UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its
company specific information with the reduced disclosure format.
As of April 30, 1998, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 157,764,020
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 6
Consolidated Statements of Income . . . . . . . . . . 8
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows . . . . . . . . 11
Results of Operations . . . . . . . . . . . . . . . . 12
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 20
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows . . . . . . . . 23
Results of Operations . . . . . . . . . . . . . . . . 24
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . . 28
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Cash Flows . . . . . . . . 31
Results of Operations . . . . . . . . . . . . . . . . 32
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 35
Statements of Income. . . . . . . . . . . . . . . . . 37
Statements of Cash Flows. . . . . . . . . . . . . . . 38
Results of Operations . . . . . . . . . . . . . . . . 39
Notes to Financial Statements . . . . . . . . . . . . . 41
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 46
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 49
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 49
4 Submission of Matters to a Vote of Security Holders . . 49
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 50
Signature . . . . . . . . . . . . . . . . . . . . . . . 52
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1997 Form Combined 1997 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CFC National Rural Utilities Cooperative Finance Corporation
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
Cinergy or Cinergy Corp.
Company
Cinergy UK Cinergy UK, Inc., formerly M.E. Holdings, Inc., (a
subsidiary of Cinergy Investments, Inc.) which holds
Cinergy's 50% investment in Avon Energy
Committed Lines Unsecured lines of credit
December 1996 A PUCO order issued in December 1996 on CG&E's gas rate
Order proceeding
December 1996 An Indiana Utility Regulatory Commission order issued in
DSM Order December 1996 on PSI's DSM proceeding
DSM Demand-side management
Enertech Enertech Associates, Inc., formerly named Power
International, Inc. (a subsidiary of Cinergy
Investments, Inc.)
EPA United States Environmental Protection Agency
EPS Earnings per share
February 1995 An Indiana Utility Regulatory Commission order issued in
Order February 1995
HB 443 Customer choice bill introduced by the House Chairman of
the Tourism, Development and Energy Committee in Kentucky
HJR House Joint Resolution, which calls for an executive task
force to study electricity restructuring in Kentucky
kwh Kilowatt-hour
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IRS Internal Revenue Service
Mcf Thousand cubic feet
MGP Manufactured gas plant
Midlands Midlands Electricity plc
NIPSCO Northern Indiana Public Service Company
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
RUS Rural Utilities Service
September 1996 An Indiana Utility Regulatory Commission order issued in
Order September 1996 on PSI's retail rate proceeding
Statement 130 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
Uncommitted Short-term borrowings with various banks arranged on an
Lines "as offered" basis
WVPA Wabash Valley Power Association, Inc.
Zimmer CG&E's William H. Zimmer Generating Station
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $9,014,797 $8,981,182
Gas 753,311 746,903
Common 186,631 186,078
---------- ----------
9,954,739 9,914,163
Accumulated depreciation 3,860,682 3,800,322
---------- ----------
6,094,057 6,113,841
Construction work in progress 194,042 183,262
---------- ----------
Total utility plant 6,288,099 6,297,103
Current Assets
Cash and temporary cash investments 58,731 53,310
Restricted deposits 2,348 2,319
Accounts receivable less accumulated provision for
doubtful accounts of $10,349 at March 31, 1998,
and $10,382 at December 31, 1997 519,396 413,626
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 68,292 57,916
Gas stored for current use 12,232 29,174
Other materials and supplies 77,972 76,066
Prepayments and other 47,291 38,171
---------- ----------
786,262 670,582
Other Assets
Regulatory assets
Amounts due from customers - income taxes 383,314 374,456
Post-in-service carrying costs and deferred
operating expenses 176,531 178,504
Coal contract buyout costs 117,964 122,485
Deferred demand-side management costs 101,958 109,596
Deferred merger costs 89,015 90,346
Phase-in deferred return and depreciation 85,960 89,689
Unamortized costs of reacquiring debt 65,941 66,242
Other 46,592 45,533
Investments in unconsolidated subsidiaries 580,269 537,720
Other 274,092 275,897
---------- ----------
1,921,636 1,890,468
$8,995,997 $8,858,153
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
<PAGE>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding
shares - 157,764,020 at March 31, 1998,
and 157,744,658 at December 31, 1997 $ 1,578 $ 1,577
Paid-in capital 1,574,080 1,573,064
Retained earnings 1,002,495 967,420
Accumulated other comprehensive income (3,279) (2,861)
---------- ----------
Total common stock equity 2,574,874 2,539,200
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,752 177,989
Long-term Debt 2,032,156 2,150,902
---------- ----------
Total capitalization 4,699,782 4,868,091
Current Liabilities
Long-term debt due within one year 145,000 85,000
Notes payable and other short-term obligations 1,222,795 1,114,028
Accounts payable 558,021 488,716
Accrued taxes 218,251 187,033
Accrued interest 40,342 46,622
Other 98,740 79,193
---------- ----------
2,283,149 2,000,592
Other Liabilities
Deferred income taxes 1,233,505 1,248,543
Unamortized investment tax credits 163,850 166,262
Accrued pension and other postretirement
benefit costs 307,373 297,142
Other 308,338 277,523
---------- ----------
2,013,066 1,989,470
$8,995,997 $8,858,153
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Twelve Months Ended
March 31 March 31
1998 1997 1998 1997
(in thousands, except per share amounts)
Operating Revenues
Electric $1,158,724 $ 817,914 $4,202,508 $2,901,780
Gas 173,061 212,266 451,940 487,145
---------- ---------- ---------- ----------
1,331,785 1,030,180 4,654,448 3,388,925
Operating Expenses
Fuel used in electric production 180,519 175,746 698,208 697,544
Gas purchased 96,611 123,968 238,801 279,859
Purchased and exchanged power 471,885 160,592 1,530,651 291,809
Other operation 163,028 163,412 637,561 615,712
Maintenance 39,066 45,854 169,683 196,120
Depreciation 73,305 71,556 290,826 284,124
Amortization of phase-in deferrals 5,539 3,371 15,651 13,569
Amortization of post-in-service
deferred operating expenses - net 1,091 1,091 4,362 425
Income taxes 70,791 63,919 255,809 208,205
Taxes other than income taxes 69,649 68,372 266,301 260,450
---------- ---------- ---------- ----------
1,171,484 877,881 4,107,853 2,847,817
Operating Income 160,301 152,299 546,595 541,108
Other Income and Expenses - Net
Allowance for equity funds used
during construction 21 191 (72) 1,065
Post-in-service carrying costs - - - 880
Phase-in deferred return 1,811 2,002 7,817 8,281
Equity in earnings of unconsolidated subsidiaries 11,854 26,500 45,746 51,930
Income taxes 13,342 791 48,488 17,109
Other - net (19,031) (2,627) (47,906) (35,415)
---------- ---------- ---------- ----------
7,997 26,857 54,073 43,850
Income Before Interest and Other Charges 168,298 179,156 600,668 584,958
Interest and Other Charges
Interest on long-term debt 43,758 49,275 176,255 190,757
Other interest 17,994 13,867 64,074 42,165
Allowance for borrowed funds
used during construction (1,947) (1,342) (6,005) (6,387)
Preferred dividend requirements of subsidiaries 2,422 3,239 11,752 19,650
---------- ---------- ---------- ----------
62,227 65,039 246,076 246,185
Net Income Before Extraordinary Item $ 106,071 $ 114,117 $ 354,592 $ 338,773
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less
Applicable Income Taxes of $0) - - (109,400) -
---------- ---------- ---------- ----------
Net Income $ 106,071 $ 114,117 $ 245,192 $ 338,773
Average Common Shares Outstanding 157,764 157,679 157,706 157,679
Earnings Per Common Share (Note 9)
Net income before extraordinary item $.67 $.72 $2.24 $2.02
Net income $.67 $.72 $1.55 $2.02
Earnings Per Common Share - Assuming Dilution (Note 9)
Net income before extraordinary item $.67 $.72 $2.23 $2.01
Net income $.67 $.72 $1.54 $2.01
Dividends Declared Per Common Share $.45 $.45 $1.80 $1.76
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Income Income Equity
Quarter Ended March 31, 1998
Balance January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 106,071 $106,071 106,071
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (367) (367)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive income
total (418) (418)
--------
Comprehensive income total $105,653
Issuance of 19,362 shares of
common stock - net 1 289 290
Treasury shares purchased (1) (1,430) (1,431)
Treasury shares reissued 1 2,149 2,150
Dividends on common stock (see
page 8 for per share amounts) (70,994) (70,994)
Other 8 (2) 6
------ ---------- ---------- ------- ----------
Balance March 31, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874
Quarter Ended March 31, 1997
Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454
Comprehensive income
Net income 114,117 $114,117 114,117
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (1,035) (1,035)
--------
Other comprehensive income
total (1,035) (1,035)
--------
Comprehensive income total $113,082
========
Treasury shares purchased (7) (31,947) (31,954)
Treasury shares reissued 7 21,134 21,141
Dividends on common stock (see
page 8 for per share amounts) (71,000) (71,000)
Other 12 12
------ ---------- ---------- ------- ----------
Balance March 31, 1997 $1,577 $1,579,934 $1,036,643 $(2,419) $2,615,735
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Income Income Equity
Twelve Months Ended March 31, 1998
Balance April 1, 1997 $1,577 $1,579,934 $1,036,643 $(2,419) $2,615,735
Comprehensive income
Net income 245,192 $245,192 245,192
Other comprehensive income,
net of tax
Foreign currency translation
adjustment 273 273
Minimum pension liability
adjustment (1,133) (1,133)
--------
Other comprehensive income
total (860) (860)
--------
Comprehensive income total $244,332
Issuance of 84,891 shares of
common stock - net 1 2,355 2,356
Treasury shares purchased (5) (15,682) (15,687)
Treasury shares reissued 5 7,744 7,749
Dividends on common stock (see
page 8 for per share amounts) (283,860) (283,860)
Other (271) 4,520 4,249
------ ---------- ---------- ------- ----------
Balance March 31, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874
Twelve Months Ended March 31, 1997
Balance at April 1, 1996 $1,577 $1,595,435 $ 993,632 $(1,074) $2,589,570
Comprehensive income
Net income 338,773 $338,773 338,773
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (1,166) (1,166)
Minimum pension liability
adjustment (179) (179)
--------
Other comprehensive income
total (1,345) (1,345)
--------
Comprehensive income total $337,428
========
Treasury shares purchased (10) (40,717) (40,727)
Treasury shares reissued 10 25,548 25,558
Costs of reacquisition of
preferred stock of subsidiary (18,391) (18,391)
Dividends on common stock (see
page 8 for per share amounts) (277,559) (277,559)
Other (332) 188 (144)
------ ---------- ---------- ------- ----------
Balance March 31, 1997 $1,577 $1,579,934 $1,036,643 $(2,419) $2,615,735
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C> <C> <C>
Year to Date Twelve Months Ended
March 31 March 31
1998 1997 1998 1997
(in thousands)
Operating Activities
Net income $106,071 $114,117 $245,192 $338,773
Items providing or (using) cash:
Depreciation 73,305 71,556 290,826 284,124
Deferred income taxes and investment tax
credits - net (12,955) (6,889) 61,572 24,045
Equity in earnings of unconsolidated subsidiaries (11,854) (26,500) (20,593) (51,930)
Extraordinary item - equity share of windfall
profits tax - - 109,400 -
Allowance for equity funds used during
construction (21) (191) 72 (1,065)
Regulatory assets - net 20,915 21,599 70,626 41,922
Changes in current assets and current
liabilities
Restricted deposits (29) (2) (625) (336)
Accounts receivable, net of reserves on
receivables sold (106,525) (8,498) (315,184) (19,527)
Materials, supplies, and fuel 4,660 30,699 (4,222) 45,535
Accounts payable 69,305 (60,734) 313,335 (36,128)
Litigation settlement - - - (80,000)
Accrued taxes and interest 24,938 52,412 (48,888) 29,121
Other items - net 25,596 (21,239) 79,010 68,573
-------- -------- -------- --------
Net cash provided by operating activities 193,406 166,330 780,521 643,107
Financing Activities
Issuance of common stock 290 - 2,356 -
Issuance of long-term debt 98,901 - 198,963 150,217
Retirement of preferred stock of subsidiaries (85,229) (25) (101,473) (212,507)
Redemption of long-term debt (160,291) (61,880) (434,723) (148,774)
Change in short-term debt 108,767 26,560 274,018 668,477
Dividends on common stock (70,802) (71,000) (283,668) (277,559)
-------- -------- -------- --------
Net cash (used in) or provided by
financing activities (108,364) (106,345) (344,527) 179,854
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (66,348) (58,909) (335,494) (332,162)
Deferred demand-side management costs (3,615) (5,109) (18,373) (39,718)
Investments in unconsolidated subsidiaries (9,658) - (38,690) (503,349)
-------- -------- -------- --------
Net cash used in investing activities (79,621) (64,018) (392,557) (875,229)
Net increase (decrease) in cash and
temporary cash investments 5,421 (4,033) 43,437 (52,268)
Cash and temporary cash investments at
beginning of period 53,310 19,327 15,294 67,562
-------- -------- -------- --------
Cash and temporary cash investments at
end of period $ 58,731 $ 15,294 $ 58,731 $ 15,294
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter and twelve months ended March 31, 1998. For information
concerning the results of operations for each of the other registrants for the
same quarter, see the discussion under the heading "Results of Operations"
following the financial statements of each such registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations, for the
quarter ended March 31, 1998, led to higher non-firm power sales for resale and
significantly contributed to the increase in total kwh sales of 72%, as compared
to the same period of 1997. An increase in retail sales, which reflects higher
industrial sales and an increased average number of residential and commercial
customers, was partially offset by a decline in residential sales as a result of
milder weather during the first quarter of 1998 as compared to the first quarter
of 1997. Increased industrial sales primarily reflected growth in the primary
metals sector.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first quarter of 1998 decreased
7.3%, as compared to the same period in 1997. Decreased residential and
commercial sales, reflecting the milder weather during the first quarter of
1998, were slightly offset by an increase in the average number of customers.
Higher gas transportation volumes reflect the continued trend of customers
purchasing gas directly from suppliers, using transportation services provided
by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended March 31, 1998, increased $341
million (42%), as compared to the same period last year, primarily as a result
of the increased kwh sales as previously discussed. The operation of CG&E's fuel
adjustment clauses, reflecting a higher average cost of fuel used in electric
production, also contributed to the increase.
An analysis of electric operating revenues is shown below:
Quarter
Ended March 31
(in millions)
Electric operating revenues - March 31, 1997 $818
Increase (Decrease) due to change in:
Price per kwh
Retail 15
Sales for resale
Firm power obligations (1)
Non-firm power transactions (26)
Total change in price per kwh (12)
Kwh sales
Retail 7
Sales for resale
Non-firm power transactions 343
Total change in kwh sales 350
Other 3
Electric operating revenues - March 31, 1998 $1 159
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. (See the "Mcf Sales and
Transportation" section.) Since providing transportation services does not
necessitate recovery of the cost of gas purchased, the revenue per Mcf
transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.
Gas operating revenues decreased $39 million (18%) in the first quarter of 1998,
when compared to the same period last year. The decrease in gas operating
revenues is primarily attributable to lower residential and commercial sales due
to the milder weather during the first quarter of 1998. An increase in the
relative volume of gas transported to gas sold, as previously discussed, also
contributed to the decrease.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $5 million (3%) for the quarter ended March 31,
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter
Ended March 31
(in millions)
Fuel expense - March 31, 1997 $176
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost 9
Kwh generation 2
----
Fuel expense - March 31, 1998 $181
Gas Purchased
Gas purchased for the quarter ended March 31, 1998, decreased $27 million (22%),
when compared to the same period last year, reflecting a lower average cost per
Mcf purchased and a decline in the volumes of gas purchased primarily due to the
milder weather during the first quarter of 1998.
Purchased and Exchanged Power
Purchased and exchanged power increased $311 million for the quarter ended March
31, 1998, when compared to the same period last year, primarily reflecting
increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations.
Maintenance
For the three months ended March 31, 1998, maintenance costs decreased $7
million (15%), when compared to the three months ended March 31, 1997. This
decrease is partially due to a decline in maintenance activities associated with
postponed outages at certain of CG&E's electric production facilities. Decreased
maintenance costs, associated with CG&E's electric distribution facilities, also
contributed to the lower level of expenses for the current quarter.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $15 million decrease in equity in earnings of unconsolidated subsidiaries
for the first three months of 1998, as compared to the same period of 1997, is
primarily attributable to the decrease in earnings of Midlands, which is due to
milder weather conditions and a penalty imposed on each electric distribution
company due to the delay in opening up the electricity supply business to
competition.
Other - net
The change in other - net of $16 million for the three months ended March 31,
1998, from the same period of 1997, is primarily due to a litigation settlement
(see Note 6 of the "Notes to Financial Statements" in "Part I. Financial
Information"), an increase in expenses related to Cinergy Global Power, Inc.,
which was acquired in September 1997, and an adjustment recorded in the first
quarter of 1997 related to a 1996 sale of a foreign subsidiary.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $6 million (11%) for the quarter ended
March 31, 1998, as compared to the same period last year, primarily due to the
net redemption of approximately $250 million of long-term debt by CG&E and PSI
during the period from February 1997 through March 1998.
Other Interest
Other interest increased $4 million (30%) for the first quarter of 1998, as
compared to the same period last year, primarily due to higher levels of
short-term borrowings, the recognition of a full quarter of interest on the
currency swap program, which was initiated in mid-February 1997, and an increase
in short-term interest rates during 1998 over 1997. The remainder of the
increase is attributable to interest resulting from an IRS audit of the 1989 and
1990 tax years.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 86% for the twelve months ended March 31, 1998,
as compared to the same period for 1997. An increase in retail sales, which
reflects higher industrial sales and an increase in the average number of
residential and commercial customers, was partially offset by a decline in
residential sales as a result of the milder weather experienced for the twelve
months ended March 31, 1998, as compared to the same period last year. Increased
industrial sales primarily reflected growth in the primary metals sector.
Mcf Sales and Transportation
Mcf gas sales for the twelve months ended March 31, 1998, decreased 9.5% while
transportation volumes increased 12.4%, as compared to the same period in 1997.
The decrease in Mcf sales is due, in part, to the milder weather during the
twelve month period ended March 31, 1998, and was partially offset by increases
in the average number of customers. Higher gas transportation volumes reflect
the continued trend of customers purchasing gas directly from suppliers, using
transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Increased kwh sales, as previously discussed, the effects of PSI's retail rate
increases approved in the September 1996 Order, as amended in August 1997, and
the December 1996 DSM Order significantly contributed to the $1.3 billion (45%)
increase in electric operating revenues for the twelve months ended March 31,
1998, when compared to the same period of 1997. Also contributing to the
increase was the return of approximately $5 million to customers in 1996 in
accordance with an order issued by the IURC in February 1995. The February 1995
Order required all retail operating income above a certain rate of return to be
refunded to customers. The operation of PSI's and CG&E's fuel adjustment
clauses, reflecting a lower average cost of fuel used in electric production,
partially offset these increases.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended March 31
(in millions)
Electric operating revenues - March 31, 1997 $2 902
Increase (Decrease) due to change in:
Price per kwh
Retail 22
Sales for resale
Firm power obligations (13)
Non-firm power transactions 31
Total change in price per kwh 40
Kwh sales
Retail 20
Sales for resale
Firm power obligations 14
Non-firm power transactions 1 220
------
Total change in kwh sales 1 254
Other 7
Electric operating revenues - March 31, 1998 $4 203
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended March 31, 1998."
Gas operating revenues decreased $35 million (7%) for the twelve months ended
March 31, 1998, when compared to the same period last year. This decrease is
primarily attributable to the decline in Mcf sales due to the milder weather. An
increase in the relative volume of gas transported to gas sold, as previously
discussed, also contributed to the decrease.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs for the twelve months ended March 31, 1998, were relatively
constant, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Twelve Months
Ended March 31
(in millions)
Fuel expense - March 31, 1997 $698
Increase (Decrease) due to change in:
Price of fuel 6
Deferred fuel cost (37)
Kwh generation 31
----
Fuel expense - March 31, 1998 $698
Gas Purchased
Gas purchased for the twelve months ended March 31, 1998, decreased $41 million
(15%) when compared to the same period last year. This decrease reflects a lower
average cost per Mcf of gas purchased and a decline in the volumes purchased as
previously discussed.
Purchased and Exchanged Power
Purchased and exchanged power increased $1.2 billion for the twelve months ended
March 31, 1998, when compared to the same period of last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Maintenance
Maintenance costs decreased $26 million (13%) for the twelve months ended March
31, 1998, as compared to the same period last year, partially due to a decline
in maintenance activities associated with postponed outages at certain of CG&E's
and PSI's electric production facilities. Decreased maintenance costs,
associated with electric distribution facilities, also contributed to the lower
level of expenses for the current twelve month period.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Amortization of Post-in-Service Deferred Operating Expenses - Net
Amortization of post-in-service deferred operating expenses - net reflects the
amortization and related recovery in rates of various deferrals of depreciation,
operation and maintenance expenses (exclusive of fuel costs), and property taxes
on certain generating units and other utility plant from the in-service date
until the related plant was reflected in retail rates.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $6 million (12%) decrease in equity in earnings of unconsolidated
subsidiaries for the twelve months ended March 31, 1998, as compared to the same
period of 1997, is primarily attributable to the decrease in earnings of
Midlands, which is due to milder weather conditions and a penalty imposed on
each electric distribution company due to the delay in opening up the
electricity supply business to competition.
Other - net
The change in other - net of $12 million for the twelve months ended March 31,
1998, as compared to the same period last year is primarily due to a litigation
settlement (see Note 6 of the "Notes to Financial Statements" in "Part I.
Financial Information"), a gain in 1996 related to the sale of certain CG&E
assets, and expenses incurred relative to non-regulated entities. These amounts
are partially offset by charges in 1996 associated with the December 1996 Order.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $15 million (8%) for the twelve months
ended March 31, 1998, from the same period of 1997 primarily due to the net
redemption of approximately $170 million of long-term debt by CG&E, PSI, and
ULH&P during the period from May 1996 through March 1998.
Other Interest
Other interest increased $22 million (52%) for the twelve months ended March 31,
1998, as compared to the same period last year, primarily reflecting the
recognition of a full twelve months of interest on the currency swap program,
which was initiated in mid-February 1997, an increase in short-term interest
rates during 1998 over 1997, higher levels of short-term borrowing, a full
twelve months of interest on the borrowings used to fund the purchase of
Midlands, and increased borrowings to fund CG&E's and PSI's redemption of first
mortgage bonds and PSI's redemption of preferred stock.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $8 million
(40%) for the twelve months ended March 31, 1998, from the same period of 1997
is primarily attributable to the September 1996 reacquisition and retirement of
approximately 90% of the outstanding preferred stock of CG&E. Additionally, PSI
redeemed all outstanding shares of its 7.15% Cumulative Preferred Stock and
7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
<S> <C> <C>
Utility Plant - Original Cost
In service
Electric $4,716,835 $4,700,631
Gas 753,311 746,903
Common 186,631 186,078
---------- ----------
5,656,777 5,633,612
Accumulated depreciation 2,047,211 2,008,005
---------- ----------
3,609,566 3,625,607
Construction work in progress 126,145 118,133
---------- ----------
Total utility plant 3,735,711 3,743,740
Current Assets
Cash and temporary cash investments 5,384 2,349
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 14,235 27,193
Accounts receivable less accumulated provision
for doubtful accounts of $9,816 at March 31, 1998,
and $9,199 at December 31, 1997 223,784 193,549
Accounts receivable from affiliated companies 17,523 35,507
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 31,647 29,682
Gas stored for current use 12,232 29,174
Other materials and supplies 50,015 49,111
Prepayments and other 39,982 31,827
---------- ----------
395,975 399,565
Other Assets
Regulatory assets
Amounts due from customers - income taxes 358,286 350,515
Post-in-service carrying costs and deferred
operating expenses 132,967 134,672
Deferred merger costs 16,323 16,557
Deferred demand-side management costs 39,058 38,318
Phase-in deferred return and depreciation 85,960 89,689
Unamortized costs of reacquiring debt 36,912 36,575
Other 4,704 1,439
Other 92,642 103,368
---------- ----------
766,852 771,133
$4,898,538 $4,914,438
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - $8.50 par value;
authorized shares - 120,000,000;
outstanding shares - 89,663,086 at March 31, 1998,
and December 31, 1997 $ 762,136 $ 762,136
Paid-in capital 534,654 534,649
Retained earnings 342,929 314,553
Accumulated other comprehensive income (905) (750)
---------- ----------
Total common stock equity 1,638,814 1,610,588
Cumulative Preferred Stock
Not subject to mandatory redemption 20,779 20,793
Long-term Debt 1,105,476 1,324,432
---------- ----------
Total capitalization 2,765,069 2,955,813
Current Liabilities
Long-term debt due within one year 60,000 -
Notes payable and other short-term obligations 327,000 289,000
Notes payable to affiliated companies 23,410 12,253
Accounts payable 277,923 249,538
Accounts payable to affiliated companies 34,407 10,821
Accrued taxes 144,572 149,129
Accrued interest 25,548 25,430
Other 27,947 29,950
---------- ----------
920,807 766,121
Other Liabilities
Deferred income taxes 814,080 794,396
Unamortized investment tax credits 115,420 116,966
Accrued pension and other postretirement benefit costs 154,208 180,566
Other 128,954 100,576
---------- ----------
1,212,662 1,192,504
$4,898,538 $4,914,438
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended
March 31
1998 1997
(in thousands)
<S> <C> <C>
Operating Revenues
Electric
Non-affiliated companies $574,841 $395,625
Affiliated companies 18,464 6,075
Gas
Non-affiliated companies 173,060 212,266
Affiliated companies 402 1
-------- --------
766,767 613,967
Operating Expenses
Fuel used in electric production 88,063 70,239
Gas purchased 96,588 123,968
Purchased and exchanged power
Non-affiliated companies 229,494 70,862
Affiliated companies 7,614 1,572
Other operation 81,647 79,275
Maintenance 19,758 27,336
Depreciation 41,298 40,404
Amortization of phase-in deferrals 5,539 3,371
Amortization of post-in-service deferred operating expenses 823 823
Income taxes 44,613 43,800
Taxes other than income taxes 54,683 53,514
-------- --------
670,120 515,164
Operating Income 96,647 98,803
Other Income and Expenses - Net
Allowance for equity funds used during
construction 10 119
Phase-in deferred return 1,811 2,002
Income taxes 3,828 3,006
Other - net (4,315) (4,775)
-------- --------
1,334 352
Income Before Interest 97,981 99,155
Interest
Interest on long-term debt 26,052 30,045
Other interest 2,101 1,696
Allowance for borrowed funds used during construction (1,364) (909)
-------- --------
26,789 30,832
Net Income $ 71,192 $ 68,323
Preferred Dividend Requirement 215 219
-------- --------
Net Income Applicable to Common Stock $ 70,977 $ 68,104
Other Comprehensive Income, Net of Tax (155) - _
-------- --------
Comprehensive Income $ 70,822 $ 68,104
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
March 31
1998 1997
(in thousands)
Operating Activities
Net income $ 71,192 $68,323
Items providing or (using) cash:
Depreciation 41,298 40,404
Deferred income taxes and investment tax
credits - net (27) 2,929
Allowance for equity funds used during
construction (10) (119)
Regulatory assets - net 11,214 9,787
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 391 (44,863)
Materials, supplies, and fuel 14,073 27,887
Accounts payable 51,971 (18,922)
Accrued taxes and interest (4,439) (8,207)
Other items - net 9,753 (13,945)
Net cash provided by operating activities 195,416 63,274
Financing Activities
Retirement of preferred stock (9) (24)
Redemption of long-term debt (160,291) (16,180)
Change in short-term debt 49,157 25,982
Dividends on preferred stock (215) (219)
Dividends on common stock (42,600) (42,600)
-------- -------
Net cash used in financing activities (153,958) (33,041)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (36,483) (31,021)
Deferred demand-side management costs (1,940) (1,968)
-------- -------
Net cash used in investing activities (38,423) (32,989)
Net increase (decrease) in cash and
temporary cash investments 3,035 (2,756)
Cash and temporary cash investments at
beginning of period 2,349 5,120
-------- -------
Cash and temporary cash investments at
end of period $ 5,384 $ 2,364
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 80% for the first quarter of 1998, as compared to
the same period of 1997. Milder weather during the first quarter of 1998, as
compared to the same period last year, resulted in decreased residential and
commercial sales. These decreases were partially offset by increased industrial
sales, reflecting, in part, growth in the primary metals sector. Nonsystem kwh
sales (and related revenues and expenses) resulting from Cinergy's power
marketing and trading operations are allocated 50%/50% between CG&E and PSI
pursuant to the operating agreements filed with the companies' regulators.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first quarter of 1998 decreased
7.3%, as compared to the same period in 1997. Decreased residential and
commercial sales, reflecting the milder weather during the first quarter of
1998, were slightly offset by an increase in the average number of customers.
Higher gas transportation volumes reflect the continued trend of customers
purchasing gas directly from suppliers, using transportation services provided
by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $191 million (48%) for the quarter ended
March 31, 1998, from the comparable period of 1997. This increase primarily
reflects the increased kwh sales as previously discussed. The operation of fuel
adjustment clauses reflecting a higher average cost of fuel used in electric
production also contributed to the increase.
An analysis of electric operating revenues is shown below:
Quarter
Ended March 31
(in millions)
Electric operating revenues - March 31, 1997 $402
Increase (Decrease) due to change in:
Price per kwh
Retail 21
Sales for resale
Non-firm power transactions 5
Total change in price per kwh 26
Kwh sales
Retail (2)
Sales for resale
Firm power obligations (1)
Non-firm power transactions 167
Total change in kwh sales 164
Other 1
----
Electric operating revenues - March 31, 1998 $593
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. (See the "Mcf Sales and
Transportation" section.) Since providing transportation services does not
necessitate recovery of the cost of gas purchased, the revenue per Mcf
transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.
Gas operating revenues decreased $39 million (18%) in the first quarter of 1998,
when compared to the same period last year. The decrease in gas operating
revenues is primarily attributable to lower residential and commercial sales due
to the milder weather during the first quarter of 1998. An increase in the
relative volume of gas transported to gas sold, as previously discussed, also
contributed to the decrease.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $18 million (25%) for the quarter ended March 31,
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter
Ended March 31
(in millions)
Fuel expense - March 31, 1997 $70
Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost 21
Kwh generation (2)
---
Fuel expense - March 31, 1998 $88
Gas Purchased
Gas purchased for the quarter ended March 31, 1998, decreased $27 million (22%),
when compared to the same period last year, reflecting a lower average cost per
Mcf purchased and a decline in the volumes of gas purchased primarily due to the
milder weather during the first quarter of 1998.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended March 31, 1998, increased
$165 million over the comparable period of 1997, reflecting increased purchases
of non-firm power for resale to others as a result of increased activity in
Cinergy's power marketing and trading operations.
Maintenance
The $8 million (28%) decrease in maintenance costs for the first quarter of
1998, as compared to the same period of 1997, is partially due to a decline in
maintenance activities associated with postponed outages at certain electric
production facilities. Decreased maintenance costs, associated with electric
distribution facilities, also contributed to the lower level of expenses for the
current quarter.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased approximately $4 million (13%) for the
quarter ended March 31, 1998, as compared to the same period of 1997, primarily
due to the net redemption of $350 million of long-term debt during the period
from March 1997 through March 1998.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
<S> <C> <C>
Electric Utility Plant - Original Cost
In service $4,297,962 $4,280,551
Accumulated depreciation 1,813,471 1,792,317
---------- ----------
2,484,491 2,488,234
Construction work in progress 67,897 65,129
---------- ----------
Total electric utility plant 2,552,388 2,553,363
Current Assets
Cash and temporary cash investments 25,816 18,169
Restricted deposits 1,175 1,146
Notes receivable 92 110
Notes receivable from affiliated companies 37,461 21,998
Accounts receivable less accumulated provision
for doubtful accounts of $527 at March 31, 1998,
and $1,183 at December 31, 1997 257,843 197,898
Accounts receivable from affiliated companies 6,018 6,384
Materials, supplies, and fuel - at average cost
Fuel 36,645 28,234
Other materials and supplies 27,957 26,955
Prepayments and other 5,177 4,438
---------- ----------
398,184 305,332
Other Assets
Regulatory assets
Amounts due from customers - income taxes 24,805 23,941
Post-in-service carrying costs and deferred
operating expenses 43,564 43,832
Coal contract buyout costs 117,964 122,485
Deferred merger costs 72,692 73,789
Deferred demand-side management costs 62,900 71,278
Unamortized costs of reacquiring debt 29,029 29,667
Other 41,888 44,094
Other 145,058 138,650
---------- ----------
537,900 547,736
$3,488,472 $3,406,431
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - without par value; $.01 stated value;
authorized shares - 60,000,000; outstanding shares
- 53,913,701 at March 31, 1998, and December 31, 1997 $ 539 $ 539
Paid-in capital 400,895 400,893
Retained earnings 650,064 637,814
Accumulated other comprehensive income (642) (1,586)
---------- ----------
Total common stock equity 1,050,856 1,037,660
Cumulative Preferred Stock
Not subject to mandatory redemption 71,973 157,196
Long-term Debt 926,680 826,470
---------- ----------
Total capitalization 2,049,509 2,021,326
Current Liabilities
Long-term debt due within one year 85,000 85,000
Notes payable and other short-term obligations 215,495 190,600
Notes payable to affiliated companies 21 16,435
Accounts payable 249,681 212,833
Accounts payable to affiliated companies 38,077 41,326
Accrued taxes 101,326 69,304
Accrued interest 15,414 21,369
Other 2,527 2,560
---------- ----------
707,541 639,427
Other Liabilities
Deferred income taxes 411,992 403,535
Unamortized investment tax credits 48,430 49,296
Accrued pension and other postretirement benefit costs 106,374 116,576
Other 164,626 176,271
---------- ----------
731,422 745,678
$3,488,472 $3,406,431
</TABLE>
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended
March 31
1998 1997
(in thousands)
Operating Revenues
Non-affiliated companies $583,884 $422,289
Affiliated companies 8,241 1,566
-------- --------
592,125 423,855
Operating Expenses
Fuel 92,456 105,507
Purchased and exchanged power
Non-affiliated companies 242,390 89,730
Affiliated companies 17,900 6,069
Other operation 82,377 83,709
Maintenance 19,308 18,518
Depreciation 32,007 31,152
Amortization of post-in-service
deferred operating expenses - net 268 268
Income taxes 26,261 20,225
Taxes other than income taxes 14,967 14,857
-------- --------
527,934 370,035
Operating Income 64,191 53,820
Other Income and Expenses - Net
Allowance for equity funds used during
construction 11 72
Income taxes 282 (603)
Other - net 1,799 3,263
-------- --------
2,092 2,732
Income Before Interest 66,283 56,552
Interest
Interest on long-term debt 17,706 19,230
Other interest 5,775 4,457
Allowance for borrowed funds used during
construction (583) (433)
-------- --------
22,898 23,254
Net Income $ 43,385 $ 33,298
Preferred Dividend Requirement 2,208 3,020
-------- --------
Net Income Applicable to Common Stock $ 41,177 $ 30,278
Other Comprehensive Income, Net of Tax 944 -
-------- -----
Comprehensive Income $ 42,121 $ 30,278
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
March 31
1998 1997
(in thousands)
Operating Activities
Net income $43,385 $33,298
Items providing or (using) cash:
Depreciation 32,007 31,152
Deferred income taxes and investment tax
credits - net (473) (9,820)
Allowance for equity funds used during
construction (11) (72)
Regulatory assets - net 9,701 11,812
Changes in current assets and current
liabilities
Restricted deposits (29) (1)
Accounts and notes receivable, net of
reserves on receivables sold (75,463) (51,892)
Materials, supplies, and fuel (9,413) 2,812
Accounts payable 33,599 (19,821)
Accrued taxes and interest 26,067 39,197
Other items - net (14,271) (104)
Net cash provided by operating activities 45,099 36,561
Financing Activities
Issuance of long-term debt 98,901 -
Retirement of preferred stock (85,220) (1)
Redemption of long-term debt - (45,700)
Change in short-term debt 8,481 65,205
Dividends on preferred stock (2,736) (3,020)
Dividends on common stock (28,400) (28,400)
------- -------
Net cash used in financing activities (8,974) (11,916)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (26,803) (22,040)
Deferred demand-side management costs (1,675) (3,141)
Net cash used in investing activities (28,478) (25,181)
Net increase (decrease) in cash and temporary
cash investments 7,647 (536)
Cash and temporary cash investments at
beginning of period 18,169 2,911
------- -------
Cash and temporary cash investments at
end of period $25,816 $ 2,375
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 67% for the first quarter of 1998, as compared to
the same period last year. An increase in retail sales reflects higher
industrial sales and a higher average number of customers in all retail customer
classes. These increases were partially offset by a decline in residential sales
as a result of milder weather during the first quarter of 1998, as compared to
the first quarter of 1997. The increased industrial sales primarily reflect
growth in the primary metals sector. Nonsystem kwh sales (and related revenues
and expenses) resulting from Cinergy's power marketing and trading operations
are allocated 50%/50% between CG&E and PSI pursuant to the operating agreements
filed with the companies' regulators.
Operating Revenues
Operating revenues increased $168 million (40%) for the quarter ended March 31,
1998, when compared to the same period last year, primarily reflecting, the
increased kwh sales as previously discussed. This increase was partially offset
by the operation of fuel adjustment clauses reflecting a lower average cost of
fuel used in electric production.
An analysis of operating revenues is shown below:
Quarter
Ended March 31
(in millions)
Operating revenues - March 31, 1997 $424
Increase (Decrease) due to change in:
Price per kwh
Retail (5)
Sales for resale
Firm power obligations (1)
Non-firm power transactions (15)
Total change in price per kwh (21)
Kwh sales
Retail 8
Sales for resale
Firm power obligations 1
Non-firm power transactions 177
Total change in kwh sales 186
Other 3
Operating revenues - March 31, 1998 $592
Operating Expenses
Fuel
Electric fuel costs decreased $13 million (12%) for the first quarter of 1998,
as compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended March 31
(in millions)
Fuel expense - March 31, 1997 $105
Increase (Decrease) due to change in:
Price of fuel (5)
Deferred fuel cost (12)
Kwh generation 4
----
Fuel expense - March 31, 1998 $ 92
Purchased and Exchanged Power
For the quarter ended March 31, 1998, purchased and exchanged power increased
$164 million, as compared to the same period last year, due primarily to
increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations.
Interest
Interest on Long-term Debt
The decrease in interest on long-term debt of $2 million (8%) for the first
quarter of 1998, as compared to the first quarter of 1997, is primarily due to
the recognition of interest income on interest rate swap activity. This was
partially offset by increased interest expense related to the net issuance of
approximately $100 million of long-term debt from February 1997 through March
1998.
Other Interest
The increase of $1 million (30%) in other interest for the quarter ended March
31, 1998, as compared to the same period of 1997, is attributable to interest
resulting from an IRS audit of the 1989 and 1990 tax years.
<PAGE>
THE UNION LIGHT, HEAT
AND POWER COMPANY
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $205,839 $204,111
Gas 157,517 155,167
Common 19,069 19,073
-------- --------
382,425 378,351
Accumulated depreciation 136,032 133,213
-------- --------
246,393 245,138
Construction work in progress 15,795 14,346
-------- --------
Total utility plant 262,188 259,484
Current Assets
Cash and temporary cash investments 4 546
Accounts receivable less accumulated
provision for doubtful accounts of
$1,101 at March 31, 1998, and $996 at
December 31, 1997 7,547 7,308
Accounts receivable from affiliated
companies 276 446
Materials, supplies, and fuel - at average
cost
Gas stored for current use 2,181 5,401
Other materials and supplies 802 693
Prepayments and other 243 385
-------- --------
Total current assets 11,053 14,779
Other Assets
Regulatory assets
Deferred merger costs 5,213 5,213
Unamortized costs of reacquiring debt 3,544 3,590
Other 2,303 2,262
Other 5,830 6,262
-------- --------
16,890 17,327
$290,131 $291,590
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
March 31 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 at March 31, 1998,
and December 31, 1997 $ 8,780 $ 8,780
Paid-in capital 18,683 18,683
Retained earnings 101,219 95,450
-------- --------
Total common stock equity 128,682 122,913
Long-term Debt 34,684 44,671
-------- --------
Total capitalization 163,366 167,584
Current Liabilities
Long-term debt due within one year 10,000 -
Notes payable to affiliated companies 21,457 23,487
Accounts payable 8,695 11,097
Accounts payable to affiliated companies 16,363 19,712
Accrued taxes 5,714 6,332
Accrued interest 904 1,286
Other 4,223 4,364
-------- --------
67,356 66,278
Other Liabilities
Deferred income taxes 27,096 26,211
Unamortized investment tax credits 4,447 4,516
Accrued pension and other postretirement benefit costs 12,213 14,044
Income taxes refundable through rates 6,964 6,566
Other 8,689 6,391
-------- --------
59,409 57,728
$290,131 $291,590
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended
March 31
1998 1997
(in thousands)
Operating Revenues
Electric
Non-affiliated companies $ 46,999 $ 48,580
Gas
Non-affiliated companies 28,375 33,963
Affiliated companies 105 121
-------- --------
75,479 82,664
Operating Expenses
Electricity purchased from parent company for resale 34,090 35,129
Gas purchased 16,353 20,449
Other operation 8,135 8,534
Maintenance 1,295 1,563
Depreciation 3,232 3,070
Income taxes 4,217 4,742
Taxes other than income taxes 1,005 1,099
-------- --------
68,327 74,586
Operating Income 7,152 8,078
Other Income and Expenses - Net
Allowance for equity funds used during
construction (14) (4)
Income taxes 228 92
Other - net (482) (447)
-------- --------
(268) (359)
Income Before Interest 6,884 7,719
Interest
Interest on long-term debt 883 881
Other interest 351 301
Allowance for borrowed funds used during
construction (119) (30)
-------- --------
1,115 1,152
Net Income $ 5,769 $ 6,567
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
March 31
1998 1997
(in thousands)
Operating Activities
Net income $ 5,769 $ 6,567
Items providing or (using) cash:
Depreciation 3,232 3,070
Deferred income taxes and investment tax
credits - net 462 (338)
Allowance for equity funds used during
construction 14 4
Regulatory assets (41) (9)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 240 6,016
Materials, supplies, and fuel 3,111 3,727
Accounts payable (5,751) (10,139)
Accrued taxes and interest (1,000) 5,871
Other items - net 1,627 1,810
------- -------
Net cash provided by operating
activities 7,663 16,579
Financing Activities
Change in short-term debt (2,030) (11,723)
Net cash used in financing activities (2,030) (11,723)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (6,175) (3,986)
Net cash used in investing activities (6,175) (3,986)
Net increase (decrease) in cash and temporary
cash investments (542) 870
Cash and temporary cash investments at
beginning of period 546 1,197
------- -------
Cash and temporary cash investments at
end of period $ 4 $ 2,067
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998
Kwh Sales
Kwh sales for the quarter ended March 31, 1998, decreased 1.9% from the
comparable period of 1997. The milder weather in the first quarter of 1998, as
compared to the same period last year, resulted in a decline in residential
sales. This decrease was partially offset by an increase in industrial sales,
primarily reflecting growth in the primary metals sector, and an increase in the
average number of customers in all major retail customer classes.
Mcf Sales and Transportation
For the first quarter of 1998, Mcf gas sales volumes decreased 12.3%, while Mcf
transportation volumes increased 17.9%, when compared to the same period in
1997. Decreased residential and commercial sales reflecting the milder weather
during the first quarter of 1998 were slightly offset by an increase in the
average number of customers. The higher level of gas transportation volumes
reflects the continued trend of customers purchasing gas directly from
suppliers, using transportation services provided by ULH&P.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $2 million (3%) for the quarter ended
March 31, 1998, from the comparable period of 1997. This decrease primarily
reflects the previously discussed decline in kwh sales and a reduction in the
cost of electricity purchased from CG&E.
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing ULH&P facilities to transport the gas continues to put
downward pressure on gas operating revenues. (See the "Mcf Sales and
Transportation" section.) Since providing transportation services does not
necessitate recovery of the cost of gas purchased, the revenue per Mcf
transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.
Gas operating revenues decreased $6 million (16%) for the quarter ended March
31, 1998, as compared to the same period of last year. The decrease in gas
operating revenues is primarily attributable to lower residential and commercial
sales due to the milder weather during the first quarter of 1998. An increase in
the relative volume of gas transported to gas sold, as previously discussed,
also contributed to the decrease.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $1 million (3%) for the quarter ended March 31,
1998, as compared to the same period last year. This decrease reflects the
aforementioned lower volumes purchased from CG&E and the reduction in the cost
of electricity purchased from CG&E.
Gas Purchased
Gas purchased for the quarter decreased $4 million (20%) from the first quarter
of last year, reflecting a lower average cost per Mcf purchased and a decline in
the volumes of gas purchased.
Maintenance
The $.3 million (17%) decrease in maintenance costs for the first quarter of
1998, as compared to the same period of 1997, is primarily attributable to a
decline in maintenance activities associated with electric distribution
facilities due to the milder weather in the first quarter of 1998.
Depreciation
Depreciation expense increased $.2 million (5%) for the quarter ended March 31,
1998, over the comparable period of last year. This increase primarily reflects
additions to gas and electric utility plant.
Taxes Other Than Income Taxes
The $.1 million (9%) decrease in taxes other than income taxes for the first
quarter of 1998, as compared to the same period of 1997, is primarily due to a
reduction in property taxes.
Interest
Other Interest
Other interest charges increased $.1 million (17%) for the quarter ended March
31, 1998, as compared to the same period of 1997, primarily due to payments to
the Kentucky State Treasurer resulting from a sales tax audit and underpayment
of tax year 1996 income taxes.
Allowance for Borrowed Funds Used During Construction
The increase in allowance for borrowed funds used during construction of $.1
million is primarily due to an increase in construction expenditures subject to
allowance during the quarter ended March 31, 1998, as compared to the same
period of 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include only
normal, recurring adjustments) necessary in the opinion of the
registrants for a fair presentation of the interim results. These
statements should be read in conjunction with the Financial Statements
and the notes thereto included in the combined 1997 Form 10-K of the
registrants. Certain amounts in the 1997 Financial Statements have been
reclassified to conform to the 1998 presentation.
Cinergy and CG&E
2. On April 7, 1998, CG&E issued and sold $100 million principal amount of its
6.40% Debentures due April 1, 2008. Proceeds from the sale were used to
repay short-term indebtedness incurred in connection with CG&E's March 1998
redemptions of $100 million principal amount of its First Mortgage Bonds, 8
1/2% Series due 2022 and $60 million principal of its First Mortgage Bonds,
7 3/8% Series due 2001.
3. On May 1, 1998, CG&E redeemed the entire $50 million principal amount of
its 7 3/8% Series First Mortgage Bonds due 1999, at the regular redemption
price of 100.00%. This redemption effectively eliminates the maintenance
and replacement fund provisions of CG&E's First Mortgage Bond indenture,
which provisions required CG&E to make cash payments, deposit bonds, or
pledge unfunded property additions to the trustee each year based on an
amount related to net revenues.
Cinergy, CG&E, and ULH&P
4. On April 30, 1998, ULH&P issued and sold $20 million principal amount of
its 6.50% Debentures due April 30, 2008. Proceeds from the sale were used
by ULH&P to repay short-term indebtedness incurred in connection with the
redemption, on April 24, 1998, of $10 million principal amount of its First
Mortgage Bonds, 8% Series due 2003, and in connection with its construction
program. The redemption of said First Mortgage Bonds effectively eliminates
the maintenance and replacement fund provisions of ULH&P's First Mortgage
Bond indenture, which provisions required ULH&P to make cash payments,
deposit bonds, or pledge unfunded property additions to the trustee each
year based on an amount related to net revenues.
Cinergy, CG&E, and PSI
5. Cinergy'spower marketing and trading function actively markets and trades
over-the-counter forward and option contracts for the purchase and sale of
electricity. The majority of these contracts are settled via physical
delivery of electricity or netted out in accordance with industry trading
standards. Option premiums are deferred and included in the Consolidated
Balance Sheets and amortized to "Operating Revenues - Electric" or
"Purchased and exchanged power" in the Consolidated Statements of Income
over the term of the option contract. Cinergy values its portfolio of
over-the-counter forward and option contracts using the aggregate lower of
cost or market method. To the extent there are net aggregate losses in the
portfolio, Cinergy reserves for such losses. Net gains are recognized when
realized. Due to the lack of liquidity and the volatility currently
experienced in the power markets, significant assumptions must be made by
the Company when estimating current market values for purposes of the
aggregate lower of cost or market comparison. It is possible that the
actual gains and losses from the Company's power marketing and trading
activities could differ substantially from the gains and losses estimated
currently.
Cinergy and its subsidiaries use derivative financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs, and
manage exposures to fluctuations in interest rates. Instruments used as
hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge
instruments must be highly correlated with changes in market values of the
underlying hedged items at inception of the hedge and over the life of the
hedge contract.
Cinergy utilizes a currency swap to hedge its pound sterling denominated
net investment in Avon Energy. Accordingly, any translation gains or losses
related to the principal exchange on the currency swap are recorded in
accumulated other comprehensive income, which is a separate component of
common stock equity. Aggregate translation losses related to the principal
exchange of the currency swap are reflected in "Current Liabilities -
Other" in the Consolidated Balance Sheets.
Interest rate swaps are accounted for under the accrual method.
Accordingly, gains and losses based on any interest differential between
fixed-rate and floating-rate interest amounts, calculated on agreed upon
notional principal amounts, are recognized in the Consolidated Statements
of Income as a component of interest expense as realized over the life of
the agreement.
Cinergy, CG&E, and PSI
6. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in
the Federal District Court for the Southern District of Ohio by three
former employees of Enertech naming as defendants Enertech, Cinergy,
Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. (Mr.
Rogers and/or Mr. Grealis are officers and/or directors of the foregoing
companies.) The lawsuit, which stemmed from the termination of employment
of the three former employees, alleged that they entered into employment
contracts with Enertech based on the opportunity to participate in
potential profits from future investments in energy projects in central and
eastern Europe. The suit alleged causes of action based upon, among other
theories, breach of contract related to the events surrounding the
termination of their employment and fraud and misrepresentation related to
the level of financial support for future projects. The suit alleged
compensatory damages of $154 million based upon assumed future success of
potential future investments and punitive damages of three times that
amount.
In April 1998, the parties reached a comprehensive settlement and all
claims were dismissed by the Court. The obligations of the Company arising
out of the settlement are not material to its financial condition or its
results of operations.
Cinergy and PSI
7. As discussed in the 1997 Form 10-K, PSI and IGC submitted a proposed agreed
order to the IDEM in 1997 related to the Shelbyville MGP site. On April 15,
1998, the IDEM signed the proposed agreed order, which will result in a
determination by the IDEM of whether the activities previously undertaken
at the site are sufficient to adequately protect human health and the
environment. Based upon environmental investigations and remediation
completed to date, PSI believes that any further investigation and
remediation required for the Shelbyville site will not have a material
adverse effect on its financial condition or results of operations.
In August 1997, NIPSCO filed suit against PSI in the United States District
Court for the Northern District of Indiana, South Bend Division, claiming,
pursuant to the CERCLA, recovery from PSI of NIPSCO's past and future costs
of investigating and remediating MGP related contamination at the Goshen
MGP site. Recently, NIPSCO increased its estimate of the cost of
remediating the Goshen site from $2.7 million to about $3.0 million.
As also discussed in the 1997 Form 10-K, PSI previously placed its insurance
carriers on notice of IGC's, NIPSCO's and the IDEM's claims related to MGP
sites. In April 1998, PSI filed suit in Hendricks County Circuit Court
against its general liability insurance carriers, seeking, among other
matters, a declaratory judgment that its insurance carriers are obligated
to defend MGP claims against PSI or pay PSI's costs of defense and to
indemnify PSI for its costs of investigating, preventing, mitigating and
remediating damage to property and paying claims associated with MGP sites.
PSI cannot predict the outcome of this litigation.
Cinergy, CG&E, PSI, and ULH&P
8. Effective with the first quarter of 1998, Cinergy and its subsidiaries
adopted Statement 130. Statement 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
Cinergy
9. Presented below is a reconciliation of earnings per common share (basic
EPS) and earnings per common share assuming dilution (diluted EPS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Quarter ended March 31, 1998
Earnings per common share:
Net income $106,071 157,764 $.67
Effect of dilutive securities:
Common stock options 787
Contingently issuable common stock 123
EPS--assuming dilution:
Net income item plus assumed
conversions $106,071 158,674 $.67
Quarter ended March 31, 1997
Earnings per common share:
Net income $114,117 157,679 $.72
Effect of dilutive securities:
Common stock options 983
Contingently issuable common stock 204
EPS--assuming dilution:
Net income plus assumed conversions $114,117 158,866 $.72
</TABLE>
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of
these options were greater than the average market price of the common
shares during the period are summarized below:
Quarter Average
Ended Exercise
March 31 Shares Price
1998 914,800 $37.61
1997 10,400 34.50
Presented below is a reconciliation of earnings per common share
(basic EPS) and earnings per common share assuming dilution (diluted
EPS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Twelve months ended March 31, 1998
Earnings per common share:
Net income before extraordinary item $354,592 157,706 $2.24
Effect of dilutive securities:
Common stock options 886
Contingently issuable common stock 184
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $354,592 158,776 $2.23
Twelve months ended March 31, 1997
Net income $338,773
Less: costs of reacquisition of
preferred stock of subsidiary 18,391
Earnings per common share:
Net income applicable to common
stock 320,382 157,679 $2.02
Effect of dilutive securities:
Common stock options 913
Contingently issuable common stock 287
EPS--assuming dilution:
Net income applicable to common
stock plus assumed conversions $320,382 158,879 $2.01
</TABLE>
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of
these options were greater than the average market price of the common
shares during the period are summarized below:
Twelve Months Average
Ended Exercise
March 31 Shares Price
1998 925,200 $37.58
1997 375,700 33.53
The after-tax impact of the extraordinary item - equity share of
windfall profits tax in the twelve months ended March 31, 1998, was
$.69 for both basic and diluted earnings per share.
Cinergy and PSI
10. In February 1989, PSI and WVPA entered into a settlement agreement to
resolve all claims related to Marble Hill, a nuclear project canceled in
1984. Implementation of the settlement was contingent upon a number of
events, including the conclusion of WVPA's bankruptcy proceeding,
negotiation of certain terms and conditions with WVPA, the RUS, and the
CFC, and certain regulatory approvals. In December 1996, following the
resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on
behalf of itself and its officers, paid $80 million on behalf of WVPA to
the RUS and the CFC. The $80 million obligation, net of insurance proceeds,
other credits, and applicable income tax effects, was charged to income in
1988. In January 1997, an order dismissing the WVPA litigation against PSI
and its officers with prejudice was entered by the United States District
Court for the Southern District of Indiana. Negotiations among PSI, WVPA,
the RUS, and the CFC continue regarding certain additional terms and
conditions of the settlement agreement. Based on the current status of
negotiations, the Company believes it has adequately reserved for any loss
that would be material to its financial condition or results of operations.
However, the Company cannot currently predict the outcome of these
negotiations. Depending on the form of the final negotiated terms and
conditions and the form of any regulatory approvals, the Company could be
required to recognize additional losses of up to $90 million for accounting
purposes. The recognition of this loss is not expected to have an immediate
impact on Cinergy's cash flow. The Company believes that negotiations could
be concluded and the final terms and conditions determined during 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
Cinergy, CG&E, and PSI
Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In April 1998, the EPA announced that it would make its regulatory
determination on the need for additional air toxics regulation by November 15,
1998. If more air toxics regulations are issued, the compliance cost could be
significant. Cinergy cannot predict the outcome or effects of the EPA's
determination.
Cinergy, CG&E and ULH&P
Competitive Pressures - State Developments As discussed in the 1997 Form 10-K,
competition legislation was to be introduced into the Ohio legislature during
1998. This legislation was introduced into the Ohio legislature during 1998 and
it is uncertain whether this legislation will be passed in Ohio in 1998.
As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General Assembly in January 1998. HB 443 was not brought to a vote during the
1998 legislative session, rather, HJR 95, which calls for the formation of an
executive task force comprised of members from the governor's office and the
General Assembly to further study electricity restructuring, was passed by the
General Assembly. HJR 95 was signed by the governor during April 1998.
Kentucky's General Assembly does not reconvene until the year 2000.
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades over-the-counter
forward and option contracts for the purchase and sale of electricity. See Note
5 of the "Notes to Financial Statements" in "Part I. Financial Information" for
the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks
reported in the 1997 Form 10-K.
Cinergy
Exchange Rate Sensitivity Cinergy utilizes a currency swap to hedge the exchange
rate exposure related to its pound sterling denominated net investment in Avon
Energy. See Note 5 of the "Notes to Financial Statements" in "Part I. Financial
Information" for Cinergy's accounting policies for certain derivative
instruments. Cinergy's market risks have not changed materially from the market
risks reported in the 1997 Form 10-K.
Cinergy, CG&E, PSI, and ULH&P
Interest Rate Sensitivity The Company's net exposure to changes in interest
rates primarily consists of short-term debt instruments with floating interest
rates that are benchmarked to U.S. short-term money market indices. To manage
the Company's exposure to fluctuations in interest rates and to lower funding
costs, the Company constantly evaluates the use of, and has entered into,
interest rate swaps. See Note 5 of the "Notes to Financial Statements" in "Part
I. Financial Information" for the Company's accounting policies for certain
derivative instruments. The Company's market risks have not changed materially
from the market risks reported in the 1997 Form 10-K.
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P
New Accounting Standards See Note 8 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Other Commitments
Cinergy, CG&E, and PSI
Enertech See Note 6 of the "Notes to Financial Statements" in "Part I. Financial
Information."
Cinergy, CG&E, and PSI
MGP Sites See Note 7 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Cinergy and PSI
WVPA See Note 10 of the "Notes to Financial Statements" in "Part I. Financial
Information."
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E, and ULH&P
Long-term Debt For information regarding recent issuances and redemptions of
long-term debt securities, see Notes 2, 3, and 4 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt Obligations representing notes payable and other short-term
obligations (excluding notes payable to affiliated companies) at March 31, 1998,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350
Revolving line 400 91
Commercial paper - 183
Utility subsidiaries
Committed lines 300 88
Uncommitted lines 360 211
Pollution control notes 244 244
Cinergy UK, Inc. 115 56
------ ------
Total $1 769 $1 223
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $100 $ 30
Uncommitted lines 190 113
Pollution control notes 184 184
---- ----
Total $474 $327
PSI
Established
Lines Outstanding
(in millions)
Committed lines $200 $ 58
Uncommitted lines 170 98
Pollution control notes 60 60
---- ----
Total $430 $216
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line (as shown in the above table) also provides
credit support for Cinergy's commercial paper program. Such program is limited
to a maximum outstanding principal amount of $200 million. The majority of the
proceeds from the commercial paper sales were used to reduce the acquisition
line to the year-end level of $350 million. CG&E and PSI also have the capacity
to issue commercial paper that must be supported by committed lines (unsecured
lines of credit) of the respective company. Neither CG&E nor PSI issued
commercial paper in first quarter of 1998.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853
million ($453 million for CG&E and its subsidiaries, including $50 million for
ULH&P, and $400 million for PSI) as of March 31, 1998. In connection with this
authority, committed lines, as well as, uncommitted lines (short-term borrowings
with various banks on an "as offered" basis) have been arranged. The established
committed lines (as shown in the above table) include $100 million designated as
backup for certain of the uncommitted lines at March 31, 1998. Further, the
committed lines are maintained by commitment fees.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "Item 1. Financial Statements" in "Part I. Financial
Information."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P
Reference is made to the "Market Risk Sensitive Instruments and Positions"
section in "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
See Notes 6, 7, and 10 of the "Notes to Financial Statements" in "Part I.
Financial Information."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cinergy
(a) The annual meeting of shareholders of Cinergy was held April 22, 1998, in
Cincinnati, Ohio.
(c) At the meeting, five Class I directors were elected to the board of Cinergy
to serve three-year terms, expiring in 2001, as set forth below:
Votes Votes
Class I For Withheld
Neil A. Armstrong 132,494,599 2,094,057
James K. Baker 132,545,127 2,043,529
Cheryl M. Foley 132,482,049 2,106,607
John A. Hillenbrand II 132,546,546 2,042,110
George C. Juilfs 132,649,550 1,939,106
CG&E
(a) In lieu of the annual meeting of shareholders of CG&E, a resolution was
duly adopted via unanimous written consent of CG&E's sole shareholder,
effective April 21, 1998.
(b)-(c) The following members of the Board of Directors were elected via
unanimous written consent of the sole shareholder of CG&E, in lieu of
its annual meeting, for one-year terms expiring in 1999:
Jackson H. Randolph
James E. Rogers
E. Renae Conley
PSI
(a) The annual meeting of shareholders of PSI was held in Cincinnati, Ohio on
April 22, 1998.
(b) Proxies were not solicited for the annual meeting, at which the Board of
Directors was re-elected in its entirety (see (c) below).
(c) The following members of the Board of Directors were unanimously re-elected
at the annual meeting for one-year terms expiring in 1999:
James K. Baker
Michael G. Browning
John A. Hillenbrand II
John M. Mutz
Jackson H. Randolph
James E. Rogers
Van P. Smith
ULH&P
Omitted pursuant to Instruction H(2)(b).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits identified with a pound sign (#) are being filed herewith by the
registrant identified in the exhibit discussion below and are incorporated
herein by reference with respect to any other designated registrant.
Exhibits not so identified are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
3-a By-laws of Cinergy, as amended on April 22, 1998.
Cinergy and CG&E
4-a #Fourth Supplemental Indenture between CG&E and The
Fifth Third Bank, dated as of April 1, 1998. (Exhibit
to CG&E's March 31, 1998, Form 10-Q in File No.
1-1232.)
Cinergy, CG&E, and ULH&P
4-b #Second Supplemental Indenture between ULH&P and The
Fifth Third Bank, dated as of April 30, 1998. (Exhibit
to ULH&P's March 31, 1998, Form 10-Q in File No.
2-7793.)
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in
electronic submission only).
Cinergy, CG&E, PSI, and ULH&P
(b) No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make
the information presented not misleading. In the opinion of Cinergy, CG&E, PSI,
and ULH&P, these statements reflect all adjustments (which include only normal,
recurring adjustments) necessary to reflect the results of operations for the
respective periods. The unaudited statements are subject to such adjustments as
the annual audit by independent public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: May 15, 1998 /s/ John P. Steffen
--------------------------------------
John P. Steffen
Duly Authorized Officer
and
Chief Accounting Officer
THE CINCINNATI GAS & ELECTRIC COMPANY
AND
THE FIFTH THIRD BANK,
Trustee
----------------
Fourth Supplemental Indenture
Dated as of April 1, 1998
To
Indenture
Dated as of May 15, 1995
----------------
6.40% Debentures Due 2008
<PAGE>
FOURTH SUPPLEMENTAL INDENTURE, dated as of April 1, 1998, between The
Cincinnati Gas & Electric Company, a corporation duly organized and existing
under the laws of the State of Ohio (herein called the "Company"), having its
principal office at 139 East Fourth Street, Cincinnati, Ohio 45202, and The
Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the
"Trustee") under the Indenture dated as of May 15, 1995 between the Company and
the Trustee (the "Indenture").
Recitals of the Company
The Company has executed and delivered the Indenture to the Trustee to
provide for the issuance from time to time of its unsecured debentures, notes or
other evidences of indebtedness (the "Securities"), to be issued in one or more
series as in the Indenture provided.
Pursuant to the terms of the Indenture, the Company desires to provide for
the establishment of a new series of its Securities to be known as its 6.40%
Debentures Due 2008 (herein called the "Debentures"), in this Fourth
Supplemental Indenture.
All things necessary to make this Fourth Supplemental Indenture a valid
agreement of the Company have been done.
Now, Therefore, This Fourth Supplemental Indenture Witnesseth:
For and in consideration of the premises and the purchase of the Debentures
by the Holders thereof, it is mutually agreed, for the equal and proportionate
benefit of all Holders of the Debentures, as follows:
ARTICLE ONE
Terms of the Debentures
Section 101. There is hereby authorized a series of Securities designated
the "6.40% Debentures Due 2008", limited in aggregate principal amount to
$100,000,000 (except as provided in Section 301(2) of the Indenture). The
Debentures shall mature and the principal shall be due and payable together with
all accrued and unpaid interest thereon on April 1, 2008 and shall be issued in
the form of a registered Global Security without coupons, registered in the name
of Cede & Co., as nominee of The Depository Trust Company (the "Depositary").
Section 102. The provisions of Section 305 of the Indenture applicable to
Global Securities shall apply to the Debentures.
Section 103. Interest on each of the Debentures shall be payable
semiannually on April 1 and October 1 in each year (each an "Interest Payment
Date"), commencing on October 1, 1998, at the rate per annum specified in the
designation of the Debentures from April 1, 1998, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will be paid to the Person in whose name such Debenture (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the Business Day
immediately preceding such Interest Payment Date. The amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months. As used herein, "Business Day" means any day, other than a Saturday or
Sunday, or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed.
Section 104. Subject to agreements with or the rules of the Depositary or
any successor book-entry security system or similar system with respect to
Global Securities, payments of interest will be made by check mailed to the
Holder of each Debenture at the address shown in the Security Register, and
payments of the principal amount of each Debenture will be made at maturity by
check against presentation of the Debenture at the office or agency of the
Trustee.
Section 105. The Debentures shall be issued in denominations of $1,000 or
any integral multiple of $1,000.
Section 106. Principal and interest on the Debentures shall be payable in
the coin or currency of the United States of America, which, at the time of
payment, is legal tender for public and private debts.
Section 107. The Debentures shall be subject to defeasance and covenant
defeasance, at the Company's option, as provided for in Sections 1302 and 1303
of the Indenture.
Section 108. Subject to the terms of Article Eleven of the Indenture, the
Company shall have the right to redeem the Debentures, in whole but not in part,
from time to time and at any time (such redemption, an "Optional Redemption",
and the date thereof, the "Optional Redemption Date") upon not less than 30
days' notice to the holders, at a redemption price equal to the sum of (A) the
greater of (i) 100% of the principal amount of the Debentures to be redeemed or
(ii) the sum of the present values of the Remaining Scheduled Payments thereon
discounted to the Optional Redemption Date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 15
basis points, less the Applicable Accrued Interest Amount plus (B) the
Applicable Accrued Interest Amount.
"Applicable Accrued Interest Amount" means, at the Optional Redemption
Date, the amount of interest accrued and unpaid from the prior interest payment
date to the Optional Redemption Date on the Debentures subject to the Optional
Redemption determined at the rate per annum shown in the title thereof, computed
on the basis of a 360-day year of twelve 30-day months.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Debentures to be redeemed pursuant to the
Optional Redemption. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to the Optional Redemption
Date, the average of the Reference Treasury Dealer Quotations for such Optional
Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer") the Company will substitute therefor another Primary
Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and any redemption date, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.
on the third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to any Debenture, the
remaining scheduled payments of the principal thereof to be redeemed and
interest thereon that would be due after the Optional Redemption Date but for
the Optional Redemption.
"Treasury Rate" means, with respect to the Optional Redemption Date (if
any), the rate per annum equal to the semiannual equivalent yield to maturity of
the Comparable Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Optional Redemption Date.
ARTICLE TWO
Form of the Debentures
Section 201. The Debentures are to be substantially in the following form
and shall include substantially the legend shown so long as the Debentures are
Global Securities:
(FORM OF FACE OF DEBENTURE)
No. R-1 $100,000,000
CUSIP No. 172070CE2
THE CINCINNATI GAS & ELECTRIC COMPANY
6.40% DEBENTURE DUE 2008
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE CINCINNATI GAS & ELECTRIC COMPANY, a corporation duly organized and
existing under the laws of the State of Ohio (herein called the "Company", which
term includes any successor Person under the Indenture hereafter referred to),
for value received, hereby promises to pay to CEDE & CO., or registered assigns,
the principal sum of One Hundred Million and No/100 Dollars ($100,000,000) on
April 1, 2008, and to pay interest thereon from April 1, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semiannually on April 1 and October 1 in each year, commencing October 1,
1998, at the rate of 6.40% per annum, until the principal hereof is paid or made
available for payment. The amount of interest payable on any Interest Payment
Date shall be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the Business Day immediately preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in the Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the corporate trust office of the Trustee maintained
for that purpose in the City of Cincinnati, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Any payment on this Security due on any day which is not a Business Day in
the City of New York need not be made on such day, but may be made on the next
succeeding Business Day with the same force and effect as if made on the due
date and no interest shall accrue for the period from and after such date,
unless such payment is a payment at maturity or upon redemption, in which case
interest shall accrue thereon at the stated rate for such additional days.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
In Witness Whereof, the Company has caused this instrument to be duly
executed.
THE CINCINNATI GAS & ELECTRIC COMPANY
By..............................
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIFTH THIRD BANK,
as Trustee
By.............................
Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under an Indenture, dated as of May 15, 1995 (herein called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The Fifth Third Bank, as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof, limited in aggregate principal
amount to $100,000,000.
The Securities of this series are subject to optional redemption, in whole but
not in part, from time to time and at any time (such redemption, an "Optional
Redemption", and the date thereof, the "Optional Redemption Date") upon not less
than 30 days' notice to the holders, at a redemption price equal to the sum of
(A) the greater of (i) 100% of the principal amount of the Securities of this
series to be redeemed or (ii) the sum of the present values of the Remaining
Scheduled Payments thereon discounted to the Optional Redemption Date on a
semiannual basis (assuming a 360- day year consisting of twelve 30-day months)
at the Treasury Rate plus 15 basis points, less the Applicable Accrued Interest
Amount plus (B) the Applicable Accrued Interest Amount.
"Applicable Accrued Interest Amount" means, at the Optional Redemption Date, the
amount of interest accrued and unpaid from the prior interest payment date to
the Optional Redemption Date on the Securities of this series subject to the
Optional Redemption determined at the rate per annum shown in the title thereof,
computed on the basis of a 360-day year of twelve 30-day months.
"Comparable Treasury Issue" means the United States Treasury security selected
by an Independent Investment Banker as having a maturity that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Securities of this series to be redeemed pursuant to the
Optional Redemption. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to the Optional Redemption Date,
the average of the Reference Treasury Dealer Quotations for such Optional
Redemption Date.
"Reference Treasury Dealer" means each of Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer") the Company will substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to any Securities of this
series, the remaining scheduled payments of the principal thereof to be redeemed
and interest thereon that would be due after the Optional Redemption Date but
for the Optional Redemption.
"Treasury Rate" means, with respect to the Optional Redemption Date (if any),
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Optional Redemption Date.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security upon compliance with certain conditions
set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall occur and
be continuing, the principal of the Securities of this series may be declared
due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of a majority in principal amount of the
Securities of each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of
this Security shall not have the right to institute any proceeding with respect
to the Indenture or for the appointment of a receiver or trustee or for any
other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 35% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonably satisfactory indemnity,
and the Trustee shall not have received from the Holders of a majority in
principal amount of Securities of this series at the time Outstanding a
direction inconsistent with such request, and shall have failed to institute any
such proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
ARTICLE THREE
Original Issue of Debentures
Section 301. Debentures in the aggregate principal amount of $100,000,000,
may, upon execution of this Fourth Supplemental Indenture, or from time to time
thereafter, be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Debentures upon a Company Order without any further action by the Company.
ARTICLE FOUR
Paying Agent and Security Registrar
Section 401. The Fifth Third Bank will be the Paying Agent and Security
Registrar for the Debentures.
ARTICLE FIVE
Sundry Provisions
Section 501. Except as otherwise expressly provided in this Fourth
Supplemental Indenture or in the form of Debenture or otherwise clearly required
by the context hereof or thereof, all terms used herein or in said form of
Debenture that are defined in the Indenture shall have the several meanings
respectively assigned to them thereby.
Section 502. The Indenture, as supplemented by this Fourth Supplemental
Indenture, is in all respects ratified and confirmed, and this Fourth
Supplemental Indenture shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.
------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
In Witness Whereof, the parties hereto have caused this Fourth Supplemental
Indenture to be duly executed as of the date first above written.
THE CINCINNATI GAS & ELECTRIC COMPANY
By /s/ William L. Sheafer
William L. Sheafer
Vice President and
Treasurer
THE FIFTH THIRD BANK, as Trustee
By /s/ Kerry Byrne
Kerry Byrne
Vice President
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,735,711
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 395,975
<TOTAL-DEFERRED-CHARGES> 674,210
<OTHER-ASSETS> 92,642
<TOTAL-ASSETS> 4,898,538
<COMMON> 762,136
<CAPITAL-SURPLUS-PAID-IN> 534,654
<RETAINED-EARNINGS> 342,024
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,638,814
0
20,779
<LONG-TERM-DEBT-NET> 1,105,476
<SHORT-TERM-NOTES> 327,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 60,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,746,469
<TOT-CAPITALIZATION-AND-LIAB> 4,898,538
<GROSS-OPERATING-REVENUE> 766,767
<INCOME-TAX-EXPENSE> 44,613
<OTHER-OPERATING-EXPENSES> 625,507
<TOTAL-OPERATING-EXPENSES> 670,120
<OPERATING-INCOME-LOSS> 96,647
<OTHER-INCOME-NET> 1,334
<INCOME-BEFORE-INTEREST-EXPEN> 97,981
<TOTAL-INTEREST-EXPENSE> 26,789
<NET-INCOME> 71,192
215
<EARNINGS-AVAILABLE-FOR-COMM> 70,977
<COMMON-STOCK-DIVIDENDS> (42,600)
<TOTAL-INTEREST-ON-BONDS> 26,052
<CASH-FLOW-OPERATIONS> 195,416
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
