UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-3543
PSI ENERGY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0594457
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 East Main Street
Plainfield, Indiana 46168
(Address of principal executive offices)
Telephone number: (317) 839-9611
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - without par value; $.01 stated value - 53,913,701 shares
outstanding at October 31, 1994, all of which were held by CINergy Corp.
PSI ENERGY, INC.
TABLE OF CONTENTS
Item Page
Number Number
PART I. FINANCIAL INFORMATION
1 Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . . . . 5
Consolidated Statements of Changes in
Common Stock Equity . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . 8
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 14
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . 23
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . 25
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1994 1993
(unaudited)
(thousands)
Electric Utility Plant - original cost
In service . . . . . . . . . . . . . . . . $3 719 611 $3 449 127
Accumulated depreciation . . . . . . . . . 1 532 648 1 455 871
2 186 963 1 993 256
Construction work in progress . . . . . . . 162 921 243 802
Total electric utility plant . . . . . . 2 349 884 2 237 058
Current Assets
Cash and temporary cash investments . . . . 6 186 4 582
Restricted deposits . . . . . . . . . . . . 26 503 49 111
Accounts receivable . . . . . . . . . . . . 30 933 28 657
Income tax refunds. . . . . . . . . . . . . - 28 900
Fossil fuel - at average cost . . . . . . . 105 045 45 315
Materials and supplies - at average cost. . 29 235 31 212
Other . . . . . . . . . . . . . . . . . . . 3 686 2 669
201 588 190 446
Other Assets
Regulatory assets . . . . . . . . . . . . . 181 237 118 809
Unamortized costs of reacquiring debt . . . 37 629 39 504
Unamortized debt expense . . . . . . . . . 9 309 9 332
Other . . . . . . . . . . . . . . . . . . . 69 865 53 280
298 040 220 925
$2 849 512 $2 648 429
The accompanying notes are an integral part of these consolidated financial
statements.
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
September 30 December 31
1994 1993
(unaudited)
(thousands)
Common Stock Equity
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 at September
30, 1994 and December 31, 1993. . . . . . . . $ 539 $ 539
Paid-in capital . . . . . . . . . . . . . . . . 229 287 229 288
Accumulated earnings subsequent to November 30,
1986 quasi-reorganization . . . . . . . . . . 498 553 483 242
Total common stock equity . . . . . . . . . 728 379 713 069
Cumulative Preferred Stock - Not Subject to
Mandatory Redemption. . . . . . . . . . . . . . 187 968 187 989
Long-term Debt . . . . . . . . . . . . . . . . . 877 658 816 152
Total capitalization. . . . . . . . . . . . 1 794 005 1 717 210
Current Liabilities
Long-term debt due within one year. . . . . . . 60 160 160
Notes payable . . . . . . . . . . . . . . . . . 291 801 126 701
Accounts payable. . . . . . . . . . . . . . . . 113 859 144 093
Refund due to customers . . . . . . . . . . . . 34 609 81 832
Litigation settlement . . . . . . . . . . . . . 80 000 80 000
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . . - 49 940
Accrued taxes . . . . . . . . . . . . . . . . . 27 482 37 269
Accrued interest and customers' deposits. . . . 15 633 25 792
623 544 545 787
Other Liabilities
Deferred income taxes . . . . . . . . . . . . . 310 466 281 417
Unamortized investment tax credits. . . . . . . 61 526 64 721
Other . . . . . . . . . . . . . . . . . . . . . 59 971 39 294
431 963 385 432
$2 849 512 $2 648 429
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1994 1993 1994 1993 1994 1993
(thousands) (thousands) (thousands)
Operating Revenues . . . . . . . . . . . $281 481 $292 822 $862 554 $800 023 $1 140 800 $1 071 370
Operating Expenses
Operation
Fuel . . . . . . . . . . . . . . . . 102 137 101 424 305 841 295 906 395 862 397 293
Purchased and exchanged power. . . . 8 052 7 896 36 278 15 190 45 361 16 978
Other operation. . . . . . . . . . . 51 724 47 870 152 339 139 514 199 520 182 681
Maintenance. . . . . . . . . . . . . . 25 413 22 402 67 789 63 380 88 429 85 634
Depreciation . . . . . . . . . . . . . 34 209 32 556 101 412 93 773 134 460 123 809
Post-in-service deferred
depreciation . . . . . . . . . . . . (2 484) (1 927) (7 106) (2 864) (9 311) (2 864)
Taxes
Federal and state income . . . . . . 11 880 22 248 44 581 44 201 65 291 62 553
State, local, and other. . . . . . . 12 884 11 500 38 355 33 872 49 960 42 351
243 815 243 969 739 489 682 972 969 572 908 435
Operating Income . . . . . . . . . . . . 37 666 48 853 123 065 117 051 171 228 162 935
Other Income and Expense - Net
Allowance for equity funds used
during construction. . . . . . . . . 1 813 1 862 5 252 6 276 10 149 7 663
Post-in-service carrying costs . . . . 2 452 2 304 6 758 3 907 8 856 3 907
Other - net. . . . . . . . . . . . . . (2 129) 176 (7 321) 8 671 (9 503) 8 816
2 136 4 342 4 689 18 854 9 502 20 386
Income Before Interest . . . . . . . . . 39 802 53 195 127 754 135 905 180 730 183 321
Interest
Interest on long-term debt . . . . . . 17 283 17 988 50 905 52 560 67 291 69 187
Other interest . . . . . . . . . . . . 4 820 943 10 202 3 089 11 304 4 634
Allowance for borrowed funds used
during construction. . . . . . . . . (2 539) (2 113) (7 316) (7 073) (9 397) (8 995)
19 564 16 818 53 791 48 576 69 198 64 826
Net Income . . . . . . . . . . . . . . . 20 238 36 377 73 963 87 329 111 532 118 495
Preferred Dividend Requirement . . . . . 3 296 3 541 9 887 8 958 13 754 10 639
Income Applicable to Common Stock. . . . $ 16 942 $ 32 836 $ 64 076 $ 78 371 $ 97 778 $ 107 856
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(unaudited)
Common Paid-in Accumulated
Stock Capital Earnings
(thousands)
Quarter Ended September 30, 1994
Balance July 1, 1994. . . . . . . . . . $539 $229 287 $497 784
Net income. . . . . . . . . . . . . . . 20 238
Dividends on preferred stock. . . . . . (3 295)
Dividends on common stock . . . . . . . (16 174)
Balance September 30, 1994. . . . . . . $539 $229 287 $498 553
Quarter Ended September 30, 1993
Balance July 1, 1993. . . . . . . . . . $539 $230 936 $448 476
Net income. . . . . . . . . . . . . . . 36 377
Gain on retiring preferred stock. . . . 2
Dividends on preferred stock. . . . . . (3 541)
Dividends on common stock . . . . . . . (13 868)
Other . . . . . . . . . . . . . . . . . 7
Balance September 30, 1993. . . . . . . $539 $230 945 $467 444
Nine Months Ended September 30, 1994
Balance January 1, 1994 . . . . . . . . $539 $229 288 $483 242
Net income. . . . . . . . . . . . . . . 73 963
Costs of retiring preferred stock . . . (1)
Dividends on preferred stock. . . . . . (9 886)
Dividends on common stock . . . . . . . (48 766)
Balance September 30, 1994. . . . . . . $539 $229 287 $498 553
Nine Months Ended September 30, 1993
Balance January 1, 1993 . . . . . . . . $539 $221 812 $432 747
Net income. . . . . . . . . . . . . . . 87 329
Gain on retiring preferred stock. . . . 2
Dividends on preferred stock. . . . . . (8 339)
Dividends on common stock . . . . . . . (44 293)
Other . . . . . . . . . . . . . . . . . 9 131
Balance September 30, 1993. . . . . . . $539 $230 945 $467 444
Twelve Months Ended September 30, 1994
Balance October 1, 1993 . . . . . . . . $539 $230 945 $467 444
Net income. . . . . . . . . . . . . . . 111 532
Costs of issuing and retiring
preferred stock . . . . . . . . . . . (1 658)
Dividends on preferred stock. . . . . . (13 835)
Dividends on common stock . . . . . . . (66 664)
Other . . . . . . . . . . . . . . . . . 76
Balance September 30, 1994. . . . . . . $539 $229 287 $498 553
Twelve Months Ended September 30, 1993
Balance October 1, 1992 . . . . . . . . $539 $221 811 $418 167
Net income. . . . . . . . . . . . . . . 118 495
Gain on retiring preferred stock. . . . 2
Dividends on preferred stock. . . . . . (10 020)
Dividends on common stock . . . . . . . (59 159)
Other . . . . . . . . . . . . . . . . . 9 132 (39)
Balance September 30, 1993. . . . . . . $539 $230 945 $467 444
The accompanying notes are an integral part of these consolidated
financial statements.
/TABLE
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Quarter Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1994 1993 1994 1993 1994 1993
(thousands) (thousands) (thousands)
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . $ 20 238 $ 36 377 $ 73 963 $ 87 329 $ 111 532 $ 118 495
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . 34 209 32 556 101 412 93 773 134 460 123 809
Deferred income taxes and investment tax
credits - net . . . . . . . . . . . . . . . . . (1 145) 10 819 19 558 64 623 23 038 72 577
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . (1 813) (1 862) (5 252) (6 276) (10 149) (7 663)
Regulatory assets - excluding demand-side
management costs. . . . . . . . . . . . . . . . (6 298) (7 848) (17 857) (21 224) (26 542) (25 231)
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . 1 547 (74) 1 397 52 1 276 (38)
Accounts receivable . . . . . . . . . . . . . 17 202 (23 166) (2 276) (11 274) 16 166 (15 952)
Income tax refunds. . . . . . . . . . . . . . 3 800 8 000 28 900 (10 000) 10 000 (10 000)
Fossil fuel and materials and supplies . . . (2 403) 19 383 (57 753) 59 117 (57 449) 77 337
Accounts payable. . . . . . . . . . . . . . . (9 309) 26 287 (30 234) 35 898 (9 717) 29 457
Refund due to customers . . . . . . . . . . . (2 999) - (47 223) 10 866 (115 391) 10 866
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . - - (49 940) - - -
Accrued taxes and interest. . . . . . . . . . (21 169) (5 402) (19 598) (43 506) 15 404 (43 244)
Other items - net . . . . . . . . . . . . . . . . 2 417 (6 138) (2 407) (20 213) 5 129 (24 140)
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . 34 277 88 932 (7 310) 239 165 97 757 306 273
FINANCING ACTIVITIES
Issuance of preferred stock . . . . . . . . . . . . - - - 96 850 59 475 96 850
Issuance of long-term debt. . . . . . . . . . . . . 59 910 163 016 108 978 241 704 108 978 241 704
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . . 8 810 9 894 21 211 (43 170) 33 039 (36 413)
Retirement of preferred stock . . . . . . . . . . . - (1) (10) (1) (60 116) (1)
Redemption of long-term debt. . . . . . . . . . . . - (112 585) - (112 585) (95 295) (112 585)
Change in short-term debt . . . . . . . . . . . . . (1 199) (36 301) 165 100 (97 301) 268 301 (46 702)
Dividends on preferred stock. . . . . . . . . . . . (3 296) (3 541) (9 887) (8 339) (13 836) (10 020)
Dividends on common stock . . . . . . . . . . . . . (16 174) (13 868) (48 766) (44 293) (66 664) (59 159)
Other items - net . . . . . . . . . . . . . . . . . - 7 - 12 538 - 12 538
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . 48 051 6 621 236 626 45 403 233 882 86 212
INVESTING ACTIVITIES
Utility plant additions . . . . . . . . . . . . . . (73 143) (89 559) (207 621) (264 282) (304 946) (363 678)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . 1 813 1 862 5 252 6 276 10 149 7 663
Demand-side management costs. . . . . . . . . . . . (9 829) (7 537) (25 343) (17 591) (38 488) (24 273)
Equity investment in Argentine utility. . . . . . . - (8) - (10 200) - (10 705)
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . (81 159) (95 242) (227 712) (285 797) (333 285) (390 993)
Net increase (decrease) in cash and
temporary cash investments. . . . . . . . . . . . 1 169 311 1 604 (1 229) (1 646) 1 492
Cash and temporary cash investments at
beginning of period . . . . . . . . . . . . . . . 5 017 7 521 4 582 9 061 7 832 6 340
Cash and temporary cash investments at
end of period . . . . . . . . . . . . . . . . . . $ 6 186 $ 7 832 $ 6 186 $ 7 832 $ 6 186 $ 7 832
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
PSI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. These Consolidated Financial Statements reflect all adjustments (which
include only normal, recurring adjustments) necessary in the opinion of
PSI Energy, Inc. (Energy) for a fair presentation of the interim
results. These statements should be read in conjunction with Energy's
1993 Annual Report on Form 10-K, as amended (1993 Form 10-K) (Commission
File Number 1-3543). Certain amounts in the 1993 Consolidated Financial
Statements have been reclassified to conform to the 1994 presentation.
2. As disclosed in the 1993 Form 10-K, PSI Resources, Inc. (Resources),
Energy, and The Cincinnati Gas & Electric Company (CG&E) entered into an
Agreement and Plan of Reorganization dated as of December 11, 1992,
which was subsequently amended and restated on July 2, 1993, and as of
September 10, 1993, and was further amended as of June 20, 1994, as of
July 26, 1994, and as of September 30, 1994. The companies received
final regulatory approvals in October 1994, and on October 24, 1994,
consummated the merger in a transaction accounted for as a pooling of
interests. Each outstanding share of Resources common stock and CG&E
common stock was exchanged for 1.023 shares and one share, respectively,
of CINergy Corp. (CINergy) common stock, resulting in the issuance of
approximately 148 million shares of CINergy common stock. Following the
merger, CINergy became the parent holding company for CG&E and Energy.
The outstanding preferred stock and debt securities of Energy and CG&E
were not affected by the merger. (See Note 9 beginning on page 11 for
supplemental condensed consolidating financial information for CINergy.)
CINergy is a registered holding company under the Public Utility Holding
Company Act of 1935 (PUHCA). Under the PUHCA, the divestiture of CG&E's
gas operations may be required. In its order approving the merger, the
Securities and Exchange Commission (SEC) reserved jurisdiction over
CINergy's ownership of the gas operations for a period of three years.
CINergy believes it has a justifiable basis for retention of its gas
operations and will continue its pursuit of SEC approval to retain the
gas portion of the business. However, if divestiture is required, the
SEC has historically allowed companies sufficient time to accomplish
divestiture in a manner that protects shareholder value.
3. In an effort to begin to realize merger savings, Energy recently
completed a voluntary workforce reduction plan. Under the plan, 169
employees elected to terminate their employment with Energy, resulting
in a pre-tax cost of approximately $11.3 million. This cost is included
in the costs to achieve merger savings. In its merger savings
allocation plan filed with the Indiana Utility Regulatory Commission
(IURC), Energy has requested authority to defer the costs associated
with this voluntary workforce reduction and to amortize such costs over
a 10-year period as an offset against merger savings (see Note 5).
4. In February 1994, Energy issued $50 million, 7 1/8% first mortgage
bonds, Series AAA, due February 1, 2024. These bonds are not redeemable
prior to February 1, 2004, and are redeemable thereafter at the option
of Energy. On August 30, 1994, Energy issued $60 million of secured
medium-term notes, Series B, 5.75%, due August 30, 1995. Proceeds from
these debt issuances were used to reduce short-term debt incurred to
finance construction.
5. Hearings have been held before the IURC on Energy's case-in-chief
supporting Energy's request for a $103 million, 11.6% retail rate
increase. On July 6, 1994, the Indiana Office of the Utility Consumer
Counselor (UCC) filed testimony with the IURC recommending an $8.5
million retail rate increase. The primary differences between Energy's
case and the UCC's case are the requested rate of return, proposed
depreciation expense, and Energy's request to include in rates the cost
of postretirement benefits other than pensions on an accrual basis. A
final rate order is anticipated by the end of April 1995. Energy cannot
predict what action the IURC may take with respect to this proposed rate
increase.
In July 1994, Energy filed with the IURC its plan for the allocation of
Energy's portion of the net benefits of the merger. Net savings as a
result of the merger, computed based upon customer revenue requirements,
are estimated to be approximately $1.5 billion over 10 years. Energy
estimates that approximately half of the CINergy net merger savings will
be allocated to Energy. Under Energy's plan, Energy would recover its
share of projected merger transaction costs (current estimate of $27
million) and costs to achieve merger savings (current estimate of $21
million) out of merger benefits. Additionally, under Energy's plan, up
to 15% of Energy's share of the net savings would be retained for the
benefit of shareholders, depending on Energy's performance on certain
indicators. The hearings on this plan are anticipated to be completed
by the end of January 1995 with an order expected by the end of June
1995. Energy cannot predict what action the IURC may take with respect
to the proposed merger savings allocation.
Energy's petition for an increase in retail rates and its merger savings
allocation plan previously discussed include a "performance efficiency
plan" (PEP). Under its proposed PEP, Energy would retain all earnings
up to a 12.75% common equity return and provide for sharing of common
equity returns from 12.75% to 15.75% between shareholders and ratepayers
depending on Energy's performance on measures of customer price,
customer satisfaction, customer service reliability, equivalent
availability of its generating units, and employee safety. All earnings
above a 15.75% return on common equity would be returned to ratepayers.
In addition, in July 1994, in a separate proceeding, Energy filed a
petition with the IURC requesting an additional retail rate increase of
up to approximately 8% primarily to recover the costs of two major
projects previously approved by the IURC. The first project is a flue-
gas desulfurization unit (scrubber) which was available for service at
Energy's Gibson Generating Station in September 1994. The second
project is Energy's clean coal power generating facility at the Wabash
River Generating Station which is planned to go in service during the
third quarter of 1995. Additionally, Energy has requested approval to
defer, and subsequently recover in future rate proceedings, any costs
incurred by Energy for investigation and remediation of previously owned
manufactured gas plant sites. Energy cannot predict what action the
IURC may take with respect to this proposed rate increase.
6. As disclosed in the 1993 Form 10-K, in February 1989, Energy and its
officers reached a settlement with Wabash Valley Power Association, Inc.
(WVPA) which, if approved by judicial and regulatory authorities, will
settle the suit filed by WVPA which seeks $478 million plus interest and
other damages to recover its share of Marble Hill costs. The settlement
is also contingent on the resolution of WVPA's bankruptcy proceeding.
Alternative plans of reorganization sponsored by WVPA and the Rural
Electrification Administration (REA) incorporate the settlement
agreement. However, REA's proposed plan provides for full recovery of
principal and interest on WVPA's debt to REA, which is substantially in
excess of the amount to be recovered under WVPA's proposed plan. In
August 1991, the United States Bankruptcy Court for the Southern
District of Indiana (Bankruptcy Court) confirmed WVPA's plan of
reorganization and denied confirmation of REA's opposing plan. The
Bankruptcy Court's approval of WVPA's reorganization plan is contingent
upon WVPA's receipt of regulatory approval to increase rates. REA
appealed the Bankruptcy Court's decision to the United States District
Court for the Southern District of Indiana (Indiana District Court). In
June 1994, the Indiana District Court ruled in favor of WVPA's plan.
REA subsequently appealed this decision. Energy cannot predict the
outcome of this appeal, nor is it known whether WVPA can obtain
regulatory approval to increase its rates. If reasonable progress is
not made in satisfying conditions to the settlement by February 1, 1995,
either party may terminate the settlement agreement.
7. As disclosed in the 1993 Form 10-K, Energy was involved in litigation
with Exxon Coal USA, Inc. and Exxon Corporation (Exxon) regarding the
price for coal delivered under a coal supply contract. On June 20,
1994, the United States Supreme Court denied Energy's request for review
of a ruling by the United States Court of Appeals for the Seventh
Circuit, which established the contract price at $30 per ton and
reversed the trial court's decision holding that the price should be
$23.266 per ton. The IURC has authorized Energy to recover the
additional cost through the fuel adjustment clause process. In
addition, on August 3, 1994, Energy announced that it had resolved the
two remaining lawsuits with Exxon related to coal quality, price and
price components, and Exxon's claims against Energy for Energy's failure
to take coal after Energy terminated its contract pursuant to a December
1992 court decision. This August 1994 settlement concludes all
outstanding litigation between Energy and Exxon with no significant
effect on Energy's financial condition.
8. As disclosed in the 1993 Form 10-K, Energy has IURC authority to borrow
up to $200 million under short-term credit arrangements. As of
September 30, 1994, Energy had $165.5 million outstanding under these
arrangements. Energy may also arrange for additional short-term
borrowings in accordance with Federal Energy Regulatory Commission
(FERC) authority. As discussed in the 1993 Form 10-K, such additional
borrowings were previously limited by Energy's Board of Directors to a
maximum of $100 million. In July 1994, the Board of Directors
authorized Energy to arrange for additional short-term borrowings in
accordance with the maximum exemption allowed under FERC. Energy had
$126.3 million outstanding under these arrangements as of September 30,
1994.
9. The following supplemental condensed consolidating financial information
combines the historical unaudited Consolidated Statements of Income and
Consolidated Balance Sheets of Resources and CG&E after giving effect to
the merger and is presented as if the merger was consummated as of the
beginning of the earliest period presented. As previously discussed,
the merger was accounted for as a pooling of interests, and each
outstanding share of common stock of Resources and CG&E was exchanged
for 1.023 shares and one share, respectively, of CINergy common stock.
The following supplemental condensed consolidating financial information
did not require any adjustments to conform the accounting policies of
the two companies. In addition, the following supplemental condensed
consolidating financial information should be read in conjunction with
the historical consolidated financial statements and related notes
thereto of Resources, Energy, and CG&E. The following information is
not necessarily indicative of the operating results or financial
position that would have occurred had the merger been consummated at the
beginning of the period for which the merger is being given effect, nor
is it necessarily indicative of future operating results or financial
position.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
Quarter Ended Nine Months Ended Twelve Months Ended
September 30, 1994 September 30, 1994 September 30, 1994
Resources CG&E CINergy Resources CG&E CINergy Resources CG&E CINergy
Operating revenues . . . $283 $409 $692 $868 $1 363 $2 231 $1 149 $1 845 $2 994
Operating expenses . . . 247 328 575 749 1 105 1 854 985 1 507 2 492
Operating income . . . . 36 81 117 119 258 377 164 338 502
Other income and
expense - net. . . . . 3 3 6 6 19 25 11 (199)* (188)
Interest charges - net . 20 37 57 55 114 169 71 153 224
Preferred dividend
requirement of
subsidiaries . . . . . 3 5 8 10 17 27 14 23 37
Net income (loss). . . . $ 16 $ 42 $ 58 $ 60 $ 146 $ 206 $ 90 $ (37) $ 53
Average common shares
outstanding <F1> . . . 56 89 147 56 89 146 56 89 146
Earnings (Loss) per
common share <F1>. . . $.27 $.47 $.39 $1.06 $1.64 $1.41 $1.60 $(.41) $.36
Dividends declared per
common share <F1>. . . $.31 $.43 $.38 $.93 $1.29 $1.14 $1.24 $1.72 $1.51
* Reflects write-off of a portion of Wm. H. Zimmer Generating Station ($223 million net of tax).
See Notes to Supplemental Condensed Consolidating Financial Information.
/TABLE
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
at September 30, 1994
(unaudited)
(in millions)
Resources CG&E CINergy
ASSETS
Utility plant - original cost
In service. . . . . . . . . . . . . . . . $3 720 $5 294 $9 014
Accumulated depreciation. . . . . . . . . 1 533 1 569 3 102
2 187 3 725 5 912
Construction work in progress . . . . . . 163 66 229
Total utility plant . . . . . . . . . . 2 350 3 791 6 141
Current assets. . . . . . . . . . . . . . . 209 583 792
Other assets. . . . . . . . . . . . . . . . 307 781 1 088
Total assets. . . . . . . . . . . . . . $2 866 $5 155 $8 021
CAPITALIZATION AND LIABILITIES
Common stock . . . . . . . . . . . . . . . $ 1 $ 762 $ 1
Paid-in capital . . . . . . . . . . . . . . 261 337 1 360
Retained earnings . . . . . . . . . . . . . 458 487 945
Total common stock equity . . . . . . . 720 1 586 2 306
Cumulative preferred stock of subsidiaries. 188 290 478
Long-term debt. . . . . . . . . . . . . . . 878 1 838 2 716
Total capitalization. . . . . . . . . . 1 786 3 714 5 500
Current liabilities . . . . . . . . . . . . 648 373 1 021
Deferred income taxes . . . . . . . . . . . 310 745 1 055
Other liabilities . . . . . . . . . . . . . 122 323 445
Total capitalization and liabilities. . $2 866 $5 155 $8 021
Notes to Supplemental Condensed Consolidating Financial Information
<F1>The Supplemental Condensed Consolidating Statements of Income reflect the conversion of each share of
Resources' common stock ($.01 stated value per share) outstanding into 1.023 shares of CINergy common
stock ($.01 par value per share) and each share of CG&E's common stock ($8.50 par value per share)
outstanding into one share of CINergy common stock. Dividends declared per common share reflect the
historical dividends declared by Resources and CG&E, divided by the average number of CINergy common stock
shares outstanding.
<F2>Intercompany transactions (including purchased and exchanged power transactions) between Resources and
CG&E during the periods presented were not material and accordingly no adjustments were made to eliminate
such transactions.
PSI ENERGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Merger Consummation with The Cincinnati Gas & Electric Company
General As disclosed in PSI Energy, Inc.'s (Energy) 1993 Annual Report on
Form 10-K, as amended (1993 Form 10-K), PSI Resources, Inc. (Resources),
Energy, and The Cincinnati Gas & Electric Company (CG&E) entered into an
Agreement and Plan of Reorganization dated as of December 11, 1992, which was
subsequently amended and restated on July 2, 1993, and as of September 10,
1993, and was further amended as of June 20, 1994, as of July 26, 1994, and as
of September 30, 1994. The companies received final regulatory approvals in
October 1994, and on October 24, 1994, consummated the merger in a transaction
accounted for as a pooling of interests. Each outstanding share of Resources
common stock and CG&E common stock was exchanged for 1.023 shares and one
share, respectively, of CINergy Corp. (CINergy) common stock, resulting in the
issuance of approximately 148 million shares of CINergy common stock.
Following the merger, CINergy became the parent holding company for CG&E and
Energy. The outstanding preferred stock and debt securities of Energy and
CG&E were not affected by the merger. (See Note 9 beginning on page 11 for
supplemental condensed consolidating financial information for CINergy.)
PUHCA Implications CINergy is a registered holding company under the Public
Utility Holding Company Act of 1935 (PUHCA). The PUHCA imposes restrictions
on the operations of registered holding company systems, such as requirements
that security issuances, sales and acquisitions of utility assets or of
securities of utility companies, and acquisitions of interests in any other
business be approved by the Securities and Exchange Commission (SEC). The
PUHCA also limits the ability of registered holding companies to engage in
non-utility ventures and regulates holding company system service companies,
such as CINergy Services, Inc., and the rendering of services by holding
company affiliates to the systems' utilities. CINergy Services, Inc., a
wholly owned subsidiary of CINergy, was formed to provide CG&E, Energy, and
other companies of the CINergy system with a variety of administrative,
management, and support services.
Also, under the PUHCA, the divestiture of CG&E's gas operations may be
required. In its order approving the merger, the SEC reserved jurisdiction
over CINergy's ownership of the gas operations for a period of three years.
CINergy believes it has a justifiable basis for retention of its gas
operations and will continue its pursuit of SEC approval to retain the gas
portion of the business. However, if divestiture is required, the SEC has
historically allowed companies sufficient time to accomplish divestiture in a
manner that protects shareholder value. It is expected that if the gas
operations are required to be divested, it will not have a material impact on
merger savings.
Originally, the merger agreement provided that CG&E, Resources, and Energy
would be merged into CINergy as an Ohio corporation. Under this structure,
CG&E and Energy would have become operating divisions of CINergy, ceasing to
exist as separate corporations, and CINergy would not have been subject to the
restrictions imposed by the PUHCA. However, the Indiana Utility Regulatory
Commission (IURC) dismissed Energy's application for approval of the transfer
of its license or property to a non-Indiana corporation. The IURC's decision
was appealed, and on October 18, 1994, the Indiana Court of Appeals reversed
the IURC's decision.
Regulatory Matters
Hearings have been held before the IURC on Energy's case-in-chief supporting
Energy's request for a $103 million, 11.6% retail rate increase. On July 6,
1994, the Indiana Office of the Utility Consumer Counselor (UCC) filed
testimony with the IURC recommending an $8.5 million retail rate increase.
The primary differences between Energy's case and the UCC's case are the
requested rate of return, proposed depreciation expense, and Energy's request
to include in rates the cost of postretirement benefits other than pensions on
an accrual basis. A final rate order is anticipated by the end of April 1995.
Energy cannot predict what action the IURC may take with respect to this
proposed rate increase.
In July 1994, Energy filed with the IURC its plan for the allocation of
Energy's portion of the net benefits of the merger. Net savings as a result
of the merger, computed based upon customer revenue requirements, are
estimated to be approximately $1.5 billion over 10 years. Energy estimates
that approximately half of the CINergy net merger savings will be allocated to
Energy. Under Energy's plan, Energy would recover its share of projected
merger transaction costs (current estimate of $27 million) and costs to
achieve merger savings (current estimate of $21 million) out of merger
benefits. Additionally, under Energy's plan, up to 15% of Energy's share of
the net savings would be retained for the benefit of shareholders, depending
on Energy's performance on certain indicators. The hearings on this plan are
anticipated to be completed by the end of January 1995 with an order expected
by the end of June 1995. Energy cannot predict what action the IURC may take
with respect to the proposed merger savings allocation.
Energy's petition for an increase in retail rates and its merger savings
allocation plan previously discussed include a "performance efficiency plan"
(PEP). Under its proposed PEP, Energy would retain all earnings up to a
12.75% common equity return and provide for sharing of common equity returns
from 12.75% to 15.75% between shareholders and ratepayers depending on
Energy's performance on measures of customer price, customer satisfaction,
customer service reliability, equivalent availability of its generating units,
and employee safety. All earnings above a 15.75% return on common equity
would be returned to ratepayers.
In addition, in July 1994, in a separate proceeding, Energy filed a petition
with the IURC requesting an additional retail rate increase of up to
approximately 8% primarily to recover the costs of two major projects
previously approved by the IURC. The first project is a flue-gas
desulfurization unit (scrubber) which was available for service at Energy's
Gibson Generating Station in September 1994. The second project is Energy's
clean coal power generating facility at the Wabash River Generating Station
which is planned to go in service during the third quarter of 1995.
Additionally, Energy has requested approval to defer, and subsequently recover
in future rate proceedings, any costs incurred by Energy for investigation and
remediation of previously owned manufactured gas plant sites. Energy cannot
predict what action the IURC may take with respect to this proposed rate
increase.
Energy currently forecasts that if the two proposed rate increases and merger
savings allocation plan previously discussed are approved, it would not need
further rate relief through the year 2000. Delayed rate relief will continue
to put downward pressure on earnings.
1994 Voluntary Workforce Reduction Plan
In an effort to begin to realize merger savings, Energy recently completed a
voluntary workforce reduction plan. Under the plan, 169 employees elected to
terminate their employment with Energy, resulting in a pre-tax cost of
approximately $11.3 million. This cost is included in the costs to achieve
merger savings previously discussed. In its merger savings allocation plan
filed with the IURC, Energy has requested authority to defer the costs
associated with this voluntary workforce reduction and to amortize such costs
over a 10-year period as an offset against merger savings.
CAPITAL RESOURCES
As disclosed in the 1993 Form 10-K, Energy has IURC authority to borrow up to
$200 million under short-term credit arrangements. As of September 30, 1994,
Energy had $165.5 million outstanding under these arrangements. Energy may
also arrange for additional short-term borrowings in accordance with Federal
Energy Regulatory Commission (FERC) authority. As discussed in the 1993 Form
10-K, such additional borrowings were previously limited by Energy's Board of
Directors to a maximum of $100 million. In July 1994, the Board of Directors
authorized Energy to arrange for additional short-term borrowings in
accordance with the maximum exemption allowed under FERC. Energy had $126.3
million outstanding under these arrangements as of September 30, 1994.
As disclosed in the 1993 Form 10-K, Resources had planned to sell up to eight
million shares of common stock in 1994. This sale did not occur before merger
consummation, and as a result, CINergy has filed a registration statement for
the sale of up to eight million shares of CINergy common stock. A public
offering of CINergy common stock is expected to occur by the end of 1994. Up
to $160 million of the net proceeds from the issuance and sale of this common
stock will be contributed to the equity capital of Energy. Energy will use
this contributed capital for general corporate purposes, including repayment
of short-term debt incurred for construction financing. Any balance of such
net proceeds will be used by CINergy for general corporate purposes.
In August 1994, Energy issued $60 million of long-term debt (see Note 4
beginning on page 8).
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Kilowatt-hour Sales
For the quarter ended September 30, 1994, kilowatt-hour (kwh) sales remained
relatively unchanged showing less than a 1% decrease when compared to the same
period last year. The decrease primarily attributable to the milder weather
conditions experienced in the third quarter of 1994 was substantially offset
by increased industrial sales reflecting growth primarily in the primary
metals, bituminous coal mining, and transportation equipment sectors and an
increase in the number of both domestic and commercial customers in Energy's
service territory.
Revenues
Total operating revenues decreased $11 million (4%) in the third quarter of
1994 as compared to the same period last year. This decrease reflects the
return of approximately $6 million to ratepayers in accordance with Indiana
law which requires all retail operating income above a certain rate of return
to be refunded to ratepayers. Also contributing to this decrease was the 1.5%
retail rate reduction resulting from the IURC's December 1993 order, which
approved the settlement agreement resolving outstanding issues related to the
appeals of the IURC's April 1990 order and June 1987 order.
An analysis of operating revenues is shown below:
Quarter
Ended September 30
(millions)
Operating revenues - September 30, 1993 $293
Increase (Decrease) due to change in:
Price per kwh
Retail (9)
Sales for resale
Firm power obligations 1
Non-firm power transactions (2)
Total change in price per kwh (10)
Kwh sales
Retail -
Sales for resale
Firm power obligations (1)
Non-firm power transactions (1)
Total change in kwh sales (2)
Operating revenues - September 30, 1994 $281
Operating Expenses
Other Operation and Maintenance
When compared to the same period last year, other operation and maintenance
expenses for the quarter ended September 30, 1994, increased $7 million (10%).
This increase was partially attributable to a $1.3 million increase in fuel
litigation expenses. Also contributing to Energy's increase were the general
inflationary effects on operating costs.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
Kwh Sales
Kwh sales for the nine months ended September 30, 1994, increased 8% when
compared to the same period last year. This increase was primarily the result
of increased sales for resale. Increased third party short-term power sales
to other utilities through Energy's system and increased direct power sales to
other utilities contributed to increased non-firm power sales. The more
extreme weather conditions experienced during the first and second quarters of
1994 resulted in increased firm power sales. Retail sales increased as a
result of the increased number of both domestic and commercial customers in
Energy's service territory, in addition to the weather conditions previously
discussed. Increased industrial sales occurred due to growth primarily in the
primary metals, transportation equipment, and rubber and miscellaneous plastic
products sectors.
Revenues
Total operating revenues increased $63 million (8%) for the nine months ended
September 30, 1994, as compared to the same period last year. This increase
primarily reflects the changes in kwh sales previously discussed, the effects
of the $31 million refund accrued in June 1993 as a result of the settlement
of the April 1990 order, and increased fuel costs. Partially offsetting these
increases were the 1.5% retail rate reduction resulting from the IURC's
December 1993 order previously discussed and the return of approximately $6
million to ratepayers in accordance with Indiana law which requires all retail
operating income above a certain rate of return to be refunded to ratepayers.
An analysis of operating revenues is shown below:
Nine Months
Ended September 30
(millions)
Operating revenues - September 30, 1993 $800
Increase (Decrease) due to change in:
Price per kwh
Retail 14
Sales for resale
Firm power obligations -
Non-firm power transactions 2
Total change in price per kwh 16
Kwh sales
Retail 25
Sales for resale
Firm power obligations 5
Non-firm power transactions 17
Total change in kwh sales 47
Operating revenues - September 30, 1994 $863
Operating Expenses
Fuel
An increase in kwh generation resulted in fuel costs for the nine months ended
September 30, 1994, increasing $10 million (3%) when compared to the same
period last year.
Purchased and Exchanged Power
For the nine months ended September 30, 1994, purchased and exchanged power
increased $21 million when compared to the same period last year. This
increase was due to increased purchases of power by Energy to sell to other
utilities and to meet Energy's own load.
Other Operation and Maintenance
Other operation and maintenance expenses for the nine months ended September
30, 1994, increased $17 million (8%) as compared to the same period last year.
This increase was partially a result of a $7 million increase in fuel
litigation expense. Also contributing to this increase were the general
inflationary effects on operating costs.
Depreciation
Depreciation expense for the nine months ended September 30, 1994, increased
$8 million (8%) when compared to the same period last year due to increased
plant additions.
State, Local, and Other Taxes
State, local, and other taxes for the nine months ended September 30, 1994, as
compared to the same period last year, increased $4 million (13%). This was
primarily attributable to higher property taxes, which reflect plant additions
and increased property tax rates.
Other Income and Expense - Net
For the nine months ended September 30, 1994, other income and expense
reflected a $14 million (75%) decrease primarily due to the June 1993
reduction of the loss related to the June 1987 order, as previously discussed.
Amounts related to the additional number of completed environmental compliance
projects in 1994 which qualify, under IURC authority, for continued accrual of
the debt component of the allowance for funds used during construction (AFUDC)
(post-in-service carrying costs) partially offset this decrease.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
Kwh Sales
Kwh sales for the twelve months ended September 30, 1994, increased 7% when
compared to the same period last year. Retail sales increased as a result of
increased domestic and commercial customers in Energy's service territory as
well as the more extreme weather conditions experienced during the first and
second quarters of 1994. In addition, growth primarily in the primary metals,
transportation equipment, and rubber and miscellaneous plastic products
sectors resulted in increased industrial sales. Also contributing to
increased kwh sales were increased sales for resale primarily as a result of
increased third party short-term power sales to other utilities through
Energy's system.
Revenues
Total operating revenues increased $69 million (6%) for the twelve months
ended September 30, 1994, as compared to the same period last year. In
addition to the increased kwh sales previously discussed, this increase in
operating revenues reflects the effects from the $31 million refund accrued in
June 1993 as a result of the settlement of the April 1990 order. Partially
offsetting these increases were the effects of the 1.5% retail rate reduction
resulting from the IURC's December 1993 order previously discussed and the
return of approximately $6 million to ratepayers in accordance with Indiana
law which requires all retail operating income above a certain rate of return
to be refunded to ratepayers.
An analysis of operating revenues is shown below:
Twelve Months
Ended September 30
(millions)
Operating revenues - September 30, 1993 $1 071
Increase (Decrease) due to change in:
Price per kwh
Retail 7
Sales for resale
Firm power obligations -
Non-firm power transactions 4
Total change in price per kwh 11
Kwh sales
Retail 43
Sales for resale
Firm power obligations 5
Non-firm power transactions 13
Total change in kwh sales 61
Other (2)
Operating revenues - September 30, 1994 $1 141
Operating Expenses
Purchased and Exchanged Power
Purchased and exchanged power for the twelve months ended September 30, 1994,
increased $28 million as compared to the same period last year. This increase
reflects increased purchases of power by Energy which were necessary to meet
Energy's own load and to sell to other utilities.
Other Operation and Maintenance
When compared to the same period last year, other operation and maintenance
expenses increased $20 million (7%) for the twelve months ended September 30,
1994. This increase was partially attributable to the general inflationary
effects on operating costs. In addition, this increase also reflects a $7
million increase in fuel litigation expenses and the initial costs of Energy's
new distribution line clearing program.
Depreciation
Due to increased plant additions, depreciation expense increased $11 million
(9%) for the twelve months ended September 30, 1994, as compared to the same
period last year.
State, Local, and Other Taxes
State, local, and other taxes for the twelve months ended September 30, 1994,
as compared to the same period last year, increased $8 million (18%). This
was primarily attributable to higher property taxes, which reflect plant
additions and increased property tax rates.
Other Income and Expense - Net
Other income and expense for the twelve months ended September 30, 1994,
decreased $11 million (53%) as compared to the same period last year. This
decrease was primarily attributable to the June 1993 reduction of the loss
related to the June 1987 order, as previously discussed. Partially offsetting
this decrease was the implementation of the January 1993 IURC order
authorizing the accrual of post-in-service carrying costs. In addition, the
equity component of AFUDC increased primarily as a result of increased
construction.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to Notes 6 and 7 on page 10 of Part I, Item 1 - Notes to Consolidated
Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Copies of the documents listed below which are identified with an
asterisk (*) have heretofore been filed with the Securities and Exchange
Commission and are incorporated herein by reference and made a part
hereof; and the exhibit number of the document so filed, and
incorporated herein by reference, is stated in parentheses in the
description of such exhibit. Exhibits not so identified are filed
herewith.
Exhibit
Designation Nature of Exhibit
2-a * Amendment dated as of June 20, 1994, to the Amended and
Restated Agreement and Plan of Reorganization by and
among The Cincinnati Gas & Electric Company (CG&E), PSI
Resources, Inc. (Resources), PSI Energy, Inc. (Energy),
CINergy Corp., an Ohio corporation, CINergy Corp.
(CINergy), a Delaware corporation, and CINergy Sub, Inc.
dated as of December 11, 1992, as amended and restated on
July 2, 1993, and as of September 10, 1993. (Exhibit 2-a
to Energy's June 30, 1994, Form 10-Q.) This amendment
extended the date after which the agreement may be
terminated from June 30, 1994, to September 30, 1994.
2-b * Amendment dated as of July 26, 1994, to the Amended and
Restated Agreement and Plan of Reorganization by and
among CG&E, Resources, Energy, CINergy Corp., and Ohio
corporation, CINergy, and CINergy Sub, Inc. dated as of
December 11, 1992, as amended and restated on July 2,
1993, and as of September 10, 1993, and as further
amended as of June 20, 1994. (Exhibit 2-b to Energy's
June 30, 1994, Form 10-Q.) Among other things, this
amendment provides for CINergy to pay dividends to
shareholders that have not exchanged their Resources or
CG&E stock certificates for CINergy stock certificates.
Exhibit
Designation Nature of Exhibit
2-c Amendment dated as of September 30, 1994, to the Amended
and Restated Agreement and Plan of Reorganization by and
among CG&E, Resources, Energy, CINergy Corp., and Ohio
corporation, CINergy, and CINergy Sub, Inc. dated as of
December 11, 1992, as amended and restated on July 2,
1993, and as of September 10, 1993, and as further
amended as of June 20, 1994, and July 26, 1994. This
amendment extended the date after which the agreement may
be terminated from September 30, 1994, to December 31,
1994.
3 Amended Articles of Consolidation, as amended to May 11,
1994.
27 Financial Data Schedule (included in electronic
submission only).
b. The following reports on Form 8-K were filed subsequent to the second
quarter of 1994:
Items Filed Date of Report
Item 7 - Financial Statements
and Exhibits. (The Cincinnati
Gas & Electric Company's Quarterly
Report on Form 10-Q for the
second quarter ended June 30, 1994.) August 31, 1994
Item 1 - Changes in Control of
Registrant. (On October 24, 1994,
PSI Resources, Inc. was merged with
and into CINergy Corp., and a subsidiary
of CINergy Corp. was merged with and
into The Cincinnati Gas & Electric Company.)
Item 7 - Financial Statements and
Exhibits. (Joint press release
announcing the consummation of the merger.) October 24, 1994
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 PSI Energy, Inc. (Energy) believes that the disclosures
are adequate to make the information presented not misleading. In the opinion
of Energy, 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 Registrant has duly caused this report to be signed by an
officer and the principal accounting officer on its behalf by the undersigned
thereunto duly authorized.
PSI ENERGY, INC.
Registrant
Date November 10, 1994 J. Wayne Leonard
Senior Vice President and
Chief Financial Officer
Date November 10, 1994 Charles J. Winger
Comptroller and Principal
Accounting Officer