Adjustment clauses.............................. 19,281 16,876 Take-or-pay gas costs........................... 10,033 4,234 Reacquisition premium on debt................... 14,020 16,844 Deferred tax assets-- Deferred investment tax credits................. (50,438) (49,174) Removal costs................................... (82,207) (93,279) Regulatory income tax liability................. (19,128) (9,582) Other, net...................................... (22,441) (20,757) -------- -------- 556,394 587,518 Less: Deferred income taxes related to current assets and liabilities.......................... 17,390 11,447 -------- -------- Deferred income taxes--noncurrent................. $539,004 $576,071 ======== ========
Deferred income taxes are recognized as costs in the rate making process by the commissions having jurisdiction over the rates charged by the Utilities. The deferred income taxes resulting from the above are reversed by a debit or credit to deferred income tax expense as the timing differences reverse. Federal and state income taxes as set forth in the Consolidated Statement of Income are comprised of the following:
1993 1992 1991 -------- -------- -------- (Dollars in thousands) Current income taxes-- Federal...................................... $ 89,022 $ 61,557 $ 67,013 State........................................ 13,132 11,700 11,277 -------- -------- -------- 102,154 73,257 78,290 -------- -------- -------- Deferred income taxes, net--Federal and State-- Accelerated depreciation and other property differences................................. 13,211 11,078 16,571 Removal costs................................ (8,760) (11,352) (11,387) Adjustment clauses........................... (2,466) 14,086 3,363 Take-or-pay gas costs........................ (5,799) (2,403) (8,749) Minimum tax credit deferral.................. -- 9,798 7,316 Reacquisition premium on debt................ 2,824 (904) (678) Other........................................ 3,112 (5,800) 333 -------- -------- -------- 2,122 14,503 6,769 -------- -------- -------- Deferred investment tax credits, net........... (7,446) (7,452) (6,295) -------- -------- -------- Total utility operating income taxes....... 96,830 80,308 78,764 Income tax applicable to non-operating activities and income of non-utility subsidiaries.................................. (5,537) (3,324) (3,241) -------- -------- -------- Total income taxes......................... $ 91,293 $ 76,984 $ 75,523 ======== ======== ========
A reconciliation of total tax expense to an amount computed by applying the statutory federal income tax rate to pretax income is as follows:
1993 1992 1991 -------- -------- -------- (Dollars in thousands) Net Income..................................... $156,140 $136,648 $133,388 Add--Income taxes.............................. 91,293 76,984 75,523 Dividend requirements on preferred stocks of subsidiary.................................... 10,341 10,658 11,686 -------- -------- -------- Income before preferred dividend requirements of subsidiary and income taxes................ $257,774 $224,290 $220,597 ======== ======== ======== Amount derived by multiplying pretax income by statutory rate............................. $ 90,221 $ 76,259 $ 75,003 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation................................ 3,893 4,359 4,681 Amortization of deferred investment tax credits..................................... (7,446) (7,452) (6,423) State income taxes, net of federal income tax benefit..................................... 8,568 8,006 6,910 Reversal of deferred taxes provided at rates in excess of the current federal income tax rate.................................... (5,080) (5,468) (5,152) Other, net................................... 1,137 1,280 504 -------- -------- -------- Total income taxes......................... $ 91,293 $ 76,984 $ 75,523 ======== ======== ========
Investment tax credits have been deferred and are being amortized to income over the life of the related property. 40 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 December 31, 1993, and 1992, are as follows:
1993 1992 -------- -------- (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 December 31, 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 December 31, 1993, and 1992, respectively. The reduction of the discount rate, as discussed above, along with certain plan changes increased the accumulated benefit obligation as of December 31, 1993, by approximately $31 million. The following items are the components of provisions for pensions for the years ended December 31, 1993, 1992 and 1991:
1993 1992 1991 -------- -------- --------- (Dollars in thousands) Service costs................................ $ 13,086 $ 13,277 $ 10,607 Interest costs............................... 46,019 43,408 41,128 Actual return on plan assets................. (81,150) (41,796) (100,133) Amortization of transition obligation........ 5,387 5,437 5,489 Other net amortization and deferral.......... 39,567 1,599 65,623 -------- -------- --------- $ 22,909 $ 21,925 $ 22,714 ======== ======== =========
Assumptions used in the valuation and determination of 1993, 1992 and 1991 pension expenses were as follows:
1993 1992 1991 -------- -------- --------- Discount rate................................ 7.75% 7.5% 8.5% Rate of increase in compensation levels...... 5.5 6 6 Expected long-term rate of return on assets.. 8.25 8.25 8.75
The plans' assets are invested primarily in common stocks, bonds, notes and real estate investment funds. 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 an insurance company 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 and $6.4 million for the years ended December 31, 1992 and 1991, respectively. Effective January 1, 1993, Industries adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which establishes accounting and reporting standards for such postretirement benefits. The new 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 December 31, 1993, and January 1, 1993:
DEC. 31, 1993 JAN. 1, 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 prior period loss.................... (20,737) $ -- --------- --------- Accrued liability for postretirement health care benefit obligation.......................... $ 29,355 $ -- ========= =========
41 - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ Discount rates of 7.5% and 8% at December 31, 1993, 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 December 31, 1993, 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 benefit costs for the year ended December 31, 1993, include the following components:
1993 ----------- (Dollars in thousands) Service costs........................................ $ 6,863 Interest costs....................................... 18,224 Amortization of transition obligation over 20 years.. 11,594 ------- $36,681 =======
The net periodic postretirement benefit costs were determined assuming an 8% discount rate, a 5% rate of compensation increase and a pre-Medicare medical trend rate of 13% in 1993 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 December 31, 1993, by approximately $45 million and increase the aggregate of the service and interest cost components of plan costs by approximately $4.8 million for the year ended December 31, 1993. 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 requested but stated such deferral period should not exceed four years; the Utilities expect 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, the Utilities believe 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. The Utilities 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, the Utilities believe SFAS No. 106 will not have a material effect on future results of operations. POSTEMPLOYMENT BENEFITS In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which will require Industries to accrue the estimated cost of benefits provided to former or inactive employees after employment but before retirement. Industries will adopt SFAS No. 112 on January 1, 1994 and its adoption will not have a material impact on financial position or results of operations. 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 chal- lenging the assessment in the United States Tax Court. Northern Indiana's management and general counsel believe Northern Indiana will be successful in establishing that no tax withholding was required for the period. 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 $17 million) was recorded as a plant acquisition adjustment. RATE MATTERS GAS RATES On October 26, 1988, the Commission entered its order granting a retail gas rate increase of approximately $59.2 million (10.32%) annually to Northern Indiana. The October 26, 1988, Commission order required Northern Indiana to refile rates two years after the initial rate order was issued, in order to move rates closer to the cost-of-service. The refiled rates were approved on January 7, 1991, and resulted in an increase in residential rates and lower industrial transportation rates. TAKE-OR-PAY PIPELINE GAS COSTS The Federal Energy Regulatory Commission (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 $185.9 million of take-or-pay costs and interest from their customers through December 31, 1993. As of December 31, 1993, an additional $11.7 million was 42 scheduled to be billed to the Utilities and recovered from customers over a period of one to five years. FERC ORDER NO. 636 On April 8, 1992, the FERC issued its Order No. 636 which requires interstate pipelines to restructure their services. Under the Order, existing pipeline sales services have been "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 will allow 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. On the other hand, pipelines are seeking to recover certain transition costs associated with restructuring from their customers. Any such recovery would be subject to a prudence hearing at the FERC. Also, mandated changes in pipeline rate design could increase the cost of firm transportation service on interstate pipelines. The FERC has subsequently issued Order Nos. 636-A and 636- B in which it denied for the most part requests for rehearing of Order No. 636. The Orders are now on court appeal. The total magnitude of any transition costs charged to the Utilities can not yet be determined. The Utilities believe, however, that any transition costs which the FERC would allow the Utilities' pipeline suppliers to collect would be recoverable by the Utilities from their customers. Northern Indiana has filed a petition with the Commission seeking recovery of the transition costs from its sales and transport customers on a volumetric basis. ENVIRONMENTAL MATTERS Because of major investments made in modern environmental control facilities and the use of low sulfur coal, substantially all of Northern Indiana's electric production facilities already comply with the sulfur dioxide limitations contained in acid deposition provisions of the Clean Air Act Amendments of 1990 (CAAA), which became law on November 15, 1990. Northern Indiana has successfully tested the use of low sulfur coal at Unit 12 at the Michigan City Generating Station, the only generating unit not in compliance with the future sulfur dioxide limitations, and expects that unit to be able to meet the limits with low sulfur coal. 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 "air toxics," 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) has promulgated a permit program to meet the requirements of the CAAA. This permit program, when enacted by Indiana, will increase the fees associated with operating permits for air emissions. 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, is required to be taken by it. 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 volunatary 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, remediation 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. PREFERRED AND PREFERENCE STOCKS Industries is authorized to issue 20,000,000 shares of Preferred Stock, without par value. Effective March 2, 1990, 2,000,000 shares of the Industries' Series A Junior Participating Preferred Shares were reserved for issuance pursuant to the Share Purchase Rights Plan described in 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Common Shares. In November, 1990, Industries issued and sold 350,000 shares of 8.75% Series Cumulative Preferred Shares through a private placement for $35 million. The shares are subject to mandatory redemption in whole by Industries on January 14, 1996. The authorized classes of par value and no par value cumulative preferred and preference stocks of Northern Indiana are as follows: Cumulative Preferred--$100 par value--2,400,000 shares; Cumulative Preferred--no par value--3,000,000 shares; Cumulative Preference--$50 par value--2,000,000 shares (none outstanding); and Cumulative Preference--no par value--3,000,000 shares (none issued). 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. On October 15, 1992, Northern Indiana redeemed all outstanding shares of the 12.55% Series Preferred Stock at $105.94 per share. 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. The redemption prices at December 31, 1993, for the cumulative preferred stock, which are redeemable solely at the option of Northern Indiana, in whole or in part, at any time upon 30 days' notice, are as follows:
Series Redemption Price Per Share - --------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock--$100 par value-- 4 1/4% $101.20 4 1/2% $100.00 4.22% $101.60 4.88% $102.00 7.44% $101.00 7.50% $101.00 Cumulative Preferred Stock--no par value--Adjustable Rate (6.00% at December 31, 1993), Series A (stated value $50 per share) $50.00
The redemption prices at December 31, 1993, 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, are as follows:
Series Redemption Price Per Share Annual Sinking Fund Provisions - --------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock--$100 par value-- 8.85% $102.59, reduced periodically 12,500 shares on or before April 1. 8.35% $104.67, 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% $104.94, reduced periodically 2,777 shares on or before December 1; noncumulative option to double amount each year.
Sinking fund requirements with respect to redeemable preferred stocks outstanding at December 31, 1993, for each of the four years subsequent to December 31, 1994, are as follows:
Year Ending December 31, - -------------------------------------------------------------------------------- 1995.................................................................$ 1,827,700 1996................................................................. 36,827,700 1997................................................................. 1,827,700 1998................................................................. 1,827,700 - --------------------------------------------------------------------------------
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 December 31, 1993, Northern Indiana had approximately $144.1 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. 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. 44 COMMON SHARE REPURCHASES The Board of Directors of Industries has authorized the repurchase of up to approximately 10.7 million common shares in addition to those required in connection with the acquisitions of Kokomo Gas and NIFL. At December 31, 1993, Industries had purchased 11,897,029 shares at an average price of $21.65 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 1.8 million additional common shares may be repurchased under the Board's authorizations. LONG-TERM INCENTIVE PLAN Industries Long-Term Incentive Plan (the 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. The 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 December 31, 1993. 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. Restric- tions on the shares awarded during 1990 and 1991 lapse five years from date of grant and vest subject to specific share price appreciation condition. If a participant's employment is terminated other than by reason of death, disability or retirement, restricted shares are forfeited. There were 235,600 and 214,000 and 157,500 restricted shares outstanding at December 31, 1991, 1992, and 1993, respectively. Changes in outstanding shares under option and SARs for 1991, 1992 and 1993, are as follows:
Nonqualified Nonqualified Stock Stock Options Options With SARs --------------- -------------------- Option Option YEAR ENDED DECEMBER 31, 1991 Options Price Options Price - ---------------------------- ------- ------ ------- ------ Balance at beginning of year...... 538,500 $10.94-$17.94 47,900 $10.94 Granted......................... 331,100 $22.94 - Exercised....................... (88,375) $10.94-$17.94 (4,900) $10.94 Cancelled....................... (10,900) $10.94-$17.06 (4,000) $10.94 -------- ------- Balance at end of year............ 770,325 $10.94-$22.94 39,000 $10.94 ======== ======= Shares exercisable................ 439,225 $10.94-$17.94 39,000 $10.94 Option Option YEAR ENDED DECEMBER 31, 1992 Options Price Options Price - ----------------------------- ------- ------ ------- ------ Balance at beginning of year...... 770,325 $10.94-$22.94 39,000 $10.94 Granted......................... 293,400 $26.06 - Exercised....................... (163,375) $10.94-$22.94 (27,500) $10.94 Cancelled....................... (31,200) $10.94-$22.94 - --------- -------- Balance at end of year............ 869,150 $10.94-$26.06 11,500 $10.94 ========= ======== Shares exercisable................ 575,750 $10.94-$22.94 11,500 $10.94 Option Option YEAR ENDED DECEMBER 31, 1993 Options Price Options Price - ---------------------------- ------- ------ ------- ------ Balance at beginning of year...... 869,150 $10.94-$26.06 11,500 $10.94 Granted......................... 288,500 $33.19 - Exercised....................... (261,150) $10.94-$26.06 - Cancelled....................... (5,700) $26.06 (1,600) $10.94 --------- ------- Balance at end of year............ 890,800 $10.94-$33.19 9,900 $10.94 ========= ======= Shares exercisable................ 602,300 $10.94-$26.06 9,900 $10.94
The Industries Nonemployee Director Stock Incentive Plan, which was approved by shareholders, provides for the issuance of up to 100,000 of Industries' common shares to nonemployee directors of Industries. The Plan provides for awards of common shares which vest in 20% per year increments, with full vesting after five years. The Plan also allows the award of nonqualified stock options in the future. If a director's service on the Board is terminated for any reason other than death or disability, any common shares not vested as of the date of termination are forfeited. As of December 31, 1993, 22,750 shares were issued under the Plan. LONG-TERM DEBT The sinking fund requirements of long-term debt outstanding at December 31, 1993 (including the maturity of Northern Indiana's first mortgage bonds: Series N, 4 5/8%, due May 15, 1995; Series O, 6 3/8%, due September 1, 1997; 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Northern Indiana's medium-term notes due from April 6, 1998, to April 13, 1998: NIPSCO Capital Market's medium-term note due June 10, 1996, and Zero Coupon Notes due December 1, 1997; and Lake Erie Land Company's notes payable due July 5, 1996, to June 30, 1998), for each of the four years subsequent to December 31, 1994, are as follows:
Year Ending December 31, - ------------------------------------------------------------------------------- 1995...............................................................$ 27,757,115 1996............................................................... 17,032,951 1997............................................................... 35,170,126 1998............................................................... 115,620,126
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 April 5, 1993, Series V, First Mortgage Bonds, 8.90% of 2004, Series BB, First Mortgage Bonds, 9 7/8% of 2004 and the Series KK, First Mortgage Bonds, 9 1/4% of 2016 were redeemed in total at the option of Northern Indiana. Redemption was accomplished through the issuance of short-term debt. In April, 1993, Northern Indiana sold $125,000,000 in Medium-Term Notes, Series B, due from 1 year to 30 years from date of issue. The proceeds from the sale of the notes were used to repay short-term debt which was incurred to pay at maturity certain of Northern Indiana's previously outstanding medium-term notes and First Mortgage Bonds. 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 First Mortgage Bonds redeemed on April 5, 1993, 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. Through December 31, 1993, $329.2 million of Medium-Term Notes, Series C, have been issued. On December 9, 1992, Capital Markets issued $72.5 million (at maturity) of Zero Coupon Notes, due December 1, 1997, which are not redeemable prior to maturity. The proceeds from the sale of the notes were used to repay Capital Markets' short-term bank borrowings. The notes are unsecured debt obligations of Capital Markets. 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 $299.1 million at December 31, 1993. 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 December 31, 1993, 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, 1994. 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 December 31, 1993, 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 $173.5 million of money market lines of credit. As of December 31, 1993, $40.0 million of borrowings were outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At December 31, 1993, $20.0 million of borrowings were outstanding under this facility. On April 5, 1993, Northern Indiana executed a 364-day $50 million private placement loan. Northern Indiana uses commercial paper to fund short-term working capital requirements. As of December 31, 1993, Northern Indiana had $27.9 million in commercial paper outstanding, having a weighted average interest rate of 3.56%. 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 December 31, 1993, there were no borrowings outstanding under this agreement. Capital Markets also has $50 million of money market lines of credit. As of December 31, 1993, there were no borrowings outstanding under these lines of credit. As of December 31, 1993, Capital Markets had $47.0 million in commercial paper outstanding, having a weighted average interest rate of 3.48%. 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 December 31, 1993, there were no borrowings under this agreement. 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. 46 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 December 31, 1993.
Year Ending December 31, (Dollars in thousands) - -------------------------------------------------------------------------------- 1994................................................................. $ 4,913 1995................................................................. 3,251 1996................................................................. 1,928 1997................................................................. 1,794 1998................................................................. 1,764 Later years.......................................................... 24,537 ------ Total minimum payments required...................................... $38,187 -------
The consolidated financial statements include rental expense for all operating leases as follows:
Year Ending December 31, (Dollars in thousands) - -------------------------------------------------------------------------------- 1993................................................................. $7,251 1992................................................................. 5,182 1991................................................................. 7,199
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 of approximately $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 twenty-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 blast furnaces 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. 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:
December 31, 1993 December 31, 1992 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- --------- ---------- (Dollars in thousands) Cash and cash equivalents... $ 16,140 $ 16,140 $ 41,357 $ 41,357 Investments at cost......... 6,189 6,474 6,404 8,385 Long-term debt (including current portion)........... 1,263,029 1,267,728 1,150,541 1,187,920 Preferred stock............. 203,043 185,368 204,958 180,400
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. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) 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 following table shows the basic steel industry percentage of gas revenue (including transportation services) and electric revenue for 1993, 1992 and 1991.
Basic Steel Industry 1993 1992 1991 - --------------------------------------------------------------------------- Gas revenue percent............................ 2% 4% 6% Electric revenue percent....................... 24% 25% 23%
QUARTERLY FINANCIAL DATA The following data summarize certain operating results for each of the quarters of 1993 and 1992:
1993 Quarters Ended March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- (Dollars in thousands) Operating revenues....................... $521,647 $348,795 $342,538 $464,892 Operating expenses and taxes............. 435,012 301,850 289,040 389,925 -------- -------- -------- -------- Operating income......................... 86,635 46,945 53,498 74,967 Other income and deductions, net......... (864) (365) 172 (1,013) Interest and other charges............... 27,213 24,922 26,377 25,323 -------- -------- -------- -------- Net income............................... 58,558 21,658 27,293 48,631 Dividend requirements on preferred shares 766 765 766 766 -------- -------- -------- -------- Balance available for common shareholders $ 57,792 $ 20,893 $ 26,527 $ 47,865 ======== ======== ======== ======== Earnings per average common share(a)..... $0.87 $0.31 $0.40 $0.72 ======== ======== ======== ======== 1992 Quarters Ended March 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- (Dollars in thousands) Operating revenues....................... $474,017 $329,260 $316,503 $462,576 Operating expenses and taxes............. 397,926 283,827 269,440 384,946 -------- -------- -------- -------- Operating income......................... 76,091 45,433 47,063 77,630 Other income and deductions, net......... 361 935 1,246 (1,058) Interest and other charges............... 28,205 27,799 27,548 27,501 -------- -------- -------- -------- Net income............................... 48,247 18,569 20,761 49,071 Dividend requirements on preferred shares 766 765 766 766 -------- -------- -------- -------- Balance available for common shareholders $ 47,481 $ 17,804 $ 19,995 $ 48,305 ======== ======== ======== ======== Earnings per average common share(a)..... $0.70 $0.26 $0.30 $0.73 ======== ======== ======== ========
(a) Because of the combined mathematical effect of common shares repurchased and issued and the cyclical nature of net income during the year, the sum of earnings per share for any four quarterly periods may vary slightly from the earnings per share for the equivalent twelve-month period. 48 SEGMENTS OF BUSINESS Industries' primary business is the distribution of natural gas and electrical energy. The reportable items for the gas and electric segments for the years 1993, 1992 and 1991 are as follows:(1)
1993 1992 1991 ---------- ---------- ---------- (Dollars in thousands) Operating information-- Gas operations: Operating revenues.................................................... $ 714,229 $ 666,221 $ 601,920 Operating expenses, excluding provision for utility income taxes...... 634,742 595,074 541,046 ---------- ---------- ---------- Operating income before utility income taxes.......................... 79,487 71,147 60,874 Allowance for funds used during construction (AFUDC).................. 875 26 38 ---------- ---------- ---------- Operating income before utility income taxes and including AFUDC...... 80,362 71,173 60,912 ---------- ---------- ---------- Electric operations: Operating revenues.................................................... 963,643 916,135 933,241 Operating expenses, excluding provision for utility income taxes...... 684,255 660,757 660,997 ---------- ---------- ---------- Operating income before utility income taxes.......................... 279,388 255,378 272,244 Allowance for funds used during construction (AFUDC).................. 573 547 1,303 ---------- ---------- ---------- Operating income before utility income taxes and including AFUDC...... 279,961 255,925 273,547 ---------- ---------- ---------- Total................................................................... 360,323 327,098 334,459 Other income, net....................................................... (2,071) 1,454 258 Less--interest and other charges........................................ 105,282 111,596 122,565 Less--provision for utility income taxes................................ 96,830 80,308 78,764 ---------- ---------- ---------- Net income per Consolidated Statement of Income........................... 156,140 136,648 133,388 Dividend requirements on preferred shares................................. 3,063 3,063 3,063 ---------- ---------- ---------- Balance available for common shareholders................................. $ 153,077 $ 133,585 $ 130,325 ========== ========== ========== Other information-- Depreciation and amortization expense: Electric.............................................................. $ 131,993 $ 130,811 $ 126,820 Gas................................................................... 55,007 51,906 48,901 ---------- ---------- ---------- Total............................................................... $ 187,000 $ 182,717 $ 175,721 ========== ========== ========== Utility construction expenditures: Electric.............................................................. $ 125,449 $ 126,648 $ 126,059 Gas................................................................... 55,403 45,681 42,899 ---------- ---------- ---------- Total............................................................... $ 180,852 $ 172,329 $ 168,958 ========== ========== ========== Investment information-- Identifiable assets(a): Electric.............................................................. $2,602,826 $2,644,133 $2,645,029 Gas................................................................... 900,146 818,384 735,796 ---------- ---------- ---------- Total............................................................... 3,502,972 3,462,517 3,380,825 Other corporate assets.................................................. 409,352 345,424 266,732 ---------- ---------- ---------- Total assets............................................................ $3,912,324 $3,807,941 $3,647,557 ========== ========== ==========
(a) Utility plant less accumulated provision for depreciation and amortization, materials and supplies, electric production fuel, natural gas in storage, fuel and gas cost adjustment clauses, unamortized R. M. Schahfer Units 17 and 18 carrying charges and deferred depreciation and gas supply exploration investments. (1) Kokomo Gas is not included for the year 1991, and NIFL is not included for the years 1992 and 1991. 49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF NIPSCO INDUSTRIES, INC.: We have audited the accompanying consolidated balance sheet and consolidated statements of capitalization and long-term debt of NIPSCO Industries, Inc. (an Indiana corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, common shareholders' equity and cash flows for each of the three years in the period ended December 31, 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 December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in the notes to consolidated financial statements, effective January 1, 1993, Nipsco Industries, Inc. and subsidiaries changed their methods of accounting for postretirement benefits other than pensions and income taxes. Chicago, Illinois January 26, 1994 Arthur Andersen & Co. 50 - -------------------------------------------------------------------------------- SELECTED SUPPLEMENTAL INFORMATION - -------------------------------------------------------------------------------- GAS STATISTICS(1)
Year Ended December 31, 1993 1992 1991 ----------- ----------- ----------- Operating Revenues ($000's) Residential (including home heating). $ 452,176 $ 377,600 $ 358,019 Commercial........................... 157,235 127,203 117,198 Industrial........................... 73,815 67,641 75,770 Gas transportation for others........ 32,503 40,086 46,656 Other*............................... (1,500) 53,691 4,277 ----------- ----------- ----------- Total.............................. $ 714,229 $ 666,221 $ 601,920 =========== =========== =========== Deliveries in dth (000's): Residential (including home heating). 76,761 70,830 64,159 Commercial........................... 29,754 27,280 24,051 Industrial (including transportation) 183,739 166,161 154,828 Other................................ 793 838 484 ----------- ----------- ----------- Total.............................. 291,047 265,109 243,522 =========== =========== =========== Customers Served--End of Year: Residential (including home heating). 626,492 592,201 554,972 Commercial........................... 51,386 48,168 45,033 Industrial (including transportation) 4,270 3,901 3,871 Other................................ 67 65 23 ----------- ----------- ----------- Total.............................. 682,215 644,335 603,899 =========== =========== =========== *Includes deferred gas cost revenue of $(10,375), $46,005 and $(3,475), respectively. (1)Kokomo Gas is not included in 1991 Gas Statistics and NIFL is not in 1992 and 1991 Gas Statistics. - -------------------------------------------------------------------------------- ELECTRIC STATISTICS Year Ended December 31, 1993 1992 1991 ----------- ----------- ----------- Operating Revenues ($000's): Residential.......................... $ 257,033 $ 240,680 $ 260,399 Commercial........................... 232,609 227,707 230,782 Industrial........................... 413,485 397,859 375,928 Street lighting...................... 8,254 8,085 8,178 Sales for resale..................... 27,730 29,697 23,663 Other**.............................. 24,532 12,107 34,291 ----------- ----------- ----------- Total.............................. $ 963,643 $ 916,135 $ 933,241 =========== =========== =========== Sales in kilowatt-hours (000's): Residential.......................... 2,552,837 2,343,303 2,588,637 Commercial........................... 2,705,751 2,608,614 2,653,226 Industrial........................... 8,855,106 8,188,605 7,579,846 Street lighting...................... 54,741 52,609 54,511 Sales for resale..................... 912,773 1,162,005 726,557 Other................................ 83,959 77,975 76,268 ----------- ----------- ----------- Total.............................. 15,165,167 14,433,111 13,679,045 =========== =========== =========== Customers Served--End of Year: Residential.......................... 350,964 346,356 342,403 Commercial........................... 40,634 40,101 39,985 Industrial........................... 2,686 2,695 2,248 Other................................ 828 823 821 ----------- ----------- ----------- Total.............................. 395,112 389,975 385,457 =========== =========== ===========
**Includes deferred fuel cost revenue of $4,813, $(6,965) and $15,136, respectively. 51 - ------------------------------------------------------------------------------- SELECTED SUPPLEMENTAL INFORMATION (CONCLUDED) - -------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991 ----------- ----------- ----------- Operating Revenues: Gas ($000's)......................... $ 714,229 $ 666,221 $ 601,920 Electric ($000's).................... $ 963,643 $ 916,135 $ 933,241 ----------- ----------- ----------- Total Operating Revenues ($000's).......................... $ 1,677,872 $ 1,582,356 $ 1,535,161 Operating Margin ($000's).............. $ 1,015,505 $ 949,379 $ 939,376 Operating Income ($000's).............. $ 262,045 $ 246,217 $ 254,354 Income Before Extraordinary Items ($000's)........................ $ 156,140 $ 136,648 $ 133,388 Net Income ($000's).................... $ 156,140 $ 136,648 $ 133,388 Shares outstanding at year end......... 65,828,838 65,758,350 66,671,615 Number of common shareholders.......... 41,038 38,097 39,346 Earnings (loss) per average common share.......................... $ 2.31 $ 2.00 $ 1.94 Return on average common equity........ 14.4% 13.1% 12.9% Times interest earned (pre-tax)........ 3.63 3.18 2.93 Dividends paid per share............... $ 1.32 $ 1.24 $ 1.16 Dividend payout ratio.................. 57.1% 62.0% 59.8% Market values during the year: High................................. $ 34.875 $ 26.625 $ 27.000 Low.................................. $ 26.125 $ 22.500 $ 18.500 Close................................ $ 32.875 $ 26.500 $ 25.750 Book value of common shares............ $ 16.63 $ 15.73 $ 15.17 Market-to-book ratio at year end................................... 197.7% 168.5% 169.7% Total Assets ($000's).................. $ 3,912,324 $ 3,807,941 $ 3,647,557 Utility construction expenditures ($000's)(a)........................... $ 180,852 $ 172,329 $ 168,958 Capitalization: Common shareholders' equity ($000's)............................ $ 1,094,672 $ 1,034,530 $ 1,011,666 Preferred and preference stock: Northern Indiana Public Service Company: Series without mandatory redemption provision ($000's)........................ $ 97,753 $ 97,917 $ 98,710 Series with mandatory redemption provisions ($000's)........................ $ 68,462 $ 70,668 $ 53,978 NIPSCO Industries, Inc.: Series with mandatory redemption provision ($000's)......................... $ 35,000 $ 35,000 $ 35,000 Long-term debt ($000's).............. $ 1,192,500 $ 1,054,454 $ 1,068,708 ----------- ----------- ----------- Total Capitalization ($000's).......................... $ 2,488,387 $ 2,292,569 $ 2,268,062 Number of employees.................... 4,602 4,648 4,600
Notes: /a/ Including AFUDC. /b/ Excluding Extraordinary Loss related to Bailly N1 Plant Abandonment in 1985. /c/ Excluding Carbon County, return would have been 6.1%. /d/ Excluding Carbon County Coal Settlement and related income taxes. 52
Year Ended December 31, 1990 1989 1988 1987 ----------- ----------- ----------- ----------- Operating Revenues: Gas ($000's)......................... $ 625,159 $ 677,262 $ 620,723 $ 581,130 Electric ($000's).................... $ 895,836 $ 882,303 $ 903,461 $ 870,499 ----------- ----------- ----------- ----------- Total Operating Revenues ($000's).......................... $ 1,520,995 $ 1,559,565 $ 1,524,184 $ 1,451,629 Operating Margin ($000's).............. $ 902,185 $ 916,429 $ 879,825 $ 777,573 Operating Income ($000's).............. $ 247,777 $ 252,807 $ 257,923 $ 192,415 Income Before Extraordinary Items ($000's)........................ $ 125,361 $ 72,112/f/ $ 103,449 $ 38,876 Net Income ($000's).................... $ 125,361 $ 72,112/f/ $ 103,449 $ 38,876 Shares outstanding at year end......... 68,874,229 69,369,492 73,310,210 73,243,100 Number of common shareholders.......... 41,285 43,763 47,324 50,074 Earnings (loss) per average common share.......................... $ 1.81 $ 1.00/f/ $ 1.41 $ 0.53 Return on average common equity........ 12.7% 7.2%/f/ 10.4% 4.1% Times interest earned (pre-tax)........ 2.81 2.02/f/ 2.38 1.65 Dividends paid per share............... $ 1.04 $ 0.84 $ 0.60 $ 0.15 Dividend payout ratio.................. 57.5% 84.0%/f/ 42.6% 28.3% Market values during the year: High................................. $ 19.295 $ 19.625 $ 14.125 $ 13.00 Low.................................. $ 15.750 $ 13.125 $ 8.625 $ 8.00 Close................................ $ 18.875 $ 19.375 $ 13.875 $ 8.50 Book value of common shares............ $ 14.61 $ 13.92 $ 14.03 $ 13.13 Market-to-book ratio at year end................................... 129.2% 139.2% 98.9% 64.7% Total Assets ($000's).................. $ 3,625,181 $ 3,657,718 $ 3,684,721 $ 3,821,690 Utility construction expenditures ($000's)(a)........................... $ 152,280 $ 150,786 $ 116,874 $ 156,750 Capitalization: Common shareholders' equity ($000's)............................ $ 1,005,982 $ 965,437 $ 1,028,554 $ 961,562 Preferred and preference stock: Northern Indiana Public Service Company: Series without mandatory redemption provision ($000's)........................ $ 99,374 $ 99,874 $ 99,937 $ 191,392 Series with mandatory redemption provisions ($000's)........................ $ 59,358 $ 66,309 $ 75,189 $ 105,395 NIPSCO Industries, Inc.: Series with mandatory redemption provision ($000's)......................... $ 35,000 $ -- $ -- $ -- Long-term debt ($000's).............. $ 1,165,682 $ 1,261,760 $ 1,308,303 $ 1,401,326 ----------- ----------- ----------- ----------- Total Capitalization ($000's).......................... $ 2,365,396 $ 2,393,380 $ 2,511,983 $ 2,659,675 Number of employees.................... 4,547 4,825 4,946 5,172
Year Ended December 31, 1986 1985 1984 1983 ----------- ----------- ----------- ----------- Operating Revenues: Gas ($000's)......................... $ 741,021 $ 943,855 $ 1,011,716 $ 1,021,781 Electric ($000's).................... $ 885,106 $ 964,648 $ 989,356 $ 934,579 ----------- ----------- ----------- ----------- Total Operating Revenues ($000's).......................... $ 1,626,127 $ 1,908,503 $ 2,001,072 $ 1,956,360 Operating Margin ($000's).............. $ 756,712 $ 803,864 $ 854,320 $ 760,178 Operating Income ($000's).............. $ 179,896 $ 198,098 $ 236,302 $ 207,208 Income Before Extraordinary Items ($000's)........................ $ (40,477) $ 79,085 $ 89,747 $ 107,786 Net Income ($000's).................... $ (40,477) $ (15,758) $ 89,747 $ 107,786 Shares outstanding at year end......... 73,170,788 73,045,160 69,516,560 66,724,405 Number of common shareholders.......... 56,466 74,303 86,298 91,504 Earnings (loss) per average common share.......................... $ (0.55)/e/ $ 1.11/b/ $ 1.32 $ 1.73 Return on average common equity........ (4.2)%/c/ 7.5%/b/ 8.7% 11.2% Times interest earned (pre-tax)........ 1.96/d/ 2.24 2.50 2.74 Dividends paid per share............... none $ 1.56 $ 1.55 $ 1.50 Dividend payout ratio.................. -- 140.5%/b/ 117.0% 86.7% Market values during the year: High................................. $ 13.50 $ 12.875 $ 15.125 $ 15.50 Low.................................. $ 9.375 $ 8.375 $ 11.125 $ 12.125 Close................................ $ 11.75 $ 9.875 $ 11.75 $ 14.625 Book value of common shares............ $ 12.90 $ 13.46 $ 15.03 $ 15.34 Market-to-book ratio at year end................................... 91.1% 73.4% 78.2% 95.4% Total Assets ($000's).................. $ 3,944,637 $ 3,833,302 $ 3,786,643 $ 3,695,965 Utility construction expenditures ($000's)(a)........................... $ 197,324 $ 279,175 $ 285,297 $ 280,196 Capitalization: Common shareholders' equity ($000's)............................ $ 943,933 $ 983,127 $ 1,044,555 $ 1,023,366 Preferred and preference stock: Northern Indiana Public Service Company: Series without mandatory redemption provision ($000's)........................ $ 191,392 $ 191,392 $ 191,392 $ 191,392 Series with mandatory redemption provisions ($000's)........................ $ 122,122 $ 135,350 $ 141,500 $ 147,650 NIPSCO Industries, Inc.: Series with mandatory redemption provision ($000's)......................... $ -- $ -- $ -- $ -- Long-term debt ($000's).............. $ 1,552,324 $ 1,511,215 $ 1,317,948 $ 1,383,606 ----------- ----------- ----------- ----------- Total Capitalization ($000's).......................... $ 2,809,771 $ 2,821,084 $ 2,695,395 $ 2,746,014 Number of employees.................... 5,695 5,774 5,886 5,943
/e/Earnings per share were reduced by $1.39 due to the payment in satisfaction of the Carbon County Coal Company contract litigation. /f/Earnings per share were reduced by $0.72 due to the $82.0 million refund, less associated tax benefits of $30.3 million, related to the Bailly N1 generating unit. 53 GRAPHIC MATERIAL CROSS-REFERENCE PAGE CAPITALIZATION RATIO CHART SHOWS PERCENT OF LONG-TERM DEBT, COMMON SHARE EQUITY AND PREFERRED AND PREFERENCE STOCK FOR YEARS 1984-1993. COST OF FUEL FOR ELECTRIC GENERATION CHART SHOWS IN MILLS PER KWH THE COST OF FUEL FOR ELECTRIC GENERATION FOR YEARS 1984-1993. COST OF GAS PURCHASED FOR RESALE CHART SHOWS IN DOLLARS PER DEKATHERM THE COST OF GAS PURCHASED FOR RESALE FOR YEARS 1984-1993. EX-21 4 LIST OF SUBSIDIARIES EXHIBIT 21 NIPSCO INDUSTRIES, INC. LIST OF SUBSIDIARIES AS DECEMBER 31, 1993 All subsidiaries are incorporated in Indiana, except for Elm Energy and Recycling (UK) Ltd., which is incorporated in United Kingdom and Triumph Natural Gas, Inc., which is incorporated in Delaware. All subsidiaries are wholly-owned unless otherwise indicated. Northern Indiana Public Service Company Its subsidiaries are: NIPSCO Exploration Company, Inc. Shore Line Shops, Incorporated Kokomo Gas and Fuel Company Its subsidiary is: KGF Trading Company Northern Indiana Fuel and Light Company, Inc. Its subsidiary is: Northern Indiana Trading Company NIPSCO Capital Markets, Inc. NIPSCO Development Company, Inc. Its subsidiaries are: Analytic Systems Laboratories, Inc. (1) Elm Energy and Recycling (UK) Ltd. (1) G. R. Clark Corporation Harbor Coal Company JOF Transportation Company KOGAF Enterprises, Inc. Its subsidiary is: Metals Technology Corporation (2) Lake Erie Land Company Its subsidiary is: SCC Services, Inc. NDC Douglas Properties, Inc. NIPSCO International Power Systems Company NIPSCO Security Services, Inc. Process and Control Technology Corporation RIC, Inc. Its subsidiary is: Cardinal Property Management, Inc. Riverside Caloric Company NIPSCO Energy Services, Inc. Its subsidiaries are: Crossroads Pipeline Company NIPSCO Energy Trading Corp. NIPSCO Fuel Company, Inc. NI-TEX, Inc. Triumph Natural Gas, Inc. (3) - -------- (1) Majority-owned subsidiary of NIPSCO Development Company, Inc. (2) Majority-owned subsidiary of KOGAF Enterprises, Inc. (3) Majority-owned subsidiary of NIPSCO Energy Services, Inc. EX-23 5 CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into Industries' previously filed Form S-3 Registration Statement, No. 33-22569; Form S-8 Registration Statement, No. 33-30619; and Form S-8 Registration Statement, No. 33-30621. Arthur Andersen & Co. Chicago, Illinois March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----