-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J2klRaPzJNifS9oy7VoDHzzFiyr+new19sVQKAsJSU6aLjegy8XZNmCCGkEispZN wgJXYuugV00s+60x0DB1og== 0000899652-97-000119.txt : 19970515 0000899652-97-000119.hdr.sgml : 19970515 ACCESSION NUMBER: 0000899652-97-000119 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11377 FILM NUMBER: 97605258 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5133812000 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET CITY: CINCINATI STATE: OH ZIP: 45202 10-Q 1 CINERGY 10-Q FOR 03/31/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of April 30, 1997, shares of Common Stock outstanding for each registrant were as listed: Company Shares Cinergy Corp., par value $.01 per share 157,679,129 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333 TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . 3 PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . 6 Consolidated Statements of Income . . . . . . . . . . 8 Consolidated Statements of Changes in Common9 Stock Equity. . . . . . . . . . . . . . . . . . . . 9 Consolidated Statements of Cash Flows . . . . . . . . 10 Results of Operations . . . . . . . . . . . . . . . . 11 The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . 19 Consolidated Statements of Income . . . . . . . . . . 21 Consolidated Statements of Cash Flows . . . . . . . . 22 Results of Operations . . . . . . . . . . . . . . . . 23 PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . 27 Consolidated Statements of Income . . . . . . . . . . 29 Consolidated Statements of Cash Flows . . . . . . . . 30 Results of Operations . . . . . . . . . . . . . . . . 31 The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . 34 Statements of Income. . . . . . . . . . . . . . . . . 36 Statements of Cash Flows. . . . . . . . . . . . . . . 37 Results of Operations . . . . . . . . . . . . . . . . 38 Notes to Financial Statements . . . . . . . . . . . . . 40 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 42 PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 43 4 Submission of Matters to a Vote of Security Holders . . 43 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 44 Signature . . . . . . . . . . . . . . . . . . . . . . . 46 GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION_________________________ 1996 Form Combined 1996 Annual Report on Form 10-K filed separately by 10-K Cinergy, CG&E, PSI, and ULH&P AEP American Electric Power Company, Inc. Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company Beckjord CG&E's W. C. Beckjord Station CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) Cinergy or Cinergy Corp. Company Cinergy UK Cinergy UK, Inc., formerly M.E. Holdings, Inc., (a subsidiary of Cinergy Investments, Inc.) which holds Cinergy's 50% investment in Avon Energy Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a Project 262-megawatt clean coal power generating facility located at Wabash River Generating Station Coal Supply An agreement to purchase coal from Eagle Coal Company Agreement December 1996 A PUCO order issued in December 1996 on CG&E's gas rate Order proceeding December 1996 An Indiana Utility Regulatory Commission order issued in DSM Order December 1996 on PSI's DSM proceeding DSM Demand-side management FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Gibson PSI's Gibson Generating Station KPSC Kentucky Public Service Commission kwh Kilowatt-hour M&R Fund Maintenance and Replacement Fund Mcf Thousand cubic feet Merger Order The FERC's order approving the merger of CG&E and PSI Resources, Inc. to form Cinergy GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ Miami Fort CG&E's Miami Fort Generating Station Midlands Midlands Electricity plc Opinion 15 Accounting Principles Board Opinion 15, Earnings Per Share PSI PSI Energy, Inc. (a subsidiary of Cinergy) PUCO Public Utilities Commission of Ohio PUHCA Public Utility Holding Company Act of 1935 S&P Standard & Poor's September 1996 An Indiana Utility Regulatory Commission order issued in Order September 1996 on PSI's retail rate proceeding Statement 128 Statement of Financial Accounting Standards No. 128, Earnings Per Share ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) Woodsdale CG&E's Woodsdale Generating Station Zimmer CG&E's William H. Zimmer Generating Station CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS March 31 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $8,858,361 $8,809,786 Gas 720,227 713,829 Common 185,302 185,255 9,763,890 9,708,870 Accumulated depreciation 3,650,395 3,591,858 6,113,495 6,117,012 Construction work in progress 160,687 172,614 Total utility plant 6,274,182 6,289,626 Current Assets Cash and temporary cash investments 15,294 19,327 Restricted deposits 1,723 1,721 Accounts receivable less accumulated provision for doubtful accounts of $11,315 at March 31, 1997, and $10,618 at December 31, 1996 206,113 199,361 Materials, supplies, and fuel - at average cost Fuel for use in electric production 66,666 71,730 Gas stored for current use 11,030 32,951 Other materials and supplies 76,578 80,292 Property taxes applicable to subsequent year 92,685 123,580 Prepayments and other 41,730 37,049 511,819 566,011 Other Assets Regulatory assets Amounts due from customers - income taxes 375,914 377,194 Post-in-service carrying costs and deferred operating expenses 184,423 186,396 Phase-in deferred return and depreciation 93,794 95,163 Coal contract buyout costs 134,378 138,171 Deferred demand-side management costs 127,860 134,742 Deferred merger costs 92,444 93,999 Unamortized costs of reacquiring debt 69,474 70,518 Other 63,315 72,483 Investment in unconsolidated subsidiary 593,099 592,660 Other 240,406 231,551 1,975,107 1,992,877 $8,761,108 $8,848,514 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CAPITALIZATION AND LIABILITIES March 31 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,679,129 at March 31, 1997, and December 31, 1996 $ 1,577 $ 1,577 Paid-in capital 1,579,934 1,590,735 Retained earnings 1,035,390 992,273 Cumulative foreign currency translation adjustment (1,166) (131) Total common stock equity 2,615,735 2,584,454 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 194,195 194,232 Long-term Debt 2,375,694 2,534,978 Total capitalization 5,185,624 5,313,664 Current Liabilities Long-term debt due within one year 274,000 140,000 Notes payable 705,177 713,617 Accounts payable 244,686 305,420 Accrued taxes 341,339 323,059 Accrued interest 58,827 55,590 Other 85,880 114,653 1,709,909 1,652,339 Other Liabilities Deferred income taxes 1,139,112 1,146,263 Unamortized investment tax credits 173,517 175,935 Accrued pension and other postretirement benefit costs 271,882 263,319 Other 281,064 296,994 1,865,575 1,882,511 $8,761,108 $8,848,514
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Twelve Months Ended March 31 March 31 1997 1996 1997 1996 (in thousands, except per share amounts) Operating Revenues Electric $ 817,914 $ 684,840 $2,901,780 $2,664,953 Gas 212,266 199,155 487,145 434,796 1,030,180 883,995 3,388,925 3,099,749 Operating Expenses Fuel used in electric production 175,746 191,452 697,544 722,297 Gas purchased 123,968 93,225 279,859 204,982 Purchased and exchanged power 160,592 27,621 291,809 69,587 Other operation 163,412 146,134 615,712 549,985 Maintenance 45,854 43,642 196,120 181,500 Depreciation 71,556 70,195 284,124 276,498 Amortization of phase-in deferrals 3,371 3,400 13,569 12,491 Amortization of post-in-service deferred operating expenses - net 1,091 (843) 425 (1,339) Income taxes 63,919 73,983 208,205 232,893 Taxes other than income taxes 68,372 65,737 260,450 257,322 877,881 714,546 2,847,817 2,506,216 Operating Income 152,299 169,449 541,108 593,533 Other Income and Expenses - Net Allowance for equity funds used during construction 191 351 1,065 1,361 Post-in-service carrying costs - 343 880 961 Phase-in deferred return 2,002 2,093 8,281 8,496 Equity in earnings of unconsolidated subsidiary 26,500 - 51,930 - Income taxes 791 3,218 17,109 9,482 Other - net (2,627) (7,676) (35,415) (9,676) 26,857 (1,671) 43,850 10,624 Income Before Interest and Other Charges 179,156 167,778 584,958 604,157 Interest and Other Charges Interest on long-term debt 49,275 49,135 190,757 207,985 Other interest 13,867 2,871 42,165 18,386 Allowance for borrowed funds used during construction (1,342) (1,138) (6,387) (6,892) Preferred dividend requirements of subsidiaries 3,239 6,769 19,650 28,965 65,039 57,637 246,185 248,444 Net Income $ 114,117 $ 110,141 $ 338,773 $ 355,713 Costs of Reacquisition of Preferred Stock of Subsidiary - - (18,391) - __ Net Income Applicable to Common Stock $ 114,117 $ 110,141 $ 320,382 $ 355,713 Average Common Shares Outstanding 157,679 157,675 157,679 157,113 Earnings Per Common Share Net income $.72 $.70 $2.14 $2.27 Costs of reacquisition of preferred stock of subsidiary - - (.12) -__ Net income applicable to common stock $.72 $.70 $2.02 $2.27 Dividends Declared Per Common Share $.45 $.43 $1.76 $1.72 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Cumulative Foreign Currency Common Paid-in Retained Translation Total Common Stock Capital Earnings Adjustment Stock Equity (dollars in thousands) Quarter Ended March 31, 1997 Balance January 1, 1997 $1,577 $1,590,735 $ 992,273 $ (131) $2,584,454 Net income 114,117 114,117 Dividends on common stock (see page 8 for per share amounts) (71,000) (71,000) Translation adjustments (1,035) (1,035) Other (10,801) (10,801) Balance March 31, 1997 $1,577 $1,579,934 $1,035,390 $(1,166) $2,615,735 Quarter Ended March 31, 1996 Balance January 1, 1996 $1,577 $1,597,050 $ 950,216 $ - $2,548,843 Net income 110,141 110,141 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (see page 8 for per share amounts) (67,799) (67,799) Other (1,926) (1,926) Balance March 31, 1996 $1,577 $1,595,435 $ 992,558 $ - $2,589,570 Twelve Months Ended March 31, 1997 Balance April 1, 1996 $1,577 $1,595,435 $ 992,558 $ - $2,589,570 Net income 338,773 338,773 Dividends on common stock (see page 8 for per share amounts) (277,559) (277,559) Translation adjustments (1,166) (1,166) Costs of reacquisition of preferred stock of subsidiary (18,391) (18,391) Other (15,501) 9 (15,492) Balance March 31, 1997 $1,577 $1,579,934 $1,035,390 $(1,166) $2,615,735 Twelve Months Ended March 31, 1996 Balance April 1, 1995 $1,559 $1,553,478 $ 911,857 $ - $2,466,894 Net income 355,713 355,713 Issuance of 1,758,652 shares of common stock - net 18 42,650 42,668 Common stock issuance expenses (45) (45) Dividends on common stock (see page 8 for per share amounts) (269,836) (269,836) Other (648) (5,176) (5,824) Balance March 31, 1996 $1,577 $1,595,435 $ 992,558 $ - $2,589,570 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date Twelve Months Ended March 31 March 31 1997 1996 1997 1996 (in thousands) Operating Activities Net income $ 114,117 $ 110,141 $ 338,773 $ 355,713 Items providing (using) cash currently: Depreciation 71,556 70,195 284,124 276,498 Deferred income taxes and investment tax credits - net (6,889) 16,978 24,045 43,620 Allowance for equity funds used during construction (191) (351) (1,065) (1,361) Regulatory assets - net 9,608 9,961 (73) 11,933 Changes in current assets and current liabilities Restricted deposits (2) (24) (336) (1,074) Accounts receivable, net of reserves on receivables sold (8,498) 143,778 (19,527) 51,886 Materials, supplies, and fuel 30,699 29,169 45,535 63,553 Accounts payable (60,734) 12,675 (36,128) 94,809 Litigation settlement - - (80,000) - Accrued taxes and interest 21,517 (7,203) 34,189 12,208 Other items - net (16,844) (16,003) 11,575 (17,210) Net cash provided by operating activities 154,339 369,316 601,112 890,575 Financing Activities Issuance of common stock - 311 - 42,623 Issuance of long-term debt 35,000 - 209,817 344,280 Funds on deposit from issuance of long-term debt - 973 - 5,231 Retirement of preferred stock of subsidiaries (25) (5) (212,507) (93,471) Redemption of long-term debt (61,880) (150,289) (148,774) (461,605) Change in short-term debt (8,440) (69,500) 608,877 (133,801) Dividends on common stock (71,000) (67,799) (277,559) (269,836) Net cash provided by (used in) financing activities (106,345) (286,309) 179,854 (566,579) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (58,909) (49,760) (332,162) (296,451) Deferred demand-side management costs - net 6,882 (737) 2,277 (17,061) Investment in unconsolidated subsidiary - - (503,349) - Sale of investment in Argentine utility - - - 19,799 Net cash used in investing activities (52,027) (50,497) (833,234) (293,713) Net increase (decrease) in cash and temporary cash investments (4,033) 32,510 (52,268) 30,283 Cash and temporary cash investments at beginning of period 19,327 35,052 67,562 37,279 Cash and temporary cash investments at end of period $ 15,294 $ 67,562 $ 15,294 $ 67,562 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter and twelve months ended March 31, 1997. For information concerning the results of operations for each of the other registrants for the same quarter, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 Kwh Sales Kwh sales increased 35.8% for the quarter ended March 31, 1997, from the comparable period of last year primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels was an increase in industrial sales primarily reflecting growth in the primary metals sector. These increases were partially offset by decreased residential and commercial sales for the first quarter of 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first quarter of 1997 decreased 8.4%, as compared to the same period in 1996. Decreased residential and commercial sales reflecting mild weather during the first quarter of 1997, were slightly offset by an increase in the number of customers and higher gas transportation volumes which reflect the continued trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended March 31, 1997, increased $133 million (19%), as compared to the same period last year, primarily as a result of the increased activity in Cinergy's power marketing and trading operations previously discussed. Also contributing to the increase was the effect of PSI's 7.6% ($76 million annually) retail rate increase approved in the September 1996 Order. These increases were partially offset by declines in kwh sales to residential and commercial customers as a result of mild weather and the operation of CG&E's fuel adjustment clauses. An analysis of electric operating revenues is shown below: Quarter Ended March 31 (in millions) Electric operating revenues - March 31, 1996 $685 Increase (Decrease) due to change in: Price per kwh Retail 2 Sales for resale Firm power obligations 1 Non-firm power transactions 19 Total change in price per kwh 22 Kwh sales Retail (4) Sales for resale Non-firm power transactions 115 Total change in kwh sales 111 Electric operating revenues - March 31, 1997 $818 Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing Cinergy facilities to transport the gas continues to put downward pressure on gas operating revenues. When Cinergy sells gas, the sales price reflects the cost of gas purchased by Cinergy to support the sale plus the costs to deliver the gas. When gas is transported, Cinergy does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $13 million (7%) in the first quarter of 1997, when compared to the same period last year. Contributing to the increase was CG&E's December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. These increases were partially offset by the effect on residential and commercial gas sales of the mild weather during the first quarter of 1997. Operating Expenses Fuel Used in Electric Production Electric fuel costs, Cinergy's largest operating expense, decreased $16 million (8%), as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1996 $192 Decrease due to change in: Price of fuel (15) Kwh generation (1) Fuel expense - March 31, 1997 $176 Gas Purchased Gas purchased for the quarter ended March 31, 1997, increased $31 million (33%), when compared to the same period last year, reflecting a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $133 million for the quarter ended March 31, 1997, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation The $17 million (12%) increase in other operation expenses for the first quarter of 1997, as compared to the same period of 1996, is primarily due to increased production expenses associated with the Clean Coal Project and increases related to the amortization of deferred DSM expenses, deferred merger costs, and deferred postretirement benefit costs, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. Maintenance For the three months ended March 31, 1997, maintenance expenses increased $2 million (5%), when compared to the three months ended March 31, 1996. This increase is primarily due to scheduled outages at Beckjord and Miami Fort and a forced outage at Zimmer. Amortization of Post-in-service Deferred Operating Expenses - Net Amortization of post-in-service deferred operating expenses - net reflects the amortization and related recovery in rates of various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant was reflected in retail rates. Other Income and Expenses - Net Other - net The change in other - net of $5 million (66%) for the three months ended March 31, 1997, from the same period of 1996, is primarily due to an increase in carrying costs related to the Coal Supply Agreement and PSI's deferred DSM costs. A higher level of expenses associated with CG&E's and ULH&P's sales of accounts receivables partially offset this increase. Interest and Other Charges Other Interest Other interest increased $11 million for the first quarter of 1997, as compared to the same period last year, primarily reflecting interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy. (See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information.") Preferred Dividend Requirements of Subsidiaries Preferred dividend requirements of subsidiaries decreased $4 million (52%) for the quarter ended March 31, 1997, as compared to the same period of 1996. This decrease is primarily attributable to the reaquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1997 Kwh Sales Kwh sales increased 17.2% for the twelve months ended March 31, 1997, from the comparable period of last year, primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels was an increase in industrial sales primarily reflecting growth in the primary metals sector. These increases were partially offset by declines in residential and commercial sales attributable to a return to more normal weather in the third quarter of 1996 as compared to 1995, and mild weather for the first quarter of 1997, as compared to the same period last year, offset slightly by increases in the average number of residential and commercial customers. Mcf Sales and Transportation Mcf gas sales and transportation for the twelve months ended March 31, 1997, remained relatively unchanged as compared to the same period in 1996. Colder than normal weather during the first quarter of 1996 combined with mild weather during the first quarter of 1997 caused a decrease in residential and commercial sales. Higher gas transportation volumes which reflect the continued trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by Cinergy and increases in the number of customers substantially offset this decrease. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the twelve months ended March 31, 1997, increased $237 million (9%), reflecting increased kwh sales and PSI's 7.6% retail rate increase, as previously discussed. This increase was partially offset by the operation of CG&E's fuel adjustment clauses reflecting a lower average cost of fuel used in electric production and a decrease in ULH&P's electric rates reflecting a reduction in the cost of electricity purchased from CG&E. An analysis of electric operating revenues is shown below: Twelve Months Ended March 31 (in millions) Electric operating revenues - March 31, 1996 $2 665 Increase due to change in: Price per kwh Retail 7 Sales for resale Firm power obligations 3 Non-firm power transactions 15 Total change in price per kwh 25 Kwh sales Retail 10 Sales for resale Firm power obligations 4 Non-firm power transactions 194 Total change in kwh sales 208 Other 4 Electric operating revenues - March 31, 1997 $2 902 Gas Operating Revenues For a discussion of the continued trend of downward pressure on gas operating revenues from increased transportation services, refer to the discussion under the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for the Quarter Ended March 31, 1997." Gas operating revenues increased $52 million (12%) for the twelve months ended March 31, 1997, when compared to the same period last year. Contributing to the increase was the December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. These increases were partially offset by the effect of colder than normal weather during the first quarter of 1996 and the mild weather during the first quarter of 1997 on residential and commercial gas sales. Operating Expenses Gas Purchased Gas purchased for the twelve months ended March 31, 1997, increased $75 million (37%) when compared to the same period last year. This increase reflects a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $222 million for the twelve months ended March 31, 1997, when compared to the same period of last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation increased $66 million (12%) for the twelve months ended March 31, 1997, as compared to the same period last year, primarily due to charges of $35 million for voluntary early retirement and severance programs and charges totaling $6 million related to the December 1996 Order. In addition, expenses associated with the Clean Coal Project, which are being recovered in revenues pursuant to the September 1996 Order, contributed to the increase, as well as, an increase related to amortization of DSM expenses, which are being recovered in revenues pursuant to the December 1996 DSM Order. Maintenance Maintenance increased $15 million (8%) for the twelve months ended March 31, 1997, as compared to the twelve months ended March 31, 1996, primarily due to increased production maintenance expenses associated with the Clean Coal Project, which are being recovered in revenues pursuant to the September 1996 Order. Amortization of Phase-in Deferrals Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for Zimmer. Amortization of Post-in-service Deferred Operating Expenses - Net Amortization of post-in-service deferred operating expenses - net reflects the amortization and related recovery in rates of various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant was reflected in retail rates. Other Income and Expenses - Net Other - net The change in other - net of $26 million for the twelve months ended March 31, 1997, as compared to the same period last year is primarily due to charges of $14 million associated with the December 1996 Order and expenses associated with the sales of accounts receivable for CG&E and ULH&P. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $17 million (8%) for the twelve months ended March 31, 1997, from the same period of 1996 primarily due to the redemption of approximately $175 million of long-term debt by CG&E and ULH&P during the period from December 1995 through May 1996. Other Interest Other interest increased $24 million for the twelve months ended March 31, 1997, as compared to the same period last year, primarily reflecting interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy. (See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information.") Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $9 million (32%) for the twelve months ended March 31, 1997, from the same period of 1996 is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer. Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September of 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS March 31 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $4,653,785 $4,631,605 Gas 720,227 713,829 Common 185,302 185,255 5,559,314 5,530,689 Accumulated depreciation 1,904,820 1,868,579 3,654,494 3,662,110 Construction work in progress 94,112 95,984 Total utility plant 3,748,606 3,758,094 Current Assets Cash and temporary cash investments 2,364 5,120 Restricted deposits 1,172 1,171 Notes receivable from affiliated companies 99,975 31,740 Accounts receivable less accumulated provision for doubtful accounts of $9,974 at March 31, 1997, and $9,178 at December 31, 1996 93,485 117,912 Accounts receivable from affiliated companies 1,168 2,453 Materials, supplies, and fuel - at average cost Fuel for use in electric production 28,927 29,865 Gas stored for current use 11,030 32,951 Other materials and supplies 46,995 52,023 Property taxes applicable to subsequent year 92,685 123,580 Prepayments and other 37,459 32,433 415,260 429,248 Other Assets Regulatory assets Amounts due from customers - income taxes 341,982 344,126 Post-in-service carrying costs and deferred operating expenses 139,787 141,492 Deferred merger costs 17,475 17,709 Deferred demand-side management costs 34,302 33,534 Phase-in deferred return and depreciation 93,794 95,163 Unamortized costs of reacquiring debt 37,913 38,439 Other 13,384 19,545 Other 92,624 89,908 771,261 779,916 $4,935,127 $4,967,258 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CAPITALIZATION AND LIABILITIES March 31 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at March 31, 1997, and December 31, 1996 $ 762,136 $ 762,136 Paid-in capital 534,542 536,276 Retained earnings 271,302 247,403 Total common stock equity 1,567,980 1,545,815 Cumulative Preferred Stock Not subject to mandatory redemption 21,110 21,146 Long-term Debt 1,405,536 1,565,108 Total capitalization 2,994,626 3,132,069 Current Liabilities Long-term debt due within one year 274,000 130,000 Notes payable 49,600 30,488 Notes payable to affiliated companies 6,973 103 Accounts payable 127,260 166,064 Accounts payable to affiliated companies 32,608 12,726 Accrued taxes 227,150 267,841 Accrued interest 32,159 30,570 Other 28,041 32,191 777,791 669,983 Other Liabilities Deferred income taxes 768,520 767,085 Unamortized investment tax credits 121,632 123,185 Accrued pension and other postretirement benefit costs 169,214 165,282 Other 103,344 109,654 1,162,710 1,165,206 $4,935,127 $4,967,258
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended March 31 1997 1996 (in thousands) Operating Revenues Electric Non-affiliated companies $ 395,625 $ 363,344 Affiliated companies 6,075 12,285 Gas Non-affiliated companies 212,266 199,155 Affiliated companies 1 -___ 613,967 574,784 Operating Expenses Fuel used in electric production 70,239 97,107 Gas purchased 123,968 93,225 Purchased and exchanged power Non-affiliated companies 70,862 6,433 Affiliated companies 1,572 6,736 Other operation 79,275 79,580 Maintenance 27,336 20,979 Depreciation 40,404 39,987 Amortization of phase-in deferrals 3,371 3,400 Amortization of post-in-service deferred operating expenses 823 823 Income taxes 43,800 54,890 Taxes other than income taxes 53,514 51,569 515,164 454,729 Operating Income 98,803 120,055 Other Income and Expenses - Net Allowance for equity funds used during construction 119 351 Phase-in deferred return 2,002 2,093 Income taxes 3,006 1,681 Other - net (4,775) (686) 352 3,439 Income Before Interest 99,155 123,494 Interest Interest on long-term debt 30,045 32,100 Other interest 1,696 462 Allowance for borrowed funds used during construction (909) (823) 30,832 31,739 Net Income $ 68,323 $ 91,755 Preferred Dividend Requirement 219 3,474 Net Income Applicable to Common Stock $ 68,104 $ 88,281 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1997 1996 (in thousands) Operating Activities Net income $ 68,323 $ 91,755 Items providing (using) cash currently: Depreciation 40,404 39,987 Deferred income taxes and investment tax credits - net 2,929 19,368 Allowance for equity funds used during construction (119) (351) Regulatory assets - net 8,587 7,165 Changes in current assets and current liabilities Restricted deposits (1) (24) Accounts and notes receivable, net of reserves on receivables sold (44,863) 111,135 Materials, supplies, and fuel 27,887 20,965 Accounts payable (18,922) 6,797 Accrued taxes and interest (39,102) (25,133) Other items - net 16,951 (6,590) Net cash provided by operating activities 62,074 265,074 Financing Activities Retirement of preferred stock (24) - Redemption of long-term debt (16,180) (150,289) Change in short-term debt 25,982 - Dividends on preferred stock (219) (3,474) Dividends on common stock (42,600) (41,995) Net cash used in financing activities (33,041) (195,758) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (31,021) (23,693) Deferred demand-side management costs - net (768) (4,268) Net cash used in investing activities (31,789) (27,961) Net increase (decrease) in cash and temporary cash investments (2,756) 41,355 Cash and temporary cash investments at beginning of period 5,120 6,612 Cash and temporary cash investments at end of period $ 2,364 $ 47,967 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 Kwh Sales Kwh sales for the quarter ended March 31, 1997, increased 31.1%, as compared to the first quarter of 1996, primarily due to higher non-firm power sales for resale resulting from increased activity in Cinergy's power marketing and trading operations. Mild weather during the first quarter of 1997 resulted in decreased residential and commercial sales. These decreases were partially offset by increased industrial sales reflecting growth in the primary metals sector. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the first quarter of 1997 decreased 8.4%, as compared to the same period in 1996. Decreased residential and commercial sales reflecting mild weather during the first quarter of 1997 were slightly offset by an increase in the number of customers and higher gas transportation volumes which reflect the continued trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by CG&E. Operating Revenues Electric Operating Revenues Electric operating revenues increased $26 million (7%) for the quarter ended March 31, 1997, from the comparable period of 1996. This increase, primarily due to higher non-firm power sales for resale, was offset, in part, by lower residential and commercial sales, as previously discussed, and the operation of fuel adjustment clauses reflecting a lower average cost per kwh. An analysis of electric operating revenues is shown below: Quarter Ended March 31 (in millions) Electric operating revenues - March 31, 1996 $376 Increase (Decrease) due to change in: Price per kwh Retail (20) Sales for resale Non-firm power transactions 8 Total change in price per kwh (12) Kwh sales Retail (9) Sales for resale Non-firm power transactions 47 Total change in kwh sales 38 Electric operating revenues - March 31, 1997 $402 Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing CG&E facilities to transport the gas continues to put downward pressure on gas operating revenues. When CG&E sells gas, the sales price reflects the cost of gas purchased by CG&E to support the sale plus the costs to deliver the gas. When gas is transported, CG&E does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $13 million (7%) in the first quarter of 1997, when compared to the same period last year. Contributing to the increase was the December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of fuel adjustment clauses reflecting a higher cost of gas purchased. These increases were partially offset by the effect on residential and commercial gas sales of the mild weather during the first quarter of 1997. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $27 million (28%) for the quarter ended March 31, 1997, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1996 $97 Decrease due to change in: Price of fuel (23) Kwh generation (4) Fuel expense - March 31, 1997 $70 Gas Purchased Gas purchased for the quarter ended March 31, 1997, increased $31 million (33%), when compared to the same period last year, reflecting a higher average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the quarter ended March 31, 1997, increased $59 million over the comparable period of 1996, reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Maintenance The $6 million (30%) increase in maintenance expenses for the first quarter of 1997, as compared to the same period of 1996, is primarily due to scheduled outages at Beckjord and Miami Fort and a forced outage at Zimmer. Other Income and Expenses - Net Other - net The change in other - net of $4 million in the first quarter of 1997, as compared to the first quarter of 1996, is due, in part, to increased expenses associated with CG&E's and ULH&P's sales of accounts receivables. Interest Interest on Long-term Debt Interest on long-term debt decreased $2 million (6%) for the quarter ended March 31, 1997, as compared to the same period of 1996, primarily due to the redemption of $177.5 million of long-term debt during the period from January 1996 through March 1997. Other Interest The $1 million increase in other interest for the first quarter of 1997, as compared to the first quarter of 1996, is primarily due to increased interest expense on short-term borrowings used to fund the acquisition of approximately 90% of the outstanding preferred stock of CG&E and interest expense related to a sale-leaseback agreement CG&E entered into in November 1996 for certain equipment at Woodsdale. Preferred Dividend Requirement The preferred dividend requirement decreased $3 million for the first quarter of 1997, as compared to the same period in 1996. This decrease is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer. PSI ENERGY, INC. AND SUBSIDIARY COMPANIES
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS March 31 December 31 1997 1996 (dollars in thousands) Electric Utility Plant - Original Cost In service $4,204,576 $4,178,181 Accumulated depreciation 1,745,575 1,723,279 2,459,001 2,454,902 Construction work in progress 66,575 76,630 Total electric utility plant 2,525,576 2,531,532 Current Assets Cash and temporary cash investments 2,375 2,911 Restricted deposits 551 550 Notes receivable 236 299 Notes receivable from affiliated companies 14,507 3 Accounts receivable less accumulated provision for doubtful accounts of $1,121 at March 31, 1997, and $1,269 at December 31, 1996 107,672 73,990 Accounts receivable from affiliated companies 8,380 4,016 Materials, supplies, and fuel - at average cost Fuel 37,739 41,865 Other materials and supplies 29,582 28,268 Prepayments and other 3,149 3,184 204,191 155,086 Other Assets Regulatory assets Amounts due from customers - income taxes 33,932 33,068 Post-in-service carrying costs and deferred operating expenses 44,636 44,904 Coal contract buyout costs 134,378 138,171 Deferred merger costs 74,969 76,290 Deferred demand-side management costs 93,558 101,208 Unamortized costs of reacquiring debt 31,561 32,079 Other 49,931 52,938 Other 127,564 129,667 590,529 608,325 $3,320,296 $3,294,943 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES March 31 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at March 31, 1997, and December 31, 1996 $ 539 $ 539 Paid-in capital 401,007 402,947 Retained earnings 627,966 626,089 Total common stock equity 1,029,512 1,029,575 Cumulative Preferred Stock Not subject to mandatory redemption 173,085 173,086 Long-term Debt 970,158 969,870 Total capitalization 2,172,755 2,172,531 Current Liabilities Long-term debt due within one year - 10,000 Notes payable 102,577 147,129 Notes payable to affiliated companies 87,943 13,186 Accounts payable 100,866 114,330 Accounts payable to affiliated companies 6,493 12,850 Accrued taxes 110,539 73,206 Accrued interest 25,909 24,045 Other 17,069 17,107 451,396 411,853 Other Liabilities Deferred income taxes 364,905 372,997 Unamortized investment tax credits 51,885 52,750 Accrued pension and other postretirement benefit costs 102,668 98,037 Other 176,687 186,775 696,145 710,559 $3,320,296 $3,294,943
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended March 31 1997 1996 (in thousands) Operating Revenues Non-affiliated companies $ 422,289 $ 321,496 Affiliated companies 1,566 6,799 423,855 328,295 Operating Expenses Fuel 105,507 94,345 Purchased and exchanged power Non-affiliated companies 89,730 21,188 Affiliated companies 6,069 12,348 Other operation 83,709 66,551 Maintenance 18,518 22,663 Depreciation 31,152 30,208 Amortization of post-in-service deferred operating expenses - net 268 (1,666) Income taxes 20,225 18,883 Taxes other than income taxes 14,857 14,168 370,035 278,688 Operating Income 53,820 49,607 Other Income and Expenses - Net Allowance for equity funds used during construction 72 - Post-in-service carrying costs - 343 Income taxes (603) 760 Other - net 3,263 (3,658) 2,732 (2,555) Income Before Interest 56,552 47,052 Interest Interest on long-term debt 19,230 17,035 Other interest 4,457 3,468 Allowance for borrowed funds used during construction (433) (315) 23,254 20,188 Net Income $ 33,298 $ 26,864 Preferred Dividend Requirement 3,020 3,295 Net Income Applicable to Common Stock $ 30,278 $ 23,569 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1997 1996 (in thousands) Operating Activities Net income $ 33,298 $ 26,864 Items providing (using) cash currently: Depreciation 31,152 30,208 Deferred income taxes and investment tax credits - net (9,820) (1,926) Allowance for equity funds used during construction (72) - Regulatory assets - net 1,021 2,796 Changes in current assets and current liabilities Restricted deposits (1) - Accounts and notes receivable, net of reserves on receivables sold (51,892) (7,674) Materials, supplies, and fuel 2,812 8,176 Accounts payable (19,821) (1,692) Accrued taxes and interest 39,197 18,594 Other items - net (104) 239 Net cash provided by operating activities 25,770 75,585 Financing Activities Issuance of long-term debt 35,000 - Funds on deposit from issuance of long-term debt - 973 Retirement of preferred stock (1) (5) Redemption of long-term debt (45,700) - Change in short-term debt 30,205 (31,766) Dividends on preferred stock (3,020) (3,294) Dividends on common stock (28,400) (25,887) Net cash used in financing activities (11,916) (59,979) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (22,040) (26,067) Deferred demand-side management costs - net 7,650 3,531 Net cash used in investing activities (14,390) (22,536) Net decrease in cash and temporary cash investments (536) (6,930) Cash and temporary cash investments at beginning of period 2,911 15,522 Cash and temporary cash investments at end of period $ 2,375 $ 8,592 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 Kwh Sales Kwh sales for the first quarter of 1997 increased 31.9%, as compared to the same period last year, primarily due to higher non-firm power sales for resale resulting from increased activity in Cinergy's power marketing and trading operations. Partially offsetting this increase was the effects of mild weather during the first quarter of 1997. An increase in industrial sales primarily reflects growth in the transportation equipment, bituminous coal mining, and primary metals sectors. Operating Revenues Operating revenues increased $96 million (29%) for the quarter ended March 31, 1997, when compared to the same period last year, reflecting, in part, the increased activity in Cinergy's power marketing and trading operations previously discussed. Also contributing to the increase was the effect of a 7.6% ($76 million annually) retail rate increase approved in the September 1996 Order. Partially offsetting these increases were the previously mentioned effects of weather. An analysis of operating revenues is shown below: Quarter Ended March 31 (in millions) Operating revenues - March 31, 1996 $328 Increase due to change in: Price per kwh Retail 24 Sales for resale Firm power obligations 2 Non-firm power transactions 8 Total change in price per kwh 34 Kwh sales Retail 2 Sales for resale Non-firm power transactions 59 Total change in kwh sales 61 Other 1 Operating revenues - March 31, 1997 $424 Operating Expenses Fuel Fuel costs, PSI's largest operating expense, increased $11 million (12%) for the first quarter of 1997, as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended March 31 (in millions) Fuel expense - March 31, 1996 $ 94 Increase due to change in: Price of fuel 8 Kwh generation 3 Fuel expense - March 31, 1997 $105 Purchased and Exchanged Power For the quarter ended March 31, 1997, purchased and exchanged power increased $62 million, as compared to the same period last year, due primarily to increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses increased $17 million (26%) for the quarter ended March 31, 1997, as compared to the same period last year. This increase is primarily due to increased production expenses associated with the Clean Coal Project and increases related to the amortization of deferred DSM expenses, deferred merger costs, and deferred postretirement benefit costs, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. Maintenance The $4 million (18%) decrease in maintenance expenses for the first quarter of 1997, as compared to the same period of 1996, is primarily associated with production facilities. Amortization of Post-in-service Deferred Operating Expenses - Net Amortization of post-in-service deferred operating expenses - net reflects the amortization and related recovery in rates of depreciation deferred on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates. Other Income and Expenses - Net Other - net The change of $7 million for other - net for the quarter ended March 31, 1997, as compared to the same period of 1996, is primarily attributable to an increase in carrying costs related to the Coal Supply Agreement and deferred DSM costs. Interest Interest on Long-term Debt Interest on long-term debt increased $2 million (13%) for the first quarter of 1997, as compared to the first quarter of 1996, primarily due to the net issuance of approximately $150 million of long-term debt during the fourth quarter of 1996. THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS (unaudited) ASSETS March 31 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $197,712 $195,053 Gas 149,560 148,203 Common 19,293 19,285 366,565 362,541 Accumulated depreciation 125,237 122,310 241,328 240,231 Construction work in progress 8,687 9,050 Total utility plant 250,015 249,281 Current Assets Cash and temporary cash investments 2,067 1,197 Notes receivable from affiliated companies 100 100 Accounts receivable less accumulated provision for doubtful accounts of $1,222 at March 31, 1997, and $1,024 at December 31, 1996 5,198 12,763 Accounts receivable from affiliated companies 1,153 620 Materials, supplies, and fuel - at average cost Gas stored for current use 2,573 6,351 Other materials and supplies 767 716 Property taxes applicable to subsequent year 1,950 2,600 Prepayments and other 228 370 Total current assets 14,036 24,717 Other Assets Regulatory assets Deferred merger costs 5,218 5,218 Unamortized costs of reacquiring debt 3,718 3,764 Other 2,366 2,357 Other 6,630 5,146 17,932 16,485 $281,983 $290,483 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS (unaudited) CAPITALIZATION AND LIABILITIES March 31 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at March 31, 1997, and December 31, 1996 $ 8,780 $ 8,780 Paid-in capital 18,683 18,839 Retained earnings 99,051 92,484 Total common stock equity 126,514 120,103 Long-term Debt 44,630 44,617 Total capitalization 171,144 164,720 Current Liabilities Notes payable to affiliated companies 18,926 30,649 Accounts payable 6,498 12,018 Accounts payable to affiliated companies 12,152 16,771 Accrued taxes 7,267 1,014 Accrued interest 902 1,284 Other 4,259 5,248 50,004 66,984 Other Liabilities Deferred income taxes 32,289 33,463 Unamortized investment tax credits 4,727 4,797 Accrued pension and other postretirement benefit costs 13,261 12,983 Income taxes refundable through rates 6,028 5,121 Other 4,530 2,415 60,835 58,779 $281,983 $290,483
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended March 31 1997 1996 (in thousands) Operating Revenues Electric Non-affiliated companies $ 48,580 $ 52,333 Gas Non-affiliated companies 33,963 34,006 Affiliated companies 121 52 82,664 86,391 Operating Expenses Electricity purchased from parent company for resale 35,129 37,600 Gas purchased 20,449 18,998 Other operation 8,534 9,247 Maintenance 1,563 1,166 Depreciation 3,070 2,907 Income taxes 4,742 5,511 Taxes other than income taxes 1,099 1,071 74,586 76,500 Operating Income 8,078 9,891 Other Income and Expenses - Net Allowance for equity funds used during construction (4) (21) Income taxes 92 (4) Other - net (447) (219) (359) (244) Income Before Interest 7,719 9,647 Interest Interest on long-term debt 881 1,294 Other interest 301 107 Allowance for borrowed funds used during construction (30) (10) 1,152 1,391 Net Income $ 6,567 $ 8,256 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date March 31 1997 1996 (in thousands) Operating Activities Net income $ 6,567 $ 8,256 Items providing (using) cash currently: Depreciation 3,070 2,907 Deferred income taxes and investment tax (338) 2,682 credits - net Allowance for equity funds used during 4 21 construction Regulatory assets (9) (21) Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 6,016 15,823 Materials, supplies, and fuel 3,727 2,159 Accounts payable (10,139) (7,375) Accrued taxes and interest 5,871 3,099 Other items - net 1,810 (643) Net cash provided by operating activities 16,579 26,908 Financing Activities Redemption of long-term debt - (16,032) Change in short-term debt (11,723) - __ Net cash used in financing activities (11,723) (16,032) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (3,986) (3,637) Net cash used in investing activities (3,986) (3,637) Net increase in cash and temporary cash investments 870 7,239 Cash and temporary cash investments at beginning of period 1,197 1,750 Cash and temporary cash investments at end of period $ 2,067 $ 8,989 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 Kwh Sales Kwh sales for the quarter ended March 31, 1997, decreased 6.1% from the comparable period of 1996. The mild weather in the first quarter of 1997 resulted in a decline in residential and commercial sales. This decrease was partially offset by an increase in industrial sales in the manufacturing sector and an increase in the average number of customers in all customer classes. Mcf Sales and Transportation For the first quarter of 1997, Mcf gas sales volumes decreased 15.7%, while Mcf transportation volumes increased 24.8%, when compared to the same period in 1996. Decreased residential and commercial sales reflecting mild weather during the first quarter of 1997 were slightly offset by an increase in the number of customers. The higher level of gas transportation volumes reflects the continued trend of customers purchasing gas directly from suppliers, using transportation services provided by ULH&P. Operating Revenues Electric Operating Revenues Electric operating revenues decreased $3.8 million (7%) for the quarter ended March 31, 1997, from the comparable period of 1996. This decrease primarily reflects the previously discussed decline in kwh sales. Also, in July 1996, the KPSC issued an order authorizing a decrease in electric rates of approximately $1.8 million annually to reflect a reduction in the cost of electricity purchased from CG&E. Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing ULH&P facilities to transport the gas continues to put downward pressure on gas operating revenues. When ULH&P sells gas, the sales price reflects the cost of gas purchased by ULH&P to support the sale plus the costs to deliver the gas. When gas is transported, ULH&P does not incur any purchased gas costs, but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues remained relatively constant in the first quarter of 1997, when compared to the same period of last year. Increases primarily attributable to the operation of the fuel adjustment clause reflecting an increase in the cost of gas purchased were offset by the weather-related decrease in Mcf volumes. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased decreased $2.5 million (7%) for the quarter ended March 31, 1997, as compared to the same period last year. This decrease reflects the aforementioned reduction in the cost of electricity and lower volumes purchased from CG&E. Gas Purchased Gas purchased for the quarter increased $1.5 million (8%) from the first quarter of last year, reflecting a 22.4% increase in the average cost per Mcf purchased which was partially offset by a 14.8% decrease in volume. Other Operation The $.7 million (8%) decrease in other operation expenses for the first quarter of 1997, as compared to the same period of 1996, is due to a number of factors, including decreases in administrative and general and distribution expenses. Maintenance The $.4 million (34%) increase in maintenance expenses for the first quarter of 1997, as compared to the same period of 1996, is primarily due to increased maintenance expenses associated with gas and electric distribution facilities. Depreciation Depreciation expense increased $.2 million (6%) for the quarter ended March 31, 1997, over the comparable period of last year. This increase primarily reflects additions to gas and electric utility plant. Other Income and Expenses - Net Other - net The change in other - net of $.2 million for the quarter ended March 31, 1997, as compared to the same period of 1996, is primarily attributable to expenses associated with the sales of accounts receivables. Interest Interest on Long-term Debt Interest on long-term debt decreased $.4 million (32%) for the quarter ended March 31, 1997, as compared to the same period of 1996, primarily due to the redemption of $25 million of long-term debt during the period from February 1996 through May 1996. Other Interest Other interest charges increased $.2 million for the quarter ended March 31, 1997, as compared to the same period of 1996, primarily due to increased short-term borrowings. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1996 Form 10-K of the registrants. Certain amounts in the 1996 Financial Statements have been reclassified to conform to the 1997 presentation. Cinergy and CG&E 2. In March 1997, CG&E retired $16 million principal amount of its 8.95% Series First Mortgage Bonds, due December 15, 2021. In April 1997, CG&E redeemed the remaining $84 million principal amount of such bonds at a price of 100% through the M&R Fund provisions of its first mortgage bond indenture. CG&E also redeemed, in April 1997, the entire $60 million principal amount of its 8 1/8% Series First Mortgage Bonds, due August 1, 2003, at a redemption price of 100.72% through the M&R Fund. Cinergy and PSI 3. In February 1997, the City of Princeton, Indiana, loaned the proceeds from the sale of its $35 million Pollution Control Revenue Refunding Bonds, 1997 Series, to PSI. Proceeds from the issuance were used to refund, in March 1997, the outstanding $35 million City of Princeton, Indiana, 7.60% Pollution Control Revenue Refunding Bonds, 1987 Series, which previously refunded the City of Princeton, Indiana, 12.75% Pollution Control Revenue Bonds 1982 Series B, which were issued to finance PSI's portion of the costs of acquiring and constructing PSI's undivided interest in certain pollution control and solid waste disposal facilities at Gibson. The 1997 Series bonds bear interest at a variable rate and will mature April 1, 2022, subject to redemption prior to maturity. Pursuant to the loan agreement between PSI and Princeton, PSI will make loan payments sufficient to pay, when due, principal and interest on the 1997 Series bonds. Cinergy, CG&E, PSI, and ULH&P 4. In February 1997, the FASB issued Statement 128, which is effective December 31, 1997, for Cinergy. Statement 128 replaces the calculation and disclosure of primary and fully diluted earnings per share under Opinion 15 with basic and diluted earnings per share. Statement 128 also requires certain disclosures regarding the determination of earnings per share amounts presented in the accompanying income statements that were not previously required under Opinion 15. Earnings per share presented in the accompanying income statements has been computed in accordance with the provisions of Opinion 15. Earnings per share for the quarter and twelve months ended March 31, 1997, determined in accordance with the provisions of Statement 128, would not have been significantly different from amounts shown. Cinergy 5. Cinergy accounts for its 50% investment in Avon Energy, which owns 100% of Midlands, using the equity method of accounting. Avon Energy acquired Midlands during the second and third quarters of 1996, with substantially all of the Midlands' common stock being acquired during the second quarter. Accordingly, Midlands' results are fully reflected in the quarter ended March 31, 1997, while the historical results for the twelve months ended March 31, 1997, include equity income from Midlands for approximately 10 months. Had Avon Energy acquired Midlands on April 1, 1996, Cinergy's pro forma results for the twelve months ended March 31, 1997, would not have been significantly different from its reported results. On May 1, 1997, general elections were held in Great Britain which resulted in the Labour Party gaining control of the government. As previously disclosed in Cinergy's 1996 Form 10-K, at the time of Cinergy's acquisition, through Avon Energy, of a 50% interest in Midlands, the Labour Party was calling for a windfall profits levy against certain businesses which had previously been owned and operated by the government, of which Midlands would most likely be included. With the election of the Labour Party, the likelihood of the windfall profits levy occurring is almost certain. The manner in which the levy will be calculated and paid, as well as the actual companies to which it will be applied, remains unclear. As a result, no liability for the levy has been recorded by either Midlands or Avon Energy as of March 31, 1997. With the Labour Party now elected, sufficient information to determine the form of the levy, quantify the amount, and determine the appropriate accounting treatment should most likely be available during the second quarter of 1997. Estimates of the total amount to be raised by the levy, made by members of the British press and financial community, have ranged from 3 billion to 5 billion pounds sterling (approximately $5 billion to $9 billion). These same estimates have indicated Midlands' apportionment to be in the range of 60 million to 210 million pounds sterling (approximately $100 million to $350 million), depending on the manner in which the levy is calculated and which companies are included in the levy. Cinergy and CG&E 6. As discussed in the 1996 Form 10-K, the PUCO issued its December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9.3 million annually). The PUCO disallowed certain of CG&E's requests, including the requested working capital allowance, recovery of certain capitalized information systems development costs, and certain merger-related costs. These disallowances resulted in a pretax charge to earnings during the fourth quarter of $20 million ($15 million net of taxes or 10 cents per share). CG&E's request for a rehearing on the disallowed information systems costs and other aspects of the order was denied. On April 14, 1997, CG&E filed a notice of appeal with the Supreme Court of Ohio challenging the disallowance of information systems costs and the exclusion of certain imputed revenues. Cinergy and CG&E cannot predict what action the Supreme Court of Ohio may take with respect to this appeal. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Recent Developments Cinergy Securities Ratings On May 5, 1997, S&P assigned a corporate credit rating to Cinergy of BBB+. Concurrently, S&P assigned a BBB+ rating to Cinergy's $600 million credit facility. In assigning these ratings, S&P stated, "The credit evaluation of Cinergy is based on the favorable business position of PSI and CG&E, further potential merger cost savings and benefits, as well as healthy cash flow measurements and modest capital spending requirements." Also, S&P indicated the ratings are reflective of, among other things, Cinergy's excellent operation of domestic coal-fired equipment, its relatively low rates, and a well-positioned gas operation. Regulatory Matters Cinergy and CG&E CG&E's Gas Rate Proceeding See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL RESOURCES Cinergy, CG&E, and PSI Long-term Debt For information regarding recent securities issuances and redemptions, see Notes 2 and 3 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy, CG&E, PSI, and ULH&P Short-term Debt The operating subsidiary companies of Cinergy have the following short-term debt authorizations and lines of credit: Committed Unused Authorized Lines__ Lines (in millions) Cinergy & Subsidiaries $838 $281 $245 CG&E & Subsidiaries 438 80 65 PSI 400 200 179 ULH&P 35 - - Additionally, Cinergy's $600 million credit facility, which expires in May 2001, has $66 million unused as of March 31, 1997. In addition, Cinergy UK's $40 million non-recourse credit agreement has $19 million outstanding as of March 31, 1997. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL INFORMATION." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Merger Litigation In March 1997, the United States Court of Appeals for the District of Columbia Circuit Court denied AEP's petition for review of the FERC's Merger Order. AEP had objected to the Merger Order alleging that the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP argued that the FERC, in issuing the Merger Order, did not adequately evaluate the impact on AEP or whether the need to use AEP's transmission facilities would interfere with Cinergy achieving merger benefits. In addition, AEP claimed that the FERC failed to evaluate the extent to which the merged facilities' operations would be consistent with the integrated public utility concept of the PUHCA. Cinergy, CG&E, and PSI cannot predict whether AEP will appeal this decision to the United States Supreme Court, and if appealed, the outcome of such appeal. Additionally, see Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Cinergy (a) The annual meeting of shareholders of Cinergy was held April 17, 1997, in Cincinnati, Ohio. (c) At the meeting, six Class III directors were elected to the board of Cinergy to serve three-year terms, expiring in 2000, as set forth below: Votes Votes Class III For Withheld Michael G. Browning 135,034,136 3,840,569 Phillip R. Cox 135,184,191 3,690,514 Kenneth M. Duberstein 135,091,109 3,783,596 James E. Rogers 134,709,947 4,164,758 John J. Schiff, Jr. 135,197,970 3,676,735 Oliver W. Waddell 135,138,778 3,735,927 Additionally, a shareholder proposal was defeated. Such proposal, if adopted, would have abolished the Annual Incentive Plan and the Long-term Incentive Compensation Plan for the respective eligible employees, and replaced said plans with an incentive award that would have been tied proportionately to the price of Cinergy's common stock at the end of the year. There were 100,917,186 common shares voted against the proposal, 16,492,160 voted for the proposal, 6,756,956 abstentions, and 14,708,403 broker non-votes. CG&E (a) In lieu of the annual meeting of shareholders of CG&E, resolutions were adopted via unanimous written consent of shareholders effective April 16, 1997. (b) The Board of Directors as previously reported was re-elected in its entirety (see (c) below). (c) The following members of the Board of Directors were unanimously re-elected at the annual meeting: Jackson H. Randolph James E. Rogers William J. Grealis PSI (a) The annual meeting of shareholders of PSI was held in Cincinnati, Ohio on April 17, 1997. (b) Proxies were not solicited for the annual meeting, at which the Board of Directors was re-elected in its entirety. (c) The following members of the Board of Directors were unanimously re- elected at the annual meeting: James K. Baker Michael G. Browning John A. Hillenbrand II John M. Mutz Jackson H. Randolph James E. Rogers Van P. Smith ULH&P Omitted pursuant to Instruction H(2)(b). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit PSI 3-a By-laws of PSI, as amended on December 17, 1996. Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy, CG&E, PSI, and ULH&P (b) The following report on Form 8-K was filed during the quarter or prior to the filing of this Form 10-Q for the quarter ended March 31, 1997. Date of Report Item Filed_____________________ January 10, 1997 Item 5. Cautionary statements for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Exhibit to Cinergy's Form 8-K/A filed January 10, 1997, in File No. 1-11377.) SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: May 14, 1997 Charles J. Winger __ Duly Authorized Officer and Chief Accounting Officer EX-27 2 CINERGY 03/31/97 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1997 JAN-01-1997 MAR-31-1997 3-MOS PER-BOOK 6,274,182 0 511,819 1,141,602 833,505 8,761,108 1,577 1,579,934 1,034,224 2,615,735 0 194,195 2,375,694 705,177 0 0 274,000 0 0 0 2,596,307 8,761,108 1,030,180 63,919 813,962 877,881 152,299 26,857 179,156 61,800 117,356 3,239 114,117 71,000 49,275 154,339 0.72 0.72 EX-3.A 3 BY-LAWS OF PSI ENERGY, INC. __________ ARTICLE I OFFICES SECTION 1. The principal office of PSI Energy, Inc. shall be at 1000 East Main Street, in the town of Plainfield, county of Hendricks and state of Indiana; and the corporation may have such other offices at such other places as the board of directors may from time to time designate, or as the business of the corporation may require. ARTICLE II SEAL SECTION 1. The corporate seal shall be circular in form and shall have inscribed thereon the words "PSI ENERGY, INC.- CORPORATE SEAL-INDIANA.'' ARTICLE III SHAREHOLDERS' MEETINGS SECTION 1. Any meeting of the shareholders may be held at the office of the corporation in the town of Plainfield, Indiana, or at such other place within or outside the state of Indiana through the use of any means of communication by which all shareholders participating may simultaneously hear each other at the meeting. The place and manner of the meeting shall be specified in the notice of such meeting, or if such meeting is held upon waiver of notice, specified in the waiver of notice signed by all of the shareholders. SECTION 2. Except as otherwise directed by the board of directors, all annual meetings of shareholders shall be held at 10:00 A.M. on the third Wednesday of April of each year if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday, for the purpose of electing directors and for the transaction of such other business as may legally come before the meeting. The business to be transacted at any annual meeting may be transacted at any special meeting called for that purpose. SECTION 3. Written or printed notice of the annual meeting, stating the place, manner, day and hour of the meeting, shall be delivered or mailed by the secretary or an assistant secretary to each shareholder of record entitled to vote at such meeting, at such address as appears on the records of the corporation, at least ten days, but not more than sixty days, before the date of the meeting. SECTION 4. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, shall be held if called by the chairman, the president, an executive vice president or a vice president, by the board of directors, or by the shareholders holding of record such number of the outstanding shares of the corporation as represents not less than one-fourth of the aggregate number of votes that would be voted at such meeting if there were voted thereat all the outstanding shares entitled to vote on the business proposed to be transacted thereat. All requests for special meetings of shareholders shall state the time, manner, place and purpose thereof. Only business within the purpose stated in such request shall be conducted at such meeting. SECTION 5. Written or printed notice of all special meetings of shareholders, stating (i) the place, manner, day and hour of the meeting, and (ii) the purpose or purposes for which such meeting is called, shall be delivered or mailed by the secretary or by the officers or persons calling the meeting to each shareholder of record entitled to vote at such meeting at such address as appears on the records of the corporation, at least ten days before the date of such meeting. SECTION 6. Notice of any meeting of shareholders may be waived in writing by any shareholder if the waiver sets forth in reasonable detail the purpose or purposes for which the meeting is called and the time and place thereof. Attendance at any meeting in person or by proxy shall constitute a waiver of notice of such meeting. SECTION 7. At any meeting of the shareholders, the holders of record (present in person or represented by proxy) of such number of the outstanding shares of the corporation as represents a majority of the aggregate number of votes that would be voted at such meeting if there were voted thereat all the outstanding shares entitled to vote at such meeting, shall be requisite to constitute a quorum for the election of directors or for the transaction of other business, unless otherwise provided by law. If, however, the holders of such majority shall not be present or represented at any meeting of the shareholders of the corporation, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the holders of such majority shall be present or represented. At such adjourned meeting at which the holders of such majority shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 8. Every shareholder shall have the right at every shareholders' meeting to one vote for each share of stock standing in his name on the books of the corporation, except as otherwise provided by law or by the amended articles of consolidation and except that no shares shall be voted at any meeting upon which any installment is due and unpaid, or which belongs to the corporation, or which shall have been transferred on the books of the corporation within such number of days, not exceeding seventy, next preceding the date of such meeting as the board of directors shall determine, or, in the absence of such determination, within ten days next preceding the date of such meeting. At any adjourned meeting of shareholders, the board of directors shall fix a record date for shareholders entitled to vote at such adjourned meeting which must be a new date if the meeting is adjourned for more than one hundred twenty days. Voting for directors and, upon the demand of any shareholder, voting upon any other question shall be by ballot. On any vote by ballot, each ballot voted shall be signed either by the shareholder voting the same, or, if the proxy of such shareholder is on file with the secretary and unrevoked, by the duly appointed agent or attorney of such shareholder. The ballot of each shareholder voting shall be deemed to be a vote of all the shares owned of record by such shareholder and entitled to be voted on the matter unless such shareholder or his duly appointed agent or attorney shall designate on such ballot that a lesser number of shares are voted. A plurality vote shall be sufficient to elect any director. SECTION 9. The secretary shall make, or cause the agent having charge of the stock transfer books of the corporation to make, at least five days before each election of directors, a complete list of the shareholders entitled by the amended articles of consolidation to vote at such election, arranged in alphabetical order, with the address and number of shares so entitled to vote held by each, which list shall be on file at the principal office of the corporation and subject to inspection by any shareholder within the usual business hours during said five days. Such list shall be produced and kept open at the time and place of election and subject to the inspection of any shareholder or shareholder's agent or attorney authorized in writing during the holding of such election. The original stock register or transfer book, or the duplicate thereof kept in the state of Indiana, shall be the only evidence as to who are the shareholders entitled to examine such list or the stock ledger or transfer book or to vote at any meeting of the shareholders. SECTION 10. A shareholder may vote either in person or by proxy executed in writing by the shareholder or a duly authorized agent or attorney in fact. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein. SECTION 11. The secretary, who may call on any officer or officers of the corporation for assistance, shall make all necessary and appropriate arrangements for the meetings of the shareholders, receive all proxies, and ascertain and report by certificate to each meeting of the shareholders the number of shares present in person or by proxy and entitled to vote at such meeting. In the absence of the secretary, an assistant secretary shall perform said duties. The certificate report of the secretary or an assistant secretary as to the regularity of such proxies and as to the number of shares present in person or by proxy and entitled to vote at such meeting shall be received as prima facie evidence of the number of shares, which are present in person and by proxy and entitled to vote, for the purpose of establishing the presence of a quorum at such meeting, for the purpose of organizing such meeting, and for all other purposes. SECTION 12. The chief executive officer, when present and available, shall preside at or chair the meetings of the shareholders; however, the chief executive officer may designate any other person to serve as chair of such meetings. In the event of the absence of such designation and the absence or unavailability of the chief executive officer, the chairman of the board, if present and available, may so preside, or if the chairman is not present or available, the vice chairman of the board, if present and available, may so preside, or if the vice chairman is not present or available, the president, if present and available, may so preside. In the event of the absence or unavailability of each such officer, and the absence of proper designation by the chief executive officer for a person to serve as presiding officer and, thus, chair any meeting of the shareholders, the meeting shall choose a presiding officer to chair such meeting. SECTION 13. At each meeting of the shareholders, (i) the proxies shall be received and taken in charge by three inspectors, (ii) where voting is to be by ballot on any question, the polls shall be opened and closed and the ballots shall be taken in charge by such inspectors, and (iii) all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by such three inspectors or a majority thereof. Such inspectors may be appointed by the board of directors before such meeting, or, if no such appointment shall have been made, then by the presiding officer at such meeting. In the event for any reason any of the inspectors previously appointed shall fail to attend such meeting, or being present will not or cannot act in such capacity, then an inspector or inspectors in place of such inspector or inspectors failing to attend or not acting shall be appointed by the presiding officer. SECTION 14. The order of business at each annual meeting of the shareholders, and, as far as applicable, at each special meeting of the shareholders, shall be established by the secretary or an assistant secretary, in consultation with the chief executive officer, and presented to the person serving as chair of the meeting at or prior to such meeting. SECTION 15. The chairman shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of meetings of the shareholders, including, without limitation, the establishment of procedures for the maintenance of order, safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting of the shareholders after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. SECTION 16. The annual meeting of shareholders shall be held at such time as is provided in Section 2 of this Article for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these by-laws. To be properly brought before the annual meeting, business must be either (a) specified in the notice of the annual meeting (or any supplement thereto) given by or at the direction of the board, (b) otherwise properly brought before the annual meeting by or at the direction of the board, or (c) otherwise properly brought before the annual meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty days nor more than seventy-five days prior to the annual meeting; provided, however, that in the event that less than sixty-five days' notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A shareholder's notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the by-laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Article III, provided, however, that nothing in this Article III shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Article III, and if he should so determine, he shall so declare to the annual meeting, and any such business not properly brought before the annual meeting shall not be transacted. SECTION 17. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the board of the corporation at the annual meeting may be made at the annual meeting of shareholders by or at the direction of the board of directors, by any nominating committee or person appointed by the board, or by any shareholder of the corporation, entitled to vote for the election of directors at the annual meeting, who complies with the notice procedures set forth in this Article III. Such nominations, other than those made by or at the direction of the board, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than fifty days nor more than seventy-five days prior to the annual meeting; provided, however, that in the event that less than sixty-five days' notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice to the secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, (iv) a written statement that the person is willing to serve as a director filed with the secretary at least five (5) days prior to the date of the annual meeting and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and record address of the shareholder, and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the shareholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the annual meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the annual meeting, and the defective nomination shall be disregarded. SECTION 18. An annual meeting of shareholders may be adjourned or postponed to a different time or place, and notice of the new date, time or place need not be given if such adjournment or postponement is announced at the annual meeting before adjournment. ARTICLE IV BOARD OF DIRECTORS SECTION 1. All corporate powers shall be exercised by or under the authority of, and the business and affairs of this corporation managed under the direction of, a board of not less than one (1) nor more than seven (7) directors. The directors shall be elected by the shareholders at each annual meeting of the shareholders. Each director shall be elected for a term of one year and shall hold office until his successor is chosen and qualified. Any vacancy occurring in the board of directors caused by death, resignation, increase in number of directors or otherwise, may be filled by a majority vote of the remaining members of the board of directors until the next annual meeting of the shareholders. No person shall be eligible for election, reelection or appointment as a member of the board of directors if the time of such election, reelection or appointment is a date subsequent to the end of the calendar year in which such person attained the age of seventy (70) years. No person shall remain a director after reaching the age of seventy (70) years; provided, however, that such director shall continue as a director until January 1 of the year following the year in which the director reached the age of seventy (70) years. Subject to the provisions of the preceding paragraphs, any and all of the directors may only be removed for cause. The directors shall receive such reasonable compensation as shall from time to time be provided for by resolution of the board of directors or a committee thereof. SECTION 2. In addition to the powers and authority by these by-laws expressly conferred upon it, the board of directors may do all such lawful acts and things as are not by the laws of the state of Indiana, by the amended articles of consolidation of the corporation, or by these by-laws directed or required to be exercised or done by the shareholders of the corporation. SECTION 3. A meeting of the directors, to be known as the annual meeting of the board of directors, shall be held at the principal office of the corporation at such time and date as the board of directors may determine, or at such other place, within or without the state of Indiana, and at such other time as shall be fixed by the shareholders at their annual meeting, or as shall be fixed by the consent in writing of all of such newly elected directors, for the election of officers and for the transaction of such other business as may properly come before the meeting. No notice of such annual meeting shall be necessary or required in order legally to constitute the meeting if a majority of the newly elected directors shall be present. If a majority shall not be present at such meeting, those present shall adjourn the meeting to a specified time and place, and the secretary or an assistant secretary shall at once notify each of the newly elected directors of the time and place of holding such adjourned annual meeting. SECTION 4. Regular meetings of the board of directors or any committee thereof may be held at stated times, or from time to time, and at such place, either within or without the state of Indiana, as the board of directors or any committee may determine, without call and without notice. Any or all members of the board of directors or a committee thereof may participate in any meeting of the board or committee by any means of a communication by which all persons participating in the meeting can simultaneously communicate with each other, and participation in this manner constitutes presence in person at the meeting. SECTION 5. Special meetings of the board of directors may be called at any time, or from time to time, by the chairman, the president, an executive vice president or a vice president by causing the secretary or an assistant secretary to give to each director, either personally or by telephone, mail or telegraph, at least two days' notice of the time and place of such meeting. Special meetings of the board of directors shall be called by the chairman, the president, an executive vice president or a vice president in like manner and on like notice at the written request of at least two directors. Special meetings of the board of directors may be held at the principal office of the corporation or at such other place, within or without the state of Indiana, as shall be specified in the notice of the meeting, or, if held upon waiver of notice, as shall be specified in such waiver. SECTION 6. Any meeting of the board of directors or any committee thereof, wheresoever held, at which all of the members are present, shall be as valid as if held pursuant to proper notice, and in case a meeting shall be held without notice when all are not present but the absent directors shall have signed a waiver of notice of such meeting, whether before or after the time stated in said waiver, or shall thereafter sign the minutes of the meeting, the same shall be as valid and binding as though called upon due notice. SECTION 7. The board of directors may take any action pursuant to these by-laws without a meeting if the action is taken by all members of the board. The action shall be evidenced by one or more written consents describing the action taken, signed by each director and included in the minutes or filed with the corporate records reflecting the action taken. Action taken without a meeting shall be effective when the last director signs the consent, unless the consent specifies a different prior or subsequent effective date. SECTION 8. At all meetings of the board of directors, a majority of the members of the board of directors shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, but a less number may adjourn the meeting from time to time until a quorum is present. The act of a majority of the board of directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law or by the amended articles of consolidation or by the by-laws. SECTION 9. The board of directors may, by resolution adopted by a majority of the members of the board of directors, designate two or more of their number to constitute a committee of the board of directors. The board of directors shall form an executive committee, which committee shall have and exercise all of the authority of the board of directors in the management of the corporation to the fullest extent permitted by the laws of the state of Indiana, including the power to declare dividends and distributions from time to time within guidelines to be established by the board of directors. Neither such guidelines nor the powers granted to the executive committee hereby may be amended in any way by the board of directors, and the members of the executive committee appointed by the board of directors may not be changed by the board of directors, without the affirmative vote of 75% of the directors then in office, rounded upwards. ARTICLE V OFFICERS SECTION 1. The officers of the corporation shall consist of a chairman of the board, a chief executive officer, a president, a secretary, a treasurer, a comptroller and may consist of a vice chairman, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, or one or more assistant comptrollers. If deemed advisable by the board of directors, any two or more offices may be held by the same person, except that the duties of the chairman, the vice chairman, the chief executive officer, or the president shall not be performed by the same person who performs the duties of secretary. SECTION 2. The officers of the corporation hereinabove provided for shall be elected by the board of directors at its annual meeting and shall hold office for one year and/or until their respective successors shall have been duly elected and shall have qualified. SECTION 3. The board of directors may, from time to time, elect or appoint such other officers and agents as it shall deem necessary, who shall hold their respective offices for such terms and shall exercise such powers and perform such duties as may be prescribed from time to time by the by-laws, or as in absence of provision in the by-laws in respect thereto may be prescribed from time to time by the board of directors. SECTION 4. Any vacancy among the officers or agents of the corporation, duly elected or appointed by the board of directors shall be filled for the unexpired term by the board of directors. Any officer or agent elected or appointed by the board of directors, may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole board of directors. SECTION 5. In the case of the absence, disability, death, resignation or removal from office of any officer of the corporation, or for any other reason that the board of directors shall deem sufficient, the board of directors may delegate, for the time being, the powers and/or duties, or any of them, of such officer to any other officer or to any director. SECTION 6. The chairman of the board shall be a director and shall preside at all meetings of the board of directors and, in the absence or inability to act of the chief executive officer, meetings of shareholders and shall, subject to the board's direction and control, be the board's representative and medium of communication, and shall perform such other duties as may from time to time be assigned to the chairman of the board by the board of directors. The chairman of the board shall direct the long-term strategic planning process of the corporation and shall also lend his or her expertise to such other officers as may be requested from time to time by such officers. The chairman shall be a member of the executive committee. SECTION 7. The vice chairman of the board, if there be one, shall be a director and shall preside at meetings of the board of directors in the absence or inability to act of the chairman of the board or meetings of shareholders in the absence or inability to act of the chief executive officer and the chairman of the board. The vice chairman shall perform such other duties as may from time to time be assigned to him or her by the board of directors. The vice chairman shall be a member of the executive committee. SECTION 8. The chief executive officer shall be a director and shall preside at all meetings of the shareholders, and, in the absence or inability to act of the chairman of the board and the vice chairman, at all meetings of the board of directors. The chief executive officer shall submit a report of the operations of the corporation for the fiscal year to the shareholders at their annual meeting and from time to time shall report to the board of directors all matters within his or her knowledge which the interests of the corporation may require be brought to their notice. The chief executive officer shall be the chairman of the executive committee and ex officio a member of all standing committees. SECTION 9. The president shall, subject to the control of the board of directors, the executive committee, the chairman, the vice chairman, and the chief executive officer, have general supervision over the management and direction of the affairs of the corporation, and supervision of all departments and of all officers of the corporation. The president shall, subject to the other provisions of these by-laws, have such other powers and perform such other duties as usually devolve upon the president of a corporation, and such further duties as may be prescribed by the board of directors, the executive committee, the chairman, the vice chairman, or the chief executive officer. The president shall report to the chief executive officer. In the absence or incapacity of the chairman, vice chairman or chief executive officer, the president may preside at meetings of the board of directors and/or meetings of the shareholders. In case of the absence, disability, death, resignation or removal from office of the president, the powers and duties of the president shall, for the time being, devolve upon and be exercised by a vice president, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, or the chief executive officer. SECTION 10. Each of the vice presidents shall have such powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In the absence or incapacity of the president, the vice president designated by the board of directors or executive committee, chairman, vice chairman, chief executive officer, or president shall exercise the powers and duties of the president. SECTION 11. The secretary shall have the custody and care of the corporate seal, records, minutes and stock books of the corporation and shall be responsible for authentication of such records. The secretary shall attend the meetings of the board of directors and of the shareholders and duly record, prepare and keep the minutes of their proceedings in a book or books to be kept for that purpose. The secretary shall give or cause to be given notice of all meetings of the shareholders and the board of directors when such notice shall be required. The secretary shall file and take charge of all papers and documents belonging to the corporation and shall have such other powers and duties as are incident to the office of secretary of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president. In case of the absence, disability, death, resignation or removal from office of the secretary, the powers and duties of the secretary shall, for the time being, devolve upon and be exercised by an assistant secretary, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. SECTION 12. Each of the assistant secretaries (if assistant secretaries be elected or appointed by the board of directors) shall assist the secretary in his or her duties and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the secretary, the powers and duties shall, for the time being, devolve upon such one of the assistant secretaries as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the secretary may designate, or, if there be but one assistant secretary, then upon such assistant secretary; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the secretary, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. SECTION 13. The treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the corporation, and shall have the custody also of all securities belonging to the corporation. The treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors or the executive committee, taking proper receipts or making proper vouchers for such disbursements and shall preserve the same at all times during his or her term of office. When necessary or proper, the treasurer shall endorse on behalf of the corporation all checks, notes or other obligations payable to the corporation or coming into his or her possession for or on behalf of the corporation and shall deposit the funds arising therefrom together with all other funds and valuable effects of the corporation coming into his or her possession in the name and to the credit of the corporation in such depositories as the board of directors or the executive committee from time to time, by resolution, shall direct. The treasurer shall have such other powers and duties as are incident to the office of treasurer of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president. The treasurer shall render to the chairman, the vice chairman, the chief executive officer, the president, the executive committee, and the board of directors, at meetings of the board of directors or the executive committee, or whenever the same shall be required, an account of all transactions as treasurer and of the financial condition of the corporation. The treasurer shall give the corporation a bond, if required by the board of directors or the executive committee, in such an amount and with such surety or sureties as may be ordered by the board of directors or the executive committee, for the faithful performance of the duties of the office and for the restoration to the corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the treasurer and belonging to the corporation. In case of the absence, disability, death, resignation or removal from office of the treasurer, the powers and duties of the treasurer shall, for the time being, devolve upon and be exercised by an assistant treasurer, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. SECTION 14. Each of the assistant treasurers (if assistant treasurers be elected or appointed by the board of directors) shall assist the treasurer in his or her duties, and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the treasurer, the powers and duties shall, for the time being, devolve upon such one of the assistant treasurers as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the treasurer may designate, or, if there be but one assistant treasurer, then upon such assistant treasurer; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the treasurer, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. Each or any assistant treasurer shall likewise give the corporation a bond, if required by the board of directors, in such amount and with such surety or sureties as may be ordered by the board of directors. SECTION 15. The comptroller shall have control over all accounts and records of the corporation pertaining to moneys, properties, materials and supplies. The comptroller shall have executive direction of the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. The comptroller shall have such other powers and duties as are incident to the office of comptroller of a corporation, subject at all times to the direction and control of the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, and the president. In case of the absence, disability, death, resignation or removal from office of the comptroller, the powers and duties of the comptroller shall, if an assistant comptroller has been elected by the board of directors or the executive committee, for the time being, devolve upon and be exercised by an assistant comptroller, unless otherwise ordered by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. SECTION 16. Each of the assistant comptrollers (if assistant comptrollers be elected or appointed by the board of directors) shall assist the comptroller in his or her duties, and shall have such other powers and duties as may be prescribed by the board of directors or the executive committee, or be delegated by the chairman, the vice chairman, the chief executive officer, or the president. In case of the absence, disability, death, resignation or removal from office of the comptroller, the powers and duties shall, for the time being, devolve upon such one of the assistant comptrollers as the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, the president or the comptroller may designate, or, if there be but one assistant comptroller, then upon such assistant comptroller; and he or she shall thereupon, during such period, exercise and perform all of the powers and duties of the comptroller, except as may be otherwise provided by the board of directors, the executive committee, the chairman, the vice chairman, the chief executive officer, or the president. ARTICLE VI CERTIFICATES FOR SHARES SECTION 1. Each certificate for shares of stock of the corporation shall be in such form, consistent with law, as shall be approved by the board of directors, shall be numbered consecutively as issued, shall state the name of the registered holder, the number of shares represented thereby, and such other matters and things as are required by law or by the amended articles of consolidation to be stated in such certificate. Each such certificate shall be signed by the chairman, the chief executive officer, the president, or a vice president, and the secretary or an assistant secretary; and may have affixed thereto the seal of the corporation. In any case where the seal of the corporation is affixed to such a certificate, such seal may be a facsimile, engraved or printed. In any case where such a certificate is also signed by a transfer agent and a registrar or either of them, the respective signatures of the chairman, the chief executive officer, the president, or a vice president, and of the secretary or an assistant secretary thereon may be facsimiles, engraved or printed. The board of directors or the finance committee may, by resolution duly adopted, authorize the issue of some or all of the shares of any or all classes or series of stock of the corporation without certificates. SECTION 2. Shares of stock of the corporation shall be entered in the books of the corporation as they are issued, and shall be transferable on the books of the corporation by the holder thereof in person, or by his, her or its attorney duly authorized thereto in writing, upon the surrender of the outstanding certificate therefor properly endorsed. SECTION 3. The corporation and its officers shall be entitled to treat the holder of record of any share or shares of stock of the corporation as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person or persons, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Indiana, or except as in the amended articles of consolidation or in these by-laws provided to the contrary. SECTION 4. Shares of the capital stock of the corporation may be issued and disposed of by the corporation from time to time for such consideration as may be fixed from time to time by resolution of the board of directors. SECTION 5. The purchase price of all stock subscribed or purchased shall be paid as from time to time determined by resolution of the board of directors, either wholly or partly in money, labor or property. Said payments shall be made within such time and in such installments or upon such terms as the board of directors may from time to time determine and direct. SECTION 6. Before the corporation shall issue, in place of any certificate of stock in the corporation claimed to have been mislaid, lost, stolen or destroyed (such a certificate being hereinafter referred to as a "Lost Certificate''), a new certificate or certificates to replace the Lost Certificate, the person seeking the issue of such new certificate or certificates shall make affidavit or affirmation of the fact of such mislaying, loss, theft or destruction, shall furnish such, if any, other proof of ownership, interest, and disappearance of the Lost Certificate as the corporation or any transfer agent for it shall require, and shall at the option of the corporation in each such case either: (i) give the corporation either a bond of indemnity with one or more sureties satisfactory to the board of directors of the corporation or a sole obligor indemnity bond executed by a corporation then authorized to transact the business of indemnity and suretyship in the state of Illinois or the state of New York and satisfactory to said board which surety or sole obligor bond shall be in form and substance satisfactory to said board and shall be (as said board may direct in any case) either (a) an "open penalty bond'' or (b) a bond having a fixed maximum amount of liability specified therein which amount shall be such amount as said board may direct that is not in excess of twice the par value of the shares represented by the Lost Certificate if such shares have a par value, or of twice the market value of such shares at the date replacement of the Lost Certificate is requested if the shares represented by such Lost Certificate be shares without par value, or (ii) if there is then in force and effect a Blanket Lost Original Instruments Bond which appertains to such Lost Certificate, protects the corporation from liability growing out of the issue of a new stock certificate or certificates in lieu of such Lost Certificate and has been executed and delivered by a corporation then authorized to transact the business of indemnity and suretyship in the state of Illinois or the state of New York, furnish the corporation or one of its transfer agents with such instruments or information as are required in order that the indemnity provisions of such bond will apply to the new stock certificate or certificates issued in lieu of such Lost Certificate. When the aforesaid conditions shall have been satisfied, a new stock certificate or certificates of the same tenor and for the same total number of shares as the Lost Certificate shall be issued by the corporation in the name of the record owner of the Lost Certificate. SECTION 7. Every shareholder shall furnish the secretary with an address to which notices of meetings and all other notices may be served upon him or mailed to him, and in default thereof notices may be addressed to him at his last known address or at the office of the corporation at Plainfield, Indiana. ARTICLE VII CORPORATE BOOKS SECTION 1. Except as hereinafter or by the amended articles of consolidation or by law otherwise provided, the books and records of the corporation may be kept at such place or places, within or without the state of Indiana, as the board of directors may from time to time by resolution determine. SECTION 2. The original or duplicate stock register or transfer book, or, in case a stock registrar or transfer agent shall be employed by the corporation either within or without the state of Indiana, a complete and accurate shareholders' list, alphabetically arranged, giving the names and addresses of all shareholders, the number and classes of shares held by each and the time each became the record owner of his shares, shall be kept at the principal office of the corporation in the state of Indiana. SECTION 3. (a) A shareholder or his agent or attorney, if authorized in writing, may inspect and copy, during regular business hours at the principal office of the corporation, any of the following records of the corporation if the shareholder meets the requirements of subsection (b) and gives the corporation written notice of the shareholder's demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy: (1) excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting; (2) accounting records of the corporation; and (3) the record of shareholders. (b) A shareholder may inspect and copy the records identified in subsection (a) only if: (1) the shareholder's demand is made in good faith and for a proper purpose; (2) the shareholder describes with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect; and (3) the records are directly connected with the shareholder's purpose. SECTION 4. The stock transfer books of the corporation may from time to time be closed by order of the board of directors for any lawful purpose, and for such periods consistent with law, but not exceeding seventy days at any one time, as the board of directors may deem advisable. In lieu of closing the stock transfer books as aforesaid, the board of directors may, in its discretion, fix in advance a date not exceeding seventy days (or such lesser number of days as may in any case be the maximum number allowed under any applicable statute) next preceding the date of any meeting of shareholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, as the record date for the determination of the shareholders entitled to notice of and to vote at any such meeting or entitled to receive any such dividend or to any such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of capital stock; and, in such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting or to receive such payment of dividend or to receive such allotment of rights or to exercise such rights as the case may be, notwithstanding any transfer of stock on the books of the corporation after such record date fixed as aforesaid. SECTION 5. All books and records of the corporation shall be kept and maintained in such manner and for such periods as required by statute. ARTICLE VIII CHECKS, DRAFTS AND WRITTEN INSTRUMENTS- STOCK OWNED IN OTHER CORPORATIONS SECTION 1. All mortgage bonds and all debentures of the corporation shall, unless otherwise directed by the board of directors or unless otherwise required by law, be signed by the chairman, the chief executive officer, the president, a vice president or the treasurer, and the secretary or an assistant secretary of the corporation, and may have affixed thereto the seal of the corporation or a facsimile thereof: provided, however, that in any case where there appears on such bond or debenture a Trustee's Certificate, which states in substance that the bond or debenture is one of the bonds or debentures issued under the indenture or supplemental indenture described therein and which is manually signed by an authorized officer of such trustee, the signatures of the aforementioned authorized officers of the corporation on such bond or debenture may be a facsimile signature, engraved or printed; and provided, further, that in case of the issue by the corporation of a bond or debenture with an interest coupon or coupons attached thereto such interest coupon or coupons shall be signed by the treasurer or an assistant treasurer of the corporation and such signature may be a facsimile signature, engraved or printed. SECTION 2. Except as provided in the immediately succeeding sentence of this Section 2, all checks, drafts, notes, demands or orders for the payment of money of the corporation shall be signed by one or more of such officers or other employees of this corporation and the signature of any such officer or other employee may be a facsimile signature, all as the board of directors shall at any time and from time to time by resolution or resolutions specify; provided, however, that in the cases of drafts not exceeding $3,000 for any one such draft, used by this corporation, the board of directors may empower the chairman, the chief executive officer, the president, and the vice presidents, or any of them, to designate in writing the one or more officers or other employees authorized to sign such drafts. To the extent that the board of directors may by resolution or resolutions authorize from time to time the signature of this corporation, on checks of this corporation which are used solely for the purpose of transferring funds from the account of this corporation in any bank or trust company to the account of this corporation in any other bank or trust company, may be only the printed name of this corporation. SECTION 3. Except as otherwise provided by these by-laws, (i) all deeds and mortgages made by this corporation shall be executed in its name by the chairman, the chief executive officer, the president, a vice president or the treasurer and shall be attested by the secretary or an assistant secretary, and such secretary or assistant secretary shall affix the corporate seal thereto, and (ii) all other written agreements to which this corporation shall be a party shall be executed in its name by the chairman, the chief executive officer, the president, a vice president or the treasurer, and may be (but need not be) attested by the secretary or an assistant secretary who may affix the corporate seal thereto. Notwithstanding the immediately preceding sentence of this Section 3, written agreements of this corporation (other than deeds and mortgages made by this corporation), which pertain to the routine operations of this corporation and are regularly being made in the ordinary course of carrying on such operations, may be executed for and on behalf of this corporation by any officer or officers of this corporation, or by any other agent or agents of this corporation, to the extent that such person or persons may, from time to time, be so authorized to act by either resolution of the board of directors or by written authorization of an officer of this corporation who has been authorized by resolution of the board of directors to execute such written authorization. SECTION 4. Subject always to the further orders and directions of the board of directors, any share or shares of stock issued by any corporation and owned by this corporation (including reacquired shares of stock of this corporation) may, for sale or transfer, be endorsed in the name of this corporation by the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, and said endorsement shall be duly attested by the secretary or an assistant secretary of this corporation either with or without affixing thereto the corporate seal. SECTION 5. Subject always to the further orders and directions of the board of directors, any share or shares of stock issued by any other corporation and owned or controlled by this corporation may be voted at any shareholders' meeting of such other corporation by the chairman of this corporation, or in his or her absence by the chief executive officer of this corporation, or in his or her absence by the president of this corporation, or in the absence of any of such officers by any vice president or by the treasurer of this corporation. Whenever, in the judgment of the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, it is desirable for this corporation to execute a proxy or give a shareholder's consent in respect of any share or shares of stock issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the chairman, the chief executive officer, the president, a vice president or the treasurer of this corporation, and shall be attested by the secretary or an assistant secretary of this corporation under the corporate seal. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by this corporation the same as such share or shares might be voted by this corporation. ARTICLE IX DIVIDENDS SECTION 1. Dividends upon the capital stock of the corporation, when earned, may be declared by the board of directors at any annual, regular or special meeting or by any committee thereof. Such dividends may be paid in cash, in property or in shares of the capital stock of the corporation, in the case of shares with par value at par, and in the case of shares without par value at such price as may be fixed by the board of directors. SECTION 2. Before payment of any dividend or before making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the board of directors from time to time, in their absolute discretion, may deem proper, as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for working capital, or for such other purpose as the board of directors shall think conducive to the interests of the corporation. ARTICLE X FISCAL YEAR SECTION 1. The fiscal year of the corporation shall cover a twelve-month period commencing on the first day of such month as the board of directors shall, by resolution, provide. ARTICLE XI AMENDMENTS SECTION 1. These by-laws may be altered, amended or repealed, in whole or in part, and new by-laws may be adopted, at any annual, regular or special meeting of the shareholders of the corporation or at any annual, regular or special meeting of the board of directors of the corporation by the affirmative vote of a majority of the board of directors; provided, however, that the board of directors of the corporation may not unilaterally amend any by-laws which were amended by the affirmative vote of the shareholders of the corporation within the preceding twenty-four months. -----END PRIVACY-ENHANCED MESSAGE-----