SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 15, 1994 Commission file number 1-1232
(Date of Earliest Event Reported)
THE CINCINNATI GAS & ELECTRIC COMPANY
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 31-0240030
of Ohio (I.R.S. Employer Identification No.)
139 EAST FOURTH STREET, CINCINNATI, OHIO 45202
(Address of Principal Executive Offices) (Zip Code)
513-381-2000
(Registrant's Telephone Number)
<PAGE>
Item 7. Financial Statements and Exhibits.
- - - ------- ----------------------------------
Exhibits
--------
23- Consent of Independent Public Accountants
for PSI Resources, Inc.
99- Annual Report on Form 10-K of PSI Resources, Inc.
for the year ended December 31, 1993
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
(Registrant)
Date: June 15, 1994 William L. Sheafer
-------------------------------------
William L. Sheafer, Treasurer
(Signature)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 22, 1994, related to the
1993 consolidated financial statements of PSI Resources, Inc.,
included in this Form 8-K, into The Cincinnati Gas & Electric
Company's previously filed Registration Statement File Nos.
33-38396, 33-45116, 33-45133, 33-45134, 33-50443 and 33-52335.
ARTHUR ANDERSEN & CO.
Indianapolis, Indiana,
June 15, 1994.
<PAGE>
Exhibit 99
- - - ------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-9941
PSI RESOURCES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1724168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 East Main Street
Plainfield, Indiana 46168
(Address of principal executive offices)
Registrant's telephone number: (317) 839-9611
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- - - ----------------------------- ------------------------
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
As of February 28, 1994, the aggregate market value of Common Stock held by
non-affiliates was $1.365 billion.
As of February 28, 1994, 57,114,573 shares of Common Stock (without par value,
$.01 stated value) were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of PSI Resources, Inc. dated March 9, 1994, is
incorporated by reference into Part III of this report.
- - - ------------------------------------------------------------------------------
<PAGE>
PSI RESOURCES, INC.
===================
TABLE OF CONTENTS
Item Page
Number Number
- - - ------ ------
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . . 3
PSI Energy, Inc. . . . . . . . . . . . . . . . . . . . . 3
PSI Investments, Inc . . . . . . . . . . . . . . . . . . 4
PSI Recycling, Inc. . . . . . . . . . . . . . . . . . . 4
PSI Argentina, Inc. . . . . . . . . . . . . . . . . . . 4
Regulation . . . . . . . . . . . . . . . . . . . . . . . 4
Fuel Supplies. . . . . . . . . . . . . . . . . . . . . . 4
Customer, Kilowatt-hour Sales, and Revenue Data. . . . . 5
Power Supply . . . . . . . . . . . . . . . . . . . . . . 5
Competition. . . . . . . . . . . . . . . . . . . . . . . 5
Environmental Matters. . . . . . . . . . . . . . . . . . 5
Employees. . . . . . . . . . . . . . . . . . . . . . . . 5
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . 5
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 6
4 Submission of Matters to a Vote of Security Holders. . . . 9
Executive Officers of the Registrant . . . . . . . . . . . 10
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . 12
6 Selected Financial Data. . . . . . . . . . . . . . . . . . 12
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 13
Index to Financial Statements and Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . 35
8 Financial Statements and Supplementary Data. . . . . . . . 36
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 69
PART III
10 Directors and Executive Officers of the Registrant . . . . 69
11 Executive Compensation . . . . . . . . . . . . . . . . . . 69
12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 69
13 Certain Relationships and Related Transactions . . . . . . 69
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Reports on Form 8-K. . . . . . . . . . . . . . . . . . 70
Exhibits . . . . . . . . . . . . . . . . . . . . . . . 71
Financial Statement Schedules. . . . . . . . . . . . . 80
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 89
<PAGE>
PART I
ITEM 1. BUSINESS
Organization
PSI Resources, Inc. (Resources) is a holding company incorporated under the
laws of the State of Indiana.
. Merger Agreement with The Cincinnati Gas & Electric Company (CG&E) -
Refer to the information appearing in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 18 and Notes 20, 21, and 22 of the "Notes to Consolidated Financial
Statements" beginning on page 63.
. IPALCO Enterprises Inc.'s Withdrawn Acquisition Offer - Refer to the
information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20.
PSI Energy, Inc.
PSI Energy, Inc. (Energy), Resources' principal subsidiary, is an Indiana
corporation engaged in the production, transmission, distribution, and sale of
electric energy in north central, central, and southern Indiana. It serves an
estimated population of 1.9 million people located in 69 of the state's 92
counties including the cities of Terre Haute, Kokomo, Columbus, Lafayette,
Bloomington, and New Albany. In 1992, PSI Energy Argentina, Inc., (PSI Energy
Argentina), a wholly-owned subsidiary of Energy, was formed for the purpose of
acquiring, purchasing, owning, and holding the stock of other energy,
environmental, or functionally-related corporations and as a holding company
for Energy's other energy ventures. PSI Energy Argentina is a member of a
multinational consortium which has controlling ownership of Edesur, S.A.
(Edesur). Edesur is an electricity-distribution network serving the southern
half of Buenos Aires, Argentina. Edesur provides distribution services to 1.8
million customers. PSI Energy Argentina owns a small equity interest in this
project and provides operating and consulting services.
PSI Investments, Inc.
PSI Investments, Inc. (Investments) is a wholly-owned subsidiary of Resources
formed to operate non-regulated and non-utility businesses. In 1990, Power
Equipment Supply Co. (PESCO), a wholly-owned subsidiary of Investments, was
formed to buy equipment for resale, broker equipment, and sell equipment on
consignment for others. Wholesale Power Services, Inc., also a wholly-owned
subsidiary of Investments, was formed in 1992 to engage in the business of
brokering power, emission allowances, electricity futures, and related
products and services and provide consulting services in the wholesale power-
related markets.
<PAGE>
PSI Recycling, Inc.
PSI Recycling, Inc. (Recycling) was formed in 1990 as a wholly-owned
subsidiary of Resources to recycle paper, metal, and other materials from
Energy and other sources. Goodwill Industries of Central Indiana provides
labor to Recycling and receives a portion of the profits.
PSI Argentina, Inc.
PSI Argentina, Inc. (PSI Argentina) was formed in 1992 as a wholly-owned
subsidiary of Resources to acquire, purchase, own, and hold the stock of other
energy, environmental, or functionally-related corporations and to act as a
holding company for other energy ventures. In 1992, PSI Argentina formed two
wholly-owned subsidiaries: Costanera Power Corp. (Costanera Power) was formed
to engage in the construction, operation, development, or ownership of power
production facilities; and Energy Services, Inc. of Buenos Aires was formed to
engage in the construction, operation, development, or ownership of power
production and distribution facilities. Costanera Power is a member of a
multinational consortium which has controlling ownership of the 1,260-megawatt
(mw) Costanera power plant serving Buenos Aires, Argentina. Costanera Power
owns a small equity interest in this project, and PSI Argentina provides
consulting services to the project.
Regulation
Energy, being a public utility under the laws of Indiana, is regulated by the
Indiana Utility Regulatory Commission (IURC) as to its retail rates, services,
accounts, depreciation, issuance of securities, acquisitions and sales of
utility properties, and in other respects as provided by Indiana law. Energy
is also subject to regulation by the Federal Energy Regulatory Commission
(FERC) with respect to borrowings and the issuance of securities not regulated
by the IURC, the classification of accounts, rates to wholesale customers,
interconnection agreements, and acquisitions and sales of certain utility
properties as provided by Federal law.
Fuel Supplies
Energy has both long- and short-term coal supply agreements for a major
portion of the coal requirements for its generating stations from mines
located principally in Indiana and Illinois. Several of these agreements
include extension options, and some are subject to price revision. Energy
monitors alternative sources to assure a continuing availability of economical
fuel supplies. At the present time, Energy is evaluating the use of western
and midwestern coal blends in connection with its plans to comply with the
acid rain provisions of the Clean Air Act Amendments of 1990.
Refer to the information appearing in Note 16(c) of the "Notes to Consolidated
Financial Statements" on page 61.
<PAGE>
Customer, Kilowatt-hour Sales, and Revenue Data
Approximately 97% of Resources' operating revenues are derived from Energy's
sales of electricity. The area served by Energy is a residential,
agricultural, and widely diversified industrial territory. As of December 31,
1993, Energy supplied electric service to over 624,000 customers in
approximately 700 cities, towns, unincorporated communities, and adjacent
rural areas, including municipal utilities and rural electric cooperatives.
No one customer accounts for more than 5% of electric operating revenues.
Sales of electricity by Energy are affected by the various seasonal patterns
throughout the year and, therefore, its operating revenues and associated
operating expenses are not generated evenly during the year.
Power Supply
Energy and 28 other electric utilities in an eight-state area are
participating in the East Central Area Reliability Coordination Agreement for
the purpose of coordinating the planning and operation of generating and
transmission facilities to provide for maximum reliability of regional bulk
power supply.
Energy's electric system is interconnected with the electric systems of CG&E,
Kentucky Utilities Company, Louisville Gas and Electric Company, Indianapolis
Power & Light Company, Indiana Michigan Power Company, Northern Indiana Public
Service Company, Central Illinois Public Service Company, Southern Indiana Gas
and Electric Company, and Hoosier Energy R.E.C., Inc. In addition, Energy has
a power supply relationship with Wabash Valley Power Association, Inc. (WVPA)
and Indiana Municipal Power Agency (IMPA) through power coordination
agreements. These two entities are also parties with Energy to a Joint
Transmission and Local Facilities Agreement.
Competition
Refer to the information appearing under the caption "Competitive Pressures"
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 13.
Environmental Matters
Refer to the information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 13.
Employees
The number of employees of Resources and its subsidiaries at December 31,
1993, was 4,248.
ITEM 2. PROPERTIES
Refer to the information appearing in Note 18 of the "Notes to Consolidated
Financial Statements" on page 62.
<PAGE>
Substantially all electric utility plant is subject to the lien of Energy's
first mortgage bond indenture.
Energy operates six steam electric generating stations, one hydroelectric
generating station, and 16 rapid-start internal combustion generating units,
all within the State of Indiana. Energy owns all of the above, except for
49.95% of Gibson Unit 5 which is jointly owned by WVPA (25%) and IMPA
(24.95%). Company-owned system generating capability as of December 31, 1993,
was 5,807 mw. Additionally, in May 1993, the IURC issued "certificates of
need" for Energy and Destec Energy, Inc.'s 262-mw clean coal power generating
facility to be located at Energy's Wabash River Generating Station. The clean
coal facility consists of a coal gasification plant and a gas turbine
generator. Exhaust heat from the gas turbine (192 mw) will produce steam to
repower an existing steam turbine (70 mw). Refer to the information appearing
under the caption "New Generation" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 26.
Energy's 1993 summer peak load, which occurred on August 26, was 4,812 mw, and
its 1993 winter peak load, which occurred on February 18, was 4,155 mw,
exclusive of off-system transactions. For the period 1994 to 2003, summer and
winter peak load and kilowatt-hour (kwh) sales are each forecasted to have
annual growth rates of 2%. These forecasts reflect Energy's assessment of
load growth, alternative fuel choices, population growth, and housing starts.
These forecasts exclude non-firm power transactions and any potential long-
term firm power sales at market-based prices.
As of December 31, 1993, Energy's transmission system consisted of 719 circuit
miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,601
circuit miles of 138,000 volt line, and 2,418 circuit miles of 69,000 volt
line, all within the State of Indiana. As of the same date, Energy's
transmission substations had a combined capacity of 20,520,154 kilovolt-
amperes and the distribution substations had a combined capacity of 5,952,175
kilovolt-amperes.
For the year ended December 31, 1993, 99% and 1% of Energy's kwh production
was obtained from coal-fired generation and hydroelectric generation,
respectively.
ITEM 3. LEGAL PROCEEDINGS
MERGER AGREEMENT LITIGATION Resources' original merger agreement with CG&E
was amended in response to a June 25, 1993, ruling by the IURC which dismissed
a petition by Energy for approval of the transfer of its license or property
to CINergy Corp., an Ohio corporation, pursuant to the original merger
agreement. The IURC held that such transfer could not be made to a
corporation incorporated outside of Indiana. Under the terms of the amended
merger agreement, CINergy Corp. (CINergy), a Delaware corporation, will be the
parent holding company of Energy and CG&E and will be required to register
under the Public Utility Holding Company Act of 1935 (PUHCA). Pursuant to the
amended merger agreement, Energy agreed to appeal the IURC's decision or take
other action to obtain the permission of the IURC for a non-Indiana
<PAGE>
corporation to own Energy's assets. Energy has appealed the IURC's decision.
In the event the appeal or other action is successful, the parties to the
amended merger agreement could take actions to achieve the original merger
structure. The original structure provided that Resources, Energy, and CG&E
would be merged into CINergy Corp., an Ohio corporation. Under this
structure, Energy and CG&E would become operating divisions of CINergy Corp.,
ceasing to exist as separate corporations, and CINergy Corp. would not be a
registered holding company under the PUHCA. Any action taken with respect to
this litigation is not expected to delay the merger of Resources and CG&E
under a registered holding company structure.
THE KATZ ACTION On March 16, 1993, after the announcement of IPALCO
Enterprises, Inc.'s acquisition offer, a purported class action was filed by
Moise Katz (Katz Action) in the Superior Court for Hendricks County in the
State of Indiana (Superior Court) in which Resources and the directors of
Resources and Energy were named as defendants. The Katz Action alleges, among
other things, that the directors breached their fiduciary duties in connection
with the original merger agreement, Resources Stock Option Agreement (see Note
20 of the "Notes to Consolidated Financial Statements" beginning on page 63),
and Resources Shareholder Rights Plan and seeks, among other things, to enjoin
the CINergy merger transaction and to require that an auction for Resources be
held. On April 7, 1993, Resources and the other defendants filed a motion to
dismiss the Katz Action, and on July 1, 1993, the Superior Court granted that
motion. On July 19, 1993, the Superior Court issued an order which vacated
its July 1, 1993, order but granted Resources' motion to dismiss Count I of
the Katz Action for failure to bring the breach of fiduciary duty claims in a
derivative proceeding.
On August 18, 1993, a purported third amended class action and derivative
complaint was filed in the Katz Action, seeking injunctive relief and damages
for alleged breach of fiduciary duty by the directors of Resources. Among
other things, this complaint alleges that the defendants failed to disclose
(i) the factors that Resources' Board of Directors considered in reaffirming
its recommendation that Resources' shareholders approve the merger with CG&E
and whether those factors included a consideration of the divestiture of the
CG&E gas operations; (ii) whether and to what extent Lehman Brothers took into
consideration the divestiture of the CG&E gas operations, and the
ramifications thereof, in rendering its July 2, 1993, fairness opinion
regarding the merger with CG&E; (iii) the pro forma effect on the merged
company taking into consideration the divestiture of the CG&E gas operations;
(iv) whether the "comparable" company analysis performed by Lehman Brothers
consisted of companies operating electrical systems or gas and electrical
systems and whether such analysis included or excluded the CG&E gas
operations; and (v) whether Resources' Board of Directors was informed of the
ramifications of the divestiture of the CG&E gas operations and to what
extent, if any, Resources' Board of Directors took into consideration such
ramifications before it endorsed the amended merger agreement to Resources'
shareholders. Resources denies these allegations. Resources anticipates that
the dismissal of the PSI Merger Shareholder Action and the resolution of
related attorney fees, as discussed below, will result in the dismissal of the
Katz Action.
<PAGE>
The foregoing descriptions of the July 1993 orders and the August 18, 1993,
third amended complaint in the Katz Action are qualified in their entirety by
reference to copies of such orders incorporated by reference as exhibits
hereto.
THE PSI MERGER SHAREHOLDER ACTION On March 17, 1993, a purported class action
was filed by Lydia Grady (Grady Action) in the Superior Court in which
Resources and 13 directors of Resources and Energy were named as defendants.
On April 13, 1993, the Indiana District Court issued an order which, among
other things, consolidated the Grady Action with the following cases: J.E. and
Z.B. Butler Foundation v. PSI Resources, Inc., et al.; Lamont Carpenter, et
al. v. PSI Resources, Inc., et al.; Ronald Gaudiano, et al. v. PSI Resources,
Inc., et al.; and Sonny Merrit v. PSI Resources, Inc., et al. (together, the
"PSI Merger Shareholder Action").
On July 19, 1993, a hearing was held in the Indiana District Court in the PSI
Merger Shareholder Action on the plaintiffs' motion for a preliminary
injunction. On August 5, 1993, the Indiana District Court issued an order
granting the preliminary injunction sought by the plaintiffs and ordered
Resources, within 20 days, to provide shareholders with certain additional
information relating to the pro forma effect on CINergy Corp.'s financial
condition of the possible divestiture of CG&E's gas operations. The Indiana
District Court also ordered additional disclosure concerning, among other
things, Lehman Brothers' consideration of that possibility in connection with
its July 2, 1993, fairness opinion to Resources' Board of Directors.
Resources complied with this order in its Proxy Statement Supplement dated
August 12, 1993.
In January 1994, the parties in the PSI Merger Shareholder Action as well as
the parties to the Katz Action signed a Stipulation and Agreement of Dismissal
(the "Stipulation"). The Stipulation contemplates, among other things, that
the parties will jointly move the Indiana District Court for entry of a final
order dismissing the PSI Merger Shareholder Action with prejudice and ruling
on the plaintiffs' application for fees and expenses. The parties to the
Stipulation have agreed to provide notice to Resources' shareholders of a
hearing during which the proposed final order will be considered by the
Indiana District Court. If the plaintiffs are entitled to recover these fees,
Resources does not anticipate this cost to have a material adverse effect on
its financial condition.
The foregoing descriptions of the April 13, 1993, class actions consolidation
order, and the August 5, 1993, Indiana District Court order are qualified in
their entirety by reference to copies of such documents incorporated by
reference as exhibits hereto.
In addition to the above litigation, see Notes 2, 3(a), and 16(b) and (c)
beginning on pages 45, 47, and 60, respectively, of the "Notes to Consolidated
Financial Statements".
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Resources' merger agreement with CG&E to form CINergy was approved at
Resources' Special Meeting of Shareholders held on November 9, 1993.
Resources had 56,948,282 outstanding shares of common stock as of September
24, 1993, constituting all of the outstanding voting securities of Resources.
Each share of common stock was entitled to one vote. The holders of
48,020,085 shares were represented with 47,325,271 shares voting FOR and
332,431 shares voting AGAINST the approval of the merger agreement; 362,383
shares ABSTAINED from voting on the merger agreement.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Age at
Dec. 31,
Name 1993 Office & Date Elected or in Job
- - - ----------------------- -------- -----------------------------------------
James E. Rogers 46 Chairman and Chief Executive Officer of
Resources - 1993
Chairman, President and Chief Executive
Officer of Energy - 1990
Chairman, President and Chief Executive
Officer of Resources - 1988
Chairman and Chief Executive Officer
of Energy - 1988
John M. Mutz 1/ 58 President of Resources - 1993
President - Lilly Endowment, Inc. 2/ - 1989
Jon D. Noland 55 Executive Vice President of
Resources - 1992
Executive Vice President and Chief
Administration Officer of Energy - 1992
Executive Vice President of Energy - 1990
Vice President and General Counsel
of Resources - 1989
Executive Vice President -
Law and Regulation of Energy - 1989
Vice President of Resources - 1988
Executive Vice President - Law and
Financial Services of Energy - 1986
J. Wayne Leonard 43 Senior Vice President and Chief Financial
Officer of Resources and Energy - 1992
Vice President and Chief Financial
Officer of Resources and Energy - 1989
Vice President - Corporate Planning
of Energy - 1987
Cheryl M. Foley 3/ 46 Vice President, General Counsel and
Secretary of Resources and Energy - 1991
Vice President and General Counsel
of Resources - 1990
Vice President and General Counsel
of Energy - 1989
Vice President and General Counsel -
Interstate Pipelines - Enron
Corporation 2/ - 1987
M. Stephen Harkness 45 Treasurer of Resources and Energy - 1991
Treasurer and Assistant Secretary
of Resources - 1988
Treasurer and Assistant Secretary of
Energy - 1986
Charles J. Winger 48 Comptroller of Resources - 1988
Comptroller of Energy - 1984
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
None of the officers are related in any manner. Executive officers of
Resources are elected to the offices set opposite their respective names until
the next annual meeting of the Board of Directors and until their successors
shall have been duly elected and shall have been qualified.
1/ Prior to becoming president of Resources, Mr. Mutz was president of
Lilly Endowment, Inc., a private philanthropic foundation located in
Indianapolis, Indiana and also served two terms as lieutenant governor
of Indiana.
2/ Non-affiliates of Resources and Energy.
3/ Prior to joining Energy, Mrs. Foley was vice president and general
counsel for various divisions/subsidiaries of Enron Corporation, a
diversified energy company headquartered in Houston, Texas.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Resources' common stock is listed on the New York Stock Exchange and has
unlisted trading privileges on the Boston, Chicago, Cincinnati, Pacific, and
Philadelphia exchanges. As of February 28, 1994, there were 22,075 common
shareholders of record. Refer to the information in Notes 4 through 7 of the
"Notes to Consolidated Financial Statements" beginning on page 48.
The following table shows the high and low sale prices of Resources' common
stock and the dividends declared per share for the past two years:
<TABLE>
<CAPTION>
High Low Dividend
-------------------- ----------------- --------------
Quarter 1993 1992 1993 1992 1993 1992
- - - ------- ------- ------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
4th $27 $20 $24 1/2 $17 7/8 $.31 $.28
3rd 26 1/4 19 3/4 23 1/2 16 3/4 .28 .25
2nd 24 1/4 17 21 5/8 15 1/2 .28 .25
1st 24 1/2 17 1/2 19 1/2 15 3/4 .28 .25
</TABLE>
See "Significant Achievements" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 17 for a discussion of
Resources' quarterly common dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues (1) $1 088 $1 081 $1 122 $1 108 $1 139
Net income (1) 96 96 19 119 125
Common stock
Earnings per share 1.73 1.75 .35 2.20 2.32
Dividends paid per share 1.15 1.03 .91 .82 .80
Total assets 2 664 2 335 2 102 2 041 1 972
Cumulative preferred stock of subsidiary
subject to mandatory redemption (2) - - 26 29 33
Long-term debt 816 737 642 650 626
Long-term debt due within one year - 40 90 - 39
Notes payable 147 144 - 17 8
(1) See Note 3(a) of the "Notes to Consolidated Financial Statements"
beginning on page 47.
(2) Includes $3 million per year for 1989 to 1991 to be redeemed within one year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 13 and Notes 2, 16, 20, and 22 of the "Notes to Consolidated
Financial Statements" beginning on pages 45, 60, 63, and 68, respectively, for discussions
of material uncertainties.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The financial condition of PSI Resources, Inc. (Resources) and its principal
subsidiary, PSI Energy, Inc. (Energy), is currently, and will continue to be,
significantly affected by:
. The changing competitive environment for electric utilities, including
more intense competition in wholesale power markets and emerging
competition for the provision of energy services to retail customers,
particularly industrial;
. The regulatory response to the changing competitive environment,
including the application of incentive ratemaking, the need for more
flexible pricing, and the treatment of business alliances entered into
in response to such changes (e.g., the merger with The Cincinnati Gas &
Electric Company [CG&E] discussed further herein); and
. The substantial costs associated with Energy's construction program,
including environmental compliance and the regulatory response to the
potentially significant earnings attrition resulting from such program.
Energy's goal is to achieve the financial measures necessary to assure access,
at a reasonable cost, to the capital required to finance its construction
program, which is necessary to provide adequate and reliable service to its
customers. Specific financial objectives include achieving and maintaining
common equity at a minimum of 45% of capitalization, achieving at least an "A"
credit rating on senior securities, and increasing the common dividend in an
orderly manner. Energy's achievement of its goal is increasingly dependent
upon maintaining its favorable competitive position.
Competitive Pressures
- - - ---------------------
The increasing competitive pressures in the electric utility industry are
primarily driven by the need of U.S. industries for low cost power in order to
remain competitive in the global marketplace. The restrictions on access to
low cost power are exacerbated by cost-of-service regulation which has
produced average industrial rates to customers that vary substantially across
the U.S. (from 3 cents per kilowatt-hour [kwh] to over 10 cents per kwh).
Although the electric utility industry has already experienced substantial
competition in the wholesale power market, the effect of competition has
arguably had only a marginal effect on the overall profitability of the
industry. The effect of the Energy Policy Act of 1992 (Energy Act), the most
comprehensive energy legislation enacted since the late 1970s, is to
essentially provide open competition, at the wholesale level, for new
generation resources. The Energy Act increases the level of competition by
creating a new class of wholesale power providers that are not subject to the
restrictive requirements of the Public Utility Holding Company Act of 1935
(PUHCA) nor the ownership restrictions of the Public Utility Regulatory
<PAGE>
Policies Act of 1978. This, combined with the provision of the Energy Act
granting the Federal Energy Regulatory Commission (FERC) the authority to
order wholesale transmission access, makes the competition real in the
wholesale power market. However, by prohibiting the FERC from ordering
utilities to provide transmission access to retail customers (retail
wheeling), Congress clearly intended to allow states to decide whether a
competitive generation market will extend to retail customers. In the face of
ongoing international competition, Energy believes major industrial customers
of electric utilities will continue to pressure state legislatures and utility
regulatory commissions to permit retail wheeling. Although specific proposals
for retail wheeling have not been advanced in Indiana, at least eight states
are at various stages in considering proposals for retail wheeling.
In the fourth quarter of 1993, major credit rating agencies issued reports
sounding a warning as to the long-term effect of competition on the electric
utility industry. Standard & Poor's (S&P), in particular, announced
fundamental changes in the way it evaluates credit quality of electric
utilities, essentially declaring its view that business risk is increasing, in
part, because electric utility prices will be capped at some level established
by competition, regardless of the particular company's costs. Not only will
it be difficult for high cost producers to secure further rate increases, they
also will likely experience substantial price decreases as competition
intensifies. Consequently, it appears inevitable that high cost producers
will require better financial fundamentals than low cost producers to secure
the same credit rating. Specifically, S&P has categorized each electric
utility's business position, ranking it as being above average, average, or
below average. As a result, S&P revised the rating outlooks of approximately
one-third of the electric utility industry from stable to negative and placed
several electric utilities on CreditWatch with negative implications.
Energy believes the concerns raised by S&P and other major credit rating
agencies, in part, explain recent activity in the electric utility segment of
the stock market. The electric utility group dropped substantially more in
the fourth quarter of 1993 than the bond market (usually a barometer for
electric utility stocks). As a result, the yield spread between long-term
U.S. Treasuries and electric utility stocks dropped from the 3 to 5 year
average of 110 to 120 basis points to 20 to 30 basis points.
During this same period, several "sell-side" equity analysts have expressed
their concerns in written reports that investors, particularly small retail
investors, do not currently understand the increased business risk facing
electric utilities due to competitive pressures, the threat of lower prices to
customers, and the threat of "regulated competition". As a result, some
equity analysts believe that electric utility stock prices were driven upwards
to near record market to book levels by investors seeking higher yields during
a period of lower interest rates without full recognition of the changed risks
in the industry. Similar to S&P's analysis of fixed income securities, Energy
believes that many equity analysts are now basing their buy-sell equity
recommendations for electric utility stocks, in large part, on (i) the price
position of the utility relative to neighboring competition, (ii) the
elasticity of the current customer make-up, particularly industrial, (iii) the
<PAGE>
response of state regulators to competitive issues, and (iv) the
aggressiveness of management in "inventing its own future".
Energy believes it is well positioned to succeed in the increasingly
competitive environment. Energy's favorable competitive position is a result
of and/or will be enhanced by:
. The consummation of the merger with CG&E which will combine two low
cost providers of electric energy and provide substantial competitive
benefits and opportunities;
. Energy's demonstrated ability to be a low cost producer of electric
energy. Energy has consistently held operating cost increases below
inflation and has current average retail rates below 1983 levels. This
low cost position is further illustrated in a December 1993 report
(using 1992 data) by Bear, Stearns & Co., Inc. which listed Energy as
the third lowest cost (fixed plus variable production costs) provider
of generation among 28 utilities in the North Central Region of the
U.S. Additionally, in a May 1993 study (using 1992 data) by Regulatory
Research Associates, Inc. (RRA) of 135 major investor-owned operating
utilities and holding companies, Energy's average industrial rate of
3.5 cents per kwh was approximately 30% lower than the national average
industrial rate of 5.1 cents per kwh. This same study also indicated
that the average rate for Energy's retail customers of 4.6 cents per
kwh was at least 35% below the national average of 7.1 cents per kwh,
and lower than at least 85% of the companies included in the study.
Further, Energy's average industrial and retail rates were both at
least 15% below the North Central Region of the U.S. average rates
derived from the data relating to these utilities included in the May
1993 RRA report;
. Management's focus on flexible strategies which are directed toward
reducing its cost structure and reducing operating leverage, in part,
by shifting the cost mix from fixed to variable. For example, Energy
is actively enforcing its rights under its existing coal contracts,
litigating where necessary, in order to significantly lower fuel costs.
Energy has also recently received approval of its emission allowance
banking strategy, which is expected not only to substantially reduce
Energy's future cost structure and capital outlays, but also to greatly
enhance its flexibility to meet future energy needs and environmental
requirements. Additionally, Energy intends to purchase power to defer
the construction of new generation which will likely be further
deferred if the merger with CG&E is consummated; and
. Energy's success at creating customer value, as demonstrated by
customer satisfaction levels at the top of a peer group of 16 electric
and combination electric and gas utilities. This success was further
demonstrated during 1993 as several mayors and leaders of communities
within Energy's service territory, including over 30 economic
development organizations across Energy's service territory and eight
Indiana environmental groups, actively supported Energy in its response
to IPALCO Enterprises, Inc.'s (IPALCO) hostile takeover attempt, as the
electric utility of choice to serve their communities.
<PAGE>
Energy further believes its low cost position and strategic initiatives will
allow it to maintain, and perhaps expand, its wholesale market share and its
current base of industrial customers. Sales to industrial customers
represented approximately 28% of Resources' 1993 total operating revenues.
During the fourth quarter of 1993, S&P, using its revised benchmarks for
rating electric utility senior securities, placed Energy in an above average
business position. At the same time, certain sell-side equity analysts
placed Energy near the top of their lists of those best equipped to handle
increasing competitive pressures. Energy believes that the reaction of these
equity analysts and the stock market in 1993 supports its position that its
competitive strategy will be successful. According to a January 1994 edition
of Electric Utility Week, the 32.5% increase in Resources' stock price was the
third highest of the 105 utilities studied, while the group as a whole
averaged only a 5.5% gain over 1992.
Increasing competitive pressures, and the regulatory response thereto, may
ultimately result in some electric utilities being unable to continue their
current basis of accounting. The basis of accounting currently followed by
most regulated electric utilities is based on the premise that customer rates
authorized by regulators are cost based and that a utility will be able to
charge and collect rates based on its costs. To the extent regulators no
longer provide assurances for recovery of a utility's costs or the marketplace
does not allow the pricing necessary to fully recover costs, a regulated
utility could be required to prepare its financial statements on the same
basis as enterprises in general for all or some portion of its business.
Energy believes its low cost position and competitive strategy, combined with
its current regulatory environment, would mitigate the potentially adverse
effects of such changes.
Securities Ratings
- - - ------------------
The current ratings of Energy's senior securities reflect the risk associated
with the costs of achieving compliance with environmental laws and
regulations. However, Duff & Phelps, Fitch Investors Service, and S&P
continue to place Energy's debt ratings on review for possible upgrade
primarily as a result of the announced merger with CG&E. The ratings are
currently as follows:
First Mortgage Bonds
and Secured Preferred
Medium-term Notes Stock
- - - -------------------------------------------------------------------
Duff & Phelps BBB+ BBB
Fitch Investors Service BBB+ BBB
Moody's Baa1 baa2
Standard & Poor's BBB+ BBB
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
<PAGE>
Significant Achievements
- - - ------------------------
The following events during 1993 indicate Energy's progress towards achieving
its financial objectives:
. The announced merger with CG&E, which was initiated in response to the
changing competitive environment in the electric utility industry, was
approved by shareholders of Resources and CG&E in November 1993 (see
Merger Agreement with CG&E discussion beginning on page 18);
. In October 1993, Resources' Board of Directors increased its quarterly
common dividend 3 cents (10.7%), to 31 cents per share. This marks the
fourth consecutive year in which the dividend has increased at a
double-digit rate and is an integral part of the ongoing effort to
strengthen and broaden the market for Resources' common stock. Future
increases in Resources' common dividend will continue to be influenced
by Energy's financial condition (see Dividend Restrictions discussion
on page 34). Resources currently has an effective shelf registration
statement for the sale of up to eight million shares of common stock;
. The Indiana Utility Regulatory Commission (IURC) issued an order
approving Energy's plan for complying with Phase I of the acid rain
provisions of the Clean Air Act Amendments of 1990 (CAAA) and Energy's
emission allowance banking strategy (see Regulatory Matters and Capital
Needs discussions beginning on pages 21 and 24, respectively);
. Energy filed testimony with the IURC in support of a $103 million,
11.6% retail rate increase. This testimony also includes proposals
for certain innovative ratemaking mechanisms designed to reduce
business and regulatory risks over the next three years (see Regulatory
Matters discussion beginning on page 21);
. In accordance with a January 1993 IURC order, Energy implemented
accounting changes on certain major capital projects to offset the
effects of regulatory lag, i.e., earnings attrition. These accounting
changes favorably affected 1993 earnings by approximately $7 million.
Energy's current retail rate proceeding includes a proposal to continue
this accounting treatment for certain major capital projects (see
Regulatory Matters discussion beginning on page 21);
. Energy refinanced $223 million of long-term debt and preferred stock to
take advantage of lower interest and dividend rates. Energy expects to
save approximately $4 million in annualized interest and preferred
stock dividends as a result of these refinancings; and
. The IURC approved a settlement agreement which resolved outstanding
issues related to the IURC's April 1990 rate order (April 1990 Order)
and June 1987 tax order (June 1987 Order) (see Regulatory Matters
discussion beginning on page 21). Although this settlement resulted in
a significant customer refund, it resolved major uncertainties with
respect to Energy's financial condition.
<PAGE>
Recent Developments
- - - -------------------
Merger Agreement with CG&E
GENERAL Resources, Energy, and CG&E entered into an Agreement and Plan of
Reorganization dated as of December 11, 1992, which was subsequently amended
and restated on July 2, 1993, and as of September 10, 1993 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged with and into a newly formed corporation named CINergy Corp.
(CINergy) and a subsidiary of CINergy will be merged with and into CG&E ("CG&E
Merger", collectively referred to as the "Mergers"). Following the Mergers,
CINergy will be the parent holding company of Energy and CG&E and will be
required to register under the PUHCA. The combined entity will be the 13th
largest investor-owned electric utility in the nation, based on generating
capacity, and will serve approximately 1.3 million electric customers and
420,000 gas customers in a 25,000-square-mile area of Indiana, Ohio, and
Kentucky. See the discussion under "Shareholder and Regulatory Approvals" for
information concerning the possible divestiture of CG&E's gas operations as a
consequence of the Mergers. Customer revenue requirement savings as a result
of the Mergers are estimated to be approximately $1.5 billion over the first
10 years. These savings are expected to include the elimination or deferral
of certain capital expenditures and a reduction in production, administrative,
and financing costs.
The Merger Agreement can be terminated by any party, without financial
penalty, if the Mergers are not consummated by June 30, 1994. Under certain
circumstances, the termination of the Merger Agreement would result in the
payment of termination fees, which may not exceed $70 million, if Resources is
required to pay, or $130 million, if CG&E is required to pay.
EXCHANGE RATIO The Merger Agreement provides that, upon consummation of the
Mergers, each outstanding share of common stock of Resources will be converted
into the right to receive not less than .909 nor more than 1.023 shares of
common stock of CINergy depending on certain closing sales prices of the
common stock of CG&E during a period prior to the consummation of the Mergers.
The Merger Agreement also provides that, upon consummation of the Mergers,
each outstanding share of common stock of CG&E will be converted into the
right to receive one share of common stock of CINergy. The outstanding
preferred stock and debt securities of Energy and CG&E will not be affected.
SHAREHOLDER AND REGULATORY APPROVALS In November 1993, the Mergers were
approved by the shareholders of Resources and CG&E. In August 1993, the FERC
conditionally approved the Mergers. This conditional approval was made by the
FERC without a formal hearing and, according to public statements by the FERC
Commissioners, was done in reliance, in part, on the FERC's belief that the
regulatory commissions of the affected states would have authority to approve
or disapprove the Mergers. The companies accepted the FERC's conditions and
indicated their belief that none of the conditions would have a material
adverse effect on the operations, financial condition, or business prospects
of CINergy. Certain parties petitioned for rehearing of the FERC's
conditional approval. On September 15, 1993, Energy and CG&E filed a
statement with the FERC clarifying their conclusions at that time that the
<PAGE>
Mergers would not require any prior approval of a state commission under state
law. Given the issues raised on the requests for rehearing and the lack of
certainty in the record regarding state regulatory powers, on January 12,
1994, the FERC issued an order withdrawing its prior conditional approval of
the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. The
settlement procedure is expected to be concluded prior to the end of March
1994. The FERC has indicated that, if the settlement procedure is not
successful, it intends to issue a further order setting appropriate issues for
hearing.
The companies are currently participating in a collaborative process with
representatives from the IURC, the Public Utilities Commission of Ohio,
various consumer groups, and other parties to settle all merger-related
issues. Discussions have also taken place with representatives of the
Kentucky Public Service Commission (KPSC) regarding merger-related issues at
the FERC. In conjunction with the FERC-sponsored settlement procedure, on
February 11, 1994, Energy filed a petition with the IURC requesting approval
of various proposals regarding state regulation after consummation of the
Mergers. These proposals do not address the allocation between shareholders
and customers of projected revenue requirement savings as a result of the
Mergers. This allocation will be the subject of a subsequent IURC proceeding.
In connection with the 60-day, FERC-sponsored settlement procedure and the
collaborative process, Resources, Energy, CINergy, the Indiana Utility
Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and
industrial customer representatives reached a global settlement agreement on
merger-related issues. This agreement was filed with the IURC on March 2,
1994, and is expressly conditioned upon approval by the IURC in its entirety
and without any change or condition that is unacceptable to any party. On
March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio
Office of Consumers Counsel reached an agreement substantially similar to the
Indiana agreement. Both settlement agreements were filed with the FERC on
March 4, 1994. Energy expects the FERC settlement judge to forward the
settlements to FERC Commissioners on or about March 21, 1994, beginning what
is normally a 30-day comment period. The Indiana settlement addresses, among
other things, the coordination of state and Federal regulation, the operation
of the combined Energy and CG&E electric utility system, the allocation of
costs and their effect on customer rates, and a retail "hold harmless"
provision that provides that Energy's retail rates will not reflect merger-
related costs to the extent that they are not offset entirely by merger-
related benefits.
IURC hearings on the Indiana settlement were held on March 17, 1994. Energy
has asked the IURC for an order approving the settlement agreement by early
April 1994, which should fall within the expected comment period at the FERC.
CG&E also filed with the FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with the FERC. On March
15, 1994, CG&E filed an application with the KPSC seeking approval of the
indirect acquisition of control of CG&E's Kentucky subsidiary, The Union
Light, Heat and Power Company.
<PAGE>
Also included in the filings with the FERC were settlement agreements with
WVPA and the city of Hamilton, Ohio. These agreements resolve issues related
to the transmission of power and operation of Energy's jointly owned
transmission system. Negotiations with other parties at the FERC are
continuing.
Energy and CG&E also filed with the FERC the operating agreement among Energy,
CG&E, and CINergy Services, Inc., a subsidiary of CINergy. The parties to the
Indiana and Ohio FERC settlements have agreed to support or not oppose the
operating agreement, and the settlements are conditioned upon the FERC
approving the filed operating agreement without material change.
The Mergers are also subject to the approval of the Securities and Exchange
Commission (SEC) under the PUHCA. An application requesting such SEC approval
is expected to be filed during the first quarter or early second quarter of
1994. The PUHCA imposes restrictions on the operations of registered holding
company systems. Among these are requirements that securities issuances,
sales and acquisitions of utility assets or of securities of utility
companies, and acquisitions of interests in any other business be approved by
the SEC. The PUHCA also limits the ability of registered holding companies to
engage in non-utility ventures and regulates holding company system service
companies and the rendering of services by holding company affiliates to the
system's utilities. Also, under the PUHCA, the divestiture of CG&E's gas
operations may be required. The companies believe they have a justifiable
basis for retention of CG&E's gas operations and will request SEC approval to
retain this portion of the business. Divestiture, if ordered, would occur
after the consummation of the Mergers. Historically, the SEC has allowed
companies sufficient time to accomplish divestitures in a manner that protects
shareholder value, which, in some cases, has been 10 to 20 years.
The companies' goal is to consummate the Mergers during the third quarter of
1994. However, if the settlement procedure is not successful and a hearing is
convened by the FERC, the consummation of the Mergers would likely be further
extended. There can be no assurance that the Mergers will be consummated.
See Notes 20, 21, and 22 beginning on page 63.
IPALCO's Withdrawn Acquisition Offer
On March 15, 1993, IPALCO announced its intention to make an offer to exchange
IPALCO common stock and cash for all of the outstanding shares of Resources'
common stock (Exchange Offer). IPALCO also announced its intention to solicit
proxies to vote (i) in favor of its slate of five nominees for the Board of
Directors of Resources at Resources' 1993 Annual Meeting of Shareholders and
(ii) against the merger with CG&E. On April 21, 1993, IPALCO commenced its
Exchange Offer and also commenced solicitation of proxies. On August 23,
1993, at Resources' 1993 Annual Meeting of Shareholders, IPALCO announced that
it had received insufficient proxies to elect its nominees to Resources' Board
of Directors, and on that same date, terminated its Exchange Offer.
On October 27, 1993, Resources, Energy, CG&E, IPALCO, and other parties
entered into a settlement agreement pursuant to which the parties agreed to
<PAGE>
settle all pending issues related to IPALCO's Exchange Offer. Among other
things, the parties agreed, for a period of five years, to grant one another
transmission access rights to other utilities, in certain circumstances, if
those rights are required for one of the parties to obtain approval for a
business combination with another utility. The parties would be fully
compensated for any facilities made available. Energy currently has an open
access tariff that allows other utilities to use its transmission facilities
to deliver power, which it believes should be sufficient to satisfy this
provision of the settlement agreement. The settlement agreement also provides
that Indianapolis Power & Light (IP&L), IPALCO's principal subsidiary, will
have the right to purchase power from Energy at current market prices. Energy
has offered to sell IP&L up to 100 megawatts of power for each month in 1996
and up to 250 megawatts for each month in the years 1997 through 2000. The
offer will remain open for one year, and if IP&L does not accept the offer, it
will have a right of first refusal on the power for an additional six months.
Regulatory Matters
ENVIRONMENTAL ORDER In 1992, Energy filed its plan for complying with Phase I
of the acid rain provisions of the CAAA with the IURC. This filing was made
pursuant to a state law enacted in 1991 which allows utilities to seek pre-
approval of their compliance plans. In October 1993, the IURC issued an order
approving Energy's Phase I compliance plan. The IURC's order also approved
Energy's emission allowance banking strategy, which will afford Energy greater
flexibility in developing its plan for complying with Phase II of the acid
rain provisions of the CAAA. The IURC accepted Energy's proposal to annually
review the implementation of its Phase I compliance plan and ordered a semi-
annual review of Energy's emission allowance banking plan.
Energy had proposed innovative performance incentive mechanisms as part of its
Phase I compliance plan and emission allowance banking strategy. In its post-
hearing filing, Energy requested that the IURC defer consideration of such
incentives to Energy's pending retail rate proceeding in which Energy has
proposed modified environmental compliance incentives with respect to its
emission allowance banking strategy.
RATE CASE Energy filed testimony with the IURC in support of a $103 million,
11.6% retail rate increase. This rate proceeding addresses the financial and
operating requirements of Energy on a "stand-alone" basis without
consideration of the anticipated effects of the Mergers. Approximately 3.7%
of the rate increase is needed to meet new environmental requirements, 6.6% is
primarily needed to meet Energy's growing electric needs, including
construction and operation of one combustion turbine generating unit and
implementation of demand-side management (DSM) programs, and 1.3% of the
increase is necessary for the recognition of postretirement benefits other
than pensions on an accrual basis. Energy's petition for an increase in
retail rates includes a "performance efficiency plan" which would allow Energy
to retain all earnings up to a 12.5% common equity return and provide for
sharing of common equity returns from 12.5% to 14.5% between shareholders and
ratepayers depending upon Energy's performance on measures of customer prices,
customer satisfaction, customer service reliability, equivalent availability
of its generating units, and employee safety. All earnings above a 14.5%
<PAGE>
return on common equity would be returned to ratepayers. In addition, Energy
is requesting approval of various ratemaking mechanisms to address regulatory
lag on specific environmental and new generation projects to ensure that the
interests of ratepayers and shareholders are properly aligned. One such
mechanism includes capital costs associated with major environmental
compliance projects and the applicable portion of its Wabash River clean coal
project (Clean Coal Project) in rate base while the projects are under
construction, as permitted by state law, thus allowing Energy to earn a cash
return on these costs prior to the projects' in-service dates. Hearings are
expected to begin in April 1994, and a final rate order is anticipated in late
1994 or early 1995. Energy cannot predict what action the IURC may take with
respect to this proposed rate increase.
SETTLEMENT AGREEMENT In December 1993, the IURC issued an order (December
1993 Order) approving a settlement agreement entered into by Energy, the
appellants, and certain other intervenors which resolved the outstanding
issues related to the appeals of the IURC's April 1990 Order and June 1987
Order. At issue with respect to the April 1990 Order was whether the level of
return on common equity allowed Energy was adequately supported by factual
findings. The April 1990 Order had been remanded to the IURC by the Indiana
Court of Appeals for further proceedings, including redetermination of the
cost of equity and its components. The June 1987 Order, which related to the
effect on Energy of the 1987 reduction in the Federal income tax rate, had
been remanded to the IURC by the Indiana Supreme Court and was awaiting a
final order from the IURC. The December 1993 Order provides for Energy to
refund $150 million to its retail customers ($119 million applicable to the
June 1987 Order and $31 million applicable to the April 1990 Order). The
December 1993 Order further provides for Energy to reduce its retail rates by
1.5% (approximately $13.5 million on an annual basis) to reflect a return on
common equity of 14.25%. The refunds and rate reduction commenced in December
1993 (see Note 3 beginning on page 47).
Energy had previously recognized a loss of $139 million for the June 1987
Order. The difference between the $139 million and the $119 million portion
of the refund applicable to the June 1987 Order is reflected in the
Consolidated Statement of Income for the year ended December 31, 1993, as a
reduction of the loss. The $31 million portion of the refund applicable to
the April 1990 Order is reflected in the Consolidated Statement of Income for
the same period as a reduction in operating revenues.
Energy has an agreement through January 1996 to sell, with limited recourse,
an undivided percentage interest in certain of its accounts receivable from
customers up to a maximum of $90 million. The refund provided for by the
December 1993 Order reduced Energy's accounts receivable available for sale
and caused a termination event under the agreement governing the sale of
accounts receivable. Due to the temporary nature of the event, Energy
obtained a waiver of the termination event provision of the agreement as it
relates to the refund (see Note 10 on page 52).
<PAGE>
Manufactured Gas Plants
Coal tar residues and other substances associated with manufactured gas plant
(MGP) sites have been found at former MGP sites in Indiana, including, but not
limited to, two sites previously owned by Energy. Energy has identified at
least 21 MGP sites which it previously owned, including 19 it sold in 1945 to
Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]).
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other potentially responsible parties, including
previous owners. The IURC has not ruled on IGC's petition.
With the exception of one site (Shelbyville), it is premature for Energy to
predict the nature, extent, and costs of, or Energy's responsibility for, any
environmental investigations and remediations which may be required at MGP
sites owned, or previously owned, by Energy. With respect to the Shelbyville
site, for which Energy and IGC are sharing the costs, based upon environmental
investigations completed to date, Energy believes that any required
investigation and remediation will not have a material adverse effect on its
financial condition (see Note 16 beginning on page 60).
Other Industry Issues
GLOBAL CLIMATE CHANGE Concern has been expressed by environmentalists,
scientists, and policymakers as to the potential climate change from
increasing amounts of "greenhouse" gases released as by-products of burning
fossil fuel and other industrial processes. In response to this concern, in
October 1993, the Clinton Administration announced its plan to reduce
greenhouse gases to 1990 levels by the year 2000. The plan calls for the
reduction of 109 million metric tons of carbon equivalents of all greenhouse
gases. Initially, the plan would rely largely on voluntary participation of
many industries, with a substantial contribution expected from the utility
industry. Numerous utilities, including Energy, have agreed to study
voluntary, cost-effective emission reduction programs. Energy's voluntary
participation would likely include its residential, commercial, and industrial
DSM programs, increased use of natural gas in generation, and other energy
efficiency improvements, and possibly other pollution prevention measures.
The Clinton Administration has stated it will monitor the progress of industry
to determine whether targeted reductions are being achieved. If the Clinton
Administration or Congress should conclude that further reductions are needed,
legislation requiring utilities to achieve additional reductions is possible.
AIR TOXICS The air toxics provisions of the CAAA exempt fossil-fueled steam
utility plants from mandatory reduction of 189 listed air toxics until the
Environmental Protection Agency (EPA) completes a study on the risk of these
emissions on public health. The EPA is not expected to complete its study
until November 1995. If additional air toxics regulations are established,
the cost of compliance could be significant. Energy cannot predict the
outcome of this EPA study.
<PAGE>
Future Outlook
- - - --------------
Notwithstanding the anticipated benefits from the timely consummation of the
Mergers, further improvement in Energy's financial condition is largely
dependent on:
. Effectively responding to the increasing competitive pressures in the
electric utility industry;
. Effectively managing its substantial construction program and achieving
favorable results from related regulatory proceedings, including the
current retail rate proceeding;
. Maintaining a regulatory climate that is responsive to and supportive
of changes in the utility industry, including increased competition,
business alliances, and the need to more closely align the economic
interests of customers and shareholders through the application of
incentive ratemaking, and more flexible pricing strategies; and
. Successfully accessing financial markets for capital needs, including
issuance by Resources of significant amounts of common stock (see
Capital Resources discussion beginning on page 27).
CAPITAL NEEDS
Construction
- - - ------------
Energy's total construction expenditures over the 1994 to 1998 period are
forecasted to be $1.1 billion, of which approximately $.8 billion is for
capital improvements to, and expansion of, Energy's operating facilities, $.2
billion is for new generation, and $.1 billion is for environmental
compliance. Total construction expenditures for 1993 and forecasted
construction expenditures for the 1994 to 1997 period are approximately $.2
billion less than forecasted amounts for the same period reflected in
Resources' 1992 Annual Report to Shareholders. This reduction reflects
continued aggressive management by Energy of its substantial construction
program consistent with maintaining its competitive position and providing
adequate and reliable service to its customers. (All forecasted amounts are
in nominal dollars and reflect assumptions as to the economy, capital markets,
construction program, legislative and regulatory actions, frequency and timing
of rate increase requests, and other related factors which may be subject to
significant change. In addition, forecasted construction expenditures do not
reflect any consideration for the effects of the Mergers.)
Forecasted construction expenditures by year for new business, system
reliability, new generation, environmental, and other projects are presented
in the following table:
<PAGE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
New business . . . . . . . . . . $ 61 $ 66 $ 67 $ 59 $ 57
System reliability . . . . . . . 44 69 58 51 65
New generation . . . . . . . . . 42 84 19 7 7
Environmental. . . . . . . . . . 96 21 2 3 5
Other. . . . . . . . . . . . . . 66 67 44 41 45
---- ---- ---- ---- ----
Total. . . . . . . . . . . . . $309 $307 $190 $161 $179
==== ==== ==== ==== ====
</TABLE>
Environmental
The acid rain provisions of the CAAA require reductions in both sulfur dioxide
(SO2) and nitrogen oxide (NOx) emissions from utility sources. Reductions of
both SO2 and NOx emissions will be accomplished in two phases. Compliance
under Phase I affects Energy's four largest coal-fired generating stations and
is required by January 1, 1995. Phase II includes all of Energy's existing
power plants, and compliance is required by January 1, 2000.
To achieve the SO2 reduction objectives of the CAAA, SO2 emission allowances
will be allocated by the EPA to affected sources. Each allowance permits one
ton of SO2 emissions. Energy will receive approximately 277,000 of these
emission allowances per year during Phase I. As one of the most affected
utilities, Energy will also be entitled to approximately 35,000 "midwestern"
bonus allowances per year from 1995 through 1999. In addition, as a member of
the Utility Extension Allowance Pooling Group, a group composed of a majority
of the affected utilities currently planning to use qualifying Phase I
technologies, e.g., flue-gas desulfurization (scrubbers), Energy expects to
receive approximately 150,000 allowances during the Phase I period. The CAAA
allows compliance to be achieved on a national level, which provides companies
the option to achieve compliance by reducing emissions or purchasing emission
allowances.
The Chicago Board of Trade (CBOT) was authorized to establish a futures-
options market, and the CBOT also plans to administer a cash market in
emission allowances. In addition, the CBOT will administer the EPA's annual
auction and direct sales of emission allowances. In March 1993, the first
annual auction of emission allowances was held. The EPA provided 150,000
allowances for this auction with the intent of stimulating the allowance
trading market. The allowances provided by the EPA for auction become useable
in either the year 1995 or 2000. The average price paid at the auction for an
allowance first useable in 1995 was $156, with prices ranging from $131 to
$450. Energy purchased 10,000 of these allowances for $150 each. The prices
paid at the auction for an allowance first useable in the year 2000 ranged
from $122 to $310 with an average of $136. The availability and economic
value of allowances in the long-term is still uncertain.
<PAGE>
As previously discussed, in October 1993, the IURC issued an order approving
Energy's Phase I compliance plan and emission allowance banking strategy. To
comply with Phase I of the CAAA SO2 requirements, Energy will have to reduce
SO2 emissions by approximately 34% (based on an approximate 334,000 ton annual
target) from 1991 levels or acquire offsetting emission allowances. Energy's
compliance plan for the Phase I SO2 reduction requirements includes the
addition of one scrubber at Gibson Unit 4 by late 1994, installation of flue-
gas conditioning equipment on certain units, upgrading certain precipitators,
implementation of its DSM programs, burning lower-sulfur coal at its four
major coal-fired generating stations, and inclusion of the value of emission
allowances in the economic dispatch process. To meet NOx reductions required
by Phase I, Energy is installing low-NOx burners on affected units at these
same stations. Energy's capital expenditures for Phase I compliance projects
totaled approximately $290 million through December 31, 1993. In addition,
the successful operation of Energy's Clean Coal Project will further reduce
SO2 and NOx emissions (see New Generation discussion below).
To comply with Phase II SO2 requirements, Energy must reduce SO2 emissions an
additional 38% from 1991 levels (based on an approximate 143,000 ton annual
cap) or acquire offsetting emission allowances. Own-system compliance
alternatives could include additional scrubbers, use of western and midwestern
coal blends, installation of precipitators, and installation of flue-gas
conditioning equipment. Energy is evaluating these alternatives in order to
provide the most cost-effective strategy for meeting Phase II SO2 requirements
while maintaining optimal flexibility to meet potentially significant new
environmental demands. To meet NOx reductions required by Phase II, Energy
plans to install low-NOx burners on affected units. Energy anticipates filing
its Phase II plan with the IURC as early as the fourth quarter of 1994.
Energy's implementation of its emission allowance banking strategy is a
critical component of maintaining optimal flexibility in its Phase II
compliance plan. In order to delay or eliminate own-system compliance
alternatives, which could be significantly more costly, Energy intends to
utilize its emission allowance banking strategy to the extent a viable
emission allowance market is available. Energy is forecasting environmental
compliance expenditures to meet the acid rain provisions of the CAAA ranging
from $.6 billion to $1.2 billion during the 1994 to 2005 period. Energy's
Phase I plan is expected to result in banked emission allowances by the year
2000 sufficient to meet its Phase II SO2 requirements for approximately three
years. The low-end of the capital costs range assumes that Energy achieves
Phase II compliance primarily by purchasing additional emission allowances and
continuing to delay, or eliminate, capital intensive alternatives. However,
as previously stated, the availability and economic value of emission
allowances in the long-term is still uncertain. As such, the high-end of the
range assumes that Energy is forced to achieve compliance through the own-
system compliance alternatives previously discussed.
New Generation
In 1992, the United States Department of Energy (DOE) approved for partial
funding a joint proposal by Energy and Destec Energy, Inc. (Destec) for a 262-
megawatt clean coal power generating facility to be located at Energy's Wabash
<PAGE>
River Generating Station. In May 1993, the IURC issued "certificates of need"
for the project. The total project cost, including construction, Destec's
operating costs for a three-year demonstration period, and Energy's operating
costs for a one-year demonstration period, is estimated to be $550 million.
The DOE awarded the project up to $198 million. Of this amount, Energy will
receive approximately $53 million to be used to offset project costs. The
remainder of the project costs will be funded by Energy and Destec, with
Energy's portion being approximately $108 million. The project is currently
under construction and the three-year demonstration period of the project is
expected to commence in the third quarter of 1995.
In 1992, the IURC issued certificates of need to Energy for the construction
of two 100-megawatt combustion turbine generating units adjacent to its Cayuga
Generating Station. The first unit went into service in June 1993. Energy
intends to defer the second unit until 1996 and will purchase power during the
interim period.
Other
- - - -----
Mandatory redemptions of long-term debt total $97 million during the 1994 to
1998 period (see Note 9 on page 52). Additionally, funds are required to make
a payment of $80 million in accordance with the settlement of the Wabash
Valley Power Association, Inc. (WVPA) litigation. This payment is not
currently expected to occur before 1995 (see Note 2 beginning on page 45).
Since 1990, Energy has focused its marketing efforts on the aggressive
implementation of various DSM programs. DSM generally refers to actions taken
by a utility to affect customers' energy usage patterns. DSM programs are
evaluated on an "equal footing" with supply-side options, with the goal of
deferring the need for new generating capacity. The expenditures for these
programs over the next five years are forecasted to be approximately $185
million. It is anticipated that these expenditures will result in a summer
peak demand reduction of 236 megawatts by 1998, of which approximately 77
megawatts have already been achieved. The IURC has authorized Energy to defer
DSM expenditures, with carrying costs, for subsequent recovery through rates.
In its current retail rate proceeding, Energy has proposed to amortize and
recover amounts deferred through July 1993 ($35 million), together with
carrying costs, over a four-year period commencing with the effective date of
the IURC's order in the current retail rate proceeding. Deferred DSM costs as
of the effective date of an order in Energy's current retail rate proceeding,
which are not included for recovery in the current proceeding, will continue
to be deferred, with carrying costs, for recovery in subsequent rate
proceedings. In addition, Energy has proposed the recovery of approximately
$23 million of DSM expenditures in base rates on an annual basis. Energy has
also requested that the IURC approve the deferral of reasonably incurred DSM
expenditures which exceed the base level of $23 million.
CAPITAL RESOURCES
Cash flows from operations are forecasted to provide approximately 70% of the
capital needs during the 1994 to 1998 period. External funds required during
this period are estimated to be $.6 billion. (All forecasted amounts are in
<PAGE>
nominal dollars and reflect assumptions as to the economy, capital markets,
construction program, legislative and regulatory actions, frequency and timing
of rate increase requests, and other related factors which may be subject to
significant change. In addition, forecasted cash flows from operations do not
reflect any consideration for the effects of the Mergers.)
Internal Cash Flows
- - - -------------------
Over the next several years, Energy's internal cash flows are heavily
dependent upon timely retail rate relief and obtaining the related requested
modifications to traditional regulation. Integral to this effort is Energy's
success in controlling its costs, obtaining performance based regulatory
incentives, and securing alternative measures where necessary that allow for
ultimate, although deferred, recovery of its costs, including a return to
investors. This is especially important during the next three years when
Energy's substantial construction program creates potentially significant
regulatory lag (i.e., scheduling of capital investment projects cannot be
fully synchronized with rate case timing). As previously discussed, Energy
has filed testimony with the IURC in support of a $103 million, 11.6% retail
rate increase. Approximately 10.3% of the pending rate increase request is
needed to meet new environmental requirements and Energy's growing electric
needs. Energy is also requesting approval of ratemaking mechanisms to provide
more timely recovery of the costs associated with environmental and new
generation projects. One such mechanism includes capital costs associated
with major environmental compliance projects and the applicable portion of its
Clean Coal Project in rate base, while the projects are under construction, as
permitted by state law, thus allowing Energy to earn a cash return on these
costs prior to the projects' in-service dates. The IURC's ruling in this
proceeding is anticipated in late 1994 or early 1995.
Where the adverse effects on earnings and cash flows cannot be mitigated by
rate relief, Energy is further addressing the issue of regulatory lag through
accounting and ratemaking mechanisms that align the interests of customers and
shareholders. In January 1993, Energy received authority from the IURC to
continue accrual of the debt component of the allowance for funds used during
construction (AFUDC) and to defer depreciation expense on its planned
combustion turbine generating units and major environmental compliance
projects from the respective in-service dates until the effective date of an
order in its current retail rate proceeding. Energy has requested similar
accounting treatment to mitigate regulatory lag in its current retail rate
proceeding.
Energy's construction program will require rate relief during the next three
years in addition to the current petition. Specifically, Energy expects to
file for additional rate relief, primarily to reflect the costs of the Gibson
Unit 4 scrubber, the Clean Coal Project, and potentially two additional
combustion turbine generating units in rates. All of the major projects
(Phase I environmental compliance, the Clean Coal Project, and one of the two
combustion turbines) creating the need for retail rate relief have received
pre-approval from the IURC for construction. Pre-approval of the second
combustion turbine generating unit would be required before commencement of
<PAGE>
the project. Given its current low cost position, Energy believes that these
rate increases, while significant, will not prevent it from maintaining
competitive rates over the long-term.
Cash flows will be adversely affected by the $150 million refund resulting
from the December 1993 Order, which will be partially offset by tax refunds in
1994 of approximately $29 million to realize the remaining tax consequences of
the refund.
External Financing
- - - ------------------
Energy currently has IURC authority to issue up to an additional $428 million
of long-term debt and $40 million of preferred stock. Energy will request
regulatory approval to issue additional amounts of debt securities and
preferred stock on an as needed basis. As of December 31, 1993, Energy has
effective shelf registration statements for the sale of up to $315 million of
debt securities and $40 million of preferred stock. In addition, as of
December 31, 1993, Resources has an effective shelf registration statement for
the sale of up to eight million shares of Resources' common stock. A public
offering of Resources' common stock is expected to occur by mid-1994. The net
proceeds from the issuance and sale of this common stock will be used by
Resources to reduce its short-term indebtedness, with the balance contributed
to the equity capital of Energy. Energy will use this contributed capital for
general purposes, including construction expenditures.
Energy has regulatory authority to borrow up to $200 million under short-term
credit arrangements. In connection with this authority, Energy has unsecured,
but committed, lines of credit (Committed Lines) which currently permit
borrowings of up to $155 million. In addition, Energy has temporary Committed
Lines of $15 million. As of December 31, 1993, Energy had $111 million
outstanding under these short-term borrowing arrangements. Energy also has
Board of Directors approval to arrange for additional short-term borrowings of
up to $100 million with various banks (Uncommitted Lines). The Uncommitted
Lines are on an "as offered" basis with such banks. Under these arrangements,
$16 million was outstanding as of December 31, 1993 (see Note 13 beginning on
page 56).
Resources has a $30 million credit facility which expires on the earlier of
(i) February 12, 1996, or (ii) the consummation of the Mergers. As of
December 31, 1993, $20 million was outstanding under this credit facility.
Resources believes its current borrowing capacity and planned common stock
issuance will be sufficient to meet short-term cash needs.
RESULTS OF OPERATIONS
Kilowatt-hour Sales
- - - -------------------
New customers and a return to more normal weather contributed to the 4%
increase in total kwh sales in 1993, as compared to 1992. In addition, growth
in the primary metals, transportation equipment, and precision instruments,
photographic and optical goods sectors resulted in increased industrial sales.
<PAGE>
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in sales associated with
third party short-term power to other utilities through Energy's system.
The reduction of sales for resale in 1992 was largely responsible for a 5%
decrease in total kwh sales, as compared to 1991. Reflected in this decrease
was the reduction of firm power sales to WVPA and the Indiana Municipal Power
Agency (IMPA) as they served more of their customers' requirements from their
portion of the jointly owned Gibson Unit 5. This resulted from the final
(January 1, 1992) scheduled reduction and elimination of Energy's purchase
obligations from WVPA and IMPA under the Gibson Unit 5 joint ownership
arrangement. In addition, beginning August 1, 1992, WVPA substantially
reduced its purchases associated with an interim scheduled power agreement
between Energy and WVPA. Non-firm power sales also decreased, partially
reflecting a reduction in sales associated with third party short-term power
sales to other utilities through Energy's system. The decrease in domestic
and commercial sales due to the milder weather experienced in 1992 was offset,
in part, by continued growth in industrial sales.
Sales increases in 1991 were primarily related to higher sales to retail
customers. Specifically, unusually hot temperatures experienced during the
second and third quarters of 1991 contributed to increased sales to domestic
and commercial customers, whereas industrial sales increased, in part, due to
continued growth in production at Nucor Steel. Partially offsetting these
increases were decreased sales for resale due to reduced sales to WVPA and
IMPA. They served more of their customers' requirements from their portion of
the jointly owned Gibson Unit 5 as a consequence of a scheduled (January 1,
1991) reduction (from 156 megawatts to 78 megawatts) in Energy's purchase
obligations from WVPA and IMPA under the Gibson Unit 5 joint ownership
arrangement.
Year-to-year changes in kwh sales for each class of customer are shown below:
<TABLE>
<CAPTION>
Increase (Decrease) from Prior Year
-----------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Retail
Domestic. . . . . . . . . . . . . . . 12.2% (5.6)% 11.3%
Commercial. . . . . . . . . . . . . . 7.2 (1.1) 7.3
Industrial. . . . . . . . . . . . . . 5.5 4.8 3.3
Total retail. . . . . . . . . . . . . . 8.0 (0.1) 6.8
Sales for resale
Firm power obligations. . . . . . . . 2.2 (28.6) (3.9)
Non-firm power transactions . . . . . (15.4) (12.4) (6.3)
Total sales for resale. . . . . . . . . (9.8) (18.3) (5.4)
Total sales . . . . . . . . . . . . . . 3.6 (5.3) 3.1
</TABLE>
<PAGE>
Energy currently forecasts a 2% annual compound growth rate in kwh sales over
the 1994 to 2003 period. This forecast excludes non-firm power transactions
and any potential long-term firm power sales at market-based prices.
Revenues
- - - --------
Revenues in 1993 remained relatively unchanged, reflecting increased kwh sales
which were substantially offset by the $31 million refund resulting from the
settlement of the April 1990 Order (see Note 3 beginning on page 47) and the
effects of lower fuel costs.
Total operating revenues decreased $41 million (4%) in 1992, as compared to
1991, primarily as a result of the lower kwh sales previously discussed. This
decrease, however, was partially offset by increased revenues of $6 million
from activities in Resources' subsidiaries other than Energy.
In 1991, revenues increased $14 million (1%). The increases realized from kwh
sales were partially offset by the effects of the April 1990 (4.25%) retail
rate reduction.
An analysis of operating revenues for the past three years is shown below:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Previous year's operating revenues . . . . . $1 081 $1 122 $1 108
Increase (decrease) due to change in:
Price per kwh
Retail. . . . . . . . . . . . . . . . . . (58) (5) (24)
Sales for resale
Firm power obligations . . . . . . . . . (1) 4 (5)
Non-firm power transactions. . . . . . . 7 (12) (4)
------ ------ ------
Total change in price per kwh . . . . . . . (52) (13) (33)
Kwh sales
Retail. . . . . . . . . . . . . . . . . . 72 (1) 60
Sales for resale
Firm power obligations . . . . . . . . . 1 (28) (4)
Non-firm power transactions. . . . . . . (12) (12) (7)
------ ------ ------
Total change in kwh sales . . . . . . . . . 61 (41) 49
Other . . . . . . . . . . . . . . . . . . . (2) 13 (2)
------ ------ ------
Current year's operating revenues. . . . . . $1 088 $1 081 $1 122
</TABLE>
Operating Expenses
- - - ------------------
Fuel
Fuel costs, Energy's largest operating expense, decreased $6 million (2%) in
1993. This decrease reflects Energy's continuing efforts to reduce the unit
cost of fuel, which include increased purchases in the spot market and
<PAGE>
realized benefits from price reopener provisions of existing contracts. An
analysis of fuel costs for the past three years is shown below:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Previous year's fuel expense. . . . . . . . $392 $402 $392
Increase (decrease) due to change in:
Price of fuel . . . . . . . . . . . . . . (15) (5) -
Kwh generation. . . . . . . . . . . . . . 9 (5) 10
---- ---- ----
Current year's fuel expense . . . . . . . . $386 $392 $402
</TABLE>
Purchased and Exchanged Power
In 1993, Energy increased its purchases of non-firm power primarily to serve
its own load, which resulted in an increase in purchased and exchanged power
of $11 million (77%), as compared to 1992.
Purchased and exchanged power decreased $40 million (74%) in 1992, as compared
to 1991, reflecting the reduction in third party short-term power sales to
other utilities through Energy's system and the scheduled reduction in
Energy's purchase obligations from WVPA and IMPA under the Gibson Unit 5 joint
ownership arrangement, as previously discussed.
Other Operation and Maintenance
Increased other operation and maintenance expenses in 1993 were attributable
to approximately $22 million of costs incurred by Resources associated with
IPALCO's hostile takeover attempt.
While total 1992 other operation and maintenance expenses remained relatively
unchanged, Energy's expenses decreased $8 million (3%) primarily attributable
to charges in 1991 for the incremental non-capital portion ($5 million) of the
costs associated with a severe ice and wind storm. Energy's decrease was
offset by the operating costs related to increased activities in Resources'
other subsidiaries.
The incremental non-capital portion ($5 million) of storm damage repair costs
described above and general inflationary effects on operating costs
contributed to other operation and maintenance expenses increasing $16 million
(6%) in 1991.
Depreciation
Additions to electric utility plant led to increases in depreciation expense
of $10 million (8%) in 1993 and $6 million (5%) in 1992, when compared to each
of the prior years.
<PAGE>
In 1991, depreciation expense increased $9 million (8%) primarily reflecting
additional plant ($7 million) and a full year's effect of the May 1990
revision in depreciation rates ($2 million), following approval by the IURC in
its April 1990 Order.
Other Income and Expense - Net
- - - ------------------------------
Other income and expense, excluding the effects of the loss related to the
IURC's June 1987 Order, increased $7 million in 1993, as compared to 1992.
This increase was due, in part, to the implementation of the January 1993 IURC
order authorizing the accrual of post-in-service carrying costs (see Note 1
beginning on page 44). In addition, the equity component of AFUDC increased
primarily as a result of increased construction.
Interest and Other Charges
- - - --------------------------
Increased borrowings and accrued interest of $4 million in connection with the
loss related to the IURC's June 1987 Order resulted in increased interest and
other charges of $8 million (12%) in 1992, as compared to 1991.
ACCOUNTING CHANGES
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (Statement 112). Statement 112 establishes accounting
standards for the costs of benefits provided to former or inactive employees,
including their beneficiaries and dependents, after employment but before
retirement. Under the provisions of Statement 112, the costs of these
benefits will be recognized for accounting purposes when the employees or
their beneficiaries become eligible for such benefits (accrual basis) rather
than when such benefits are paid, which is Energy's current practice.
Energy's unrecognized and unfunded obligation for these benefits (the
transition obligation) as of September 30, 1993, measured in accordance with
the new accounting standard, is $8.5 million. The new standard requires
immediate recognition of the transition obligation at the date the new
standard is adopted. Energy is required to adopt Statement 112 effective
January 1, 1994. In connection with its current retail rate proceeding,
Energy has requested deferral of the transition obligation for recovery over a
reasonable period of time beginning with an order in its next retail rate
proceeding.
INFLATION
In a capital-intensive business such as the utility industry, inflation causes
the internal generation of funds to be inadequate to replace and add to
productive facilities. Depreciation, based on the original cost of property,
does not adequately reflect the current cost of plant and equipment consumed
during the year. Accounting based on historical cost does not recognize this
economic loss nor the partially offsetting gain that arises through financing
facilities with fixed-rate obligations such as long-term debt and preferred
stock. Under the ratemaking prescribed by regulatory bodies, depreciation
<PAGE>
expense recoverable through Energy's rates is based on historical cost.
Consequently, cash flows are inadequate to replace property in future years or
preserve the purchasing power of common equity capital previously invested.
As a result, the common shareholder may experience a significant net
purchasing power loss under inflationary conditions.
DIVIDEND RESTRICTIONS
See Note 7 on page 51 for a discussion of the restrictions on common
dividends.
<PAGE>
Index to Financial Statements and Financial Statement Schedules
Page Number
-----------
Financial Statements
Report of Independent Public Accountants. . . . . . . . . 36-37
Consolidated Statements of Income for the
three years ended December 31, 1993 . . . . . . . . . . 38
Consolidated Balance Sheets at
December 31, 1993 and 1992. . . . . . . . . . . . . . . 39-40
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1993 . . . . . . . . . . . . . . . . 41
Consolidated Statements of Cash Flows
for the three years ended December 31, 1993 . . . . . . 42
Cumulative Preferred Stock. . . . . . . . . . . . . . . . 43
Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 43
Notes to Consolidated Financial Statements. . . . . . . . 44-68
Page Number
-----------
Financial Statement Schedules
Schedule V - Electric Utility Plant . . . . . . . . . . . 80-82
Schedule VI - Accumulated Depreciation. . . . . . . . . . 83-85
Schedule VIII - Valuation and Qualifying Accounts . . . . 86-88
The information required to be submitted in schedules other than those
indicated above has been included in the consolidated balance sheets, the
consolidated statements of income, related schedules, the notes thereto or
omitted as not required by the Rules of Regulation S-X.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of PSI Resources, Inc.:
We have audited the consolidated balance sheets of PSI Resources, Inc.
(Resources) (an Indiana corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, changes in common
stock equity and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
management of Resources. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Resources and subsidiaries as
of December 31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
As more fully discussed in Note 2, Wabash Valley Power Association, Inc.
(WVPA) filed suit against PSI Energy, Inc. (Energy), the principal subsidiary
of Resources, for $478 million plus interest and other damages to recover its
share of Marble Hill Nuclear Project (Marble Hill) costs. The suit was
amended to include as defendants several officers of Energy and certain other
parties, and to allege claims under the Racketeer Influenced and Corrupt
Organizations Act, which would permit trebling of damages and assessment of
attorneys' fees. The suit was further amended to add claims of common law
fraud, constructive fraud and deceit and negligent misrepresentation against
Energy and the other defendants. Energy and its officers have reached a
settlement with WVPA that is subject to the approval of judicial and
regulatory authorities and has recorded an estimated loss related to the
litigation. The eventual outcome of this litigation cannot presently be
determined.
As more fully discussed in Notes 12 and 15, effective January 1, 1993,
Resources implemented the provisions of Statements of Financial Accounting
Standards Nos. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and 109, "Accounting for Income Taxes."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on
page 35 are presented for purposes of complying with the Securities and
<PAGE>
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Indianapolis, Indiana,
February 22, 1994.
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
1993 1992 1991
---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES (Note 3) . . . . . . . . . . . . . . . . . $1 088 367 $1 081 050 $1 122 272
OPERATING EXPENSES
Operation
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . 385 927 392 288 401 897
Purchased and exchanged power. . . . . . . . . . . . . . 24 273 13 729 53 822
Other operation. . . . . . . . . . . . . . . . . . . . . 221 431 199 587 197 090
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 84 020 86 046 86 993
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 126 821 117 092 111 428
Post-in-service deferred depreciation . . . . . . . . . . . (5 069) - -
Taxes
Federal and state income (Note 15) . . . . . . . . . . . 55 229 64 380 65 725
State, local, and other. . . . . . . . . . . . . . . . . 45 781 42 528 41 603
---------- ---------- ----------
938 413 915 650 958 558
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 149 954 165 400 163 714
OTHER INCOME AND EXPENSE - NET
Loss related to the IURC's
June 1987 Order (Note 3). . . . . . . . . . . . . . . . . 20 134 - (135 000)
Applicable income tax effects . . . . . . . . . . . . . . (7 444) - 49 910
---------- ---------- ----------
12 690 - (85 090)
Allowance for equity funds used
during construction. . . . . . . . . . . . . . . . . . . 11 173 4 833 6 418
Post-in-service carrying costs. . . . . . . . . . . . . . . 6 005 - -
Other - net . . . . . . . . . . . . . . . . . . . . . . . . (5 300) (54) 396
---------- ---------- ----------
24 568 4 779 (78 276)
INCOME BEFORE INTEREST AND OTHER CHARGES. . . . . . . . . . . 174 522 170 179 85 438
INTEREST AND OTHER CHARGES
Interest on long-term debt. . . . . . . . . . . . . . . . . 68 946 62 460 57 772
Other interest. . . . . . . . . . . . . . . . . . . . . . . 5 474 9 951 2 021
Allowance for borrowed funds used
during construction. . . . . . . . . . . . . . . . . . . (9 154) (5 672) (3 643)
Preferred dividend requirement of
subsidiary . . . . . . . . . . . . . . . . . . . . . . . 12 825 7 286 10 169
---------- ---------- ----------
78 091 74 025 66 319
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 96 431 $ 96 154 $ 19 119
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 55 612 55 025 54 597
EARNINGS PER SHARE. . . . . . . . . . . . . . . . . . . . . . $1.73 $1.75 $.35
DIVIDENDS DECLARED PER SHARE. . . . . . . . . . . . . . . . . $1.15 $1.03 $.91
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1993 1992
---- ----
(dollars in thousands)
<S> <C> <C>
ELECTRIC UTILITY PLANT - ORIGINAL COST
In service. . . . . . . . . . . . . . . . . . . . . . $3 449 127 $3 139 830
Accumulated depreciation. . . . . . . . . . . . . . . 1 455 871 1 380 442
---------- ----------
1 993 256 1 759 388
Construction work in progress . . . . . . . . . . . . 243 802 232 105
---------- ----------
Total electric utility plant . . . . . . . . . . 2 237 058 1 991 493
CURRENT ASSETS
Cash and temporary cash investments . . . . . . . . . 6 551 9 767
Restricted deposits . . . . . . . . . . . . . . . . . 49 111 17 700
Accounts receivable (Note 10) . . . . . . . . . . . . 27 894 41 782
Income tax refunds. . . . . . . . . . . . . . . . . . 28 900 -
Fossil fuel - at average cost . . . . . . . . . . . . 45 315 100 871
Materials and supplies - at average cost . . . . . . 36 411 39 257
Other . . . . . . . . . . . . . . . . . . . . . . . . 2 940 3 206
---------- ----------
197 122 212 583
OTHER ASSETS
Regulatory assets (Note 17) . . . . . . . . . . . . . 118 809 30 051
Unamortized costs of reacquiring debt . . . . . . . . 39 504 36 795
Unamortized debt expense. . . . . . . . . . . . . . . 9 332 6 358
Other . . . . . . . . . . . . . . . . . . . . . . . . 62 183 58 100
---------- ----------
229 828 131 304
$2 664 008 $2 335 380
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CAPITALIZATION AND LIABILITIES
December 31
1993 1992
---- ----
(dollars in thousands)
<S> <C> <C>
COMMON STOCK EQUITY (Notes 4, 5, and 6)
Common stock - without par value; $.01 stated value;
authorized shares - 100,000,000; outstanding shares
- 57,039,501 in 1993 and 55,308,455 in 1992 . . . . $ 559 $ 553
Paid-in capital . . . . . . . . . . . . . . . . . . . 250 574 242 558
Accumulated earnings subsequent to November 30, 1986
quasi-reorganization . . . . . . . . . . . . . . . 451 291 418 703
---------- ----------
Total common stock equity . . . . . . . . . . . . 702 424 661 814
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY - NOT
SUBJECT TO MANDATORY REDEMPTION (Page 43, Note 8) . . 187 989 87 074
LONG-TERM DEBT (Page 43, Note 9). . . . . . . . . . . . 816 152 737 083
---------- ----------
Total capitalization . . . . . . . . . . . . . . 1 706 565 1 485 971
CURRENT LIABILITIES
Long-term debt due within one year . . . . . . . . . 160 40 000
Notes payable (Note 13) . . . . . . . . . . . . . . . 146 701 144 234
Accounts payable . . . . . . . . . . . . . . . . . . 145 748 88 592
Refund due to customers (Note 3). . . . . . . . . . . 81 832 139 134
Litigation settlement (Note 2). . . . . . . . . . . . 80 000 80 000
Advance under accounts receivable
purchase agreement (Note 10). . . . . . . . . . . . 49 940 -
Accrued taxes . . . . . . . . . . . . . . . . . . . . 37 283 46 396
Accrued interest and customers' deposits . . . . . . 25 831 27 365
---------- ----------
567 495 565 721
OTHER LIABILITIES
Deferred income taxes (Note 15) . . . . . . . . . . . 285 667 187 771
Unamortized investment tax credits . . . . . . . . . 64 721 68 965
Other . . . . . . . . . . . . . . . . . . . . . . . . 39 560 26 952
---------- ----------
389 948 283 688
COMMITMENTS AND CONTINGENCIES (Notes 2, 16, 20, and 22)
$2 664 008 $2 335 380
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Accumulated
Stock Capital Earnings
------ ------- -----------
(in thousands)
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1990 . . . . . . . . . . . . . . . . . . $544 $228 976 $409 721
Net income. . . . . . . . . . . . . . . . . . . . . . . . . 19 119
Issuance of common stock (Note 4) . . . . . . . . . . . . . 3 5 012
Gain on retiring preferred stock of
subsidiary . . . . . . . . . . . . . .. . . . . . . . . 3
Dividends on common stock (See page 38
for per share amounts) . . . . . . . . . . . . . . . . . (49 675)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
---- -------- --------
BALANCE DECEMBER 31, 1991 . . . . . . . . . . . . . . . . . . 547 233 991 379 226
Net income. . . . . . . . . . . . . . . . . . . . . . . . . 96 154
Issuance of common stock (Note 4) . . . . . . . . . . . . . 6 9 997
Costs of retiring preferred stock of
subsidiary . . . . . . . . . . . . . . . . . . . . . . . (1 430)
Dividends on common stock (See page 38
for per share amounts) . . . . . . . . . . . . . . . . . (56 638)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (39)
---- -------- --------
BALANCE DECEMBER 31, 1992 . . . . . . . . . . . . . . . . . . 553 242 558 418 703
Net income. . . . . . . . . . . . . . . . . . . . . . . . . 96 431
Issuance of common stock (Note 4) . . . . . . . . . . . . . 6 13 190
Costs of issuing and retiring
preferred stock of subsidiary. . . . . . . . . . . . . . (5 062)
Dividends on common stock (See page 38
for per share amounts) . . . . . . . . . . . . . . . . . (63 919)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (112) 76
---- -------- --------
BALANCE DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . $559 $250 574 $451 291
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96 431 $ 96 154 $ 19 119
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 126 821 117 092 111 428
Deferred income taxes and investment tax
credits - net . . . . . . . . . . . . . . . . . . . . . . . 72 835 8 923 (32 382)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . . . (11 173) (4 833) (6 418)
Regulatory assets - excluding demand-side
management costs. . . . . . . . . . . . . . . . . . . . . . (29 909) (6 681) (448)
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . . . . . . . (69) (9 724) (207)
Accounts receivable . . . . . . . . . . . . . . . . . . . 13 888 3 641 5 181
Income tax refunds. . . . . . . . . . . . . . . . . . . . (28 900) - -
Fossil fuel and materials and supplies. . . . . . . . . . 58 402 (21 929) 15 512
Accounts payable. . . . . . . . . . . . . . . . . . . . . 57 156 (7 877) 9 934
Refund due to customers . . . . . . . . . . . . . . . . . (57 302) 4 134 135 000
Litigation settlement . . . . . . . . . . . . . . . . . . - - (94 400)
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . . . . . . . 49 940 - -
Accrued taxes and interest. . . . . . . . . . . . . . . . (8 454) 16 192 4 628
Other items - net . . . . . . . . . . . . . . . . . . . . . . (11 950) (8 626) 1 779
--------- --------- ---------
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . 327 716 186 466 168 726
FINANCING ACTIVITIES
Issuance of common stock . . . . . . . . . . . . . . . . . . . . 13 196 10 003 5 015
Issuance of preferred stock of subsidiary. . . . . . . . . . . . 156 325 - -
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . 241 704 224 331 139 045
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31 342) 12 733 1 211
Retirement of preferred stock of subsidiary. . . . . . . . . . . (60 107) (26 912) (3 002)
Redemption of long-term debt . . . . . . . . . . . . . . . . . . (207 880) (184 135) (59 530)
Change in short-term debt. . . . . . . . . . . . . . . . . . . . 2 467 144 234 (17 000)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . (63 919) (56 638) (49 675)
--------- --------- ---------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . . . . . 50 444 123 616 16 064
INVESTING ACTIVITIES
Utility plant additions. . . . . . . . . . . . . . . . . . . . . (361 607) (289 862) (168 788)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . . . . 11 173 4 833 6 418
Demand-side management costs . . . . . . . . . . . . . . . . . . (30 736) (16 670) (3 656)
Equity investments in Argentine utilities. . . . . . . . . . . . (206) (20 285) -
--------- --------- ---------
Net cash provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . (381 376) (321 984) (166 026)
Net increase (decrease) in cash and temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . (3 216) (11 902) 18 764
Cash and temporary cash investments at
beginning of period. . . . . . . . . . . . . . . . . . . . . . . 9 767 21 669 2 905
--------- --------- ---------
Cash and temporary cash investments at end
of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6 551 $ 9 767 $ 21 669
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized). . . . . . . . . . . . . $ 61 907 $ 49 788 $ 55 422
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 27 541 49 592 45 052
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY -
NOT SUBJECT TO MANDATORY REDEMPTION
December 31
1993 1992
---- ----
(dollars in thousands)
<S> <C> <C>
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,162 shares in 1993 and 1992 . . . . . . . . . . . . . . . $ 4 229 $ 4 229
4.16% Series 148,763 shares in 1993 and 1992 . . . . . . . . . . . . . . . 3 719 3 719
7.44% Series 4,000,000 shares in 1993. . . . . . . . . . . . . . . . . . . . 100 000 -
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 41,770 shares in 1993 and 42,007 shares in 1992. . . . . . . 4 177 4 201
6 7/8% Series 600,000 shares in 1993. . . . . . . . . . . . . . . . . . . . 60 000 -
7.15% Series 158,640 shares in 1993 and 1992 . . . . . . . . . . . . . . . 15 864 15 864
8.52% Series 211,190 shares in 1992. . . . . . . . . . . . . . . . . . . . - 21 119
8.38% Series 162,520 shares in 1992. . . . . . . . . . . . . . . . . . . . - 16 252
8.96% Series 216,900 shares in 1992. . . . . . . . . . . . . . . . . . . . - 21 690
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $187 989 $ 87 074
LONG-TERM DEBT
December 31
1993 1992
---- ----
(dollars in thousands)
First Mortgage Bonds (excluding amounts due within one year)
Series P, 7 1/8%, due January 1, 1999 . . . . . . . . . . . . . . . . . . . $ - $ 34 649
Series R, 7 5/8%, due January 1, 2001 . . . . . . . . . . . . . . . . . . . - 30 199
Series S, 7%, due January 1, 2002 . . . . . . . . . . . . . . . . . . . 26 429 26 429
Series T, 8%, due February 1, 2004. . . . . . . . . . . . . . . . . . . - 28 513
Series Y, 7 5/8%, due January 1, 2007 . . . . . . . . . . . . . . . . . . . 24 140 24 140
Series Z, 8 1/8%, due October 1, 2007 . . . . . . . . . . . . . . . . . . . - 70 450
Series BB, 6 5/8%, due March 1, 2004 (Pollution Control) . . . . . . . . . . 5 000 5 000
Series NN, 7.60%, due March 15, 2012 (Pollution Control) . . . . . . . . . 35 000 35 000
Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) . . . . . . . . . . 23 000 23 000
Series RR, 9 3/4%, due August 1, 1996 . . . . . . . . . . . . . . . . . . . 50 000 50 000
Series TT, 7 3/8%, due March 15, 2012 (Pollution Control). . . . . . . . . . 10 000 10 000
Series UU, 7 1/2%, due March 15, 2015 (Pollution Control). . . . . . . . . . 14 250 14 250
Series YY, 5.6%, due February 15, 2023 (Pollution Control) . . . . . . . . 30 000 -
Series ZZ, 5 3/4%, due February 15, 2028 (Pollution Control) . . . . . . . . 50 000 -
-------- --------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . 267 819 351 630
Secured Medium-term Notes
Series A, 6.65% to 8.88%, due January 3, 1997 to June 1, 2022 . . . . . . . 300 000 300 000
Series B, 5.22% to 8.26%, due September 17, 1998 to August 22, 2022. . . . . 230 000 66 000
(Series A and B, 7.64% weighted average interest rate and
18 year weighted average remaining life)
Pollution Control Notes (excluding amounts due within one year)
5 3/4%, due December 15, 1994 to December 15, 2003 . . . . . . . . . . . . . 20 000 20 160
Unamortized Premium and Discount - Net . . . . . . . . . . . . . . . . . . . . (1 667) (707)
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $816 152 $737 083
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) CONSOLIDATION POLICY The accompanying Consolidated Financial Statements
include the accounts of PSI Resources, Inc. (Resources) and its subsidiaries,
PSI Energy, Inc. (Energy), PSI Investments, Inc., PSI Recycling, Inc., and PSI
Argentina, Inc., after elimination of intercompany transactions and balances.
The assets, liabilities, revenues, and expenses of subsidiaries other than
Energy are immaterial in relation to the consolidated amounts.
(b) REGULATION Energy is subject to regulation by the Indiana Utility
Regulatory Commission (IURC) and the Federal Energy Regulatory Commission
(FERC). Energy's accounting policies conform to generally accepted accounting
principles, as applied to regulated public utilities, and to the accounting
requirements and ratemaking practices of these regulatory authorities.
(c) ELECTRIC UTILITY PLANT, DEPRECIATION, AND MAINTENANCE Substantially all
electric utility plant is subject to the lien of Energy's first mortgage bond
indenture (Indenture).
Construction work in progress is charged with a proportionate share of
overhead costs. Construction overhead costs include salaries, payroll taxes,
fringe benefits, and other expenses. Energy capitalizes an allowance for
funds used during construction (AFUDC), an item not representing cash income,
which is defined in the regulatory system of accounts prescribed by the FERC
as the cost of capital used for construction purposes. The AFUDC rate was
9.5% in 1993, 8.5% in 1992, and 12.0% in 1991, and is compounded semi-
annually.
Energy's provision for depreciation is determined by using the straight-line
method applied to the cost of depreciable plant in service. The composite
depreciation rate was 3.8% per year during 1991 to 1993.
In January 1993, Energy received authority from the IURC to continue accrual
of the debt component of AFUDC (post-in-service carrying costs) and to defer
depreciation expense (post-in-service deferred depreciation) on its planned
combustion turbine generating units and major environmental compliance
projects from the date the projects are placed in service until the effective
date of an order in Energy's current retail rate proceeding. This proceeding
includes a request for authorization to recover a portion of these deferrals
and to continue similar accounting treatment on these projects until an order
in Energy's next retail rate proceeding.
Maintenance and repairs of property units and replacements of minor items of
property are charged to maintenance expense. The costs of replacements of
property units are capitalized. The original cost of the property retired and
the related cost of removal, less salvage recovered, are charged to
accumulated depreciation.
<PAGE>
(d) FEDERAL AND STATE INCOME TAXES Deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing differences
between the financial reporting and tax reporting bases of assets and
liabilities. Investment tax credits utilized to reduce Federal income taxes
payable have been deferred for financial reporting purposes and are being
amortized over the useful lives of the property which gave rise to such
credits.
(e) OPERATING REVENUES AND FUEL COSTS Energy records revenues each period
for energy delivered during the period.
Revenues reflect fuel cost charges based on the actual costs of fuel. Fuel
cost charges applicable to all of Energy's metered kilowatt-hour sales are
included in customer billings based on the estimated costs of fuel. Customer
bills are adjusted in subsequent months to reflect the difference between
actual and estimated costs of fuel. Indiana law subjects the recovery of fuel
costs to a determination that such recovery will not result in earning a
return in excess of that allowed by the IURC in its last general rate order.
(f) DEBT DISCOUNT, PREMIUM, AND ISSUANCE EXPENSE AND COSTS OF REACQUIRING
DEBT Debt discount, premium, and issuance expense on Energy's outstanding
long-term debt are amortized over the lives of the respective issues.
Energy defers costs (principally call premiums) arising from the reacquisition
of long-term debt and amortizes such amounts over the remaining life of the
debt reacquired.
(g) CONSOLIDATED STATEMENTS OF CASH FLOWS All temporary cash investments
with maturities of three months or less, when acquired, are reported as cash
equivalents. Resources and its subsidiaries had no material non-cash
investing or financing transactions during the years 1991 to 1993.
(h) RECLASSIFICATION Certain amounts in the 1991 and 1992 Consolidated
Financial Statements have been reclassified to conform to the 1993
presentation.
2. WVPA Litigation
In February 1984, Wabash Valley Power Association, Inc. (WVPA) discontinued
payments to Energy for its 17% share of Marble Hill, a nuclear project jointly
owned by Energy and WVPA which was cancelled by Energy in 1984, and filed suit
against Energy in the United States District Court for the Southern District
of Indiana (Indiana District Court), seeking $478 million plus interest and
other damages to recover its Marble Hill costs. The suit was amended to
include as defendants several officers of Energy along with certain
contractors and their officers involved in the Marble Hill project, and to
allege claims against all defendants under the Racketeer Influenced and
Corrupt Organizations Act (RICO). Claims proven and damages allowed under
RICO may be trebled and attorneys' fees assessed against the defendants. The
suit was further amended to add claims of common law fraud, constructive fraud
<PAGE>
and deceit, and negligent misrepresentation against Energy and the other
defendants.
In May 1985, WVPA filed for protection under Chapter 11 of the Federal Bank-
ruptcy Code. Due to the Chapter 11 filing, Energy and WVPA entered into an
agreement under which Energy agreed to place in escrow 17% of all salvage
proceeds received from the sales of Marble Hill equipment, materials, and
nuclear fuel after May 23, 1985.
In February 1989, Energy and its officers reached a settlement with WVPA
which, if approved by judicial and regulatory authorities, will settle the
suit filed by WVPA. The settlement is also contingent on the resolution of
the WVPA bankruptcy proceeding.
The principal terms of the settlement are:
. Energy, on behalf of itself and its officers, will pay $80 million on
behalf of WVPA to the Rural Electrification Administration (REA) and
the National Rural Utilities Cooperative Finance Corporation (CFC).
The $80 million obligation, net of insurance proceeds, other credits,
and applicable income tax effects, was charged to income in 1988 and
1989.
. Energy will consent to the disbursement to REA and CFC of the balance
in the Marble Hill salvage escrow account.
. Energy will pay to REA and CFC 17% of future Marble Hill salvage pro-
ceeds, net of related salvage program expenses.
. WVPA will transfer its 17% interest in the Marble Hill site to Energy
(exclusive of WVPA's interest in future salvage). Energy will assume
responsibility for all future costs associated with the site, other
than WVPA's 17% share of future salvage program expenses.
. Energy will enter into a 35-year take-or-pay power supply agreement for
the sale of 70 megawatts of firm power to WVPA. Such power will be
supplied from Gibson Unit 1 and will be priced at Energy's firm power
rates for service to WVPA. The difference between the revenues
received from WVPA and the costs of operating Gibson Unit 1 (the
Margin) will be remitted annually by Energy, on behalf of itself and
its officers, to REA and CFC to discharge a $90 million obligation,
plus accrued interest. If, at the end of the term of the power supply
agreement, the $90 million obligation plus accrued interest has not
been fully discharged, Energy must do so within 60 days. The
settlement provides that in the event Energy is party to a merger or
acquisition, Energy and WVPA will use their best efforts to obtain
regulatory approval to price the power sale exclusive of the effects of
the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and
potentially by the IURC and the Michigan Public Service Commission. At such
time as the necessary approvals from these regulatory authorities are
received, Energy will record a $90 million regulatory asset. Concurrently, a
<PAGE>
$90 million obligation to REA and CFC will be recorded as a long-term
commitment. Recognition of the asset is based, in part, on projections which
indicate that the Margin will be sufficient to discharge the $90 million
obligation to REA and CFC, plus accrued interest, within the 35-year term of
the power supply agreement. If, in some future period, projections indicate
the Margin would not be sufficient to discharge the obligation plus accrued
interest within the 35-year term, the deficiency would be recognized as a
loss.
The alternative plans of reorganization sponsored by WVPA and REA incorporate
the settlement agreement. However, REA's proposed plan provides for full
recovery of principal and interest on WVPA's debt to REA, which is
substantially in excess of the amount to be recovered under WVPA's proposed
plan. In August 1991, the U.S. Bankruptcy Court for the Southern District of
Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and denied
confirmation of REA's opposing plan. The Bankruptcy Court's approval of
WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to increase its rates. REA appealed the Bankruptcy Court's decision
to the Indiana District Court. Energy cannot predict the outcome of this
appeal, nor is it known whether WVPA can obtain regulatory approval to
increase its rates. If reasonable progress is not made in satisfying
conditions to the settlement by February 1, 1995, either party may terminate
the settlement agreement.
3. Rates
(a) SETTLEMENT AGREEMENT In April 1993, the Indiana Court of Appeals (Court
of Appeals) issued a decision in the appeal of the IURC's April 1990 retail
rate order (April 1990 Order). In its decision, the Court of Appeals ruled
that the level of return on common equity allowed Energy in the April 1990
Order, including the range of common equity return, was not adequately
supported by factual findings. The April 1990 Order was remanded to the IURC
by the Court of Appeals for further proceedings including a redetermination of
the cost of equity and its components.
In December 1993, the IURC issued an order (December 1993 Order) approving a
settlement agreement entered into by Energy, the appellants, and certain other
intervenors which resolved the outstanding issues related to the appeals of
the April 1990 Order and the IURC's June 1987 tax order (June 1987 Order),
which related to the effect on Energy of the 1987 reduction in the Federal
income tax rate. The June 1987 Order had been remanded to the IURC by the
Indiana Supreme Court and was awaiting a final order from the IURC. The
December 1993 Order provides for Energy to refund $150 million to its retail
customers ($119 million applicable to the June 1987 Order and $31 million
applicable to the April 1990 Order). The December 1993 Order further provides
for Energy to reduce its retail rates by 1.5% (approximately $13.5 million on
an annual basis) to reflect a return on common equity of 14.25%. The refunds
and rate reduction commenced in December 1993. As of December 31, 1993,
approximately $68 million of the $150 million refund has been reflected as a
reduction in accounts receivable, with the remaining amount reflected in the
<PAGE>
accompanying Consolidated Balance Sheet at December 31, 1993, as "Refund due
to customers".
Energy had previously recognized a loss of $139 million for the June 1987
Order. The difference between the $139 million and the $119 million portion
of the refund applicable to the June 1987 Order is reflected in the
Consolidated Statement of Income for the year ended December 31, 1993, as a
reduction of the loss. The $31 million portion of the refund applicable to
the April 1990 Order is reflected in the Consolidated Statement of Income for
the same period as a reduction in operating revenues.
(b) CURRENT RETAIL RATE PROCEEDING Energy filed testimony with the IURC in
support of a $103 million, 11.6% retail rate increase. The rate increase is
needed to meet new environmental requirements, Energy's growing electric
needs, including construction and operation of one combustion turbine
generating unit and implementation of demand-side management (DSM) programs,
and to recognize postretirement benefits other than pensions on an accrual
basis. In addition, Energy is requesting approval of various ratemaking
mechanisms to address regulatory lag on specific environmental and new
generation projects. Hearings are expected to begin in April 1994, and a
final rate order is anticipated in late 1994 or early 1995.
4. Common Stock
The common stock shares reserved for issuance at December 31, 1993, and the
shares issued in 1993, 1992, and 1991 were as follows:
<TABLE>
<CAPTION>
Shares Shares Issued
Reserved at --------------------------
Dec. 31, 1993 1993 1992 1991
------------- ---- ---- ----
<S> <C> <C> <C> <C>
401(k) Savings Plans. . . . . . . 712 297 301 803 284 686 144 779
Dividend Reinvestment and Stock
Purchase Plan . . . . . . . . . 3 523 458 111 889 140 383 106 183
Directors' Deferred Compensation
Plan. . . . . . . . . . . . . . 40 111 59 889 - -
Performance Shares Plan . . . . . 120 536 27 807 25 568 38 318
Employee Stock Purchase and
Savings Plan. . . . . . . . . . 803 283 238 126 616 343
1989 Stock Option Plan. . . . . . 1 337 500 135 900 - 100
</TABLE>
Resources is a party to two Master Trust Agreements whereby all accrued
benefit payments or awards under certain benefit plans are to be funded in the
event of a "potential change in control" (as defined in the Master Trust
Agreements). The Master Trust Agreements provide for the payment of amounts
which may become due under such plans, subject only to claims of general
<PAGE>
creditors of Resources in the event Resources were to become bankrupt or
insolvent. In addition to the issuances of common stock on the previous page,
as of December 31, 1993, Resources had issued to the trustee of its Master
Trust Agreements 1,093,520 shares of common stock for all employees and
directors participating in the 1989 Stock Option Plan, and the Employee Stock
Purchase and Savings Plan. These issuances were required as a result of the
announcement of the merger with The Cincinnati Gas & Electric Company (CG&E)
(see Note 20 beginning on page 63).
In April 1990, the shareholders of Resources approved an Employee Stock
Purchase and Savings Plan designed to conform with Section 423 of the Internal
Revenue Code. The initial offering under the plan allowed eligible employees,
through payroll deductions, the option to purchase Resources' common stock at
$16.51 per share on August 31, 1992, and the second offering under this plan
allows for the purchase of Resources' common stock at $18.05 per share on
October 31, 1994. With respect to the second offering, eligible employees
purchased 71,188 shares of Resources' common stock at $18.05 per share on
February 2, 1994. This accelerated opportunity was a result of the approval
of the merger with CG&E by Resources' shareholders in November 1993.
In January 1994, Resources' Board of Directors approved the issuance of up to
94,364 shares, distributable over two years, under the Performance Shares
Plan, a long-term incentive compensation plan for certain officers.
Resources currently has an effective shelf registration statement for the sale
of up to eight million shares of common stock.
5. Stock Option Plan
In April 1989, the shareholders of Resources approved a stock option plan
(1989 Stock Option Plan) under which incentive and non-qualified stock options
and stock appreciation rights may be granted to key employees, officers, and
outside directors. Common stock granted under the 1989 Stock Option Plan may
not exceed 2.5 million shares. Options are granted at the fair market value
of the shares on the date of grant, except that non-qualified stock options
were granted to two executive officers when the plan was adopted at an option
price equal to 91% of the fair market value of the shares at the date of
grant. Options have a purchase term of up to 10 years, and all options, not
previously vested, became vested upon approval of the merger with CG&E by
Resources' shareholders. No incentive stock options may be granted under the
plan after January 31, 1999.
<PAGE>
The 1989 Stock Option Plan activity for 1991, 1992, and 1993 is summarized as
follows:
<TABLE>
<CAPTION>
Range of
Shares Subject Option Prices
to Option Per Share
-------------- --------------
<S> <C> <C>
Balance at December 31, 1990. . . . . . . . 1 122 500 $12.54 to 17.31
Options Granted . . . . . . . . . . . . . . 62 500 16.38 to 16.63
Options Exercised . . . . . . . . . . . . . (100) 13.44
---------
Balance at December 31, 1991. . . . . . . . 1 184 900 $12.54 to 17.31
Options Granted . . . . . . . . . . . . . . 25 000 17.75
Options Cancelled . . . . . . . . . . . . . (50 000) 16.94
---------
Balance at December 31, 1992. . . . . . . . 1 159 900 $12.54 to 17.75
Options Exercised . . . . . . . . . . . . . (135 900) 12.54 to 16.94
---------
Balance at December 31, 1993. . . . . . . . 1 024 000 $12.79 to 17.75
Shares Reserved for Future Grants
At December 31, 1991. . . . . . . . . . 1 312 500
At December 31, 1992. . . . . . . . . . 1 337 500
At December 31, 1993. . . . . . . . . . 1 337 500
</TABLE>
No stock appreciation rights have been granted under this plan. The total
options exercisable at December 31, 1993, 1992, and 1991, were 1,024,000,
714,900, and 542,400, respectively.
6. Shareholder Rights Plan
Pursuant to a Shareholder Rights Plan adopted by Resources' Board of Directors
in 1992, one right is presently attached to, and trading with, each share of
Resources' outstanding common stock. The rights are not currently
exercisable, but would become exercisable (i) 10 days following a public
announcement that a person or group (Acquiring Person) became the beneficial
owner of 20% or more of Resources' common stock (Stock Acquisition Date); (ii)
10 business days (or such later date as Resources' Board of Directors shall
determine) following the commencement of a tender or exchange offer which,
when consummated, would result in a person or group owning 20% or more of
Resources' common stock; or (iii) in the event a person or group owns, or
expresses an intention to acquire, 10% or more of Resources' common stock and
is declared an "Adverse Person" by Resources' Board of Directors. Once
exercisable, and the under specified circumstances, the rights entitle the
holder thereof to purchase shares of Resources' common stock at reduced
prices.
In general, Resources may redeem the rights at any time until a determination
that a person is an Adverse Person or until 10 days following the Stock
Acquisition Date at a price of $.01 per right. Additionally, Resources must
redeem all outstanding rights on the thirtieth day following its 1997 Annual
<PAGE>
Meeting of Shareholders, unless the shareholders approve continuation of the
plan.
The merger agreement entered into among Resources, Energy, and CG&E contains a
provision excluding the consummation of such merger from triggering any right
or entitlement of Resources' shareholders under the plan.
7. Common Stock of Subsidiary
All of Energy's common stock is held by Resources. No common dividends can be
paid by Energy if there are dividends in arrears on its preferred stock.
Energy's Indenture provides that, so long as any bonds are outstanding under
the Indenture, Energy shall not declare or pay cash dividends on shares of its
capital stock (other than on preferred stock) except out of its earned surplus
or net profits. In addition, Energy's Amended Articles of Consolidation limit
dividends on common stock to 75% of net income available for common stock if
the ratio of common stock equity to total capitalization is less than 25%, or
to 50% of such net income available if such ratio is less than 20%.
Compliance with this provision is determined based on income available for
common stock during the preceding 12-month period and the common stock equity
balance after payment of the applicable dividend. At December 31, 1993,
Energy's common stock equity was 42% of total capitalization, excluding debt
due within one year. The above restrictions would limit Energy's common
dividends to $347 million as of December 31, 1993.
8. Preferred Stock of Subsidiary
In 1993, Energy issued $100 million of 7.44% Series Cumulative Preferred
Stock, $25 par value. This preferred stock is not redeemable prior to March
1, 1998, and is redeemable thereafter at the option of Energy. In addition,
Energy issued $60 million of 6 7/8% Series Cumulative Preferred Stock, $100
par value. This preferred stock is not redeemable prior to October 1, 2003,
and is redeemable thereafter at the option of Energy. Energy applied the net
proceeds of the $60 million issuance to the refinancing of 162,520 shares of
8.38% Series and 211,190 shares of 8.52% Series, $100 par value, Cumulative
Preferred Stock at $101 per share and 216,900 shares of 8.96% Series, $100 par
value, Cumulative Preferred Stock at $103 per share in December 1993. As of
December 31, 1993, Energy can sell up to an additional $40 million of
preferred stock under an effective shelf registration statement and IURC
authority.
Energy retired 237 shares, 10 shares, and 50 shares in 1993, 1992, and 1991,
respectively, of its $100 par value, 3 1/2% Series Cumulative Preferred Stock.
In addition, Energy redeemed all 255,000 outstanding shares of its $100 par
value, 13.25% Series Cumulative Preferred Stock in 1992 and redeemed 30,000
shares of this series in 1991.
<PAGE>
9. Long-term Debt
The sinking fund requirements with respect to Energy's long-term debt
outstanding at December 31, 1993, are $.2 million in 1994, $.4 million per
year during 1995 to 1997, and $.5 million in 1998.
Long-term debt maturities for the next five years are $50 million in 1996, $10
million in 1997, and $35 million in 1998.
Energy currently has IURC authority to issue up to $428 million of first
mortgage bonds or other long-term debt. As of December 31, 1993, Energy can
sell up to $315 million of these debt securities under an effective shelf
registration statement.
10. Sale of Accounts Receivable
Energy has an agreement through January 1996 to sell, with limited recourse,
an undivided percentage interest in certain of its accounts receivable from
customers up to a maximum of $90 million. As of December 31, 1993, Energy's
obligation under the limited recourse provision is $22 million. The refund
provided for by the December 1993 Order, as previously discussed (see Note 3
beginning on page 47), reduced accounts receivable available for sale at
December 31, 1993, to $40 million. Accounts receivable on the Consolidated
Balance Sheets are net of the $40 million and $90 million interest sold at
December 31, 1993, and December 31, 1992, respectively. The excess of $90
million over the accounts receivable available for sale at December 31, 1993,
is reflected in the Consolidated Balance Sheet as "Advance under accounts
receivable purchase agreement".
The refund provided for by the December 1993 Order caused a termination event
under the agreement governing the sale of accounts receivable. Due to the
temporary nature of this event, Energy obtained a waiver of the termination
event provision of the agreement as it relates to the refund.
Effective February 1, 1991, Energy entered into an interest rate swap
agreement which effectively changed Energy's variable interest rate exposure
on its sale of accounts receivable to a fixed rate of 8.19%. The interest
rate swap agreement matures January 31, 1996. In the event of nonperformance
by the other parties to the interest rate swap agreement, Energy would be
exposed to floating rate conditions.
11. Pension Plan
Energy's defined benefit pension plan (Plan) covers all employees meeting
certain minimum age and service requirements. Plan benefits are determined
under a final average pay formula with consideration of years of
participation, age at retirement, and the applicable average Social Security
wage base.
Energy's funding policy is to maintain the Plan on an actuarially sound basis.
Energy's contribution for the 1993 plan year is $8.2 million. Contributions
<PAGE>
applicable to the 1992 and 1991 plan years were $7.4 million and $7.9 million,
respectively. The Plan's assets consist of investments in equity and fixed
income securities.
Pension costs for 1993, 1992, and 1991 include the following components:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Benefits earned during the period . . . . . . . $ 7.7 $ 7.1 $ 6.6
Interest accrued on projected
benefit obligation. . . . . . . . . . . . . . 19.4 18.3 17.0
Return on Plan assets
Actual. . . . . . . . . . . . . . . . . . . . (38.5) (24.1) (38.8)
Deferred gain . . . . . . . . . . . . . . . . 19.5 6.8 23.2
Net amortization. . . . . . . . . . . . . . . . .6 .6 .6
------ ------ ------
Total pension costs . . . . . . . . . . . . . . $ 8.7 $ 8.7 $ 8.6
</TABLE>
The following table reconciles the Plan's funded status at September 30, 1993,
1992, and 1991 with amounts recorded in the Consolidated Financial Statements.
Under the provisions of Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions (Statement 87), certain assets and
obligations of the Plan are deferred and recognized in the Consolidated
Financial Statements in subsequent periods.
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits . . . . . . . . . . . . . . . $206.1 $172.3 $163.6
Non-vested benefits . . . . . . . . . . . . . 8.5 6.8 6.0
Effect of future compensation increases . . . 55.4 55.3 50.8
------ ------ ------
Projected benefit obligation. . . . . . . . 270.0 234.4 220.4
Plan assets at fair value . . . . . . . . . . . 266.0 231.4 209.8
------ ------ ------
Projected benefit obligation in
excess of Plan assets . . . . . . . . . . . . (4.0) (3.0) (10.6)
Remaining balance of net Plan assets existing
at date of initial application of Statement
87 to be recognized as a reduction of
pension cost in future periods. . . . . . . . (6.4) (7.1) (7.8)
Unrecognized net (gain) loss resulting from
experience different from that assumed and
effects of changes in assumptions . . . . . . (.9) (2.7) 4.4
Prior service cost not yet recognized in net
periodic pension costs. . . . . . . . . . . . 14.9 17.4 18.7
------ ------ ------
Prepaid pension costs at December 31. . . . . . $ 3.6 $ 4.6 $ 4.7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Actuarial Assumptions:
For determination of projected benefit
obligation
Weighted average discount rate. . . . . . . . 7.5% 8.5% 8.5%
Rate of increase in future compensation . . . 4.5 5.5 5.5
For determination of pension costs
Rate of return on Plan assets . . . . . . . . 9.0 9.0 9.0
</TABLE>
12. Other Postretirement and Postemployment Benefits
(a) POSTRETIREMENT BENEFITS Energy provides certain health care and life
insurance benefits to retired employees and their eligible dependents.
Energy's employees are eligible for postretirement health care benefits if
they retire at age 55 or older with at least 10 years of service and are
eligible for life insurance if they retire with unreduced pension benefits.
The health care benefits provided include medical, prescription drugs, and
dental. Prior to 1993, the cost of retiree health care was charged to expense
as claims were paid and the cost of life insurance benefits was charged to
expense at retirement. Energy does not currently pre-fund its obligation for
these postretirement benefits.
Effective with the first quarter of 1993, Energy implemented the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (Statement 106). Under the
provisions of Statement 106, the costs of health care and life insurance
benefits provided to retirees are recognized for accounting purposes during
periods of employee service (accrual basis). The unrecognized and unfunded
Accumulated Postretirement Benefit Obligation (APBO) existing at the date of
initial application of Statement 106 (i.e., the transition obligation) of
$107.6 million is being amortized over a 20-year period.
Postretirement benefit costs for 1993 include the following components:
Amount
------
(in millions)
Benefits earned during the period. . . . . . . . . . $ 3.4
Interest accrued on APBO . . . . . . . . . . . . . . 9.3
Amortization of transition obligation. . . . . . . . 5.4
-----
Total postretirement benefit costs . . . . . . . . . $18.1
In December 1993, the IURC issued a generic order regarding regulatory
treatment of postretirement benefit costs other than pensions determined in
accordance with the provisions of Statement 106. In accordance with the
provisions of this order, Energy has included a request for recovery of these
costs on an accrual basis in its current retail rate proceeding. Prior to the
recovery of these costs in customers' rates on an accrual basis, the
difference between postretirement benefit costs determined in accordance with
the provisions of Statement 106 and the costs determined in accordance with
<PAGE>
Energy's previous accounting practice is being deferred for future recovery in
accordance with the provisions of the generic order.
Postretirement benefit costs for 1993, 1992, and 1991, determined in
accordance with Energy's previous accounting practice, were $5.3 million, $5.0
million, and $4.6 million, respectively.
The following table reconciles the APBO of the health care and life insurance
plans at September 30, 1993, with amounts recorded in the Consolidated
Financial Statements:
Amount
------
(in millions)
Actuarial present value of benefits
Fully eligible active plan participants. . . . . . $ (20.8)
Other active plan participants . . . . . . . . . . (54.7)
Retirees and beneficiaries . . . . . . . . . . . . (61.5)
-------
Projected APBO . . . . . . . . . . . . . . . . . . . (137.0)
Unamortized transition obligation. . . . . . . . . . 102.2
Benefit payments subsequent to
September 30, 1993 . . . . . . . . . . . . . . . . 1.1
Unrecognized net loss resulting from
experience different from that assumed
and effect of changes in assumptions . . . . . . . 16.0
-------
Accrued postretirement benefit obligation at
December 31, 1993. . . . . . . . . . . . . . . . . $ (17.7)
The weighted-average discount rate used in determining the APBO at September
30, 1993, was 7.5%. The assumed initial health care cost trend rate used in
measuring the APBO was 8% for dental and post-65 medical and 12% for pre-65
medical and prescription drugs. These rates are assumed to decrease gradually
to an ultimate level of 5% by the year 2007. Increasing the health care cost
trend rate by one percentage point in each year would increase the APBO as of
September 30, 1993, by approximately $19 million (14%) and the aggregate of
the service and interest cost components of the postretirement benefit costs
for 1993 by approximately $2 million (17%).
(b) POSTEMPLOYMENT BENEFITS In 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits (Statement 112). Statement 112
establishes accounting standards for the costs of benefits provided to former
or inactive employees, including their beneficiaries and dependents, after
employment but before retirement. Under the provisions of Statement 112, the
costs of these benefits will be recognized for accounting purposes when the
employees or their beneficiaries become eligible for such benefits (accrual
basis) rather than when such benefits are paid, which is Energy's current
practice. Energy's unrecognized and unfunded obligation for these benefits
(the transition obligation) as of September 30, 1993, measured in accordance
with the new accounting standard, is $8.5 million. The new standard requires
immediate recognition of the transition obligation at the date the new
standard is adopted. Energy is required to adopt Statement 112 effective
<PAGE>
January 1, 1994. In connection with its current retail rate proceeding,
Energy has requested deferral of the transition obligation for recovery over a
reasonable period of time beginning with an order in its next retail rate
proceeding.
13. Notes Payable
Energy currently has IURC authority to borrow up to $200 million under short-
term credit arrangements. In connection with this authority, Energy has
established agreements with 11 banks for unsecured, but committed, lines of
credit (Committed Lines) which currently permit borrowings of up to $155
million. These Committed Lines provide for maturities of one year and one day
with interest rate options at or below prime rate. In addition, Energy has a
temporary Committed Line with one bank of $15 million which provides for
maturities of less than one year. Energy also issues commercial paper from
time to time. All outstanding commercial paper is supported by Energy's
Committed Lines.
Resources has a $30 million credit facility which expires on the earlier of
(i) February 12, 1996, or (ii) the completion of the merger with CG&E. As of
December 31, 1993, $20 million was outstanding under this credit facility.
Amounts outstanding under the above credit arrangements would become
immediately due upon an event of default which includes non-payment, default
under other agreements governing company indebtedness, bankruptcy, or
insolvency. Commitment fees, which are assessed on the daily unused portion
of the Committed Lines, were immaterial during 1991 to 1993.
Energy also has Board of Directors' approval to arrange for additional short-
term borrowings of up to $100 million with various banks on an "as offered"
basis (Uncommitted Lines). All Uncommitted Lines provide for maturities of
364 days with various interest rate options.
Resources established a $70 million irrevocable standby letter of credit in
favor of CG&E in conjunction with the merger (see Note 20 beginning on page
63).
<PAGE>
For the years 1993, 1992, and 1991, short-term borrowings outstanding at
various times were as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Maximum Average Average
Average Amount Amount Interest
Balance Interest Outstanding Outstanding Rate
at Rate at at Any During the During
Dec. 31 Dec. 31 Month End Year the Year
- - - ----------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
1993
Bank loans. . . . . . $146.7 3.4% $146.7 $92.5 3.6%
Commercial paper. . . - - 24.8 6.4 3.3
1992
Bank loans. . . . . . 144.2 3.9 144.2 85.9 4.0
Commercial paper. . . - - 30.7 8.2 3.8
1991
Bank loans. . . . . . - - 34.5 6.9 5.7
</TABLE>
14. Fair Value of Financial Instruments
The estimated fair values of Resources' and its subsidiaries' financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31 December 31
1993 1992
----------------- -----------------
Carrying Fair Carrying Fair
Financial Instrument Amount Value Amount Value
- - - -------------------- -------- ----- -------- -----
(in millions)
<S> <C> <C> <C> <C>
Cash and temporary
cash investments. . . . . . . $ 7 $ 7 $ 10 $ 10
Restricted deposits . . . . . . 49 49 18 18
Long-term debt (includes
amounts due within one year). 816 896 777 807
Notes payable . . . . . . . . . 147 147 144 144
</TABLE>
The following methods and assumptions were used to estimate the fair values of
these financial instruments:
CASH AND TEMPORARY CASH INVESTMENTS, RESTRICTED DEPOSITS, AND NOTES PAYABLE
The carrying amounts approximate fair values.
LONG-TERM DEBT The fair value of Energy's long-term debt issues, excluding
tax-exempt bonds, was estimated based on the latest quoted market prices or,
if not publicly traded, on the current rates offered to Energy for debt of the
same remaining maturities. The fair value of tax-exempt bonds was estimated
by obtaining broker quotes.
<PAGE>
Under current regulatory treatment, gains and losses on reacquisition of long-
term debt are amortized in customers' rates over the remaining life of the
debt reacquired. Accordingly, any reacquisition would not have a material
effect on Resources' financial position or results of operations.
15. Income Taxes
Effective with the first quarter of 1993, Resources implemented the provisions
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (Statement 109). Statement 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
differences between the financial reporting and tax reporting bases of assets
and liabilities. Resources adopted this new accounting standard as the
cumulative effect of a change in accounting principle with no restatement of
prior periods. The adoption of Statement 109 had no material effect on
Resources' consolidated earnings or the Consolidated Balance Sheet.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993
(Act), which included a provision to increase the Federal corporate income tax
rate from 34% to 35%, retroactive to January 1, 1993. Statement 109 requires
adjustment of deferred income taxes upon enacted changes in income tax rates.
The change in the income tax rate resulted in an increase in the net deferred
income tax liability of approximately $12 million and recognition of a
regulatory asset of approximately $12 million to reflect expected future
recovery of the increased liability in customers' rates.
The significant components of Resources' net deferred income tax liability at
December 31, 1993, and January 1, 1993, after adoption of the provisions of
Statement 109, are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
------------ ----------
(in millions)
<S> <C> <C>
Deferred Income Tax Liabilities
Electric utility plant. . . . . . . . . . . . $309.6 $288.3
Unamortized costs of reacquiring debt . . . . 15.0 13.6
Regulatory assets . . . . . . . . . . . . . . 27.5 9.5
Other . . . . . . . . . . . . . . . . . . . . 3.2 4.8
------ ------
Total deferred income tax liabilities . . . 355.3 316.2
Deferred Income Tax Assets
Unamortized investment tax credits. . . . . . 24.5 25.5
Litigation settlement . . . . . . . . . . . . 29.8 29.0
Refund due to customers . . . . . . . . . . . - 51.4
Other . . . . . . . . . . . . . . . . . . . . 15.3 20.8
------ ------
Total deferred income tax assets. . . . . . 69.6 126.7
------ ------
Net Deferred Income Tax Liability . . . . . . . $285.7 $189.5
</TABLE>
<PAGE>
A summary of Federal and state income taxes charged (credited) to income and
the allocation of such amounts is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in millions)
<S> <C> <C> <C>
Current Income Taxes
Federal . . . . . . . . . . . . . . . . . . . $(12.7) $45.6 $ 42.3
State . . . . . . . . . . . . . . . . . . . . (.7) 7.1 6.4
------ ----- ------
Total current income taxes. . . . . . . . (13.4) 52.7 48.7
Deferred Income Taxes
Federal
Depreciation. . . . . . . . . . . . . . . . 9.6 7.5 (1.8)
Loss related to the IURC's
June 1987 Order (Note 3). . . . . . . . . 45.9 - (45.9)
Litigation settlement . . . . . . . . . . . - - 24.7
Demand-side management costs. . . . . . . . 10.6 5.3 1.2
Other items - net . . . . . . . . . . . . . 4.0 (.8) (4.4)
------ ----- ------
Total deferred Federal income taxes . . . 70.1 12.0 (26.2)
State
Depreciation. . . . . . . . . . . . . . . . 1.6 .7 (2.2)
Loss related to the IURC's
June 1987 Order (Note 3). . . . . . . . . 4.0 - (4.0)
Litigation settlement . . . . . . . . . . . - - 3.4
Other items - net . . . . . . . . . . . . . 1.4 .6 2.3
------ ----- ------
Total deferred state income taxes . . . . 7.0 1.3 (.5)
Total deferred income taxes . . . . . . . 77.1 13.3 (26.7)
Investment Tax Credits - Net. . . . . . . . . . (4.2) (4.4) (5.7)
------ ----- ------
Total Income Taxes. . . . . . . . . . . . $ 59.5 $61.6 $ 16.3
Allocated to:
Operating income. . . . . . . . . . . . . . . $ 55.2 $64.4 $ 65.7
Other income and expense - net. . . . . . . . 4.3 (2.8) (49.4)
------ ----- ------
$ 59.5 $61.6 $ 16.3
</TABLE>
During 1993, Resources incurred a Federal income tax net operating loss of
approximately $22 million primarily due to the $150 million refund resulting
from the December 1993 Order. The loss can be carried forward or back to
offset taxable income in other years. As a result of the net operating loss,
Resources incurred an alternative minimum tax (AMT) liability of approximately
$2.3 million for 1993. AMT paid can be used as a tax credit to offset income
taxes (other than AMT) payable in future years. Resources expects to be able
to utilize both the net operating loss and AMT credit in 1994. The tax
benefits of the net operating loss and income taxes paid during 1993 in excess
of the AMT liability are reported as "Income tax refunds" on the December 31,
1993, Consolidated Balance Sheet.
<PAGE>
Federal income taxes computed by applying the statutory Federal income tax
rate to book income before Federal income tax are reconciled to Federal income
tax expense reported in the Consolidated Statements of Income as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(in millions)
<S> <C> <C> <C>
Statutory Federal income tax provision. . . . . $52.3 $50.8 $10.1
Increases (Reductions) in taxes resulting from:
Investment tax credits. . . . . . . . . . . . (4.2) (4.4) (4.2)
Depreciation and other utility plant-
related differences . . . . . . . . . . . . 4.1 4.2 3.4
Preferred dividend requirement of
subsidiary. . . . . . . . . . . . . . . . . 4.5 2.5 3.5
AFUDC equity. . . . . . . . . . . . . . . . . (3.9) (1.6) (2.2)
Other - net . . . . . . . . . . . . . . . . . .4 1.7 ( .2)
----- ----- -----
Federal income tax expense. . . . . . . . . . . $53.2 $53.2 $10.4
</TABLE>
Resources' consolidated Federal income tax returns for the years 1989 and 1990
are currently under examination by the Internal Revenue Service. Resources
believes it has adequate reserves to cover issues which may be raised in
conjunction with this examination and does not believe the outcome of the
examination will have a material effect on its financial condition or results
of operations.
16. Commitments and Contingencies
(a) CONSTRUCTION Energy will have substantial commitments in connection with
its construction program for capital improvements to, and expansion of, its
operating facilities, new generation, and environmental compliance. Aggregate
expenditures for Energy's construction program for the years 1994 to 1998 are
estimated to be $1.1 billion.
(b) MANUFACTURED GAS PLANTS Coal tar residues and other substances
associated with manufactured gas plant (MGP) sites have been found at former
MGP sites in Indiana, including, but not limited to, sites in Shelbyville and
Lafayette, two sites previously owned by Energy. Energy has identified at
least 21 MGP sites which it previously owned, including 19 it sold in 1945 to
Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]), including
the Shelbyville and Lafayette sites.
The Shelbyville site has been the subject of an investigation and cleanup
enforcement action by the Indiana Department of Environmental Management
(IDEM) against IGC and Energy. Without admitting liability, Energy and IGC
have jointly negotiated with the IDEM for a consent order to conduct a
remedial investigation and feasibility study of the Shelbyville site. Energy
and IGC are sharing equally in the costs of investigation and cleanup of this
site.
In 1992, the IDEM issued an order to IGC, naming IGC as a responsible party as
defined by the Comprehensive Environmental Response, Compensation and
<PAGE>
Liability Act, which requires investigation and remediation of the Lafayette
MGP site. IGC entered into an agreed order with the IDEM for the removal of
MGP contamination at the site.
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other potentially responsible parties, including
previous owners. At this time, the IURC has not ruled on IGC's petition.
Except for the Shelbyville site, Energy has not assumed any responsibility to
reimburse IGC for its costs for investigating and cleaning up MGP sites. With
respect to the Shelbyville site, based upon environmental investigations
completed to date, Energy believes that any required investigation and
remediation will not have a material adverse effect on its financial
condition. At this time, it is premature for Energy to predict the nature,
extent, and costs of, or Energy's responsibility for, any environmental
investigations and remediations which may be required at other MGP sites
owned, or previously owned, by Energy.
(c) FUEL LITIGATION Energy is currently involved in litigation with Exxon
Coal USA, Inc. and Exxon Corporation (Exxon) regarding, among other things,
coal quality and pricing disputes, including whether the price for coal
delivered under a coal supply contract should be $23.266 or $30 per ton. On
February 22, 1994, the United States Court of Appeals for the Seventh Circuit
established the contract price at $30 per ton, reversing the trial court's
decision determining the price at $23.266 per ton. During 1993, Energy paid
$23.266 per ton. Energy believes the additional cost to be incurred as a
result of this decision should be recoverable through rates. Additionally,
Exxon is seeking $17 million to $63 million in damages for Energy's failure to
take coal after Energy terminated the contract pursuant to a December 1992
court decision, which was subsequently reversed. Energy believes the damages,
if any, will be less than $17 million. Exxon has also alleged anticipatory
breach of the contract; however, after reversal of the December 1992 court
decision and reinstatement of the contract, Energy resumed acceptance of
deliveries and has moved for summary judgment on this issue. At this time,
Energy cannot predict the outcome of the remaining litigation, but no material
adverse effect on Energy's financial condition is expected.
Energy initiated several arbitration proceedings to resolve disputes,
including disputes related to price and coal quality, which have arisen under
agreements between Amax Coal Company (Amax) and Energy. Energy cannot predict
the ultimate resolution of the remaining issues subject to arbitration, but in
the event the arbitrators decide that Amax is due additional amounts, Energy
believes that Indiana's fuel adjustment clause process provides for recovery
of such amounts from its customers.
<PAGE>
17. Regulatory Assets
The IURC has authorized Energy to defer DSM expenditures, with carrying costs,
for subsequent recovery through rates. In its current retail rate proceeding,
Energy has proposed to amortize and recover amounts deferred through July 1993
($35 million), together with carrying costs, over a four-year period
commencing with the effective date of the IURC's order in the current retail
rate proceeding. Deferred DSM costs as of the effective date of an order in
Energy's current retail rate proceeding, which are not included for recovery
in the current proceeding, will continue to be deferred, with carrying costs,
for recovery in subsequent rate proceedings. In addition, Energy has proposed
the recovery of approximately $23 million of DSM expenditures in base rates on
an annual basis. Energy has also requested that the IURC approve the deferral
of reasonably incurred DSM expenditures which exceed the base level of $23
million. Deferred DSM expenditures totaled $53 million and $23 million at
December 31, 1993, and 1992, respectively.
Additionally, consistent with authorized ratemaking treatment, Energy is
deferring certain costs associated with income taxes, postretirement benefits
other than pensions, and its planned combustion turbine generating units and
major environmental compliance projects. These deferrals totaled $45 million
and $3 million at December 31, 1993, and 1992, respectively. Finally, in
Energy's current retail rate proceeding, it is requesting ratemaking treatment
for deferred costs associated with the merger with CG&E and certain fuel
litigation. These deferrals totaled $21 million and $4 million at December
31, 1993, and 1992, respectively (see Notes 1, 3, 12, and 21 beginning on
pages 44, 47, 54, and 65, respectively).
18. Jointly Owned Plant
Energy is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal
Power Agency (IMPA). Energy is also a joint owner with WVPA and IMPA of
transmission property and local facilities. These facilities constitute part
of the integrated transmission and distribution systems which are operated and
maintained by Energy. Proportionate operating expenses are billed to WVPA and
IMPA and are reflected as a reduction of operating expenses in the
Consolidated Statements of Income.
Energy's investment in jointly owned plant is as follows:
<TABLE>
<CAPTION>
1993 1992
------------------------------------ -------------------------------------
Accumulated Accumulated
(dollars in millions) Share Investment Depreciation Share Investment Depreciation
-------- ---------- ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gibson Unit 5 . . . . . . 50.05% $ 207 $ 84 50.05% $ 207 $ 76
Transmission property
and local facilities. . 93.59 1 521 532 93.89 1 430 503
</TABLE>
<PAGE>
19. 1993 and 1992 Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Operating Operating Net Earnings
Quarter Ended Revenues Income Income Per Share
- - - ------------- --------- --------- ------ ---------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
1993
March 31. . . . . . . . . . . $ 290 $ 51 $33 $ .59
June 30 . . . . . . . . . . . 223 15 11 .19
September 30. . . . . . . . . 295 39 23 .41
December 31 . . . . . . . . . 280 45 29 .54
------ ---- --- -----
Total. . . . . . . . . . . $1 088 $150 $96 $1.73
1992
March 31. . . . . . . . . . . $ 273 $ 42 $25 $ .45
June 30 . . . . . . . . . . . 258 35 18 .34
September 30. . . . . . . . . 274 42 24 .43
December 31 . . . . . . . . . 276 46 29 .53
------ ---- --- -----
Total. . . . . . . . . . . $1 081 $165 $96 $1.75
</TABLE>
20. Pending Merger
GENERAL Resources, Energy, and CG&E entered into an Agreement and Plan of
Reorganization dated as of December 11, 1992, which was subsequently amended
and restated on July 2, 1993, and as of September 10, 1993 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged with and into a newly formed corporation named CINergy Corp.
(CINergy) and a subsidiary of CINergy will be merged with and into CG&E ("CG&E
Merger", collectively referred to as the "Mergers"). Following the Mergers,
CINergy will be the parent holding company of Energy and CG&E and will be
required to register under the Public Utility Holding Company Act of 1935
(PUHCA).
The Merger Agreement can be terminated by any party, without financial
penalty, if the Mergers are not consummated by June 30, 1994. Under certain
circumstances, the termination of the Merger Agreement would result in the
payment of termination fees which may not exceed $70 million, if Resources is
required to pay, or $130 million, if CG&E is required to pay.
In August 1993, Resources established a $70 million irrevocable standby letter
of credit in favor of CG&E to fund the aggregate amounts (not to exceed $70
million) payable in certain circumstances pursuant to the provisions of the
Merger Agreement and the related Resources Stock Option Agreement as
termination fees, option repurchase payments, and related expenses.
EXCHANGE RATIO The Merger Agreement provides that, upon consummation of the
Mergers, each outstanding share of common stock of Resources will be converted
into the right to receive that number of shares of the common stock, par value
of $.01 each, of CINergy obtained by dividing $30.69 by the average closing
sales price of common stock, par value of $8.50 each, of CG&E as reported on
the Transaction Reporting System operated by the Consolidated Tape Association
for the 15 consecutive trading days preceding the fifth trading day prior to
<PAGE>
the Mergers; provided that, if the actual quotient obtained thereby is less
than .909, the quotient shall be .909, and if the actual quotient obtained
thereby is more than 1.023, the quotient shall be 1.023. The Merger Agreement
also provides that, upon consummation of the Mergers, each outstanding share
of common stock of CG&E will be converted into the right to receive one share
of common stock of CINergy. The outstanding preferred stock and debt
securities of Energy and CG&E will not be affected.
SHAREHOLDER AND REGULATORY APPROVALS In November 1993, the Mergers were
approved by the shareholders of Resources and CG&E. In August 1993, the FERC
conditionally approved the Mergers. This conditional approval was made by the
FERC without a formal hearing and, according to public statements by the FERC
Commissioners, was done in reliance, in part, on the FERC's belief that the
regulatory commissions of the affected states would have authority to approve
or disapprove the Mergers. The companies accepted the FERC's conditions and
indicated their belief that none of the conditions would have a material
adverse effect on the operations, financial condition, or business prospects
of CINergy. Certain parties petitioned for rehearing of the FERC's
conditional approval. On September 15, 1993, Energy and CG&E filed a
statement with the FERC clarifying their conclusions at that time that the
Mergers would not require any prior approval of a state commission under state
law. Given the issues raised on the requests for rehearing and the lack of
certainty in the record regarding state regulatory powers, on January 12,
1994, the FERC issued an order withdrawing its prior conditional approval of
the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. The
settlement procedure is expected to be concluded prior to the end of March
1994. The FERC has indicated that, if the settlement procedure is not
successful, it intends to issue a further order setting appropriate issues for
hearing.
The companies are currently participating in a collaborative process with
representatives from the IURC, the Public Utilities Commission of Ohio, the
Kentucky Public Service Commission (KPSC), various consumer groups, and other
parties to settle all merger-related issues. In conjunction with the FERC-
sponsored settlement procedure, on February 11, 1994, Energy filed a petition
with the IURC requesting approval of various proposals regarding state
regulation after consummation of the Mergers. These proposals do not address
the allocation between shareholders and customers of projected revenue
requirement savings as a result of the Mergers. This allocation will be the
subject of a subsequent IURC proceeding. Hearings on the current petition are
expected to conclude prior to the end of the 60-day settlement period
established by the FERC. In addition, CG&E had originally intended to file,
in January 1994, an application with the KPSC for approval of the CG&E Merger.
However, given the initiation of the FERC settlement procedure, CG&E notified
the KPSC, and the KPSC agreed, that CG&E would temporarily defer such filing
(see Note 22 on page 68 for a discussion of subsequent events).
The Mergers are also subject to the approval of the Securities and Exchange
Commission (SEC) under the PUHCA. An application requesting such SEC approval
is expected to be filed during the first quarter or early second quarter of
1994. Under the PUHCA, the divestiture of CG&E's gas operations may be
required. The companies believe they have a justifiable basis for retention
<PAGE>
of CG&E's gas operations and will request SEC approval to retain this portion
of the business. Divestiture, if ordered, would occur after the consummation
of the Mergers. Historically, the SEC has allowed companies sufficient time
to accomplish divestitures in a manner that protects shareholder value, which,
in some cases, has been 10 to 20 years.
The companies' goal is to consummate the Mergers during the third quarter of
1994. However, if the settlement procedure is not successful and a hearing is
convened by the FERC, the consummation of the Mergers would likely be further
extended. There can be no assurance that the Mergers will be consummated.
STOCK OPTION AGREEMENTS Concurrently with the Merger Agreement, Resources and
CG&E have entered into reciprocal stock option agreements granting each other
the right to purchase certain shares of their common stock under certain
circumstances if the Merger Agreement becomes terminable, or is terminated,
because of a breach or a third party proposal for a business combination.
Specifically, under these certain circumstances, CG&E has the option to
purchase 10 million shares of common stock of Resources at a price of $18.65
per share, and Resources has the option to purchase approximately 7.7 million
shares of common stock of CG&E at a price of $24.325 per share. These options
will terminate upon the earlier of the consummation of the Mergers,
termination of the Merger Agreement pursuant to its terms (other than a breach
or a third party proposal for a business combination), 180 days, or longer
under certain circumstances, following the termination of the Merger Agreement
due to a breach or a third party proposal for a business combination, or June
30, 1994.
21. Pro Forma Condensed Consolidated Financial Information (unaudited)
The following pro forma condensed consolidated financial information combines
the historical Consolidated Statements of Income and Consolidated Balance
Sheets of Resources and CG&E after giving effect to the Mergers. The
unaudited Pro Forma Condensed Consolidated Statements of Income for each of
the three years ended December 31, 1993, give effect to the Mergers as if the
Mergers had occurred at January 1, 1991. The unaudited Pro Forma Condensed
Consolidated Balance Sheet at December 31, 1993, gives effect to the Mergers
as if the Mergers had occurred at December 31, 1993. These statements are
prepared on the basis of accounting for the Mergers as a pooling of interests
and are based on the assumptions set forth in the notes thereto. In addition,
the following pro forma condensed consolidated financial information should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Resources and CG&E. The following information is not
necessarily indicative of the operating results or financial position that
would have occurred had the Mergers been consummated at the beginning of the
periods, or on the date, for which the Mergers are being given effect, nor is
it necessarily indicative of future operating results or financial position.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
1993 1992 1991
------------------------------- ------------------------------ --------------------------------
Historical Pro Forma Historical Pro Forma Historical Pro Forma
Resources CG&E CINergy Resources CG&E CINergy Resources CG&E CINergy
--------- ------ ---------- --------- ------ ---------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues. . . $1 088 $1 752 $ 2 840 $1 081 $1 553 $ 2 634 $1 122 $1 518 $ 2 640
Operating expenses. . . 938 1 432 2 370 916 1 293 2 209 958 1 305 2 263
------ ------ ---------- ------ ------ ---------- ------ ------ -----------
Operating income. . . . 150 320 470 165 260 425 164 213 377
Other income and
expense - net. . . . 24 (173)* (149) 5 100 105 (79) 141 62
Interest charges - net. 65 156 221 67 158 225 56 147 203
Preferred dividend
requirement of
subsidiaries . . . . 13 25 38 7 27 34 10 25 35
------ ------ ---------- ------ ------ ---------- ------ ------ -----------
Net income (loss) . . . $ 96 $ (34) $ 62 $ 96 $ 175 $ 271 $ 19 $ 182 $ 201
Average common shares
outstanding 1/ 2/. . 56 87 138/144 55 86 136/142 55 82 132/138
Earnings (Loss) per
common share 1/ 2/ . $1.73 $(.39) $.45/.43 $1.75 $2.04 $2.00/1.91 $.35 $2.21 $1.53/1.46
Dividends declared per
common share 1/ 2/ . $1.15 $1.67 1/2 $1.52/1.46 $1.03 $1.65 1/3 $1.46/1.39 $.91 $1.65 1/3 $1.39/1.33
* Reflects write-off of a portion of Wm. H. Zimmer Generating Station ($223 million net of tax).
See Notes to Pro Forma Condensed Consolidated Financial Information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1993
(unaudited)
(in millions)
Historical Pro Forma
Resources CG&E CINergy
--------- ------ ---------
ASSETS
<S> <C> <C> <C>
Utility plant - original cost
In service. . . . . . . . . . . . . . . . . . . . . . . $3 449 $5 188 $8 637
Accumulated depreciation. . . . . . . . . . . . . . . . 1 456 1 472 2 928
------ ------ ------
1 993 3 716 5 709
Construction work in progress . . . . . . . . . . . . . 244 70 314
------ ------ ------
Total utility plant . . . . . . . . . . . . . . . . 2 237 3 786 6 023
Current assets. . . . . . . . . . . . . . . . . . . . . . 197 606 803
Other assets. . . . . . . . . . . . . . . . . . . . . . . 230 752 982
------ ------ ------
Total assets. . . . . . . . . . . . . . . . . . . . $2 664 $5 144 $7 808
CAPITALIZATION AND LIABILITIES
Common stock 3/ . . . . . . . . . . . . . . . . . . . . . $ 1 $ 749 $ 1
Paid-in capital 3/. . . . . . . . . . . . . . . . . . . . 251 314 1 314
Retained earnings . . . . . . . . . . . . . . . . . . . . 451 456 907
------ ------ ------
Total common stock equity . . . . . . . . . . . . . 703 1 519 2 222
Cumulative preferred stock of subsidiaries. . . . . . . . 188 330 518
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 816 1 829 2 645
------ ------ ------
Total capitalization. . . . . . . . . . . . . . . . 1 707 3 678 5 385
Current liabilities . . . . . . . . . . . . . . . . . . . 567 441 1 008
Deferred income taxes . . . . . . . . . . . . . . . . . . 286 734 1 020
Other liabilities . . . . . . . . . . . . . . . . . . . . 104 291 395
------ ------ ------
Total capitalization and liabilities. . . . . . . . $2 664 $5 144 $7 808
Notes to Pro Forma Condensed Consolidated Financial Information
1/ Outstanding shares of CG&E's common stock have been restated for a 3-for-2 stock split paid in the form of a dividend in
December 1992.
2/ The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of Resources' common
stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock and each share of CG&E's common stock
outstanding into one share of CINergy common stock. The actual Resources conversion ratio may be lower than 1.023 or
higher than .909 depending upon closing sales prices of CG&E's common stock during a period prior to the consummation of
the Mergers. Pro forma dividends declared per common share reflect the historical dividends declared by Resources and
CG&E, divided by the pro forma average number of CINergy common stock shares outstanding.
3/ The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed Consolidated Balance
Sheet are based on the conversion of each share of Resources' common stock outstanding into 1.023 shares of CINergy
common stock ($.01 par value) and each share of CG&E's common stock outstanding into one share of CINergy common stock
($.01 par value). Any Resources conversion ratio lower than 1.023 would result in a reallocation of amounts between
"Common stock" and "Paid-in capital". However, any such reallocation would have no effect on "Total common stock
equity".
4/ Intercompany transactions (including purchased and exchanged power transactions) between Resources and CG&E during the
periods presented were not material and accordingly no pro forma adjustments were made to eliminate such transactions.
5/ Transaction costs, estimated to be approximately $47 million, are being deferred by Resources and CG&E. Resources'
portion of the costs are being deferred for post-Mergers recovery through customers' rates. In a settlement agreement
filed with the Public Utilities Commission of Ohio, CG&E has agreed to, among other things, amortize its portion of
merger-related transaction costs over a period ending by January 1, 1999. CG&E will be permitted to retain all of its
non-fuel savings from the Mergers until 1999.
</TABLE>
<PAGE>
22. Events Subsequent to Date of Report of Independent Public Accountants -
Pending Merger (unaudited)
In connection with the 60-day, FERC-sponsored settlement procedure and the
collaborative process, Resources, Energy, CINergy, the Indiana Utility
Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and
industrial customer representatives reached a global settlement agreement on
merger-related issues. This agreement was filed with the IURC on March 2,
1994, and is expressly conditioned upon approval by the IURC in its entirety
and without any change or condition that is unacceptable to any party. On
March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio
Office of Consumers Counsel reached an agreement substantially similar to the
Indiana agreement. Both settlement agreements were filed with the FERC on
March 4, 1994. Energy expects the FERC settlement judge to forward the
settlements to FERC Commissioners on or about March 21, 1994, beginning what
is normally a 30-day comment period. The Indiana settlement addresses, among
other things, the coordination of state and Federal regulation, the operation
of the combined Energy and CG&E electric utility system, the allocation of
costs and their effect on customer rates, and a retail "hold harmless"
provision that provides that Energy's retail rates will not reflect merger-
related costs to the extent that they are not offset entirely by merger-
related benefits.
IURC hearings on the Indiana settlement were held on March 17, 1994. Energy
has asked the IURC for an order approving the settlement agreement by early
April 1994, which should fall within the expected comment period at the FERC.
CG&E also filed with the FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with the FERC. On March
15, 1994, CG&E filed an application with the KPSC seeking approval of the
indirect acquisition of control of CG&E's Kentucky subsidiary, The Union
Light, Heat and Power Company.
Also included in the filings with the FERC were settlement agreements with
WVPA and the city of Hamilton, Ohio. These agreements resolve issues related
to the transmission of power and operation of Energy's jointly owned
transmission system. Negotiations with other parties at the FERC are
continuing.
Energy and CG&E also filed with the FERC the operating agreement among Energy,
CG&E, and CINergy Services, Inc., a subsidiary of CINergy. The parties to the
Indiana and Ohio FERC settlements have agreed to support or not oppose the
operating agreement, and the settlements are conditioned upon the FERC
approving the filed operating agreement without material change.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Reference is made to pages 5 through 9 of the 1994 Proxy Statement, "Directors
and Nominees", with respect to identification of directors and their current
principal occupations. In addition, reference is made to page 22 of the 1994
Proxy Statement, "Directors' Compensation", regarding compliance with Section
16 of the Securities Exchange Act of 1934.
Executive Officers
The information included in Part I of this report on pages 10 and 11 under the
caption "Executive Officers of the Registrant" is referenced in reliance upon
General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the discussion "Executive Compensation and Other
Transactions" on pages 17 through 27 of the 1994 Proxy Statement with respect
to executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Reference is made to the discussions "Record Date; Votes Required; Voting
Securities; Principal Shareholders" and "Security Ownership of Management" on
pages 2 through 4 of the 1994 Proxy Statement with respect to security
ownership of certain beneficial owners, security ownership of management, and
changes in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the discussion "Directors and Nominees" on pages 5
through 9 of the 1994 Proxy Statement concerning certain relationships and
related transactions.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", page 35 of this report, for an index of the financial
statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
The following reports on Form 8-K or Form 8-K/A were filed during the last
quarter of 1993 and through March 18, 1994:
Date of Report Items Filed
- - - -------------- --------------------------------------------
Form 8-K:
October 27, 1993 Item 5 - Other Events.
(On October 27, 1993, PSI Resources,
Inc., PSI Energy, Inc., IPALCO
Enterprises, Inc., Indianapolis Power
& Light Company, The Cincinnati Gas &
Electric Company, CINergy Corp.,
James E. Rogers, John R. Hodowal, and
Ramon L. Humke entered into an
agreement pursuant to which, among
other things, the parties agreed to
settle certain pending lawsuits and
other issues in connection with
IPALCO Enterprises, Inc.'s attempted
acquisition of PSI Resources, Inc.
and IPALCO Enterprises, Inc.'s
opposition to the merger of PSI
Resources, Inc. and The Cincinnati
Gas & Electric Company to create
CINergy Corp.)
Item 7 - Financial Statements and
Exhibits.
(Text of Agreement dated October 27,
1993, by and among PSI Resources, Inc.,
PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., IPALCO
Enterprises, Inc., Indianapolis Power &
Light Company, James E. Rogers, John R.
Hodowal, and Ramon L. Humke (together
with the exhibits and schedules thereto)
and text of joint press release issued by
PSI Resources, Inc. and The Cincinnati
Gas & Electric Company on October 27,
1993.)
<PAGE>
Date of Report Items Filed
- - - -------------- --------------------------------------------
Form 8-K (continued):
November 2, 1993 Item 5 - Other Events.
(On November 2, 1993, PSI Resources,
Inc. entered into Amendment No. 1 to
the Rights Agreement dated December
11, 1992, between PSI Resources, Inc.
and First Chicago Trust Company of
New York which provides for the
redemption of all Rights outstanding
on the thirtieth day following PSI
Resources, Inc.'s 1997 Annual Meeting
of Shareholders, unless the
shareholders approve continuation of
the Rights Agreement.)
Item 7 - Financial Statements and
Exhibits.
(Amendment No. 1 dated as of November
2, 1993, to the Rights Agreement
dated as of December 11, 1992,
between PSI Resources, Inc. and First
Chicago Trust Company of New York, as
Rights Agent.)
November 19, 1993 Item 7 - Financial Statements and
Exhibits.
(The Cincinnati Gas & Electric
Company's Quarterly Report on Form
10-Q for the quarter ended September
30, 1993.)
January 12, 1994 Item 5 - Other Events.
(On January 12, 1994, the Federal
Energy Regulatory Commission issued
an order withdrawing its prior
conditional approval of PSI
Resources, Inc.'s merger with The
Cincinnati Gas & Electric Company and
initiating a 60-day, FERC-sponsored
settlement procedure.)
Form 8-K/A:
November 26, 1993 Item 7 - Financial Statements and Exhibits.
(Amendment No. 1 filed by The
Cincinnati Gas & Electric Company on
Form 10-K/A dated November 26, 1993,
to The Cincinnati Gas & Electric
Company's Annual Report on Form 10-K
for the year ended December 31, 1992,
and Consent of Independent Public
Accountants.)
(c) Exhibits.
Refer to the page captioned "Exhibits", page 72 of this report, for a listing
of all exhibits included in this report.
<PAGE>
Exhibits
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Securities and Exchange Commission and are
incorporated herein by reference and made a part hereof; and the exhibit
number and file number of the document so filed, and incorporated herein by
reference, are stated in parentheses in the description of such exhibit.
Exhibits not so identified are filed herewith.
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
2-a *Amended and Restated Agreement and Plan of
Reorganization by and among The Cincinnati
Gas & Electric Company, PSI Resources, Inc.,
PSI Energy, Inc., CINergy Corp., an Ohio
corporation, CINergy Corp., a Delaware
corporation, and CINergy Sub, Inc. dated as
of December 11, 1992, as amended and
restated on July 2, 1993 (Exhibit to
Amendment No. 21 to the Schedule 14D-9 filed
by PSI Resources, Inc. on July 2, 1993), as
further amended and restated on September
10, 1993. (Exhibit to PSI Resources, Inc.'s
Form 8-K dated September 27, 1993.)
2-b *Press release issued by The Cincinnati Gas
& Electric Company and PSI Resources, Inc.
dated July 2, 1993, announcing the
restructured merger transaction. (Exhibit
to Amendment No. 21 to Schedule 14D-9 filed
by PSI Resources, Inc. on July 2, 1993.)
2-c *Letter Agreement dated as of August 13,
1993, between PSI Resources, Inc. and The
Cincinnati Gas & Electric Company (with
attachments thereto). (Exhibit to Amendment
No. 32 to the Schedule 14D-9 filed by PSI
Resources, Inc. on August 16, 1993 (PSI
Resources, Inc.'s Schedule 14D-9, Amendment
No. 32).)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
2-d *Press release issued by PSI Resources, Inc.
and The Cincinnati Gas & Electric Company
dated August 16, 1993, announcing that The
Cincinnati Gas & Electric Company, under a
letter agreement, will increase the exchange
ratio of CINergy Corp. common stock for PSI
Resources, Inc. common stock in the proposed
merger to form CINergy Corp., contingent on
PSI Resources, Inc.'s nominees for directors
being elected at PSI Resources, Inc.'s
Annual Shareholders Meeting. (Exhibit to
PSI Resources, Inc.'s Schedule 14D-9,
Amendment No. 32.)
3-a *Amended Articles of Incorporation dated
April 20, 1990, of PSI Resources, Inc.
(Exhibit to PSI Resources, Inc.'s Form 8
dated April 26, 1991.)
3-b *By-laws, as amended January 28, 1993, of
PSI Resources, Inc. (Exhibit to PSI
Resources, Inc.'s 1992 Form 10-K.)
4-a *Rights Agreement dated as of December 11,
1992, by and between PSI Resources, Inc. and
The First Chicago Trust Company of New York,
as Rights Agent (Exhibit to PSI Resources,
Inc.'s Form 8-K dated December 11, 1992.)
4-b *Amendment No. 1 dated as of November 2,
1993, to the Rights Agreement dated as of
December 11, 1992, between PSI Resources,
Inc. and The First Chicago Trust Company of
New York, as Rights Agent. (Exhibit to PSI
Resources, Inc.'s Form 8-K dated November 2,
1993.)
10-a *Post-effective Amendment No. 1-A on Form S-
8 to Form S-4 dated June 15, 1988. (Exhibit
to PSI Resources, Inc.'s, formerly PSI
Holdings, Inc., 1988 Form 10-K.)
10-b *Post-effective Amendment No. 1-B on Form S-
8 to Form S-4 dated June 15, 1988. (Exhibit
to PSI Resources, Inc.'s 1988 Form 10-K.)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
10-c *+PSI Resources, Inc. 1989 Stock Option
Plan, amended and restated July 30, 1991,
retroactively effective July 1, 1991.
(Exhibit to PSI Resources, Inc.'s 1991 Form
10-K.)
10-d *PSI Resources, Inc. Employee Stock Purchase
and Savings Plan, amended and restated July
30, 1991, retroactively effective July 1,
1991. (Exhibit to PSI Resources, Inc.'s
1991 Form 10-K.)
10-e *+PSI Resources, Inc. Directors' Deferred
Compensation Plan, amended and restated
January 30, 1992, effective September 1,
1992. (Exhibit to PSI Resources, Inc.'s
1992 Form 10-K.)
10-f +Amendment to PSI Resources, Inc. Directors'
Deferred Compensation Plan dated September
1, 1992.
10-g *+PSI Resources, Inc. Annual Incentive Plan
adopted January 30, 1992, retroactively
dated January 1, 1991. (Exhibit to PSI
Resources, Inc.'s 1992 Form 10-K.)
10-h *+PSI Resources, Inc. Performance Shares
Plan adopted January 30, 1992, retroactively
dated January 1, 1991. (Exhibit to PSI
Resources, Inc.'s 1992 Form 10-K.)
10-i *+Amendment to PSI Resources, Inc. Annual
Incentive Plan dated December 1, 1992.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
10-j *+PSI Resources, Inc. Retirement Plan for
Directors, amended and restated July 31,
1991, retroactively effective July 1, 1991.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
10-k *+Amendment to PSI Resources, Inc.
Retirement Plan for Directors dated December
1, 1992. (Exhibit to PSI Resources, Inc.'s
1992 Form 10-K.)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
10-l *PSI Energy, Inc. Union Employees' 401(k)
Savings Plan, amended and restated December
11, 1991, effective January 1, 1992.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
10-m *PSI Energy, Inc. Employees' 401(k) Savings
Plan, amended and restated December 11,
1991, effective January 1, 1992. (Exhibit
to PSI Resources, Inc.'s 1992 Form 10-K.)
10-n *+Employment Agreement dated May 17, 1990,
among PSI Resources, Inc., PSI Energy, Inc.
and James E. Rogers, Jr. (Exhibit to the
Schedule 14D-9 filed by PSI Resources, Inc.
on April 7, 1993 (the "Resources Schedule
14D-9").)
10-o *+Employment Agreement dated December 11,
1992, among PSI Resources, Inc., PSI Energy,
Inc., The Cincinnati Gas & Electric Company,
CINergy Corp. and James E. Rogers, Jr.
(Exhibit to Form S-4 filed by CINergy Corp.
(Commission File No. 33-59964) on March 23,
1993.)
10-p *+Severance Agreement dated December 11,
1992, among PSI Resources, Inc., PSI Energy,
Inc. and James E. Rogers, Jr. (Exhibit to
PSI Resources, Inc.'s Form 10-K/A, Amendment
No. 1, filed April 29, 1993.)
10-q *+Form of Severance Agreement dated December
11, 1992, among PSI Resources, Inc., PSI
Energy, Inc. and each of Cheryl M. Foley,
Joseph W. Messick, Jr., Jon D. Noland,
J. Wayne Leonard, and Larry E. Thomas.
(Exhibit to PSI Resources, Inc.'s Form
10-K/A, Amendment No. 1, filed April 29,
1993.)
10-r *+Master Trust Agreement for Employees'
Plans (the "Employees' Trust Agreement")
between PSI Resources, Inc. and National
City Bank, Indiana. (Exhibit to the
Resources Schedule 14D-9.)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
10-s *+Master Trust Agreement for Directors'
Plans (the "Directors' Trust Agreement")
between PSI Resources, Inc. and National
City Bank, Indiana. (Exhibit to the
Resources Schedule 14D-9.)
10-t *+Amendment No. 1 to each of the Employees'
Trust Agreement and the Directors' Trust
Agreement. (Exhibit to the Resources
Schedule 14D-9.)
10-u *+Form of Amendment No. 2 to the Employees'
Trust Agreement. (Exhibit to Amendment No.
1 to the Resources Schedule 14D-9 filed
April 23, 1993.)
10-v *Employment Agreement dated October 4, 1993,
among PSI Resources, Inc., PSI Energy, Inc.,
and John M. Mutz. (Exhibit to PSI
Resources, Inc.'s September 30, 1993, Form
10-Q.)
10-w *Text of Settlement Agreement dated October
27, 1993, by and among PSI Resources, Inc.,
PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., IPALCO
Enterprises, Inc., Indianapolis Power &
Light Company, James E. Rogers, John R.
Hodowal, and Ramon L. Humke (together with
the exhibits and schedules thereto).
(Exhibit to PSI Resources, Inc.'s Form 8-K
dated October 27, 1993.)
10-x +Amendment to PSI Resources, Inc. Annual
Incentive Plan dated July 2, 1993.
10-y +Amendment to PSI Resources, Inc. Retirement
Plan for Directors dated July 2, 1993.
10-z +Amendment No. 2 to the Directors' Trust
Agreement.
10-aa +Amendment No. 3 to the Employees' Trust
Agreement.
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
10-bb +Amendment to PSI Resources, Inc. Retirement
Plan for Directors adopted December 15,
1993, retroactively dated February 1, 1990.
10-cc +Amendment No. 3 to the Directors' Trust
Agreement.
10-dd +Amendment No. 4 to the Employees' Trust
Agreement.
21 Subsidiaries of PSI Resources, Inc.
23 Consent of Independent Public Accountants.
24 Power of Attorney.
99-a *Complaint of Lydia Grady, as Plaintiff, and
PSI Resources, Inc. et al., as Defendants
dated March 17, 1993. Superior Court No. 1
of Hendricks County in the State of Indiana.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
99-b *Complaint of Moise Katz, as Plaintiff, and
PSI Resources, Inc. et al., as Defendants
dated March 16, 1993. Superior Court No. 2
of Hendricks County in the State of Indiana.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
99-c *Complaint of J. E. and Z. B. Butler
Foundation, as Plaintiff, and PSI Resources,
Inc., et al., as Defendants dated March 17,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
99-d *Amended Complaint of J. E. and Z. B. Butler
Foundation, as Plaintiff, and PSI Resources,
Inc., et al., as Defendants dated March 23,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to PSI Resources, Inc.'s 1992 Form
10-K.)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
99-e *Class Action Complaint of Lamont Carpenter,
individually, and on behalf of all others
situated, as Plaintiffs, and PSI Resources,
Inc., et al., as Defendants dated March 26,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to the Resources Schedule 14D-9.)
99-f *Complaint of Ronald Gaudiano and Gladys
Post, as Plaintiffs, and PSI Resources,
Inc., et al., as Defendants dated March 26,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to the Resources Schedule 14D-9.)
99-g *Stipulated Order of Consolidation and
Appointment of Co-Lead Counsel and Liaison
Counsel, dated April 13, 1993, in the case
entitled Lydia Grady v. PSI Resources, Inc.
et al., (Case No. IP-93-345-C), U.S.
District Court for the Southern District of
Indiana. (Exhibit to Amendment No. 1 to
Schedule 14D-9 filed by PSI Resources, Inc.
on April 23, 1993.)
99-h *Order of Dismissal dated July 1, 1993,
issued in Katz v. PSI Resources, Inc., et
al., (Case No. 32D02-9303-CP-27) Superior
Court for Hendricks County in the State of
Indiana. (Exhibit to Amendment No. 22 to
the Schedule 14D-9 filed by PSI Resources,
Inc. on July 6, 1993.)
99-i *Order entered on July 19, 1993, in Katz v.
PSI Resources, Inc., et al., (Case No.
32D02-9303-CP-27), Superior Court for
Hendricks County in the State of Indiana.
(Exhibit to Amendment No. 26 to the Schedule
14D-9 filed by PSI Resources, Inc. on July
23, 1993.)
<PAGE>
Exhibit
Designation Nature of Exhibit
- - - ----------- -------------------------------------------------
99-j *Text of an Order Granting Preliminary
Injunction dated August 5, 1993, in In re:
PSI Merger Shareholder Litigation,
(Consolidated Master File No. IP 93-345-C),
U.S. District Court for the Southern
District of Indiana, Indianapolis Division;
Entry Regarding Motion for Preliminary
Injunction in the foregoing case. (Exhibit
to Amendment No. 29 to the Schedule 14D-9
filed by PSI Resources, Inc. on August 6,
1993.)
99-k *Third amended complaint of Moise Katz, as
Plaintiff, and PSI Resources, Inc., et al.,
as Defendants dated August 18, 1993.
Superior Court No. 2 of Hendricks County in
the State of Indiana. (Exhibit to PSI
Resources, Inc.'s September 30, 1993, Form
10-Q.)
99-l *Press release issued by PSI Resources, Inc.
and The Cincinnati Gas & Electric Company
announcing that PSI Resources, Inc., The
Cincinnati Gas & Electric Company, and
IPALCO Enterprises, Inc. had reached a
settlement agreement. (Exhibit to PSI
Resources, Inc.'s Form 8-K dated October 27,
1993.)
- - - -------------------------
+ Management contract, compensation plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E Col. F
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 520 298 $181 957 $27 048 $ 775 $1 675 982
Hydro 20 578 129 24 - 20 683
Other 17 824 50 440 1 023 - 67 241
Transmission 509 881 26 954 613 (442) 535 780
Distribution 920 229 75 645 10 288 442 986 028
General 151 020 14 017 1 617 (7) 163 413
---------- -------- ------- ----- ----------
Total electric utility plant
in service 3 139 830 349 142 40 613 768 3 449 127
Construction work in progress 232 105 11 697 - - 243 802
---------- -------- ------- ----- ----------
Total electric utility plant $3 371 935 $360 839 $40 613 $ 768 $3 692 929
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 44.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E Col. F
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 458 516 $ 69 333 $ 7 534 $ (17) $1 520 298
Hydro 20 261 406 89 - 20 578
Other 17 713 123 12 - 17 824
Transmission 491 111 19 858 1 917 829 509 881
Distribution 855 652 76 780 12 057 (146) 920 229
General 125 856 26 056 895 3 151 020
---------- -------- ------- ----- ----------
Total electric utility plant
in service 2 969 109 192 556 22 504 669 3 139 830
Construction work in progress 135 468 96 637 - - 232 105
---------- -------- ------- ----- ----------
Total electric utility plant $3 104 577 $289 193 $22 504 $ 669 $3 371 935
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 44.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E Col. F
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
- - - --------------------------------- ---------- --------- -------------- --------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 431 056 $ 40 537 $13 089 $ 12 $1 458 516
Hydro 20 129 221 89 - 20 261
Other 17 715 2 4 - 17 713
Transmission 469 357 24 360 2 463 (143) 491 111
Distribution 801 613 65 799 11 888 128 855 652
General 111 796 15 689 1 615 (14) 125 856
---------- -------- ------- ----- ----------
Total electric utility plant
in service 2 851 666 146 608 29 148 (17) 2 969 109
Construction work in progress 113 271 22 197 - - 135 468
---------- -------- ------- ----- ----------
Total electric utility plant $2 964 937 $168 805 $29 148 $ (17) $3 104 577
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 44.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
- - - ---------------------- ---------- ------------------------------ ----------------------------------- -----------
Additions Deductions
------------------------------ -----------------------------------
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
- - - ---------------------- ---------- ------------- -------------- ---------------- ------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 805 679 $ 72 027 $347 $27 048 $ 5 986 $(243) $ 845 262
Hydro 10 915 472 - 24 (27) - 11 390
Other 17 762 1 220 - 1 023 - - 17 959
Transmission 195 603 11 720 - 613 636 (262) 206 336
Distribution 307 465 33 457 - 10 288 4 217 263 326 154
General 43 018 7 925 45 1 617 642 (41) 48 770
---------- -------- ---- ------- ------- ----- ----------
Total electric
utility plant
in service $1 380 442 $126 821 $392 $40 613 $11 454 $(283) $1 455 871
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
- - - ---------------------- ---------- ------------------------------ ----------------------------------- -----------
Additions Deductions
------------------------------ -----------------------------------
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
- - - ---------------------- ---------- ------------- -------------- ---------------- ------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 751 773 $ 66 804 $347 $ 7 534 $5 728 $ (17) $ 805 679
Hydro 10 595 466 - 89 57 - 10 915
Other 17 413 362 - 12 1 - 17 762
Transmission 186 679 11 170 - 1 917 130 (40) 195 842
Distribution 292 012 31 033 - 12 057 3 684 (161) 307 465
General 36 319 7 257 50 895 (52) 4 42 779
---------- -------- ---- ------- ------ ----- ----------
Total electric
utility plant
in service $1 294 791 $117 092 $397 $22 504 $9 548 $(214) $1 380 442
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E
- - - ---------------------- ---------- ------------------------------ ----------------------------------- -----------
Additions Deductions
------------------------------ -----------------------------------
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
- - - ---------------------- ---------- ------------- -------------- ---------------- ------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 701 304 $ 64 935 $347 $13 089 $1 725 $ (1) $ 751 773
Hydro 10 229 463 - 89 8 - 10 595
Other 17 062 361 - 4 6 - 17 413
Transmission 179 371 10 723 - 2 463 1 007 (55) 186 679
Distribution 278 817 29 119 - 11 888 3 977 59 292 012
General 31 857 5 827 53 1 615 (193) (4) 36 319
---------- -------- ---- ------- ------ ---- ----------
Total electric
utility plant
in service $1 218 640 $111 428 $400 $29 148 $6 530 $ (1) $1 294 791
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
- - - ----------------------------------------- ---------- ---------------------- ---------------------- ----------
Additions Deductions
---------------------- ----------------------
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
- - - ----------------------------------------- ---------- ---------- -------- ------------- ----- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 76 537 $ 4 459 $ - $ 2 167 $ - $ 78 829 1/
Loss on generating station repair parts 7 493 554 - 2 356 - 5 691
Obsolete and/or excess materials 1 351 - - - 190 1 161
Deferred Income Taxes 2/ $187 771 $110 108 $20 818 $33 030 $ - $285 667
Other Accumulated Provisions
Injuries and damages $ 4 134 $ 2 529 $ - $ 3 559 $ - $ 3 104
Guaranteed death benefits applicable to
retired employees 4 828 188 - 160 94 4 762
Comprehensive health care for
active and retired employees and
their dependents 3 362 4 405 14 153 4 901 - 17 019
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 1 128 301 - 1 413 - 16
Long-term disability 186 17 5 - - 208
Executive supplemental life insurance 1 223 193 129 135 - 1 410
Voluntary Work Force Reduction Plan
supplemental benefit 4 570 292 92 770 - 4 184
Supplemental Pension Plans 1 803 532 426 517 - 2 244
Retirement Plan for Directors 823 233 - 37 18 1 001
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 225 45 - 45 - 225
-------- -------- ------- ------- ---- --------
Total other accumulated provisions $ 25 179 $ 8 735 $14 805 $11 537 $112 $ 37 070
Notes: 1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 45.
2/ See Notes 1(d) and 15 of the "Notes to Consolidated Financial Statements" on pages 45 and 58,
respectively, for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
- - - ----------------------------------------- ---------- ---------------------- ---------------------- ----------
Additions Deductions
---------------------- ----------------------
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
- - - ----------------------------------------- ---------- ---------- -------- ------------- ----- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 73 994 $ 4 644 $ - $ 2 101 $ - $ 76 537 1/
Loss on generating station repair parts 7 339 872 - 718 - 7 493
Obsolete and/or excess materials 1 135 76 140 - - 1 351
Deferred Income Taxes 2/ $174 436 $38 647 $ - $25 289 $ 23 $187 771
Other Accumulated Provisions
Injuries and damages $ 3 243 $ 3 912 $ - $ 3 021 $ - $ 4 134
Guaranteed death benefits applicable to
retired employees 4 677 224 56 129 - 4 828
Comprehensive health care for
active and retired employees and
their dependents 3 852 65 16 - 571 3 362
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 875 253 - - - 1 128
Long-term disability 93 74 19 - - 186
Executive supplemental life insurance 1 139 190 47 95 58 1 223
Voluntary Work Force Reduction Plan
supplemental benefit 5 050 296 74 850 - 4 570
Supplemental Pension Plans 1 677 400 133 407 - 1 803
Retirement Plan for Directors 742 224 - 37 106 823
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 225 38 - 38 - 225
-------- ------- ---- ------- ---- --------
Total other accumulated provisions $ 24 470 $ 5 676 $345 $ 4 577 $735 $ 25 179
Notes: 1/ Includes $75,838 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 45.
2/ See Notes 1(d) and 15 of the "Notes to Consolidated Financial Statements" on pages 45 and 58, respectively,
for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI RESOURCES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E
- - - ----------------------------------------- ---------- ---------------------- ---------------------- ----------
Additions Deductions
---------------------- ----------------------
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
- - - ----------------------------------------- ---------- ---------- -------- ------------- ----- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 71 107 $ 5 346 $ - $ 2 459 $ - $ 73 994 1/
Loss on generating station repair parts 6 894 445 - - - 7 339
Obsolete and/or excess materials 550 205 380 - - 1 135
Deferred Income Taxes 2/ $201 114 $48 059 $ 36 $74 773 $ - $174 436
Other Accumulated Provisions
Injuries and damages $ 3 222 $ 1 861 $ - $ 1 840 $ - $ 3 243
Guaranteed death benefits applicable to
retired employees 4 637 170 30 160 - 4 677
Comprehensive health care for
active and retired employees and
their dependents 3 875 271 48 - 342 3 852
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 811 224 - 160 - 875
Long-term disability 170 - - 77 - 93
Executive supplemental life insurance 994 182 55 92 - 1 139
Voluntary Work Force Reduction Plan
supplemental benefit 5 343 544 96 933 - 5 050
Supplemental Pension Plans 1 695 278 68 218 146 1 677
Retirement Plan for Directors 533 203 26 20 - 742
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 200 25 - - - 225
-------- ------- ---- ------- ---- --------
Total other accumulated provisions $ 24 377 $ 3 758 $323 $ 3 500 $488 $ 24 470
Notes: 1/ Includes $73,414 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 45.
2/ See Notes 1(d) and 15 of the "Notes to Consolidated Financial Statements" on pages 45 and 58, respectively,
for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PSI RESOURCES, INC.
-----------------------------
Registrant
Dated: March 18, 1994
By /s/ James E. Rogers
-----------------------------
(James E. Rogers) Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- - - ------------------------- ------- ----
James K. Baker Director
Hugh A. Barker Director
Michael G. Browning Director
Kenneth M. Duberstein Director
John A. Hillenbrand, II Director
John M. Mutz President & Director
Melvin Perelman, Ph.D. Director
Van P. Smith Director
Robert L. Thompson, Ph.D Director
/s/ J. Wayne Leonard Senior Vice President March 18, 1994
- - - ------------------------ and Director
(J. Wayne Leonard) (Principal Financial Officer)
Attorney-in-fact for all
the foregoing persons
/s/ James E. Rogers Chairman and Director March 18, 1994
- - - ------------------------ (Principal Executive Officer)
(James E. Rogers)
/s/ Charles J. Winger Comptroller March 18, 1994
- - - ------------------------ (Principal Accounting Officer)
(Charles J. Winger)
