1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Holding Company
NIPSCO Industries, Inc. (Industries), an Indiana corporation, became a
holding company on March 3, 1988. Northern Indiana Public Service Company
(Northern Indiana), Northern Indiana Fuel and Light Company, Inc. (NIFL),
Kokomo Gas and Fuel Company (Kokomo Gas), NIPSCO Development Company, Inc.
(Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO Capital
Markets, Inc. (Capital Markets) are subsidiaries of Industries. NIPSCO Fuel
Company, Inc. (Fuel), NI-TEX Inc. (NI-TEX), NIPSCO Energy Trading Corp. (NETCO)
and Crossroads Pipeline Company (Crossroads) are direct subsidiaries of
Services. The following discussion, except where noted, is attributable to the
utility operations of Northern Indiana, Kokomo Gas, NIFL and Crossroads (the
Utilities).
Net Income
For 1994, net income of Industries increased to $164.0 million, or earnings
of $2.48 per average common share, compared to $156.1 million, or earnings of
$2.31 per average common share, for 1993. There were approximately 1.3 million
fewer average common shares outstanding in 1994 than 1993. In 1992, net income
was $136.6 million, or earnings of $2.00 per average common share. See Notes to
Consolidated Financial Statements for Segments of Business regarding the
revenue and utility operating income derived from the delivery of gas and
electricity.
Revenues
Operating revenues decreased $1.5 million, or 0.1%, from 1993. Operating
revenues in 1993 increased $95.5 million, or 6.0%, from 1992.
During 1994, gas deliveries in dekatherms (dth), which include
transportation services, increased 5.5%. Gas sales in 1994 decreased 3.3% due
to lower sales to residential and commercial customers due to warmer weather
during the fourth quarter of 1994, compared to the fourth quarter of 1993. Gas
transportation services increased 11.9% mainly due to increased deliveries to
industrial customers and gas volumes transported through Crossroads, which
began operations in 1994. The Utilities had approximately 693,100 gas customers
at December 31, 1994. During 1993, gas deliveries increased 9.8% over 1992. The
increase in gas deliveries was largely attributable to increased deliveries to
residential, commercial and transportation customers and the addition of 27,500
customers acquired through the purchase of NIFL in March, 1993.
Gas revenues were $681.9 million in 1994, a decrease of $32.3 million
from 1993. The decrease in gas revenues was mainly due to decreased sales to
residential and commercial customers due to the warmer weather this year, and
reduced gas costs. Gas revenues were $714.2 million in 1993, an increase of
$48.0 million from 1992. The increase in gas revenues was mainly due to
increased sales to residential and commercial customers due to the colder
weather, and the inclusion of NIFL, and was partially offset by decreased
transportation revenue per dth delivered due to lower take-or-pay costs. The
large commercial and industrial customers continued to utilize transportation
services provided by the Utilities. Gas transportation customers purchase much
of their gas directly from producers and marketers and then pay a transportation
fee to have their gas delivered over the Utilities' systems. The Utilities
transported 188.6, 167.9 and 149.5 million dth in 1994, 1993 and 1992,
respectively.
In 1994, sales of electricity in kilowatt-hours (kwh) increased 2.4%
over 1993 mainly due to higher sales to commercial and industrial customers due
to increased demands of steel related customers. Northern Indiana had
approximately 400,500 electric customers at December 31, 1994. In 1993, sales of
electricity in kwh increased 5.1% over 1992 mainly due to higher sales to
residential and commercial customers due to warmer weather in the second and
third quarters and increased industrial demands.
In 1994, electric revenues were $994.5 million, an increase of $30.8
million from 1993. The increase in electric revenue was mainly due to higher
sales to commercial and industrial customers due to increased demands of steel
related customers and higher fuel costs per kwh, which were partially offset by
decreased sales to wholesale customers. In 1993, electric revenues were $963.7
million, an increase of $47.5 million from 1992. The increase in electric
revenue was mainly due to higher sales to residential and commercial customers
due to warmer weather in the second and third quarters and increased industrial
demands.
39
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The components of the changes in gas and electric revenues are shown in
the following tables:
Year 1994 Year 1993
Compared to Compared to
Year 1993 Year 1992
----------------------------------------- -----------
(Dollars in millions)
Gas Revenue
Pass through of net
changes in purchased
gas costs, gas storage
and storage transpor-
tation costs $(25.9) $ 27.1
Take-or-pay costs and
transition costs 12.0 (27.0)
Changes in sales levels (21.5) 19.3
Gas transported 3.1 2.9
NIFL acquisition -- 25.7
------ ------
Gas Revenue Change $(32.3) $ 48.0
------ ------
Electric Revenue
Pass through of net
changes in fuel costs $ 7.6 $(10.4)
Changes in sales levels 23.2 57.9
------ ------
Electric Revenue Change $ 30.8 $ 47.5
------ ------
Total Revenue Change $ (1.5) $ 95.5
====== ======
See Rate Matters in Notes to Consolidated Financial Statements regarding
changes in gas rates, gas take-or-pay and FERC Order No. 636 transition costs.
The basic steel industry accounted for 38% of natural gas delivered
(including volumes transported) and 41% of electric sales during 1994.
The Utilities' rate schedules for gas and electric service to their
customers contain electric rate adjustment clauses for changes in the cost of
fuel and firm purchases of electric energy and gas rate adjustment clauses to
reflect changes in the cost of gas purchased and contracted gas storage and
storage transportation costs. (See Fuel Adjustment Clause and Gas Cost
Adjustment Clause under Summary of Significant Accounting Policies in Notes to
Consolidated Financial Statements.)
Gas Costs
The Utilities' gas costs decreased $26.2 million (6.1%) in 1994 due to
decreased volumes purchased and lower gas costs per dth. The average cost for
the Utilities purchased gas in 1994, after adjustment for take-or-pay charges
and transition costs for transport customers, was $2.95 per dth as compared to
$3.23 per dth in 1993. Gas costs increased $27.8 million (6.9%) in 1993, due to
increased purchases resulting from the colder weather of 1993, and the
inclusion of $16.1 million of purchased gas costs related to NIFL. The average
cost for the Utilities purchased gas in 1993, after adjustment for take-or-pay
charges billed to transport customers, was $3.23 per dth as compared to $3.16
per dth in 1992.
Fuel and Purchased Power
Cost of fuel for electric generation in 1994 increased mainly as a result of
increased cost per kwh generated. The average cost per kwh generated increased
1.2% from 1993 to 16.85 mills. The cost of fuel for electric generation in 1993
increased mainly as a result of increased production offset by decreased fuel
costs per kwh produced. The average cost per kwh generated decreased 1.0% from
1992 to 16.65 mills.
Power purchased increased $14.3 million mainly due to purchases required
to replace R. M. Schahfer Generating Station Unit 15 generation from February 1
to July 5, 1994, while this unit was down on an extended outage as part of the
Powder River Basin coal conversion project. Purchased power costs increased $7.2
million in 1993, as a result of increased power purchases from other utilities.
Operating Margins
Operating margins increased $7.9 million in 1994 to $993.3 million. The
operating margin from gas deliveries decreased $6.1 million in 1994, mainly due
to the decreased sales to residential and commercial customers, due to warmer
weather during the fourth quarter of 1994, partially offset by increased
transportation services. Operating margins from electric sales increased $14.0
million mainly reflecting increased sales to commercial and industrial
customers due to increased demand partially offset by decreased sales to
wholesale customers. Operating margins increased $58.3 million in 1993 to
$985.5 million. The operating margin from gas deliveries increased $20.2
million mainly due to the increased sales to residential and commercial
customers due to colder weather, and the addition of 27,500 gas customers due
to the purchase of NIFL. Operating margins from electric sales increased $38.1
million mainly reflecting increased sales to residential and commercial
customers due to warmer weather in the second and third quarters and increased
industrial demands.
Operating Expenses and Taxes
Operating expenses and taxes in 1994 increased 1.2% from 1993 to $732.2
million and in 1993 increased 6.2% from 1992 to $723.4 million.
40
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The increase in 1994 from 1993 is mainly due to increased operating
costs of pollution control facilities, environmental costs and operating costs
related to Crossroads offset by decreased maintenance activity. The increase in
1993 from 1992 was mainly due to the full year of the service agreement
associated with the Bailly scrubber, increased gas storage costs reflecting
changes in the Utilities' gas supply arrangements, higher employee related
expenses and the addition of operating expenses of NIFL.
Depreciation and amortization expenses increased $7.3 million compared
to 1993 as a result of net plant additions.
Income taxes and other tax provisions charged to operations amounted to
$170.0 million in 1994, $168.5 million in 1993 and $149.9 million in 1992 and
represent 10.1% of operating revenues for 1994. Utility income taxes remained
relatively unchanged from 1993 to 1994 consistent with the level of pre-tax
income. The increase in 1993 from 1992 was due to the increase in the statutory
federal tax rate and an increase in pre-tax income. Taxes, except income taxes,
increased primarily due to higher property tax requirements in 1994.
The after tax effects of the Northern Indiana land donation to the
Shafer and Freeman Lakes Environmental Conservation Corporation are included in
"Other, net" under the caption "Other Income (Deductions)" in the 1994
Consolidated Statement of Income. The operating results of all non-utility
subsidiaries are also included in the caption "Other, net."
Interest and other charges decreased $4.5 million and $7.2 million in
1994 and 1993, respectively. The 1994 decrease reflects Northern Indiana's
continued refinancing to reduce interest rates on long-term debt outstanding.
The 1993 decrease reflects Northern Indiana's reduced interest rates on long-
term debt outstanding, and favorable interest rates on short-term borrowings.
See Notes to Consolidated Financial Statements for a discussion of
Carrying Charges and Deferred Depreciation, Allowance for Funds Used During
Construction, FERC Order No. 636, Income Taxes, Postretirement Benefits, and
Postemployment Benefits.
Environmental Matters
Because of major investments made in modern environmental control facilities
and the use of low sulfur coal, all of Northern Indiana's electric production
facilities now comply with the sulfur dioxide limitations contained in acid
deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern
Indiana estimates that total costs of compliance with the CAAA sulfur dioxide
regulations will impact electric rates by less than 5% in the future.
The CAAA contain provisions that could lead to limitations on emissions
of nitrogen oxides and hazardous air pollutants which may require significant
capital expenditures for control of these emissions. Northern Indiana is
evaluating a nitrogen oxide control program to meet future requirements.
Northern Indiana cannot predict the costs of complying with CAAA requirements,
but Northern Indiana believes that any such mandated costs would be recoverable
through the rate making process.
The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste. It is the Utilities' intent to
continue to evaluate their facilities and properties with respect to these
rules and identify any sites that would require corrective action.
Northern Indiana has received notices from the Environmental Protection
Agency (EPA) that it is a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
and the Superfund Amendment and Reauthorization Act (SARA) and may be required
to share in the cost of cleanup of several waste disposal sites identified by
the EPA. The sites are in various stages of investigation, analysis, and
remediation. At each of the sites, Northern Indiana is one of several PRPs, and
it is expected that remedial costs, as provided under CERCLA and SARA, will be
shared among them. At some sites Northern Indiana and/or the other named PRPs
are presently working with the EPA to clean up the site and avoid the
imposition of fines or added costs. While all of the remedial costs at these
sites are not determinable, Northern Indiana's analysis indicates its share of
such costs with other PRPs should not have a significant impact on its
financial position or the results of future operations.
The Utilities have instituted a program to investigate former
manufactured gas plants where one of them is the current or former owner. The
Utilities have identified twenty-seven of these sites and made visual
inspections of these sites. The Utilities have conducted initial
41
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
samplings at eight sites. Follow-up investigations have been conducted at three
sites and potential remedial measures are being evaluated. The Utilities will
continue their program to assess sites during 1995. During the follow-up
investigation of the former manufactured gas plant in Elkhart, Indiana, Northern
Indiana noted the presence of hydrocarbons in the Elkhart River. Northern
Indiana reported this finding to the Indiana Department of Environmental
Management (IDEM) and the EPA. Northern Indiana is evaluating this site to
determine what remedial measures, if any, may be needed.
Northern Indiana was notified by IDEM of the release of a petroleum
substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a
former manufactured gas plant formerly owned by Northern Indiana. In
cooperation with IDEM, Northern Indiana has taken steps to investigate and
contain the substance. Northern Indiana has remediated part of the Fort Wayne
site. The remainder of the site is being evaluated to determine what further
remedial measures, if any, may be needed.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana Gas)
that the site of a former manufactured gas plant in Lafayette, Indiana,
formerly owned by Northern Indiana, was being investigated and partially
remediated by Indiana Gas pursuant to an administrative order issued by IDEM.
Northern Indiana is investigating its potential liability and evaluating
appropriate action.
The possibility that exposure to electric and magnetic fields emanating
from power lines, household appliances and other electric sources may result in
adverse health effects has been the subject of increased public, governmental
and media attention. A considerable amount of scientific research has been
conducted on this topic without definitive results. Research is continuing to
resolve scientific uncertainties.
Liquidity and Capital Resources
During the next few years, it is anticipated that the great majority of
earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. See Notes to Consolidated Financial
Statements for a discussion of the Common Share Dividend.
Utility construction expenditures by Industries for 1994, 1993 and 1992
were approximately $201 million, $181 million and $172 million, respectively.
Industries' total utility plant investment on December 31, 1994, was $5.4
billion.
On June 2, 1993, Northern Indiana received authorization from the
Indiana Utility Regulatory Commission (Commission) to issue up to $349,750,000
of Medium-Term Notes, Series C, due from 1 year to 30 years from date of issue
for refinancing purposes and paying outstanding long-term debt at maturity. A
portion of the proceeds was used to repay short-term debt which was incurred in
connection with the April, 1993 redemption of first mortgage bonds, and a
portion was used for early redemption on August 2, 1993, of $88 million of
Northern Indiana's medium-term notes due in 1996. All of the Medium-Term Notes,
Series C, have been issued.
On March 4, 1994, the Commission authorized Northern Indiana to issue up
to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30 years,
for purposes of refinancing certain first mortgage bonds and paying short-term
debt used to pay at maturity medium-term notes due in January and April, 1994.
On May 23, 1994, Northern Indiana exercised its option to redeem all the
outstanding First Mortgage Bonds, Series S, Y and AA aggregating $125.5 million,
through the use of working capital and the proceeds of short-term debt. As of
July 31, 1994, $120.0 million of the Medium-Term Notes, Series D, have been
issued to complete the permanent refinancing of those first mortgage bonds. As
of December 31, 1994, an additional $169,275,000 of Medium-Term Notes, Series D,
can be issued in the future.
On August 25, 1994, Jasper County, Indiana issued Pollution Control
Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company
Project) (the "Series 1994 Bonds"), including $10 million of Series 1994A Bonds,
due August 1, 2010; $18 million of Series 1994B Bonds, due June 1, 2013; and $41
million of Series 1994C Bonds, due April 1, 2019. The proceeds of these
issuances were loaned to Northern Indiana under similar terms. The initial
interest rate on Series 1994 Bonds was 3.10% which resets daily. The proceeds of
the Series 1994A and Series 1994C were used to retire on October 15, 1994, $10
million of Series MM First Mortgage Bonds, 7-1/2%, due October 15, 2004, and $41
million of Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014. The
42
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
proceeds of the Series 1994B Bonds were used to retire the $18 million
Series 1978 Note, 6.70%, on August 25, 1994. The Series 1994 Bonds are secured
by Letters of Credit from Union Bank of Switzerland.
Capital Markets has a $150 million revolving Credit Agreement which
terminates August 19, 1997, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as the
back-up instrument for a commercial paper program. As of December 31, 1994,
there were no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of December 31, 1994, $12.7 million of borrowings were outstanding under
these lines of credit.
As of December 31, 1994, Capital Markets had $49.6 million in commercial
paper outstanding, having a weighted average interest rate of 6.18%.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed to
make payments of interest and principal on Capital Markets securities in the
event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana which are owned by Industries. Under
the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the
assets of Industries, other than the stock and assets of Northern Indiana, are
available as recourse to holders of Capital Markets' securities. The carrying
value of those assets other than Northern Indiana, reflected in the
consolidated financial statements of Industries, is approximately $320.2
million at December 31, 1994.
Cash flow from operations has provided sufficient liquidity to meet
current operating requirements. Because of the seasonal nature of the utility
business and the construction program, Northern Indiana makes use of commercial
paper intermittently as short-term financing. As of December 31, 1994, Northern
Indiana had $156.5 million in commercial paper outstanding, having a weighted
average interest rate of 6.13%.
Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1997, unless extended by its terms. As
of December 31, 1994, there were no borrowings outstanding under this agreement.
In addition, Northern Indiana has $14.2 million in lines of credit which run to
May 31, 1995. The credit pricing of each of the lines varies from either the
lending banks' commercial prime or market rates. Northern Indiana has agreed to
compensate the participating banks with arrangements that vary from no
commitment fee to a combination of fees which are mutually satisfactory to both
parties. As of December 31, 1994, there were no borrowings under these lines of
credit. The Credit Agreement and lines of credit are also available to support
the issuances of commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of December 31, 1994, $92.7 million of borrowings were outstanding
under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
December 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid on April 4, 1994.
During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.
The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to contain
cost increases or need to seek timely and adequate rate relief. The Utilities do
not anticipate the need to file for gas and electric base rate increases in the
near future.
Competition
The Energy Policy Act of 1992 (Energy Act) allows FERC to order electric
utilities to grant access to transmission systems by third party power
producers. The Energy Act specifically prohibits federally mandated wheeling of
power for retail customers. That authority lies with the individual states,
several of which are considering opening the transmission network to retail
customers. The Energy Act will stimulate greater competition in the wholesale
electric markets. This competition will create opportunities to compete for new
customers and revenues, as well as increase the risk of the loss of customers.
Although wholesale customers represent a relatively small portion of Northern
Indiana's sales (4%
43
1994 FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Concluded)
for 1994), Northern Indiana will continue its efforts to retain and add
customers by offering competitive rates. Competitive forces have also begun to
influence retail pricing in the industry. In some instances, industrial
customers, threatening to pursue cogeneration, self-generation, retail
wheeling, or relocation to other service territories, have obtained price
concessions from utilities.
Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Increasing competition in the
electric utility industry has already led the credit rating agencies to apply
more stringent guidelines in making credit rating determinations.
Northern Indiana's management has taken steps to make the company more
competitive and profitable in the changing utility environment, including
partnering on energy projects with major industrial customers and conversions
of some of its generating units to allow use of lower cost low sulfur coal.
FERC Order No. 636 effective in late 1993 shifted primary responsibility
for gas acquisition, transportation, and peak days' supply from pipelines to
local gas distribution companies, such as the Utilities. Although pipelines
continue to transport gas, they no longer provide sales service. The Utilities
believe they have taken appropriate steps to ensure the continued acquisition
of adequate gas supplies at reasonable prices.
The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service, and interruptible transportation services has
changed significantly over the past several years. The deregulation of the gas
industry, since the mid-1980s, allows large industrial and commercial customers
to purchase their gas supplies directly from producers and use the Utilities'
facilities to transport the gas. Transportation customers pay the Utilities only
for transporting their gas from the pipeline to the customers' premises.
To date, the Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effects in the
near future, unless the current regulatory structure is substantially altered.
The Utilities believe the steps they are taking to deal with increased
competition will have significant, positive effects in the next few years.
(Selected Statistical Charts)
(Capitalization Ratios Chart)
COMMON PREFERRED AND
LONG-TERM SHARE PREFERENCE
YEAR DEBT EQUITY STOCK TOTAL
---- --------- ------ ------------- -------
1985 53.6% 34.8% 11.6% 100.0%
1986 55.3% 33.6% 11.1% 100.0%
1987 52.7% 36.1% 11.2% 100.0%
1988 52.0% 41.0% 7.0% 100.0%
1989 52.3% 40.8% 6.9% 100.0%
1990 49.2% 42.6% 8.2% 100.0%
1991 47.1% 44.6% 8.3% 100.0%
1992 46.0% 45.1% 8.9% 100.0%
1993 47.9% 44.0% 8.1% 100.0%
1994 47.7% 44.8% 7.6% 100.0%
(Cost of Fuel for Electric Generation Chart)
YEAR (MILLS PER KWH)
---- ---------------
1985 27.85
1986 23.92
1987 21.02
1988 19.09
1989 18.01
1990 18.13
1991 17.86
1992 16.82
1993 16.65
1994 16.85
(Cost of Gas Purchased for Resale Chart)
DOLLARS
YEAR PER DEKATHERM
---- -------------
1985 3.42
1986 3.20
1987 2.94
1988 3.03
1989 3.21
1990 3.40
1991 3.16
1992 3.31
1993 3.27
1994 3.03
44
Consolidated Statement of Income
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
(Dollars in thousands)
Operating Revenues:
Gas $ 681,909 $ 714,229 $ 666,221
Electric 994,492 963,643 916,135
----------- ----------- -----------
1,676,401 1,677,872 1,582,356
----------- ----------- -----------
Cost of Energy:
Gas costs 403,437 429,645 401,854
Fuel for electric generation 247,134 244,552 242,385
Power purchased 32,503 18,225 11,028
----------- ----------- -----------
683,074 692,422 655,267
----------- ----------- -----------
Operating Margin 993,327 985,450 927,089
----------- ----------- -----------
Operating Expenses and Taxes (except income):
Operation 287,766 284,406 262,841
Maintenance 80,170 83,548 85,451
Depreciation and amortization 194,283 187,000 182,717
Taxes (except income) 72,227 71,621 69,555
----------- ----------- -----------
634,446 626,575 600,564
----------- ----------- -----------
Operating Income Before Utility Income Taxes 358,881 358,875 326,525
----------- ----------- -----------
Utility Income Taxes 97,732 96,830 80,308
----------- ----------- -----------
Operating Income 261,149 262,045 246,217
----------- ----------- -----------
Other Income (Deductions):
Allowance for funds, other than borrowed funds,
used during construction -- 1 30
Other, net 2,216 (2,071) 1,454
----------- ----------- -----------
2,216 (2,070) 1,484
----------- ----------- -----------
Income Before Interest and Other Charges 263,365 259,975 247,701
----------- ----------- -----------
Interest and Other Charges:
Interest on long-term debt 78,292 82,121 87,660
Other interest 11,650 9,238 9,955
Allowance for borrowed funds used
during construction and carrying charges (4,374) (1,447) (543)
Amortization of premium, reacquisition
premium, discount and expense on debt, net 3,897 3,582 3,323
Dividend requirements on preferred
stocks of subsidiary 9,913 10,341 10,658
----------- ----------- -----------
99,378 103,835 111,053
----------- ----------- -----------
Net Income 163,987 156,140 136,648
Dividend requirements on preferred shares 3,063 3,063 3,063
----------- ----------- -----------
Balance available for common
shareholders $ 160,924 $ 153,077 $ 133,585
=========== =========== ===========
Average common shares outstanding 64,820,039 66,136,396 66,715,941
Earnings per average common share $ 2.48 $ 2.31 $ 2.00
=========== =========== ===========
Dividends declared per common share $ 1.47 $ 1.35 $ 1.26
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
45
CONSOLIDATED BALANCE SHEET
December 31,
1994 1993
---- ----
(Dollars in thousands)
Assets
Utility Plant, at original cost
(including construction work
in progress of $221,830 and
$189,634, respectively):
Electric $3,858,118 $3,778,016
Gas 1,258,801 1,216,178
Common 316,120 289,242
---------- ----------
5,433,039 5,283,436
Less--Accumulated provision for depreciation
and amortization 2,202,082 2,052,221
---------- ----------
Total utility plant 3,230,957 3,231,215
---------- ----------
Other Property and Investments:
Other property, at cost, less accumulated
provision for depreciation 126,632 124,184
Investments, at equity 27,023 19,142
Investments, at cost 10,355 6,189
---------- ----------
Total other property and investments 164,010 149,515
---------- ----------
Current Assets:
Cash and cash equivalents 40,441 16,140
Accounts receivable, less reserve of
$4,899 and $4,855, respectively 86,299 115,129
Fuel adjustment clause 1,614 6,440
Gas cost adjustment clause 25,972 35,659
Materials and supplies, at average cost 66,397 67,120
Electric production fuel, at average cost 18,347 21,533
Natural gas in storage, at last-in, first-out cost 77,794 62,870
Prepayments and other 11,081 11,118
---------- ----------
Total current assets 327,945 336,009
---------- ----------
Other Assets:
Regulatory assets 195,449 177,728
Deferred charges and other non-current assets 26,182 17,857
---------- ----------
Total other assets 221,631 195,585
---------- ----------
$3,944,543 $3,912,324
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
46
CONSOLIDATED BALANCE SHEET
1994 1993
---- ----
(Dollars in thousands)
CAPITALIZATION AND LIABILITIES
Capitalization (see page 48):
Common shareholders' equity (see page 51) $1,107,848 $1,094,672
Preferred stocks--
Northern Indiana Public Service Company:
Series without mandatory redemption provisions 86,389 97,753
Series with mandatory redemption provisions 66,057 68,462
NIPSCO Industries, Inc.:
Series with mandatory redemption provisions 35,000 35,000
Long-term debt, excluding amounts due within one year 1,180,338 1,192,500
---------- ----------
Total capitalization 2,475,632 2,488,387
---------- ----------
Current Liabilities:
Obligations due within one year--
Northern Indiana Public Service Company:
Commercial paper 156,500 27,895
First Mortgage Bonds--Series N, 4 5/8%--due May 15, 1995 22,436 --
Medium-term note--9.15%--due April 11, 1994 -- 65,000
Notes payable--
Issued at interest rates between 6.00% and 6.33% with a weighted average interest rate
of 6.15% and various maturities between January 4, 1995 and
February 14, 1995 92,700 110,000
NIPSCO Capital Markets, Inc.:
Commercial paper 49,600 47,000
Notes payable--
Issued at interest rates of 6.27% and 6.30% with a weighted average interest rate
of 6.30% and maturities of January 17, 1995 and January 27, 1995 12,700 --
Elm Energy and Recycling (UK), Ltd.:
Term loan facility 3,262 3,766
NDC Douglas Properties, Inc.:
Notes payable 1,013 --
---------- ----------
338,211 253,661
---------- ----------
Other current liabilities--
Accounts payable 158,463 192,543
Sinking funds due within one year 2,578 3,413
Dividends declared on common and preferred stocks 27,077 26,165
Customer deposits 9,291 9,471
Taxes accrued 50,168 74,562
Interest accrued 10,561 12,253
Other accruals 44,639 45,296
---------- ----------
302,777 363,703
---------- ----------
Total current liabilities 640,988 617,364
---------- ----------
Other:
Deferred income taxes 575,323 576,071
Deferred investment tax credits, being amortized over life of related property 123,181 129,681
Deferred credits 45,001 37,767
Regulatory income tax liability 18,599 25,371
Other noncurrent liabilities 65,819 37,683
---------- ----------
Total other 827,923 806,573
---------- ----------
Commitments and Contingencies (see notes) $3,944,543 $3,912,324
========== ==========
47
CONSOLIDATED STATEMENT OF CAPITALIZATION
December 31,
1994 1993
---------- ------
(Dollars in thousands)
Common shareholders' equity (see page 51) $1,107,848 44.7% $1,094,672 44.0%
---------- ----------
Preferred Stocks, which are redeemable solely at option of issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--$100 par value--
4-1/4% series--211,266 and 211,298 shares
outstanding, respectively 21,127 21,130
4-1/2% series--79,996 shares outstanding 8,000 8,000
4.22% series--106,200 shares outstanding 10,620 10,620
4.88% series--100,000 shares outstanding 10,000 10,000
7.44% series--41,900 shares outstanding 4,190 4,190
7.50% series--34,842 shares outstanding 3,484 3,484
Premium on preferred stock 254 254
Cumulative preferred stock--no par value--
Adjustable Rate (6.00% at December 31, 1994)--
Series A (stated value--$50 per share),
574,285 and 801,500 shares
outstanding, respectively 28,714 40,075
---------- ----------
86,389 3.5% 97,753 3.9%
---------- ----------
Redeemable Preferred Stocks, subject to mandatory redemption
requirements or whose redemption is outside the control of issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--$100 par value--
8.85% series--100,000 and 112,500 shares
outstanding, respectively 10,000 11,250
7-3/4% series--55,568 and 61,122 shares
outstanding, respectively 5,557 6,112
8.35% series--75,000 and 81,000 shares
outstanding, respectively 7,500 8,100
Cumulative preferred stock--no par value--
6.50% series--430,000 shares outstanding 43,000 43,000
---------- ----------
66,057 2.7% 68,462 2.7%
---------- ----------
NIPSCO Industries, Inc.--
Cumulative preferred shares--without par value--8.75% series
(stated value--$100 per share),
350,000 shares outstanding 35,000 1.4% 35,000 1.4%
---------- ----------
Long-term debt (see page 49) 1,180,338 47.7% 1,192,500 48.0%
---------- ------ ---------- -----
Total capitalization $2,475,632 100.0% $2,488,387 100.0%
========== ====== ========== =====
The accompanying notes to consolidated financial statements are an integral part
of this statement.
48
CONSOLIDATED STATEMENT OF LONG-TERM DEBT
December 31,
1994 1993
---------- -----------
Northern Indiana Public Service Company: (Dollars in thousands)
First mortgage bonds--
Series N, 4 5/8%--due May 15, 1995 $ -- $ 22,436
Series O, 6 3/8%--due September 1, 1997 25,747 27,507
Series P, 6 7/8%--due October 1, 1998 14,509 15,671
Series S, 8 1/8%--due May 1, 2001 -- 41,000
Series T, 7 1/2%--due April 1, 2002 40,543 40,643
Series U, 8 1/8%--due July 15, 2003 55,239 55,739
Series Y, 8 3/8%--due October 15, 2006 -- 50,575
Series Z, 8 1/8%--due August 15, 2007 39,569 43,069
Series AA, 8 1/2%--due November 1, 2007 -- 33,407
Series LL, 7 1/2%--due October 15, 2014 -- 41,000
Series MM, 7 1/2%--due October 15, 2004 -- 10,000
Series NN, 7.10%--due July 1, 2017 55,000 55,000
---------- ----------
Total 230,607 436,047
---------- ----------
Pollution control notes and bonds--
Series A note--City of Michigan City--5.70% due October 1, 2003 20,750 21,500
Series 1978 note--County of Jasper--6.70% due November 1, 2008 -- 18,000
Series 1988 bonds--Jasper County--Series A, B and C
3.68% weighted average at December 31, 1994, due November 1, 2016 130,000 130,000
Series 1988 bonds--Jasper County--Series D
3.90% weighted average at December 31, 1994, due November 1, 2007 24,000 24,000
Series 1994 bonds--Jasper County--Series A
6.15% weighted average at December 31, 1994, due August 1, 2010 10,000 --
Series 1994 bonds--Jasper County--Series B
6.15% weighted average at December 31, 1994, due June 1, 2013 18,000 --
Series 1994 bonds--Jasper County--Series C
6.15% weighted average at December 31, 1994, due April 1, 2019 41,000 --
---------- ----------
Total 243,750 193,500
---------- ----------
Medium-term notes--
Issued at interest rates between 4.94% and 7.64%,
with a weighted average interest rate of 6.47% and various maturities
between July 25, 1996 and January 19, 2024 594,750 454,200
---------- ----------
Unamortized premium and discount on long-term debt, net (3,756) (4,663)
---------- ----------
Total long-term debt of Northern Indiana Public Service Company 1,065,351 1,079,084
---------- ----------
NIPSCO Capital Markets, Inc.:
Medium-term note--9.95%--due June 10, 1996 7,500 7,500
Unamortized discount (9) (16)
Zero Coupon Notes--7.57%, $72,500 at maturity, due December 1, 1997 58,373 54,191
---------- ----------
Total long-term debt of NIPSCO Capital Markets, Inc. 65,864 61,675
---------- ----------
NIPSCO Development Company, Inc.:
Lake Erie Land Company--Notes Payable--
Interest rates between 8.50% and 9.50% with a
weighted average interest rate of 8.91% and
various maturities between July 5, 1996 and June 30, 1998 3,155 3,256
Elm Energy and Recycling (UK), Ltd. Term Loan
Facility--6.79%--due December 31, 2004 34,606 41,577
Metals Technology Corporation--Notes Payable--
Mortgage note, 9.00%--due September 25, 2005 98 108
NDC Douglas Properties, Inc.--Notes Payable--
Interest rates between 6.72% and 7.94% with a weighted
average interest rate of 7.54% and maturities through January 1, 2005 11,264 --
---------- ----------
Total long-term debt of NIPSCO Development Company, Inc. 49,123 44,941
---------- ----------
Northern Indiana Fuel and Light Company, Inc.:
Sinking Fund Debentures--
Series G, 9.50%,--due August 1, 2001 -- 3,000
Series H, 10.80%,--due August 1, 2008 -- 3,800
---------- ----------
Total long-term debt of Northern Indiana Fuel and Light Company, Inc. -- 6,800
---------- ----------
Total long-term debt, excluding amounts due in one year $1,180,338 $1,192,500
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
49
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
1994 1993 1992
--------- --------- ---------
(Dollars in thousands)
Cash flows from operating activities
Net income $163,987 $156,140 $136,648
Adjustments to reconcile net income to net cash:
Depreciation and amortization 194,283 187,000 182,717
Deferred federal and state operating income taxes, net (11,488) 2,122 14,503
Deferred investment tax credits, net (6,499) (7,446) (7,452)
Change in certain assets and liabilities* --
Accounts receivable, net 28,830 (12,255) 18,284
Electric production fuel 3,186 20,412 (10,861)
Materials and supplies 723 7,344 2,394
Natural gas in storage (14,924) (24,685) 3,074
Accounts payable (34,080) 23,507 (4,521)
Taxes accrued (18,904) 541 16,593
Fuel adjustment clause 4,826 (2,105) 6,965
Gas cost adjustment clause 9,687 10,641 (43,565)
Other, net 16,765 11,462 3,638
--------- --------- ---------
Net cash provided by operating activities 336,392 372,678 318,417
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Utility construction expenditures (200,586) (180,852) (172,329)
Acquisition and construction expenditures
related to Crossroads Pipeline Company (1,959) (24,361) --
Purchase of Kokomo Gas and Fuel
Company, net of cash acquired -- -- (43,752)
Purchase of Northern Indiana Fuel and
Light Company, Inc. net of cash acquired -- (30,137) --
Return of capital from equity investments 8,000 32,435 --
Other, net (19,567) (53,061) (78,566)
--------- --------- ---------
Net cash used in investing activities (214,112) (255,976) (294,647)
--------- --------- ---------
Cash flows provided by (used in) financing activities:
Issuance of long-term debt 222,575 468,269 82,456
Issuance of short-term debt 1,020,777 1,254,507 1,865,713
Issuance of preferred shares -- -- 43,000
Net change in commercial paper 131,205 (1,605) (21,040)
Retirement of long-term debt (218,572) (377,069) (91,319)
Retirement of short-term debt (1,090,390) (1,388,208) (1,744,812)
Retirement of preferred stock (10,195) (2,170) (30,478)
Issuance of common shares 2,060 36,364 53,911
Acquisition of treasury shares (58,717) (40,730) (76,281)
Cash dividends paid on common shares (93,578) (88,214) (83,379)
Cash dividends paid on preferred shares (3,063) (3,063) (3,063)
Other, net (81) -- 582
--------- --------- ---------
Net cash used in financing activities (97,979) (141,919) (4,710)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 24,301 (25,217) 19,060
Cash and cash equivalents at beginning of period 16,140 41,357 22,297
--------- --------- ---------
Cash and cash equivalents at end of period $40,441 $16,140 $41,357
========= ========= =========
*Net of effects from purchase of Kokomo Gas and Fuel Company and Northern
Indiana Fuel and Light Company, Inc. The accompanying notes to consolidated
financial statements are an integral part of this statement.
50
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
Dollars in Thousands Shares
------- -- --------- ------
Additional Unearned Currency
Common Paid-In Retained Treasury Compen- Translation Common Treasury
Total Shares Capital Earnings Shares sation Adjustment Shares Shares
=========== ======== ======= ======== ========= ======= ======= ========== ==========
BALANCE, JANUARY 1, 1992 $1,011,666 $867,582 $11,941 $269,161 $(133,337) $(3,681) $ -- 73,721,755 (7,050,140)
Net Income 136,648 136,648
Dividends:
Preferred shares (3,063) (3,063)
Common shares (84,437) (84,437)
Treasury shares acquired (76,281) (76,281) (3,135,902)
Issued:
Employee stock purchase plan 327 327 20,614
Long-term incentive plan 3,307 51 3,705 (449) 183,125
Kokomo Gas acquisition 46,828 10,232 36,596 1,848,588
Conversion of 4-1/4%
convertible debentures 3,348 3,348 170,354
Other (3,813) (1,449) (1,114) 1,096 (2,346) (44)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1992 $1,034,530 $870,930 $20,775 $317,195 $(168,990) $(3,034) $(2,346) 73,892,109 (8,133,759)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
Net income 156,140 156,140
Dividends:
Preferred shares (3,063) (3,063)
Common shares (89,384) (89,384)
Treasury shares acquired (40,730) (40,730) (1,325,085)
Issued:
Employee stock purchase plan 433 138 295 18,561
Long-term incentive plan 5,666 63 5,696 (93) 264,150
NIFL acquisition 30,172 6,655 23,517 1,112,862
Other 908 1,443 (535)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1993 $1,094,672 $870,930 $27,631 $380,888 $(180,212) $(1,684) $(2,881) 73,892,109 (8,063,271)
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
Net income 163,987 163,987
Dividends:
Preferred shares (3,063) (3,063)
Common shares (94,803) (94,803)
Treasury shares acquired (58,717) (58,717) (2,002,586)
Issued:
Employee stock purchase plan 598 293 305 19,248
Long-term incentive plan 1,449 31 1,431 (13) 59,889
Other 3,725 1,702 (81) 727 1,377
---------- -------- ------- -------- --------- ------- ------- ---------- ----------
BALANCE, DECEMBER 31, 1994 $1,107,848 $870,930 $29,657 $446,928 $(237,193) $ (970) $(1,504) 73,892,109 (9,986,720)
========== ======== ======= ======== ========= ======= ======= ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HOLDING COMPANY STRUCTURE
NIPSCO Industries, Inc. (Industries) is an Indiana corporation serving as the
holding company for a number of subsidiaries, including three public utility
operating companies: Northern Indiana Public Service Company (Northern Indiana),
Kokomo Gas and Fuel Company (Kokomo Gas) and Northern Indiana Fuel and Light
Company, Inc. (NIFL).
Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development), NIPSCO Energy Services, Inc. (Services), and NIPSCO
Capital Markets, Inc. (Capital Markets).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Industries, its
utility subsidiaries Northern Indiana, Kokomo Gas, NIFL and Crossroads Pipeline
Company, a wholly-owned subsidiary of Services (Utilities), and all non-utility
subsidiaries. Investments for which Industries has at least a 20% interest and
certain joint ventures are accounted for under the equity method of accounting.
Investments with less than a 20% interest are accounted for under the cost
method of accounting. The operating results of the non-utility subsidiaries are
included in "Other, net" under the caption "Other Income (Deductions)" in the
Consolidated Statement of Income. Interest on long-term debt, other interest,
and amortization of debt discount and expense are reflected as a component of
"Interest and Other Charges." All significant intercompany items have been
eliminated in consolidation. Certain reclassifications were made to conform the
prior years' financial statements to the current presentation.
OPERATING REVENUES
Revenues are recorded based on estimated service rendered but are billed to
customers monthly on a cycle basis.
DEPRECIATION AND MAINTENANCE
Northern Indiana provides depreciation on a straight-line method over the
remaining service lives of the electric, gas and common properties. The
provisions as a percentage of the cost of depreciable utility plant were
approximately 4.0% for years 1994, 1993 and 1992. The depreciation rates for
electric and gas properties were 3.55% and 4.92%, respectively.
Kokomo Gas provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 3.2% for the years
1994, 1993 and 1992.
NIFL provides depreciation on the original cost of utility plant in
service using straight-line rates that averaged approximately 2.75%.
The Utilities follow the practice of charging maintenance and repairs,
including the cost of renewals of minor items of property, to maintenance
expense accounts, except for repairs of transportation and service equipment
which
51
are charged to clearing accounts and redistributed to operating expense and
other accounts. When property which represents a retirement unit is replaced or
removed, the cost of such property is credited to utility plant, and such cost,
together with the cost of removal less salvage, is charged to the accumulated
provision for depreciation.
COAL RESERVES
Northern Indiana has a long-term mining contract to mine its coal reserves
through the year 2001. The costs of these reserves are being recovered through
the rate making process as such coal reserves are used to produce electricity.
OIL AND NATURAL GAS ACCOUNTING
NIPSCO Fuel Company, Inc., a wholly-owned subsidiary of Services uses the full-
cost method of accounting for its oil and natural gas production activities.
Under this method all costs incurred in the acquisition, exploration and
development of oil and natural gas properties are capitalized and amortized on
the units-of-production basis.
POWER PURCHASED
Power purchases and net interchange power with other electric utilities under
interconnection agreements are included in Cost of Energy under the caption
"Power purchased."
ACCOUNTS RECEIVABLE
At December 31, 1994, Northern Indiana had sold $100 million of certain of its
accounts receivable under a sales agreement which expires May 31, 1997.
STATEMENT OF CASH FLOWS
For the purposes of the Consolidated Statement of Cash Flows, Industries
considers temporary cash investments with an original maturity of three months
or less to be cash equivalents.
Cash paid during the periods reported for income taxes and interest was as
follows:
1994 1993 1992
-------- ------- -------
(Dollars in thousands)
Income taxes $121,485 $93,155 $65,532
Interest, net of amounts capitalized $ 82,738 $88,353 $96,909
FUEL ADJUSTMENT CLAUSE
All metered electric rates contain a provision for adjustment in charges for
electric energy to reflect increases and decreases in the cost of fuel and the
fuel cost of purchased power through operation of a fuel adjustment clause. As
prescribed by order of the Indiana Utility Regulatory Commission (Commission)
applicable to metered retail rates, the adjustment factor has been calculated
based on the estimated cost of fuel and the fuel cost of purchased power in a
future three-month period. If two statutory requirements relating to expense and
return levels are satisfied, any under or overrecovery caused by variances
between estimated and actual cost in a given three-month period will be included
in a future filing. Northern Indiana records any under or overrecovery as a
current asset or current liability until such time as it is billed or refunded
to its customers. The fuel adjustment factor is subject to a quarterly hearing
by the Commission and remains in effect for a three-month period.
GAS COST ADJUSTMENT CLAUSE
All metered gas rates contain an adjustment factor which reflects the cost of
purchased gas, contracted gas storage and storage transportation charges. The
Utilities record any under or overrecovery as a current asset or current
liability until such time as it is billed or refunded to their customers. The
gas cost adjustment factor for Northern Indiana is subject to a quarterly
hearing by the Commission and remains in effect for a three-month period. The
gas cost adjustment factors for Kokomo Gas and NIFL are subject to a semi-annual
hearing by the Commission and remain in effect for a six-month period. If the
statutory requirement relating to the level of return is satisfied, any under or
overrecovery caused by variances between estimated and actual cost in a given
three or six month period will be included in a future filing. See Rate Matters
(Take-or-Pay Pipeline Gas Costs) and (FERC Order No. 636) for a discussion of
take-or-pay charges and gas transition cost charges.
NATURAL GAS IN STORAGE
Based on the average cost of gas purchased in December, 1994 and 1993, the
estimated replacement cost of gas in storage (current and non-current) at
December 31, 1994 and 1993, exceeded the stated LIFO cost by approximately $38
million and $55 million, respectively.
REGULATORY ASSETS
The Utilities' operations are subject to the regulation of the Commission and
the Federal Energy Regulatory Commission (FERC). Accordingly, the Utilities'
accounting policies are subject to the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71 "Accounting for the Effects of Certain Types
of Regulation." The regulatory assets below represent probable future revenue to
the Utilities associated with certain incurred costs as these costs are
recovered through the rate making process. Regulatory assets were comprised of
the following items, and were reflected in the Consolidated Balance Sheet as
follows:
December 31, December 31,
1994 1993
------------ ------------
(Dollars in Thousands)
Unamortized reacquisition premium on debt
(see long-term Debt note) $ 54,265 $ 48,033
Unamortized R. M. Schahfer Unit 17 and
Unit 18 carrying charges and deferred
depreciation (See below) 74,981 79,198
Bailly scrubber carrying charges and deferred
depreciation (See below) 7,864 4,711
Deferral of SFAS No. 106 expense not recovered
(See Postretirement Benefits note) 43,939 22,410
FERC Order No. 636 transition costs (See Rate
Matters--FERC Order No. 636 note) 14,400 23,376
-------- --------
$195,449 $177,728
======== ========
CARRYING CHARGES AND DEFERRED DEPRECIATION
Upon completion of R. M. Schahfer Units 17 and 18, Northern Indiana capitalized
the carrying charges and deferred depreciation in accordance with orders of the
Commission until the cost of each unit was allowed in rates. Such carrying
charges and deferred depreciation are being amortized over the remaining life of
each unit.
52
Northern Indiana began capitalizing carrying charges and deferring
depreciation and certain operating expenses relating to its scrubber service
agreement upon completion of the flue gas desulfurization plant in June, 1992,
at Northern Indiana's Bailly Generating Station in accordance with an order of
the Commission. Capitalization of carrying charges and deferral of depreciation
and certain operating expenses will continue until the earlier of December 31,
1995, or the date a final order considering the costs in rates is approved by
the Commission.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction (AFUDC) is charged to construction
work in progress during the period of construction and represents the net cost
of borrowed funds used for construction purposes and a reasonable rate upon
other (equity) funds. Under established regulatory rate practices, after the
construction project is placed in service, Northern Indiana is permitted to
include in the rates charged for utility services (a) a fair return on and (b)
depreciation of such AFUDC included in plant in service.
At January 1, 1992, a pretax rate of 4.0% for all construction was
being used; effective January 1, 1993, the rate decreased to 3.7% and effective
January 1, 1994, the rate increased to 5.0%.
FOREIGN CURRENCY TRANSLATION
Translation gains or losses are based upon the end-of-period exchange rate and
are recorded as a separate component of shareholders' equity.
INCOME TAXES
Deferred income taxes are recognized as costs in the rate making process by the
commissions having jurisdiction over the rates charged by the Utilities.
Deferred income taxes are provided as a result of provisions in the income tax
law that either require or permit certain items to be reported on the income tax
return in a different period than they are reported in the financial statements.
These taxes are reversed by a debit or credit to deferred income tax expense as
the temporary differences reverse. Investment tax credits have been deferred and
are being amortized to income over the life of the related property.
For additional information relating to income taxes, including
information related to Industries' adoption of SFAS No. 109 effective January 1,
1993, which requires an asset and liability approach to accounting for income
taxes, see Income Taxes.
PENDING TAX MATTER
On August 1, 1991, the Internal Revenue Service (IRS) issued a notice of
deficiency for Northern Indiana's taxes for the years 1982 through 1985
($3,785,250 per year plus interest) relating to interest payments on $70 million
of 17-1/4% Notes issued in 1981 by Northern Indiana's former foreign subsidiary,
Northern Indiana Public Service Finance N.V. (Finance). The IRS believes that
interest paid on the Notes should have been subject to United States tax
withholding. The Notes were redeemed in 1985 and Finance was subsequently
liquidated. On October 25, 1991, Northern Indiana filed its petition challenging
the assessment in the United States Tax Court. The matter was tried on May 31
and June 1, 1994, and briefing was completed September 30, 1994. Northern
Indiana estimates that the IRS' claim approximates $45 million of principal and
interest at December 31, 1994. Northern Indiana's management and general counsel
believe Northern Indiana will be successful in establishing that no tax
withholding was required for the period.
ACQUISITION OF NIFL
On March 31, 1993, Industries acquired NIFL. Industries issued 1,112,862 common
shares and $26,311 cash in exchange for all of the common shares of NIFL. The
acquisition was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16. The excess of the total acquisition costs over
the recorded value of net assets acquired (approximately $18 million) was
recorded as a plant acquisition adjustment.
RATE MATTERS
Take-or-Pay Pipeline Gas Costs
The FERC has allowed certain interstate pipeline suppliers to pass on to their
customers a portion of costs for contracted gas not purchased (take-or-pay),
contract reformation and associated interest charges through direct billing to
their customers, including the Utilities.
Northern Indiana records take-or-pay costs as they are billed by the
respective pipeline, and in an order dated September 28, 1988, the Commission
allowed Northern Indiana to recover these additional gas costs on a volumetric
basis from all customers, including transport customers. The Utilities have
recovered approximately $192.1 million of take-or-pay costs and interest from
their customers through December 31, 1994. As of December 31, 1994, an
additional $6.6 million was scheduled to be billed to the Utilities and
recovered from customers over a period of one to four years.
FERC ORDER NO. 636
On April 8, 1992, the FERC issued its Order No. 636 which required interstate
pipelines to restructure their services. Under the Order, existing pipeline
sales services have been "unbundled" such that gas supplies are being sold
separately from interstate transportation services. The Utilities' interstate
pipeline suppliers have filed new tariffs with the FERC to implement Order No.
636, and the Utilities have contracted for a mix of transportation and storage
services which will allow them to meet the needs of their customers. Customers,
such as the Utilities, are expected to benefit from enhanced access to
competitively priced gas supplies as well as from more flexible transportation
services. Pipelines are seeking to recover from their customers certain
transition costs associated with restructuring under the Order No. 636
regulation. Any such recovery is subject to established review procedures at the
FERC. Also, mandated changes in pipeline rate design could increase the cost of
firm transportation service on interstate pipelines. All interstate pipelines
are now operating under Order No. 636 regulation.
The Utilities' pipeline suppliers have made certain filings with the
FERC to begin collecting their respective transition costs. The Utilities expect
that the total transition costs from all suppliers will approximate $96-$107
million. However, the ultimate level of costs will depend on future events,
including the market price of natural gas. Approximately $61 million of such
costs have been recorded, a portion of which has been paid to the pipeline
suppliers, subject to refund. On November 2, 1994, the
53
Commission issued an order which approved the recovery of these FERC-allowed
transition costs on a volumetric basis from Northern Indiana's sales and
transportation customers (which is consistent with what the Commission
authorized for the recovery of take-or-pay pipeline gas costs). Certain
industrial customers have appealed the November 2, 1994, order to the Indiana
Court of Appeals. Regulatory assets, in amounts corresponding to the costs
recorded, have been recorded to reflect the ultimate recovery of these costs.
ENVIRONMENTAL MATTERS
Because of major investments made in modern environmental control facilities and
the use of low sulfur coal, all of Northern Indiana's electric production
facilities now comply with the sulfur dioxide limitations contained in acid
deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern
Indiana estimates that total costs of compliance with the CAAA sulfur dioxide
regulations will impact electric rates by less than 5% in the future.
The CAAA contain provisions that could lead to limitations on
emissions of nitrogen oxides and hazardous air pollutants, which may require
significant capital expenditures for control of these emissions. Northern
Indiana is evaluating a nitrogen oxide control program to meet future
requirements. Northern Indiana cannot predict the costs of complying with CAAA
requirements, but Northern Indiana believes that any such mandated costs would
be recoverable through the rate making process.
The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste. It is the Utilities' intent to
continue to evaluate their facilities and properties with respect to these rules
and identify any sites that would require corrective action.
Northern Indiana has received notices from the Environmental
Protection Agency (EPA) that it is a "potentially responsible party" (PRP) under
the Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
and the Superfund Amendment and Reauthorization Act (SARA) and may be required
to share in the cost of cleanup of several waste disposal sites identified by
the EPA. The sites are in various stages of investigation, analysis, and
remediation. At each of the sites, Northern Indiana is one of several PRPs, and
it is expected that remedial costs, as provided under CERCLA and SARA, will be
shared among them. At some sites Northern Indiana and/or the other named PRPs
are presently working with the EPA to clean up the site and avoid the imposition
of fines or added costs. While all of the remedial costs at these sites are not
determinable, Northern Indiana's analysis indicates its share of such costs with
other PRPs should not have a significant impact on its financial position or the
results of future operations.
The Utilities have instituted a program to investigate former
manufactured gas plants where one of them is the current or former owner. The
Utilities have identified twenty-seven of these sites and made visual
inspections of these sites. The Utilities have conducted initial samplings at
eight sites. Follow-up investigations have been conducted at three sites and
potential remedial measures are being evaluated. The Utilities will continue
their program to assess sites during 1995. During the follow-up investigation of
the former manufactured gas plant in Elkhart, Indiana, Northern Indiana noted
the presence of hydrocarbons in the Elkhart River. Northern Indiana reported
this finding to the Indiana Department of Environmental Management (IDEM) and
the EPA. Northern Indiana is evaluating this site to determine what remedial
measures, if any, may be needed.
Northern Indiana was notified by IDEM of the release of a petroleum
substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a
former manufactured gas plant formerly owned by Northern Indiana. In cooperation
with IDEM, Northern Indiana has taken steps to investigate and contain the
substance. Northern Indiana has remediated part of the Fort Wayne site. The
remainder of the site is being evaluated to determine what further remedial
measures, if any, may be needed.
Northern Indiana was notified by Indiana Gas Company, Inc. (Indiana
Gas) that the site of a former manufactured gas plant in Lafayette, Indiana,
formerly owned by Northern Indiana, was being investigated and partially
remediated by Indiana Gas pursuant to an administrative order issued by IDEM.
Northern Indiana is investigating its potential liability and evaluating
appropriate action.
The possibility that exposure to electric and magnetic fields
emanating from power lines, household appliances and other electric sources may
result in adverse health effects has been the subject of increased public,
governmental and media attention. A considerable amount of scientific research
has been conducted on this topic without definitive results. Research is
continuing to resolve scientific uncertainties.
INCOME TAXES
Effective January 1, 1993, Industries adopted SFAS No. 109, "Accounting for
Income Taxes," which requires the use of the liability method of accounting for
income taxes. Under the liability method, deferred income taxes are recognized,
at currently enacted income tax rates, to reflect the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities.
To implement SFAS No. 109, certain adjustments were made to deferred
income taxes. To the extent such income taxes are recoverable or payable through
future rates, regulatory assets and liabilities have been recorded in the
Consolidated Balance Sheet. These adjustments include the amounts reflecting the
Utilities' obligation to credit to ratepayers deferred income taxes provided at
rates higher than the current federal tax rate which are currently being
credited to ratepayers using the average rate assumption method required by the
Tax Reform Act of 1986 and the Commission. The initial application of this
statement was reflected in the January 1, 1993, Consolidated Balance Sheet, with
no impact on results of operations or cash flow. The Consolidated Balance Sheet
at December 31, 1994 and 1993 reflects a net regulatory income tax liability of
$18.6 million and $25.4 million, respectively. The net regulatory income tax
liability is derived from regulatory assets primarily attributable to
undepreciated AFUDC-equity and the cumulative net amount of other income tax
timing differences for which deferred taxes had not been provided in the past,
when regulators did not recognize such taxes as costs in the rate making
process, and regulatory liabilities
54
primarily attributable to deferred taxes provided at rates in excess of the
current statutory rate, as discussed above, and unamortized deferred investment
tax credits.
The components of the net deferred income tax liability at December
31, 1994, and 1993, are as follows:
1994 1993
---------- ---------
(Dollars in thousands)
Deferred tax liabilities--
Accelerated depreciation and other property differences $ 691,319 $677,493
AFUDC-equity 42,447 44,863
Adjustment clauses 10,596 16,876
Take-or-pay gas costs 2,045 4,234
Other regulatory assets 22,125 17,364
Reacquisition premium on debt 20,580 18,216
Deferred tax assets--
Deferred investment tax credits (46,703) (49,174)
Removal costs (105,671) (93,279)
FERC Order No. 636 transition costs (5,461) (7,111)
Other postretirement benefits (22,712) (8,958)
Regulatory income tax liability (7,054) (9,582)
Other, net (20,231) (23,424)
--------- --------
581,280 587,518
Less: Deferred income taxes related to current
assets and liabilities 5,957 11,447
--------- --------
Deferred income taxes--noncurrent $ 575,323 $576,071
========= ========
Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:
1994 1993 1992
-------- --------- --------
(Dollars in thousands)
Current income taxes--
Federal $100,321 $ 89,022 $ 61,557
State 15,398 13,132 11,700
-------- --------- --------
115,719 102,154 73,257
-------- --------- --------
Deferred income taxes, net--Federal and State--
Accelerated depreciation and other property differences 8,328 13,211 11,078
Removal costs (12,093) (8,760) (11,352)
Adjustment clauses (17,025) (2,466) 14,086
FERC Order No. 636 transition costs 11,393 -- --
Minimum tax credit deferral -- -- 9,798
Take-or-pay gas costs (2,189) (5,799) (2,403)
Reacquisition premium on debt 2,787 2,824 (904)
Other (2,689) 3,112 (5,800)
-------- --------- --------
(11,488) 2,122 14,503
-------- --------- --------
Deferred investment tax credits, net (6,499) (7,446) (7,452)
-------- --------- --------
Total utility operating income taxes 97,732 96,830 80,308
Income tax applicable to non-operating
activities and income of non-utility
subsidiaries (16,333) (5,537) (3,324)
-------- --------- --------
Total income taxes $ 81,399 $ 91,293 $ 76,984
======== ========= ========
A reconciliation of total tax expense to an amount computed by
applying the statutory federal income tax rate to pretax income is as follows:
1994 1993 1992
-------- --------- --------
(Dollars in thousands)
Net Income $163,987 $ 156,140 $136,648
Add--Income taxes 81,399 91,293 76,984
Dividend requirements on preferred stocks of subsidiary 9,913 10,341 10,658
-------- --------- --------
Income before preferred dividend
requirements of subsidiary and income taxes $255,299 $ 257,774 $224,290
======== ========= ========
Amount derived by multiplying pretax income by statutory rate $ 89,355 $ 90,221 $ 76,259
Reconciling items multiplied by the statutory rate:
Book depreciation over related tax depreciation 4,044 3,893 4,359
Amortization of deferred investment tax credits (7,466) (7,446) (7,452)
State income taxes, net of federal income tax benefit 8,835 8,568 8,006
Fair market value of property donated in excess of book value (7,753) -- --
Reversal of deferred taxes provided
at rates in excess of the current federal income tax rate (5,807) (5,080) (5,468)
Other, net 191 1,137 1,280
-------- --------- --------
Total income taxes $ 81,399 $ 91,293 $ 76,984
======== ========= ========
55
PENSION PLANS
Industries and its subsidiaries have three noncontributory, defined benefit
retirement plans covering substantially all employees. Benefits under the plans
reflect the employees' compensation, years of service and age at retirement.
The plans' funded status as of December 31, 1994, and 1993, are as
follows:
1994 1993
--------- --------
(Dollars in thousands)
Vested benefit obligation $449,043 $481,755
Nonvested benefit 97,138 86,373
-------- --------
Accumulated benefit obligation $546,181 $568,128
======== ========
Projected benefit obligation for service rendered to date $613,094 $657,068
Plan assets at fair market value 571,624 605,379
-------- --------
Projected benefit obligation in excess of plan assets 41,470 51,689
Unrecognized transition obligation at December 31, being recognized over 17 years (48,906) (54,055)
Unrecognized prior service cost (29,847) (31,464)
Unrecognized gains 47,788 51,154
-------- --------
Accrued pension costs $ 10,505 $ 17,324
======== ========
The accumulated benefit obligation is the present value of future
pension benefit payments and is based on the plan benefit formula without
considering expected future salary increases. The projected benefit obligation
considers estimated future salary increases. Discount rates of 8.75% and 7.50%
and rates of increase in compensation levels of 5.5% were used to determine the
accumulated benefit obligation and projected benefit obligation at December 31,
1994, and 1993, respectively. The decrease in the accumulated benefit obligation
as of December 31, 1994, is mainly caused by the increase in the discount rate
to 8.75% and was partially offset by changes in other plan assumptions.
The following items are the components of provisions for pensions for
the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
-------- -------- --------
(Dollars in thousands)
Service costs $ 14,099 $ 13,086 $ 13,277
Interest costs 48,058 46,019 43,408
Actual loss (return) on plan assets 15,077 (81,150) (41,796)
Amortization of transition obligation 5,422 5,387 5,437
Other net amortization and deferral (61,422) 39,567 1,599
-------- -------- --------
$ 21,234 $ 22,909 $ 21,925
======== ======== ========
Assumptions used in the valuation and determination of 1994, 1993 and
1992 pension expenses were as follows:
1994 1993 1992
----- ----- -----
Discount rate 7.50% 7.75% 7.50%
Rate of increase in compensation levels 5.50% 5.50% 6.00%
Expected long-term rate of return on assets 8.25% 8.25% 8.25%
The plans' assets are invested primarily in common stocks, bonds and
notes.
POSTRETIREMENT BENEFITS
Industries provides certain health care and life insurance benefits for retired
employees. Substantially all of Industries employees may become eligible for
those benefits if they reach retirement age while working for Industries. Those
and similar benefits for active employees are provided through insurance plans
whose premiums are based on the benefits to active employees and retirees paid
during the year. Prior to January 1, 1993, the Utilities recognized the cost of
providing those benefits by expensing insurance premiums, which is consistent
with current rate making practices. The annual cost of providing those benefits
for retirees and/or their surviving spouses was $6.3 million for the year ended
December 31, 1992.
Effective January 1, 1993, Industries adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which establishes accounting and reporting
standards for such postretirement benefits. This standard requires the accrual
of the expected cost of such benefits during the employee's years of service.
The assumptions and calculations involved in determining the accrual closely
parallel pension accounting requirements.
The following table sets forth the plans' accumulated postretirement
benefit obligation as of December 31, 1994, and 1993:
1994 1993
---------- ----------
(Dollars in thousands)
Retirees $ 96,676 $ 89,650
Fully eligible active plan participants 20,008 30,501
Other active plan participants 105,991 150,215
--------- ---------
Accumulated postretirement benefit obligation 222,675 270,366
Unrecognized transition obligation at December 31 being recognized
over 20 years (208,681) (220,274)
Unrecognized actuarial gain (loss) 45,496 (20,737)
--------- ---------
Accrued liability for postretirement health care benefit obligation $ 59,490 $ 29,355
========= =========
56
A discount rate of 8.75% and a pre-Medicare medical trend rate of 11%
declining to a long-term rate of 7% and a discount rate of 7.5% and a pre-
Medicare medical trend rate of 12% declining to a long-term rate of 7% were used
to determine the accumulated postretirement benefit obligation at December 31,
1994, and 1993, respectively.
The transition obligation at January 1, 1993, for accumulated
postretirement benefits earned and not recognized is being amortized over twenty
years as allowed by SFAS No. 106.
Net periodic postretirement benefit costs for the year ended December
31, 1994, and 1993 include the following components:
1994 1993
---------- ----------
(Dollars in thousands)
Service costs $ 8,272 $ 6,863
Interest costs 19,945 18,224
Amortization of transition obligation over 20 years 11,593 11,594
------- -------
$39,810 $36,681
======= =======
The net periodic postretirement benefit costs for 1994 were determined
assuming a 7.5% discount rate, a 5% rate of compensation increase and a pre-
Medicare medical trend rate of 12% declining to a long-term rate of 7%. The net
periodic postretirement benefit costs for 1993 were determined assuming an 8%
discount rate, a 5% rate of compensation increase and a pre-Medicare medical
trend rate of 12% declining to a long-term rate of 7%. The effect of a 1%
increase in the assumed health care cost trend rates for each future year would
increase the accumulated postretirement benefit obligation at December 31, 1994,
by approximately $32.0 million and increase the aggregate of the service and
interest cost components of plan costs by approximately $4.8 million for the
year ended December 31, 1994. Amounts disclosed above could be changed
significantly in the future by changes in health care costs, work force
demographics, interest rates or plan changes.
On December 30, 1992, the Commission authorized the accrual method of
accounting for postretirement benefits for rate making purposes and authorized
the deferral, as a regulatory asset to be recovered through future revenues, of
the net increase in cost until such time as the new accrual cost method may be
reflected in the rate making process in the next general rate proceeding. The
Commission stated that a deferral period of four years or less would be
rebuttably presumed to be reasonable and also indicated each utility would have
to demonstrate its postretirement benefit costs were prudent and reasonably
incurred at the time such costs were proposed to be recovered in the rate making
process. Northern Indiana expects to request recovery of such costs within that
period. In addition, while the Commission stated it was hopeful something less
than full accrual of such costs in rates would be possible under generally
accepted accounting principles, Northern Indiana believes the Commission
recognizes the full accrual of such postretirement benefits may be required in
future rate proceedings in order to avoid any negative impact on a utility's
earnings. Northern Indiana is deferring as a regulatory asset the difference
between the amount that would have been charged to expense under pay-as-you-go
accounting and the amount accrued in accordance with the new standard.
Accordingly, Northern Indiana believes SFAS No. 106 will not have a material
effect on future results of operations.
POSTEMPLOYMENT BENEFITS
In November, 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which requires Industries to accrue the estimated cost
of benefits provided to former or inactive employees after employment but before
retirement. Industries adopted SFAS No. 112 effective January 1, 1994, and its
adoption did not have a material impact on financial position or results of
operation.
PREFERRED AND PREFERENCE STOCKS
Industries is authorized to issue 20,000,000 shares of Preferred Stock, without
par value. Effective March 2, 1990, 2,000,000 shares of the Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to the
Share Purchase Rights Plan described in Common Shares. In November, 1990,
Industries issued and sold 350,000 shares of 8.75% Series Cumulative Preferred
Shares through a private placement for $35 million. The shares are subject to
mandatory redemption in whole by Industries on January 14, 1996.
The authorized classes of par value and no par value cumulative
preferred and preference stocks of Northern Indiana are as follows:
Cumulative Preferred--$100 par value--2,400,000 shares; Cumulative
Preferred--no par value--3,000,000 shares; Cumulative Preference--$50 par value-
-2,000,000 shares (none outstanding); and Cumulative Preference--no par value--
3,000,000 shares (none issued). On October 13, 1992, Northern Indiana issued and
sold through an underwritten public offering 430,000 shares of 6.50% Series
Cumulative Preferred Stock for $43 million. The shares are subject to mandatory
redemption in whole by Northern Indiana on October 14, 2002. On October 15,
1992, Northern Indiana redeemed all outstanding shares of the 12.55% Series
Preferred Stock at $105.94 per share.
The Preferred shareholders of Industries and Northern Indiana have no
voting rights except in the event of default on the payment of four consecutive
quarterly dividends, or as required by Indiana law to authorize additional
preferred shares, or by the Articles of Incorporation in the event of certain
merger transactions.
57
The redemption prices at December 31, 1994, for the cumulative
preferred stock, which are redeemable solely at the option of Northern Indiana,
in whole or in part, at any time upon 30 days' notice, are as follows:
Series Redemption Price Per Share
-------- --------------------------
Cumulative Preferred Stock--$100 par value-- 4 1/4% $101.20
4 1/2% $100.00
4.22% $101.60
4.88% $102.00
7.44% $101.00
7.50% $101.00
Cumulative Preferred Stock--no par value--Adjustable Rate
(6.00% at December 31, 1994), Series A (stated value $50 per share) $ 50.00
The redemption prices at December 31, 1994, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana are
as follows:
Series Redemption Price Per Share Annual Sinking Fund Provisions
------ -------------------------- ------------------------------
Cumulative Preferred Stock--$100 par value--
8.85% $102.22, reduced periodically 12,500 shares on or before April 1.
8.35% $104.43, reduced periodically 3,000 shares on or before July 1; 6,000 shares beginning in
2004; noncumulative option to double amount each year.
7-3/4% $104.76, reduced periodically 2,777 shares on or before December 1; noncumulative option
to double amount each year.
Sinking fund requirements with respect to redeemable preferred stocks
outstanding at December 31, 1994, for each of the four years subsequent to
December 31, 1995, are as follows:
Year Ending December 31,
--------------------------
1996 $36,827,700
1997 $ 1,827,700
1998 $ 1,827,700
1999 $ 1,827,700
COMMON SHARE DIVIDEND
During the next few years, Industries expects that the great majority of
earnings available for distribution of dividends will depend upon dividends paid
to Industries by Northern Indiana. Northern Indiana's Indenture provides that it
will not declare or pay any dividends on any class of capital stock (other than
preferred or preference stock) except out of earned surplus or net profits of
Northern Indiana. At December 31, 1994, Northern Indiana had approximately
$145.3 million of retained earnings (earned surplus) available for the payment
of dividends. Future dividends will depend upon adequate retained earnings,
adequate future earnings and the absence of adverse developments.
COMMON SHARES
Industries has 200,000,000 common shares authorized without par value.
SHARE PURCHASE RIGHTS PLAN
On February 27, 1990, the Board of Directors of Industries declared a dividend
distribution of one Right for each outstanding common share of Industries to
shareholders of record on March 12, 1990. The Rights are not currently
exercisable. Each Right, when exercisable, would initially entitle the holder to
purchase from Industries one one-hundredth of a share of Series A Junior
Participating Preferred Shares, without par value, of Industries at a price of
$60 per one one-hundredth of a share. In certain circumstances, if an acquirer
obtained 25% of Industries' outstanding shares, or merged into Industries or
Industries into the acquirer, the Rights would entitle the holders to purchase
Industries' or the acquirer's common shares for one-half of the market price.
The Rights will not dilute Industries' common shares nor affect earnings per
share unless they become exercisable for common shares. The Plan was not adopted
in response to any specific attempt to acquire control of Industries.
COMMON SHARE REPURCHASES
The Board of Directors of Industries has authorized the repurchase of
approximately 14.6 million common shares in addition to those required in
connection with the acquisitions of Kokomo Gas and NIFL. At December 31, 1994,
Industries had purchased approximately 13.9 million shares at an average price
of $22.76 per share of which 1,848,588 shares and 1,112,862 shares were reissued
in connection with the Kokomo Gas and NIFL acquisitions, respectively.
Approximately 3.6 million additional common shares may be repurchased under the
Board's authorization.
LONG-TERM INCENTIVE PLAN
Industries Long-Term Incentive Plan (the 1988 Plan) for key management
employees, which was approved by shareholders on April 13, 1988, provides for
the issuance of up to 2.5 million of Industries' common shares to key employees
through 1998. At December 31, 1994, there were 508,361 shares reserved for
future awards under the 1988 Plan. On April 13, 1994, shareholders adopted
Industries' 1994 Long-Term Incentive Plan (1994 Plan). It is similar to the 1988
plan and provides an additional 2.5 million common shares available for issuance
to key employees through 2004. No awards have been
58
issued under the 1994 Plan. The 1988 Plan and 1994 Plan permit the following
types of grants, separately or in combination: nonqualified stock options,
incentive stock options, restricted stock awards, stock appreciation rights and
performance units. No incentive stock options or performance units were
outstanding at December 31, 1994.
The stock appreciation rights (SARs) may be exercised only in tandem
with stock options on a one-for-one basis and are payable in cash, Industries
stock or a combination thereof. Restricted stock awards are restricted as to
transfer and subject to forfeiture for specific periods from the date of grant.
Restrictions on the shares awarded during 1990 and 1991 lapse five years from
date of grant and vest subject to specific share price appreciation conditions.
If a participant's employment is terminated other than by reason of death,
disability or retirement, restricted shares are forfeited. There were 214,000,
157,500 and 150,500 restricted shares outstanding at December 31, 1992, 1993,
and 1994, respectively.
Changes in outstanding shares under option and SARs for 1992, 1993
and 1994, are as follows:
Nonqualified Nonqualified Stock
Stock Options Options With SARs
------------------------- ------------------
Option Option
Year Ended December 31, 1992 Options Price Options Price
------------------------------ --------- ------------- --------- ------
Balance at beginning of year 770,325 $10.94-$22.94 39,000 $10.94
Granted 293,400 $26.06 --
Exercised (163,375) $10.94-$22.94 (27,500) $10.94
Cancelled (31,200) $10.94-$22.94 --
--------- ---------
Balance at end of year 869,150 $10.94-$26.06 11,500 $10.94
========= =========
Shares exercisable 575,750 $10.94-$22.94 11,500 $10.94
Option Option
Year Ended December 31, 1993 Options Price Options Price
------------------------------ --------- ------------- --------- ------
Balance at beginning of year 869,150 $10.94-$26.06 11,500 $10.94
Granted 288,500 $33.19 --
Exercised (261,150) $10.94-$26.06 --
Cancelled (5,700) $26.06 (1,600) $10.94
--------- ---------
Balance at end of year 890,800 $10.94-$33.19 9,900 $10.94
========= =========
Shares exercisable 602,300 $10.94-$26.06 9,900 $10.94
Option Option
Year Ended December 31, 1994 Options Price Options Price
------------------------------ --------- ------------- --------- ------
Balance at beginning of year 890,800 $10.94-$33.19 9,900 $10.94
Granted 294,650 $28.75 --
Exercised (61,850) $10.94-$26.06 --
Cancelled (26,050) $28.75-$33.19 --
--------- ---------
Balance at end of year 1,097,550 $10.94-$33.19 9,900 $10.94
========= =========
Shares exercisable 807,150 $10.94-$33.19 9,900 $10.94
The Industries Nonemployee Director Stock Incentive Plan, which was
approved by shareholders, provides for the issuance of up to 100,000 of
Industries' common shares to nonemployee directors of Industries. The Plan
provides for awards of common shares which vest in 20% per year increments, with
full vesting after five years. The Plan also allows the award of nonqualified
stock options in the future. If a director's service on the Board is terminated
for any reason other than death or disability, any common shares not vested as
of the date of termination are forfeited. As of December 31, 1994, 24,750 shares
were issued under the Plan.
LONG-TERM DEBT
The sinking fund requirements of long-term debt outstanding at December 31, 1994
(including the maturity of Northern Indiana's first mortgage bonds: Series O,
6-3/8%, due September 1, 1997; Series P, 6-7/8%, due October 1, 1998; Northern
Indiana's medium-term notes due from April 6, 1998, to April 13, 1998: Capital
Markets' medium-term note due June 10, 1996, and Zero Coupon Notes due December
1, 1997; and Lake Erie Land Company's notes payable due July 5, 1996, to June
30, 1998), for each of the four years subsequent to December 31, 1995, are as
follows:
Year Ending December 31,
------------------------
1996 $ 96,953,346
1997 $ 74,301,620
1998 $130,563,435
1999 $ 8,812,861
Unamortized debt expense, premium and discount on long-term debt,
applicable to outstanding bonds are being amortized over the lives of such
bonds. Reacquisition premiums are being deferred and amortized.
Northern Indiana's Indenture, dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.
59
On June 2, 1993, Northern Indiana received authorization from the
Commission to issue up to $349,750,000 of Medium-Term Notes, Series C, due from
1 year to 30 years from date of issue for refinancing purposes and paying
outstanding long-term debt at maturity. A portion of the proceeds was used to
repay short-term debt which was incurred in connection with the April, 1993,
redemption of first mortgage bonds, and a portion was used for early redemption
on August 2, 1993, of $88 million of Northern Indiana's medium-term notes due in
1996. All of the Medium-Term Notes, Series C, have been issued.
On March 4, 1994, the Commission authorized Northern Indiana to issue
up to $289,275,000 of its Medium-Term Notes, Series D, due from 1 year to 30
years, for purposes of refinancing certain first mortgage bonds and paying
short-term debt used to pay at maturity medium-term notes due in January and
April, 1994. On May 23, 1994, Northern Indiana exercised its option to redeem
all the outstanding First Mortgage Bonds, Series S, Y and AA aggregating $125.5
million, through the use of working capital and the proceeds of short-term debt.
As of July 31, 1994, $120.0 million of the Medium-Term Notes, Series D, have
been issued to complete the permanent refinancing of those first mortgage bonds.
As of December 31, 1994, an additional $169,275,000 of Medium-Term Notes, Series
D, can be issued in the future.
On August 25, 1994, Jasper County, Indiana issued Pollution Control
Refunding Revenue Bonds, Series 1994 (Northern Indiana Public Service Company
Project) (the "Series 1994 Bonds"), including $10 million of Series 1994A Bonds,
due August 1, 2010; $18 million of Series 1994B Bonds, due June 1, 2013; and $41
million of Series 1994C Bonds, due April 1, 2019. The proceeds of these
issuances were loaned to Northern Indiana under similar terms. The initial
interest rate on Series 1994 Bonds was 3.10%, which resets daily. The proceeds
of the Series 1994A and Series 1994C were used to retire on October 15, 1994,
$10 million of Series MM First Mortgage Bonds, 7-1/2%, due October 15, 2004 and
$41 million of Series LL First Mortgage Bonds, 7-1/2%, due October 15, 2014.
The proceeds of the Series 1994B Bonds were used to retire the $18 million
Series 1978 Note, 6.70%, on August 25, 1994. The Series 1994 Bonds are secured
by Letters of Credit from Union Bank of Switzerland.
The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed to
make payments of interest and principal on Capital Markets' securities in the
event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana which are owned by Industries. Under
the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the assets
of Industries, other than the stock and assets of Northern Indiana, are
available as recourse to holders of Capital Markets' securities. The carrying
value of those assets other than Northern Indiana, reflected in the consolidated
financial statements of Industries, is approximately $320.2 million at December
31, 1994.
SHORT-TERM BORROWINGS
Northern Indiana has a $250 million revolving Credit Agreement with several
banks which terminates August 19, 1997, unless extended by its terms. As of
December 31, 1994, there were no borrowings outstanding under this agreement. In
addition, Northern Indiana has $14.2 million in lines of credit which run to May
31, 1995. The credit pricing of each of the lines varies from either the lending
banks' commercial prime or market rates. Northern Indiana has agreed to
compensate the participating banks with arrangements that vary from no
commitment fee to a combination of fees which are mutually satisfactory to both
parties. As of December 31, 1994, there were no borrowings under these lines of
credit. The Credit Agreement and lines of credit are also available to support
the issuances of commercial paper.
Northern Indiana also has $273.5 million of money market lines of
credit. As of December 31, 1994, $92.7 million of borrowings were outstanding
under these lines of credit.
Northern Indiana has a $50 million uncommitted finance facility. At
December 31, 1994, there were no borrowings outstanding under this facility.
On April 5, 1993, Northern Indiana executed a 364-day $50 million
private placement loan. The loan was repaid April 4, 1994.
Northern Indiana uses commercial paper to fund short-term working
capital requirements. As of December 31, 1994, Northern Indiana had $156.5
million in commercial paper outstanding, having a weighted average interest rate
of 6.13%.
Capital Markets has a $150 million revolving Credit Agreement which
terminates August 19, 1997, unless extended by its terms. This facility provides
short-term financing flexibility to Industries and also serves as the back-up
instrument for a commercial paper program. As of December 31, 1994, there were
no borrowings outstanding under this agreement.
Capital Markets also has $105 million of money market lines of credit.
As of December 31, 1994, $12.7 million of borrowings were outstanding under
these lines of credit.
As of December 31, 1994, Capital Markets had $49.6 million in
commercial paper outstanding, having a weighted average interest rate of 6.18%.
OPERATING LEASES
On April 1, 1990, Northern Indiana entered into a 20-year agreement for the
rental of office facilities from Development at a current annual rental payment
of approximately $3.1 million.
60
The following is a schedule, by years, of future minimum rental
payments, excluding those to associated companies, required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1994:
Year Ending December 31, (Dollars in thousands)
------------------------ ----------------------
1995 $ 5,160
1996 3,581
1997 3,319
1998 2,397
1999 1,776
Later years 22,851
-------
Total minimum payments required $39,084
=======
The consolidated financial statements include rental expense for all operating
leases as follows:
Year Ending December 31, (Dollars in thousands)
------------------------ ----------------------
1994 $7,890
1993 $7,251
1992 $5,182
COMMITMENTS
Northern Indiana estimates that approximately $774 million will be expended for
construction purposes for the period from January 1, 1995, to December 31, 1999.
Substantial commitments have been made by Northern Indiana in connection with
this program.
Northern Indiana has entered into a service agreement with Pure Air, a
general partnership between Air Products and Chemicals, Inc. and Mitsubishi
Heavy Industries America, Inc., under which Pure Air will provide scrubber
services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly
Generating Station. Services under this contract commenced on June 15, 1992,
with annual charges of approximately $20 million. The scrubber project will
receive $14.4 million in government funding for operating and maintenance
expenses during a three-year demonstration period. Pure Air is required to meet
certain performance standards during the demonstration period commencing with
the date above. During this period, either Northern Indiana or Pure Air can
terminate this agreement unilaterally. The agreement provides that, assuming
various performance standards are met by Pure Air, a termination payment would
be due if Northern Indiana terminates the agreement prior to the end of the
twenty-year contract period.
Harbor Coal Company (Harbor Coal), a wholly-owned subsidiary of
Development, has invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility which began commercial
operation in August, 1993. The facility receives raw coal, pulverizes it and
delivers it to Inland Steel Company for use in the operation of their blast
furnaces. Harbor Coal is a 50% partner in the project with an Inland Steel
affiliate. Industries has guaranteed the payment and performance of the
partnership's obligations under a sale and leaseback of a 50% undivided interest
in the facility.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Investments at cost: The fair value of some investments are estimated
based on market prices for those or similar investments.
Long-term debt/Preferred stock: The fair value of long-term debt and
preferred stock are estimated based on the quoted market prices for the same or
similar issues or on the rates offered to Industries for securities of the same
remaining maturities. Certain premium costs associated with the early settlement
of long-term debt are not taken into consideration in determining fair value.
The carrying values and estimated fair values of Industries' financial
instruments are as follows:
December 31, 1994 December 31, 1993
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(Dollars in thousands)
Cash and cash equivalents $ 40,441 $ 40,441 $ 16,140 $ 16,140
Investments at cost $ 10,355 $ 11,284 $ 6,189 $ 6,474
Long-term debt (including current
portion) $1,207,936 $1,102,019 $1,263,029 $1,267,728
Preferred stock $ 189,274 $ 156,591 $ 203,043 $ 185,368
The majority of the long-term debt relates to utility operations. The
Utilities are subject to regulation and gains or losses may be included in rates
over a prescribed amortization period, if in fact settled at amounts
approximating those above.
61
CUSTOMER CONCENTRATIONS
Northern Indiana is a public utility operating company supplying natural gas and
electrical energy in the northern third of Indiana. Although Northern Indiana
has a diversified base of residential and commercial customers, a substantial
portion of its electric and gas industrial deliveries are dependent upon the
basic steel industry. The following table shows the basic steel industry
percentage of gas revenue (including transportation services) and electric
revenue for 1994, 1993 and 1992.
Basic Steel Industry 1994 1993 1992
-------------------- ---- ---- ----
Gas revenue percent 3% 2% 4%
Electric revenue percent 26% 24% 25%
Quarterly Financial Data
The following data summarize certain operating results for each of the quarters
of 1994 and 1993:
1994 Quarters Ended March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(Dollars in thousands)
Operating revenues $565,551 $348,009 $334,598 $428,243
Operating expenses and taxes 473,595 300,512 281,548 359,597
-------- -------- -------- --------
Operating income 91,956 47,497 53,050 68,646
Other income and deductions, net (1,066) (1,855) (7) 5,144
Interest and other charges 25,849 24,164 24,508 24,857
-------- -------- -------- --------
Net income 65,041 21,478 28,535 48,933
Dividend requirements on preferred shares 766 765 766 766
-------- -------- -------- --------
Balance available for common shareholders $ 64,275 $ 20,713 $ 27,769 $ 48,167
======== ======== ======== ========
Earnings per average common share(a) $0.97 $0.31 $0.43 $0.75
===== ===== ===== =====
1993 Quarters Ended March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(Dollars in thousands)
Operating revenues $521,647 $348,795 $342,538 $464,892
Operating expenses and taxes 435,012 301,850 289,040 389,925
-------- -------- -------- --------
Operating income 86,635 46,945 53,498 74,967
Other income and deductions, net (864) (365) 172 (1,013)
Interest and other charges 27,213 24,922 26,377 25,323
-------- -------- -------- --------
Net income 58,558 21,658 27,293 48,631
Dividend requirements on preferred shares 766 765 766 766
-------- -------- -------- --------
Balance available for common shareholders $ 57,792 $ 20,893 $ 26,527 $ 47,865
======== ======== ======== ========
Earnings per average common share(a) $0.87 $0.31 $0.40 $0.72
===== ===== ===== =====
(a)Because of the combined mathematical effect of common shares repurchased and
issued and the cyclical nature of net income during the year, the sum of
earnings per share for any four quarterly periods may vary slightly from the
earnings per share for the equivalent twelve-month period.
62
SEGMENTS OF BUSINESS
Industries' primary business is the distribution of natural gas and electrical
energy. The reportable items for the gas and electric segments for the years
1994, 1993 and 1992 are as follows:(1)
1994 1993 1992
---- ---- ----
(Dollars in thousands)
Operating information--
Gas operations:
Operating revenues $ 681,909 $ 714,229 $ 666,221
Operating expenses, excluding provision
for utility income taxes 613,698 634,742 595,074
---------- ---------- ----------
Operating income before utility income taxes 68,211 79,487 71,147
Allowance for funds used during construction (AFUDC)
2,067 875 26
---------- ---------- ----------
Operating income before utility income
taxes and including AFUDC 70,278 80,362 71,173
---------- ---------- ----------
Electric operations:
Operating revenues 994,492 963,643 916,135
Operating expenses, excluding provision
for utility income taxes 703,822 684,255 660,757
---------- ---------- ----------
Operating income before utility income taxes 290,670 279,388 255,378
Allowance for funds used during construction (AFUDC) 2,307 573 547
---------- ---------- ----------
Operating income before utility
income taxes and including AFUDC 292,977 279,961 255,925
---------- ---------- ----------
Total 363,255 360,323 327,098
Other income, net 2,216 (2,071) 1,454
Less--interest and other charges 103,752 105,282 111,596
Less--provision for utility income taxes 97,732 96,830 80,308
---------- ---------- ----------
Net income per Consolidated Statement of Income 163,987 156,140 136,648
Dividend requirements on preferred shares 3,063 3,063 3,063
---------- ---------- ----------
Balance available for common shareholders $ 160,924 $ 153,077 $ 133,585
========== ========== ==========
Other information--
Depreciation and amortization expense:
Electric $ 135,203 $ 131,993 $ 130,811
Gas 59,080 55,007 51,906
---------- ---------- ----------
Total $ 194,283 $ 187,000 $ 182,717
========== ========== ==========
Utility construction expenditures:
Electric $ 145,095 $ 125,449 $ 126,648
Gas 55,491 55,403 45,681
---------- ---------- ----------
Total $ 200,586 $ 180,852 $ 172,329
========== ========== ==========
Investment information--
Identifiable assets(a):
Electric $2,594,976 $2,602,826 $2,644,133
Gas 921,693 900,146 818,384
---------- ---------- ----------
Total 3,516,669 3,502,972 3,462,517
Other corporate assets 427,874 409,352 345,424
---------- ---------- ----------
Total assets $3,944,543 $3,912,324 $3,807,941
========== ========== ==========
(a)Utility plant less accumulated provision for depreciation and amortization,
materials and supplies, electric production fuel, natural gas in storage, fuel
and gas cost adjustment clauses, unamortized R. M. Schahfer Units 17 and 18
carrying charges and deferred depreciation, gas supply exploration investments
and FERC Order No. 636 transition costs.
(1)NIFL is not included for the year 1992.
63
TO THE BOARD OF DIRECTORS OF NIPSCO INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheet and consolidated
statements of capitalization and long-term debt of NIPSCO Industries, Inc. (an
Indiana corporation) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
consolidated financial statements are the responsibility of Industries'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of NIPSCO
Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in the notes to consolidated financial statements,
effective January 1, 1993, NIPSCO Industries, Inc. and subsidiaries changed
their methods of accounting for income taxes and postretirement benefits other
than pensions.
Chicago, Illinois
January 27, 1995 Arthur Andersen LLP
64
SELECTED SUPPLEMENTAL INFORMATION
Gas Statistics(1)
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
Operating Revenues ($000's)
Residential (including home heating) $ 449,391 $ 452,176 $ 377,600
Commercial 152,400 157,235 127,203
Industrial 76,321 73,815 67,641
Gas transportation for others 32,207 32,503 40,086
Other* (28,410) (1,500) 53,691
----------- ----------- -----------
Total $ 681,909 $ 714,229 $ 666,221
=========== =========== ===========
Deliveries in dth (000's):
Residential (including home heating) 73,749 76,761 70,830
Commercial (including transportation) 32,654 29,754 27,280
Industrial (including transportation) 182,789 183,739 166,161
Other 17,983 793 838
----------- ----------- -----------
Total 307,175 291,047 265,109
=========== =========== ===========
Customers Served--End of Year:
Residential (including home heating) 636,601 626,492 592,201
Commercial 52,245 51,386 48,168
Industrial 4,218 4,270 3,901
Other 68 67 65
----------- ----------- -----------
Total 693,132 682,215 644,335
=========== =========== ===========
*Includes deferred gas cost revenue of $(43,460), $(10,375) and $46,005,
respectively.
(1)NIFL is not included in 1992 Gas Statistics.
ELECTRIC STATISTICS
Year Ended December 31, 1994 1993 1992
----------------------- ---- ---- ----
Operating Revenues ($000's):
Residential $ 259,708 $ 257,033 $ 240,680
Commercial 238,402 232,609 227,707
Industrial 449,623 413,485 397,859
Street lighting 8,363 8,254 8,085
Sales for resale 22,522 27,730 29,697
Other** 15,874 24,532 12,107
----------- ----------- -----------
Total $ 994,492 $ 963,643 $ 916,135
=========== =========== ===========
Sales in kilowatt-hours (000's):
Residential 2,552,430 2,552,837 2,343,303
Commercial 2,736,683 2,705,751 2,608,614
Industrial 9,542,109 8,855,106 8,188,605
Street lighting 55,438 54,741 52,609
Sales for resale 564,166 912,773 1,162,005
Other 85,568 83,959 77,975
----------- ----------- -----------
Total 15,536,394 15,165,167 14,433,111
=========== =========== ===========
Customers Served--End of Year:
Residential 355,658 350,964 346,356
Commercial 41,308 40,634 40,101
Industrial 2,672 2,686 2,695
Other 831 828 823
----------- ----------- -----------
Total 400,469 395,112 389,975
=========== =========== ===========
**Includes deferred fuel cost revenue of $(4,826), $4,813 and $(6,995),
respectively.
65
Year Ended December 31, 1994 1993 1992
----------- ----------- -----------
Operating Revenues
Gas ($000's) $ 681,909 $ 714,229 $ 666,221
Electric ($000's) $ 994,492 $ 963,643 $ 916,135
----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,676,401 $ 1,677,872 $ 1,582,356
Operating Margin ($000's) $ 993,327 $ 985,450 $ 927,089
Operating Income ($000's) $ 261,149 $ 262,045 $ 246,217
Income Before Extraordinary Items ($000's) $ 163,987 $ 156,140 $ 136,648
Net Income ($000's) $ 163,987 $ 156,140 $ 136,648
Shares outstanding at year end 63,905,389 65,828,838 65,758,350
Number of common shareholders 39,172 41,038 38,097
Earnings (loss) per average common share $ 2.48 $ 2.31 $ 2.00
Return on average common equity 14.6% 14.4% 13.1%
Times interest earned (pre-tax) 3.63 3.63 3.18
Dividends paid per share $ 1.44 $ 1.32 $ 1.24
Dividend payout ratio 58.1% 57.1% 62.0%
Market values during the year:
High $ 33.000 $ 34.875 $ 26.625
Low $ 26.125 $ 26.125 $ 22.500
Close $ 29.750 $ 32.875 $ 26.500
Book value of common shares $ 17.34 $ 16.63 $ 15.73
Market-to-book ratio at year end 171.6% 197.7% 168.5%
Total Assets ($000's) $ 3,944,543 $ 3,912,324 $ 3,807,941
Utility construction expenditures ($000's)a $ 200,586 $ 180,852 $ 172,329
Capitalization:
Common shareholders' equity ($000's) $ 1,107,848 $ 1,094,672 $ 1,034,530
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 86,389 $ 97,753 $ 97,917
Series with mandatory redemption provisions ($000's) $ 66,057 $ 68,462 $ 70,668
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ 35,000 $ 35,000 $ 35,000
Long-term debt ($000's) $ 1,180,338 $ 1,192,500 $ 1,054,454
----------- ----------- -----------
Total Capitalization ($000's) $ 2,475,632 $ 2,488,387 $ 2,292,569
Number of employees 4,441 4,602 4,648
Notes: /a/ Including AFUDC.
/b/ Excluding Extraordinary Loss related to Bailly NI Plant Abandonment
in 1985.
/c/ Excluding Carbon County, return would have been 6.1%
/d/ Excluding Carbon County Coal Settlement and related income taxes.
66
Year Ended December 31, 1991 1990 1989 1988
----------- ----------- ----------- -----------
Operating Revenues
Gas ($000's) $ 601,920 $ 625,159 $ 677,262 $ 620,723
Electric ($000's) $ 933,241 $ 895,836 $ 882,303 $ 903,461
----------- ----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,535,161 $ 1,520,995 $ 1,559,565 $ 1,524,184
Operating Margin ($000's) $ 919,951 $ 885,262 $ 900,035 $ 863,213
Operating Income ($000's) $ 254,354 $ 247,777 $ 252,807 $ 257,923
Income Before Extraordinary Items ($000's) $ 133,388 $ 125,361 $ 72,112f $ 103,449
Net Income ($000's) $ 133,388 $ 125,361 $ 72,112f $ 103,449
Shares outstanding at year end 66,671,615 68,874,229 69,369,492 73,310,210
Number of common shareholders 39,346 41,285 43,763 47,324
Earnings (loss) per average common share $ 1.94 $ 1.81 $ 1.00f $ 1.41
Return on average common equity 12.9% 12.7% 7.2%f 10.4%
Times interest earned (pre-tax) 2.93 2.81 2.02f 2.38
Dividends paid per share $ 1.16 $ 1.04 $ 0.84 $ 0.60
Dividend payout ratio 59.8% 57.5% 84.0%f 42.6%
Market values during the year:
High $ 27.000 $ 19.250 $ 19.625 $ 14.125
Low $ 18.500 $ 15.750 $ 13.125 $ 8.625
Close $ 25.750 $ 18.875 $ 19.375 $ 13.875
Book value of common shares $ 15.17 $ 14.61 $ 13.92 $ 14.03
Market-to-book ratio at year end 169.7% 129.2% 139.2% 98.9%
Total Assets ($000's) $ 3,647,557 $ 3,625,181 $ 3,657,718 $ 3,684,721
Utility construction expenditures ($000's)a $ 168,958 $ 152,280 $ 150,786 $ 116,874
Capitalization:
Common shareholders' equity ($000's) $ 1,011,666 $ 1,005,982 $ 965,437 $ 1,028,554
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 98,710 $ 99,374 $ 99,874 $ 99,937
Series with mandatory redemption provisions ($000's) $ 53,978 $ 59,358 $ 66,309 $ 75,189
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ 35,000 $ 35,000 $ -- $ --
Long-term debt ($000's) $ 1,068,708 $ 1,165,682 $ 1,261,760 $ 1,308,303
----------- ----------- ----------- -----------
Total Capitalization ($000's) $ 2,268,062 $ 2,365,396 $ 2,393,380 $ 2,511,983
Number of employees 4,600 4,547 4,825 4,946
Year Ended December 31, 1987 1986 1985 1984
----------- ----------- ----------- -----------
Operating Revenues
Gas ($000's) $ 581,130 $ 741,021 $ 943,855 $ 1,011,716
Electric ($000's) $ 870,499 $ 885,106 $ 964,648 $ 989,356
----------- ----------- ----------- -----------
Total Operating Revenues ($000's) $ 1,451,629 $ 1,626,127 $ 1,908,503 $ 2,001,072
Operating Margin ($000's) $ 777,573 $ 756,712 $ 803,864 $ 854,320
Operating Income ($000's) $ 192,415 $ 179,896 $ 198,098 $ 236,302
Income Before Extraordinary Items ($000's) $ 38,876 $ (40,477) $ 79,085 $ 89,747
Net Income ($000's) $ 38,876 $ (40,477) $ (15,758) $ 89,747
Shares outstanding at year end 73,243,100 73,170,788 73,045,160 69,516,560
Number of common shareholders 50,074 56,466 74,303 86,298
Earnings (loss) per average common share $ 0.53 $ (0.55)e $ 1.11b $ 1.32
Return on average common equity 4.1% (4.2%)c 7.5%b 8.7%
Times interest earned (pre-tax) 1.65 1.96d 2.24 2.50
Dividends paid per share $ 0.15 none $ 1.56 $ 1.55
Dividend payout ratio 28.3% -- 140.5%b 117.0%
Market values during the year:
High $ 13.00 $ 13.50 $ 12.875 $ 15.125
Low $ 8.00 $ 9.375 $ 8.375 $ 11.125
Close $ 8.50 $ 11.75 $ 9.875 $ 11.75
Book value of common shares $ 13.13 $ 12.90 $ 13.46 $ 15.03
Market-to-book ratio at year end 64.7% 91.1% 73.4% 78.2%
Total Assets ($000's) $ 3,821,690 $ 3,944,637 $ 3,833,302 $ 3,786,643
Utility construction expenditures ($000's)a $ 156,750 $ 197,324 $ 279,175 $ 285,297
Capitalization:
Common shareholders' equity ($000's) $ 961,562 $ 943,933 $ 983,127 $ 1,044,555
Preferred and preference stock--
Northern Indiana Public Service Company:
Series without mandatory redemption provision ($000's) $ 191,392 $ 191,392 $ 191,392 $ 191,392
Series with mandatory redemption provisions ($000's) $ 105,395 $ 122,122 $ 135,350 $ 141,500
NIPSCO Industries, Inc.:
Series with mandatory redemption provision ($000's) $ -- $ -- $ -- $ --
Long-term debt ($000's) $ 1,401,326 $ 1,552,324 $ 1,511,215 $ 1,317,948
----------- ----------- ----------- -----------
Total Capitalization ($000's) $ 2,659,675 $ 2,809,771 $ 2,821,084 $ 2,695,395
Number of employees 5,172 5,695 5,774 5,886
[FN]
e Earnings per share were reduced by $1.39 due to the payment in satisfaction of
the Carbon County Coal Company contract litigation.
f Earnings per share were reduced by $0.72 due to the $82.0 million refund, less
associated tax benefits of $30.3 million, related to the Bailly N1 generating
unit.
67
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
CAPITALIZATION RATIO CHART SHOWS PERCENT OF LONG-TERM DEBT, COMMON SHARE EQUITY
AND PREFERRED AND PREFERENCE STOCK FOR YEARS 1985-1994.
COST OF FUEL FOR ELECTRIC GENERATION CHART SHOWS IN MILLS PER KWH THE COST OF
FUEL FOR ELECTRIC GENERATION FOR YEARS 1985-1994.
COST OF GAS PURCHASED FOR RESALE CHART SHOWS IN DOLLARS PER DEKATHERM THE COST
OF GAS PURCHASED FOR RESALE FOR YEARS 1985-1994.