UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MarkOne)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
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 April 30, 1999, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
- ---------------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,870,194
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
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 6
Consolidated Statements of Income . . . . . . . . . . 8
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows . . . . . . . . 10
Results of Operations . . . . . . . . . . . . . . . . 11
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 15
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Statements of Cash Flows . . . . . . . . 18
Results of Operations . . . . . . . . . . . . . . . . 19
PSI Energy, Inc.
Consolidated Balance Sheets. . . . . . . . . . . . 23
Consolidated Statements of Income and
Comprehensive Income . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . 26
Results of Operations . . . . . . . . . . . . . . . . 27
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 31
Statements of Income. . . . . . . . . . . . . . . . . 33
Statements of Cash Flows. . . . . . . . . . . . . . . 34
Results of Operations . . . . . . . . . . . . . . . . 35
Notes to Financial Statements . . . . . . . . . . . . . 37
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 45
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 51
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 52
4 Submission of Matters to a Vote of Security Holders . . 52
5 Other Information . . . . . . . . . . . . . . . . . . . 53
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 53
Signatures. . . . . . . . . . . . . . . . . . . . . . . 56
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1998 Form Combined 1998 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
CAAA Clean Air Act Amendments of 1990
CC&T Cinergy Capital and Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
CIBU Cinergy Investments Business Unit
Cinergy or Cinergy Corp.
Company
Committed Lines A line of credit providing short-term loans on a
committed basis
Destec Destec Energy, Inc.
DOE United States Department of Energy
Dynegy Dynegy Inc.
ECBU Energy Commodities Business Unit
EDBU Energy Delivery Business Unit
EPA United States Environmental Protection Agency
EPS Earnings per share
FASB Financial Accounting Standards Board
Gibson PSI's Gibson Generating Station (steam electric generating
plant)
IBU International Business Unit
ICR Information Collection Request
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)
IT Information Technology
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
IURC Indiana Utility Regulatory Commission
kwh Kilowatt-hour
mcf Thousand cubic feet
MGP Manufactured gas plant
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
MW Megawatts
N/A Not applicable
NERC North American Electric Reliability Council
NIPSCO Northern Indiana Public Service Company
NOx Nitrogen oxide
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)
RUS Rural Utilities Service
SEC United States Securities and Exchange Commission
September 1996 An IURC order issued in September 1996 on PSI's retail
Order rate proceeding
SIP State Implementation Plan
SO2 Sulfur dioxide
Statement 131 Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related
Information
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
Uncommitted A line of credit providing short-term loans on an
Lines uncommitted basis
US United States
WVPA Wabash Valley Power Association, Inc.
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 92,652 $ 100,154
Restricted deposits 3,641 3,587
Notes receivable 59 64
Accounts receivable less accumulated provision
for doubtful accounts of $31,355 at March
31, 1999, and $25,622 at December 31, 1998 397,686 580,305
Materials, supplies, and fuel - at average cost 180,969 202,747
Prepayments and other 73,692 74,849
Energy risk management assets 703,278 969,000
----------- ------------
1,451,977 1,930,706
Utility Plant - Original Cost
In service
Electric 9,248,374 9,222,261
Gas 794,785 786,188
Common 197,299 186,364
----------- -----------
10,240,458 10,194,813
Accumulated depreciation 4,100,406 4,040,247
----------- -----------
6,140,052 6,154,566
Construction work in progress 209,461 189,883
----------- -----------
Total utility plant 6,349,513 6,344,449
Other Assets
Regulatory assets 940,386 970,767
Investments in unconsolidated subsidiaries 645,250 574,401
Other 459,022 478,472
----------- -----------
2,044,658 2,023,640
$ 9,846,148 $10,298,795
<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>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 433,732 $ 668,860
Accrued taxes 240,179 228,347
Accrued interest 40,878 51,679
Notes payable and other short-term obligations 1,052,811 903,700
Long-term debt due within one year 25,959 136,000
Energy risk management liabilities 828,424 1,117,146
Other 86,814 93,376
---------- -----------
2,708,797 3,199,108
Non-Current Liabilities
Long-term debt 2,605,657 2,604,467
Deferred income taxes 1,100,473 1,091,075
Unamortized investment tax credits 154,381 156,757
Accrued pension and other postretirement
benefit costs 323,949 315,147
Other 268,042 298,370
---------- -----------
4,452,502 4,465,816
Total liabilities 7,161,299 7,664,924
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,616 92,640
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
158,779,900 at March 31, 1999, and
158,664,532 at December 31, 1998 1,588 1,587
Paid-in capital 1,598,884 1,595,237
Retained earnings 1,001,034 945,214
Accumulated other comprehensive loss (9,273) (807)
---------- -----------
Total common stock equity 2,592,233 2,541,231
$9,846,148 $10,298,795
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<S> <C> <C>
Quarter Ended
March 31
1999 1998
(in thousands, except per share amounts)
Operating Revenues
Electric $ 968,532 $1,158,724
Gas 421,308 184,846
Other 12,439 4,891
---------- ----------
1,402,279 1,348,461
Operating Expenses
Fuel and purchased and exchanged power 433,169 652,404
Gas purchased 334,402 107,586
Other operation and maintenance 244,548 212,693
Depreciation and amortization 86,477 79,935
Taxes other than income taxes 69,534 70,135
---------- ----------
1,168,130 1,122,753
Operating Income 234,149 225,708
Equity in Earnings of Unconsolidated
Subsidiaries 44,682 11,854
Other Income and (Expenses) - Net (11,886) (11,815)
Interest 60,772 59,805
---------- ----------
Income Before Taxes 206,173 165,942
Income Taxes 77,564 57,449
Preferred Dividend Requirements
of Subsidiaries 1,364 2,422
---------- ----------
Net Income $ 127,245 $ 106,071
Average Common Shares Outstanding 158,746 157,764
Earnings Per Common Share
Net income $0.80 $0.67
Earnings Per Common Share - Assuming Dilution
Net income $0.80 $0.67
Dividends Declared Per Common Share $0.45 $ 0.45
<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 March 31, 1999
Balance at January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231
Comprehensive income
Net income 127,245 $127,245 127,245
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (8,451) (8,451)
Unrealized gains/losses -
grantor trusts (15) (15)
--------
Other comprehensive loss
total (8,466) (8,466)
--------
Comprehensive income total $118,779
Issuance of 115,368 shares of
common stock - net 1 1,978 1,979
Treasury shares purchased (233) (233)
Treasury shares reissued 1,902 1,902
Dividends on common stock (see
page 8 for per share amounts) (71,422) (71,422)
Other (3) (3)
------ ---------- ---------- ------- ----------
Balance at March 31, 1999 $1,588 $1,598,884 $1,001,034 $(9,273) $2,592,233
Quarter Ended March 31, 1998
Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 106,071 $106,071 106,071
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (367) (367)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive loss
total (418) (418)
--------
Comprehensive income total $105,653
========
Issuance of 19,362 shares of
common stock - net 1 289 290
Treasury shares purchased (1) (1,430) (1,431)
Treasury shares reissued 1 2,149 2,150
Dividends on common stock (see
page 8 for per share amounts) (70,994) (70,994)
Other 8 (2) 6
------ ---------- ---------- ------- ----------
Balance at March 31, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874
<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)
<S> <C> <C>
Year to Date
March 31
1999 1998
(in thousands)
Operating Activities
Net income $ 127,245 $ 106,071
Items providing (using) cash currently:
Depreciation and amortization 86,477 79,935
Deferred income taxes and investment tax
credits - net 12,877 (12,955)
Equity in earnings of unconsolidated subsidiaries (44,682) (11,854)
Allowance for equity funds used during
construction (775) (21)
Regulatory assets - net 5,140 10,670
Changes in current assets and current liabilities
Restricted deposits (54) (29)
Accounts and notes receivable, net of reserves
on receivables sold 182,265 (106,525)
Materials, supplies, and fuel 21,778 4,660
Accounts payable (235,128) 69,305
Accrued taxes and interest 1,031 24,938
Energy risk management - net (23,000) -
Other items - net 9,478 25,788
--------- ---------
Net cash provided by operating
activities 142,652 189,983
Financing Activities
Issuance of common stock 1,979 290
Issuance of long-term debt 6,623 98,901
Retirement of preferred stock of subsidiaries (20) (85,229)
Redemption of long-term debt (116,000) (160,291)
Change in short-term debt 149,111 108,767
Dividends on common stock (71,422) (70,994)
--------- ---------
Net cash used in financing activities (29,729) (108,556)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (79,143) (66,348)
Investments in unconsolidated subsidiaries (41,282) (9,658)
--------- ---------
Net cash used in investing activities (120,425) (76,006)
Net increase (decrease) in cash and temporary
cash investments (7,502) 5,421
Cash and temporary cash investments at beginning
of period 100,154 53,310
--------- ---------
Cash and temporary cash investments at end of period $ 92,652 $ 58,731
<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 ended March 31, 1999. For information concerning the
results of operations for each of the other registrants for the quarter ended
March 31, 1999, see the discussion under the heading "Results of Operations"
following the financial statements of each registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
March 31
Revenue Kwh Sales
1999 1998 1999 1998
($ and kwh in millions)
Retail $676 $ 633 12,276 11,678
Sales for resale 266 515 10,694 21,733
Other 27 11 172 -
---- ------ ------ -------
Total $969 $1,159 23,142 33,411
Electric operating revenues decreased $190 million (16%) for the quarter ended
March 31, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to energy marketing and trading operations. Partially
offsetting the decline was an increase in the average price per kwh for retail
customers, higher retail and firm power kwh sales resulting from growth in the
average number of residential and commercial customers and a return to more
normal weather in the first quarter of 1999, as compared to 1998, and increased
international operations.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
March 31
Revenue Mcf Sales
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $243 $ - 143 N/A
Retail 158 174 26 26
Transportation 20 11 13 16
---- ---- --- ---
Total $421 $185 182 42
Gas operating revenues increased $236 million in the first quarter of 1999, when
compared to the same period last year, primarily due to the gas operating
revenues of ProEnergy, which was acquired in June 1998. A lower average cost per
mcf of gas purchased, which was passed on to end users, contributed to the
decrease in retail sales. Transportation revenues increased as more residential
and commercial customers began to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of a large industrial transportation customer during
late 1998.
Other Revenues
Other revenues increased $8 million for the quarter ended March 31, 1999, over
the same period of 1998. This increase was primarily the result of increased
revenues of new non-regulated initiatives operated by the various business
units.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Fuel $198 $181
Purchased and exchanged power 235 471
---- ----
Total $433 $652
Electric fuel costs increased $17 million (9%) for the quarter ended March 31,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
March 31
(in millions)
Fuel expense - March 31, 1998 $181
Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 5
Kwh generation 9
Other 5
----
Fuel expense - March 31, 1999 $198
Purchased and exchanged power expense decreased $236 million (50%) for the
quarter ended March 31, 1999, as compared to the same period last year,
primarily reflecting decreased purchases of non-firm power for resale to others
as a result of a decline in sales for resale volumes in the energy marketing and
trading operations.
Gas Purchased
Gas purchased for the quarter ended March 31, 1999, increased $227 million, when
compared to the same period last year, primarily due to the gas purchased
expenses of ProEnergy, which was acquired in June 1998. Partially offsetting
this increase was a lower average cost per mcf of gas purchased.
<PAGE>
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Other operation $195 $174
Maintenance 50 39
---- ----
Total $245 $213
Other operation expenses increased $21 million (12%) for the quarter ended March
31, 1999, as compared to the same period last year, primarily due to an increase
in operating expenses related to various non-regulated subsidiaries and the
estimated loss on a specific customer account.
Maintenance expenses increased $11 million (28%) for the quarter ended March 31,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Depreciation $79 $73
Amortization of phase-in deferrals 6 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $86 $80
Depreciation expense increased $6 million (8%) for the quarter ended March 31,
1999, as compared to the same period last year, primarily due to additions to
depreciable plant.
Equity in Earnings of Unconsolidated Subsidiaries
The $33 million increase in equity in earnings of unconsolidated subsidiaries
for the quarter ended March 31, 1999, as compared to the same period of 1998, is
primarily attributable to an increase in the earnings of Avon Energy resulting
from increased profits related to Midlands' supply business and lower costs of
purchased electricity.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $1 million
(44%) for the quarter ended March 31, 1999, as compared to the same period of
1998, is primarily attributable to PSI's redemption of all outstanding shares of
its 7.44% Series Cumulative Preferred Stock on March 1, 1998.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 17,856 $ 26,989
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 109,725 84,358
Accounts receivable less accumulated provision
for doubtful accounts of $19,295 at March
31, 1999, and $17,607 at December 31, 1998 119,288 205,060
Accounts receivable from affiliated companies 431 22,635
Materials, supplies, and fuel - at average cost 94,163 115,294
Prepayments and other 41,369 40,158
Energy risk management assets 351,639 484,500
---------- ---------
735,644 980,167
Utility Plant - Original Cost
In service
Electric 4,817,108 4,806,958
Gas 794,786 786,188
Common 197,299 186,364
---------- ----------
5,809,193 5,779,510
Accumulated depreciation 2,184,770 2,147,298
---------- ----------
3,624,423 3,632,212
Construction work in progress 121,476 119,993
---------- ----------
Total utility plant 3,745,899 3,752,205
Other Assets
Regulatory assets 616,784 627,035
Other 101,817 100,061
---------- ----------
718,601 727,096
$5,200,144 $5,459,468
<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>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 171,792 $ 282,743
Accounts payable to affiliated companies 34,376 13,166
Accrued taxes 138,096 151,455
Accrued interest 13,920 20,571
Long-term debt due within one year 20,000 130,000
Notes payable and other short-term obligations 288,991 189,283
Notes payable to affiliated companies 4,289 17,020
Energy risk management liabilities 414,212 558,573
Other 25,961 26,422
---------- ----------
1,111,637 1,389,233
Non-Current Liabilities
Long-term debt 1,219,901 1,219,778
Deferred income taxes 779,201 771,145
Unamortized investment tax credits 109,260 110,801
Accrued pension and other postretirement
benefit costs 149,830 146,361
Other 134,550 134,990
---------- ----------
2,392,742 2,383,075
Total liabilities 3,504,379 3,772,308
Cumulative Preferred Stock
Not subject to mandatory redemption 20,697 20,717
Common Stock Equity
Common stock - $8.50 par value; authorized
shares - 120,000,000; outstanding shares -
89,663,086 at March 31, 1999, and
December 31, 1998 762,136 762,136
Paid-in capital 553,929 553,926
Retained earnings 360,127 351,505
Accumulated other comprehensive loss (1,124) (1,124)
---------- ----------
Total common stock equity 1,675,068 1,666,443
$5,200,144 $5,459,468
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<S> <C> <C>
Quarter Ended
March 31
1999 1998
(in thousands)
Operating Revenues
Electric $481,586 $593,305
Gas 163,797 173,462
-------- --------
645,383 766,767
Operating Expenses
Fuel and purchased and exchanged power 198,871 325,171
Gas purchased 78,878 96,588
Other operation and maintenance 108,156 101,405
Depreciation and amortization 50,570 47,660
Taxes other than income taxes 54,114 54,683
-------- --------
490,589 625,507
Operating Income 154,794 141,260
Other Income and (Expenses) - Net (1,261) (2,494)
Interest 24,407 26,789
-------- --------
Income Before Taxes 129,126 111,977
Income Taxes 48,889 40,785
-------- --------
Net Income $ 80,237 $ 71,192
Preferred Dividend Requirement 214 215
-------- --------
Net Income Applicable to Common Stock $ 80,023 $ 70,977
Other Comprehensive Income (Loss), Net of Tax - (155)
-------- --------
Comprehensive Income $ 80,023 $ 70,822
<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)
<S> <C> <C>
Year to Date
March 31
1999 1998
(in thousands)
Operating Activities
Net income $ 80,237 $ 71,192
Items providing (using) cash currently:
Depreciation and amortization 50,570 47,660
Deferred income taxes and investment tax
credits - net 8,795 (27)
Allowance for equity funds used during
construction (775) (10)
Regulatory assets - net 4,496 2,912
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 80,619 391
Materials, supplies, and fuel 21,131 14,073
Accounts payable (89,741) 51,971
Accrued taxes and interest (20,010) (4,439)
Energy risk management - net (11,500) -
Other items - net (1,938) 9,753
--------- --------
Net cash provided by operating
activities 121,884 193,476
Financing Activities
Retirement of preferred stock (17) (9)
Redemption of long-term debt (110,000) (160,291)
Change in short-term debt 86,977 49,157
Dividends on preferred stock (214) (215)
Dividends on common stock (71,400) (42,600)
--------- ---------
Net cash used in financing
activities (94,654) (153,958)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (36,363) (36,483)
Net cash used in investing
activities (36,363) (36,483)
Net increase (decrease) in cash and temporary
cash investments (9,133) 3,035
Cash and temporary cash investments at
beginning of period 26,989 2,349
--------- ---------
Cash and temporary cash investments at
end of period $ 17,856 $ 5,384
<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 MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
March 31
Revenue Kwh Sales
1999 1998 1999 1998
($ and kwh in millions)
Retail $358 $336 5,882 5,438
Sales for resale 121 254 4,918 10,793
Other 3 3 N/A N/A
---- ---- ------ ------
Total $482 $593 10,800 16,231
Electric operating revenues decreased $111 million (19%) for the quarter ended
March 31, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to Cinergy's energy marketing and trading operations.
Partially offsetting the decline was higher retail kwh sales resulting from
growth in the average number of residential and commercial customers and a
return to more normal weather in the first quarter of 1999, as compared to 1998.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
March 31
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in millions)
Retail $144 $162 26 26
Transportation 20 11 13 16
---- ---- -- --
Total $164 $173 39 42
Gas operating revenues decreased $9 million (5%) in the first quarter of 1999,
when compared to the same period last year. A lower average cost per mcf of gas
purchased, which was passed on to end users, contributed to the decrease in
retail sales. Transportation revenues increased as more residential and
commercial customers began to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of a large industrial transportation customer during
late 1998.
<PAGE>
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Fuel $ 86 $ 88
Purchased and exchanged power 113 237
---- ----
Total $199 $325
Electric fuel costs decreased $2 million (2%) for the quarter ended March 31,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
March 31
(in millions)
Fuel expense - March 31, 1998 $88
Increase (Decrease) due to change in:
Price of fuel 1
Deferred fuel cost (7)
Kwh generation 4
---
Fuel expense - March 31, 1999 $86
Purchased and exchanged power expense decreased $124 million (52%) for the
quarter ended March 31, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations.
Gas Purchased
Gas purchased for the quarter ended March 31, 1999, decreased $18 million (18%),
when compared to the same period last year, primarily due to an decrease 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
March 31
1999 1998
(in millions)
Other operation $ 84 $ 82
Maintenance 24 19
--- ---
Total $108 $101
<PAGE>
Maintenance expenses increased $5 million (26%) for the quarter ended March 31,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Depreciation $43 $41
Amortization of phase-in deferrals 7 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $51 $48
Depreciation expense increased $2 million (5%) for the quarter ended March 31,
1999, as compared to the same period of 1998, primarily due to additions to
depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the quarter
ended March 31, 1999, as compared to the same period of 1998, is primarily due
to an increase in interest income and an increase in allowance for equity funds
used during construction resulting from an increase in the equity rate applied
and an increase in construction expenditures subject to allowance.
Interest
The decrease in interest expense of $2 million (9%) for the quarter ended March
31, 1999, 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 is primarily due to a net redemption of approximately
$90 million of long-term debt during the period of March 1998 through February
1999. The decrease in other interest expense was due to a reduction in average
short-term borrowings and lower short-term interest rates.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 31,187 $ 18,788
Restricted deposits 2,468 2,414
Notes receivable 8,298 17,024
Notes receivable from affiliated companies 70 73
Accounts receivable less accumulated provision
for doubtful accounts of $11,968 at March
31, 1999, and $7,893 at December 31, 1998 139,685 225,449
Accounts receivable from affiliated companies 10,674 384
Materials, supplies, and fuel - at average cost 83,789 80,445
Prepayments and other 27,485 31,461
Energy risk management assets 351,639 484,500
---------- ----------
Total current assets 655,295 860,538
Electric Utility Plant - Original Cost
In service 4,431,266 4,415,303
Accumulated depreciation 1,915,636 1,892,949
---------- ----------
2,515,630 2,522,354
Construction work in progress 87,984 69,891
---------- ----------
Total electric utility plant 2,603,614 2,592,245
Other Assets
Regulatory assets 323,603 343,731
Other 92,496 93,012
---------- ----------
Total other assets 416,099 436,743
$3,675,008 $3,889,526
<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
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 141,076 $ 217,959
Accounts payable to affiliated companies 12,954 30,145
Accrued taxes 90,558 58,901
Accrued interest 17,628 28,335
Notes payable and other short-term obligations 157,597 173,162
Notes payable to affiliated companies 103,092 102,946
Long-term debt due within one year 5,959 6,000
Energy risk management liabilities 414,212 558,573
Other 2,161 2,227
---------- ----------
945,237 1,178,248
Non-Current Liabilities
Long-term debt 1,020,093 1,025,659
Deferred income taxes 360,007 364,049
Unamortized investment tax credits 45,121 45,956
Accrued pension and other postretirement
benefit costs 116,664 112,387
Other 101,641 115,656
---------- ----------
1,643,526 1,663,707
Total liabilities 2,588,763 2,841,955
Cumulative Preferred Stock
Not subject to mandatory redemption 71,919 71,923
Common Stock Equity
Common stock - without par value; $0.01
stated value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 at March
31, 1999, and December 31, 1998 539 539
Paid-in capital 410,740 410,739
Retained earnings 603,557 564,865
Accumulated other comprehensive loss (510) (495)
---------- ----------
Total common stock equity 1,014,326 975,648
$3,675,008 $3,889,526
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<S> <C> <C>
Quarter Ended
March 31
1999 1998
(in thousands)
Operating Revenues
Electric $482,465 $592,125
Operating Expenses
Fuel and purchased and exchanged power 234,927 352,746
Other operation and maintenance 113,240 101,685
Depreciation and amortization 33,743 32,275
Taxes other than income taxes 14,488 14,967
-------- --------
396,398 501,673
Operating Income 86,067 90,452
Other Income and (Expenses) - Net 323 1,718
Interest 21,364 22,898
-------- --------
Income Before Taxes 65,026 69,272
Income Taxes 25,185 25,944
-------- --------
Net Income $ 39,841 $ 43,328
Preferred Dividend Requirement 1,150 2,208
-------- --------
Net Income Applicable to Common Stock $ 38,691 $ 41,120
Other Comprehensive Income (Loss), Net of Tax (15) 944
-------- ---------
Comprehensive Income $ 38,676 $ 42,064
<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)
<S> <C> <C>
Year to Date
March 31
1999 1998
(in thousands)
Operating Activities
Net income $ 39,841 $ 43,328
Items providing (using) cash currently:
Depreciation and amortization 33,743 32,275
Deferred income taxes and investment tax
credits - net (3,476) (473)
Allowance for equity funds used during
construction - (11)
Regulatory assets - net 644 7,758
Changes in current assets and current
liabilities
Restricted deposits (54) (29)
Accounts and notes receivable, net of
reserves on receivables sold 85,834 (75,348)
Materials, supplies, and fuel (3,344) (9,413)
Accounts payable (94,074) 33,541
Accrued taxes and interest 20,950 26,088
Energy risk management - net (11,500) -
Other items - net 7,593 (14,292)
--------- ---------
Net cash provided by operating
activities 76,157 43,424
Financing Activities
Issuance of long-term debt - 98,901
Retirement of preferred stock (3) (85,220)
Redemption of long-term debt (6,000) -
Change in short-term debt (15,419) 8,481
Dividends on preferred stock (1,150) (2,736)
Dividends on common stock - (28,400)
--------- ---------
Net cash used in financing activities (22,572) (8,974)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (41,186) (26,803)
Net cash used in investing activities (41,186) (26,803)
Net increase in cash and temporary cash
investments 12,399 7,647
Cash and temporary cash investments at
beginning of period 18,788 18,169
--------- ---------
Cash and temporary cash investments at
end of period $ 31,187 $ 25,816
<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 MARCH 31, 1999
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Quarter Ended
March 31
Revenue Kwh Sales
1999 1998 1999 1998
($ and kwh in millions)
Retail $318 $297 6,393 6,239
Sales for resale 157 287 6,282 12,185
Other 7 8 N/A N/A
---- ---- ------ ------
Total $482 $592 12,675 18,424
Operating revenues decreased $110 million (19%) for the quarter ended March 31,
1999, when compared to the same period for 1998. This decrease was primarily due
to decreased volumes on non-firm power sales for resale transactions related to
Cinergy's energy marketing and trading operations. Partially offsetting the
decline was an increase in the average price per kwh for retail customers and
higher retail and firm power kwh sales resulting from growth in the average
number of residential and commercial customers and a return to more normal
weather in the first quarter of 1999, as compared to 1998.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Fuel $107 $ 92
Purchased and exchanged power 128 261
---- ----
Total $235 $353
Fuel costs increased $15 million (16%) for the first quarter of 1999, as
compared to the same period last year.
<PAGE>
An analysis of fuel costs is shown below:
Quarter Ended
March 31
(in millions)
Fuel expense - March 31, 1998 $ 92
Increase (Decrease) due to change in:
Price of fuel (3)
Deferred fuel cost 12
Kwh generation 6
----
Fuel expense - March 31, 1999 $107
Purchased and exchanged power expense decreased $133 million (51%) for the
quarter ended March 31, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
March 31
1999 1998
(in millions)
Other operation $ 88 $ 82
Maintenance 25 20
---- ----
Total $113 $102
Other operation expense increased $6 million (7%) for the quarter ended March
31, 1999, as compared to the same period of 1998, primarily due to the estimated
loss on a specific customer account.
Maintenance expense increased $5 million (25%) for the quarter ended March 31,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
facilities.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the quarter
ended March 31, 1999, as compared to the same period of 1998, is primarily
attributable to a decrease in interest income.
Interest
The $2 million (7%) decrease in interest expense for the quarter ended March 31,
1999, as compared to the same period of 1998, is primarily due to a decrease in
other interest expense resulting from a reduction in average short-term
borrowings and lower short-term interest rates. Partially offsetting the
decrease was an increase in interest expense on long-term debt resulting from
the net issuance of approximately $144 million of long-term debt during the
period from March 1998 through December 1998.
<PAGE>
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $1 million (48%) for the
quarter ended March 31, 1999, as compared to the same period of 1998, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.44% Series Cumulative Preferred Stock on March 1, 1998.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 4,993 $ 3,244
Accounts receivable less accumulated provision
for doubtful accounts of $1,826 at
March 31, 1999, and $1,248 at December
31, 1998 9,076 14,125
Accounts receivable from affiliated companies - 666
Materials, supplies, and fuel - at average cost 3,668 8,269
Prepayments and other 154 308
-------- --------
Total current assets 17,891 26,612
Utility Plant - Original Cost
In service
Electric 234,791 232,222
Gas 165,629 164,040
Common 20,358 18,908
-------- --------
420,778 415,170
Accumulated depreciation 146,128 143,386
-------- --------
274,650 271,784
Construction work in progress 9,971 11,444
-------- --------
Total utility plant 284,621 283,228
Other Assets
Regulatory assets 10,893 10,978
Other 5,470 3,767
-------- --------
16,363 14,745
$318,875 $324,585
<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
<S> <C> <C>
March 31 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 6,729 $ 5,903
Accounts payable to affiliated companies 15,582 14,986
Accrued taxes 6,616 3,216
Accrued interest 1,432 1,959
Long-term debt due within one year 20,000 20,000
Notes payable to affiliated companies 11,386 31,817
Other 4,179 4,247
-------- --------
65,924 82,128
Non-Current Liabilities
Long-term debt 54,571 54,553
Deferred income taxes 25,711 26,134
Unamortized investment tax credits 4,168 4,238
Accrued pension and other postretirement
benefit costs 11,920 11,678
Amounts due to customers - income taxes 9,253 8,959
Other 11,968 8,077
-------- --------
117,591 113,639
Total liabilities 183,515 195,767
Common Stock Equity
Common stock - $15.00 par value; authorize
shares - 1,000,000; outstanding shares -
585,333 at March 31, 1999, and
December 31, 1998 8,780 8,780
Paid-in capital 19,525 19,525
Retained earnings 107,055 100,513
-------- --------
Total common stock equity 135,360 128,818
$318,875 $324,585
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
<S> <C> <C>
Quarter Ended
March 31
1999 1998
(in thousands)
Operating Revenues
Electric $49,159 $46,999
Gas 33,000 28,480
------- -------
82,159 75,479
Operating Expenses
Electricity purchased from parent company
for resale 36,748 34,090
Gas purchased 17,322 16,353
Operation and maintenance 10,190 9,430
Depreciation 3,571 3,232
Taxes other than income taxes 1,083 1,005
------- -------
68,914 64,110
Operating Income 13,245 11,369
Other Income and (Expenses) - Net (390) (496)
Interest 1,563 1,115
------- -------
Income Before Taxes 11,292 9,758
Income Taxes 4,749 3,989
------- -------
Net Income $ 6,543 $ 5,769
<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)
<S> <C> <C>
Year to Date
March 31
1999 1998
(in thousands)
Operating Activities
Net income $ 6,543 $ 5,769
Items providing (using) cash currently:
Depreciation 3,571 3,232
Deferred income taxes and investment tax
credits - net (200) 462
Allowance for equity funds used during
construction 16 14
Regulatory assets 35 (41)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 4,006 240
Materials, supplies, and fuel 4,601 3,111
Accounts payable 1,422 (5,751)
Accrued taxes and interest 2,873 (1,000)
Other current assets and liabilities 86 -
Other items - net 4,200 1,627
-------- --------
Net cash provided by operating
activities 27,153 7,663
Financing Activities
Change in short-term debt (20,431) (2,030)
-------- --------
Net cash used in financing
activities (20,431) (2,030)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (4,973) (6,175)
Net cash used in investing
activities (4,973) (6,175)
Net increase (decrease) in cash and temporary
cash investments 1,749 (542)
Cash and temporary cash investments at
beginning of period 3,244 546
-------- --------
Cash and temporary cash investments at
end of period $ 4,993 $ 4
<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 MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $2 million (5%) for the quarter ended
March 31, 1999, as compared to the same period last year. This increase
primarily reflects a return to more normal weather conditions, as compared to
the same period in 1998, and higher retail kwh sales resulting from growth in
the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
March 31
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in thousands)
Retail $31,555 $27,266 5,219 4,491
Transportation 1,445 1,214 1,078 1,106
------- ------- ----- -----
Total $33,000 $28,480 6,297 5,597
Gas operating revenues increased $5 million (16%) in the first quarter of 1999,
when compared to the same period last year, primarily due to a increase in mcf
volumes sold, a return to more normal weather conditions, and an increase in the
number of customers.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $3 million (8%) for the quarter ended March 31,
1999, as compared to the same period last year. This increase reflects higher
volumes purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended March 31, 1999, increased $1 million (6%),
when compared to the same period last year, primarily due to an increase in the
volumes of gas purchased, due to higher demand and an increase in the number of
customers.
<PAGE>
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
March 31
1999 1998
(in thousands)
Other operation $ 8,948 $8,135
Maintenance 1,242 1,295
------- -------
Total $10,190 $9,430
Other operation expenses increased $.8 million (10%) for the quarter ended March
31, 1999, as compared to the same period last year, primarily due to an increase
in administrative and general activities.
Depreciation
Depreciation increased $.3 million (10%) for the quarter ended March 31, 1999,
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 $.1 million for the quarter
ended March 31, 1999, as compared to the same period of 1998, is primarily
attributable to an increase in miscellaneous non-utility revenues.
Interest
The increase in interest expense of $.4 million (40%) for the quarter ended
March 31, 1999, as compared to the same period last year, was primarily due to
the net issuance of approximately $30 million of long-term debt during the
period of April 1998 through December 1998.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include normal,
recurring adjustments) 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 1998 Form 10-K of the registrants.
Certain amounts in the 1998 Financial Statements have been reclassified to
conform to the 1999 presentation.
Cinergy
2. On April 16, 1999, Cinergy issued and sold $200 million principal amount of
its 6.125% Debentures due 2004. Proceeds from the sale were used to repay a
portion of short-term indebtedness and for general corporate purposes.
Cinergy and PSI
3. On April 30, 1999, PSI issued: $124.7 million principal amount of its First
Mortgage Bonds, Series BBB, 8%, due July 15, 2009, in exchange for $125.7
million principal amount of certain outstanding Secured Medium-term Notes,
Series A; $60.1 million principal amount of its First Mortgage Bonds,
Series CCC, 8.85%, due January 15, 2022, in exchange for $60.5 million
principal amount of certain outstanding Secured Medium-term Notes, Series
A; and $38 million principal amount of its First Mortgage Bonds, Series
DDD, 8.31%, due September 1, 2032, in exchange for $38 million principal
amount of certain outstanding Secured Medium-term Notes, Series B.
Also on April 30, 1999, PSI issued $97 million principal amount of its
6.52% Senior Notes due 2009 in exchange for a like principal amount of
outstanding 7.25% Junior Maturing Principal Securities due 2028
("JUMPS(sm)").
The Secured Medium-term Notes and JUMPS(sm) received by PSI in the exchange
transactions described above have been cancelled.
Cinergy, CG&E, and PSI
4. Cinergy'senergy marketing and trading operations, conducted primarily
through its ECBU, markets and trades electricity, natural gas, and other
energy-related products. The power marketing and trading operation has both
physical and trading activities. Generation not required to meet native
load requirements is available to be sold to third parties, either under
long-term contracts, such as full requirements transactions or firm forward
sales contracts, or in short-term and spot market transactions. When
transactions are entered into, each transaction is designated as either a
physical or trading transaction. In order for a transaction to be
designated as physical, there must be intent and ability to physically
deliver the power from company-owned generation. Physical transactions are
accounted for on a settlement basis. All other transactions are considered
trading transactions and are accounted for using the mark-to-market method
of accounting. Under the mark-to-market method of accounting, these trading
transactions are reflected at fair value as "Energy risk management assets"
and "Energy risk management liabilities." Changes in fair value, resulting
in unrealized gains and losses, are reflected in "Fuel and purchased and
exchanged power." Revenues and costs for all transactions are recorded
gross in
<PAGE>
the Consolidated Statements of Income as contracts are settled. Revenues
are recognized in "Operating Revenues - Electric" and costs are recorded in
"Fuel and purchased and exchanged power."
Although physical transactions are entered with the intent and ability to
settle the contract with company-owned generation, it is likely, that from
time to time, due to numerous factors such as generating station outages,
native load requirements, and weather, power used to settle the physical
transactions will be required to be purchased on the open market. Depending
on the factors giving rise to these open market purchases, the cost of such
purchases could be in excess of the associated revenues. Losses such as
this will be recognized as the power is delivered. In addition, physical
contracts are subject to permanent impairment tests. At March 31, 1999,
management has concluded that no physical contracts are impaired.
Prior to December 31, 1998, the transactions now included in the trading
portfolio were accounted for and valued at the aggregate lower of cost or
market. Under this method, only the net value of the entire portfolio was
recorded as a liability in the Consolidated Balance Sheets.
Contracts in the trading portfolio are valued at end-of-period market
prices, utilizing factors such as closing exchange prices, broker and
over-the-counter quotations, and model pricing. Model pricing considers
time value and volatility factors underlying any options and contractual
commitments. Management expects that some of these obligations, even though
considered as trading contracts, will ultimately be settled from time to
time by using company-owned generation. The cost of this generation is
typically below the market prices at which the trading portfolio has been
valued.
Because of the volatility currently experienced in the power markets, and
the factors discussed above pertaining to both the physical and trading
activities, volatility in future earnings (losses) from period to period in
the ECBU is likely.
Cinergy's ECBU also physically markets natural gas and trades natural gas
and other energy-related products. All of these operations are accounted
for on the mark-to-market method of accounting. Revenues and costs from
physical marketing are recorded gross in the Consolidated Statements of
Income as contracts are settled due to the exchanging of title to the
natural gas throughout the earnings process. All non-physical transactions
are recorded net in the Consolidated Statements of Income. Energy risk
management assets and liabilities and gross margins from these trading
activities currently are not significant.
Cinergy, CG&E, and PSI
5. 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 and its subsidiaries utilize 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 loss," which
is a separate component of common stock equity. Aggregate translation
losses related to these instruments are reflected in "Current Liabilities"
in the Consolidated Balance Sheets.
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, PSI, and ULH&P
6. As discussed in the 1998 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.
Cinergy and PSI
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. PSI
acquired four of the sites from NIPSCO in 1931 and at the same time it sold
NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold
19 of these sites (including the four it acquired from NIPSCO) to Indiana
Gas and Water Company, Inc. (now IGC). One of the 19 sites, located in
Rochester, Indiana, was later sold by IGC to NIPSCO.
IGC and NIPSCO both made claims against PSI, contending that PSI is a
Potentially Responsible Party under the CERCLA with respect to the 21 MGP
sites, and therefore legally responsible for the costs of investigating and
remediating these sites. Moreover, in August 1997, NIPSCO filed suit
against PSI in federal court, claiming, pursuant to CERCLA, recovery from
PSI of NIPSCO's past and future costs of investigating and remediating MGP
related contamination at the Goshen MGP site.
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, among the three companies, at seven
MGP sites in Indiana. Pursuant to this agreement, NIPSCO's lawsuit against
PSI was dismissed. The parties have assigned one of the parties lead
responsibility for managing further investigation and remediation
activities at each of the sites. Similar agreements were reached between
IGC and PSI which allocate CERCLA liability at 14 MGP sites with which
NIPSCO had no involvement. These agreements conclude all CERCLA and similar
claims between the three companies relative to MGP sites. Pursuant to the
agreements and applicable laws, the parties are continuing to investigate
and remediate the sites as appropriate. Investigation and cleanup of some
of the sites is subject to oversight by the IDEM.
PSI has 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
<PAGE>
property and paying claims associated with MGP sites. PSI cannot predict
the outcome of this litigation.
Based upon the work performed to date, PSI has accrued costs for the sites
related to investigation, remediation, and groundwater monitoring.
Estimated costs of certain remedial activities are accrued when such costs
are reasonably estimable. PSI does not believe it can provide an estimate
of the reasonably possible total remediation costs for any site prior to
completion of a remedial investigation/feasibility study and the
development of some sense of the timing for the implementation of the
potential remedial alternatives, to the extent such remediation may be
required. Accordingly, the total costs that may be incurred in connection
with the remediation of all sites, to the extent remediation is necessary,
cannot be determined at this time. These future costs at the 21 Indiana MGP
sites, 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 the 21 MGP sites could be material to Cinergy's and
PSI's financial condition or results of operations.
Cinergy, CG&E, and ULH&P
CG&E and its utility subsidiaries are aware of potential sites where MGP
activities 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.
Cinergy, CG&E, PSI, and ULH&P
7. 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
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting
treatment. 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.
<PAGE>
<TABLE>
<CAPTION>
Cinergy
Presented below is a reconciliation of earnings per common share (basic EPS) and
earnings per common share assuming dilution (diluted EPS).
<S> <C> <C> <C>
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Quarter ended March 31, 1999
Earnings per common share:
Net income $127,245 158,746 $ .80
Effect of dilutive securities:
Common stock options 412
Contingently issuable common stock 13
EPS--assuming dilution:
Net income plus assumed conversions $127,245 159,171 $ .80
Quarter ended March 31, 1998
Earnings per common share:
Net income $106,071 157,764 $ .67
Effect of dilutive securities:
Common stock options 787
Contingently issuable common stock 123
EPS--assuming dilution:
Net income plus assumed conversions $106,071 158,674 $ .67
</TABLE>
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:
Quarter Average
Ended Exercise
March 31 Shares Price
1999 1,744,800 $35.70
1998 914,800 37.61
Cinergy
9. Midlands (of which the Company owns 50%) has a 40% ownership interest in a
586 MW power project in Pakistan ("Uch project" or "Uch") which as
originally scheduled to begin commercial operation in late 1998. In July
1998, the Pakistani government-owned utility issued a notice of intent to
terminate certain key project agreements relative to the Uch project. The
notice asserted 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 have pursued all available legal options to enforce their
contractual rights under the project agreements. Physical construction of
the project is complete; however, commercial operations have been delayed
pending resolution of the dispute. In December 1998, the Pakistani
government offered to withdraw its notice.
Through its 50% ownership of Midlands, the Company's current investment in the
Uch project is approximately $36 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 $8 million. At the present time, the Company cannot predict the
ultimate outcome of this matter.
Cinergy and PSI
10. As discussed in the 1998 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 satisfactory to PSI, could be completed in 1999.
PSI is investigating financing alternatives. The transaction, if approved
as proposed, is not expected to have a material impact on PSI's earnings.
Currently, natural gas prices have fallen to a level which causes the
synthetic gas supply taken under the current gasification services
agreement to be substantially above market. If the buyout of the
gasification services agreement is approved, the combustion turbine will be
fired with natural gas, or with synthetic gas if it can be produced at a
cost competitive with natural gas.
11. As discussed in the 1998 Form 10-K, the collective-bargaining agreement
with the International Brotherhood of Electrical Workers Local No. 1393,
covering approximately 1,470 employees, expired on May 1, 1999. A new labor
agreement was ratified April 22, 1999, and is effective from May 1, 1999,
through April 30, 2002.
Cinergy, CG&E, PSI, and ULH&P
12. As discussed in the 1998 Form 10-K, during 1998, Cinergy and its
subsidiaries adopted the provisions of Statement 131. During the first
quarter of 1999, Cinergy reorganized its reportable segments. The business
unit structure effective with that reorganization is described below.
The ECBU operates and maintains, exclusive of certain jointly-owned plant,
all of the Company's domestic electric generation facilities. In addition
to the production of electric power, all energy risk management, marketing,
and proprietary arbitrage trading, with the exception of electric and gas
retail sales, is conducted through the ECBU. Revenues from external
customers are derived from the ECBU's marketing, trading, and risk
management activities. Intersegment revenues are derived from the sale of
electric power to the EDBU.
The EDBU plans, constructs, operates, and maintains the Company's
transmission and distribution systems and provides gas and electric energy
to end users. Revenues from customers other than end users are primarily
derived from the transmission of electric power through the Company's
transmission system.
The CIBU manages the development, sales, and marketing of domestic,
non-regulated wholesale energy and energy-related products and services.
Most of the CIBU's revenues are derived from the sales of such products and
services to external, end-use customers. In addition, some of the CIBU's
activities are conducted through joint-venture affiliates, including the
construction and sale or lease of cogeneration and trigeneration facilities
to large commercial/industrial customers and energy management services to
third parties.
The IBU directs and manages all of the Company's international business
holdings, which include wholly-owned subsidiaries and equity investments.
Revenues and equity earnings from unconsolidated companies are primarily
derived from energy-related businesses.
Transfer pricing for sales of electric energy and sales of electric and gas
transmission and distribution services between the ECBU and EDBU are
derived from the operating utilities' retail and wholesale rate structures.
<PAGE>
<TABLE>
<CAPTION>
Financial results by business unit for the quarters ended March 31, 1999, and
1998, and Total Segments Assets at March 31, 1999, and December 31, 1998, are as
follows:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 503,638 $ 868,367 $17,400 $ 12,874 $1,402,279 $ - $ - $1,402,279
Intersegment Revenues 456,536 - - - 456,536 - (456,536) -
Segment Profit (Loss)
Before Taxes 83,317 102,754 (2,729) 24,136 207,478 (1,305) - 206,173
Total Segment Assets
at March 31, 1999 $5,081,083 $3,897,368 $46,876 $789,840 $9,815,167 $30,981 $ - $9,846,148
1998
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 502,098 $ 832,452 $13,765 $ 146 $ 1,348,461 $ - $ - $ 1,348,461
Intersegment Revenues 434,931 - - - 434,931 - (434,931) -
Segment Profit (Loss)
Before Taxes 91,153 90,572 (3,268) (961) 177,496 (11,554) - 165,942
Total Segment Assets
at December 31,
1998 $5,474,428 $3,987,055 $42,107 $751,861 $10,255,451 $ 43,344 $ - $10,298,795
<FN>
1. The all other category represents miscellaneous corporate items, which are
not allocated to business units for the purposes of segment profit
measurement.
2. The reconciling eliminations category eliminates the intersegment revenues
of the ECBU and the EDBU.
</FN>
</TABLE>
<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. Forward-looking statements
involve risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. 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 operations, such as unusual weather conditions,
unscheduled generation outages; unusual maintenance or repairs, unanticipated
changes in fuel costs, environmental incidents, or system constraints;
legislative and regulatory initiatives regarding deregulation and restructuring
of the industry; increased competition in the electric and gas utility
environment; challenges related to Year 2000 readiness; regulatory factors;
changes in accounting principles or policies; adverse political, legal, or
economic conditions; changing market conditions; success of efforts to invest in
and develop new opportunities in non-traditional business; availability or cost
of capital; employee workforce factors; legal and regulatory delays and other
obstacles associated with mergers, acquisitions, and investments in joint
ventures; 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 During the first quarter of 1999, Cinergy, through its
international subsidiaries, invested an additional $41 million in international
unconsolidated subsidiaries.
Competitive Pressures
Cinergy, CG&E, PSI, and ULH&P
Ohio As discussed in the 1998 Form 10-K, electric restructuring legislation was
reintroduced in 1999 in both houses of the Ohio General Assembly. These
companion bills propose to give choice to all retail electric customers by
January 1, 2001. As written, the legislation has not gained consensus among the
stakeholders.
The Ohio Senate Ways and Means Committee has scheduled a vote on a deregulation
bill during the second quarter of 1999 with a full senate vote scheduled if a
bill is reported from committee. It is uncertain whether these efforts will
produce legislation in Ohio in 1999.
<PAGE>
Indiana As discussed in the 1998 Form 10-K, legislation by a large group of
industrial customers was introduced into the Indiana legislature in January
1999. This legislation did not pass in the 1999 session of the Indiana General
Assembly, which came to a close on April 29, 1999.
Regulatory Matters
Cinergy and PSI
Coal Contract Buyout Costs See Note 10 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Environmental Issues
Cinergy, CG&E, and PSI
Ozone Transport Rulemaking As discussed in the 1998 Form 10-K, in October 1998,
the EPA finalized its Ozone Transport Rule (or NOx SIP Call). It applies to 22
states in the eastern half of the US, including the three states in which the
Cinergy electric utilities operate, and also proposes a model NOx trading
program. This rule recommends that states reduce NOx emissions from primarily
industrial and utility sources to a certain limit by May 2003. The EPA gave the
affected states until September 30, 1999, to incorporate utility NOx reductions
with a trading program into their SIPs. Ohio, Indiana, a number of other states,
and various industry groups, including some of which Cinergy is a member, filed
legal challenges to the NOx SIP Call in late 1998. Ohio and Indiana have also
provided preliminary indications that they will seek fewer NOx reductions from
the utility sector in their implementing regulations than the EPA has budgeted
in its rulemaking.
On April 30, 1999, the EPA made an affirmative technical determination on the
February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone
in the eastern US. By affirming these Section 126 petitions the EPA makes a
finding that the named Midwest stationary sources (including all of Cinergy's
facilities) are significantly contributing to ozone problems in the northeast
for both the one- and eight-hour ozone standard. The EPA has stated that the
Section 126 petitions and the NOx SIP call requirements should be coordinated.
Therefore, the EPA will defer fully granting the relief sought by petitioners
until the affected states file their proposed SIPs in September 1999.
Ambient Air Standards and Regional Haze As discussed in the 1998 Form 10-K, in
1997, the EPA revised the National Ambient Air Quality Standards for ozone and
fine particulate matter and was scheduled to finalize new regional haze rules by
the summer of 1999. It is currently anticipated that the new ozone standard will
not require additional utility NOx reductions beyond those resulting from the
NOx SIP Call discussed above.
The EPA finalized the new regional haze rules on April 22, 1999. These rules
established planning and emission reduction timelines for states to use to
improve visibility in national parks throughout the US. The ultimate effect of
the new regional haze rules could be requirements for newer and cleaner
technologies and additional controls on conventional particulates and/or
reductions in SO2 and NOx emissions from utility sources. If more utility
emissions reductions are required, the compliance cost could be significant. The
outcome or effects of the states' determination cannot currently be predicted.
Air Toxics As discussed in the 1998 Form 10-K, in November 1998, the EPA
finalized its Mercury ICR. Pursuant to the ICR, all generating units must
provide detailed information about coal use and mercury content. The EPA has
since selected about 100 generating units for one-time stack sampling, including
Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project. The EPA is
planning to make its regulatory determination on the need for additional
regulation by the fourth quarter of 2000. If more air toxics regulations are
issued, the compliance cost could be significant. The outcome or effects of the
EPA's determination cannot currently be predicted.
MGP Sites See Note 6 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 7 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades electricity,
natural gas, and other energy-related products. The Company utilizes
over-the-counter forward and option contracts for the purchase and sale of
electricity and also trades exchange-traded futures contracts. See Notes 4 and 5
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 1998 Form 10-K.
Cinergy
Exchange Rate Sensitivity The Company utilizes foreign exchange forward
contracts and currency swaps to hedge certain of its net investments in foreign
operations. See Notes 4 and 5 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 1998 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
Notes 4 and 5 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 1998 Form 10-K.
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 and 3 of the "Notes to Financial
Statements" in "Part I. Financial Information."
As of April 30, 1999, CG&E and PSI have remaining state regulatory authority for
long-term debt issuance of $200 million and $30 million, respectively.
<PAGE>
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 March 31, 1999,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 160 $ 160
Revolving line 600 -
Commercial paper - 336
Uncommitted line 45 83*
Utility subsidiaries
Committed lines 215 -
Uncommitted lines 410 180
Pollution control notes 267 267
Non-utility subsidiary 130 27
------ ------
Total $1,827 $1,053
* Excess over Established Line represents amount sold by dealers to other
investors.
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $ 85 $ -
Uncommitted lines 215 105
Pollution control notes 184 184
---- ----
Total $484 $289
PSI
Established
Lines Outstanding
(in millions)
Committed lines $130 $ -
Uncommitted lines 195 75
Pollution control notes 83 83
---- ----
Total $408 $158
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line also provides credit support for Cinergy's
commercial paper program, which is limited to a maximum principal amount of $400
million. The proceeds from the commercial paper sales were used for general
corporate purposes.
The established committed lines for CG&E and PSI each include $75 million
designated as backup for certain of the uncommitted lines at March 31, 1999.
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 first quarter of 1999.
Both CG&E and PSI have issued variable rate pollution control notes. Holders of
these pollution control notes have the right to put their notes on any business
day. Accordingly, these issuances are reflected in the Consolidated Balance
Sheets as "Notes payable and other short-term obligations."
Cinergy
Global Resources established a $100 million revolving credit agreement in 1998,
which was due to expire in March 1999 and has been extended to June 29, 1999.
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 dates
including and beyond the year 2000 or accurately process data in which such
dates are included, potentially causing data miscalculations and inaccuracies or
operational malfunctions and failures, which could materially affect a
business's financial condition, results of operations, and cash flows.
Cinergy has established a centrally-managed, company-wide initiative, known as
the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year
2000 issues. The Cinergy Year 2000 Readiness Program, which began in the fourth
quarter of 1996, is generally focused on three elements that are integral to
this initiative: (1) business continuity, (2) risk management, and (3)
regulatory compliance. Business continuity includes providing reliable electric
and gas supply and service in a safe and cost-effective manner. This element
encompasses mission-critical generation, transmission, and distribution systems
and related infrastructure, as well as operational and financial IT systems and
applications, end-user computing resources, and building systems (such as
security, elevator, and heating and cooling systems). Risk management includes a
review of the Year 2000 readiness efforts of Cinergy's critical suppliers, key
customers and other principal business partners, and, as appropriate, the
development of joint business support, contingency plans, and the inclusion of
Year 2000 concerns as a regular part of the due diligence process in any new
business venture. Regulatory compliance includes communications with regulatory
agencies, other utilities, and various industry groups. While this initiative is
broad in scope, it has been structured to identify and prioritize efforts for
mission-critical electric and gas systems and services and key business
partners.
Under the Cinergy Year 2000 Readiness Program, Cinergy has established a target
date of June 30, 1999, for the remediation and testing of its mission-critical
generation, transmission, and distribution systems (gas and electric). An
innovative remediation and testing effort which Cinergy has initiated involves
operating several electric-generating units with post Year 2000 dates. Cinergy's
experience has been that those units have continued to operate without any
material adverse result relating to a Year 2000 issue. Cinergy's progress to
date ranges from approximately 95% regarding IT systems to approximately 87%
regarding assessment of critical suppliers.
Cinergy has also reviewed its existing contingency and business continuity plans
and modified them in light of the Year 2000 issue. 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 have assessed 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.
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; and the
ability to comply with applicable laws or regulations) will convert their
mission-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 critical suppliers in an effort to minimize such risks.
In addition, Cinergy is coordinating its findings and other issues with other
utilities and various industry groups via the Electric Power Research Institute
Year 2000 Embedded Systems Project and the Year 2000 Readiness Assessment
Program of the NERC, acting at the request of the DOE. The DOE has asked NERC to
report on the integrity of the transmission system for North America and to
coordinate and assess the preparation of the electric systems in North America
for the Year 2000. NERC submitted its initial quarterly status report and
coordination plan to the DOE in September 1998, and a second quarterly status
report for the fourth quarter of 1998 was submitted on January 11, 1999. A third
quarterly status report for the first quarter of 1999 was submitted on April 30,
1999.
Cinergy currently estimates that the total cost for the inventory, assessment,
remediation, testing, and upgrading of its systems as a result of the Year 2000
effort is approximately $13 million. Approximately $12 million in expenses have
been incurred through March 31, 1999, for such things as external labor, for
hardware and software upgrades, and for Cinergy employees who are dedicated
full-time to the Cinergy Year 2000 Readiness Program. The timing of these
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 related to planned
system upgrades or replacements required in the normal course of business. These
costs have not been accelerated as a result of the Year 2000 issue.
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 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.
The above information is a Year 2000 Readiness Disclosure pursuant to the
Federal Year 2000 Information and Readiness Disclosure Act.
Cinergy
Other Commitments At March 31, 1999, Cinergy had issued $297 million in
guarantees primarily related to the energy marketing and trading activities of
its subsidiaries and affiliates. In addition, Cinergy had guaranteed $258
million of the debt securities of its subsidiaries and affiliates.
<PAGE>
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" and Notes 4 and 5
of the "Notes to Financial Statements" in "Part I. Financial Information."
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
Manufactured Gas Plant Sites
See Note 6 of the "Notes to Financial Statements" in Part I. Financial
Information.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cinergy
The annual meeting of shareholders of Cinergy was held April 21, 1999, in
Cincinnati, Ohio.
At the meeting, six Class II directors were elected to the board of Cinergy to
serve three-year terms, expiring in 2002, as set forth below:
Votes Votes
Class II For Withheld
Melvin Perelman, Ph.D. 128,436,454 2,555,756
Thomas E. Petry 128,566,730 2,425,480
Jackson H. Randolph 128,212,529 2,779,681
Mary L. Schapiro 128,329,336 2,662,874
Philip R. Sharp, Ph.D. 128,557,852 2,434,358
Dudley S. Taft 128,586,398 2,405,812
Also at the meeting, the following matters were submitted to a vote of security
holders:
Votes Votes Votes
Item For Against Abstain
Approval of Amended and Restated Cinergy
Corp. Retirement Plan for Directors 107,613,574 21,666,413 1,712,217
Approval of Cinergy Corp. Directors'
Equity Compensation Plan 112,705,936 16,438,145 1,848,122
Adoption of Amendment to Article III,
Section 3.1, of the Company's By-laws 127,811,378 4,740,599 1,979,187
CG&E
(a) In lieu of the annual meeting of shareholders of CG&E, a resolution was
duly adopted via unanimous written consent of CG&E's sole shareholder,
effective April 20, 1999.
(b) The following members of the Board of Directors were elected via unanimous
written consent of the sole shareholder of CG&E, in lieu of its annual
meeting, for one-year terms expiring in 2000:
Jackson H. Randolph
James E. Rogers
James L. Turner
PSI
(a) The annual meeting of shareholders of PSI was held April 21, 1999, in
Cincinnati, Ohio.
(b) Proxies were not solicited for the annual meeting, at which the Board of
Directors was re-elected in its entirety (see (c) below).
(c) The following members of the Board of Directors were unanimously re-elected
at the annual meeting for one-year terms expiring in 2000:
James K. Baker
Michael G. Browning
John A. Hillenbrand II
John M. Mutz
Jackson H. Randolph
James E. Rogers
ULH&P
Omitted pursuant to Instruction H(2)(b).
ITEM 5. OTHER INFORMATION
Cinergy and PSI
On April 20, 1999, the Company announced that John M. Mutz will retire May 31,
1999, as president of PSI. Mr. Mutz has served as president of PSI since October
1993.
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
3-a By-laws of Cinergy, as amended on April 21, 1999.
4-a Indenture between Cinergy and Fifth Third Bank, as Trustee, dated as
of April 15, 1999.
Cinergy and PSI
4-b #Fifty-second Supplemental Indenture between PSI and LaSalle National
Bank, as Trustee, dated as of April 30, 1999. (Exhibit to PSI's March
31, 1999, Form 10-Q in File No. 1-3543.)
4-c #Sixth Supplemental Indenture between PSI and Fifth Third Bank, as
Trustee, dated as of April 30, 1999. (Exhibit to PSI's March 31, 1999,
Form 10-Q in File No. 1-3543.)
Cinergy, CG&E, and PSI
10-a #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Cheryl M.
Foley. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
<PAGE>
Exhibit
Designation Nature of Exhibit
10-b #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and William J.
Grealis. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-c #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and M. Stephen Harkness. (Exhibit to
Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.)
10-d #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Donald B.
Ingle, Jr. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-e #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Madeleine W.
Ludlow. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-f #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and William L. Sheafer. (Exhibit to
Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.)
10-g #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and John P. Steffen. (Exhibit to Cinergy's
March 31, 1999, Form 10-Q in File No. 1-11377.)
10-h #Employment Agreement dated February 16, 1999, between Cinergy,
Cinergy Services, Inc., CG&E, PSI, and James L. Turner. (Exhibit to
Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.)
10-i #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Charles J.
Winger. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-j #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Larry E.
Thomas. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in electronic submission only)
<PAGE>
The following reports on Form 8-K were filed during the quarter ended March 31,
1999.
Date of Report Item Filed
Cinergy
December 31, 1998 Item 5. Other Events
Item 7. Financial Statements and Exhibits
<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) 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: May 13, 1999 /s/Bernard F. Roberts
---------------------------------------
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer
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