-----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, DN+r+gm2SkZ7H+XoaPAmeRFobQNB9+27HJwEEjeWuqNMKtiT6ZnmQSaGUVmkO5g1 owucOXUSh5+8IaTBD+eDuA== 0000899652-98-000029.txt : 19980504 0000899652-98-000029.hdr.sgml : 19980504 ACCESSION NUMBER: 0000899652-98-000029 CONFORMED SUBMISSION TYPE: U-13-60 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980430 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: U-13-60 SEC ACT: SEC FILE NUMBER: 049-00123 FILM NUMBER: 98605168 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 U-13-60 1 CINERGY CORP. 12/31/97 U-13-60 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM U-13-60 ANNUAL REPORT For the Period Beginning January 1, 1997 and Ending December 31, 1997 to the U.S. SECURITIES AND EXCHANGE COMMISSION of Cinergy Services, Inc. (Exact Name of Reporting Company) A Subsidiary SERVICE COMPANY Date of Incorporation: February 23, 1994 State or Sovereign Power under which Incorporated or Organized: Delaware Location of Principal Executive Offices of Reporting Company: Cincinnati, Ohio Name, title, and address of officer to whom correspondence concerning this report should be addressed: John P. Steffen, Vice President and Comptroller, 139 East Fourth Street, Cincinnati, Ohio 45202 Name of Principal Holding Company Whose Subsidiaries are served by Reporting Company: Cinergy Corp. INSTRUCTIONS FOR USE OF FORM U-13-60 1. Time of Filing. Rule 94 provides that on or before the first day of May in each calendar year, each mutual service company and each subsidiary service company as to which the Commission shall have made a favorable finding pursuant to Rule 88, and every service company whose application for approval or declaration pursuant to Rule 88 is pending shall file with the Commission an annual report on Form U-13-60 and in accordance with the Instructions for that form. 2. Number of Copies. Each annual report shall be filed in duplicate. The company should prepare and retain at least one extra copy for itself in case correspondence with reference to the report becomes necessary. 3. Period Covered by Report. The first report filed by any company shall cover the period from the date the Uniform System of Accounts was required to be made effective as to that company under Rules 82 and 93 to the end of that calendar year. Subsequent reports should cover a calendar year. 4. Report Format. Reports shall be submitted on the forms prepared by the Commission. If the space provided on any sheet of such form is inadequate, additional sheets may be inserted of the same size as a sheet of the form or folded to each size. 5. Money Amounts Displayed. All money amounts required to be shown in financial statements may be expressed in whole dollars, in thousands of dollars or in hundred thousands of dollars, as appropriate and subject to provisions of Regulation S-X (210.3-01(b)). 6. Deficits Displayed. Deficits and other like entries shall be indicated by the use of either brackets or a parenthesis with corresponding reference in footnotes. (Regulation S-X, 210.3-01(c)). 7. Major Amendments or Corrections. Any company desiring to amend or correct a major omission or error in a report after it has been filed with the Commission shall submit an amended report including only those pages, schedules, and entries that are to be amended or corrected. A cover letter shall be submitted requesting the Commission to incorporate the amended report changes and shall be signed by a duly authorized officer of the company. 8. Definitions. Definitions contained in Instruction 01-8 to the Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies, Public Utility Holding Company Act of 1935, as amended February 2, 1979 shall be applicable to words or terms used specifically within this Form U-13-60. 9. Organization Chart. The service company shall submit with each annual report a copy of its current organization chart. 10. Methods of Allocation. The service company shall submit with each annual report a listing of the currently effective methods of allocation being used by the service company and on file with the Securities and Exchange Commission pursuant to the Public Utility Holding Company Act of 1935. 11. Annual Statement of Compensation for Use of Capital Billed. The service company shall submit with each annual report a copy of the annual statement supplied to each associate company in support of the amount of compensation for use of capital billed during the calendar year. Annual Report of Cinergy Services, Inc. LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS Schedule or Description of Schedules and Accounts Account No. Page No. Comparative Balance Sheets - Assets Schedule I 5 Comparative Balance Sheets - Liabilities Schedule I 6 Service Company Property Schedule II 7 Accumulated Provision for Depreciation and Amortization of Service Company Property Schedule III 8 Investments Schedule IV 9 Accounts Receivable from Associate Companies Schedule V 10 Fuel Stock Expenses Undistributed Schedule VI 11 Stores Expense Undistributed Schedule VII 12 Miscellaneous Current and Accrued Assets Schedule VIII 13 Miscellaneous Deferred Debits Schedule IX 14 Research, Development, or Demonstration Expenditures Schedule X 15 Proprietary Capital Schedule XI 16 Long-term Debt Schedule XII 17 Current and Accrued Liabilities Schedule XIII 18 Notes to Financial Statements Schedule XIV 19 Comparative Income Statements Schedule XV 27 Analysis of Billing - Associate Companies Account 457 28 Analysis of Billing - Nonassociate Companies Account 458 29 Analysis of Charges for Service - Associate and Nonassociate Companies Schedule XVI 30 Schedule of Expense Distribution by Department or Service Function Schedule XVII 31 Departmental Analysis of Salaries Account 920 34 Outside Services Employed Account 923 35 Employee Pensions and Benefits Account 926 38 General Advertising Expenses Account 930.1 39 Miscellaneous General Expenses Account 930.2 40 Rents Account 931 41 Taxes Other Than Income Taxes Account 408 42 Donations Account 426.1 43 Other Deductions Account 426.5 44 Notes to Statements of Income Schedule XVIII 45 LISTING OF INSTRUCTIONAL FILING REQUIREMENTS Description of Reports or Statements Page No. Organization Chart 47 Methods of Allocation 48 Annual Statement of Compensation for Use of Capital Billed 50 Annual Report of Cinergy Services, Inc. As of December 31, 1997 and 1996 Schedule I - COMPARATIVE BALANCE SHEETS Give balance sheet of the Company as of December 31 of the current and prior year
REF DECEMBER ACCOUNT ASSETS AND OTHER DEBITS SCHED 1997 1996 SERVICE COMPANY PROPERTY 101 Service Company Property II $ 8,943,593 $ 2,063,444 107 Construction Work in Progress II 11,722,791 5,255,666 Total Property 20,666,384 7,319,110 108 Accumulated Provision for Depreciation and Amortization of Service Company Property III (1,103,349) (183,179) Net Service Company Property 19,563,035 7,135,931 INVESTMENTS 123 Investments in Associate Companies IV - - 124 Other Investments IV - -___ Total Investments - - CURRENT AND ACCRUED ASSETS 131 Cash - 7,059,935 134 Special Deposits - - 135 Working Funds - (51,260) 136 Temporary Cash Investments IV - - 141 Notes Receivable - - 143 Accounts Receivable 339,601 477,496 144 Accumulated Provision for Uncollectible Accounts - - 146 Accounts Receivable from Associate Companies V 19,533,715 14,357,685 152 Fuel Stock Expenses Undistributed VI - - 154 Materials and Supplies - - 163 Stores Expense Undistributed VII - - 165 Prepayments - - 174 Miscellaneous Current and Accrued Assets VIII - -___ Total Current and Accrued Assets 19,873,316 21,843,856 DEFERRED DEBITS 181 Unamortized Debt Expense - - 184 Clearing Accounts 555 - 186 Miscellaneous Deferred Debits IX 55,441 (187,036) 188 Research, Development, or Demonstration Expenditures X - - 190 Accumulated Deferred Income Taxes 763,671 -___ Total Deferred Debits 819,667 (187,036) TOTAL ASSETS AND OTHER DEBITS $40,256,018 $28,792,751
Annual Report of Cinergy Services, Inc. As of December 31, 1997 and 1996 Schedule I - COMPARATIVE BALANCE SHEETS (Continued)
REF December 31 ACCOUNT LIABILITIES AND PROPRIETARY CAPITAL SCHED 1997 1996 PROPRIETARY CAPITAL 201 Common Stock Issued (Note 2) XI $ 3 $ 3 211 Miscellaneous Paid-In-Capital XI - - 215 Appropriated Retained Earnings XI - - 216 Unappropriated Retained Earnings XI - (3) Total Proprietary Capital 3 - LONG-TERM DEBT 223 Advances From Associate Companies XII - - 224 Other Long-Term Debt XII - - 225 Unamortized Premium on Long-Term Debt - - 226 Unamortized Discount on Long-Term Debt - -___ Total Long-Term Debt - - CURRENT AND ACCRUED LIABILITIES 231 Notes Payable - - 232 Accounts Payable 15,910,544 10,962,571 233 Notes Payable To Associate Companies XIII 20,949,887 18,489,079 234 Accounts Payable to Associate Companies XIII 2,274,100 1,840,449 236 Taxes Accrued 1,232,047 (2,567,123) 237 Interest Accrued - - 238 Dividends Declared - - 241 Tax Collections Payable (363,074) 256 242 Miscellaneous Current and Accrued Liabilities XIII - -___ Total Current and Accrued Liabilities 40,003,504 28,725,232 DEFERRED CREDITS 253 Other Deferred Credits 140,000 - 255 Accumulated Deferred Investment Tax Credits - -___ Total Deferred Credits 140,000 - 282 ACCUMULATED DEFERRED INCOME TAXES 112,511 67,519 TOTAL LIABILITIES AND PROPRIETARY CAPITAL $40,256,018 $28,792,751
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule II - SERVICE COMPANY PROPERTY BALANCE AT RETIREMENTS OTHER BALANCE BEGINNING OR CHANGES AT CLOSE ACCOUNT DESCRIPTION OF YEAR ADDITIONS SALES (1) OF YEAR SERVICE COMPANY PROPERTY 301 Organization $ - $ - $ - $ - $ - 303 Miscellaneous Intangible Plant - - - - - 304 Land and Land Rights - - - - - 305 Structures and Improvements - - - - - 306 Leasehold Improvements - - - - - 307 Equipment (2) - - - - - 308 Office Furniture and Equipment 1,311,991 1,242,914 - - 2,554,905 309 Automobiles, Other Vehicles and Related Garage Equipment - - - - - 310 Aircraft and Airport Equipment - - - - - 311 Other Service Company Property (3) 751,453 5,637,235 - - 6,388,688 Sub-Total 2,063,444 6,880,149 - - 8,943,593 107 Construction Work in Progress (4) 5,255,666 6,467,125 - - 11,722,791 Total $7,319,110 $13,347,274 $ - $ - $20,666,384 NOTES (1) Provide an explanation of those changes considered material: None (2) Subaccounts are required for each class of equipment owned. The Service Company shall provide a listing by subaccount of equipment additions during the year and the balance at the close of the year: None
(3) Describe Other Service Company property: BALANCE AT CLOSE DESCRIPTION OF YEAR Computer Software $ 6,388,688 $ 6,388,688 (4) Describe Construction Work in Progress: BALANCE AT CLOSE DESCRIPTION OF YEAR Computer Software $11,212,571 Office Furniture & Equipment 510,220 Other - $11,722,791
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule III - ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION OF SERVICE COMPANY PROPERTY BALANCE AT BALANCE BEGINNING OTHER CHANGES AT CLOSE ACCOUNT DESCRIPTION OF YEAR ADDITIONS RETIREMENTS ADD (DEDUCT) (1) OF YEAR 301 Organization $ - $ - $ - $ - $ - 303 Miscellaneous Intangible Plant - - - - - 304 Land and Land Rights - - - - - 305 Structures and Improvements - - - - - 306 Leasehold Improvements - - - - - 307 Equipment - - - - - 308 Office Furniture and Equipment 158,131 300,116 - - 458,247 309 Automobiles, Other Vehicles and Related Garage Equipment - - - - - 310 Aircraft and Airport Equipment - - - - - 311 Other Service Company Property 25,048 620,054 - - 645,102 Total $183,179 $920,170 $ - $ - $1,103,349 NOTES (1) Provide an explanation of those changes considered material: None
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule IV - INVESTMENTS INSTRUCTIONS: Complete the following schedule concerning investments. Under Account 124, "Other Investments", state each investment separately, with description, including the name of issuing company, number of shares or principal amount, etc. Under Account 136, "Temporary Cash Investments", list each investment separately. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR Account 123 - Investments in Associate Companies None Total $ - $ - Account 124 - Other Investments None Total $ - $ - Account 136 - Temporary Cash Investments None Total $ - $ - Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES INSTRUCTIONS: Complete the following schedule listing accounts receivable from each associate company. Where the service company has provided accommodation or convenience payments for associate companies, a separate listing of total payments for each associate company by subaccount should be provided. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR Account 146 - Accounts Receivable from Associate Companies: PSI Energy, Inc. (PSI) $ 7,088,383 $12,095,900 PSI Energy Argentina, Inc. 8,020 Lawrenceburg Gas Company (Lawrenceburg) 41,422 114,693 KO Transmission Company - 46 Miami Power Corporation 41 - The Union Light, Heat and Power Company (ULH&P) 3,036,609 2,142,565 West Harrison Gas and Electric Company (WHG&E) 58 3,789 Cinergy Corp. (Cinergy) 4,191,172 5,168,702 Total $14,357,685 $19,533,715 Analysis Of Convenience Or Accommodation Payments: None Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule VI - FUEL STOCK EXPENSES UNDISTRIBUTED INSTRUCTIONS: Report the amount of labor and expenses incurred with respect to fuel stock expenses during the year and indicate amount attributable to each associate company. Under the section headed "Summary" listed below give an overall report of the fuel functions performed by the service company. DESCRIPTION LABOR EXPENSES TOTAL Account 152 - Fuel Stock Expenses Undistributed None Total $ - $ - $ - Summary: Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule VII - STORES EXPENSE UNDISTRIBUTED INSTRUCTIONS: Report the amount of labor and expenses incurred with respect to stores expense during the year and indicate amount attributable to each associate company. DESCRIPTION LABOR EXPENSES TOTAL Account 163 - Stores Expense Undistributed None Total $ - $ - $ - Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule VIII - MISCELLANEOUS CURRENT AND ACCRUED ASSETS INSTRUCTIONS: Provide detail of items in this account. Items less than $10,000 may be grouped, showing the number of items in each group. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR Account 174 - Miscellaneous Current and Accrued Assets None Total $ - $ - Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule IX- MISCELLANEOUS DEFERRED DEBITS INSTRUCTIONS: Provide detail of items in this account. Items less than $10,000 may be grouped by class showing the number of items in each class. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR Account 186 - Miscellaneous Deferred Debits ITEMS DEFERRED PENDING INVESTIGATION $(187,036) $55,441 Total $(187,036) $55,441 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule X - RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES INSTRUCTIONS: Provide a description of each material research, development, or demonstration project which incurred costs by the service corporation during the year. DESCRIPTION AMOUNT Account 188 - Research, Development, or Demonstration Expenditures None Total $ -
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XI - PROPRIETARY CAPITAL NUMBER PAR OR ACCOUNT OF SHARES STATED VALUE - OUTSTANDING CLOSE OF PERIOD - NUMBER CLASS OF STOCK AUTHORIZED PER SHARE NO. OF SHARES TOTAL AMOUNT 201 Common Stock Issued 100 $0.05 50 $3 INSTRUCTIONS: Classify amounts in each account with brief explanation, disclosing the general nature of transactions which gave rise to the reported amounts. DESCRIPTION AMOUNT 211 Miscellaneous Paid-In-Capital None 215 Appropriated Retained Earnings None Total $ - INSTRUCTIONS: Give particulars concerning net income or (loss) during the year, distinguishing between compensation for the use of capital owed or net loss remaining from servicing nonassociates per the General Instructions of the Uniform System of Accounts. For dividends paid during the year in cash or otherwise, provide rate percentage, amount of dividend, date declared, and date paid. BALANCE BALANCE AT BEGINNING NET INCOME DIVIDENDS AT CLOSE ACCOUNT DESCRIPTION OF YEAR OR (LOSS) PAID OF YEAR 216 Unappropriated Retained Earnings $(3) $ 3 $ - $ -
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XII - LONG-TERM DEBT INSTRUCTIONS: Advances from associate companies should be reported separately for advances on notes and advances on open account. Names of associate companies from which advances were received shall be shown under the class and series of obligation column. For Account 224 - Other Long-Term Debt, provide the name of creditor company or organization, terms of the obligation, date of maturity, interest rate, and the amount authorized and outstanding. TERMS OF OBLIGATION BALANCE AT BALANCE CLASS & SERIES DATE OF INTEREST AMOUNT BEGINNING (1) AT CLOSE NAME OF CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS DEDUCTIONS OF YEAR Account 223 - Advances from Associate Companies: None Total Account 224 - Other Long- Term Debt: None Total NOTES: (1) Give an explanation of deductions: None
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XIII - CURRENT AND ACCRUED LIABILITIES INSTRUCTIONS: Provide balance of notes and accounts payable to each associate company. Give description and amount of miscellaneous current and accrued liabilities. Items less than $10,000 may be grouped, showing the number of items in each group. BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR Account 233 - Notes Payable to Associate Companies The Cincinnati Gas & Electric Company (CG&E) $18,447,192 $10,758,000 PSI - 10,150,000 Cinergy 41,887 41,887 Total $18,489,079 $20,949,887 Account 234 - Accounts Payable to Associate Companies CG&E $ 1,840,449 $ 2,274,100 Total $ 1,840,449 $ 2,274,100 Account 242 - Miscellaneous Current and Accrued Liabilities $ - $ - Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XIV - NOTES TO FINANCIAL STATEMENTS Instructions: The space below is provided for important notes regarding the financial statements or any account thereof. Furnish particulars as to any significant contingent assets or liabilities existing at the end of the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. 1. Summary of Significant Accounting Policies (a) Merger Cinergy Corp. (Cinergy), a Delaware corporation and registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), was created in the October 1994 merger of The Cincinnati Gas & Electric Company (CG&E) and PSI Resources, Inc. Cinergy Services, Inc. (Services) is a wholly-owned subsidiary of Cinergy. Cinergy's other wholly-owned subsidiaries are CG&E, PSI Energy, Inc. (PSI), and Cinergy Investments, Inc. (Investments). (b) Nature of Operations Services, a Delaware corporation, is the service company for the Cinergy system, providing member companies with a variety of administrative, management, and support services. (c) Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (See Note 9.) (d) Regulation Services is subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA. Services' accounting policies conform to GAAP and follow the Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies prescribed by the SEC pursuant to the PUHCA. (e) Federal and State Income Taxes Deferred tax assets and liabilities are recognized for the income tax consequences of transactions treated differently for financial reporting and tax return purposes, measured on the basis of statutory tax rates. (f) Service Company Property Service company property and equipment, including any interest capitalized during construction, are recorded at cost. (g) Depreciation Provisions for depreciation are determined by using the straight-line method applied to the cost of depreciable plant in service. The effective annual depreciation rate for 1997 was 11.8% and for 1996 was 10.0%. Software is amortized over a five-year period at an annual rate of 20%. (h) Income and Expenses Services provided to affiliated companies are provided at cost. The costs of services are determined on a direct charge basis to the extent practicable. Indirect costs are charged using the ratios defined in the service agreements between Services and the client companies. (See "Methods of Allocation.") 2. Common Stock Services is authorized to issue 100 shares of Common Stock at a par value of five cents ($.05) per share. All of Services' outstanding common stock is held by Cinergy. 3. Notes Payable to Associate Companies To better manage cash and working capital requirements, Cinergy's utility subsidiaries, and Services, participate in a money pooling arrangement. Under this arrangement, Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30- day Federal Reserve "AA" industrial commercial paper rate. The SEC's approval of the money pool, pursuant to the PUHCA, extends through December 31, 2002. 4. Leases Cinergy and its subsidiaries, including Services, have entered into operating lease agreements covering various facilities and properties, including office space and computer, communications, and transportation equipment. Total rental payments on operating leases for each of the past two years were as follows: 1997 1996 (in millions) Cinergy and subsidiaries $36 $31 Future minimum lease payments required under operating leases with remaining, non-cancelable lease terms in excess of one year as of December 31, 1997, are as follows: Cinergy and Subsidiaries (in millions) Year Ended December 31 1998 $ 36 1999 29 2000 22 2001 13 2002 7 After 2002 26 $133 5. Pension Plans Cinergy's defined benefit pension plans, of which Services is a participant, cover substantially all employees meeting certain minimum age and service requirements. Plan benefits are determined under a final average pay formula with consideration of years of participation, age at retirement, and the applicable average Social Security wage base or benefit amount. Cinergy's funding policy is to contribute annually to the plans an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. Contributions applicable to the 1997 plan year were $8 million and to the 1996 plan year were $7 million. The plans' assets consist of investments in equity and fixed income securities. Effective January 1, 1998, Cinergy reconfigured its defined benefit pension plans. The reconfigured plans cover the same employees as the previous plans and established a uniform final average pay formula for all employees. When an employee retires, he or she will receive the greater of the benefit accrued under the previous plan as of December 31, 1997, or the benefit accrued under the new plan as of the retirement date. The reconfiguration of the pension plans is not expected to have a significant impact on the Company's financial condition or results of operations. Cinergy's pension cost for 1997 and 1996 included the following components: 1997 1996 (in millions) Benefits earned during the period $ 19.8 $21.2 Interest accrued on projected benefit obligations 67.8 61.6 Return on plans' assets Actual (186.6) (75.6) Deferred gain 123.8 14.4 Net amortizations 2.8 2.9 Net periodic pension cost $ 27.6 $24.5 During 1996, Cinergy recognized an additional $61 million of accrued pension cost in accordance with Statement of Financial Accounting Standards No. 88, Employers' Accounting for Settlements and Curtailments of Defined Pension Plans and for Termination Benefits. This amount represents the costs associated with additional benefits extended in connection with voluntary workforce reduction programs. 1997 1996 Actuarial Assumptions: For determination of projected benefit obligations Discount Rate 7.5% 8.0% Rate of increase in future compensation 4.5 5.0 For determination of pension cost Rate of return on plans' assets 9.0 9.0 The following table reconciles the plans' funded status with amounts recorded in the Consolidated Financial Statements of Cinergy. Under the provisions of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions (Statement 87), certain assets and obligations of the plans are deferred and recognized in the Consolidated Financial Statements of Cinergy in later years. 1997 1996 Plans' Plans' Plan's Assets Exceed Assets Exceed Accumulated Accumulated Accumulated Benefits Benefits Benefits Exceed Assets (in millions) Actuarial present value of benefits Vested benefits $(731.6) $(423.1) $(241.6) Non-vested benefits (35.5) (33.5) (10.1) Accumulated benefit obligations (767.1) (456.6) (251.7) Effect of future compensation increases (193.2) (121.7) (53.3) Projected benefit obligations (960.3) (578.3) (305.0) Plans' assets at fair value 888.1 531.6 234.1 Projected benefit obligations in excess of plans' assets (72.2) (46.7) (70.9) Remaining balance of plans' net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods (8.5) (6.7) (3.1) Unrecognized net gain resulting from experience different from that assumed and effects of changes in assumptions (134.6) (48.4) (28.1) Prior service cost not yet recognized in net periodic pension cost 46.6 33.6 23.2 Accrued pension cost at December 31 $(168.7) $ (68.2) $ (78.9) 6. Other Postretirement Benefits Cinergy, including Services, provides certain health care and life insurance benefits to retired employees who have met minimum age and service requirements and their eligible dependents. The health care benefits include medical coverage, dental coverage, and prescription and are subject to certain limitations, such as deductibles and co-payments. Prior to January 1, 1997, CG&E and PSI employees were covered under separate plans. Effective January 1, 1997, all Cinergy active employees are eligible to receive essentially the same postretirement health care benefits. Certain classes of employees, based on age, as well as all retirees, have been grandfathered under benefit provisions in place prior to January 1, 1997. Neither CG&E and its subsidiaries nor PSI currently pre-fund their obligations for these postretirement benefits; however, PSI, in connection with the settlement which resulted in a February 1995 Indiana Utility Regulatory Commission (IURC) order, agreed to begin pre-funding. Implementation of pre-funding is subject to the outcome of negotiations with The Office of the Utility Consumer Counselor and approval by the IURC. Postretirement benefit cost for 1997 and 1996 included the following components: Health Life Care Insurance Total (in millions) 1997 Benefits earned during the period $ 3.0 $ .1 $ 3.1 Interest accrued on Accumulated Postretirement Benefit Obligations (APBO) 14.1 2.2 16.3 Net amortization and deferral .2 .1 .3 Amortization of transition obligations 4.7 .3 5.0 Net periodic postretirement benefit cost $22.0 $2.7 $24.7 1996 Benefits earned during the period $ 5.7 $ .1 $ 5.8 Interest accrued on APBO 16.5 2.2 18.7 Net amortization and deferral .3 - .3 Amortization of transition obligations 8.1 .3 8.4 Net periodic postretirement benefit cost $30.6 $2.6 $33.2 The following table reconciles the APBO of the health care and life insurance plans with amounts recorded in the Consolidated Financial Statements of Cinergy. Under the provisions of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, certain obligations of the plans are deferred and recognized in the Consolidated Financial Statements of Cinergy in later years. Health Life Care Insurance Total (in millions) 1997 Actuarial present value of benefits Fully eligible active plan participants $ (9.9) $ (2.3) $ (12.2) Other active plan participants (66.3) (1.1) (67.4) Retirees and beneficiaries (113.6) (28.7) (142.3) Projected APBO (189.8) (32.1) (221.9) Unamortized transition obligations 70.7 .2 70.9 Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions 21.1 1.5 22.6 Accrued postretirement benefit obligations at December 31, 1997 $ (98.0) $(30.4) $(128.4) 1996 Actuarial present value of benefits Fully eligible active plan participants $ (13.7) $ (1.6) $ (15.3) Other active plan participants (49.8) (1.5) (51.3) Retirees and beneficiaries (118.0) (26.4) (144.4) Projected APBO (181.5) (29.5) (211.0) Unamortized transition obligations 75.4 .4 75.8 Unrecognized net loss (gain) resulting from experience different from that assumed and effects of changes in assumptions 19.5 (.5) 19.0 Accrued postretirement benefit obligations at December 31, 1996 $ (86.6) $(29.6) $(116.2) The following assumptions were used to determine the APBO: 1997 1996 Discount rate 7.5% 8.0% Health care cost trend rate, gradually declining to 5% 7.0-8.0% 7.0-9.0% Year ultimate trend rates achieved 2004 2004 Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $24 million for 1997 and $21 million for 1996, and the aggregate of the service and interest cost components of the postretirement benefit cost by approximately $2 million for 1997 and by approximately $4 million for 1996. 7. Net Income The net income for the year ended December 31, 1997, represents the assignment of expenses not assigned at December 31, 1996. 8. Income Taxes Services complies with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. Services' net deferred income tax liability (asset) at Decemer 31, 1997, and 1996, is as follows: 1997 1996 Deferred Income Tax Liability (Asset) Other $(651,160) $67,519 A summary of Federal and state income taxes charged (credited) to income and the allocation of such amounts is as follows: 1997 1996 Current Income Taxes Federal $ - $(63,353) State - (4,166) Total current income taxes - $(67,519) Deferred Income Taxes Federal Depreciation and other utility plant-related items $ - $ 63,353 State Depreciation and other utility plant-related items - 4,166 Total deferred income taxes $ - $ 67,519 Total Income Taxes $ - $ - Services will participate in the filing of a consolidated Federal income tax return with Cinergy for the year ended December 31, 1997. The current tax liability is allocated among the members of the group pursuant to a tax sharing agreement consistent with Rule 45(c) of the PUHCA. 9. Commitments and Contingencies (a) Enertech Associates, Inc. (Enertech) Litigation In October 1995, a suit was filed in the Federal District Court for the Southern District of Ohio by three former employees of Enertech, formerly named Power International, Inc., a subsidiary of Investments, naming as defendants Enertech, Cinergy, Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. (Mr. Rogers and Mr. Grealis are officers and/or directors of the foregoing companies.) The lawsuit, which stems from the termination of employment of the three former employees, alleges that they entered into employment contracts with Enertech based on the opportunity to participate in potential profits from future investments in energy projects in central and eastern Europe. The suit alleges causes of action based upon, among other theories, breach of contract related to the events surrounding the termination of their employment and fraud and misrepresentation related to the level of financial support for future projects. The suit alleges compensatory damages of $154 million based upon assumed future success of potential future investments and punitive damages of three times that amount. All defendants are vigorously defending against the charges based upon meritorious defenses. Cinergy is currently unable to predict the outcome of this litigation.
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XV - COMPARATIVE INCOME STATEMENTS December 31 ACCOUNT DESCRIPTION 1997 1996 INCOME: 457 Services Rendered to Associate Companies $483,823,472 $615,348,166 458 Services Rendered to Nonassociate Companies - - 415 Jobbing and Contract Work - 74 419 Other Interest Income 34,030 62,642 Total Income 483,857,502 615,410,882 EXPENSES: 920 Salaries and Wages 211,064,421 206,699,993 921 Office Supplies and Expenses 62,784,790 61,183,041 922 Administrative Expenses Transferred - Credit (838,673) (1,496,336) 923 Outside Services Employed 37,360,393 50,449,167 924 Property Insurance 1,668,240 4,331,407 925 Injuries and Damages (191,042) 5,929,886 926 Employee Pension and Benefits 72,739,966 202,867,382 928 Regulatory Commission Expense 1,843,674 3,566,809 930.1 General Advertising Expenses 53,159 346,551 930.2 Miscellaneous General Expenses 33,048,682 41,260,147 931 Rents 43,526,355 20,701,478 932 Maintenance of Structures and Equipment 5,678,703 7,318,401 403,404 Depreciation and Amortization Expense 920,170 157,057 408 Taxes Other Than Income Taxes 12,846,806 11,315,084 409 Income Taxes - (67,519) 410 Provision for Deferred Income Taxes - 67,519 411 Provision for Deferred Income Taxes - Credit - - 411.5 Investment Tax Credit - - 421 Miscellaneous Income or Loss (7,888) (1,309) 426.1 Donations - - 426.5 Other Deductions - - 427 Interest on Long-term Debt - - 430 Interest on Debt to Associate Companies 1,723,197 625,487 431 Other Interest Expense (363,454) (55,861) Total Expense 483,857,499 615,198,384 NET INCOME $ 3 $ 212,498
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 ANALYSIS OF BILLING ASSOCIATE COMPANIES - ACCOUNT 457 DIRECT INDIRECT COMPENSATION COSTS COSTS FOR USE TOTAL CHARGED CHARGED OF CAPITAL AMOUNT NAME OF ASSOCIATE COMPANY 457-1 457-2 457-3 BILLED PSI Energy, Inc. $151,678,731 $ 65,427,160 $ 487,981 $217,593,872 PSI Energy Argentina, Inc. 29,142 18 - 29,160 Cinergy Investments, Inc. 2,704,688 5,641 22,173 2,732,502 Power Equipment Supply Co. 4,309 91 - 4,400 Cinergy Capital & Trading, Inc. (Formerly Wholesale Power Services, Inc.) 1,335,983 2,402 - 1,338,385 PSI Recycling, Inc. 1,368 20 - 1,388 The Cincinnati Gas & Electric Company 140,930,720 85,834,287 580,244 227,345,251 Enertech Associates, Inc. (Formerly Power International, Inc.) 465,995 3,680 14,263 483,938 Lawrenceburg Gas Company 147,572 508,660 2,221 658,453 KO Transmission Company 9,612 155 - 9,767 Miami Power Corporation 2,457 28 334 2,819 The Union Light, Heat and Power Company 12,491,772 13,093,952 249,359 25,835,083 The West Harrison Gas and Electric Company 10,331 13,993 - 24,324 Tri-State Improvement Company 15,607 28 2,220 17,855 Cinergy Resources, Inc. 833,189 3,337 - 836,526 CGE ECK, Inc. 21 1 - 22 Cinergy Corp. 1,067,508 3,193 10,735 1,081,436 Cinergy Technology, Inc. 338,046 916 - 338,962 Cinergy Cooling Corp. 611,422 1,915 - 613,337 Cinergy UK, Inc. 1,151,300 8,593 - 1,159,893 Cinergy Solutions, Inc. 3,485,008 82,600 - 3,567,608 Cinergy Communications, Inc. 83,717 832 - 84,549 Cinergy Engineering, Inc. 19,885 12 - 19,897 Cinergy Global Power, Inc. 43,852 193 - 44,045 TOTAL $317,462,235 $164,991,707 $1,369,530 $483,823,472
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 ANALYSIS OF BILLING NONASSOCIATE COMPANIES - ACCOUNT 458 Instructions: Provide a brief description of the services rendered to each nonassociate company. DIRECT INDIRECT COMPENSATION EXCESS COSTS COSTS FOR USE OR TOTAL CHARGED CHARGED OF CAPITAL TOTAL DEFICIENCY AMOUNT NAME OF NONASSOCIATE COMPANY 458-1 458-2 458-3 COST 458-4 BILLED None TOTAL $ - $ - $ - $ - $ - $ -
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVI - ANALYSIS OF CHARGES FOR SERVICE - ASSOCIATE AND NONASSOCIATE COMPANIES INSTRUCTIONS: Total cost of service will equal for associate and nonassociate companies the total amount billed under their separate analysis of billing schedules. Associate Company Charges Nonassociate Company Charge Direct Indirect Direct Indirect Account Description Of Items Cost Cost Total Cost Cost Total 920 Salaries and Wages $133,789,323 $ 77,275,098 $211,064,421 $ - $ - $ - 921 Office Supplies and Expenses 46,020,669 16,764,121 62,784,790 - - - 922 Administrative Expense Transferred - Credit (813,760) (24,913) (838,673) - - - 923 Outside Services Employed 24,424,784 12,935,609 37,360,393 - - - 924 Property Insurance 1,668,240 - 1,668,240 - - - 925 Injuries and Damages (203,913) 12,871 (191,042) - - - 926 Employee Pensions and Benefits 33,036,520 39,703,446 72,739,966 - - - 928 Regulatory Commission Expense 1,658,051 185,623 1,843,674 - - - 930.1 General Advertising Expenses 51,039 2,120 53,159 - - - 930.2 Miscellaneous General Expenses 25,965,097 7,083,585 33,048,682 - - - 931 Rents 11,844,181 31,682,174 43,526,355 - - - 932 Maintenance of Structures and Equipment 4,725,452 953,251 5,678,703 - - - 403,404 Depreciation and Amortization - 920,170 920,170 - - - Expense - - - - - - 408 Taxes Other Than Income Taxes 9,574,236 3,272,570 12,846,806 - - - 409 Income Taxes - - - - - - 410 Provision for Deferred Income Taxes - - - - - - 411 Provision for Deferred Income Taxes - Credit - - - - - - 411.5 Investment Tax Credit - - - - - - 421 Miscellaneous Income or Loss - (7,888) (7,888) - - - 426.1 Donations - - - - - - 426.5 Other Deductions - - - - - - 427 Interest on Long-term Debt - - - - - - 430 Interest on Debt to Associate Companies - 1,723,197 1,723,197 - - - 431 Other Interest Expense (146,350) (217,104) (363,454) - - - Total Expense $291,593,569 $192,263,930 $483,857,499 $ - $ - $ -
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVI - ANALYSIS OF CHARGES FOR SERVICE - ASSOCIATE AND NONASSOCIATE COMPANIES (CONTINUED) INSTRUCTIONS: Total cost of service will equal for associate and nonassociate companies the total amount billed under their separate analysis of billing schedules. Total Charges for Service Direct Indirect Account Description Of Items Cost Cost Total 920 Salaries and Wages $133,789,323 $ 77,275,098 $211,064,421 921 Office Supplies and Expenses 46,020,669 16,764,121 62,784,790 922 Administrative Expense Transferred - Credit (813,760) (24,913) (838,673) 923 Outside Services Employed 24,424,784 12,935,609 37,360,393 924 Property Insurance 1,668,240 - 1,668,240 925 Injuries and Damages (203,913) 12,871 (191,042) 926 Employee Pensions and Benefits 33,036,520 39,703,446 72,739,966 928 Regulatory Commission Expense 1,658,051 185,623 1,843,674 930.1 General Advertising Expenses 51,039 2,120 53,159 930.2 Miscellaneous General Expenses 25,965,097 7,083,585 33,048,682 931 Rents 11,844,181 31,682,174 43,526,355 932 Maintenance of Structures and Equipment 4,725,452 953,251 5,678,703 403,404 Depreciation and Amortization - 920,170 920,170 Expense - - - 408 Taxes Other Than Income Taxes 9,574,236 3,272,570 12,846,806 409 Income Taxes - - - 410 Provision for Deferred Income Taxes - - - 411 Provision for Deferred Income Taxes - Credit - - - 411.5 Investment Tax Credit - - - 421 Miscellaneous Income or Loss - (7,888) (7,888) 426.1 Donations - - - 426.5 Other Deductions - - - 427 Interest on Long-term Debt - - - 430 Interest on Debt to Associate Companies - 1,723,197 1,723,197 431 Other Interest Expense (146,350) (217,104) (363,454) Total Expense $291,593,569 $192,263,930 $483,857,499
Annual Report of Cinergy Services, Inc. For the Year Ended December 31,1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) ---DEPARTMENT OR SERVICE FUNCTION---- TOTAL INFORMATION METERS AND ACCOUNT DESCRIPTION OF ITEMS AMOUNT OVERHEAD SYSTEMS TRANSPORTATION 920 Salaries and Wages $211,064,421 $ - $18,005,369 $13,313,873 921 Office Supplies and Expenses 62,784,790 - 6,795,222 4,389,308 922 Administrative Expense Transferred - Credit (838,673) - (6,566) (1,882) 923 Outside Services Employed 37,360,393 - 12,665,571 25,789 924 Property Insurance 1,668,240 - - 538,215 925 Injuries and Damages (191,042) - - - 926 Employee Pensions and Benefits 72,739,966 - 4,438,566 2,307,928 928 Regulatory Commission Expense 1,843,674 - - - 930.1 General Advertising Expenses 53,159 - 3,740 - 930.2 Miscellaneous General Expenses 33,048,682 - (2,020,565) 1,148,340 931 Rents 43,526,355 - 18,753,562 2,282,465 932 Maintenance of Structures and Equipment 5,678,703 - 3,316,313 85 403,404 Depreciation and Amortization Expense 920,170 920,170 - - 408 Taxes Other Than Income Taxes 12,846,806 - 1,213,075 665,468 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss (7,888) - - - 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies 1,723,197 - - - 431 Other Interest Expense (363,454) - - - Total Expenses $483,857,499 $920,170 $63,164,287 $24,669,589
Annual Report of Cinergy Services, Inc. For the Year Ended December 31,1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION (CONTINUED) INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) ------------DEPARTMENT OR SERVICE FUNCTION----------- ELEC. SYSTEM INTERNAL ELEC. TRANS. ACCOUNT DESCRIPTION OF ITEMS MAINTENANCE AUDITING & DISTRIBUTION ACCOUNTING 920 Salaries and Wages $1,523,957 $1,628,199 $21,140,744 $ 9,220,821 921 Office Supplies and Expenses 72,533 355,968 1,861,112 2,544,109 922 Administrative Expense Transferred - Credit (477) - (312,668) (6,834) 923 Outside Services Employed (903) - 15,211 1,877,667 924 Property Insurance - - - - 925 Injuries and Damages - - - - 926 Employee Pensions and Benefits 369,809 368,048 4,383,651 2,073,101 928 Regulatory Commission Expense - - - 108,000 930.1 General Advertising Expenses - - 109 - 930.2 Miscellaneous General Expenses 294 - 365,893 18,613 931 Rents - - 96,734 15,046,396 932 Maintenance of Structures and Equipment - - 12 - 403,404 Depreciation and Amortization Expense - - - - 408 Taxes Other Than Income Taxes 99,472 105,385 1,237,514 629,486 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss - - - (7,888) 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies - - - 1,723,197 431 Other Interest Expense - - - (363,454) Total Expenses $2,064,685 $2,457,600 $28,788,312 $32,863,214
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) ------------DEPARTMENT OR SERVICE FUNCTION--------------- HUMAN MATERIALS MARKETING & ACCOUNT DESCRIPTION OF ITEMS RESOURCES MANAGEMENT FACILITIES CUST. RELATIONS 920 Salaries and Wages $23,885,115 $ 5,582,448 $ 4,570,657 $31,666,351 921 Office Supplies and Expenses 1,989,279 2,352,253 5,813,820 7,306,024 922 Administrative Expense Transferred - Credit - (1,953) (27) (8,544) 923 Outside Services Employed 756,774 96,257 78,210 5,146,963 924 Property Insurance - 158,900 - - 925 Injuries and Damages 2,947 56 - - 926 Employee Pension and Benefits 31,506,182 1,241,743 1,310,047 7,195,295 928 Regulatory Commission Expense - - - - 930.1 General Advertising Expenses - - - 8,969 930.2 Miscellaneous General Expenses 146,603 2,939,078 855 8,297,617 931 Rents 2,291 2,661 1,255,577 16,727 932 Maintenance of Structures and Equipment - - 2,301,675 (819) 403,404 Depreciation and Amortization Expense - - - - 408 Taxes other Than Income Taxes 930,068 345,872 376,800 2,023,782 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss - - - - 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies - - - - 431 Other Interest Expense - - - - Total Expenses $59,219,259 $12,717,315 $15,707,614 $61,652,365
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) ---------DEPARTMENT OR SERVICE FUNCTION---------- ENVIRONMENTAL PUBLIC POWER ENG. & INVESTOR ACCOUNT DESCRIPTION OF ITEMS AFFAIRS AFFAIRS CONSTRUCTI RELATIONS 920 Salaries and Wages $1,542,781 $1,983,795 $22,255,687 $ 668,859 921 Office Supplies and Expenses 3,001,366 1,202,915 3,023,082 293,567 922 Administrative Expense Transferred - Credit - (423) (416,537) - 923 Outside Services Employed 13,083 1,138,293 513,932 323,906 924 Property Insurance - - - - 925 Injuries and Damages - - 6,616 - 926 Employee Pension and Benefits 605,980 455,337 4,733,656 146,847 928 Regulatory Commission Expense - - - - 930.1 General Advertising Expenses - 2,561 227 - 930.2 Miscellaneous General Expenses 79,933 1,435,990 221,985 580,513 931 Rents (1,295) 46,381 989 - 932 Maintenance of Structures and Equipment (105) 14,284 - - 403,404 Depreciation and Amortization Expense - - - - 408 Taxes other Than Income Taxes 168,587 128,874 1,345,543 42,817 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss - - - - 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies - - - - 431 Other Interest Expense - - - - Total Expenses $5,410,330 $6,408,007 $31,685,180 $2,056,509
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) -----------DEPARTMENT OR SERVICE FUNCTION------------ ACCOUNT DESCRIPTION OF ITEMS LEGAL RATES FINANCE RIGHT OF WAY 920 Salaries and Wages $ 6,162,289 $1,664,369 $ 5,386,034 $1,473,572 921 Office Supplies and Expenses 1,654,227 1,325,234 326,868 314,461 922 Administrative Expense Transferred - Credit (268) - (16,359) (1,681) 923 Outside Services Employed 3,014,879 11,387 2,121,870 921,459 924 Property Insurance - - 948,036 - 925 Injuries and Damages 13,472 - (214,081) (52) 926 Employee Pension and Benefits 1,552,371 389,137 1,336,292 290,722 928 Regulatory Commission Expense 283,395 1,452,272 - - 930.1 General Advertising Expenses - - 37,551 2 930.2 Miscellaneous General Expenses 1,685,204 - 2,563,067 2,071 931 Rents 326,403 811 1,355 4,057,131 932 Maintenance of Structures and Equipment 9,723 - - - 403,404 Depreciation and Amortization Expense - - - - 408 Taxes Other Than Income Taxes 406,625 105,672 389,607 81,547 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss - - - - 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies - - - - 431 Other Interest Expense - - - - Total Expenses $15,108,320 $4,948,882 $12,880,240 $7,139,232
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVII - SCHEDULE OF EXPENSE DISTRIBUTION BY DEPARTMENT OR SERVICE FUNCTION (CONTINUED) INSTRUCTIONS: Indicate each department or service function. (See Instruction 01-3 General Structure of Accounting System: Uniform System of Account(s)) ----------DEPARTMENT OR SERVICE FUNCTION---------- POWER ACCOUNT DESCRIPTION OF ITEMS FUELS PLANNING EXECUTIVE PLANNING 920 Salaries and Wages $1,359,718 $ 392,725 $14,987,091 $22,649,967 921 Office Supplies and Expenses 180,969 164,970 7,649,005 10,168,498 922 Administrative Expense Transferred - Credit - (371) (42,652) (21,431) 923 Outside Services Employed 113,831 371,441 4,420,983 3,733,790 924 Property Insurance - - 23,089 - 925 Injuries and Damages - - - - 926 Employee Pension and Benefits 321,590 93,481 2,871,027 4,749,156 928 Regulatory Commission Expense - - 7 - 930.1 General Advertising Expenses - - - - 930.2 Miscellaneous General Expenses 56,781 574 2,964,100 12,561,736 931 Rents - - 391,479 1,246,688 932 Maintenance of Structures and Equipment - - 28,505 9,030 403,404 Depreciation and Amortization Expense - - - - 408 Taxes Other Than Income Taxes 87,800 26,568 972,357 1,463,887 409 Income Taxes - - - - 410 Provision for Deferred Income Taxes - - - - 411 Provision for Deferred Income Taxes - Credit - - - - 411.5 Investment Tax Credit - - - - 421 Miscellaneous Income or Loss - - - - 426.1 Donations - - - - 426.5 Other Deductions - - - - 427 Interest on Long-term Debt - - - - 430 Interest on Debt to Associate Companies - - - - 431 Other Interest Expense - - - - Total Expenses $2,120,689 $1,049,388 $34,264,991 $56,561,321
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 DEPARTMENTAL ANALYSIS OF SALARIES - ACCOUNT 920 ---------- DEPARTMENTAL SALARY EXPENSE ---------- NAME OF DEPARTMENT --- INCLUDED IN AMOUNTS BILLED TO -- NUMBER OF INDICATE EACH DEPARTMENT TOTAL PARENT OTHER NON- PERSONNEL OR SERVICE FUNCTION AMOUNT COMPANY ASSOCIATES ASSOCIATES END OF YEAR Information Systems $ 18,005,369 $ - $ 18,005,369 $ - 287 Meters and Transportation 13,313,873 39 13,313,834 - 187 Electric System Maintenance 1,523,957 - 1,523,957 - 23 Marketing and Customer Relations 31,666,351 262 31,666,089 - 594 Electric Transmission and Distribution Engineering and Construction 21,140,744 - 21,140,744 - 295 Power Engineering and Construction 22,255,687 850 22,254,837 - 327 Human Resources 23,885,115 - 23,885,115 - 189 Materials Management 5,582,448 - 5,582,448 - 77 Facilities 4,570,657 190 4,570,467 - 129 Accounting 9,220,821 52,936 9,167,885 - 160 Power Planning 22,649,967 8,960 22,641,007 - 263 Public Affairs 1,983,795 - 1,983,795 - 34 Legal 6,162,289 48,106 6,114,183 - 88 Rates 1,664,369 - 1,664,369 - 24 Finance 5,386,034 21,343 5,364,691 - 64 Right of Way 1,473,572 - 1,473,572 - 22 Internal Auditing 1,628,199 - 1,628,199 - 20 Environmental Affairs 1,542,781 2,350 1,540,431 - 35 Fuels 1,359,718 - 1,359,718 - 17 Investor Relations 668,859 - 668,859 - 11 Planning 392,725 1,230 391,495 - 10 Executive 14,987,091 130,006 14,857,085 - 172 TOTAL $211,064,421 $266,272 $210,798,149 $ - 3,028
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and included within one subaccount is less than $100,000, only the aggregate number and amount of all such payments included within the subaccount need be shown. Provide a subtotal for each type of service. FROM WHOM PURCHASED 1/ DESCRIPTION AMOUNT Auditing Services: Arthur Andersen LLP Audit of Cinergy and subsidiaries Consolidated Financial Statements; audit of the financial statements of Cinergy's or its subsidiaries deferred compensation and stock plans; audit of fuel cost recovery clauses; research and consultation on various accounting and tax matters; and assistance in the analysis and resolution of miscellaneous accounting issues $2,659,918 2,659,918 Legal Services: Bingham Summers Welsh & Spilman Collective Bargaining; Lobbying 108,972 Gallagher, Boland and Meiburger Pipeline Cases; Columbia Gulf Transmission 144,832 Latham & Watkins Ozone Issues Consulting 144,841 Skadden, Arps, Slate, Meagher Litigation; Wholesale Power Sales; Trigen; General & Flom, LLP Corporate Advice and Regulatory Issues 927,728 Taft, Stettinius & Hollister Litigation; General Securities Matters, Consumer Credit/Financial Svcs. Program; Power International 397,104 1,723,477 Tree Trimming Services: Asplundh Tree Expert Co. Tree Trimming 120,081 The Davey Tree Experience Tree Trimming 241,084 361,165
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (CONTINUED) FROM WHOM PURCHASED 1/ DESCRIPTION AMOUNT Other Services Analysts International Corp. Contract Programming 286,308 Assured Micro-Services, Inc. Records Management - Electronic Imaging 106,980 Barr Devlin Associates Inc. Financial Advisory Services 204,183 Bates USA Advertising, Marketing Services 639,182 Black Dog Productions, Inc. Marketing Services 192,581 Ciber Contract Programming 288,731 Claritas, Inc. Market Research Services 109,200 CMS/Tempro Resources of Indianapolis Accounting Temporary/Placement Agency 128,540 CSC Consulting Information Technology Consulting-Technical Architecture 5,191,616 Customer Link Telemarketing; Customer Services 170,710 DDI Customer Service Training and Development Consulting 162,700 Deloitte & Touche LLP Tax services regarding changing tax depreciation method 146,782 Donald B. Ingle, Jr. Management Consulting 120,000 Dun & Bradstreet Information Services Contract Programming 286,596 Edu-Tech Industries Strategic Training Program 1,787,884 Electric Power Research Institute Tailored Collaboration Agreement 206,500 Entex Information Services Contract Programming 954,107 Ferrell Capital Management Risk Management Services 233,629 Glenn Monigle Associates, Inc. Design/Consulting Services 290,578 H.B. Zachry Company Supplemental Maintenance - Generating Stations 256,207 Harris Corporation Network Telecommunications Services 249,428 Honeywell DMC Services, Inc. Home Energy House Call Program 283,404 Howard Systems International Information Technology Consulting 344,720 Hunter Group, Inc. Business Opportunity Analysis 109,601 Infotech Consulting, Inc. Information Technology Consulting 213,289 Manpower, Inc. Temporary Employment Service 221,269 Market Strategies, Inc. Benchmarking Survey 143,949 McKinsey & Company, Inc. Management Consulting 2,000,014 Darrell V. Menscer Management Consulting 136,769 Metro Information Services Information Technology Consulting 106,020
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (CONTINUED) FROM WHOM PURCHASED _1/ DESCRIPTION AMOUNT Miami Systems Corporation Forms Management Services 222,441 Mobilcomm Radio & Accessories Service 176,210 Morgan Stanley & Co. Financial Advisory Services 250,000 The NorthBridge Group Forecasting & Valuation Consulting 1,120,076 Origin Technology in Business Contract Programming 176,030 People Working Cooperatively, Inc. Low-income Weatherization - DSM 931,922 Preng & Associates, Inc. Recruitment/Placement/Staffing Services 104,609 Professional Computer Centers, Inc. D/B/A Valcom Information Technology Consulting 1,289,221 Professional Computer Consultants, Inc. Information Technology Consulting 345,971 Professional Data Resources, Inc. Information Technology Consulting 131,582 Richard's Consulting, Inc. Information Technology Consulting 737,465 Search Consultants International, Inc. Recruitment/Placement/Staffing Services 123,600 Signature Graphics, Inc. Graphics Design 527,431 Strategic Marketing & Research, Inc. Opinion Leaders Study/Customer Attitude Survey 158,815 The Canyon Group Sales Training Consulting 541,333 The Dilenschneider Group Public Relations Consulting 139,174 The LEK/Alcar Consulting Group, LLC Performance Measurement Study 247,772 Top Line Performance Business & Product Marketing Strategy Other _2/ 9,820,704 32,615,833 Total Outside Services $37,360,393 (1) All companies from which Services purchased outside services were non-associated companies, unless otherwise noted. (2) Outside services performed that did not meet the $100,000 amount are totaled in this line item.
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 EMPLOYEE PENSIONS AND BENEFITS - ACCOUNT 926 INSTRUCTIONS: Provide a listing of each pension plan and benefit program provided by the service company. Such listing should be limited to $25,000. DESCRIPTION AMOUNT Pension $23,342,255 Medical/Dental insurance 21,436,468 401(k) contributions 3,738,834 Life insurance 12,067,561 Others 12,154,848 TOTAL $72,739,966 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 GENERAL ADVERTISING EXPENSES - ACCOUNT 930.1 INSTRUCTIONS: Provide a listing of the amounts included in Account 930.1, "General Advertising Expenses", classifying the items according to the nature of the advertising and as defined in the account definition. If a particular class includes an amount in excess of $3,000 applicable to a single payee, show separately the name of the payee and the aggregate amount applicable thereto. DESCRIPTION NAME OF PAYEE AMOUNT Advertising Fees - Customer Education Martin Agency $37,500 Others 14,137 Promotional Items Others 1,522 TOTAL $53,159 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 MISCELLANEOUS GENERAL EXPENSES - ACCOUNT 930.2 INSTRUCTIONS: Provide a listing of the amount included in Account 930.2, "Miscellaneous General Expenses", classifying such expenses according to their nature. Payments and expenses permitted by Section 321 (b)(2) of the Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2 U.S.C. 441 (b)(2)) shall be separately classified. DESCRIPTION AMOUNT Sale of Accounts Receivable Fees (PSI, ULH&P, and CG&E) $ 2,329,391 Company Membership Fees and Dues 3,075,166 Miscellaneous Materials and Supplies Purchased 6,832,539 Customer Incentive/Rebates - Demand-side Management 344,712 Directors' Fees 1,326,327 Annual Report Expenses 171,074 Advertising 1,443,900 Customer Records and Collections 6,659,000 Technical, General, Computer and Engineering Services 452,629 Labor, Materials and Supplies 2,999,134 Miscellaneous Stores and Transportation Expenses 6,493,348 Other Miscellaneous Items 921,462 TOTAL $33,048,682 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 RENTS - ACCOUNT 931 INSTRUCTIONS: Provide a listing of the amount included in Account 931, "Rents", classifying such expenses by major groupings of property, as defined in the account definition of the Uniform System of Accounts. TYPE OF PROPERTY AMOUNT Computer Equipment Rent $19,686,899 Facilities Rent 20,694,294 Operating and Work Equipment Rent 3,142,024 Other Rent 3,138 TOTAL $43,526,355 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 TAXES OTHER THAN INCOME TAXES - ACCOUNT 408 INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other Than Income Taxes". Separate the analysis into two groups: (1) Other than U.S. Government taxes, and (2) U.S. Government taxes. Specify each of the various kinds of taxes and show the amounts thereof. Provide a subtotal for each class of tax. KIND OF TAX AMOUNT Other Than U.S. Government Taxes: Ohio Property Tax $ 22,085 Delaware Franchise Tax 50 Kentucky License Tax 363 Ohio Franchise Tax 402 Miscellaneous General Tax (55) State Unemployment 69,655 Sub-total 92,500 U.S. Government Taxes: Social Security Taxes 12,561,254 Federal Unemployment 193,052 Sub-total 12,754,306 TOTAL $12,846,806 Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 DONATIONS - ACCOUNT 426.1 INSTRUCTIONS: Provide a listing of the amount included in Account 426.1, "Donations", classifying such expenses by its purpose. The aggregate number and amount of all items of less than $3,000 may be shown in lieu of details. NAME OF RECIPIENT PURPOSE OF DONATION AMOUNT None TOTAL Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 OTHER DEDUCTIONS - ACCOUNT 426.5 INSTRUCTIONS: Provide a listing of the amount included in Account 426.5, "Other Deductions", classifying such expenses according to their nature. DESCRIPTION NAME OF PAYEE AMOUNT None TOTAL Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XVIII - NOTES TO STATEMENTS OF INCOME INSTRUCTIONS: The space below is provided for important notes regarding the statement of income or any account thereof. Furnish particulars as to any significant increase in services rendered or expenses incurred during the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. See Schedule XIV - Notes to Financial Statements. Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 Schedule XIX - FINANCIAL DATA SCHEDULE ITEM NO. CAPTION HEADING 1 Net Service Company Property $ 19,563,035 2 Total Investments - 3 Total Current and Accrued Assets 19,873,316 4 Total Deferred Debits 819,667 5 Balancing Amount for Total Assets and Other Debits - 6 Total Assets and Other Debits 40,256,018 7 Total Proprietary Capital 3 8 Total Long-Term Debt - 9 Notes Payable - 10 Notes Payable to Associate Companies 20,949,887 11 Balancing Amount for Total Current and Accrued Liabilities 19,053,617 12 Total Deferred Credits 140,000 13 Accumulated Deferred Income Taxes 112,511 14 Total Liabilities and Proprietary Capital 40,256,018 15 Services Rendered to Associate Companies 483,823,472 16 Services Rendered to Nonassociate Companies - 17 Miscellaneous Income or Loss 34,030 18 Total Income 483,857,502 19 Salaries and Wages 211,064,421 20 Employee Pensions and Benefits 72,739,966 21 Balancing Amount for Total Expenses 200,053,112 22 Total Expenses 483,857,499 23 Net Income (Loss) - 24 Total Expenses (Direct Costs) 291,593,569 25 Total Expenses (Indirect Costs) 192,263,930 26 Total Expenses (Total) 483,857,499 27 Number of Personnel End of Year 3,028
Annual Report of Cinergy Services, Inc. ORGANIZATION CHART Chairman - Executive - Internal Auditing | | Vice Chairman, President, and Chief Executive Officer - Executive | --------- Vice President & Vice President, Vice President & President, President, President, Senior Manager, General Chief Vice President Energy Energy Energy Human Resource Counsel and Financial and Chief of Commodities Delivery Services Strategy Secretary Officer Staff Business Business Business Unit Unit Unit - Human - Legal - Investor - Facilities - Fuels - Materials - Marketing Resources - Rates Relations - Information - Power Management and - Finance Systems Engineering & - Meters and Customer - Accounting - Public Affairs Construction Transportation Relations - Planning - Electric System - Environmental Maintenance Affairs - Electric Transmission and Distribution Engineering and Construction - Power Planning - Right of Way
Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 METHODS OF ALLOCATION The allocation of expenses not directly attributable to a particular Client Company are based on the following factors: 1. Sales Ratio A ratio, based on domestic firm kilowatt-hour electric sales (and/or the equivalent cubic feet of gas sales, where applicable), excluding intra-system sales, for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company and the denominator of which is for all domestic utility Client Companies. This ratio will be determined annually, or at such times as may be required due to a significant change. 2. Electric Peak Load Ratio A ratio, based on the sum of the monthly domestic firm electric maximum system demands for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company and the denominator of which is for all domestic utility Client Companies. This ratio will be determined annually, or at such time as may be required due to a significant change. 3. Number of Customers Ratio A ratio, based on the sum of the firm domestic electric customers (and/or gas customers where applicable) at the end of each month for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company and the denominator of which is for all domestic utility Client Companies. This ratio will be determined annually, or at such time as may be required due to a significant change. 4. Number of Employees Ratio A ratio, based on the sum of the number of employees at the end of each month for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company or Service Company Function and the denominator of which is for all Client Companies (and Cinergy Corp.'s non- utility and non-domestic utility affiliates, where applicable) and/or the Service Company. This ratio will be determined annually, or at such time as may be required due to a significant change. Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 METHODS OF ALLOCATION - continued 5. Construction Expenditure Ratio A ratio, based on construction expenditures, net of reimbursements, for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company and the denominator of which is for all Client Companies. Separate ratios will be computed for total construction expenditure and appropriate functional plant (i.e., production, transmission, distribution, and general) classifications. This ratio will be determined annually, or at such time as may be required due to a significant change. 6. Circuit Miles of Electric Distribution Lines Ratio A ratio, based on installed circuit miles of domestic electric distribution lines at the end of the immediately preceding calendar year, the numerator of which is for a Client Company and the denominator of which is for all domestic utility Client Companies. This ratio will be determined annually, or at such time as may be required due to a significant change. 7. Number of Central Processing Unit Seconds Ratio A ratio, based on the sum of the number of central processing unit seconds expended to execute mainframe computer software applications for the immediately preceding twelve consecutive calendar months, the numerator of which is for a Client Company or Service Company Function, and the denominator of which is for all Client Companies, (and Cinergy Corp.'s non-utility and non-domestic utility affiliates, where applicable) and/or the Service Company. This ratio will be determined annually, or at such time as may be required due to a significant change. NOTE: Services submitted a letter to the Securities and Exchange Commission on April 1, 1998, requesting approval of a new allocation method to be used to allocate general activities cost to the direct and indirect nonutility subsidiaries of Cinergy Corp. The proposed method would establish a ratio based on direct costs charged to the individual nonutility client companies divided by total direct costs charged to all client companies (both utility and nonutility). Annual Report of Cinergy Services, Inc. For the Year Ended December 31, 1997 ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED The following annual statement was supplied to each associate company in support of the amount of compensation for use of capital billed during 1997: In accordance with Instruction 01-12 of the Securities and Exchange Commission's Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies, Services submits the following information on the billing of interest on borrowed funds to associated companies for the year 1997: A. Amount of interest billed to associate companies is contained on page 28, Analysis of Billing. B. The basis for billing of interest to the associated companies is based on the ratio of the total expenses charged to each associated company, exclusive of interest, to the total expenses charged to all associated companies, exclusive of interest during the previous year. ANNUAL REPORT OF Cinergy Services, Inc. SIGNATURE CLAUSE Pursuant to the requirements of the Public Utility Holding Company Act of 1935 and the rules and regulations of the Securities and Exchange Commission issued thereunder, the undersigned company has duly caused this report to be signed on its behalf by the undersigned officer thereunto duly authorized. Cinergy Services, Inc. (Name of Reporting Company) By: /s/John P. Steffen (Signature of Signing Officer) John P. Steffen, Vice President and Comptroller (Printed Name and Title of Signing Officer) Date: April 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----