FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-7793
THE UNION LIGHT, HEAT AND POWER COMPANY
(Exact name of registrant as specified in its charter)
KENTUCKY 31-0473080
(State of incorporation) (I.R.S. Employer Identification No.)
139 EAST FOURTH ST., CINCINNATI, OHIO 45202
(Address of principal executive offices) (Zip Code)
513-381-2000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
-------- --------
Capital Shares, Par Value $15.00 Per Share
585,333 Shares Outstanding as of July 31, 1994
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<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENT OF INCOME
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric...................................... $43,735,866 $40,782,403 $88,926,075 $83,631,921 $181,006,327 $166,783,865
Gas........................................... 9,586,814 11,742,191 46,386,831 43,166,868 78,964,128 69,998,670
----------- ----------- ----------- ----------- ------------ ------------
Total operating revenues................ 53,322,680 52,524,594 135,312,906 126,798,789 259,970,455 236,782,535
----------- ----------- ----------- ----------- ------------ ------------
OPERATING EXPENSES
Electricity purchased from parent company for
resale...................................... 32,552,165 30,406,560 68,106,836 64,087,343 138,309,560 128,669,200
Gas purchased................................. 4,799,776 5,636,528 27,209,030 25,582,129 45,007,188 40,744,654
Other operation............................... 7,720,278 7,066,488 15,340,702 14,387,100 31,349,029 30,141,860
Maintenance................................... 1,488,207 1,487,394 2,741,794 2,741,083 6,267,892 5,788,616
Provision for depreciation.................... 2,633,217 2,253,228 5,248,955 4,469,524 10,592,360 8,659,306
Taxes other than income taxes................. 990,331 961,376 2,015,444 1,926,667 3,712,108 3,601,186
Federal income taxes.......................... (536,793) (35,353) 3,184,157 2,753,697 4,044,779 1,635,988
State income taxes............................ (128,026) 1,097 832,479 801,817 1,166,010 467,871
Deferred income taxes--net.................... 1,110,784 1,034,660 210,045 40,910 1,170,708 2,034,716
----------- ----------- ----------- ----------- ------------ ------------
Total operating expenses................ 50,629,939 48,811,978 124,889,442 116,790,270 241,619,634 221,743,397
----------- ----------- ----------- ----------- ------------ ------------
OPERATING INCOME................................ 2,692,741 3,712,616 10,423,464 10,008,519 18,350,821 15,039,138
----------- ----------- ----------- ----------- ------------ ------------
OTHER INCOME AND DEDUCTIONS
Allowance for other funds used during
construction................................ 13,185 139,520 11,097 275,353 32,383 268,423
Other income and deductions--net.............. (20,209) (206,368) 378,700 (283,667) 128,447 (219,504)
----------- ----------- ----------- ----------- ------------ ------------
Total other income and deductions....... (7,024) (66,848) 389,797 (8,314) 160,830 48,919
----------- ----------- ----------- ----------- ------------ ------------
INCOME BEFORE INTEREST CHARGES.................. 2,685,717 3,645,768 10,813,261 10,000,205 18,511,651 15,088,057
----------- ----------- ----------- ----------- ------------ ------------
INTEREST CHARGES
Interest on long-term debt.................... 2,016,250 2,087,344 4,032,500 4,174,688 8,064,967 8,197,708
Other interest................................ 64,311 29,168 216,901 61,857 486,543 457,262
Amortization of debt discount, premium and
other....................................... 23,019 22,398 49,570 44,796 94,366 84,974
Allowance for borrowed funds used during
construction--credit........................ (45,765) (100,916) (75,186) (200,525) (142,887) (364,579)
----------- ----------- ----------- ----------- ------------ ------------
Net interest charges.................... 2,057,815 2,037,994 4,223,785 4,080,816 8,502,989 8,375,365
----------- ----------- ----------- ----------- ------------ ------------
NET INCOME...................................... $ 627,902 $ 1,607,774 $ 6,589,476 $ 5,919,389 $ 10,008,662 $ 6,712,692
=========== =========== =========== =========== ============ ============
AVERAGE NUMBER OF CAPITAL SHARES OUTSTANDING.... 585,333 585,333 585,333 585,333 585,333 543,666
EARNINGS PER CAPITAL SHARE...................... $ 1.07 $ 2.74 $ 11.26 $ 10.11 $ 17.10 $ 12.34
DIVIDENDS DECLARED PER CAPITAL SHARE............ $ -- $ -- $ -- $ -- $ 5.00 $ --
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THE UNION LIGHT, HEAT AND POWER COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
Electric operating revenues increased $3.0 million, $5.3 million and
$14.2 million for the three, six and twelve month periods ended June 30, 1994,
respectively, over the comparable periods of 1993 due to increases in electric
Kwh sales of 6.1%, 5.6% and 6.1% and to the operation of an adjustment clause
reflecting increases in the cost of electricity purchased.
Gas operating revenues decreased $2.2 million for the three month period
ended June 30, 1994, from the comparable period of 1993
due to a decrease in gas Mcf volumes sold and transported of 11.2% and to the
operation of an adjustment clause reflecting decreases in the cost of gas
purchased. Gas operating revenues increased $3.2 million and $9.0 million for
the six and twelve month periods ended June 30, 1994, respectively, over the
comparable periods of 1993 due to the operation of an adjustment clause
reflecting increases in the cost of gas purchased, the implementation of a rate
increase in April 1993, and increases in gas Mcf volumes sold and transported of
1.7% and 3.1%.
Electricity purchased increased $2.1 million, $4.0 million and $9.6 million
for the three, six and twelve month periods ended June 30, 1994, respectively,
over the comparable periods of 1993 due to increases in Kwh volumes purchased of
6.2%, 5.6% and 6.0% and to increases in the average cost per Kwh purchased of
.8%, .6% and 1.4%.
Gas purchased expense decreased $.8 million for the three months ended June
30, 1994, from the comparable period of 1993 due to a decrease in Mcf volumes
purchased of 12.2% and to a decrease in the average cost per Mcf purchased of
3.0%. Gas purchased expense increased $1.6 million and $4.3 million for the six
and twelve month periods ended June 30, 1994, respectively, over the comparable
periods of 1993 due to increases in the average cost per Mcf purchased of 4.1%
and 7.1%, and to increases in volumes purchased of 2.1% and 3.2%.
Depreciation expense increased $.4 million, $.8 million and $1.9 million
for the three, six and twelve month periods ended June 30, 1994, respectively,
over the comparable periods of 1993 due to an increase in depreciable plant in
service, and to increases in depreciation accrual rates on gas and common plant
in accordance with a 1993 Kentucky Public Service Commission (KPSC) rate order.
Allowance for funds used during construction decreased $.2 million, $.4
million and $.5 million for the three, six and twelve month periods ended June
30, 1994, from the comparable periods of 1993 primarily due to lower levels of
construction work in progress.
Other income and deductions-net increased $.7 million for the six month
period ended June 30, 1994, over the comparable period of 1993 primarily due to
the transfer of Union Light's subsidiary, Enertech Associates International,
Inc., to another subsidiary of Union Light's parent company, The Cincinnati Gas
& Electric Company (CG&E), in January 1994.
Liquidity and Capital Resources
- -------------------------------
The construction expenditures for Union Light for the first six months of
1994 were approximately $8.5 million and are expected to be $20.3 million for
the year 1994. Over the five years 1994-1998, construction expenditures are
expected to be $120.2 million. These estimates are under continuing review and
subject to adjustment. Construction and financing plans for the future are
dependent on, among other things, the amount and timing of rate changes, sales
volumes, changes in construction plans, cost control efforts, market conditions,
regulatory actions and the ability to obtain financing. Short-term indebtedness
will be used to supplement internal sources of funds for the interim financing
of the construction program. The Federal Energy Regulatory Commission (FERC)
has authorized Union Light to issue a maximum amount of short-term indebtedness
of $35 million through December 31, 1994, and $5.5 million of short-term
borrowings were outstanding at June 30, 1994. Union Light has authority to
issue to CG&E up to $15 million of Capital Stock through December 31, 1994.
The issuance of first mortgage bonds by Union Light is limited by earnings
coverage and fundable property provisions of Union Light's First Mortgage
Indenture. In addition, certain provisions in the mortgage indenture of CG&E
prohibit the sale by Union Light of debt securities except to CG&E if, after
giving effect to the sale of such securities, the outstanding debt securities of
Union Light are in excess of 75% of the net plant of Union Light. In accordance
with the most restrictive of these provisions, Union Light would have been
permitted to issue at June 30, 1994, at least $75 million of additional first
mortgage bonds.
Pending Merger
- --------------
CG&E has entered into a merger agreement with PSI Resources, Inc. (PSI) and
PSI Energy, Inc., PSI's principal subsidiary, an Indiana electric utility (PSI
Energy) with a service area contiguous to that of CG&E. Under the merger
agreement, CG&E and PSI will become subsidiaries of a newly formed corporation
named CINergy Corp., which will be a registered holding company under the Public
Utility Holding Company Act of 1935 (PUHCA). The merger will be accounted for
as a "pooling-of-interests", and Union Light will remain a subsidiary of CG&E.
The merger is subject to approval by the Securities and Exchange Commission
(SEC) and FERC. Shareholders of CG&E and PSI have already approved the CINergy
merger at special meetings held in November 1993. CG&E believes it is possible
that all approvals needed for the merger may be received by the end of the third
quarter of 1994.
FERC issued conditional approval of the CINergy merger in August 1993, but
several intervenors, including The Public Utilities Commission of Ohio (PUCO)
and the KPSC, filed for rehearing of that order. On January 12, 1994, FERC
withdrew its conditional approval of the merger and ordered the setting of
FERC-sponsored settlement procedures to be held.
On March 4, 1994, CG&E reached a settlement agreement with the PUCO and the
Ohio Office of Consumers' Counsel on merger issues identified by FERC. On March
2, PSI Energy and Indiana's consumer representatives had reached a similar
agreement. Both settlement agreements have been filed with FERC. These
documents address, among other things, the coordination of state and federal
regulation and the commitment that neither CG&E nor PSI electric base rates, nor
CG&E's gas base rates, will rise because of the merger, except to reflect any
effects that may result from the divestiture of CG&E's gas operations if ordered
by the SEC in accordance with the requirements of PUHCA discussed below.
CG&E also filed with FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with FERC. The settlement
offer commits Union Light, among other things, to "hold harmless" its retail gas
customers from the effects of the merger on Union Light's retail gas base rates
that become effective on or after the date of the merger and prior to January 1,
2003. However, Union Light's offer will not apply to any effects that may
result from the divestiture of Union Light's gas operations, discussed below.
Although it is the belief of CG&E and PSI that no state utility commissions
have jurisdiction over approval of the proposed merger, an application was filed
with the KPSC to comply with the Staff of the KPSC's position that the KPSC's
authorization is required for the indirect acquisition of control of Union Light
by CINergy. A hearing on the KPSC application was held on May 10, 1994. In
testimony filed in the hearing, CG&E and Union Light made, in addition to other
commitments, an offer to the KPSC that Union Light would also "hold harmless"
retail electric customers through January 1, 2003, and would agree to an
electric rate moratorium commencing after Union Light's next retail rate case
and extending to January 1, 2000. On May 13, 1994, the KPSC issued an order
approving the merger, subject to the condition that CG&E and Union Light must
agree that, for 12 months from consummation of the merger, no filings will be
made to adjust CG&E's base purchase power rate and Union Light's base electric
rates. On May 19, 1994, CINergy, CG&E and Union Light submitted letters to the
KPSC accepting the commitments and condition set forth in its May 13, 1994 order
approving the merger.
The 30-day period for commenting on settlements and agreements filed with
FERC ended on April 21, 1994. During that period, the FERC trial staff filed
comments with the commission recommending that FERC approve the settlements.
However, the merger is still being opposed by various other parties. If the
settlement agreements are not acceptable, FERC could set issues for hearing. If
a hearing is held by FERC, consummation of the merger would likely be extended
beyond the third quarter of 1994.
On May 23, 1994, CINergy filed an application seeking approval by the SEC
under PUHCA of the acquisition by CINergy of the common stock of CG&E and PSI.
PUHCA imposes restrictions on the operations of registered holding company
systems. Among these are requirements that securities issuances, sales and
acquisitions of utility assets or of securities of utility companies and
acquisitions of interests in any other business be approved by the SEC. PUHCA
also limits the ability of registered holding companies to engage in non-utility
ventures and regulates the rendering of services by holding company affiliates
to the system s utilities. PUHCA has been interpreted to preclude the ownership
of both electric and gas utility systems. As a result, the SEC may require
divestiture of CG&E s and Union Light's gas properties within a reasonable time
after the merger. CG&E and Union Light believe good arguments exist to allow
retention of the gas assets and CINergy has requested that the Companies be
allowed to do so.
Intervention papers and hearing requests were filed by a number of parties
during the period allowed by the SEC, which ended on July 1, 1994. Three of the
filings raise a number of objections to the merger and request that the merger
be disapproved or that approval be subject to a number of conditions, including,
among other things, divestiture of CG&E's and Union Light's gas assets. CG&E
and Union Light have responded to arguments raised in the intervention papers
and believe that good arguments exist in support of CINergy's request for
authorization to retain the gas assets; however, the outcome of the proceedings
cannot be predicted.
Voluntary Workforce Reduction
- -----------------------------
In June 1994, CG&E and its subsidiaries initiated a voluntary early
retirement program for those management, supervisory, administrative and
professional employees who are vested in its pension plan and are age 54 or
older on or before December 31, 1994. There are approximately 160 employees who
are eligible to participate in the program. In accordance with Statement of
Financial Accounting Standards No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
the one-time cost of termination benefits associated with the program will be
recognized in the third quarter of 1994. The amount of such cost will depend on
the number of employees who accept early retirement under the program.
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<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENT OF CASH FLOWS
Six Months Ended Twelve Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash Flows From Operations:
Net Income.......................................... $ 6,589,476 $ 5,919,389 $ 10,008,662 $ 6,712,692
Adjustments to reconcile net income to net cash:
Deferred gas and electric fuel costs -- net....... 771,748 1,887,940 (1,160,828) (1,711,229)
Depreciation...................................... 5,248,955 4,469,524 10,592,360 8,659,306
Allowance for other funds used during
construction.................................... (11,097) (275,353) (32,383) (268,423)
Deferred income taxes and investment tax
credits -- net.................................. 210,045 40,910 1,167,611 2,037,813
Other -- net...................................... 1,640,918 1,116,716 3,899,244 3,048,178
Change in current assets and liabilities:
Receivables and unbilled revenues............... 8,384,506 4,303,948 (1,778,197) (2,258,802)
Materials and supplies.......................... 2,409,821 350,814 476,029 (1,417,457)
Other current assets............................ 333,077 345,665 606,868 (276,170)
Accounts payable and other current liabilities.. 482,584 (4,396,867) 3,275,218 618,748
------------ ------------ ------------ ------------
Total adjustments........................... 19,470,557 7,843,297 17,045,922 8,431,964
------------ ------------ ------------ ------------
Net cash provided by operations............. 26,060,033 13,762,686 27,054,584 15,144,656
------------ ------------ ------------ ------------
Cash Flows From Investing:
Construction expenditures (less allowance for other
funds used during construction)................... (8,494,229) (10,905,938) (21,715,873) (22,090,056)
Gain on disposition of assets....................... 126,681 73,301 1,039,343 646,759
------------ ------------ ------------ ------------
Net cash used in investing activities....... (8,367,548) (10,832,637) (20,676,530) (21,443,297)
------------ ------------ ------------ ------------
Cash Flows From Financing:
Capital stock proceeds.............................. -- -- -- 15,000,000
Long-term debt proceeds............................. -- -- -- 19,670,800
Retirement of long-term debt........................ -- -- (6,500,000) --
Net short-term borrowings........................... (19,500,000) (3,000,000) 2,000,000 (28,500,000)
Dividends paid on capital shares.................... -- -- (2,926,665) --
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities...................... (19,500,000) (3,000,000) (7,426,665) 6,170,800
------------ ------------ ------------ ------------
Net increase (decrease) in cash and
temporary cash investments................ (1,807,515) (69,951) (1,048,611) (127,841)
Cash and temporary cash investments -- beginning
of period........................................... 2,477,343 1,788,390 1,718,439 1,846,280
------------ ------------ ------------ ------------
Cash and temporary cash investments -- end of period.. $ 669,828 $ 1,718,439 $ 669,828 $ 1,718,439
============ ============ ============ ============
Supplemental Disclosure Of Cash Flow Information:
Cash paid during the period for:
Interest (net of allowance for borrowed funds
used during construction)......................... $ 4,151,116 $ 4,008,587 $ 8,546,587 $ 7,772,699
Income taxes........................................ $ 1,254,863 $ 1,240,575 $ 4,015,438 $ 2,031,889
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<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEET
June 30 December 31
1994 1993
<S> <C> <C>
ASSETS
UTILITY PLANT...................................... $331,892,929 $324,663,510
Less--Accumulated provisions for depreciation... 100,598,062 96,164,955
------------ ------------
231,294,867 228,498,555
------------ ------------
CURRENT ASSETS
Cash............................................ 669,828 2,477,343
Accounts receivable--net........................ 25,009,876 25,564,221
Accrued unbilled revenues....................... 9,298,559 17,128,720
Materials and supplies.......................... 6,254,560 8,664,381
Prepayments..................................... 370,166 703,243
------------ ------------
41,602,989 54,537,908
------------ ------------
DEFERRED DEBITS AND OTHER.......................... 3,327,255 3,008,226
------------ ------------
$276,225,111 $286,044,689
============ ============
LIABILITIES
CAPITALIZATION
Shareholder's equity............................ $103,535,772 $96,946,296
Long-term debt.................................. 89,205,125 89,171,831
------------ ------------
192,740,897 186,118,127
------------ ------------
CURRENT LIABILITIES
Notes payable................................... 5,500,000 25,000,000
Accounts payable................................ 3,618,728 6,914,373
Accounts payable to associated companies--net... 16,491,163 17,118,008
Accrued taxes................................... 3,146,486 (434,538)
Accrued interest on debt........................ 2,149,382 2,126,283
Other........................................... 4,433,035 3,632,084
------------ ------------
35,338,794 54,356,210
------------ ------------
DEFERRED CREDITS AND OTHER
Deferred income taxes........................... 21,519,136 20,486,616
Investment tax credits.......................... 5,508,114 5,651,190
Income taxes refundable through rates........... 4,012,629 4,692,028
Other........................................... 17,105,541 14,740,518
------------ ------------
48,145,420 45,570,352
------------ ------------
$276,225,111 $286,044,689
============ ============
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THE UNION LIGHT, HEAT AND POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
The accompanying information reflects, in the opinion of the management of
the Company, all adjustments necessary to present fairly the results for the
interim periods. All such adjustments are of a normal recurring nature.
Reference should be made to the Company's Form 10-K for the year 1993 for
additional footnote disclosure, including a summary of significant accounting
policies.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" herein for information regarding CG&E's
pending merger and a voluntary early retirement program for CG&E and its
subsidiaries.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
(a) The annual meeting of shareholders of Union Light was held on
May 4, 1994.
(b) At the annual meeting, the following directors, as previously
reported in the Company's Form 10-K for the year 1993, were
re-elected to the Board of Directors:
Jackson H. Randolph
Terry E. Bruck
C. Robert Everman
James J. Mayer
George H. Stinson
W. Denis Waymire
Robert P. Wiwi
(c) The above directors each received all 585,333 votes available.
Item 5. Other Information.
- ------- ------------------
Employee Relations
- ------------------
A new three-year contract has been negotiated with the United Steelworkers
of America, representing approximately 110 employees in gas operations. In
addition to benefit improvements, the contract provides for wage increases of
3.5% in 1994 and 1995 and 3% in 1996.
A new four-year contract has been negotiated with the Independent Utilities
Union, representing approximately 80 clerical and technical employees. In
addition to benefit improvements, the contract provides for annual increases
averaging 3.1% and lump sum adjustments.
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(b) No reports on Form 8-K were filed during the three
months ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UNION LIGHT, HEAT AND POWER COMPANY
---------------------------------------
(Registrant)
Date: August 9, 1994 Daniel R. Herche
---------------------------------------
Daniel R. Herche, Controller
(Duly Authorized Officer
and Chief Accounting Officer)
(Signature)
