-----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, I1qsR+ONipLbM+NfAKDEJqJKsnQKFrdW3ihOEc22R6GPwikKODfY4lN3nGiH4s0t J/Ujdc657o+q5zChxHpbDg== 0000899652-97-000173.txt : 19970814 0000899652-97-000173.hdr.sgml : 19970814 ACCESSION NUMBER: 0000899652-97-000173 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659471 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 06/30/97 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 June 30, 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 July 31, 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 . . . . . . . . . . . . . . . . . . . PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . Consolidated Statements of Income . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . Statements of Income. . . . . . . . . . . . . . . . . Statements of Cash Flows. . . . . . . . . . . . . . . Results of Operations . . . . . . . . . . . . . . . . Notes to Financial Statements . . . . . . . . . . . . . 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 4 Submission of Matters to a Vote of Security Holders . . 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . Signature . . . . . . . . . . . . . . . . . . . . . . . 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 CAC Citizens Action Coalition of Indiana, Inc. Capital & Cinergy Capital & Trading, Inc., an affiliate of Cinergy Trading CERCLA Comprehensive Environmental Response, Compensation and Liability Act CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) Cinergy, CIN, Cinergy Corp. or Company Cinergy UK Cinergy UK, Inc. (a subsidiary of Investments) 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 D&P Duff & Phelps Credit Rating Co. December 1996 A PUCO order issued in December 1996 on CG&E's gas rate Order proceeding December 1996 An IURC order issued in December 1996 on PSI's DSM DSM Order proceeding DSM Demand-side management EPA U.S. Environmental Protection Agency FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Fitch Fitch Investors Service, Inc. GEP Greenwich Energy Partners L.P. Gibson PSI's Gibson Generating Station GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ IGC Indiana Gas Company, Inc. Investments Cinergy Investments, Inc. (a subsidiary of Cinergy) IURC Indiana Utility Regulatory Commission 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 MGP Manufactured Gas Plant Miami Fort CG&E's Miami Fort Generating Station Midlands Midlands Electricity plc Moody's Moody's Investors Service NAAQS National Ambient Air Quality Standards NIPSCO Northern Indiana Public Service Company NOx Nitrogen Oxide 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 SEC Securities and Exchange Commission September 1996 An IURC order issued in September 1996 on PSI's retail rate Order proceeding SIP State Implementation Plan Statement 128 Statement of Financial Accounting Standards No. 128, Earnings Per Share UCC The Indiana Office of the Utility Consumer Counselor ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) Zimmer CG&E's William H. Zimmer Generating Station CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $8,901,932 $8,809,786 Gas 729,805 713,829 Common 185,177 185,255 9,816,914 9,708,870 Accumulated depreciation 3,698,764 3,591,858 6,118,150 6,117,012 Construction work in progress 161,279 172,614 Total utility plant 6,279,429 6,289,626 Current Assets Cash and temporary cash investments 26,364 19,327 Restricted deposits 1,945 1,721 Notes receivable 204 321 Accounts receivable less accumulated provision for doubtful accounts of $11,965 at June 30, 1997, and $10,618 at December 31, 1996 171,574 199,040 Materials, supplies, and fuel - at average cost Fuel for use in electric production 62,508 71,730 Gas stored for current use 24,989 32,951 Other materials and supplies 76,496 80,292 Property taxes applicable to subsequent year 61,790 123,580 Prepayments and other 50,135 37,049 476,005 566,011 Other Assets Regulatory assets Amounts due from customers - income taxes 372,240 377,194 Post-in-service carrying costs and deferred operating expenses 182,450 186,396 Coal contract buyout costs 128,943 138,171 Deferred merger costs 93,193 93,999 Deferred demand-side management costs 121,544 134,742 Phase-in deferred return and depreciation 92,426 95,163 Unamortized costs of reacquiring debt 69,336 70,518 Other 63,268 72,483 Investment in unconsolidated subsidiary 615,736 592,660 Other 268,760 231,551 2,007,896 1,992,877 $8,763,330 $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 June 30 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 June 30, 1997, and December 31, 1996 $ 1,577 $ 1,577 Paid-in capital 1,570,533 1,590,735 Retained earnings 1,019,957 992,273 Cumulative foreign currency translation adjustment (720) (131) Total common stock equity 2,591,347 2,584,454 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 194,048 194,232 Long-term Debt 2,133,475 2,326,378 Total capitalization 4,918,870 5,105,064 Current Liabilities Long-term debt due within one year 130,000 140,000 Notes payable and other short-term obligations 1,104,859 922,217 Accounts payable 312,445 305,420 Accrued taxes 268,322 323,059 Accrued interest 58,085 55,590 Other 87,361 114,653 1,961,072 1,860,939 Other Liabilities Deferred income taxes 1,152,896 1,146,263 Unamortized investment tax credits 171,106 175,935 Accrued pension and other postretirement benefit costs 280,149 263,319 Other 279,237 296,994 1,883,388 1,882,511 $8,763,330 $8,848,514
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date Twelve Months Ended June 30 June 30 June 30 1997 1996 1997 1996 1997 1996 (in thousands, except per share amounts) Operating Revenues Electric $790,576 $650,714 $1,608,490 $1,335,554 $3,041,642 $2,706,643 Gas 74,757 66,120 287,023 265,275 495,782 443,941 865,333 716,834 1,895,513 1,600,829 3,537,424 3,150,584 Operating Expenses Fuel used in electric production 134,602 163,805 310,348 355,257 668,341 716,908 Gas purchased 35,826 39,955 159,794 133,180 275,730 222,350 Purchased and exchanged power 195,364 30,802 355,956 58,423 456,371 88,748 Other operation 158,488 148,626 321,900 294,760 625,574 574,820 Maintenance 51,201 48,164 97,055 91,806 199,157 186,003 Depreciation 72,171 70,597 143,727 140,792 285,698 278,880 Amortization of phase-in deferrals 3,370 3,399 6,741 6,799 13,540 13,617 Amortization of post-in-service deferred operating expenses 1,090 (864) 2,181 (1,707) 2,379 (2,138) Income taxes 39,937 33,020 103,856 107,003 215,122 225,214 Taxes other than income taxes 67,841 66,809 136,213 132,546 261,482 260,393 759,890 604,313 1,637,771 1,318,859 3,003,394 2,564,795 Operating Income 105,443 112,521 257,742 281,970 534,030 585,789 Other Income and Expenses - Net Allowance for equity funds used during construction 180 497 371 848 748 927 Post-in-service carrying costs - 494 - 837 386 1,442 Phase-in deferred return 2,002 2,093 4,004 4,186 8,190 8,455 Equity in earnings of unconsolidated subsidiary 12,180 2,433 38,680 2,433 61,677 2,433 Income taxes 3,653 2,329 4,444 5,547 18,433 9,321 Other - net (8,080) (5,950) (10,707) (13,626) (37,545) (13,746) 9,935 1,896 36,792 225 51,889 8,832 Income Before Interest and Other Charges 115,378 114,417 294,534 282,195 585,919 594,621 Interest and Other Charges Interest on long-term debt 44,977 48,021 94,252 97,156 187,713 204,567 Other interest 13,430 5,321 27,297 8,192 50,274 17,890 Allowance for borrowed funds used during construction (1,754) (1,642) (3,096) (2,780) (6,499) (6,548) Preferred dividend requirements of subsidiaries 3,236 6,677 6,475 13,446 16,209 26,985 59,889 58,377 124,928 116,014 247,697 242,894 Net Income $ 55,489 $ 56,040 $ 169,606 $ 166,181 $ 338,222 $ 351,727 Costs of Reacquisition of Preferred Stock of Subsidiary - - - - (18,391) -___ Net Income Applicable to Common Stock $ 55,489 $ 56,040 $ 169,606 $ 166,181 $ 319,831 $ 351,727 Average Common Shares Outstanding 157,679 157,679 157,679 157,677 157,679 157,448 Earnings Per Common Share Net income $ 0.35 $ 0.35 $ 1.07 $ 1.05 $ 2.14 $ 2.23 Costs of reacquisition of preferred stock of subsidiary - - - - (0.12) -___ Net income applicable to common stock $ 0.35 $ 0.35 $ 1.07 $ 1.05 $ 2.02 $ 2.23 Dividends Declared Per Common Share $ 0.45 $ 0.43 $ 0.90 $ 0.86 $ 1.78 $ 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 June 30, 1997 Balance April 1, 1997 $1,577 $1,579,934 $1,035,390 $(1,166) $2,615,735 Net income 55,489 55,489 Dividends on common stock (See page 8 for per share amounts) (70,910) (70,910) Translation adjustments 446 446 Other (9,401) (12) (9,413) Balance June 30, 1997 $1,577 $1,570,533 $1,019,957 $ (720) $2,591,347 Quarter Ended June 30, 1996 Balance April 1, 1996 $1,577 $1,595,435 $ 992,558 $ - $2,589,570 Net income 56,040 56,040 Dividends on common stock (See page 8 for per share amounts) (67,801) (67,801) Translation adjustments (567) (567) Other (515) 206 (309) Balance June 30, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933 Six Months Ended June 30, 1997 Balance January 1, 1997 $1,577 $1,590,735 $ 992,273 $ (131) $2,584,454 Net income 169,606 169,606 Dividends on common stock (See page 8 for per share amounts) (141,910) (141,910) Translation adjustments (589) (589) Other (20,202) (12) (20,214) Balance June 30, 1997 $1,577 $1,570,533 $1,019,957 $ (720) $2,591,347 Six Months Ended June 30, 1996 Balance January 1, 1996 $1,577 $1,597,050 $ 950,216 $ - $2,548,843 Net income 166,181 166,181 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (See page 8 for per share amounts) (135,600) (135,600) Translation adjustments (567) (567) Other (2,441) 206 (2,235) Balance June 30, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933 Twelve Months Ended June 30, 1997 Balance July 1, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933 Net income 338,222 338,222 Dividends on common stock (See page 8 for per share amounts) (280,668) (280,668) Translation adjustments (153) (153) Costs of reacquisition of preferred stock of subsidiary (18,391) (18,391) Other (24,387) (209) (24,596) Balance June 30, 1997 $1,577 $1,570,533 $1,019,957 $ (720) $2,591,347 Twelve Months Ended June 30, 1996 Balance July 1, 1995 $1,566 $1,570,873 $ 900,094 $ - $2,472,533 Net income 351,727 351,727 Issuance of 1,111,798 shares of common stock - net 11 26,517 26,528 Common stock issuance expenses (40) (40) Dividends on common stock (See page 8 for per share amounts) (270,559) (270,559) Translation adjustments (567) (567) Other (2,430) (259) (2,689) Balance June 30, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date Twelve Months Ended June 30 June 30 1997 1996 1997 1996 (in thousands) Operating Activities Net income $ 169,606 $ 166,181 $ 338,222 $ 351,727 Items providing (using) cash currently: Depreciation 143,727 140,792 285,698 278,880 Deferred income taxes and investment tax credits - net 8,146 32,783 23,275 72,778 Equity in unconsolidated subsidiary (38,680) (2,433) (61,677) (2,433) Allowance for equity funds used during construction (371) (848) (748) (927) Regulatory assets - net 38,881 21,019 57,144 43,086 Changes in current assets and current liabilities Restricted deposits (224) (312) (270) (1,361) Accounts and notes receivable, net of reserves on receivables sold 25,529 195,707 (37,429) 76,445 Materials, supplies, and fuel 20,980 12,182 52,803 58,476 Accounts payable 7,025 (10,187) 54,493 73,552 Litigation settlement - - (80,000) - Accrued taxes and interest (52,242) (70,160) 23,387 (15,507) Other items - net (5,491) 44,389 (12,034) 45,139 Net cash provided by operating activities 316,886 529,113 642,864 979,855 Financing Activities Issuance of common stock - 311 - 26,488 Issuance of long-term debt - - 150,217 111,255 Funds on deposit from issuance of long-term debt - 973 - 4,332 Retirement of preferred stock of subsidiaries (114) (15,114) (197,487) (108,573) Redemption of long-term debt (206,312) (161,120) (282,375) (342,702) Change in short-term debt 182,642 407,700 347,359 413,500 Dividends on common stock (141,910) (135,600) (280,668) (270,559) Net cash provided by (used in) financing activities (165,694) 97,150 (262,954) (166,259) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (133,372) (125,785) (330,600) (290,126) Deferred demand-side management costs (10,783) (17,206) (37,921) (50,151) Investment in unconsolidated subsidiary - (456,998) (46,351) (456,998) Sale of investment in Argentine utility - - - 19,799 Net cash used in investing activities (144,155) (599,989) (414,872) (777,476) Net increase (decrease) in cash and temporary cash investments 7,037 26,274 (34,962) 36,120 Cash and temporary cash investments at beginning of period 19,327 35,052 61,326 25,206 Cash and temporary cash investments at end of period $ 26,364 $ 61,326 $ 26,364 $ 61,326 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter, six months, and twelve months ended June 30, 1997. For information concerning the results of operations for each of the other registrants for the same quarter and six months ended, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 Kwh Sales Kwh sales increased 65.5% for the quarter ended June 30, 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 food products and primary metals sectors. These increases were partially offset by decreased residential and commercial sales for the quarter ended June 30, 1997, as compared to the same period last year, as a result of mild weather. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended June 30, 1997, increased $140 million (21%), 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 were the effects of the December 1996 DSM Order and a 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 reflecting a lower average cost per kwh. An analysis of electric operating revenues is shown below: Quarter Ended June 30 (in millions) Electric operating revenues - June 30, 1996 $651 Increase (Decrease) due to change in: Price per kwh Retail 3 Sales for resale Firm power obligations (9) Non-firm power transactions (15) Total change in price per kwh (21) Kwh sales Retail (18) Sales for resale Firm power obligations 1 Non-firm power transactions 178 Total change in kwh sales 161 Electric operating revenues - June 30, 1997 $791 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 $9 million (13%) in the second 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 a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. These increases were partially offset by the aforementioned trend toward increased transportation services. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $29 million (18%), as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended June 30 (in millions) Fuel expense - June 30, 1996 $164 Decrease due to change in: Price of fuel (1) Deferred fuel cost (27) Kwh generation (1) Fuel expense - June 30, 1997 $135 Purchased and Exchanged Power Purchased and exchanged power increased $165 million for the quarter ended June 30, 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 Other operation expenses for the quarter ended June 30, 1997, increased $10 million (7%), as compared to the same period of 1996. This increase is due to expenses of approximately $19 million for PSI, primarily associated with the Clean Coal Project, 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. This increase was partially offset by a decrease in CG&E's other operation expenses of approximately $9 million. This decline is due to charges in the second quarter of 1996 for early retirement and severance programs. Maintenance For the quarter ended June 30, 1997, maintenance expenses increased $3 million (6%), when compared to the quarter ended June 30, 1996. This increase is primarily due to scheduled outages at Gibson. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses 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 Equity in Earnings of Unconsolidated Subsidiary The increase in equity in earnings of unconsolidated subsidiary of $10 million for the quarter ended June 30, 1997, represents the effect of the investment in Midlands for a full quarter in 1997. Midlands was purchased during the second quarter of 1996. Other - net The change in other - net of $2 million (36%) for the three months ended June 30, 1997, from the same period of 1996, is primarily due to a higher level of expenses associated with CG&E's and ULH&P's sales of accounts receivables during the second quarter of 1997. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $3 million (6%) for the quarter ended June 30, 1997, as compared to the same period last year, primarily reflecting the net redemption of approximately $80 million of long-term debt by CG&E, PSI, and ULH&P during the period from May 1996 through April 1997. Other Interest Other interest increased $8 million for the quarter ended June 30, 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 $3 million (52%) for the quarter ended June 30, 1997, as compared to the same period of 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 during the third quarter of 1996. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 Kwh Sales Kwh sales increased 50.1% for the six months ended June 30, 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 food products and primary metals sectors. These increases were partially offset by decreased residential and commercial sales for the first six months of 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the six months ended June 30, 1997, decreased 12.2%, while Mcf transportation volumes increased 7.6%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first quarter of 1996, as compared to the mild weather during the same period of 1997, and were partially offset by an increase in residential and commercial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Electric operating revenues for the six months ended June 30, 1997, increased $272 million (20%), 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 were the effects of the December 1996 DSM Order and a 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 previously discussed, and the operation of CG&E's fuel adjustment clauses. An analysis of electric operating revenues is shown below: Six Months Ended June 30 (in millions) Electric operating revenues - June 30, 1996 $1 336 Increase (Decrease) due to change in: Price per kwh Retail 5 Sales for resale Firm power obligations (7) Total change in price per kwh (2) Kwh sales Retail (23) Sales for resale Firm power obligations 1 Non-firm power transactions 296 Total change in kwh sales 274 Electric operating revenues - June 30, 1997 $1 608 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 June 30, 1997." Gas operating revenues increased $22 million (8%) for the six months ended June 30, 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 a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. These increases were partially offset by the previously discussed changes in gas sales volumes. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $45 million (13%), as compared to the same period last year. An analysis of these fuel costs is shown below: Six Months Ended June 30 (in millions) Fuel expense - June 30, 1996 $355 Decrease due to change in: Price of fuel (6) Deferred fuel cost (37) Kwh generation (2) Fuel expense - June 30, 1997 $310 Gas Purchased Gas purchased for the six months ended June 30, 1997, increased $27 million (20%) when compared to the same period last year, reflecting an increase in the average cost per Mcf purchased which was partially offset by a decrease in volume. Purchased and Exchanged Power Purchased and exchanged power increased $298 million for the six months ended June 30, 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 Other operation expenses for the first six months of 1997 increased by $27 million (9%), as compared to the same period of 1996. This increase is primarily due to higher other operation expenses of PSI relating to the Clean Coal Project, 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. This increase was partially offset by a decrease in CG&E's other operation expenses of approximately $10 million. This decline is due to charges in the second quarter of 1996 for early retirement and severance programs. Maintenance For the six months ended June 30, 1997, maintenance expenses increased $5 million (6%), when compared to the six months ended June 30, 1996. This increase is primarily due to scheduled outages at Gibson, Beckjord, and Miami Fort and a forced outage at Zimmer. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses 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 Equity in Earnings of Unconsolidated Subsidiary The increase in equity in earnings of unconsolidated subsidiary of $36 million for the six months ended June 30, 1997, represents the effect of the investment in Midlands for a full six months in 1997. Midlands was purchased during the second quarter of 1996. Other - net The change in other - net of $3 million (21%) for the six months ended June 30, 1997, from the same period of 1996, is primarily due to an increase in carrying costs related to the Coal Supply Agreement, Clean Coal Project, and PSI's deferred DSM costs. These increases were partially offset by a higher level of expenses associated with CG&E's and ULH&P's sales of accounts receivables during the first six months of 1997. Interest and Other Charges Other Interest Other interest increased $19 million for the first six months 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 $7 million (52%) for the six months ended June 30, 1997, as compared to the same period of 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 during the third quarter of 1996. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1997 Kwh Sales Kwh sales increased 30.2% for the twelve months ended June 30, 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 food products and primary metals sectors. 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 six months 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 for the twelve months ended June 30, 1997, decreased 10.5% while Mcf transportation volumes increased 11.6%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first quarter of 1996, as compared to the same period of 1997, and were partially offset by an increase in residential and commercial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the twelve months ended June 30, 1997, increased $335 million (12%), reflecting increased kwh sales and the effects of the December 1996 DSM Order and the 7.6% retail rate increase approved in the September 1996 Order. 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 June 30 (in millions) Electric operating revenues - June 30, 1996 $2 707 Increase (Decrease) due to change in: Price per kwh Retail 17 Sales for resale Firm power obligations (10) Non-firm power transactions (11) Total change in price per kwh (4) Kwh sales Retail (36) Sales for resale Firm power obligations 2 Non-firm power transactions 369 Total change in kwh sales 335 Other 4 Electric operating revenues - June 30, 1997 $3 042 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 June 30, 1997." Gas operating revenues increased $52 million (12%) for the twelve months ended June 30, 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 a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. These increases were partially offset by the previously discussed changes in gas sales volumes. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $49 million (7%), as compared to the same period last year. An analysis of these fuel costs is shown below: Twelve Months Ended June 30 (in millions) Fuel expense - June 30, 1996 $717 Increase (Decrease) due to change in: Price of fuel (39) Deferred fuel cost 4 Kwh generation (14) Fuel expense - June 30, 1997 $668 Gas Purchased Gas purchased for the twelve months ended June 30, 1997, increased $53 million (24%) when compared to the same period last year, reflecting an increase in the average cost per Mcf purchased which was partially offset by a decrease in volume. Purchased and Exchanged Power Purchased and exchanged power increased $368 million for the twelve months ended June 30, 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 $51 million (9%) for the twelve months ended June 30, 1997, as compared to the same period last year, primarily due to expenses associated with the Clean Coal Project and increases related to the amortization of DSM deferred expenses, which are being recovered in revenues pursuant to the September 1996 Order and the December 1996 DSM Order. In addition, charges for disallowances associated with the December 1996 Order contributed to the increased level of expenses. Maintenance Maintenance increased $13 million (7%) for the twelve months ended June 30, 1997, as compared to the twelve months ended June 30, 1996, primarily due to planned outages at Gibson, Zimmer, Beckjord, and Miami Fort and a forced outage at Gibson. 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 Amortization of post-in-service deferred operating expenses 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 Equity in Earnings of Unconsolidated Subsidiary The increase in equity in earnings of unconsolidated subsidiary of $59 million for the twelve months ended June 30, 1997, represents the effect of the investment in Midlands for a full twelve months in 1997. Midlands was purchased during the second quarter of 1996. Other - net The change in other - net of $24 million for the twelve months ended June 30, 1997, as compared to the same period last year is primarily due to charges of $14 million associated with the December 1996 Order and increased expenses associated with the sales of accounts receivable for PSI, CG&E, and ULH&P, partially offset by an increase in carrying costs related to the Coal Supply Agreement, Clean Coal Project, and PSI's deferred DSM costs. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $17 million (8%) for the twelve months ended June 30, 1997, from the same period of 1996, primarily due to net redemption of approximately $245 million long-term debt by CG&E, PSI, and ULH&P during the period from October 1995 through April 1997. Other Interest Other interest increased $32 million for the twelve months ended June 30, 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 $11 million (40%) for the twelve months ended June 30, 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 during the third quarter of 1996. 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 June 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $4,678,491 $4,631,605 Gas 729,805 713,829 Common 185,177 185,255 5,593,473 5,530,689 Accumulated depreciation 1,941,506 1,868,579 3,651,967 3,662,110 Construction work in progress 92,613 95,984 Total utility plant 3,744,580 3,758,094 Current Assets Cash and temporary cash investments 9,709 5,120 Restricted deposits 1,173 1,171 Notes receivable from affiliated companies 7,217 31,740 Accounts receivable less accumulated provision for doubtful accounts of $10,517 at June 30, 1997, and $9,178 at December 31, 1996 71,150 117,912 Accounts receivable from affiliated companies 26,823 2,453 Materials, supplies, and fuel - at average cost Fuel for use in electric production 31,178 29,865 Gas stored for current use 24,989 32,951 Other materials and supplies 48,243 52,023 Property taxes applicable to subsequent year 61,790 123,580 Prepayments and other 44,093 32,433 326,365 429,248 Other Assets Regulatory assets Amounts due from customers - income taxes 337,444 344,126 Post-in-service carrying costs and deferred operating expenses 138,081 141,492 Deferred merger costs 17,209 17,709 Deferred demand-side management costs 35,842 33,534 Phase-in deferred return and depreciation 92,426 95,163 Unamortized costs of reacquiring debt 38,393 38,439 Other 11,817 19,545 Other 98,302 89,908 769,514 779,916 $4,840,459 $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 June 30 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 June 30, 1997, and December 31, 1996 $ 762,136 $ 762,136 Paid-in capital 534,588 536,276 Retained earnings 265,912 247,403 Total common stock equity 1,562,636 1,545,815 Cumulative Preferred Stock Not subject to mandatory redemption 20,975 21,146 Long-term Debt 1,222,606 1,381,108 Total capitalization 2,806,217 2,948,069 Current Liabilities Long-term debt due within one year 130,000 130,000 Notes payable and other short-term obligations 288,100 214,488 Notes payable to affiliated companies 13,889 103 Accounts payable 165,286 166,064 Accounts payable to affiliated companies 9,151 12,726 Accrued taxes 202,956 267,841 Accrued interest 30,863 30,570 Other 24,832 32,191 865,077 853,983 Other Liabilities Deferred income taxes 777,185 767,085 Unamortized investment tax credits 120,086 123,185 Accrued pension and other postretirement benefit costs 173,003 165,282 Other 98,891 109,654 1,169,165 1,165,206 $4,840,459 $4,967,258
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1997 1996 1997 1996 (in thousands) Operating Revenues Electric Non-affiliated companies $404,117 $363,238 $ 799,742 $ 726,582 Affiliated companies 7,785 7,970 13,860 20,255 Gas Non-affiliated companies 74,757 66,120 287,023 265,275 Affiliated companies 1 1 2 1 486,660 437,329 1,100,627 1,012,113 Operating Expenses Fuel used in electric production 60,358 87,451 130,597 184,558 Gas purchased 35,826 39,955 159,794 133,180 Purchased and exchanged power Non-affiliated companies 93,909 7,233 164,771 13,666 Affiliated companies 3,065 2,019 4,637 8,755 Other operation 79,897 89,147 159,172 168,727 Maintenance 23,957 24,922 51,293 45,901 Depreciation 40,878 40,248 81,282 80,235 Amortization of phase-in deferrals 3,370 3,399 6,741 6,799 Amortization of post-in-service deferred operating expenses 822 822 1,645 1,645 Income taxes 27,037 19,337 70,837 74,227 Taxes other than income taxes 52,507 53,344 106,021 104,913 421,626 367,877 936,790 822,606 Operating Income 65,034 69,452 163,837 189,507 Other Income and Expenses - Net Allowance for equity funds used during construction 87 497 206 848 Phase-in deferred return 2,002 2,093 4,004 4,186 Income taxes 3,730 1,799 6,736 3,480 Other - net (4,261) (3,904) (9,036) (4,590) 1,558 485 1,910 3,924 Income Before Interest 66,592 69,937 165,747 193,431 Interest Interest on long-term debt 27,831 30,988 57,876 63,088 Other interest 2,562 482 4,258 944 Allowance for borrowed funds used during construction (1,231) (962) (2,140) (1,785) 29,162 30,508 59,994 62,247 Net Income $ 37,430 $ 39,429 $ 105,753 $ 131,184 Preferred Dividend Requirement 217 3,474 436 6,948 Net Income Applicable to Common Stock $ 37,213 $ 35,955 $ 105,317 $ 124,236 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1997 1996 (in thousands) Operating Activities Net income $ 105,753 $ 131,184 Items providing (using) cash currently: Depreciation 81,282 80,235 Deferred income taxes and investment tax credits - net 15,055 29,939 Allowance for equity funds used during construction (206) (848) Regulatory assets - net 15,011 15,351 Changes in current assets and current liabilities Restricted deposits (2) (26) Accounts and notes receivable, net of reserves on receivables sold 45,703 117,341 Materials, supplies, and fuel 10,429 11,008 Accounts payable (4,353) (11,742) Accrued taxes and interest (64,592) (69,325) Other items - net 32,145 44,276 Net cash provided by operating activities 236,225 347,393 Financing Activities Retirement of preferred stock (113) - Redemption of long-term debt (160,612) (161,120) Change in short-term debt 87,398 - Dividends on preferred stock (438) (6,948) Dividends on common stock (85,200) (87,111) Net cash used in financing activities (158,965) (255,179) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (67,963) (58,465) Deferred demand-side management costs (4,708) (8,506) Net cash used in investing activities (72,671) (66,971) Net increase in cash and temporary cash investments 4,589 25,243 Cash and temporary cash investments at beginning of period 5,120 6,612 Cash and temporary cash investments at end of period $ 9,709 $ 31,855 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 Kwh Sales Kwh sales for the quarter ended June 30, 1997, increased 60.5%, as compared to the second 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 second quarter of 1997 resulted in decreased residential and commercial sales. These decreases were partially offset by an increase in the number of residential and commercial customers and increased industrial sales primarily reflecting growth in the food products sector. Operating Revenues Electric Operating Revenues Electric operating revenues increased $41 million (11%) for the quarter ended June 30, 1997, from the comparable period of 1996. This increase, primarily a result of the increased activity in Cinergy's power marketing and trading operations, 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 June 30 (in millions) Electric operating revenues - June 30, 1996 $371 Increase (Decrease) due to change in: Price per kwh Retail (19) Sales for resale Non-firm power transactions 6 Total change in price per kwh (13) Kwh sales Retail (20) Sales for resale Non-firm power transactions 74 Total change in kwh sales 54 Electric operating revenues - June 30, 1997 $412 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 $9 million (13%) in the second 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 a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. These increases were partially offset by the aforementioned trend toward increased transportation services. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $27 million (31%) for the quarter ended June 30, 1997, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended June 30 (in millions) Fuel expense - June 30, 1996 $87 Increase (Decrease) due to change in: Price of fuel 3 Deferred fuel cost (28) Kwh generation (2) Fuel expense - June 30, 1997 $60 Purchased and Exchanged Power Purchased and exchanged power for the quarter ended June 30, 1997, increased $88 million over the comparable period of 1996, 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 expenses decreased $9 million (10%) for the quarter ended June 30, 1997, as compared to the same period of 1996. This decrease is primarily due to charges in the second quarter of 1996 for early retirement and severance programs. Interest Interest on Long-term Debt Interest on long-term debt decreased $3 million (10%) for the quarter ended June 30, 1997, as compared to the same period of 1996, primarily due to the redemption of $170 million of long-term debt during the period from May 1996 through April 1997. Other Interest The $2 million increase in other interest for the second quarter of 1997, as compared to the second 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 during the third quarter of 1996 and the redemption of first mortgage bonds. Preferred Dividend Requirement The preferred dividend requirement decreased $3 million for the second 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 during the third quarter of 1996. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 Kwh Sales Kwh sales for the six months ended June 30, 1997, increased 45.5%, as compared to the six months ended June 30, 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 six months ended June 30, 1997 resulted in decreased residential and commercial sales. These decreases were partially offset by an increase in the number of residential and commercial customers and increased industrial sales primarily reflecting growth in the food products and primary metals sectors. Mcf Sales and Transportation Mcf gas sales for the six months ended June 30, 1997, decreased 12.2%, while Mcf transportation volumes increased 7.6%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first quarter of 1996, as compared to the mild weather during the same period of 1997, and were partially offset by an increase in residential and commercial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Operating Revenues Electric Operating Revenues Electric operating revenues increased $67 million (9%) for the six months ended June 30, 1997, from the comparable period of 1996. This increase, primarily a result of the increased activity in Cinergy's power marketing and trading operations, 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: Six Months Ended June 30 (in millions) Electric operating revenues - June 30, 1996 $747 Increase (Decrease) due to change in: Price per kwh Retail (40) Sales for resale Non-firm power transactions 11 Total change in price per kwh (29) Kwh sales Retail (29) Sales for resale Non-firm power transactions 125 Total change in kwh sales 96 Electric operating revenues - June 30, 1997 $814 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 CG&E in "Results of Operations for the Quarter Ended June 30, 1997." Gas operating revenues increased $22 million (8%) for the six months ended June 30, 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 a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. These increases were partially offset by the previously discussed changes in gas sales volumes. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $54 million (29%) for the six months ended June 30, 1997, as compared to the same period last year. An analysis of these fuel costs is shown below: Six Months Ended June 30 (in millions) Fuel expense - June 30, 1996 $185 Decrease due to change in: Deferred fuel cost (48) Kwh generation (6) Fuel expense - June 30, 1997 $131 Gas Purchased Gas purchased for the six months ended June 30, 1997, increased $27 million (20%) when compared to the same period last year, reflecting an increase in the average cost per Mcf purchased which was partially offset by a decrease in volume. Purchased and Exchanged Power Purchased and exchanged power for the six months ended June 30, 1997, increased $147 million over the comparable period of 1996, 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 expenses decreased $10 million (6%) for the six months ended June 30, 1997, as compared to the same period of 1996, due to charges in the second quarter of 1996 for early retirement and severance programs. Maintenance The $5 million (12%) increase in maintenance expenses for the six months ended June 30, 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 half of 1997, as compared to the same period of 1996, is due, in part, to a higher level of expenses associated with CG&E's and ULH&P's sales of accounts receivables and a decrease in interest revenue related to a decrease in the balance of short- term loans to affiliated companies through Cinergy's money pool arrangement. Interest Interest on Long-term Debt Interest on long-term debt decreased $5 million (8%) for the six months ended June 30, 1997, as compared to the same period of 1996, primarily due to the redemption of $301.5 million of long-term debt during the period from February 1996 through April 1997. Other Interest The $3 million increase in other interest for the first half of 1997, as compared to the first half 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 during the third quarter of 1996 and the redemption of first mortgage bonds. Preferred Dividend Requirement The preferred dividend requirement decreased $7 million for the first half 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 during the third quarter of 1996. PSI ENERGY, INC. AND SUBSIDIARY COMPANIES
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1997 1996 (dollars in thousands) Electric Utility Plant - Original Cost In service $4,223,441 $4,178,181 Accumulated depreciation 1,757,258 1,723,279 2,466,183 2,454,902 Construction work in progress 68,666 76,630 Total electric utility plant 2,534,849 2,531,532 Current Assets Cash and temporary cash investments 9,243 2,911 Restricted deposits 772 550 Notes receivable 180 299 Notes receivable from affiliated companies 27,509 3 Accounts receivable less accumulated provision for doubtful accounts of $1,227 at June 30, 1997, and $1,269 at December 31, 1996 95,521 73,990 Accounts receivable from affiliated companies 8,168 4,016 Materials, supplies, and fuel - at average cost Fuel 31,329 41,865 Other materials and supplies 28,252 28,268 Prepayments and other 5,246 3,184 206,220 155,086 Other Assets Regulatory assets Amounts due from customers - income taxes 34,796 33,068 Post-in-service carrying costs and deferred operating expenses 44,369 44,904 Coal contract buyout costs 128,943 138,171 Deferred merger costs 75,984 76,290 Deferred demand-side management costs 85,702 101,208 Unamortized costs of reacquiring debt 30,943 32,079 Other 51,451 52,938 Other 135,495 129,667 587,683 608,325 $3,328,752 $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 June 30 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at June 30, 1997, and December 31, 1996 $ 539 $ 539 Paid-in capital 401,013 402,947 Retained earnings 619,278 626,089 Total common stock equity 1,020,830 1,029,575 Cumulative Preferred Stock Not subject to mandatory redemption 173,073 173,086 Long-term Debt 910,869 945,270 Total capitalization 2,104,772 2,147,931 Current Liabilities Long-term debt due within one year - 10,000 Notes payable and other short-term obligations 258,759 171,729 Notes payable to affiliated companies - 13,186 Accounts payable 133,226 114,330 Accounts payable to affiliated companies 26,199 12,850 Accrued taxes 59,678 73,206 Accrued interest 26,238 24,045 Other 12,454 17,107 516,554 436,453 Other Liabilities Deferred income taxes 369,538 372,997 Unamortized investment tax credits 51,020 52,750 Accrued pension and other postretirement benefit costs 107,146 98,037 Other 179,722 186,775 707,426 710,559 $3,328,752 $3,294,943
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1997 1996 1997 1996 (in thousands) Operating Revenues Non-affiliated companies $386,459 $287,476 $808,748 $608,972 Affiliated companies 3,079 2,036 4,645 8,835 389,538 289,512 813,393 617,807 Operating Expenses Fuel 74,244 76,354 179,751 170,699 Purchased and exchanged power Non-affiliated companies 101,455 23,569 191,185 44,757 Affiliated companies 7,799 7,987 13,868 20,335 Other operation 78,078 59,458 161,787 126,009 Maintenance 27,244 23,242 45,762 45,905 Depreciation 31,293 30,349 62,445 60,557 Amortization of post-in-service deferred operating expenses 268 (1,686) 536 (3,352) Income taxes 13,067 13,269 33,292 32,152 Taxes other than income taxes 15,323 13,464 30,180 27,632 348,771 246,006 718,806 524,694 Operating Income 40,767 43,506 94,587 93,113 Other Income and Expenses - Net Allowance for equity funds used during construction 93 - 165 - Post-in-service carrying costs - 494 - 837 Income taxes (241) (1,654) (844) (894) Other - net 810 1,798 4,073 (1,860) 662 638 3,394 (1,917) Income Before Interest 41,429 44,144 97,981 91,196 Interest Interest on long-term debt 17,146 17,033 36,376 34,068 Other interest 2,075 3,128 6,532 6,596 Allowance for borrowed funds used during construction (523) (680) (956) (995) 18,698 19,481 41,952 39,669 Net Income $ 22,731 $ 24,663 $ 56,029 $ 51,527 Preferred Dividend Requirement 3,019 3,203 6,039 6,498 Net Income Applicable to Common Stock $ 19,712 $ 21,460 $ 49,990 $ 45,029 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1997 1996 (in thousands) Operating Activities Net income $ 56,029 $ 51,527 Items providing (using) cash currently: Depreciation 62,445 60,557 Deferred income taxes and investment tax credits - net (6,916) 4,078 Allowance for equity funds used during construction (165) - Regulatory assets - net 23,870 5,668 Changes in current assets and current liabilities Restricted deposits (222) (291) Accounts and notes receivable, net of reserves on receivables sold (53,912) 19,775 Materials, supplies, and fuel 10,552 1,181 Accounts payable 32,245 5,553 Accrued taxes and interest (11,335) (783) Other items - net (5,168) 4,647 Net cash provided by operating activities 107,423 151,912 Financing Activities Funds on deposit from issuance of long-term debt - 973 Retirement of preferred stock (1) (15,114) Redemption of long-term debt (45,700) - Change in short-term debt 73,844 (10,624) Dividends on preferred stock (6,039) (6,589) Dividends on common stock (56,800) (54,052) Net cash used in financing activities (34,696) (85,406) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (60,320) (66,830) Deferred demand-side management costs (6,075) (8,700) Net cash used in investing activities (66,395) (75,530) Net increase (decrease) in cash and temporary cash investments 6,332 (9,024) Cash and temporary cash investments at beginning of period 2,911 15,522 Cash and temporary cash investments at end of period $ 9,243 $ 6,498 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 Kwh Sales Kwh sales for the second quarter of 1997 increased 55.1%, 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. Also contributing to the higher kwh sales levels was an increase in industrial sales primarily reflecting growth in the primary metals sector. Partially offsetting these increases were the effects of mild weather during the second quarter of 1997. Operating Revenues Operating revenues increased $100 million (35%) for the quarter ended June 30, 1997, when compared to the same period last year, reflecting, in part, increased activity in Cinergy's power marketing and trading operations previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order and 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 June 30 (in millions) Operating revenues - June 30, 1996 $290 Increase (Decrease) due to change in: Price per kwh Retail 25 Sales for resale Firm power obligations (9) Non-firm power transactions 14 Total change in price per kwh 30 Kwh sales Retail (1) Sales for resale Firm power obligations 1 Non-firm power transactions 69 Total change in kwh sales 69 Other 1 Operating revenues - June 30, 1997 $390 Operating Expenses Fuel Fuel costs decreased $2 million (3%) for the second quarter of 1997, as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended June 30 (in millions) Fuel expense - June 30, 1996 $76 Increase (Decrease) due to change in: Price of fuel (3) Kwh generation 1 Fuel expense - June 30, 1997 $74 Purchased and Exchanged Power For the quarter ended June 30, 1997, purchased and exchanged power increased $78 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 $19 million (31%) for the quarter ended June 30, 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 (17%) increase in maintenance expenses for the second quarter of 1997, as compared to the same period of 1996, is primarily due to scheduled outages at Gibson. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses 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. Taxes Other Than Income Taxes The $2 million (14%) increase in taxes other than income taxes for the second quarter of 1997, as compared to the same period last year, is primarily due to an increase in the Indiana gross revenues tax. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 Kwh Sales For the six months ended June 30, 1997, kwh sales increased 43.0% when compared to the same period last year primarily due to 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 was an increase in industrial sales primarily reflecting growth in the primary metals sector. Partially offsetting these increases were the effects of mild weather during the period. Operating Revenues Total operating revenues increased $195 million (32%) for the six months ended June 30, 1997, when compared to the same period last year. This increase primarily reflects the increase in kwh sales previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order and 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: Six Months Ended June 30 (in millions) Operating revenues - June 30, 1996 $618 Increase (Decrease) due to change in: Price per kwh Retail 49 Sales for resale Firm power obligations (7) Non-firm power transactions 18 Total change in price per kwh 60 Kwh sales Retail 1 Sales for resale Firm power obligations 1 Non-firm power transactions 132 Total change in kwh sales 134 Other 1 Operating revenues - June 30, 1997 $813 Operating Expenses Fuel Fuel costs for the six months ended June 30, 1997, increased $9 million (5%) when compared to the same period last year. An analysis of fuel costs is shown below: Six Months Ended June 30 (in millions) Fuel expense - June 30, 1996 $171 Increase (Decrease) due to change in: Price of fuel (6) Deferred fuel cost 11 Kwh generation 4 Fuel expense - June 30, 1997 $180 Purchased and Exchanged Power For the six months ended June 30, 1997, purchased and exchanged power increased $140 million, as 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 Other operation expenses increased $36 million (28%) for the six months ended June 30, 1997, as compared to the same period last year. This increase was 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. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses 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. Taxes Other Than Income Taxes The $3 million (9%) increase in taxes other than income taxes for the six months ended June 30, 1997, as compared to the same period last year, is primarily due to an increase in the Indiana gross revenues tax. Other Income and Expenses - Net Other - net The change of $6 million for other - net for the six months ended June 30, 1997, as compared to the same period of 1996, is primarily attributable to an increase in carrying costs related to the Coal Supply Agreement, Clean Coal Project, and deferred DSM costs. Interest Interest on Long-term Debt Interest on long-term debt increased $2 million (7%) for the six month period ended June 30, 1997, as compared to the same period of 1996. The increase was primarily due to net issuance of approximately $100 million of long-term debt during the third and fourth quarters of 1996. THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT & POWER COMPANY BALANCE SHEETS (unaudited) ASSETS June 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $200,505 $195,053 Gas 150,775 148,203 Common 19,233 19,285 370,513 362,541 Accumulated depreciation 128,072 122,310 242,441 240,231 Construction work in progress 8,742 9,050 Total utility plant 251,183 249,281 Current Assets Cash and temporary cash investments 4,544 1,197 Notes receivable from affiliated companies - 100 Accounts receivable less accumulated provision for doubtful accounts of $1,314 at June 30, 1997, and $1,024 at December 31, 1996 6,320 12,763 Accounts receivable from affiliated companies 375 620 Materials, supplies, and fuel - at average cost Gas stored for current use 4,773 6,351 Other materials and supplies 690 716 Property taxes applicable to subsequent year 1,300 2,600 Prepayments and other 493 370 18,495 24,717 Other Assets Regulatory assets Deferred merger costs 5,218 5,218 Unamortized costs of reacquiring debt 3,673 3,764 Other 2,425 2,357 Other 6,238 5,146 17,554 16,485 $287,232 $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 & POWER COMPANY CAPITALIZATION AND LIABILITIES June 30 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 June 30, 1997, and December 31, 1996 $ 8,780 $ 8,780 Paid-in capital 18,683 18,839 Retained earnings 94,787 92,484 Total common stock equity 122,250 120,103 Long-term Debt 44,643 44,617 Total capitalization 166,893 164,720 Current Liabilities Notes payable to affiliated companies 20,928 30,649 Accounts payable 6,419 12,018 Accounts payable to affiliated companies 20,493 16,771 Accrued taxes 3,078 1,014 Accrued interest 1,341 1,284 Other 3,964 5,248 56,223 66,984 Other Liabilities Deferred income taxes 32,674 33,463 Unamortized investment tax credits 4,657 4,797 Accrued pension and other postretirement benefit costs 13,522 12,983 Amounts due to customers - income taxes 6,488 5,121 Other 6,775 2,415 64,116 58,779 $287,232 $290,483
THE UNION LIGHT, HEAT & POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date June 30 June 30 1997 1996 1997 1996 (in thousands) Operating Revenues Electric $47,314 $42,933 $ 95,894 $ 95,266 Gas Non-affiliated companies 10,825 11,061 44,788 45,067 Affiliated companies 69 15 190 67 58,208 54,009 140,872 140,400 Operating Expenses Electricity purchased from parent company for resale 34,626 31,887 69,755 69,487 Gas purchased 6,555 5,125 27,004 24,123 Other operation 8,203 7,149 16,737 16,396 Maintenance 1,496 1,186 3,059 2,352 Depreciation 3,111 2,967 6,181 5,874 Income taxes 903 1,246 5,645 6,757 Taxes other than income taxes 1,115 1,035 2,214 2,106 56,009 50,595 130,595 127,095 Operating Income 2,199 3,414 10,277 13,305 Other Income and Expenses - Net Allowance for equity funds used during construction 27 - 23 (21) Income taxes 206 31 298 27 Other - net (514) (424) (961) (643) (281) (393) (640) (637) Income Before Interest 1,918 3,021 9,637 12,668 Interest Interest on long-term debt 881 960 1,762 2,254 Other interest 333 159 634 266 Allowance for borrowed funds used during construction (7) (54) (37) (64) 1,207 1,065 2,359 2,456 Net Income $ 711 $ 1,956 $ 7,278 $ 10,212 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date June 30 1997 1996 (in thousands) Operating Activities Net income $ 7,278 $ 10,212 Items providing (using) cash currently: Depreciation 6,181 5,874 Deferred income taxes and investment tax credits - net 438 6,782 Allowance for equity funds used during construction (23) 21 Regulatory assets - net (68) 22 Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 6,513 30,029 Materials, supplies, and fuel 1,604 (301) Accounts payable (1,877) (24,344) Accrued taxes and interest 2,121 210 Other items - net 4,634 (302) Net cash provided by operating activities 26,801 28,203 Financing Activities Redemption of long-term debt - (26,863) Change in short-term debt (9,721) 5,558 Dividends on common stock (4,975) -___ Net cash used in financing activities (14,696) (21,305) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (8,758) (7,960) Net cash used in investing activities (8,758) (7,960) Net increase (decrease) in cash and temporary cash investment 3,347 (1,062) Cash and temporary cash investments at beginning of period 1,197 1,750 Cash and temporary cash investments at end of period $ 4,544 $ 688 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1997 Operating Revenues Electric Operating Revenues Electric operating revenues increased $4.4 million (10.2%) for the quarter ended June 30, 1997, from the comparable period of 1996. This increase is partially attributable to the accrual in June 1996 of the retroactive portion of an order issued by the KPSC authorizing a decrease in electric rates 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 during the second quarter of 1997, when compared to the same period of last year. Decreases primarily attributable to the aforementioned trend toward increased transportation services were substantially offset by the operation of a gas cost recovery mechanism, reflecting an increase in the average cost per Mcf of gas purchased. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased increased $2.7 million (8.6%) for the quarter ended June 30, 1997, as compared to the same period last year. This increase is primarily attributable to the accrual in June 1996 of the retroactive portion of an order issued by the KPSC as previously discussed. Gas Purchased Gas purchased for the quarter ended June 30, 1997, increased $1.4 million (27.9%) from the second quarter of last year, reflecting an increase in the average cost per Mcf purchased which was partially offset by a decrease in volume. Other Operation The $1.1 million (14.7%) increase in other operation expenses for the second quarter of 1997, as compared to the same period of 1996, is primarily due to higher administrative and general expenses. Partially offsetting this increase were lower electric and gas distribution expenses. Maintenance The $.3 million (26.1%) increase in maintenance expenses for the second 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. Other Income and Expenses - Net Other - net The change in other - net of $.1 million for the quarter ended June 30, 1997, as compared to the same period of 1996, is partially attributable to a higher level of expenses associated with the sales of accounts receivables. Interest Interest on Long-term Debt Interest on long-term debt decreased $.1 million (8.2%) for the quarter ended June 30, 1997, as compared to the same period of 1996, primarily due to the redemption of $10 million of long-term debt in May 1996. Other Interest Other interest charges increased $.2 million for the quarter ended June 30, 1997, as compared to the same period of 1996, primarily due to increased short-term borrowings. This increase was partially offset by interest charges recorded in 1996 on customer rate refunds. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 Kwh Sales Kwh sales for the six months ended June 30, 1997, remained relatively constant, as compared to the six months ended June 30, 1996. Mild weather during the six months ended June 30, 1997, resulted in decreased residential and commercial sales. These decreases were partially offset by an increase in the number of residential and commercial customers. Mcf Sales and Transportation For the six months ended June 30, 1997, Mcf gas sales volumes decreased 14.2% while Mcf transportation volumes increased 23.3%, as compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first quarter of 1996, as compared to the mild weather during the same period of 1997, and were slightly offset by an increase in the number of residential customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by ULH&P. Operating Revenues 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 ULH&P in "Results of Operations for the Quarter Ended June 30, 1997." Gas operating revenues remained relatively constant for the six months ended June 30, 1997, when compared to the same period of last year. Increases primarily attributable to the operation of a gas cost recovery mechanism, reflecting an increase in the average cost per Mcf of gas purchased, were offset by the effect of the aforementioned trend toward increased transportation services and the weather-related decrease in Mcf sales volumes. Operating Expenses Gas Purchased Gas purchased for the six months ended June 30, 1997, increased $2.9 million (11.9%), as compared to the same period in 1996. This increase reflects an increase in the average cost per Mcf purchased, partially offset by a decrease in volume. Maintenance The $.7 million (30.1%) increase in maintenance expenses for the six months ended June 30, 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 $.3 million (5.2%) for the six months ended June 30, 1997, over the comparable period of last year. The increase primarily reflects additions to gas and electric utility plant. Other Income and Expenses - Net Other - net The change of $.3 million for other - net for the six months ended June 30, 1997, as compared to the same period of 1996, is primarily attributed to a higher level of expenses associated with the sales of accounts receivables. Interest Interest on Long-Term Debt Interest charges decreased $.5 million (21.8%) for the six months ended June 30, 1997, from the same period of 1996, primarily due to the redemption of $25 million of long-term debt during the period from February 1996 to May 1996. Other Interest Other interest charges increased $.4 million for the six months ended June 30, 1997, as compared to the same period of 1996, primarily due to increased short-term borrowings. This increase was partially offset by interest charges recorded in 1996 on customer rate refunds. 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 On July 31, 1997, PSI gave notice of its intention to redeem on September 1, 1997, all outstanding shares of its 7.15% Series Cumulative Preferred Stock at a redemption price of $101 per share. 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 Refunding Revenue 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 were issued in an initial daily rate mode 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. Holders of the 1997 Series and the 1996 Series bonds have the right to put their bonds on any business day. Accordingly, these issuances are reflected in the Consolidated Balance Sheets as "Notes payable and other short-term obligations". 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, year to date, and twelve months ended June 30, 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, year to date, and twelve months ended June 30, 1997. On July 2, 1997, the government in the United Kingdom announced a windfall profits tax to be levied against a limited number of British companies, including Midlands. The tax was enacted into law during the third quarter and as a result, Midlands will record a charge of 134 million pounds sterling (of which Cinergy's share, based on the exchange rate in effect at the time of enactment is $109 million or $.69 per share) in the third quarter of 1997. 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 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. Cinergy, CG&E, and PSI 7. Cinergy and its subsidiaries use derivative financial instruments to hedge exposures to foreign currency exchange rates, lower funding costs and reduce exposures to fluctuations in interest rates. Instruments used as hedges must be designated as a hedge at the inception of the contract and must be effective at reducing the risk associated with the exposure being hedged. Accordingly, changes in market values of designated hedge instruments must be highly correlated with changes in market values of the underlying hedged items at inception of the hedge and over the life of the hedge contract. Cinergy uses a currency swap to hedge exposures to fluctuations in foreign currency exchange rates. The currency swap is accounted for as a hedge of Cinergy's pound sterling denominated net investment in Avon Energy. Accordingly, any translation gains or losses on the currency swap are recorded in the cumulative foreign currency translation adjustment which is a separate component of common stock equity and the estimated fair value of the currency swap is reflected in "Other Liabilities - Other" in the Consolidated Balance Sheets. Cinergy and its subsidiaries enter into interest rate swap agreements to lower funding costs and manage exposures to fluctuations in interest rates. Interest rate swaps are accounted for under the accrual method. Accordingly, gains and losses based on any interest differential between fixed-rate and floating-rate interest amounts, calculated on agreed upon notional principal amounts are recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement. Cinergy actively markets and trades physical contracts for the purchase and sale of electricity. The majority of these physical contracts are fixed-price forward purchase and sales contracts, which require physical delivery of electricity. Therefore, the revenues, costs, and the associated receivables and payables are recognized on the accrual basis of accounting in the Consolidated Financial Statements. Cinergy also enters into option contracts which, to the extent options are exercised, are also settled via physical delivery of electricity. Option premiums are deferred and included in the Consolidated Balance Sheets and amortized to "Operating Revenues - Electric" or "Purchased and exchanged power" in the Consolidated Statements of Income over the term of the option contract. The use of these types of derivative commodity instruments allows Cinergy to manage and hedge its contractual commitments, reduce its exposure relative to the volatility of cash market prices, and take advantage of selected arbitrage opportunities. Option contracts and derivative commodity instruments requiring settlement in cash are used on a limited basis and the impacts of such instruments are not significant to Cinergy's Consolidated Financial Statements. During June 1997, Capital & Trading acquired the assets of GEP. Capital & Trading specializes in energy risk management, marketing, and proprietary arbitrage trading. Capital & Trading actively trades derivative commodity instruments including futures, forwards, swaps, and options. Capital & Trading accounts for these derivatives at fair value with unrealized gains and losses reflected in its statement of operations. At June 30, 1997, the operations of Capital & Trading were not significant to the Consolidated Financial Statements of Cinergy. Cinergy, CG&E, PSI, and ULH&P 8. As discussed in the 1996 Form 10-K, in March 1997, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P and other Cinergy system companies, which participate in the money pooling arrangement, filed an application with the SEC under the PUHCA requesting authorization of the money pool through December 31, 2002. In May 1997, the SEC issued an order authorizing Cinergy's utility subsidiaries and other Cinergy system companies continued use of the money pool and granting other financing transactions for which the companies requested approval, in each case, through December 31, 2002. Cinergy and PSI 9. As discussed in the 1996 Form 10-K, the UCC and the CAC filed a Joint Petition for the Reconsideration and Rehearing of the September 1996 Order with the IURC in October of 1996. A settlement agreement was filed May 27, 1997, with the IURC regarding the petition for rehearing and/or reconsideration filed by the UCC and the CAC in PSI's latest rate order dated October 2, 1996. The settlement agreement reduces the original rate increase by $2.1 million (.2%). Major provisions of the settlement agreement include PSI increasing annual amortization of certain regulatory assets by $4.1 million, the reflection of an August 31, 1995 cut-off date for costs to achieve merger savings with amounts subsequent to that date and prior to October 31, 1996 being deferred for subsequent recovery (reduces rates $.9 million annually), and PSI reducing its jurisdictional revenues by $1 million annually in addition to the $.9 million reduction related to costs to achieve merger savings. The settlement agreement was received into evidence by the IURC at a hearing held on August 12, 1997. No party at the hearing opposed the settlement agreement. Cinergy and PSI cannot predict what action the IURC may take with respect to the settlement agreement. Cinergy, CG&E, and ULH&P 10. As discussed in the 1996 Form 10-K, under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of its gas operations for a period of three years. Recently, under substantially similar circumstances, the SEC issued an order permitting another electric registered holding company to retain gas operations comparable in size to those of CG&E. Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. Cinergy and PSI 11. As discussed in the 1996 Form 10-K, IGC and PSI had entered into negotiations regarding IGC's claim that PSI should contribute to IGC's response costs related to investigating and remediating contamination at 18 of the 19 MGP sites which PSI sold to IGC. In August 1997, PSI reached an agreement with IGC settling IGC's claims against PSI pursuant to CERCLA and other laws for contribution to IGC's past and future response costs involving 13 MGP sites conveyed by PSI to IGC in 1945. The agreement with IGC calls for sharing past and future response costs equally (50/50) at the 13 sites. Further, the parties must jointly approve future management of the sites and the decisions to spend additional funds. The settlement does not address five sites PSI acquired from NIPSCO and subsequently sold to IGC (including the Lafayette site). Resolution of liability on these five sites will require further negotiations among all three companies. Moreover, the agreement does not address NIPSCO's claims against PSI relative to two other MGP sites. Based on information received to date, PSI's potential exposure to probable and reasonably estimable liabilities associated with various MGP sites, including the 13 sites which are the subject of the agreement with IGC, would not be material to its financial condition or results of operations. However, further investigation and remediation activities at these sites may indicate that the potential liability for MGP sites could be material. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Recent Developments Cinergy Securities Ratings During the second quarter of 1997, S&P, D&P, and Fitch assigned a BBB+ rating to Cinergy and Moody's assigned a Baa2 rating to Cinergy. These ratings are not assigned to specific issues of long-term debt, rather they are indicative corporate ratings. In assigning the rating, Fitch stated, "The ratings primarily reflect the credit strength and favorable competitive position of CIN's two domestic operating companies, which are the principal source of the parent company's cash flow." Cinergy, CG&E, PSI and ULH&P Ambient Air Standards The EPA has recently revised the NAAQS for ozone and fine particulate matter. The new ozone standard is more stringent than the existing standard and will cause more areas across the nation to be classified as non-attainment. The standards are expected to force significant reductions in NOx emissions from many sources. The EPA has specifically stated that electric utility generating facilities are targeted for NOx reductions. The total level of NOx reductions will depend upon the outcome of the SIP revision process for meeting the new ozone NAAQS, and other EPA NOx reduction initiatives. Cinergy estimates that the capital costs for additional NOx controls at its facilities could be as high as $400 million over the next ten years depending upon the level of reductions. The impact of the particulate standards cannot be determined at this time. The EPA estimates it will take up to five years to collect sufficient ambient air monitoring data. The states will then determine the sources of these particulates and develop a reduction strategy. The ultimate effect of the new standard could be requirements for newer and cleaner technologies and additional controls on conventional particulates and/or reductions in sulfur dioxide and NOx emissions from utility sources. Since these studies and determinations have not been made, Cinergy cannot predict the outcome or effect of the new particulate standards on its operations. 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." Cinergy and CG&E CG&E's Customer Choice Pilot On July 2, 1997, the PUCO approved implementation of a pilot program which will allow residential customers to choose their gas supplier and have CG&E transport the gas for them effective November 1, 1997. The pilot extends to residential customers the choice that has been available for several years to large volume commercial and industrial customers. Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of its gas operations for a period of three years. Recently, under substantially similar circumstances, the SEC issued an order permitting another electric registered holding company to retain gas operations comparable in size to those of CG&E. Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. Cinergy and PSI PSI's Retail Rate Proceeding See Note 9 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, PSI, and ULH&P 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." On June 19, 1997, CG&E received from the PUCO authorization through June 1998 to, among other things: 1) issue and sell up to $400 million of debt securities; and 2) enter into $200 million of capital lease obligations. In addition, on June 17, 1997, the KPSC authorized ULH&P to, among other things, issue and sell through September 1999, up to $50 million of long-term debt. 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 $853 $280 $175 CG&E & Subsidiaries 453 80 45 PSI 400 200 130 ULH&P 50 - - Additionally, during the second quarter, Cinergy amended its $600 million credit facility. The original credit facility was comprised of two components, a $100 million general commitment and a $500 million acquisition commitment. The $100 million commitment was replaced with a new $200 million revolving credit agreement and the $500 million acquisition agreement was amended. Both components of the facility expire in May 2001, and have $157 million unused as of June 30, 1997. Cinergy UK's $40 million non-recourse credit agreement has $15 million outstanding as of June 30, 1997. Lastly, as discussed in Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information," a windfall profits tax is to be levied against Midlands. This tax will be paid in two equal installments due December 1, 1997 and 1998. Cinergy anticipates that Midlands and/or Avon Energy will borrow the funds to finance the tax payments. 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 denied AEP's petition for review of the FERC's Merger Order. AEP had objected to the Merger Order alleging that, among other things, the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP has elected not to pursue an appeal of the lower court decision to the United States Supreme Court. Additionally, see Notes 6 and 9 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy, CG&E, PSI, and ULH&P (b) No reports on Form 8-K were filed during the quarter. SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: August 13, 1997 John P. Steffen __ Duly Authorized Officer and Chief Accounting Officer EX-27 2 CINERGY 06/30/97 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 JUN-30-1997 6-MOS PER-BOOK 6,279,429 0 476,005 1,123,400 884,496 8,763,330 1,577 1,570,533 1,019,237 2,591,347 0 194,048 2,133,475 1,104,859 0 0 130,000 0 0 0 2,609,601 8,763,330 1,895,513 103,856 1,533,915 1,637,771 257,742 36,792 294,534 118,453 176,081 6,475 169,606 141,910 94,252 316,886 1.07 1.07 -----END PRIVACY-ENHANCED MESSAGE-----