UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 421-9500
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 421-9500
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 421-9500
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its
company specific information with the reduced disclosure format.
As of October 31, 1998, shares of Common Stock outstanding for each registrant
were as listed:
<TABLE>
<CAPTION>
<S> <C>
Company Shares
- ------------------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,584,688
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
</TABLE>
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 7
Consolidated Statements of Income (Loss). . . . . . . 9
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Cash Flows . . . . . . . . 13
Results of Operations . . . . . . . . . . . . . . . . 14
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 24
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows . . . . . . . . 27
Results of Operations . . . . . . . . . . . . . . . . 28
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . . 34
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows . . . . . . . . 37
Results of Operations . . . . . . . . . . . . . . . . 38
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 43
Statements of Income. . . . . . . . . . . . . . . . . 45
Statements of Cash Flows. . . . . . . . . . . . . . . 46
Results of Operations . . . . . . . . . . . . . . . . 47
Notes to Financial Statements . . . . . . . . . . . . . 51
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 60
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 67
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 68
5 Other Information . . . . . . . . . . . . . . . . . . . 68
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 68
Signatures. . . . . . . . . . . . . . . . . . . . . . . 70
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1997 Form Combined 1997 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
ADR Alternative Dispute Resolution
Apache Apache Corporation
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Bcf Billion cubic feet
Beckjord CG&E'S W. C. Beckjord Station (steam electric generating
plant)
CC&T Cinergy Capital and Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CFC National Rural Utilities Cooperative Finance Corporation
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
CWIP Construction work in progress
Cayuga PSI's Cayuga Station
Cinergy or Cinergy Corp.
Company
Cinergy Global Cinergy Global Power, Inc., formerly Cinergy Investments
Power MPI, Inc. (a subsidiary of Cinergy Global Resources)
Cinergy Global Cinergy Global Resources, Inc. (a subsidiary of Cinergy),
Resources which holds Cinergy's international non-regulated
businesses
Committed Lines A line of credit providing short-term loans on a
committed basis
DSM Demand-side management
Destec Destec Energy, Inc.
Dynegy Dynegy, Inc.
EPA United States Environmental Protection Agency
EPRI Electric Power Research Institute
EPS Earnings per share
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
East Bend CG&E's East Bend Station (steam electric generating plant)
Enertech Enertech Associates, Inc., formerly Power International,
Inc. (a subsidiary of Cinergy Investments, Inc.)
Exxon Exxon Coal and Minerals Company
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
February 1995 An IURC order issued in February 1995
Order
Gibson PSI's Gibson Generating Station (steam electric generating
plant)
HB 443 Customer choice bill introduced by the House Chairman of the
Tourism, Development and Energy Committee in Kentucky
HJR 95 House Joint Resolution, which calls for an executive task
force to study electricity restructuring in Kentucky
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy), which
holds Cinergy's domestic, non-regulated businesses
IOU Investor-owned utility
ISO Independent System Operator
IT Information Technology
IURC Indiana Utility Regulatory Commission
kwh Kilowatt-hour
mcf Thousand cubic feet
MGP Manufactured gas plant
MW Megawatts
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
Moravske Moravske Teplarna a.s. (an indirect subsidiary of Cinergy
Global Power)
N/A Not applicable
NERC North American Electric Reliability Council
NIPSCO Northern Indiana Public Service Company
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
NOx Nitrogen Oxide
Oryx Oryx Energy Company
PRP Potentially Responsible Party
ProEnergy Producers Energy Marketing, LLC (a subsidiary of CC&T),
which is engaged in the marketing of natural gas
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
RUS Rural Utilities Service
SB 237 and Companion electric restructuring bills introduced into the
HB 732 Ohio legislature during 1998
SEC United States Securities and Exchange Commission
SIP State Implementation Plan
September 1996 An IURC order issued in September 1996 on PSI's retail
Order rate proceeding
Statement 130 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
UCC Office of Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
U.S. District United States District Court for the Southern District of
Court Ohio, Western Division
Uncommitted A line of credit providing short-term loans on an
Lines uncommitted basis
WVPA Wabash Valley Power Association, Inc.
Wabash River PSI's Wabash River Station
Zimmer CG&E's William H. Zimmer Generating Station (steam electric
generating plant)
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 78,826 $ 53,310
Restricted deposits 1,531 2,319
Notes receivable 71 110
Accounts receivable less accumulated provision
for doubtful accounts of $20,689 at September
30, 1998, and $10,382 at December 31, 1997 832,766 413,516
Materials, supplies, and fuel - at average cost 189,300 163,156
Prepayments and other 56,368 38,171
----------- ----------
1,158,862 670,582
Utility Plant - Original Cost
In service
Electric 9,102,204 8,981,182
Gas 772,006 746,903
Common 185,896 186,078
----------- ----------
10,060,106 9,914,163
Accumulated depreciation 3,982,686 3,800,322
----------- ----------
6,077,420 6,113,841
Construction work in progress 226,362 183,262
----------- ----------
Total utility plant 6,303,782 6,297,103
Other Assets
Regulatory assets 1,033,651 1,076,851
Investments in unconsolidated subsidiaries 502,623 537,720
Other 438,699 275,897
----------- ----------
1,974,973 1,890,468
$ 9,437,617 $8,858,153
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 917,760 $ 488,716
Accrued taxes 206,361 187,033
Accrued interest 49,011 46,622
Notes payable and other short-term obligations 1,185,486 1,114,028
Long-term debt due within one year 186,000 85,000
Other 98,848 79,193
---------- ----------
2,643,466 2,000,592
Non-Current Liabilities
Long-term debt 2,210,488 2,150,902
Deferred income taxes 1,095,884 1,248,543
Unamortized investment tax credits 159,030 166,262
Accrued pension and other postretirement
benefit costs 305,269 297,142
Other 388,483 277,523
---------- ----------
4,159,154 4,140,372
Total liabilities 6,802,620 6,140,964
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,648 177,989
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
158,547,701 at September 30, 1998, and
157,744,658 at December 31, 1997 1,585 1,577
Paid-in capital 1,600,776 1,573,064
Retained earnings 943,647 967,420
Accumulated other comprehensive loss (3,659) (2,861)
---------- ----------
Total common stock equity 2,542,349 2,539,200
$9,437,617 $8,858,153
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
Quarter Ended Year to Date Twelve Months Ended
September 30 September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1998 1997
(in thousands, except per share amounts)
Operating Revenues
Electric $1,601,996 $1,315,165 $3,782,641 $2,923,655 $4,720,684 $3,631,890
Gas 355,945 39,941 666,136 326,964 830,318 494,936
Other 18,545 5,423 43,888 21,705 56,568 31,458
---------- ---------- ---------- ---------- ---------- ----------
1,976,486 1,360,529 4,492,665 3,272,324 5,607,570 4,158,284
Operating Expenses
Fuel and purchased and exchanged
power 1,070,753 804,397 2,318,624 1,470,701 2,760,717 1,707,996
Gas purchased 316,321 15,622 518,006 175,416 608,748 274,219
Other operation and maintenance 235,074 213,458 774,149 651,648 991,075 899,859
Depreciation and amortization 80,425 76,847 240,780 229,496 318,205 305,184
Taxes other than income taxes 69,346 67,174 208,125 204,132 270,037 265,625
---------- ---------- ---------- ---------- ---------- ----------
1,771,919 1,177,498 4,059,684 2,731,393 4,948,782 3,452,883
Operating Income 204,567 183,031 432,981 540,931 658,788 705,401
Equity in Earnings of
Unconsolidated Subsidiaries 11,421 3,782 32,992 42,462 50,922 57,445
Other Income and (Expenses) - Net (115) 6,268 (11,850) 3,634 (18,088) (8,972)
Interest 60,950 58,444 181,511 176,897 240,933 234,560
--------- ---------- ---------- ---------- ---------- ----------
Income Before Taxes 154,923 134,637 272,612 410,130 450,689 519,314
Income Taxes 44,127 48,961 77,891 148,373 142,518 183,732
Preferred Dividend Requirements
of Subsidiaries 1,365 3,142 5,152 9,617 8,104 12,856
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Extraordinary Item $ 109,431 $ 82,534 $ 189,569 $ 252,140 $ 300,067 $ 322,726
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less
Applicable Income Taxes of $0) - (109,400) - (109,400) - (109,400)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 109,431 $ (26,866) $ 189,569 $ 142,740 $ 300,067 $ 213,326
Average Common Shares Outstanding 158,539 157,679 158,110 157,679 158,007 157,679
Earnings Per Common Share
Net income before
extraordinary item $0.69 $ 0.53 $1.20 $1.60 $1.90 $2.04
Net income (loss) $0.69 $(0.16) $1.20 $0.91 $1.90 $1.35
Earnings Per Common Share - Assuming Dilution
Net income before
extraordinary item $0.69 $ 0.52 $1.20 $1.59 $1.90 $2.03
Net income (loss) $0.69 $(0.17) $1.20 $0.90 $1.90 $1.34
Dividends Declared Per Common Share $0.45 $ 0.45 $1.35 $1.35 $1.80 $1.80
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income (Loss) Equity
Quarter Ended September 30, 1998
Balance at July 1, 1998 $1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246
Comprehensive income
Net income 109,431 $109,431 109,431
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (329) (329)
--------
Other comprehensive loss
total (329) (329)
--------
Comprehensive income total $109,102
Issuance of 12,423 shares of
common stock - net 225 225
Treasury shares purchased (1) (1,536) (1,537)
Treasury shares reissued 1 2,637 2,638
Dividends on common stock (see
page 9 for per share amounts) (71,340) (71,340)
Other 15 15
------ ---------- ---------- ------- ----------
Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349
Quarter Ended September 30, 1997
Balance at July 1, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
Comprehensive income
Net loss (26,866) $(26,866) (26,866)
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (514) (514)
--------
Other comprehensive loss
total (514) (514)
--------
Comprehensive loss total $(27,380)
========
Treasury shares purchased (214) (214)
Treasury shares reissued 1,614 1,614
Dividends on common stock (see
page 9 for per share amounts) (71,000) (71,000)
Other (406) 118 (288)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income Equity
Nine Months Ended September 30, 1998
Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 189,569 $189,569 189,569
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (747) (747)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive loss
total (798) (798)
--------
Comprehensive income total $188,771
Issuance of 803,043 shares of
common stock - net 8 27,018 27,026
Treasury shares purchased (3) (6,468) (6,471)
Treasury shares reissued 3 7,115 7,118
Dividends on common stock (see
page 9 for per share amounts) (213,340) (213,340)
Other 47 (2) 45
------ ---------- ---------- ------- ----------
Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349
Nine Months Ended September 30, 1997
Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454
Comprehensive income
Net income 142,740 $142,740 142,740
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (1,103) (1,103)
--------
Other comprehensive loss
total (1,103) (1,103)
--------
Comprehensive income total $141,637
========
Treasury shares purchased (11) (45,939) (45,950)
Treasury shares reissued 11 27,073 27,084
Dividends on common stock (see
page 9 for per share amounts) (212,910) (212,910)
Other (342) 106 (236)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income Equity
Twelve Months Ended September 30, 1998
Balance at October 1, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079
Comprehensive income
Net income 300,067 $300,067 300,067
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (39) (39)
Minimum pension liability
adjustment (1,133) (1,133)
--------
Other comprehensive loss
total (1,172) (1,172)
--------
Comprehensive income total $298,895
Issuance of 868,572 shares of
common stock - net 8 29,084 29,092
Treasury shares purchased (3) (6,728) (6,731)
Treasury shares reissued 3 6,771 6,774
Dividends on common stock (see
page 9 for per share amounts) (284,296) (284,296)
Other 122 4,414 4,536
------ ---------- ---------- ------- ----------
Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349
Twelve Months Ended September 30, 1997
Balance at October 1, 1996 $1,577 $1,592,393 $ 994,113 $(1,658) $2,586,425
Comprehensive income
Net income 213,326 $213,326 213,326
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (650) (650)
Minimum pension liability
adjustment (179) (179)
--------
Other comprehensive loss
total (829) (829)
--------
Comprehensive income total $212,497
========
Treasury shares purchased (12) (48,170) (48,182)
Treasury shares reissued 12 27,674 27,686
Dividends on common stock (see
page 9 for per share amounts) (283,866) (283,866)
Costs of reacquisition of
preferred stock of subsidiary (216) (216)
Other (370) 105 (265)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date Twelve Months Ended
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Activities
<S> <C> <C> <C> <C>
Net income $ 189,569 $ 142,740 $ 300,067 $ 213,326
Items providing (using) cash currently:
Depreciation and amortization 240,780 229,496 318,205 305,184
WVPA settlement 80,000 - 80,000 (80,000)
Deferred income taxes and investment tax
credits - net (79,350) 4,698 (16,410) 18,549
Equity in earnings of unconsolidated subsidiaries (32,992) (17,309) (50,922) (32,292)
Extraordinary item - equity share of windfall
profits tax - 109,400 - 109,400
Allowance for equity funds used during
construction (793) (189) (701) (208)
Regulatory assets - net 57,122 40,355 68,210 68,169
Changes in current assets and current liabilities
Restricted deposits 788 (229) 419 (230)
Accounts and notes receivable, net of
reserves on receivables sold (298,792) (180,916) (335,033) (275,404)
Materials, supplies, and fuel (20,037) 9,871 (8,091) 30,351
Accounts payable 293,435 175,165 301,566 218,405
Accrued taxes and interest 21,717 22,719 (22,416) 36,922
Other items - net 94,458 (28,229) 137,017 37,645
--------- --------- --------- ---------
Net cash provided by operating
activities 545,905 507,572 771,911 649,817
Financing Activities
Issuance of common stock 515 - 2,581 -
Issuance of long-term debt 373,041 - 473,103 150,217
Retirement of preferred stock of subsidiaries (85,292) (16,182) (85,379) (19,110)
Redemption of long-term debt (333,745) (336,312) (333,745) (365,912)
Change in short-term debt 61,642 323,128 (69,675) 243,891
Dividends on common stock (212,730) (212,910) (283,686) (283,866)
--------- --------- --------- ---------
Net cash used in financing activities (196,569) (242,276) (296,801) (274,780)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (238,364) (226,389) (340,030) (345,425)
Acquisition of businesses (net of cash acquired) (63,412) - (63,412) -
Investments in unconsolidated subsidiaries (22,044) - (51,076) -
--------- --------- --------- ----------
Net cash used in investing activities (323,820) (226,389) (454,518) (345,425)
Net increase in cash and temporary cash investments 25,516 38,907 20,592 29,612
Cash and temporary cash investments at
beginning of period 53,310 19,327 58,234 28,622
--------- --------- --------- ---------
Cash and temporary cash investments at
end of period $ 78,826 $ 58,234 $ 78,826 $ 58,234
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter, nine months, and twelve months ended September 30,
1998. For information concerning the results of operations for each of the other
registrants for the quarter and nine months ended September 30, 1998, see the
discussion under the heading "Results of Operations" following the financial
statements of each registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
($ and kwh in millions)
Retail $ 713 $ 671 13,013 12,099
Sales for resale 873 635 25,243 24,553
Other 16 9 N/A N/A
------ ------ ------ ------
Total $1,602 $1,315 38,256 36,652
Electric operating revenues increased $287 million (22%) for the quarter ended
September 30, 1998, from the comparable period of 1997. This increase was
primarily the result of a higher average price per kwh received on sales for
resale transactions. There was also an increase in the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase were higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average number of
residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $296 $ - 152 -
Retail 48 33 6 4
Transportation 8 6 11 12
Other 4 1 N/A N/A
---- --- --- ---
Total $356 $40 169 16
Gas operating revenues increased $316 million in the third quarter of 1998, when
compared to the same period last year, primarily due to the gas operating
revenues of ProEnergy, which was acquired in June 1998.
<PAGE>
Other Revenues
Other revenues for the quarter ended September 30, 1998, increased $13 million,
over the same period of 1997. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $ 206 $197
Purchased and exchanged power 865 607
------ ----
Total $1,071 $804
Electric fuel costs increased $9 million (5%) for the quarter ended September
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $197
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost (4)
Kwh generation 19
----
Fuel expense - September 30, 1998 $206
Purchased and exchanged power expense increased $258 million (43%) for the
quarter ended September 30, 1998, when compared to the same period of 1997,
primarily reflecting an increase in the average price paid per kwh.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, increased $301 million,
when compared to the same period last year, primarily due to the gas purchased
expenses of ProEnergy, which was acquired in June 1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $185 $171
Maintenance 50 42
---- ----
Total $235 $213
<PAGE>
Other operation expenses increased $14 million (8%) for the quarter ended
September 30, 1998, as compared to the same period last year, primarily due to
an increase in new initiatives by certain of Cinergy's consolidated
non-regulated businesses.
Maintenance expenses increased $8 million (19%) for the quarter ended September
30, 1998, as compared to the same period of 1997, primarily due to an increase
in production maintenance at Wabash River, Cayuga, and Gibson, and an increase
in distribution line maintenance.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Depreciation $74 $73
Amortization of phase-in deferrals 5 3
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $80 $77
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Equity in Earnings of Unconsolidated Subsidiaries
For the quarter ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries increased $8 million, as compared to the same period
of last year. This increase is primarily attributable to Midlands.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $6 million for the quarter
ended September 30, 1998, from the same period of 1997, is due primarily to a
gain recorded in 1997 on the sale of a PSI investment.
Income Taxes
Income taxes decreased $5 million (10%) for the quarter ended September 30,
1998, as compared to the same period of 1997, primarily due to the recognition
by Cinergy of Foreign Tax Credits in the third quarter of 1998. Previous
projections indicated that these Foreign Tax Credits would expire unused and
therefore previous Federal tax provisions had not given benefit to these Foreign
Tax Credits. This decrease is somewhat offset by an increase in taxable income
over the prior period.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $2 million
(57%) for the quarter ended September 30, 1998, as compared to the same period
of 1997, is primarily attributable to PSI's redemption of all outstanding shares
of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative
Preferred Stock on September 1, 1997, and March 1, 1998, respectively.
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months
Ended September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $1,955 $1,843 35,898 33,934
Sales for resale 1,790 1,056 63,349 46,283
Other 38 25 N/A N/A
------ ------ ------ ------
Total $3,783 $2,924 99,247 80,217
Electric operating revenues increased $859 million (29%) for the nine months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to increased volumes and a higher average price per kwh received
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the primary metals and miscellaneous
manufacturers sectors.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30 _
Revenue Mcf Sales
1998 1997 1998 1997
($ and mcf in millions)
Sales for resale $380 $ - 195 -
Retail 248 300 37 45
Transportation 28 24 42 40
Other 10 3 N/A N/A
---- ---- --- ---
Total $666 $327 274 85
Gas operating revenues increased $339 million for the nine months ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy, which was acquired in
June 1998. This increase was partially offset by a decline in retail sales due
to lower mcf volumes reflecting, in part, the milder weather during the first
quarter of 1998, and a reduction in the average number of commercial and
industrial customers. Transportation revenues increased as customers continued
the trend of purchasing gas directly from suppliers, using transportation
services provided by CG&E.
Other Revenues
Other revenues for the nine months ended September 30, 1998, increased $22
million, over the same period of 1997. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
<PAGE>
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 542 $ 507
Purchased and exchanged power 1,777 964
------ ------
Total $2,319 $1,471
Electric fuel costs increased $35 million (7%) for the first nine months of
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Nine Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $507
Increase (Decrease) due to change in:
Price of fuel (16)
Deferred fuel cost 12
Kwh generation 39
----
Fuel expense - September 30, 1998 $542
Purchased and exchanged power expense increased $813 million (84%) for the nine
months ended September 30, 1998, when compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others.
Also contributing to the increase was a higher average price paid per kwh and
increased demand due to the warmer than normal weather for the comparable period
of 1997.
Gas Purchased
Gas purchased for the nine months ended September 30, 1998, increased $343
million when compared to the same period last year, primarily due to the
acquisition of ProEnergy in June 1998, and its related gas purchased expense.
Slightly offsetting this increase is a decrease in the retail volumes of gas
purchased by CG&E, due to lower demand, and a lower average cost per mcf of gas
paid by CG&E.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Other operation $629 $508
Maintenance 145 144
---- ----
Total $774 $652
<PAGE>
Other operation expenses increased $121 million (24%) for the nine months ended
September 30, 1998, as compared to the same period last year. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase was also the result of increased growth
and new initiatives by certain of Cinergy's consolidated non-regulated
businesses.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Depreciation $221 $216
Amortization of phase-in deferrals 17 10
Amortization of post-in-service
deferred operating expenses 3 3
---- ----
Total $241 $229
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Equity in Earnings of Unconsolidated Subsidiaries
For the nine months ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries decreased $9 million (22%), as compared to the same
period of last year. This decrease is primarily attributable to the decline in
the earnings of Midlands, which is due to milder weather conditions and a
penalty imposed on each electric distribution company due to the delay in
opening the electricity supply business to competition.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $15 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily to a litigation settlement (see Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information") and a gain recorded in 1997 on
the sale of a PSI investment.
Income Taxes
Income taxes decreased $70 million (48%) for the nine months ended September 30,
1998, as compared to the same period of 1997, primarily due to a decrease in
taxable income over the prior period. Also contributing to the decrease is
Cinergy's recognition of Foreign Tax Credits in the third quarter of 1998.
Previous projections indicated that these Foreign Tax Credits would expire
unused and therefore previous Federal tax provisions had not given benefit to
these Foreign Tax Credits.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $4 million
(46%)for the nine months ended September 30, 1998, as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series
Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
<PAGE>
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Twelve Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------- -------
($ and kwh in millions)
Retail $2,566 $2,445 47,264 44,905
Sales for resale 2,103 1,152 74,546 48,525
Other 52 35 N/A N/A
------ ------ ------- ------
Total $4,721 $3,632 121,810 93,430
Electric operating revenues increased $1.1 billion (30%) for the twelve months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to increased volumes and a higher average price per kwh received
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the primary metals, transportation
equipment, and miscellaneous manufacturers sectors.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Twelve Months Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $380 $ - 195 -
Retail 402 458 61 70
Transportation 37 30 56 52
Other 11 7 N/A N/A
---- ---- --- ---
Total $830 $495 312 122
Gas operating revenues increased $335 million (68%) for the twelve months ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy, which was acquired in
June 1998. This increase was partially offset by a decline in retail revenues
reflecting reduced mcf volumes due, in part, to the milder weather during the
first quarter of 1998, and a decline in the average number of commercial and
industrial customers. Transportation revenues increased as customers continued
the trend of purchasing gas directly from suppliers, using transportation
services provided by CG&E.
<PAGE>
Other Revenues
Other revenues for the twelve months ended September 30, 1998, increased $25
million (80%), over the same period of 1997. This increase was primarily the
result of increased sales and new initiatives by certain of Cinergy's
non-regulated entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Twelve Months Ended
September 30
1998 1997
(in millions)
Fuel $ 728 $ 681
Purchased and exchanged power 2,033 1,027
------ ------
Total $2,761 $1,708
Electric fuel costs increased $47 million (7%) for the twelve months ended
September 30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Twelve Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $681
Increase (Decrease) due to change in:
Price of fuel (11)
Deferred fuel cost (4)
Kwh generation 62
----
Fuel expense - September 30, 1998 $728
Purchased and exchanged power expense increased $1.1 billion (62%) for the
twelve months ended September 30, 1998, when compared to the same period of last
year, primarily reflecting increased purchases of non-firm power for resale to
others. Also contributing to the increase was a higher average price paid per
kwh and increased demand due to the warmer than normal weather for the
comparable period of 1997.
Gas Purchased
Gas purchased for the twelve months ended September 30, 1998, increased $335
million when compared to the same period last year, primarily due to the
acquisition of ProEnergy in June 1998, and its related gas purchased expense.
Slightly offsetting this increase is a decrease in the volumes of gas purchased
by CG&E, due to lower demand, and a lower average cost per mcf of gas paid by
CG&E.
<PAGE>
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Twelve Months Ended
September 30
1998 1997
(in millions)
Other operation $809 $704
Maintenance 182 196
---- ----
Total $991 $900
Other operation expenses increased $105 million (15%) for the twelve months
ended September 30, 1998, as compared to the same period last year. This
increase is primarily due to the one-time charge of $80 million recorded during
the second quarter of 1998, reflecting the implementation of a 1989 settlement
of a dispute with the WVPA (see Note 14 of the "Notes to Financial Statements"
in "Part I. Financial Information"). This increase was also the result of
increased growth and new initiatives by certain of Cinergy's consolidated
non-regulated businesses.
Maintenance expenses decreased $14 million (7%) for the twelve months ended
September 30, 1998, as compared to the same period of 1997, primarily due to
decreased outage related expenses at PSI's and CG&E's production facilities.
Equity in Earnings of Unconsolidated Subsidiaries
For the twelve months ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries decreased $7 million (11%), as compared to the same
period of last year. This decrease is partially due to a decline in the earnings
of Midlands, which is due to milder weather conditions and a penalty imposed on
each electric distribution company due to the delay in opening the electricity
supply business to competition. The decrease also reflects losses on certain
non-utility subsidiaries.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $9 million for the twelve
months ended September 30, 1998, as compared to the same period of 1997, is due,
in part, to a litigation settlement (see Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information").
Income Taxes
Income taxes decreased $41 million (22%) for the twelve months ended September
30, 1998, as compared to the same period of 1997, primarily due to a decrease in
taxable income over the prior period. Also contributing to the decrease is
Cinergy's recognition of Foreign Tax Credits in the third quarter of 1998.
Previous projections indicated that these Foreign Tax Credits would expire
unused and therefore previous Federal tax provisions had not given benefit to
these Foreign Tax Credits.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $5 million
(37%) for the twelve months ended September 30, 1998, as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series
Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 6,321 $ 2,349
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 148,494 27,193
Accounts receivable less accumulated provision
for doubtful accounts of $14,855 at September
30, 1998, and $9,199 at December 31, 1997 336,489 193,549
Accounts receivable from affiliated companies 6,553 35,507
Materials, supplies, and fuel - at average cost 106,846 107,967
Prepayments and other 36,543 31,827
---------- ----------
642,419 399,565
Utility Plant - Original Cost
In service
Electric 4,747,890 4,700,631
Gas 772,006 746,903
Common 185,896 186,078
---------- ----------
5,705,792 5,633,612
Accumulated depreciation 2,116,313 2,008,005
---------- ----------
3,589,479 3,625,607
Construction work in progress 151,226 118,133
---------- ----------
Total utility plant 3,740,705 3,743,740
Other Assets
Regulatory assets 678,344 667,765
Other 92,517 103,368
---------- ----------
770,861 771,133
$5,153,985 $4,914,438
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 415,171 $ 249,538
Accounts payable to affiliated companies 19,243 10,821
Accrued taxes 168,019 149,129
Accrued interest 29,362 25,430
Notes payable and other short-term obligations 230,276 289,000
Notes payable to affiliated companies 8,747 12,253
Long-term debt due within one year 130,000 -
Other 25,780 29,950
---------- ----------
1,026,598 766,121
Non-Current Liabilities
Long-term debt 1,199,633 1,324,432
Deferred income taxes 824,741 794,396
Unamortized investment tax credits 112,328 116,966
Accrued pension and other postretirement
benefit costs 142,810 180,566
Other 186,389 100,576
---------- ----------
2,465,901 2,516,936
Total liabilities 3,492,499 3,283,057
Cumulative Preferred Stock
Not subject to mandatory redemption 20,725 20,793
Common Stock Equity
Common stock - $8.50 par value; authorized
shares - 120,000,000; outstanding shares
- 89,663,086 at September 30, 1998, and
December 31, 1997 762,136 762,136
Paid-in capital 534,672 534,649
Retained earnings 344,858 314,553
Accumulated other comprehensive loss (905) (750)
---------- ----------
Total common stock equity 1,640,761 1,610,588
$5,153,985 $4,914,438
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
<S> <C> <C> <C> <C>
Electric $827,387 $672,372 $1,960,334 $1,485,974
Gas 56,505 39,944 280,437 326,969
-------- -------- ---------- ----------
883,892 712,316 2,240,771 1,812,943
Operating Expenses
Fuel and purchased and exchanged
power 518,393 387,363 1,162,004 687,368
Gas purchased 21,539 15,601 139,784 175,395
Other operation and maintenance 96,193 96,851 302,764 307,316
Depreciation and amortization 47,267 45,028 142,877 134,696
Taxes other than income taxes 54,089 52,980 162,484 159,001
-------- -------- ---------- ----------
737,481 597,823 1,909,913 1,463,776
Operating Income 146,411 114,493 330,858 349,167
Other Income and (Expenses) - Net 511 (1,832) (2,349) (6,658)
Interest 25,072 27,633 77,034 87,627
-------- -------- ---------- ----------
Income Before Taxes 121,850 85,028 251,475 254,882
Income Taxes 43,178 32,724 88,925 96,825
-------- -------- ---------- ----------
Net Income $ 78,672 $ 52,304 $ 162,550 $ 158,057
Preferred Dividend Requirement 214 217 644 653
-------- -------- ---------- ----------
Net Income Applicable to Common
Stock $ 78,458 $ 52,087 $ 161,906 $ 157,404
Other Comprehensive Income (Loss),
Net of Tax - - (155) -
-------- -------- ---------- ----------
Comprehensive Income $ 78,458 $ 52,087 $ 161,751 $ 157,404
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
<S> <C> <C>
Net income $ 162,550 $ 158,057
Items providing (using) cash currently:
Depreciation and amortization 142,877 134,696
Deferred income taxes and investment tax
credits - net (11,592) 18,238
Allowance for equity funds used during
construction (770) (154)
Regulatory assets - net 23,716 15,147
Changes in current assets and current
liabilities
Restricted deposits - (2)
Accounts and notes receivable, net of
reserves on receivables sold (232,865) (42,472)
Materials, supplies, and fuel 1,121 415
Accounts payable 174,055 85,545
Accrued taxes and interest 22,822 (7,135)
Other items - net 38,295 (12,251)
--------- ---------
Net cash provided by operating
activities 320,209 350,084
Financing Activities
Retirement of preferred stock (45) (158)
Issuance of long-term debt 223,020 -
Redemption of long-term debt (220,409) (290,612)
Change in short-term debt (62,230) 178,844
Dividends on preferred stock (645) (655)
Dividends on common stock (132,245) (127,800)
--------- ---------
Net cash used in financing
activities (192,554) (240,381)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (123,683) (106,612)
Net cash used in investing
activities (123,683) (106,612)
Net increase in cash and temporary cash
investments 3,972 3,091
Cash and temporary cash investments at
beginning of period 2,349 5,120
--------- ---------
Cash and temporary cash investments at
end of period $ 6,321 $ 8,211
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
($ and kwh in millions)
Retail $397 $372 6,423 6,025
Sales for resale 425 298 12,209 13,913
Other 5 2 N/A N/A
---- ---- ------ ------
Total $827 $672 18,632 19,938
Electric operating revenues increased $155 million (23%) for the quarter ended
September 30, 1998, from the comparable period of 1997. This increase was
primarily a result of a higher average price per kwh received on sales for
resale transactions. There was also an increase in the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase was higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average number of
residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
($ and mcf in millions)
Retail $48 $33 6 4
Transportation 8 6 11 12
Other 1 1 N/A N/A
--- --- --- ---
Total $57 $40 17 16
Gas operating revenues increased $17 million (41%) in the third quarter of 1998,
when compared to the same period last year, primarily attributable to the annual
true-up of estimated revenues.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $ 93 $ 89
Purchased and exchanged power 425 298
---- ----
Total $518 $387
<PAGE>
Electric fuel costs increased $4 million (4%) for the quarter ended September
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $89
Increase (Decrease) due to change in:
Deferred fuel cost (2)
Kwh generation 6
Fuel expense - September 30, 1998 $93
Purchased and exchanged power expense increased $127 million for the quarter
ended September 30, 1998, when compared to the same period of last year,
primarily reflecting an increase in the average price paid per kwh.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, increased $6 million
(38%), when compared to the same period last year, primarily due to an increase
in the average cost per mcf of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $73 $76
Maintenance 23 21
--- ---
Total $96 $97
Maintenance expenses increased $2 million (10%) for the quarter ended September
30, 1998, as compared to the same period of 1997, primarily due to an increase
in production maintenance at Beckjord and East Bend.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Depreciation $41 $41
Amortization of phase-in deferrals 5 3
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $47 $45
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
<PAGE>
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2 million for the quarter
ended September 30, 1998, as compared to the same period of 1997, is due
primarily to an increase in interest income resulting from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement.
Interest
The components of interest expense are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $25,445 $25,973
Other interest 942 3,001
Allowance for borrowed funds used
during construction (1,315) (1,341)
------- -------
Total $25,072 $27,633
The decrease in interest expense of $3 million (9%) for the quarter ended
September 30, 1998, as compared to the same period last year, was primarily due
to a reduction in other interest expense resulting from decreases in both the
average short-term debt borrowings and the short-term debt rates.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $1,075 $ 994 17,357 16,575
Sales for resale 873 484 30,825 23,006
Other 12 8 N/A N/A
------ ------ ------ ------
Total $1,960 $1,486 48,182 39,581
Electric operating revenues increased $474 million (32%) for the nine months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to a higher average price per kwh received and increased volumes
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather and growth in the average number of
residential and commercial customers.
<PAGE>
as Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30
Revenue Mcf Sales
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Retail $248 $300 37 45
Transportation 28 24 42 40
Other 4 3 N/A N/A
---- ---- --- ---
Total $280 $327 79 85
Gas operating revenues decreased $47 million (14%) for the nine months ended
September 30, 1998, when compared to the same period last year. Decreased retail
revenues reflecting a decline in mcf sales due to the milder weather during the
first quarter of 1998 was the primary reason for this decrease. A decrease in
the average number of commercial and industrial customers also contributed to
the decline in revenues. Partially offsetting the decline was an increase in
transportation revenues, as customers continued the trend of purchasing gas
directly from suppliers, using transportation services provided by CG&E.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 258 $219
Purchased and exchanged power 904 468
------ ----
Total $1,162 $687
Electric fuel costs increased $39 million (18%) for the nine months ended
September 30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Nine Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $219
Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost 33
Kwh generation 7
----
Fuel expense - September 30, 1998 $258
Purchased and exchanged power expense increased $436 million (93%) for the nine
months ended September 30, 1998, when compared to the same period last year,
primarily reflecting a higher average price paid per kwh and increased purchases
of power for resale to others.
<PAGE>
Gas Purchased
Gas purchased for the nine months ended September 30, 1998, decreased $36
million (20%) when compared to the same period last year, reflecting a decrease
in the volumes of gas purchased, due to lower demand, and a lower average cost
per mcf of gas purchased.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Depreciation $123 $122
Amortization of phase-in deferrals 17 10
Amortization of post-in-service
deferred operating expenses 3 3
---- ----
Total $143 $135
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $4 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is
largely due to an increase in interest income resulting from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement and an adjustment recorded in 1997 related to the sale of certain
assets.
Interest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $75,913 $83,850
Other interest 5,312 7,259
Allowance for borrowed funds used
during construction (4,191) (3,482)
------- -------
Total $77,034 $87,627
The decrease in interest expense of $11 million (12%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to
decreases in both interest on long-term debt and other interest expense. The
decrease in interest expense on long-term debt was primarily due to a net
redemption of approximately $116 million of long-term debt during the period
from March 1997 through May 1998. The decrease in other interest is due to a
reduction in average short-term borrowings.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
<S> <C> <C>
Cash and temporary cash investments $ 30,488 $ 18,169
Restricted deposits 359 1,146
Notes receivable 79 110
Notes receivable from affiliated companies 8,752 21,998
Accounts receivable less accumulated provision
for doubtful accounts of $5,760 at September
30, 1998, and $1,183 at December 31, 1997 370,260 197,898
Accounts receivable from affiliated companies 302 4,516
Materials, supplies, and fuel - at average cost 74,732 55,189
Prepayments and other 13,962 4,405
---------- ----------
Total current assets 498,934 303,431
Electric Utility Plant - Original Cost
In service 4,354,315 4,280,551
Accumulated depreciation 1,866,373 1,792,317
---------- ----------
2,487,942 2,488,234
Construction work in progress 75,135 65,129
---------- ----------
Total electric utility plant 2,563,077 2,553,363
Other Assets
Regulatory assets 355,307 409,086
Other 119,713 127,945
---------- ----------
Total other assets 475,020 537,031
$3,537,031 $3,393,825
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
<S> <C> <C>
Accounts payable $ 368,606 $ 212,833
Accounts payable to affiliated companies 20,757 40,714
Accrued taxes 68,492 69,310
Accrued interest 19,938 21,369
Notes payable and other short-term obligations 117,084 190,600
Notes payable to affiliated companies 163,897 16,435
Long-term debt due within one year 56,000 85,000
Other 2,385 2,560
---------- ----------
817,159 638,821
Non-Current Liabilities
Long-term debt 976,623 826,470
Deferred income taxes 371,490 403,535
Unamortized investment tax credits 46,702 49,296
Accrued pension and other postretirement
benefit costs 109,626 116,576
Other 164,616 176,271
---------- ----------
1,669,057 1,572,148
Total liabilities 2,486,216 2,210,969
Cumulative Preferred Stock
Not subject to mandatory redemption 71,923 157,196
Common Stock Equity
Common stock - without par value; $0.01
stated value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 at September
30, 1998, and December 31, 1997 539 539
Paid-in capital 400,916 390,188
Retained earnings 578,079 636,519
Accumulated other comprehensive loss (642) (1,586)
---------- ----------
Total common stock equity 978,892 1,025,660
$3,537,031 $3,393,825
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
<S> <C> <C> <C> <C>
Electric $807,181 $650,987 $1,910,836 $1,464,380
Operating Expenses
Fuel and purchased and exchanged
power 584,415 425,228 1,242,253 810,032
Other operation and maintenance 110,051 102,742 400,431 310,291
Depreciation and amortization 32,688 31,820 97,433 94,800
Taxes other than income taxes 14,882 14,011 44,356 44,191
-------- -------- ---------- ----------
742,036 573,801 1,784,473 1,259,314
Operating Income 65,145 77,186 126,363 205,066
Other Income and (Expenses) - Net (315) 6,512 1,616 9,390
Interest 21,975 21,369 67,771 63,321
-------- -------- ---------- ----------
Income Before Taxes 42,855 62,329 60,208 151,135
Income Taxes 16,063 21,839 21,106 55,459
-------- -------- ---------- ----------
Net Income $ 26,792 $ 40,490 $ 39,102 $ 95,676
Preferred Dividend Requirement 1,151 2,925 4,509 8,964
-------- -------- ---------- ----------
Net Income Applicable to
Common Stock $ 25,641 $ 37,565 $ 34,593 $ 86,712
Other Comprehensive Income,
Net of Tax - - 944 -
-------- -------- ---------- -----------
Comprehensive Income $ 25,641 $ 37,565 $ 35,537 $ 86,712
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
<S> <C> <C>
Net income $ 39,102 $ 95,676
Items providing (using) cash currently:
Depreciation and amortization 97,433 94,800
WVPA settlement 80,000 -
Deferred income taxes and investment tax
credits - net (44,433) (13,548)
Allowance for equity funds used during
construction (23) (35)
Regulatory assets - net 33,406 25,208
Changes in current assets and current
liabilities
Restricted deposits 787 (227)
Accounts and notes receivable, net of
reserves on receivables sold (158,099) (173,862)
Materials, supplies, and fuel (19,543) 9,456
Accounts payable 135,816 99,810
Accrued taxes and interest (2,249) 15,785
Other items - net 12,994 (7,768)
--------- ---------
Net cash provided by operating
activities 175,191 145,295
Financing Activities
Issuance of long-term debt 150,021 -
Retirement of preferred stock (85,247) (16 024)
Redemption of long-term debt (113,336) (45,700)
Change in short-term debt 73,946 125,430
Dividends on preferred stock (5,037) (9,059)
Dividends on common stock (81,800) (85,200)
--------- ---------
Net cash used in financing activities (61,453) (30,553)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (101,419) (96,423)
Net cash used in investing activities (101,419) (96,423)
Net increase in cash and temporary cash
investments 12,319 18,319
Cash and temporary cash investments at
beginning of period 18,169 2,911
--------- ---------
Cash and temporary cash investments at
end of period $ 30,488 $ 21,230
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Quarter Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
---- ---- ------ -------
($ and kwh in millions)
Retail $315 $299 6,590 6,074
Sales for resale 481 345 13,980 13,321
Other 11 7 N/A N/A
---- ---- ------ ------
Total $807 $651 20,570 19,395
Operating revenues increased $156 million (24%) for the quarter ended September
30, 1998, from the comparable period of 1997. This increase was primarily a
result of a higher average price per kwh received and increased volumes on sales
for resale transactions. There was also an increase in the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase were higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average number of
residential and commercial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $113 $109
Purchased and exchanged power 471 316
---- ----
Total $584 $425
Fuel costs increased $4 million (4%) for the third quarter of 1998, as compared
to the same period last year.
An analysis of fuel costs is shown below:
Quarter Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $109
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost (2)
Kwh generation 12
----
Fuel expense - September 30, 1998 $113
<PAGE>
Purchased and exchanged power expense increased $155 million (49%) for the
quarter ended September 30, 1998, when compared to the same period last year,
primarily reflecting an increase in the average price paid per kwh and increased
demand due to the warmer than normal weather for the third quarter of 1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $ 83 $ 81
Maintenance 27 22
---- ----
Total $110 $103
Maintenance expense increased $5 million (23%) for the quarter ended September
30, 1998, as compared to the same period of 1997, primarily due to an increase
in production maintenance at Wabash River, Cayuga, and Gibson, and an increase
in distribution line maintenance.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $7 million for the quarter
ended September 30, 1998, as compared to the same period of 1997, is primarily
attributable to a gain recorded in 1997 on the sale of an investment.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $2 million (61%) for the
quarter ended September 30, 1998, as compared to the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $ 880 $ 849 18,541 17,358
Sales for resale 1,003 599 35,789 24,893
Other 28 16 N/A N/A
------ ------ ------ ------
Total $1,911 $1,464 54,330 42,251
Total operating revenues increased $446 million (30%) for the nine months ended
September 30, 1998, when compared to the same period last year. This increase
was primarily due to increased volumes and a higher average price per kwh
received on sales for resale transactions. There was also an increase in the
average price per kwh paid for the corresponding purchases of purchased and
<PAGE>
exchanged power described below. Also contributing to the increase were higher
retail kwh sales due to the warmer than normal weather during 1998, and an
increase in industrial sales, primarily reflecting growth in the primary metals
and transportation equipment sectors.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 284 $288
Purchased and exchanged power 958 522
------ ----
Total $1,242 $810
Fuel costs decreased $4 million (1%) for the nine months ended September 30,
1998, when compared to the same period last year.
An analysis of fuel costs is shown below:
Nine Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $288
Increase (Decrease) due to change in:
Price of fuel (15)
Deferred fuel cost (21)
Kwh generation 32
----
Fuel expense - September 30, 1998 $284
Purchased and exchanged power expense increased $436 million (84%) for the nine
months ended September 30, 1998, when compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others.
Also contributing to the increase were a higher average price paid per kwh and
increased demand due to warmer than normal weather for the comparable period of
1997.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Other operation $326 $243
Maintenance 74 67
---- ----
Total $400 $310
Other operation expenses increased $83 million (34%) for the nine months ended
September 30, 1998, as compared to the same period last year. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information").
<PAGE>
Maintenance expenses increased $7 million (10%) for the nine months ended
September 30, 1998, as compared to the same period of 1997, primarily due to an
increase in production maintenance at Wabash River, Cayuga, and Gibson, and an
increase in distribution line maintenance.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $8 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily to a gain recorded in 1997 on the sale of an investment and DSM
carrying costs also recorded in 1997.
Interest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $60,459 $53,928
Other interest 8,976 10,630
Allowance for borrowed funds used
during construction (1,664) (1,237)
------- -------
Total $67,771 $63,321
The increase in interest expense of $4 million (7%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to an
increase of $7 million in interest on long-term debt, which was partially offset
by a decrease of $2 million in other interest expense. The increase in interest
on long-term debt was due primarily to the net issuance of approximately $303
million of long-term debt during the period from February 1997 to August 1998.
The decrease in other interest expense was primarily due to a reduction in
average short-term borrowings.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $4 million (50%) for the nine
months ended September 30, 1998, as compared to the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
<PAGE>
THE UNION LIGHT, HEAT
AND POWER COMPANY
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
<S> <C> <C>
Cash and temporary cash investments $ 2,802 $ 546
Accounts receivable less accumulated provision
for doubtful accounts of $1,015 at
September 30, 1998, and $996 at December
31, 1997 6,105 7,308
Accounts receivable from affiliated companies 10 446
Materials, supplies, and fuel - at average cost 9,674 6,094
Prepayments and other 462 385
-------- --------
Total current assets 19,053 14,779
Utility Plant - Original Cost
In service
Electric 209,763 204,111
Gas 162,354 155,167
Common 19,075 19,073
-------- --------
391,192 378,351
Accumulated depreciation 141,642 133,213
-------- --------
249,550 245,138
Construction work in progress 25,369 14,346
-------- --------
Total utility plant 274,919 259,484
Other Assets
Regulatory assets 11,063 11,065
Other 3,844 6,262
-------- --------
14,907 17,327
$308,879 $291,590
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
<S> <C> <C>
Accounts payable $ 4,689 $ 11,097
Accounts payable to affiliated companies 19,128 19,712
Accrued taxes 1,837 6,332
Accrued interest 1,674 1,286
Notes payable to affiliated companies 39,744 23,487
Long-term debt due within one year 20,000 -
Other 4,021 4,364
-------- --------
91,093 66,278
Non-Current Liabilities
Long-term debt 34,534 44,671
Deferred income taxes 27,741 26,211
Unamortized investment tax credits 4,307 4,516
Accrued pension and other postretirement
benefit costs 11,434 14,044
Amounts due to customers - income taxes 7,760 6,566
Other 7,447 6,391
-------- --------
93,223 102,399
Total liabilities 184,316 168,677
Common Stock Equity
Common stock - $15.00 par value; authorized
shares - 1,000,000; outstanding shares -
585,333 at September 30, 1998, and
December 31, 1997 8,780 8,780
Paid-in capital 18,683 18,683
Retained earnings 97,100 95,450
-------- --------
Total common stock equity 124,563 122,913
$308,879 $291,590
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
<S> <C> <C> <C> <C>
Electric $56,368 $56,666 $144,903 $152,560
Gas 7,077 8,647 44,183 53,625
------- ------- -------- --------
63,445 65,313 189,086 206,185
Operating Expenses
Electricity purchased from parent
company for resale 41,827 44,237 110,338 113,992
Gas purchased 2,691 3,002 23,211 30,006
Other operation and maintenance 8,987 9,402 27,319 29,198
Depreciation 3,296 3,048 9,737 9,229
Taxes other than income taxes 1,024 905 3,058 3,119
------- ------- -------- --------
57,825 60,594 173,663 185,544
Operating Income 5,620 4,719 15,423 20,641
Other Income and (Expenses) - Net (175) (596) (1,051) (1,534)
Interest 1,244 1,153 3,328 3,512
------- ------- -------- --------
Income Before Taxes 4,201 2,970 11,044 15,595
Income Taxes 1,696 731 4,418 6,078
------- ------- -------- --------
Net Income $ 2,505 $ 2,239 $ 6,626 $ 9,517
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
<S> <C> <C>
Net income $ 6,626 $ 9,517
Items providing (using) cash currently:
Depreciation 9,737 9,229
Deferred income taxes and investment tax
credits - net 1,763 (322)
Allowance for equity funds used during
construction (150) (33)
Regulatory assets (31) (312)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 3,515 7,687
Materials, supplies, and fuel (3,580) (354)
Accounts payable (6,992) (9,819)
Accrued taxes and interest (4,107) 6,504
Other items - net (330) 5,267
-------- --------
Net cash provided by operating
activities 6,451 27,364
Financing Activities
Issuance of long-term debt 20,127 -
Redemption of long-term debt (10,118) -
Change in short-term debt 16,257 (5,988)
Dividends on common stock (4,975) (4,975)
-------- --------
Net cash provided by (used in)
financing activities 21,291 (10,963)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (25,486) (14,808)
Net cash used in investing
activities (25,486) (14,808)
Net increase in cash and temporary cash
investments 2,256 1,593
Cash and temporary cash investments at
beginning of period 546 1,197
-------- --------
Cash and temporary cash investments at
end of period $ 2,802 $ 2,790
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
------ ------ ----- -----
($ and mcf in thousands)
Retail $6,133 $7,837 764 934
Transportation 819 682 779 854
Other 125 128 14 25
------ ------ ----- -----
Total $7,077 $8,647 1,557 1,813
Gas operating revenues decreased $2 million (18%) in the third quarter of 1998,
when compared to the same period last year, primarily due to a decrease in mcf
volumes sold.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $2 million (5%) for the quarter ended September
30, 1998, as compared to the same period last year. This decrease reflects lower
volumes purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, decreased $.3 million
(10%), when compared to the same period last year, primarily due to a decrease
in the volumes of gas purchased, due to lower demand.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Other operation $7,514 $7,967
Maintenance 1,473 1,435
------ -------
Total $8,987 $9,402
Other operation expenses decreased $.4 million (6%) for the quarter ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in distribution expenses.
Depreciation
Depreciation increased $.2 million (8%) for the quarter ended September 30,
1998, as compared to the same period last year, due to additions to depreciable
plant.
<PAGE>
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.4 million for the quarter
ended September 30, 1998, as compared to the same period of 1997, is primarily
attributable to a decrease in expenses associated with the sales of accounts
receivable and an increase in allowance for equity funds used during
construction resulting from an increase in the average balance of CWIP.
Interest
The components of interest expense are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $1,011 $ 881
Other interest 409 317
Allowance for borrowed funds used
during construction (176) (45)
------ ------
Total $1,244 $1,153
The increase in interest expense of $.1 million (8%) for the quarter ended
September 30, 1998, as compared to the same period last year, was due to changes
in interest on long-term debt, other interest, and allowance for borrowed funds
used during construction. The increase in interest on long-term debt was due
primarily to the net issuance of approximately $10 million of long-term debt
during April 1998. Increased short-term borrowings and a higher average balance
of CWIP contributed to the increase in other interest expense and allowance for
borrowed funds used during construction, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $8 million (5%) for the nine months ended
September 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue which was recorded
in the second quarter of 1998, which resulted in a decrease in electric
operating revenues of $3.6 million and a corresponding decrease to operating
income and net income of $1.7 million.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
------- ------- ------ -------
($ and mcf in thousands)
Retail $40,586 $50,297 6,361 7,427
Transportation 2,904 2,518 2,734 2,740
Other 693 810 97 131
------- ------- ----- ------
Total $44,183 $53,625 9,192 10,298
<PAGE>
Gas operating revenues decreased $9 million (18%) for the nine months ended
September 30, 1998, when compared to the same period of last year. Decreased
volumes reflecting the milder weather during the first quarter of 1998, along
with a decrease in the price of gas sold, primarily attributed to the revenue
decrease.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $4 million (3%) for the nine months ended
September 30, 1998, as compared to the same period last year. This decrease
reflects lower volumes purchased from CG&E.
Gas Purchased
Gas purchased for the nine months ended September 30, 1998, decreased $7 million
(23%), when compared to the same period in 1997. This decrease reflects a
decline in the average cost per mcf of gas purchased and lower volumes of gas
purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Other operation $23,176 $24,705
Maintenance 4,143 4,493
------- --------
Total $27,319 $29,198
Other operation expenses declined $2 million (6%) for the nine months ended
September 30, 1998, as compared to the same period last year, primarily due to
decreases in distribution and administrative and general expenses.
Maintenance expenses declined $.4 million (8%) for the nine months ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in distribution maintenance.
Depreciation
Depreciation increased $.5 million (6%) for the nine months ended September 30,
1998, as compared to the same period last year, due to additions to depreciable
plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.5 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily to a decrease in expenses associated with the sales of accounts
receivable and an increase in allowance for equity funds used during
construction resulting from an increase in the average balance of CWIP.
<PAGE>
Interest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $2,845 $2,643
Other interest 958 951
Allowance for borrowed funds used
during construction (475) (82)
------ ------
Total $3,328 $3,512
The decrease in interest expense of $.2 million (5%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to changes
in interest on long-term debt and allowance for borrowed funds used during
construction. The increase in interest on long-term debt was due primarily to
the net issuance of approximately $10 million of long-term debt during April
1998. Allowance for borrowed funds used during construction increased primarily
as a result of an increase in the average balance of CWIP.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include normal,
recurring adjustments and those adjustments discussed in Notes 9 and 14)
necessary in the opinion of the registrants for a fair presentation of the
interim results. These statements should be read in conjunction with the
Financial Statements and the notes thereto included in the combined 1997
Form 10-K of the registrants.
TheStatements of Income in this report have been reclassified in order to
present the operations of all non-regulated entities as a component of
operating income. Prior to this reclassification, the operations of such
entities were reflected in "Other Income and Expense - Net." Similarly,
"Income Taxes" now includes the income taxes associated with the
non-regulated entities. These changes had no effect on net income.
Additionally, the Balance Sheets have been reformatted.
Cinergy and CG&E
2. On April 7, 1998, CG&E issued and sold $100 million principal amount of its
6.40% Debentures due April 1, 2008. Proceeds from the sale were used to
repay short-term indebtedness incurred in connection with CG&E's March 1998
redemptions of $100 million principal amount of its 8 1/2% Series First
Mortgage Bonds due 2022 and $60 million principal amount of its 7 3/8%
Series First Mortgage Bonds due 2001.
3. On May 1, 1998, CG&E redeemed the entire $50 million principal amount of
its 7 3/8% Series First Mortgage Bonds due 1999, at the regular redemption
price of 100.00%. This redemption effectively eliminates the maintenance
and replacement fund provisions of CG&E's First Mortgage Bond indenture,
which provisions required CG&E to make cash payments, deposit bonds, or
pledge unfunded property additions to the trustee each year based on an
amount related to net revenues.
4. On June 15, 1998, CG&E issued and sold $100 million principal amount of
unsecured Reset Put Securities. These debentures will bear interest at a
rate of 6.35% for the first five years, and the interest rate may be reset
on June 15, 2003, and every five years thereafter to final maturity in 2038
if the callholder exercises its option on any reset date to purchase the
bonds and reset the interest rate. If the callholder does not exercise the
option on any reset date, the bonds will be redeemed by CG&E at par.
Proceeds from the sale were used to repay short-term indebtedness incurred
in connection with the redemption of CG&E's 7 3/8% First Mortgage Bonds
referred to above and for general corporate purposes.
Cinergy and PSI
5. On July 23, 1998, PSI redeemed the entire $24 million principal amount of
its 7 5/8% First Mortgage Bonds, Series Y due January 1, 2007, at the
redemption price of 102.11%, and the entire $26 million principal amount of
its 7% First Mortgage Bonds, Series S due January 1, 2002, at the
redemption price of 100.73%.
6. On August 5, 1998, PSI issued and sold $50 million principal amount of
unsecured Synthetic Putable Yield Securities. These debentures will bear
interest at a rate of 6.50% for the first seven years, and the interest
rate may be reset every seven years thereafter to final maturity in 2026 if
the callholder exercises its option on any reset date to purchase the bonds
and reset the interest rate. If the callholder does not exercise the option
on any reset date, the bonds will be redeemed by PSI at par. Proceeds from
the sale were used to repay short-term indebtedness incurred in connection
with PSI's July 1998 redemptions of the above-mentioned Series Y and Series
S First Mortgage Bonds.
<PAGE>
7. On August 12, 1998, the Indiana Development Finance Authority loaned the
proceeds from the sale of its $23 million principal amount of Environmental
Refunding Revenue Bonds, Series 1998, to PSI. The bonds, which are included
in notes payable and other short-term obligations in the consolidated
balance sheets, will bear interest initially at a daily rate, will mature
on August 1, 2028, and are backed by an irrevocable direct-pay letter of
credit through August 1, 2002. Proceeds from the sale were used to redeem
in September 1998, the $23 million 8 1/4% First Mortgage Bonds, Series QQ,
due June 15, 2013 (Pollution Control), at a redemption price of 102% plus
accrued interest.
Cinergy, CG&E, and ULH&P
8. On April 30, 1998, ULH&P issued and sold $20 million principal amount of
its 6.50% Debentures due April 30, 2008. Proceeds from the sale were used
by ULH&P to repay short-term indebtedness incurred in connection with the
redemption, on April 24, 1998, of $10 million principal amount of its 8%
Series First Mortgage Bonds, due 2003, and in connection with its
construction program. The redemption of said First Mortgage Bonds
effectively eliminates the maintenance and replacement fund provisions of
ULH&P's First Mortgage Bond indenture, which provisions required ULH&P to
make cash payments, deposit bonds, or pledge unfunded property additions to
the trustee each year based on an amount related to net revenues.
Cinergy, CG&E, and PSI
9. Cinergy's power marketing and trading function actively markets and trades
over-the-counter forward and option contracts for the purchase and sale of
electricity. The majority of these contracts are settled via physical
delivery of electricity or netted out in accordance with industry trading
standards. The Company also trades exchange-traded futures contracts.
Option premiums are deferred and included in the Consolidated Balance
Sheets and amortized to "Operating Revenues - Electric" or "Fuel and
purchased and exchanged power" in the Consolidated Statements of Income
over the term of the option contract. Cinergy values its portfolio of
contracts using the aggregate lower of cost or market method. To the extent
there are net aggregate losses in the portfolio, Cinergy reserves for such
losses. Net gains are recognized when realized. Due to the lack of
liquidity and the volatility currently experienced in the power markets,
significant assumptions must be made by the Company when estimating current
market values for purposes of the aggregate lower of cost or market
comparison. It is possible that the actual gains and losses from the
Company's power marketing and trading activities could differ substantially
from the gains and losses estimated currently.
Cinergy and its subsidiaries use derivative financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs, and
manage exposures to fluctuations in interest rates. Instruments used as
hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge
instruments must be highly correlated with changes in market values of the
underlying hedged items at inception of the hedge and over the life of the
hedge contract.
Cinergy utilizes foreign exchange forward contracts and currency swaps to
hedge certain of its net investments in foreign operations. Accordingly,
any translation gains or losses related to the foreign exchange forward
contracts or the principal exchange on the currency swap are recorded in
accumulated other comprehensive income, which is a separate component of
common stock equity. Aggregate translation losses related to these
instruments are reflected in "Current Liabilities Other" in the
Consolidated Balance Sheets.
<PAGE>
Interest rate swaps are accounted for under the accrual method.
Accordingly, gains and losses based on any interest differential between
fixed-rate and floating-rate interest amounts, calculated on agreed upon
notional principal amounts, are recognized in the Consolidated Statements
of Income as a component of interest expense as realized over the life of
the agreement.
Cinergy, CG&E, and PSI
10. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in
the U.S. District Court by three former employees of Enertech naming as
defendants Enertech, Cinergy, Investments, CG&E, PSI, James E. Rogers, and
William J. Grealis. (Mr. Rogers and/or Mr. Grealis are officers and/or
directors of the foregoing companies.) The lawsuit, which stemmed from the
termination of employment of the three former employees, alleged that they
entered into employment contracts with Enertech based on the opportunity to
participate in potential profits from future investments in energy projects
in Central and Eastern Europe. The suit alleged causes of action based
upon, among other theories, breach of contract related to the events
surrounding the termination of their employment and fraud and
misrepresentation related to the level of financial support for future
projects. The suit alleged compensatory damages of $154 million based upon
assumed future success of potential future investments and punitive damages
of three times that amount.
In April 1998, the parties reached a comprehensive settlement and all
claims were dismissed by the U.S. District Court. The obligations of the
Company arising out of the settlement are not material to its financial
condition or its results of operations.
11. As discussed in the 1997 Form 10-K, prior to the 1950s, gas was produced at
MGP sites through a process that involved the heating of coal and/or oil.
The gas produced from this process was sold for residential, commercial,
and industrial uses.
Coal tar residues, related hydrocarbons, and various metals associated with
MGP sites have been found at former MGP sites in Indiana, including at
least 21 MGP sites which PSI or its predecessors previously owned. In 1945,
PSI sold 19 of these sites to IGC, including the Shelbyville and Lafayette
sites. PSI or its predecessors acquired five of the 21 MGP sites from
NIPSCO (or its predecessors), which were among the 19 sites PSI sold to
IGC. Two other sites, located in Goshen and Warsaw, Indiana, were sold by
PSI's predecessor to NIPSCO in 1931.
PSI has received claims from IGC and NIPSCO that PSI is a PRP under the
CERCLA with respect to the 21 MGP sites, and therefore responsible for the
costs of investigating and remediating these sites. In August 1997, NIPSCO
filed suit against PSI in the United States District Court for the Northern
District of Indiana, South Bend Division, claiming, pursuant to the CERCLA,
recovery from PSI of NIPSCO's past and future costs of investigating and
remediating MGP related contamination at the Goshen MGP site. Recently,
NIPSCO increased its estimate of the cost of remediating the Goshen site to
approximately $3.8 million.
In November 1998, NIPSCO, IGC and PSI entered into a Site Participation and
Cost Sharing Agreement by which they settled allocation of CERCLA liability
for past and future costs, as between the three companies, at seven MGP
sites in Indiana, namely the sites located in Lafayette, Goshen, Warsaw,
Rochester, Frankfort, Crawfordsville, and Lebanon. Pursuant to the
agreement, NIPSCO's lawsuit against PSI, referenced above, will be
dismissed. The parties have assigned one of the parties lead responsibility
for managing any further investigation and remediation activities at each
of the sites.
<PAGE>
This agreement follows a similar agreement achieved between IGC and PSI in
August 1997, allocating CERCLA liability at 13 MGP sites with which NIPSCO
had no involvement. These two agreements, together with an agreement
between IGC and PSI entered into several years ago, relating to the
Shelbyville MGP site, conclude all CERCLA and similar claims between the
three companies relative to MGP sites. Pursuant to the agreements, the
parties are continuing to investigate and remediate the sites as
appropriate. In the case of some sites, the parties have applied to the
IDEM for inclusion of such sites in the Indiana Voluntary Remediation
Program.
PSI and IGC submitted a proposed agreed order to the IDEM in 1997 related
to the Shelbyville MGP site. On April 15, 1998, the IDEM signed the
proposed agreed order, which will result in a determination by the IDEM of
whether the activities previously undertaken at the site are sufficient to
adequately protect human health and the environment. Based upon
environmental investigations and remediation completed to date, PSI
believes that any further investigation and remediation required for the
Shelbyville site will not have a material adverse effect on its financial
condition or results of operations.
As also discussed in the 1997 Form 10-K, PSI previously placed its
insurance carriers on notice of IGC's, NIPSCO's, and the IDEM's claims
related to MGP sites. In April 1998, PSI filed suit in Hendricks County
Circuit Court against its general liability insurance carriers seeking,
among other matters, a declaratory judgment that its insurance carriers are
obligated to defend MGP claims against PSI or pay PSI's costs of defense
and to indemnify PSI for its costs of investigating, preventing,
mitigating, and remediating damage to property and paying claims associated
with MGP sites. PSI cannot predict the outcome of this litigation.
CG&E and its utility subsidiaries are aware of other sites owned or
previously owned by CG&E, its subsidiaries, or their predecessors, where
MGP activities may have occurred at some time in the past. None of these
sites is known to present a risk to the environment. CG&E and its utility
subsidiaries have undertaken preliminary site assessments to obtain more
information about some of these MGP sites.
Reserves recorded, based on information currently available, are not
material to Cinergy's financial condition or results of operations.
However, as further investigation and remediation activities are undertaken
at these sites, the potential liability for MGP sites could be material to
Cinergy's financial condition or results of operations.
Cinergy, CG&E, PSI, and ULH&P
12. Effective with the first quarter of 1998, Cinergy and its subsidiaries
adopted the provisions of Statement 130. Statement 130 establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources.
During the second quarter of 1998, the FASB issued Statement 133. The new
standard requires companies to record derivative instruments, as defined in
Statement 133, as assets or liabilities, measured at fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
<PAGE>
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
The standard is effective for fiscal years beginning after June 15, 1999,
and Cinergy expects to adopt the provisions of Statement 133 in the first
quarter of 2000.
The Company has not yet quantified the impacts of adopting Statement 133 on
its consolidated financial statements. However, Statement 133 could
increase volatility in earnings and other comprehensive income.
Cinergy
13. Presented below is a reconciliation of earnings per common share (basic
EPS) and earnings per common share assuming dilution (diluted EPS).
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Quarter ended September 30, 1998
Earnings per common share:
Net income $109,431 158,539 $ .69
Effect of dilutive securities:
Common stock options 606
Contingently issuable common
stock 104
EPS--assuming dilution:
Net income plus assumed
conversions $109,431 159,249 $ .69
Quarter ended September 30, 1997
Earnings per common share:
Net income before extraordinary
item $ 82,534 157,679 $ .53
Effect of dilutive securities:
Common stock options 885
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $ 82,534 158,768 $ .52
<PAGE>
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Nine months ended September 30, 1998
Earnings per common share:
Net income $189,569 158,110 $1.20
Effect of dilutive securities:
Common stock options 694
Contingently issuable common
stock 113
EPS--assuming dilution:
Net income plus assumed
conversions $189,569 158,917 $1.20
Nine months ended September 30, 1997
Earnings per common share:
Net income before extraordinary
item $252,140 157,679 $1.60
Effect of dilutive securities:
Common stock options 931
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $252,140 158,814 $1.59
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Twelve months ended September 30, 1998
Earnings per common share:
Net income $300,067 158,007 $1.90
Effect of dilutive securitie
Common stock options 757
Contingently issuable common stock 136
EPS--assuming dilution:
Net income plus assumed
conversions $300,067 158,900 $1.90
Twelve months ended September 30, 1997
Earnings per common share:
Net income before extraordinary item
and costs of reacquisition of
preferred stock of subsidiary $322,726 157,679 $2.04
Effect of dilutive securities:
Common stock options 945
Contingently issuable common stock 232
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $322,726 158,856 $2.03
The after-tax impact of the extraordinary item - equity share of
windfall profits tax for the three, nine, and twelve months ended
September 30, 1997, was $.69 for both basic and diluted earnings per
share.
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of
these options were greater than the average market price of the common
shares during the period are summarized below:
<PAGE>
Quarter Average
Ended Exercise
September 30 Shares Price
1998 922,600 $37.51
1997 13,600 34.35
Nine Months Average
Ended Exercise
September 30 Shares Price
1998 766,900 $37.72
1997 9,300 34.50
Twelve Months Average
Ended Exercise
September 30 Shares Price
1998 574,100 $37.72
1997 8,500 34.39
Cinergy and PSI
14. In February 1989, PSI and WVPA entered into a settlement agreement to
resolve all claims related to Marble Hill, a nuclear project canceled in
1984. Implementation of the settlement was contingent upon a number of
events, including the conclusion of WVPA's bankruptcy proceeding,
negotiation of certain terms and conditions with WVPA, the RUS, and the
CFC, and certain regulatory approvals. In December 1996, following the
resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on
behalf of itself and its officers, paid $80 million on behalf of WVPA to
the RUS and the CFC. The $80 million obligation, net of insurance proceeds,
other credits, and applicable income tax effects, was charged to income in
1988. In January 1997, an order dismissing the WVPA litigation against PSI
and its officers with prejudice was entered by the United States District
Court for the Southern District of Indiana and final negotiations to
implement the settlement agreement were begun with WVPA, the RUS, and the
CFC. An agreement on all matters has been reached with the parties. As a
result, PSI recorded a liability to the RUS and the CFC. PSI will repay the
obligation to the RUS with interest over a 35-year term. A lump sum payment
was made to the CFC in 1998, in full satisfaction of PSI's obligation to
the CFC. PSI will use the net proceeds from a 35-year power sales agreement
with WVPA to fund the principal and interest on the obligation to the RUS.
Assumption of the liability (recorded as long-term debt in the Consolidated
Balance Sheet) resulted in a charge against second quarter earnings of $80
million ($50 million after tax or $.32 per share basic and diluted).
Cinergy
15. The Company's Midlands subsidiary (of which the Company owns 50%) has a 40%
ownership interest in a 586 MW power project in Pakistan (Uch project or
Uch) which was originally scheduled to begin commercial operation in late
1998. The Pakistani government-owned utility has issued a notice of intent
to terminate certain key project agreements relative to the Uch project.
The notice asserts that various forms of corruption were involved in the
original granting of the agreements to the Uch investors by a predecessor
government. The Company believes that this notice is similar to notices
received by a number of other independent power projects in Pakistan.
The Uch investors, including a subsidiary of Midlands, strongly deny the
allegations and are pursuing all available legal options to enforce their
contractual rights under the project agreements. Physical construction of
the project is substantially complete; however, commissioning, which
<PAGE>
management believes could be completed within a 60- 90 day period, has been
delayed as a result of the above situation. The Uch investors continue to
explore remedies to the situation with officials of the Pakistani
government and are working with the project's lenders to ensure their
continued support to the project.
Arising from the delay of the completion of the plant, the project turnkey
contractor has given notice of its desire to invoke dispute resolution
procedures (under the terms of the turnkey contract) in relation to a claim
for additional costs arising from the failure of the project to provide
fuel gas and interconnection facilities. Uch Power Limited denies that it
is liable for any additional costs arising from this delay and will defend
itself against the claim.
Through its 50% ownership of Midlands, the Company's current investment in
the Uch project is approximately $32 million. In addition, project lenders
could require investors to make additional capital contributions to the
project under certain conditions. The Company's share of these additional
contributions is approximately $12 million. At the present time, the
Company cannot predict the ultimate outcome of this matter.
Cinergy and PSI
16. As discussed in the 1997 Form 10-K, PSI filed a petition with the FERC for
recovery, through the fuel adjustment clause, of the wholesale
jurisdictional portion of the costs resulting from the Exxon contract
buyout. During July 1998, the FERC accepted PSI's request to recover these
buyout costs from its wholesale customers for the period August 1996
through December 2002.
17. As discussed in the 1997 Form 10-K, PSI agreed to begin pre-funding its
obligations for postretirement benefits other than pensions in connection
with the settlement which resulted in the February 1995 Order.
Implementation of pre-funding was subject to negotiations with the UCC and
approval by the IURC.
In October 1998, the IURC approved a settlement agreement between PSI and
the UCC authorizing three optional funding alternatives.
18. As discussed in the 1997 Form 10-K, PSI and Dynegy (formerly Destec)
entered into a 25-year contractual agreement for the provision of coal
gasification services in November 1995. The agreement requires PSI to pay
Dynegy a base monthly fee including certain monthly operating expenses. PSI
received authorization in the September 1996 Order for the inclusion of
these costs in retail rates. In addition, PSI received authorization to
defer, for subsequent recovery in retail rates, the base monthly fees and
expenses incurred prior to the effective date of the September 1996 Order.
Over the next five years, the base monthly fees and expenses for the coal
gasification service agreement are expected to total $201 million.
During the third quarter of 1998, PSI reached an agreement with Dynegy to
purchase the remainder of its 25-year contract for coal gasification
services for $265.7 million. The proposed purchase, which is contingent
upon regulatory approval, is expected to be completed in 1999. PSI will
investigate financing alternatives. The transaction, if approved as
proposed, is not expected to have a material impact on PSI's earnings.
Due to the competition within the natural gas market, natural gas prices
have fallen to a level that has made the current gasification services
agreement uneconomical for PSI and its customers. Under the current
proposal, the gasification service costs would be replaced by lower natural
gas costs. In nominal dollars, it is estimated that the total savings,
primarily as a result of the purchase, would be approximately $275 million
over the life of the original contract.
<PAGE>
Cinergy, CG&E, and ULH&P
19. As more fully discussed in the 1997 Form 10-K, Cinergy made a filing with
the SEC in February 1998, setting forth its rationale supporting retention
of CG&E's and ULH&P's gas operations. As part of its order approving the
merger, the SEC had previously reserved judgment over Cinergy's ownership
of CG&E's and ULH&P's gas operations, pending a determination of the amount
of increased operating costs that would result from the gas operations
being divested and operated on a stand- alone basis.
On November 2, 1998, the SEC issued an order unconditionally approving
Cinergy's retention of CG&E's and its subsidiaries', including ULH&P's, gas
businesses. The order was issued based on the SEC's finding that a
divestiture of CG&E's and its subsidiaries', including ULH&P's, gas
businesses would likely result in increased expenses and the potential loss
of competitive advantages.
Cinergy
20. On November 3, 1998, Cinergy Global Resources issued and sold $150 million
of its 6.20% Debentures due 2008. The debentures are unconditionally
guaranteed as to the payment of principal and interest by Cinergy. In
addition, payment of principal of and interest on the debentures is also
insured by a financial guaranty insurance policy. A portion of the proceeds
from the sale was used to repay approximately $115 million of short-term
indebtedness and the remainder will be used for the acquisition and
development of additional energy-related assets.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information" reflect and elucidate
Cinergy's corporate vision of the future and, as a part of that, outline goals
and aspirations, as well as specific projections. These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as well as certain assumptions made by management. In addition to any
assumptions and other factors that are referred to specifically in connection
with these statements, other factors that could cause actual results to differ
materially from those indicated in any forward- looking statements include,
among others: factors generally affecting utility operations--such as unusual
weather conditions, unusual maintenance or repairs, or unanticipated changes in
fuel costs; increased competition in the electric and gas utility environment;
regulatory factors, including the failure to obtain anticipated regulatory
approvals; changes in accounting principles or policies; adverse economic
conditions; changing market conditions; availability or cost of capital;
employee workforce factors; costs and effects of legal and administrative
proceedings; changes in legislative requirements; and other risks. The SEC's
rules do not require forward-looking statements to be revised or updated, and
Cinergy does not intend to do so.
FINANCIAL CONDITION
Recent Developments
Cinergy
Acquisitions In June 1998, through CC&T, Cinergy acquired ProEnergy from Apache
and Oryx. ProEnergy has had and will continue to have exclusive marketing rights
to North American gas production owned or controlled by Apache and Oryx, which
represents approximately 1.1 Bcf per day of dedicated natural gas supply. These
supplies, combined with the active marketing of third party gas, are
geographically diverse and are spread through the Southwest, Rocky Mountains,
Gulf Coast, Gulf of Mexico, and Michigan. The acquisition was funded with cash
and by the issuance of 771,258 new shares of Cinergy common stock.
In June 1998, a subsidiary of Cinergy Global Power acquired Moravske, a 410 MW
district heating plant in the Czech Republic. In addition, in September 1998, a
subsidiary of Cinergy Global Power acquired a 406 MW district heating plant in
the city of Plzen, Czech Republic.
The purchase prices for these acquisitions were not material to Cinergy's
financial condition or results of operations.
Competitive Pressures
Cinergy, CG&E, PSI, and ULH&P
Federal Developments As discussed in the 1997 Form 10-K, Cinergy collaborated
with other Midwestern utility companies to form the Midwest ISO. During the
third quarter of 1998, the FERC approved the formation of the Midwest ISO.
Cinergy, CG&E, and ULH&P
State Developments As discussed in the 1997 Form 10-K, comprehensive electric
restructuring legislation was introduced in the Ohio legislature during 1998.
This legislation, SB 237 and HB 732, "companion" electric restructuring bills,
proposes to afford choice to all retail electric customers in Ohio beginning
January 1, 2000. Legislative hearings on these bills occurred in the spring and
summer. In addition, legislation to provide for securitization of transition
<PAGE>
costs through issuance of rate reduction bonds has been pending in Ohio since
1997. It is uncertain whether these pieces of legislation will be passed in Ohio
in 1998. During the third quarter of 1998, Ohio's IOUs, including CG&E, released
a draft bill that sets forth the utilities' approach to comprehensive electric
restructuring in Ohio. Under the IOUs' proposal, choice to all retail electric
customers would be introduced by January 1, 2001, rates would be frozen during a
five-year transition period, low income protections would be maintained, and a
fixed charge for certain government approved transition costs would be imposed
(and costs could be securitized if rates are not increased). Both this proposal
and SB 237/HB 732 are being studied by a legislative working group that was
convened in September 1998. It is uncertain at this time whether the IOUs'
proposal will be introduced in Ohio's General Assembly, or, if introduced,
whether it will be passed and signed into law.
As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General Assembly in January 1998. HB 443 was not brought to a vote during the
1998 legislative session. Rather, HJR 95, which calls for the formation of an
executive task force comprised of members from the Governor's office and the
Kentucky General Assembly to further study electric restructuring, was passed by
the Kentucky General Assembly, and was signed by the Governor during April 1998.
Task force members will study electric restructuring in anticipation of the next
legislative session, which occurs in January 2000.
Regulatory Matters
Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations See Note 19 of
the "Notes to Financial Statements" in "Part I. Financial Information."
Cinergy and PSI Coal Contract Buyout Costs See Note 16 of the "Notes to
Financial Statements" in "Part I. Financial Information."
Environmental Issues
Cinergy, CG&E, and PSI
Ambient Air Standards As discussed in the 1997 Form 10-K, during 1997, the EPA
revised the National Ambient Air Quality Standards for ozone and fine
particulate matter. The EPA has also proposed, but not finalized, new rules for
regional haze. The United States Congress, as part of the funding bill for the
Surface Transportation Act, combined the schedules for fine particulates and
regional haze implementation. The impact of the particulate standards and
regional haze rules cannot be determined at this time.
In June 1998, 13 Midwestern and Southern states and numerous industry groups
within those states, including Cinergy, filed comments in opposition to the EPA
proposed NOx rules. These 13 states and utility commentors proposed alternative
reduction strategies that would generally phase in NOx reductions by 65 percent
by 2002-2004, would determine by 2002 if additional reductions are needed, and
then implement necessary controls between 2005-2007. Commentors also generally
opposed the EPA's 22 state trading program in favor of smaller and more flexible
multi-state programs.
In September 1998, the EPA finalized its Ozone Transport Rule. It applies to 22
states in the eastern half of the United States, including the three states in
which Cinergy operates, and also proposes a model NOx trading program. This rule
recommends that states reduce utility NOx emissions by approximately 85% from
1990 levels by 2003. The affected states have until September 24, 1999, to
incorporate utility NOx reductions into their SIPs. It is anticipated that this
new rule will be heavily litigated by the affected states, industry, and other
stakeholders. Cinergy's initial estimate for compliance with the new Ozone
Transport Rule is $500-$600 million in capital expenditures between now and
2003.
<PAGE>
Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In April 1998, the EPA announced that it would make its regulatory
determination on the need for additional air toxics regulation by November 15,
1998. If more air toxics regulations are issued, the compliance cost could be
significant. Cinergy cannot predict the outcome or effects of the EPA's
determination.
MGP Sites See Note 11 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes
to Financial Statements" in "Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, PSI, and ULH&P
The following discussions about Cinergy's market risk sensitive instruments and
positions and risk management activities include forward-looking information and
statements that involve risks and uncertainties. The forward- looking
information and statements presented are only estimates of what may occur in the
future, assuming certain adverse market conditions, due to their dependence on
model characteristics and assumptions. As a result, actual future results may
differ materially from those presented. These disclosures are not precise
indicators of expected future losses, rather they merely present indications of
reasonably possible losses.
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades over-the-counter
forward and option contracts for the purchase and sale of electricity. The
Company also trades exchange-traded futures contracts. See Note 9 of the "Notes
to Financial Statements" in "Part I. Financial Information" for the Company's
accounting policies for certain derivative instruments.
During a few days late in the second quarter, wholesale electric power markets
in the Midwest exhibited unprecedented price volatility due to several market
factors, including an extended period of unseasonably hot weather, scheduled and
unplanned generating unit outages, transmission constraints, and defaults by
certain power marketers on their supply obligations. The simultaneous
culmination of these events resulted in temporary but extreme price spikes in
the hourly and daily markets and very little trading liquidity and price
transparency in the term markets. During this period of extreme price volatility
and trading illiquidity, Cinergy's power marketing and trading function
maintained its ability to provide the physical delivery of power to fulfill its
contractual obligations. The daily value-at-risk as of September 30, 1998, was
less than 3% of Cinergy's "Income Before Taxes" for the twelve months then
ended. The value-at-risk model utilizes a 95% confidence interval and uses the
variance-covariance statistical modeling technique and historical volatilities
and correlations over the past 200 day period. The estimated market prices used
to value these transactions for value-at-risk purposes reflect the use of
established pricing models and various factors, including quotations from
exchanges and over-the-counter markets, price volatility factors, the time value
of money, and location differentials. The variables used for value-at-risk
purposes at September 30, 1998, reflect the impacts of the events which
transpired in the Midwestern electric power markets during late June 1998.
<PAGE>
Cinergy provides reserves as required for the potential unrealized losses in the
fair value of its portfolio of open forward and option contract positions and
potential unrealized losses due to nonperformance of certain counterparties
pursuant to contractual supply obligations. Due to the basic lack of liquidity,
price transparency, and extreme price volatility currently experienced in the
electric power markets, significant assumptions regarding estimated market
prices and potential counterparty credit risk must be made by the Company for
the purposes of providing appropriate reserves. It is possible that actual
realized results from the Company's power marketing and trading activities could
differ substantially from those currently estimated.
As of September 30, 1998, approximately 69% of Cinergy's power marketing and
trading activity represents commitments with 10 counterparties. The majority of
these contracts are for terms of one year or less. The temporary but extreme
price volatility and trading illiquidity exhibited in the Midwestern electric
power markets late in the second quarter resulted in a few power marketers
defaulting on contractual supply obligations and industry-wide uncertainty as to
whether others will be able to fulfill existing contractual supply obligations
for future delivery of electricity. As of September 30, 1998, Cinergy believes
it has adequately reserved for credit exposure relating to its portfolio of
existing contracts.
Cinergy remains committed to being a long-term participant in the evolving
competitive wholesale electric power market and will continue to manage its
power marketing and trading portfolio to maximize its existing value while
creating additional value. The New York Mercantile Exchange electricity futures
contracts for delivery into Cinergy's transmission grid, which started trading
on July 10, 1998, should provide additional liquidity and greater price
transparency, as well as additional risk management capabilities in Cinergy's
core service territory and trading region. Cinergy continues to review and
enhance its current risk management practices to ensure their responsiveness to
evolving and changing market and business conditions. In addition, efforts are
ongoing to develop and enhance systems to improve the timeliness and quality of
market and credit risk information.
Cinergy
Exchange Rate Sensitivity Cinergy utilizes foreign exchange forward contracts
and currency swaps to hedge certain of its net investments in foreign
operations. See Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information" for Cinergy's accounting policies for certain derivative
instruments. Cinergy's market risks have not changed materially from the market
risks reported in the 1997 Form 10-K.
Cinergy, CG&E, PSI, and ULH&P
Interest Rate Sensitivity The Company's net exposure to changes in interest
rates primarily consists of debt instruments with floating interest rates that
are benchmarked to various market indices. To manage the Company's exposure to
fluctuations in interest rates and to lower funding costs, the Company
constantly evaluates the use of, and has entered into, interest rate swaps. See
Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information"
for the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks
reported in the 1997 Form 10-K.
<PAGE>
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent
issuances and redemptions of long-term debt securities, see Notes 2, 3, 4, 5, 6,
7, 8, and 20 of the "Notes to Financial Statements" in "Part I. Financial
Information."
On October 14, 1998, PSI issued a promissory note to the RUS (recorded as
long-term debt in the consolidated balance sheet) in the amount of $86.4
million. For information concerning the WVPA settlement, see Note 14 of the
"Notes to Financial Statements" in "Part I. Financial Information." This
issuance effectively reduces PSI's remaining authority for long-term debt
issuances to $40.6 million. In October 1998, PSI filed with the IURC for state
regulatory authority for long-term debt issuances of $400 million.
CG&E's remaining state regulatory authority for long-term debt issuances expired
in June 1998. CG&E is currently in the process of filing an application with the
PUCO requesting authorization to issue additional long-term debt.
On August 21, 1998, the SEC issued an order permitting Cinergy to issue and sell
from time to time unsecured debt securities in an aggregate principal amount not
to exceed $400 million outstanding at any time.
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt Obligations representing notes payable and other short-term
obligations (excluding notes payable to affiliated companies) at September 30,
1998, were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350
Revolving line 600 -
Commercial paper - 301
Uncommitted line 45 82*
Utility subsidiaries
Committed lines 300 -
Uncommitted lines 360 81
Pollution control notes 266 266
Non-utility subsidiaries 125 105
------ ------
Total $2,046 $1,185
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $100 $ -
Uncommitted lines 190 46
Pollution control notes 184 184
---- ----
Total $474 $230
<PAGE>
PSI
Established
Lines Outstanding
(in millions)
Committed lines $200 $ -
Uncommitted lines 170 35
Pollution control notes 82 82
---- ----
Total $452 $117
* Excess over Established Line represents amount sold by dealers to other
investors.
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line (as shown in the above table) also provides
credit support for Cinergy's commercial paper program. During July 1998, the
commercial paper program was increased to a maximum principal amount of $400
million. This increase is supported by an additional revolving line of $200
million, which was also established in July 1998. Approximately half of the
proceeds from the commercial paper sales were used to reduce the acquisition
line to the quarter-end level of $350 million. CG&E and PSI also have the
capacity to issue commercial paper that must be supported by committed lines of
the respective company. Neither CG&E nor PSI issued commercial paper during the
third quarter of 1998.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853
million ($453 million for CG&E and its subsidiaries, including $50 million for
ULH&P, and $400 million for PSI) as of September 30, 1998. Regulatory authority
for CG&E and PSI excludes the Pollution Control Notes, which are considered
long-term debt for regulatory purposes. In connection with this authority,
committed lines, as well as uncommitted lines, have been arranged. The
established committed lines (as shown in the above table) include $81 million
designated as backup for certain of the uncommitted lines at September 30, 1998.
Further, the committed lines are maintained by commitment fees.
Cinergy, CG&E, PSI, and ULH&P
Year 2000 The Year 2000 issue generally exists because many computer systems and
applications, including those embedded in equipment and facilities, use two
digit rather than four digit date fields to designate an applicable year. As a
result, the systems and applications may not properly recognize the year 2000 or
process data which includes it, potentially causing data miscalculations or
inaccuracies or operational malfunctions or failures, which could materially
affect Cinergy's financial condition or results of operations.
Cinergy has established a centrally-managed, company-wide initiative to
identify, evaluate, and address Year 2000 issues. Cinergy's Year 2000 efforts,
which began in the fourth quarter of 1996, are all encompassing and include its
generation, transmission, and distribution systems and related infrastructure.
Also within the scope of this initiative are operational and financial IT
systems and applications, end-user computing resources, and building systems,
such as security, elevator, and heating and cooling systems. In addition, the
project includes a review of the Year 2000 readiness efforts of Cinergy's key
suppliers and customers and other principal business partners, and, as
appropriate, the development of joint business support and continuity plans for
Year 2000 issues. Further, the scope of the Year 2000 project includes
communications with regulatory agencies and the inclusion of Year 2000 concerns
as a regular part of the due diligence process in any new business venture.
While this initiative is broad in scope, it has been structured to identify and
prioritize efforts for mission critical systems, electric and gas systems and
services, and key business partners.
<PAGE>
Under its current Year 2000 plan, Cinergy has established a target date of June
30, 1999, for the remediation and testing of its generation, transmission, and
distribution systems (gas and electric). One example of Cinergy's remediation
and testing efforts is the current operation of some of its generating units
with post Year 2000 dates. Cinergy cannot guarantee that third parties on whom
it depends for essential goods and services (those where the interruption of the
supply of such goods and services could lead to issues involving the safety of
employees, customers, or the public, the continued reliable delivery of gas
and/or electricity, the ability to comply with applicable laws or regulations,
and revenues) will convert their critical systems and processes in a timely
manner. Failure or delay by any of these third parties could significantly
disrupt business. However, to address this issue, Cinergy has established a
supplier compliance program, and is working with its key suppliers in an effort
to minimize such risks. In addition, Cinergy is coordinating its findings and
other issues with other utilities via EPRI's Year 2000 Embedded Systems Project
and with the Year 2000 Readiness Assessment Program of the NERC, acting at the
request of the U.S. Department of Energy.
In addition to the approximately $10 million in expenses incurred through
September 30, 1998, for matters historically identified as Year 2000-related,
Cinergy currently estimates that it will incur additional expenses of
approximately $3 million through the completion of the program. Cinergy's
progress to date ranges from 80% for IT systems to approximately 40% regarding
assessment of critical vendors. The timing of expenses may vary and is not
necessarily indicative of readiness efforts or progress to date. Cinergy
anticipates that a portion of its Year 2000 expenses will not be incremental
costs, but rather will represent the redeployment of existing IT resources.
Since its formation, Cinergy has incurred, and will continue to incur,
significant capital improvement costs for IT systems. These costs related to
planned system upgrades or replacements would have been required in the normal
course of business and are not being incurred sooner than originally planned as
a result of the Year 2000 issue.
Avon Energy has also undertaken activities to address Year 2000 issues. The
estimated proportionate share of Avon Energy's incremental Year 2000 costs
(costs which would not have been required in the normal course of business) that
will flow through to Cinergy's earnings as a result of such activities is not
expected to have a material impact on the financial condition or results of
operations of Cinergy.
As part of the Year 2000 initiative, Cinergy is in the process of reviewing its
existing contingency and business continuity plans to determine if any
modifications are needed in light of the Year 2000 problem. Contingency planning
to maintain and restore service in the event of natural and other disasters
(including software and hardware-related problems) has been part of Cinergy's
standard operation for many years, and Cinergy is working to leverage this
experience in the review of existing plans to address Year 2000- related
challenges. These reviews are expected to assess the potential for business
disruption in various scenarios, including the most reasonably likely worst-case
scenario, and to provide for key operational back-up, recovery, and restoration
alternatives.
The above information is based on Cinergy's current best estimates, which were
derived using numerous assumptions of future events, including the availability
and future costs of certain technological and other resources, third-party
modification actions and other factors. Given the complexity of these issues and
possible as yet unidentified risks, actual results may vary materially from
those anticipated and discussed above. Specific factors that might cause such
differences include, among others, the ability to locate and correct all
affected computer code, the timing and success of remedial efforts of
third-party suppliers, and similar uncertainties.
<PAGE>
The descriptions herein of the elements of Cinergy's Year 2000 efforts are
forward-looking statements. Of necessity, this effort is based on estimates of
assessment, remediation, testing, and contingency planning activities and dates
for perceived problems not yet identified. There can be no assurances that
actual results will not materially differ from expectations. The SEC's rules do
not require forward-looking statements to be revised or updated, and Cinergy
does not intend to do so.
Cinergy
Other Commitments Cinergy has issued performance and debt guarantees to numerous
counterparties totaling approximately $421 million.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P Reference is made to "Item 1. Financial
Statements" in "Part I. Financial Information."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P Reference is made to the "Market Risk Sensitive
Instruments and Positions" section in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in "Part I. Financial
Information."
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy and CG&E
Skinner Landfill Remediation
As discussed in the 1997 Form 10-K, CG&E was notified, in the first quarter of
1998, by the Allocator in a court-mandated ADR proceeding, that it had been
identified as a PRP under CERCLA with respect to the Skinner Landfill Superfund
Site, which is located approximately 15 miles north of Cincinnati, Ohio. In
March 1997, the plaintiffs from the underlying CERCLA litigation brought suit in
the U.S. District Court, against over 80 PRPs. In August 1997, the U.S. District
Court entered an order staying the litigation and requiring all parties to
engage in a non-binding, confidential ADR process. The Allocator, which has been
given authority by the U.S. District Court to identify other parties that may be
responsible for response costs, has informed CG&E that it was identified by a
site owner, operator, or worker as one that had arranged for the disposal of
waste at the landfill and has concluded that a reasonable basis exists for
CG&E's participation in the ADR process.
In early October 1998, the Allocator issued a report which concluded that CG&E
was responsible for $500 of clean-up costs related to the disposal of a small
amount of utility poles, shop waste, tree mulch and light ballast. The total
clean-up costs for the site are estimated to be $15 million. While the Allocator
has not identified a responsible party for approximately 70% of the costs, CG&E
does not expect any further allocations to substantially increase its share of
the clean-up costs.
Cinergy, CG&E, and PSI
See Notes 11 and 15 of the "Notes to Financial Statements" in "Part I.
Financial Information."
ITEM 5. OTHER INFORMATION
Cinergy and PSI
On October 28, 1998, the Company announced that Mary L. Schapiro has been
appointed to Cinergy's board, effective January 1, 1999. Ms. Schapiro will
fill the board vacancy resulting from the retirement of Van P. Smith. Mr.
Smith has served on Cinergy's board since 1994 and has served on the PSI board
since 1986.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits identified with a pound sign (#) are being filed herewith by the
registrant identified in the exhibit discussion below and are incorporated
herein by reference with respect to any other designated registrant.
Exhibits not so identified are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
4-A Base Indenture dated as of October 15, 1998, between Cinergy
Global Resources and The Fifth Third Bank as Trustee.
4-B First Supplemental Indenture dated as of October 15, 1998, between
Cinergy Global Resources and The Fifth Third Bank as Trustee.
<PAGE>
Cinergy, CG&E, and PSI
10-A #Second Amended and Restated Employment Agreement dated September 22,
1998, between Cinergy, Cinergy Services, Inc., CG&E, and PSI and James
E. Rogers. (Exhibit to Cinergy's September 30, 1998, Form 10- Q in File
No. 1-11377.)
Cinergy, CG&E, PSI, and ULH
27 Financial Data Schedules (included in electronic submission only)
(b) The following reports on Form 8-K were filed during the quarter and
previously reported on Form 10-Q for the quarter ended June 30, 1998.
Date of Report Item Filed
Cinergy
July 15, 1998 Item 5. Other Events
Item 7. Financial Statements and Exhibits
CG&E
July 15, 1998 Item 5. Other Events
PSI
July 15, 1998 Item 5. Other Events
<PAGE>
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make
the information presented not misleading. In the opinion of Cinergy, CG&E, PSI,
and ULH&P, these statements reflect all adjustments (which include normal,
recurring adjustments and those adjustments discussed in Notes 9 and 14 of the
"Notes to Financial Statements" in "Part I. Financial Information") necessary to
reflect the results of operations for the respective periods. The unaudited
statements are subject to such adjustments as the annual audit by independent
public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: November 12, 1998 /s/John P. Steffen
--------------------------------------
John P. Steffen
Duly Authorized Officer
and
Chief Accounting Officer
<TABLE> <S> <C>
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FINANCIAL STATEMENTS.
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<PERIOD-START> JUL-01-1998
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