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 June 30, 1996
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 July 31, 1996, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 157,679,129
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 . . . . . . . . . . . . . . . . . . .
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . .
Statements of Income. . . . . . . . . . . . . . . . .
Statements of Cash Flows. . . . . . . . . . . . . . .
Results of Operations . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . .
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . .
5 Other Information . . . . . . . . . . . . . . . . . . .
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1995 Form Combined 1995 Annual Report on Form 10-K filed separately by
10-K Cinergy, as amended, CG&E, PSI, and ULH&P
AEP American Electric Power Company, Inc.
Articles Amended Articles of Incorporation
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a subsidiary
of Power International
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
Cinergy or Cinergy Corp.
Company
Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a
Project 262-mw clean coal power generating facility located at
Wabash River Generating Station, which was placed in
service in November 1995
CWIP Construction work in progress
D&P Duff & Phelps Credit Rating Co.
DSM Demand-side management
FASB Financial Accounting Standards Board
February 1995 An IURC order issued in February 1995
Order
FERC Federal Energy Regulatory Commission
FERC Order 888 FERC order which opens wholesale power sales to competition
FERC Order 889 FERC order requiring utilities to establish an electronic
system for sharing information on available transmission
capacity
Fitch Fitch Investors Service, Inc.
GPU General Public Utilities Corporation
IBEW International Brotherhood of Electrical Workers
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IURC Indiana Utility Regulatory Commission
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
KO Transmission KO Transmission Company, a subsidiary of CG&E
KPSC Kentucky Public Service Commission
kwh Kilowatt-hour
May 1992 Order A PUCO order issued in May 1992
Mcf Thousand cubic feet
M.E. Holdings M.E. Holdings, Inc. (a subsidiary of Investments) which
holds Cinergy's 50% investment in Avon Energy
Mega-NOPR FERC's Notice of Proposed Rulemaking Promoting Wholesale
Competition Through Open Access Non-discriminatory
Transmission Services by Public Utilities
Merger Costs Merger transaction costs and costs to achieve merger savings
Merger Order The FERC's order approving the merger of CG&E and Resources
to form Cinergy
Midlands Midlands Electricity plc
Money Pool Participants with surplus short-term funds, whether from
internal or external sources, provide short-term loans to
other system companies at rates that approximate the costs
of the funds in the money pool
Moody's Moody's Investors Service
mw Megawatt
NOPR FERC's Notice of Proposed Rulemaking
Order 636 FERC order regarding gas purchases and transportation
Power
International Power International, Inc., a subsidiary of Investments
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
RUS Rural Utilities Service, previously called the Rural
Electrification Administration
S&P Standard & Poor's
SEC Securities and Exchange Commission
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
Statement 121 Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", issued in March
1995 by the FASB, is a new accounting standard requiring
impairment losses on long-lived assets to be recognized
when an asset's book value exceeds its expected future
cash flows
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
WVPA Wabash Valley Power Association, Inc.
Zimmer William H. Zimmer Generating Station
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $8 690 023 $8 617 695
Gas 693 032 680 339
Common 185 749 184 694
9 568 804 9 482 728
Accumulated depreciation 3 475 410 3 367 432
6 093 394 6 115 296
CWIP 148 826 135 852
Total utility plant 6 242 220 6 251 148
Current Assets
Cash and temporary cash investments 61 326 35 052
Restricted deposits 1 675 2 336
Accounts receivable less accumulated provision
of $12,492 at June 30, 1996, and $10,360 at
December 31, 1995, for doubtful accounts 141 125 371 150
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 107 082 122 409
Gas stored for current use 24 237 21 493
Other materials and supplies 85 477 85 076
Property taxes applicable to subsequent year 58 411 116 822
Prepayments and other 42 851 32 347
522 184 786 685
Other Assets
Regulatory assets
Amounts due from customers - income taxes 382 974 423 493
Post-in-service carrying costs and deferred
operating expenses 187 967 187 190
Phase-in deferred return and depreciation 97 776 100 388
Deferred DSM costs 128 610 129 400
Deferred merger costs 81 093 56 824
Unamortized costs of reacquiring debt 73 457 73 904
Other 68 561 74 911
Investment in Avon Energy 457 567 -
Other 188 979 136 121
1 666 984 1 182 231
$8 431 388 $8 220 064
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
<PAGE>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
June 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
157,679,129 at June 30, 1996, and 157,670,141
at December 31, 1995 $ 1 577 $ 1 577
Paid-in capital 1 594 920 1 597 050
Retained earnings 981 003 950 216
Cumulative foreign currency translation adjustment (567) -___
Total common stock equity 2 576 933 2 548 843
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 213 090 227 897
Subject to mandatory redemption 160 000 160 000
Long-term Debt 2 523 300 2 530 766
Total capitalization 5 473 323 5 467 506
Current Liabilities
Long-term debt due within one year 50 400 201 900
Notes payable 573 500 165 800
Accounts payable 257 952 268 139
Litigation settlement 80 000 80 000
Accrued taxes 245 277 317 185
Accrued interest 57 743 55 995
Other 57 785 57 202
1 322 657 1 146 221
Other Liabilities
Deferred income taxes 1 119 325 1 120 900
Unamortized investment tax credits 180 387 185 726
Accrued pension and other postretirement
benefit costs 211 103 171 771
Other 124 593 127 940
1 635 408 1 606 337
$8 431 388 $8 220 064
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date Twelve Months Ended
June 30 June 30 June 30
1996 1995 1996 1995 1996 1995
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Electric $650 714 $609 024 $1 335 554 $1 241 490 $2 706 643 $2 468 710
Gas 66 120 56 975 265 275 232 186 443 941 383 868
716 834 665 999 1 600 829 1 473 676 3 150 584 2 852 578
Operating Expenses
Fuel used in electric production 163 805 169 194 355 257 355 103 716 908 723 749
Gas purchased 39 955 22 587 133 180 117 080 222 350 192 327
Purchased and exchanged power 30 802 11 641 58 423 17 307 88 748 31 155
Other operation 148 626 123 791 294 760 240 530 574 820 551 614
Maintenance 48 164 43 661 91 806 87 983 186 003 193 764
Depreciation 70 597 68 215 140 792 141 671 278 880 291 043
Amortization of phase-in deferrals 3 399 2 273 6 799 2 273 13 617 2 273
Post-in-service deferred operating
expenses - net (864) (65) (1 707) (2 069) (2 138) (5 090)
Income taxes 33 020 40 699 107 003 103 218 225 214 160 342
Taxes other than income taxes 66 809 63 738 132 546 127 686 260 393 246 794
604 313 545 734 1 318 859 1 190 782 2 564 795 2 387 971
Operating Income 112 521 120 265 281 970 282 894 585 789 464 607
Other Income and Expenses - Net
Allowance for equity funds used
during construction 497 931 848 1 885 927 3 755
Post-in-service carrying costs 494 13 837 2 581 1 442 8 055
Phase-in deferred return 2 093 2 134 4 186 4 268 8 455 8 161
Income taxes 2 068 2 490 5 286 3 584 9 060 11 045
Other - net (3 256) (1 880) (10 932) (2 931) (11 052) (27 637)
1 896 3 688 225 9 387 8 832 3 379
Income Before Interest and Other
Charges 114 417 123 953 282 195 292 281 594 621 467 986
Interest and Other Charges
Interest on long-term debt 48 021 51 439 97 156 106 500 204 567 215 748
Other interest 5 321 5 817 8 192 11 128 17 890 23 639
Allowance for borrowed funds used
during construction (1 642) (1 986) (2 780) (4 297) (6 548) (10 542)
Preferred dividend requirements of
subsidiaries 6 677 8 657 13 446 17 314 26 985 34 630
58 377 63 927 116 014 130 645 242 894 263 475
Net Income $ 56 040 $ 60 026 $ 166 181 $ 161 636 $ 351 727 $ 204 511
Average Common Shares Outstanding 157 679 156 333 157 677 156 009 157 448 152 331
Earnings Per Common Share $.35 $.39 $1.05 $1.04 $2.23 $1.33
Dividends Declared Per Common Share $.43 $.43 $ .86 $ .86 $1.72 $1.60
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(unaudited)
Cumulative
Foreign
Currency
Common Paid-in Retained Translation Total Common
Stock Capital Earnings Adjustment Stock Equity
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Quarter Ended June 30, 1996
Balance April 1, 1996 $1 577 $1 595 435 $ 992 558 $ $2 589 570
Net income 56 040 56 040
Dividends on common stock (See page 9 for
per share amounts) (67 801) (67 801)
Translation adjustments (567) (567)
Other (515) 206 (309)
Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933
Quarter Ended June 30, 1995
Balance April 1, 1995 $1 559 $1 553 478 $ 911 857 $ $2 466 894
Net income 60 026 60 026
Issuance of 646,854 shares of common
stock - net 7 16 133 16 140
Common stock issuance expenses (5) (5)
Dividends on common stock (See page 9 for
per share amounts) (67 078) (67 078)
Other 1 267 (4 711) (3 444)
Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533
Six Months Ended June 30, 1996
Balance January 1, 1996 $1 577 $1 597 050 $ 950 216 $ $2 548 843
Net income 166 181 166 181
Issuance of 8,988 shares of common
stock - net 311 311
Dividends on common stock (See page 9 for
per share amounts) (135 600) (135 600)
Translation adjustments (567) (567)
Other (2 441) 206 (2 235)
Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933
Six Months Ended June 30, 1995
Balance January 1, 1995 $1 552 $1 535 658 $ 877 061 $ $2 414 271
Net income 161 636 161 636
Issuance of 1,369,293 shares of common
stock - net 14 34 137 34 151
Common stock issuance expenses (189) (189)
Dividends on common stock (See page 9 for
per share amounts) (133 892) (133 892)
Other 1 267 (4 711) (3 444)
Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533
Twelve Months Ended June 30, 1996
Balance July 1, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533
Net income 351 727 351 727
Issuance of 1,111,798 shares of common
stock - net 11 26 517 26 528
Common stock issuance expenses (40) (40)
Dividends on common stock (See page 9 for
per share amounts) (270 559) (270 559)
Translation adjustments (567) (567)
Other (2 430) (259) (2 689)
Balance June 30, 1996 $1 577 $1 594 920 $ 981 003 $(567) $2 576 933
Twelve Months Ended June 30, 1995
Balance July 1, 1994 $1 466 $1 345 023 $ 943 659 $ $2 290 148
Net income 204 511 204 511
Issuance of 9,790,238 shares of common
stock - net 100 229 949 230 049
Common stock issuance expenses (5 388) (5 388)
Dividends on common stock (See page 9 for
per share amounts) (243 797) (243 797)
Other 1 289 (4 279) (2 990)
Balance June 30, 1995 $1 566 $1 570 873 $ 900 094 $ $2 472 533
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date Twelve Months Ended
June 30 June 30
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 166 181 $ 161 636 $ 351 727 $ 204 511
Items providing (using) cash currently
Depreciation 140 792 141 671 278 880 291 043
Deferred income taxes and investment
tax credits - net 32 783 (11 584) 72 778 (9 224)
Allowance for equity funds used
during construction (848) (1 885) (927) (3 755)
Regulatory assets - net 3 023 (2 728) 6 777 (53 891)
Changes in current assets and
current liabilities
Restricted deposits (312) 14 (1 361) 10 186
Accounts receivable, net of
reserves on receivables sold 195 707 47 621 76 445 54 146
Materials, supplies, and fuel 12 182 4 920 58 476 (15 419)
Accounts payable (10 187) (82 067) 73 552 (44 564)
Accrued taxes and interest (70 160) 1 982 (15 507) 23 696
Other items - net 41 956 11 386 42 706 80 875
Net cash provided by (used
in) operating activities 511 117 270 966 943 546 537 604
Financing Activities
Issuance of common stock 311 33 962 26 488 224 661
Issuance of long-term debt - 149 025 195 255 208 935
Funds on deposit from issuance of
long-term debt 973 6 628 4 332 22 124
Retirement of preferred stock of
subsidiaries (15 114) (7) (108 573) (23)
Redemption of long-term debt (161 120) (217 251) (342 702) (217 686)
Change in short-term debt 407 700 15 100 329 500 (75 713)
Dividends on common stock (135 600) (133 892) (270 559) (243 797)
Net cash provided by (used
in) financing activities 97 150 (146 435) (166 259) (81 499)
Investing Activities
Construction expenditures (less
allowance for equity funds used
during construction) (125 785) (160 564) (290 126) (430 199)
Deferred DSM costs - net 790 (10 641) (13 842) (43 056)
Investment in Avon Energy (456 998) - (456 998) -
Equity investment in Argentine utility - - 19 799 - __
Net cash provided by (used
in) investing activities (581 993) (171 205) (741 167) (473 255)
Net increase (decrease) in cash and
temporary cash investments 26 274 (46 674) 36 120 (17 150)
Cash and temporary cash investments at
beginning of period 35 052 71 880 25 206 42 356
Cash and temporary cash investments at
end of period $ 61 326 $ 25 206 $ 61 326 $ 25 206
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter, six months, and twelve months ended June 30, 1996.
For information concerning the results of operations for each of the other
registrants for the same quarter and six months ended, see the discussion
under the heading RESULTS OF OPERATIONS following the financial statements of
each company.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
Kwh Sales
Kwh sales increased 11.2% for the quarter ended June 30, 1996, from the
comparable period of last year partially reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. Higher sales to residential and commercial customers reflected
cooler than normal weather early in the second quarter and an increase in the
average number of customers. Sales to industrial customers increased due to
growth in the primary metals sector.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the second quarter of 1996
increased 17.3% as compared to the same period in 1995. Cooler than normal
weather during the second quarter of 1996 and increases in the average number
of customers led to higher gas sales to retail customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals and chemicals sectors.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended June 30, 1996, increased $42
million (6.8%) as compared to the same period last year primarily as a result
of the higher kwh sales 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 electric operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Electric operating revenues - June 30, 1995 $609
Increase (Decrease) due to change in:
Price per kwh
Retail (8)
Sales for resale
Firm power obligations 4
Non-firm power transactions (1)
Total change in price per kwh (5)
Kwh sales
Retail 28
Sales for resale
Firm power obligations 4
Non-firm power transactions 15
Total change in kwh sales 47
Electric operating revenues - June 30, 1996 $651
Gas Operating Revenues
Gas operating revenues increased $9 million (16.1%) in the second quarter of
1996 when compared to the same period last year. This increase was primarily
a result of the previously discussed changes in gas sales volumes and the
operation of fuel adjustment clauses reflecting a higher average cost of gas
purchased for the period.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended June 30, 1996, increased $17 million
(76.9%) when compared to the same period last year reflecting a higher average
cost per Mcf of gas purchased and an increase in volumes purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $19 million for the quarter ended
June 30, 1996, when compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to other
utilities as a result of increased activity in Cinergy's power marketing
operations.
Other Operation
Other operation expenses for the quarter ended June 30, 1996, increased $25
million (20.1%) as compared to the same period last year. This increase is
due to a number of factors, including higher administrative and general
expenses reflecting, in part, charges of $17.4 million for early retirement
and severance program costs.
Maintenance
The $5 million (10.3%) increase in maintenance expense for the second quarter
of 1996 as compared to the same period of 1995 is primarily due to increased
maintenance on CG&E's electric production facilities. The commercial
operation of the Clean Coal Project in November 1995 also contributed to the
increased maintenance expenses.
Phase-in Deferred Return and Amortization of Phase-in Deferrals
Phase-in deferred return and amortization of phase-in deferrals reflect a
PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the
first three years of the rate phase-in plan, rates charged to customers did
not fully recover depreciation expense and return on investment. This
deficiency was deferred and is being recovered over a seven-year period that
began in May 1995.
Interest and Other Charges
Interest on Long-term Debt and Other Interest
Interest charges decreased $4 million (6.8%) for the three months ended June
30, 1996, from the same period of 1995 primarily due to the redemption of
$161.5 million of long-term debt by CG&E and ULH&P during the period from
January 1996 through May 1996. Additionally, interest on short-term debt
decreased as PSI and ULH&P borrowed funds through an internally funded Money
Pool, reducing outside borrowings at higher interest rates.
Preferred Dividend Requirements of Subsidiaries
The decrease in the preferred dividend requirement of $2 million (22.9%) for
the quarter ended June 30, 1996, from the same period of 1995 was due to the
early redemption in July 1995 of all 400,000 shares and 500,000 shares of
CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
Kwh Sales
Kwh sales increased 12.0% for the six months ended June 30, 1996, from the
comparable period of last year partially reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. Also contributing to the higher kwh sales levels were increased
sales to residential and commercial customers as a result of colder weather in
the first quarter of 1996 and cooler than normal weather early in the second
quarter of 1996. Additionally, the increase reflects a higher average number
of residential and commercial customers, while industrial sales increased
primarily due to growth in the primary metals sector.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first six months of 1996
increased 14.0% as compared to the same period in 1995. Colder weather during
the first quarter of 1996, cooler than normal weather early in the second
quarter of 1996, and increases in the average number of customers led to
higher gas sales to residential and commercial customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals and chemicals sectors.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the six
months ended June 30, 1996, increased $95 million (7.6%) reflecting the
increased kwh sales, as previously discussed. In addition, PSI's 4.3% retail
rate increase approved in the February 1995 Order and a 1.9% increase for
carrying costs on CWIP property which was approved by the IURC in March 1995
contributed to the increase. The aforementioned operation of fuel adjustment
clauses partially offset these increases.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1995 $1 241
Increase (Decrease) due to change in:
Price per kwh
Retail (14)
Sales for resale
Firm power obligations (1)
Non-firm power transactions 3
Total change in price per kwh (12)
Kwh sales
Retail 70
Sales for resale
Firm power obligations 8
Non-firm power transactions 29
Total change in kwh sales 107
Electric operating revenues - June 30, 1996 $1 336
Gas Operating Revenues
Gas operating revenues increased $33 million (14.3%) in the first six months
of 1996 when compared to the same period last year. This increase was
primarily a result of the previously discussed changes in gas sales volumes.
Also contributing to the increase was the operation of fuel adjustment clauses
reflecting a higher cost of gas purchased for the period.
Operating Expenses
Gas Purchased
Gas purchased for the six months ended June 30, 1996, increased $16 million
(13.8%) when compared to the same period last year. This increase was
attributable to an increase in volumes purchased and a higher average cost per
Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $41 million for the six months
ended June 30, 1996, when compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to other
utilities as a result of increased activity in Cinergy's power marketing
operations.
Other Operation
Other operation expenses for the six months ended June 30, 1996, increased $54
million (22.5%), as compared to the same period last year. This increase is
due to a number of factors, including higher administrative and general
expenses reflecting, in part, charges of $17.4 million for early retirement
and severance programs. Other factors include the recognition by PSI of
postretirement benefit costs on an accrual basis, an increase in the ongoing
level of DSM expenses, and the amortization of deferred postretirement benefit
costs and deferred DSM costs, which are being recovered in revenues pursuant
to the February 1995 Order.
Phase-in Deferred Return and Amortization of Phase-in Deferrals
As previously discussed, phase-in deferred return and amortization of phase-in
deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the
May 1992 Order.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service deferred operating expenses - net reflects the deferral of
depreciation on certain major projects, primarily environmental in nature,
from the in-service date until the related projects are reflected in retail
rates, net of amortization of these deferrals as they are recovered.
Other - net
The $8 million change in other - net is due, in part, to expenses associated
with CG&E's and ULH&P's sales of accounts receivables. These expenses were
partially offset by Cinergy's equity in the earnings of Avon Energy.
Interest and Other Charges
Interest on Long-term Debt and Other Interest
Interest charges decreased $12 million (10.4%) for the six months ended June
30, 1996, from the same period of 1995 primarily due to the refinancing of
over $330 million of long-term debt during the period from March 1995 through
November 1995 and the redemption of $161.5 million during the period from
January 1996 through May 1996. Additionally, interest on short-term debt
decreased as PSI and ULH&P borrowed funds through an internally funded Money
Pool, reducing outside borrowings at higher interest rates.
Preferred Dividend Requirements of Subsidiaries
The decrease in the preferred dividend requirement of $4 million (22.3%) for
the six months ended June 30, 1996, from the same period of 1995 was due to
the early redemption in July 1995 of all 400,000 shares and 500,000 shares of
CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1996
Kwh Sales
Kwh sales increased 11.8% for the twelve months ended June 30, 1996, from the
comparable period of last year partially reflecting increased activity in
Cinergy's power marketing operations which led to higher non-firm power sales
for resale. Also contributing to the higher kwh sales levels were increased
sales to residential and commercial customers as a result of warmer weather in
the third quarter of 1995, colder weather during the fourth quarter of 1995
and the first quarter of 1996, and cooler than normal weather during the
second quarter of 1996. Additionally, the increase reflects a higher average
number of residential and commercial customers, while industrial sales
increased primarily due to growth in the primary metals sector.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the twelve months ended June 30,
1996, increased 17.4% as compared to the same period in 1995. Colder weather
during the winter heating season and increases in the average number of
customers led to higher gas sales to retail customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals sector.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the
twelve months ended June 30, 1996, increased $238 million (9.6%), reflecting
increased kwh sales and PSI's rate increases, as previously discussed. The
aforementioned operation of fuel adjustment clauses partially offset these
increases.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1995 $2 469
Increase (Decrease) due to change in:
Price per kwh
Retail (3)
Sales for resale
Firm power obligations (6)
Non-firm power transactions 11
Total change in price per kwh 2
Kwh sales
Retail 181
Sales for resale
Firm power obligations 15
Non-firm power transactions 40
Total change in kwh sales 236
Electric operating revenues - June 30, 1996 $2 707
Gas Operating Revenues
Gas operating revenues increased $60 million (15.6%) for the twelve months
ended June 30, 1996, when compared to the same period last year. This
increase was primarily a result of the previously discussed changes in gas
sales volumes.
Operating Expenses
Gas Purchased
Gas purchased for the twelve months ended June 30, 1996, increased $30 million
(15.6%) when compared to the same period last year. This increase was
attributed to an increase in volumes purchased which was partially offset by a
lower average cost per Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $58 million for the twelve months
ended June 30, 1996, when compared to the same period of last year,
primarily reflecting increased purchases of non-firm power for resale to
other utilities as a result of increased activity in Cinergy's power
marketing operations.
Phase-in Deferred Return and Amortization of Phase-in Deferrals
As previously discussed, phase-in deferred return and amortization of phase-in
deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the
May 1992 Order.
Post-in-service Deferred Operating Expenses - Net
Post-in-service deferred operating expenses - net reflects, in large part, the
deferral of depreciation on certain major projects, primarily environmental in
nature, from the in-service date until the related projects are reflected in
retail rates, net of amortization of these deferrals as they are recovered.
Taxes Other than Income Taxes
Taxes other than income taxes increased $14 million (5.5%) over the same
period of 1995 primarily due to increased property taxes resulting from a
greater investment in taxable property and higher property tax rates.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $7 million (82.1%) for the twelve
months ended June 30, 1996, from the comparable period of last year. This
decrease is a result of PSI's discontinuing the accrual of post-in-service
carrying costs on qualified environmental projects upon the inclusion in rates
of the costs of the projects pursuant to the February 1995 Order. Partially
offsetting the decrease is the accrual of the aforementioned costs on the
Clean Coal Project which began commercial operation in November 1995.
Other - net
Other - net increased $17 million (60.0%) for the twelve months ended June 30,
1996, from the comparable period of 1995, reflecting $4 million of interest on
an income tax refund related to prior years, a $10 million gain on the sale of
an Argentine utility, Cinergy's equity in the earnings of Avon Energy, and
charges of $14 million in 1994 for merger-related and other expenditures which
cannot be recovered from customers. These items were partially offset by a
number of factors, including charges associated with winding-down certain non-
utility activities during 1995 and expenses associated with CG&E's and ULH&P's
sales of accounts receivables.
Interest and Other Charges
Interest on Long-term Debt and Other Interest
Interest charges decreased $17 million (7.1%) for the twelve months ended June
30, 1996, from the same period of 1995 primarily due to the refinancing of
over $330 million of long-term debt by CG&E and ULH&P during the period from
March 1995 through November 1995 and the redemption of $161.5 million during
the period from January 1996 through May 1996. Additionally, interest on
short-term debt decreased as PSI and ULH&P borrowed funds through an
internally funded Money Pool, reducing outside borrowings at higher interest
rates.
Preferred Dividend Requirements of Subsidiaries
The decrease in the preferred dividend requirement of $8 million (22.1%) for
the twelve months ended June 30, 1996, from the same period of 1995 was due to
the early redemption in July 1995 of all 400,000 shares and 500,000 shares of
CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4 604 245 $4 564 711
Gas 693 032 680 339
Common 184 477 183 422
5 481 754 5 428 472
Accumulated depreciation 1 802 626 1 730 232
3 679 128 3 698 240
CWIP 77 271 77 661
Total utility plant 3 756 399 3 775 901
Current Assets
Cash and temporary cash investments 31 855 6 612
Restricted deposits 1 170 1 144
Notes receivable from affiliated companies 105 741 24 715
Accounts receivable less accumulated
provision of $11,988 at June 30, 1996, and
$9,615 at December 31, 1995, for doubtful
accounts 75 488 292 493
Accounts receivable from affiliated companies 13 511 17 162
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 30 169 40 395
Gas stored for current use 24 237 21 493
Other materials and supplies 51 862 55 388
Property taxes applicable to subsequent year 58 411 116 822
Prepayments and other 39 303 30 572
431 747 606 796
Other Assets
Regulatory assets
Amounts due from customers - income taxes 350 555 397 155
Post-in-service carrying costs and deferred
operating expenses 144 903 148 316
Phase-in deferred return and depreciation 97 776 100 388
Deferred DSM costs 25 264 19 158
Deferred merger costs 19 482 14 538
Unamortized costs of reacquiring debt 40 243 39 428
Other 31 252 41 025
Other 87 059 54 691
796 534 814 699
$4 984 680 $5 197 396
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
June 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $8.50 par value; authorized shares
- 120,000,000; outstanding shares - 89,663,086
at June 30, 1996, and December 31, 1995 $ 762 136 $ 762 136
Paid-in capital 339 099 339 101
Retained earnings 464 351 427 226
Total common stock equity 1 565 586 1 528 463
Cumulative Preferred Stock
Not subject to mandatory redemption 40 000 40 000
Subject to mandatory redemption 160 000 160 000
Long-term Debt 1 694 627 1 702 650
Total capitalization 3 460 213 3 431 113
Current Liabilities
Long-term debt due within one year - 151 500
Accounts payable 139 793 138 735
Accounts payable to affiliated companies 7 668 20 468
Accrued taxes 180 019 250 189
Accrued interest 32 144 31 299
Other 41 594 40 409
401 218 632 600
Other Liabilities
Deferred income taxes 782 088 795 385
Unamortized investment tax credits 125 834 129 372
Accrued pension and other postretirement benefit
costs 143 941 117 641
Other 71 386 91 285
1 123 249 1 133 683
$4 984 680 $5 197 396
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
June 30 June 30
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues
Electric (including revenues from
affiliated companies of $7,987
and $8,110 for quarter ended
and $20,335 and $15,059 year-
to-date for 1996 and 1995,
respectively) $371 208 $336 523 $ 746 837 $686 479
Gas 66 121 56 975 265 276 232 186
437 329 393 498 1 012 113 918 665
Operating Expenses
Fuel used in electric production 87 451 84 464 184 558 168 537
Gas purchased 39 955 22 587 133 180 117 080
Purchased and exchanged power
Non-affiliated companies 7 233 1 780 13 666 2 696
Affiliated companies 2 019 9 132 8 755 18 721
Other operation 89 147 65 801 168 727 134 723
Maintenance 24 922 21 446 45 901 44 979
Depreciation 40 248 39 687 80 235 79 224
Amortization of phase-in deferrals 3 399 2 273 6 799 2 273
Amortization of post-in-service
deferred operating expenses 822 822 1 645 1 645
Income taxes 19 337 24 217 74 227 67 563
Taxes other than income taxes 53 344 50 331 104 913 100 987
367 877 322 540 822 606 738 428
Operating Income 69 452 70 958 189 507 180 237
Other Income and Expenses - Net
Allowance for equity funds used
during construction 497 281 848 877
Phase-in deferred return 2 093 2 134 4 186 4 268
Income taxes 1 799 1 620 3 480 2 827
Other - net (3 904) (560) (4 590) 405
485 3 475 3 924 8 377
Income Before Interest 69 937 74 433 193 431 188 614
Interest
Interest on long-term debt 30 988 33 490 63 088 70 601
Other interest 482 1 421 944 2 247
Allowance for borrowed funds used
during construction (962) (900) (1 785) (1 880)
30 508 34 011 62 247 70 968
Net Income 39 429 40 422 131 184 117 646
Preferred Dividend Requirement 3 474 5 362 6 948 10 724
Net Income Applicable to Common Stock $ 35 955 $ 35 060 $ 124 236 $106 922
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1996 1995
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 131 184 $ 117 646
Items providing (using) cash currently
Depreciation 80 235 79 224
Deferred income taxes and investment tax
credits - net 29 939 (15 959)
Allowance for equity funds used during
construction (848) (877)
Regulatory assets - net 12 951 2 803
Changes in current assets and current
liabilities
Restricted deposits (26) (2)
Accounts and notes receivable, net of
reserves on receivables sold 117 341 51 246
Materials, supplies, and fuel 11 008 11 423
Accounts payable (11 742) (34 987)
Accrued taxes and interest (69 325) 5 628
Other items - net 44 276 (3 746)
Net cash provided by (used in)
operating activities 344 993 212 399
Financing Activities
Issuance of long-term debt - 149 025
Redemption of long-term debt (161 120) (217 196)
Change in short-term debt - (1 000)
Dividends on preferred stock (6 948) (10 724)
Dividends on common stock (87 111) (107 550)
Net cash provided by (used in)
financing activities (255 179) (187 445)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (58 465) (69 726)
Deferred DSM costs - net (6 106) (4 244)
Net cash provided by (used in)
investing activities (64 571) (73 970)
Net increase (decrease) in cash and
temporary cash investments 25 243 (49 016)
Cash and temporary cash investments at
beginning of period 6 612 52 516
Cash and temporary cash investments at
end of period $ 31 855 $ 3 500
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
Kwh Sales
Kwh sales for the quarter ended June 30, 1996, increased 12.8% over the same
period of 1995. This increase was due to higher kwh sales to all customer
classes. Increased residential and commercial sales resulted from cooler than
normal weather early in the second quarter and increases in the average number
of customers. Increased industrial sales primarily reflects growth in the
primary metals sector. Also contributing to the higher kwh sales levels was
increased activity in Cinergy's power marketing operations which led to higher
non-firm power sales for resale.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the second quarter of 1996
increased 17.3% as compared to the same period in 1995. Cooler than normal
weather during the second quarter of 1996 and increases in the average number
of customers led to higher gas sales to retail customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals and chemicals sectors.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $34 million (10.3%) for the quarter
ended June 30, 1996, over the comparable period of 1995. This increase was
primarily attributable to higher kwh sales as previously discussed.
An analysis of electric operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Electric operating revenues - June 30, 1995 $337
Increase (Decrease) due to change in:
Price per kwh
Retail 3
Sales for resale
Non-firm power transactions (6)
Total change in price per kwh (3)
Kwh sales
Retail 31
Sales for resale
Non-firm power transactions 6
Total change in kwh sales 37
Electric operating revenues - June 30, 1996 $371
Gas Operating Revenues
Gas operating revenues increased $9 million (16.1%) in the second quarter of
1996 when compared to the same period last year. This increase was primarily
a result of the previously discussed changes in gas sales volumes and the
operation of fuel adjustment clauses reflecting a higher average cost of gas
purchased for the period.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended June 30, 1996, increased $17 million
(76.9%) when compared to the same period last year reflecting a higher average
cost per Mcf of gas purchased and an increase in volumes purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended June 30, 1996, decreased
$2 million (15.2%) over the comparable period of 1995 reflecting decreased
power purchases from PSI. The decrease is partially offset by increased
purchases of non-firm power for resale to other utilities as a result of
increased activity in Cinergy's power marketing operations.
Other Operation
For the three months ended June 30, 1996, other operation expenses increased
$23 million (35.5%) due to a number of factors, including higher
administrative and general expenses reflecting, in part, $16.2 million for
early retirement and severance program costs.
Maintenance
The $3 million (16.2%) increase in maintenance expense for the second quarter
of 1996 as compared to the same period of 1995 is primarily due to increased
maintenance on electric production facilities.
Phase-in Deferred Return and Amortization of Phase-in Deferrals
Phase-in deferred return and amortization of phase-in deferrals reflect a
PUCO-ordered phase-in plan for Zimmer included in the May 1992 Order. In the
first three years of the rate phase-in plan, rates charged to customers did
not fully recover depreciation expense and return on investment. This
deficiency was deferred and is being recovered over a seven-year period that
began in May 1995.
Interest
Interest on Long-term debt
Interest charges decreased $3 million (7.5%) for the three months ended June
30, 1996, from the same period of 1995 primarily due to the redemption of
$161.5 million of long-term debt during the period from January 1996 through
May 1996.
Preferred Dividend Requirement
The decrease in the preferred dividend requirement of $2 million (35.2%) for
the quarter ended June 30, 1996, from the same period of 1995 was due to the
early redemption in July 1995 of all 400,000 shares and 500,000 shares of
CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
Kwh Sales
Kwh sales for the six months ended June 30, 1996, increased 13.3% over the
same period of 1995. This increase was due to higher kwh sales to all customer
classes. Increased residential and commercial sales resulted from colder
weather in the first quarter of 1996, cooler than normal weather early in the
second quarter of 1996, and increases in the average number of customers.
Increased industrial sales primarily reflects growth in the primary metals
sector. Increased activity in Cinergy's power marketing operations which led
to higher non-firm power sales for resale also contributed to the increase.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the first six months of 1996
increased 14.0% as compared to the same period in 1995. Colder weather during
the first quarter of 1996, cooler than normal weather early in the second
quarter of 1996, and increases in the average number of customers led to
higher gas sales to residential and commercial customers. Industrial sales
decreased as customers continued to purchase gas directly from suppliers,
using transportation services provided by CG&E. The increase in
transportation volumes, which more than offset the decline in industrial
sales, mainly reflects demand for gas transportation services in the primary
metals and chemicals sectors.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $61 million (8.8%) for the six months
ended June 30, 1996, over the comparable period of 1995. This increase
primarily reflects the higher kwh sales discussed above.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1995 $686
Increase (Decrease) due to change in:
Price per kwh
Retail 2
Sales for resale
Non-firm power transactions (12)
Total change in price per kwh (10)
Kwh sales
Retail 52
Sales for resale
Firm power obligations 1
Non-firm power transactions 18
Total change in kwh sales 71
Electric operating revenues - June 30, 1996 $747
Gas Operating Revenues
Gas operating revenues increased $33 million (14.3%) in the first six months
of 1996 when compared to the same period last year. This increase was
primarily a result of the previously discussed changes in gas sales volumes.
Also contributing to the increase was the operation of fuel adjustment clauses
reflecting a higher cost of gas purchased for the period.
Operating Expenses
Gas Purchased
Gas purchased for the six months ended June 30, 1996, increased $16 million
(13.8%) when compared to the same period last year. This increase was
attributable to an increase in volumes purchased and a higher average cost per
Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the six months ended June 30, 1996,
increased $1 million (4.7%) over the comparable period of 1995. This increase
primarily reflects increased purchases of non-firm power for resale to other
utilities as a result of increased activity in Cinergy's power marketing
operations. This increase is partially offset by a decrease in purchases from
PSI.
Other Operation
For the six months ended June 30, 1996, other operation expenses increased $34
million (25.2%) due to a number of factors, including higher administrative
and general expenses reflecting, in part, $16.2 million of early retirement
and severance program costs.
Phase-in Deferred Return and Amortization of Phase-in Deferrals
As previously discussed, phase-in deferred return and amortization of phase-in
deferrals reflect the PUCO-ordered phase-in plan for Zimmer included in the
May 1992 Order.
Interest
Interest on Long-term Debt
Interest charges decreased $8 million (10.6%) for the six months ended June
30, 1996, from the same period of 1995 primarily due to the refinancing of
over $330 million of long-term debt during the period from March 1995 through
November 1995 and the redemption of $161.5 million of long-term debt during
the period from January 1996 through May 1996.
Preferred Dividend Requirement
The decrease in the preferred dividend requirement of $4 million (35.2%) for
the six months ended June 30, 1996, from the same period of 1995 was due to
the early redemption in July 1995 of all 400,000 shares and 500,000 shares of
CG&E's 7.44% Series and 9.15% Series $100 par value cumulative preferred
stock, respectively.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANIES
<PAGE>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30 December 31
1996 1995
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4 085 778 $4 052 984
Accumulated depreciation 1 672 690 1 637 169
2 413 088 2 415 815
CWIP 70 846 58 191
Total electric utility plant 2 483 934 2 474 006
Current Assets
Cash and temporary cash investments 6 498 15 522
Restricted deposits 505 1 187
Accounts receivable less accumulated provision
of $308 at June 30, 1996, and $468 at
December 31, 1995, for doubtful accounts 60 545 73 419
Accounts receivable from affiliated companies 1 638 20 568
Materials, supplies, and fuel - at average cost
Fuel 76 913 82 014
Other materials and supplies 33 382 29 462
Prepayments and other 3 052 1 234
182 533 223 406
Other Assets
Regulatory assets
Amounts due from customers - income taxes 32 419 26 338
Post-in-service carrying costs and deferred
operating expenses 43 064 38 874
Deferred DSM costs 103 346 110 242
Deferred merger costs 61 611 42 286
Unamortized costs of reacquiring debt 33 214 34 476
Other 37 309 33 886
Other 109 379 92 056
420 342 378 158
$3 086 809 $3 075 570
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
<PAGE>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
June 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 at June 30,
1996, and December 31, 1995 $ 539 $ 539
Paid-in capital 402 945 403 253
Accumulated earnings subsequent to November 30,
1986, quasi-reorganization 616 182 625 275
Total common stock equity 1 019 666 1 029 067
Cumulative Preferred Stock
Not subject to mandatory redemption 173 090 187 897
Long-term Debt 828 673 828 116
Total capitalization 2 021 429 2 045 080
Current Liabilities
Long-term debt due within one year 50 400 50 400
Notes payable 99 500 165 800
Notes payable to affiliated companies 88 407 32 731
Accounts payable 108 304 116 817
Accounts payable to affiliated companies 14 066 -
Litigation settlement 80 000 80 000
Accrued taxes 65 208 65 851
Accrued interest 24 556 24 696
Other 16 191 16 000
546 632 552 295
Other Liabilities
Deferred income taxes 344 830 331 876
Unamortized investment tax credits 54 553 56 354
Accrued pension and other postretirement benefit
costs 67 162 54 130
Other 52 203 35 835
518 748 478 195
$3 086 809 $3 075 570
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
June 30 June 30
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues (including revenues
from affiliated companies of $2,019
and $9,132 for quarter ended and
$8,755 and $18,721 year-to-date
for 1996 and 1995, respectively) $289 512 $289 743 $617 807 $588 791
Operating Expenses
Fuel 76 354 84 730 170 699 186 566
Purchased and exchanged power
Non-affiliated companies 23 569 9 861 44 757 14 611
Affiliated companies 7 987 8 110 20 335 15 059
Other operation 59 458 57 944 126 009 105 759
Maintenance 23 242 22 215 45 905 43 004
Depreciation 30 349 28 528 60 557 62 447
Post-in-service deferred operating
expenses - net (1 686) (887) (3 352) (3 714)
Income taxes 13 269 16 482 32 152 35 655
Taxes other than income taxes 13 464 13 407 27 632 26 699
246 006 240 390 524 694 486 086
Operating Income 43 506 49 353 93 113 102 705
Other Income and Expenses - Net
Allowance for equity funds used during
construction - 650 - 1 008
Post-in-service carrying costs 494 13 837 2 581
Income taxes (1 654) 349 (894) 46
Other - net 1 798 (384) (1 860) (2 296)
638 628 (1 917) 1 339
Income Before Interest 44 144 49 981 91 196 104 044
Interest
Interest on long-term debt 17 033 17 949 34 068 35 899
Other interest 3 128 3 896 6 596 7 873
Allowance for borrowed funds used
during construction (680) (1 086) (995) (2 417)
19 481 20 759 39 669 41 355
Net Income 24 663 29 222 51 527 62 689
Preferred Dividend Requirement 3 203 3 295 6 498 6 590
Net Income Applicable to Common Stock $ 21 460 $ 25 927 $ 45 029 $ 56 099
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1996 1995
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 51 527 $ 62 689
Items providing (using) cash currently
Depreciation 60 557 62 447
Deferred income taxes and investment tax
credits - net 4 078 6 597
Allowance for equity funds used during
construction - (1 008)
Regulatory assets - net (9 928) (5 531)
Changes in current assets and current
liabilities
Restricted deposits (291) 16
Accounts receivable, net of reserves on
receivables sold 19 775 (12 051)
Materials, supplies, and fuel 1 181 (6 779)
Accounts payable 5 553 (35 975)
Accrued taxes and interest (783) (2 581)
Other items - net 4 647 12 273
Net cash provided by (used in)
operating activities 136 316 80 097
Financing Activities
Funds on deposit from issuance of long-term debt 973 6 628
Retirement of preferred stock (15 114) (7)
Redemption of long-term debt - (55)
Change in short-term debt (10 624) 15 927
Dividends on preferred stock (6 589) (6 590)
Dividends on common stock (54 052) -
Net cash provided by (used in)
financing activities (85 406) 15 903
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (66 830) (90 838)
Deferred DSM costs - net 6 896 (6 397)
Net cash provided by (used in)
investing activities (59 934) (97 235)
Net increase (decrease) in cash and temporary
cash investments (9 024) (1 235)
Cash and temporary cash investments at beginning
of period 15 522 6 341
Cash and temporary cash investments at end of
period $ 6 498 $ 5 106
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
Kwh Sales
Kwh sales for the second quarter of 1996 increased 12.5% when compared to the
same period last year. Increased activity in Cinergy's power marketing
operations led to higher non-firm power sales for resale. This increase also
reflects higher kwh sales to retail customers as a result of cooler weather
early in the second quarter of 1996 and an increase in the number of customers
in all customer classes. The increased industrial sales primarily reflects
growth in the transportation equipment and food products sectors.
Operating Revenues
Total operating revenues remained relatively unchanged for the quarter ended
June 30, 1996, showing less than a 0.1% decrease when compared to the same
period last year. This slight decrease reflects, in part, the operation of
fuel clause adjustment factors reflecting a lower average cost of kwh
generated. These decreases were almost wholly offset by the change in kwh
sales, as previously discussed.
An analysis of operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Operating revenues - June 30, 1995 $290
Increase (Decrease) due to change in:
Price per kwh
Retail (15)
Sales for resale
Firm power obligations 4
Non-firm power transactions (8)
Total change in price per kwh (19)
Kwh sales
Retail 1
Sales for resale
Firm power obligations 3
Non-firm power transactions 15
Total change in kwh sales 19
Operating revenues - June 30, 1996 $290
Operating Expenses
Fuel
Fuel costs, PSI's largest operating expense, decreased $9 million (9.9%) for
the second quarter of 1996 as compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1995 $ 85
Increase (Decrease) due to change in:
Price of fuel (11)
Kwh generation 2
Fuel expense - June 30, 1996 $ 76
Purchased and Exchanged Power
For the quarter ended June 30, 1996, purchased and exchanged power increased
$14 million, as compared to the same period last year, primarily reflecting
increased purchases of non-firm power for resale to other utilities as a
result of increased activity in Cinergy's power marketing operations.
Maintenance
The $1 million (4.6%) increase in maintenance expense for the second quarter
of 1996, as compared to the same period of 1995, is primarily a result of
maintenance on the Clean Coal Project which began commercial operation in
November 1995.
Depreciation
Depreciation expense increased $2 million (6.4%) for the quarter ended
June 30, 1996, as compared to the second quarter of last year. This increase
primarily reflects additions to utility plant in service.
Post-in-service Deferred Operating Expenses - Net
Post-in-service deferred operating expenses - net reflects the deferral of
depreciation on certain major projects, primarily environmental in nature,
from the in-service date until the related projects are reflected in retail
rates, net of amortization of these deferrals as they are recovered.
Interest
Other interest
Other interest decreased $1 million (19.7%) for the second quarter of 1996, as
compared to the second quarter of 1995. The decrease was driven primarily by
lower interest rates and a decrease in the average short-term debt
outstanding.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
Kwh Sales
For the six months ended June 30, 1996, kwh sales increased 15.4% when
compared to the same period last year due, in large part, to increased
activity in Cinergy's power marketing operations which led to higher
non-firm power sales for resale. Also contributing to the total kwh sales
levels were increased sales to all retail customer classes. Higher
residential and commercial sales resulted from colder weather in the first
quarter, cooler than normal weather early in the second quarter, and
increases in the number of residential and commercial customers. Increased
industrial sales reflects growth in the food products, primary metals, and
transportation equipment sectors.
Operating Revenues
Total operating revenues increased $29 million (4.9%) for the six months
ended June 30, 1996, when compared to the same period last year. This
increase primarily reflects the increase in kwh sales previously discussed.
Also contributing to the increase was a 4.3% retail rate increase approved
in the February 1995 Order and a 1.9% rate increase for carrying costs on
CWIP property which was approved by the IURC in March 1995. Partially
offsetting these increases was 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:
Six Months
Ended June 30
(in millions)
Operating revenues - June 30, 1995 $589
Increase (Decrease) due to change in:
Price per kwh
Retail (19)
Sales for resale
Firm power obligations (1)
Non-firm power transactions (11)
Total change in price per kwh (31)
Kwh sales
Retail 21
Sales for resale
Firm power obligations 8
Non-firm power transactions 32
Total change in kwh sales 61
Other (1)
Operating revenues - June 30, 1996 $618
Operating Expenses
Fuel
Fuel costs for the six months ended June 30, 1996, decreased $16 million
(8.5%) when compared to the same period last year.
An analysis of fuel costs is shown below:
Six Months
Ended June 30
(in millions)
Fuel expense - June 30, 1995 $187
Increase (Decrease) due to change in:
Price of fuel (19)
Kwh generation 3
Fuel expense - June 30, 1996 $171
Purchased and Exchanged Power
For the six months ended June 30, 1996, purchased and exchanged power
increased $35 million, as compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to other
utilities as a result of increased activity in Cinergy's power marketing
operations and increased purchases from CG&E as a result of the
coordination of PSI's and CG&E's electric dispatch systems.
Other Operation
Other operation expenses increased $20 million (19.1%) for the six months
ended June 30, 1996, as compared to the same period last year. This
increase was due to a number of factors, including the recognition of
postretirement benefit costs on an accrual basis, an increase in the
ongoing level of DSM expenses, and the amortization of deferred
postretirement benefit costs and deferred DSM costs, all of which are being
recovered in revenues pursuant to the February 1995 Order. Increased
production and transmission expenses also contributed to the higher level
of other operation expenses.
Maintenance
Maintenance expenses for the first six months of 1996, as compared to the
same period last year, increased $3 million (6.7%) due in part to increases
in production and distribution expenses.
Other Income and Expenses - Net
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $2 million (67.6%) for the six months
ended June 30, 1996, from the comparable period of 1995 as a result of
discontinuing the accrual of post-in-service carrying costs on qualified
environmental projects upon the inclusion in rates of the costs of the
projects pursuant to the February 1995 Order.
Interest
Other interest
Other interest decreased $1 million (16.2%) for the six month period ended
June 30, 1996, as compared to the same period of 1995. The decrease was
primarily due to lower interest rates and a decrease in the average short-term
debt outstanding.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
(unaudited)
ASSETS
June 30 December 31
1996 1995
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $191 920 $188 508
Gas 144 163 140 604
Common 19 036 19 068
355 119 348 180
Accumulated depreciation 118 076 112 812
237 043 235 368
CWIP 7 846 7 863
Total utility plant 244 889 243 231
Current Assets
Cash and temporary cash investments 688 1 750
Accounts receivable less accumulated
provision of $1,523 in 1996, and
$1,035 in 1995 for doubtful accounts 3 646 37 895
Accounts receivable from affiliated companies 669 -
Materials, supplies, and fuel - at average cost
Gas stored for current use 4 656 4 513
Other materials and supplies 1 373 1 215
Property taxes applicable to subsequent year 1 175 2 350
Prepayments and other 435 485
12 642 48 208
Other Assets
Regulatory assets
Deferred merger costs 1 785 1 785
Unamortized costs of reacquiring debt 3 848 2 526
Other 2 525 2 548
Other 5 788 1 499
13 946 8 358
$271 477 $299 797
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
June 30 December 31
1996 1995
(dollars in thousands)
Common Stock Equity
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 at
June 30, 1996, and December 31, 1995 $ 8 780 $ 8 780
Paid-in capital 18 839 18 839
Retained earnings 93 075 82 863
Total common stock equity 120 694 110 482
Long-term Debt 44 590 54 377
Total capitalization 165 284 164 859
Current Liabilities
Long-term debt due within one year - 15 000
Notes payable to affiliated companies 5 558 -
Accounts payable 6 308 11 057
Accounts payable to affiliated companies 25 113 44 708
Accrued taxes 2 426 1 993
Accrued interest 1 326 1 549
Other 6 302 5 505
47 033 79 812
Other Liabilities
Deferred income taxes 30 467 23 728
Unamortized investment tax credits 4 938 5 079
Accrued pension and other postretirement
benefit costs 13 041 12 202
Income taxes refundable through rates 4 901 4 717
Other 5 813 9 400
59 160 55 126
$271 477 $299 797
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
June 30 June 30
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $42 933 $47 823 $ 95 266 $ 87 382
Gas 11 076 9 372 45 134 39 875
54 009 57 195 140 400 127 257
Operating Expenses
Electricity purchased from parent
company for resale 31 887 36 936 69 487 66 975
Gas purchased 5 125 4 156 24 123 21 716
Other operation 7 149 7 258 16 396 15 053
Maintenance 1 186 984 2 352 2 137
Depreciation 2 967 2 871 5 874 5 646
Income taxes 1 246 873 6 757 3 961
Taxes other than income taxes 1 035 971 2 106 1 979
50 595 54 049 127 095 117 467
Operating Income 3 414 3 146 13 305 9 790
Other Income and Expense - Net
Allowance for equity funds used during
construction - 67 (21) 56
Income taxes 31 (34) 27 (38)
Other - net (424) 71 (643) 67
(393) 104 (637) 85
Income Before Interest 3 021 3 250 12 668 9 875
Interest
Interest on long-term debt 960 1 914 2 254 3 953
Other interest 159 54 266 219
Allowance for borrowed funds used during
construction (54) (31) (64) (96)
1 065 1 937 2 456 4 076
Net Income $ 1 956 $ 1 313 $ 10 212 $ 5 799
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1996 1995
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 10 212 $ 5 799
Items providing (using) cash currently
Depreciation 5 874 5 646
Deferred income taxes and investment tax credits - net 6 782 (342)
Allowance for equity funds used during construction 21 (56)
Regulatory assets - net 22 85
Changes in current assets and current liabilities
Accounts receivable, net of reserves on receivables sold 30 029 8 091
Materials, supplies, and fuel (301) 2 084
Accounts payable (24 344) 1 240
Accrued taxes and interest 210 2 159
Other items - net (302) 3 973
Net cash provided by (used in) operating activities 28 203 28 679
Financing Activities
Redemption of long-term debt (26 863) (15 734)
Change in short-term debt 5 558 (1 000)
Net cash provided by (used in) financing activities (21 305) (16 734)
Investing Activities
Construction expenditures (less allowance for equity funds
used during construction) (7 960) (9 768)
Net cash provided by (used in) investing activities (7 960) (9 768)
Net increase (decrease) in cash and temporary cash investment (1 062) 2 177
Cash and temporary cash investments at beginning of period 1 750 1 071
Cash and temporary cash investments at end of period $ 688 $ 3 248
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial
statements.
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the second quarter ended June 30,
1996, increased 17.4% as compared to the same period in 1995. Cooler than
normal weather during the second quarter of 1996 and increases in the average
number of customers led to higher gas sales to residential and commercial
customers. Industrial sales decreased as customers continued to purchase gas
directly from suppliers using transportation services provided by ULH&P. The
increase in transportation volumes, which more than offset the decline in
industrial sales, was primarily a result of growth in the chemicals and
primary metals sectors.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $4.9 million (10.2%) for the quarter
ended June 30, 1996, from the comparable period of 1995. This decrease
primarily reflects a lower average cost of electricity purchased. On July 3,
1996, the KPSC issued an order authorizing a decrease in electric rates of
approximately $1.8 million annually to reflect a reduction in the cost of
electricity purchased from CG&E, retroactive to July 3, 1995. In June 1996,
ULH&P accrued the retroactive portion of this rate reduction.
Gas Operating Revenues
Gas operating revenues increased $1.7 million (18.2%) in the second quarter of
1996 when compared to the same period of last year. This increase was
primarily a result of the previously discussed changes in gas sales volumes
and an increase in the average cost per Mcf purchased.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased expense, ULH&P's largest operating expense, decreased
$5.0 million (13.7%) for the quarter ended June 30, 1996, as compared to the
same period last year. This decrease reflects, in part, the aforementioned
reduction in the cost of electricity purchased from CG&E.
Gas Purchased
Gas purchased for the quarter increased $1.0 million (23.3%) from the second
quarter of last year reflecting an increase in the average cost per Mcf
purchased and an increase in volumes purchased.
Maintenance
The $.2 million (20.5%) increase in maintenance expense for the second quarter
of 1996, as compared to the same period of 1995, is primarily due to increased
maintenance expenses associated with gas distribution facilities.
Taxes Other than Income Taxes
Taxes other than income taxes increased $.1 million (6.6%) for the second
quarter of 1996, as compared to same period of 1995, primarily due to
increased property taxes resulting from a greater investment in taxable
property.
Other Income and Expenses - Net
Other - net
The change of $.5 million for other - net for the quarter ended June 30, 1996,
as compared to the same period of 1995, is primarily attributable to expenses
associated with the sales of accounts receivables.
Interest
Interest on Long-term Debt
Interest charges decreased $1.0 million (49.8%) for the three months ended
June 30, 1996, from the same period of 1995, primarily due to the redemption
of $25 million of long-term debt from January 1996 to May 1996.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
Kwh Sales
Kwh sales for the six months ended June 30, 1996, increased 12.6% when
compared to the same period of 1995. This increase was due to higher kwh
sales to all customer classes. Increased residential and commercial sales
reflects colder weather during the first quarter of 1996, cooler than normal
weather early in the second quarter of 1996, and increases in the average
number of customers.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the six months ended June 30,
1996, increased 15.8% as compared to the same period in 1995. Colder weather
during the first quarter of 1996, cooler than normal weather early in the
second quarter of 1996, and increases in the average number of customers led
to increases in gas sales to residential and commercial customers. Industrial
sales decreased as customers continued to purchase gas directly from suppliers
using transportation services provided by ULH&P. The increase in
transportation volumes, which more than offset the decline in industrial
sales, was primarily a result of growth in the primary metals sector.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $7.9 million (9.0%) for the six months
ended June 30, 1996, over the comparable period of 1995. This increase
primarily reflects the previously discussed increase in kwh sales. Partially
offsetting this increase is a lower average cost of electricity purchased due,
in part, to the aforementioned reduction in the cost of electricity purchased
from CG&E.
Gas Operating Revenues
Gas operating revenues increased $5.3 million (13.2%) for the first six months
of 1996 when compared to the same period of last year. This increase was
primarily a result of the previously discussed changes in gas sales volumes.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased expense increased $2.5 million (3.8%) for the first six
months as compared to the same period last year. This increase is primarily
attributable to higher kwh purchased. Partially offsetting this increase is
the aforementioned reduction in the cost of electricity purchased from CG&E.
Gas Purchased
Gas purchased increased $2.4 million for the six months ended June 30, 1996,
as compared to the prior year. This increase reflects higher volumes
purchased which was slightly offset by a decline in the average cost per Mcf
purchased.
Other Operation
The increase in other operation expenses of $1.3 million (8.9%) for the six
months ended June 30, 1996, from the same period of 1995 is due to a number of
factors, including higher administrative and general expenses and increased
gas distribution expenses.
Maintenance
Maintenance expenses for the six months ended June 30, 1996, increased $.2
million (10.1%) when compared to the six months ended June 30, 1995. This
increase was due, in large part, to higher expenses associated with gas
distribution facilities.
Taxes Other than Income Taxes
Taxes other than income taxes increased $.1 million (6.4%) for the six months
ended June 30, 1996, as compared to the same period of 1995, primarily as a
result of a greater investment in taxable property.
Other Income and Expenses - Net
Other - net
The change of $.7 million for other - net for the six months ended June 30,
1996, as compared to the same period of 1995, is primarily attributable to
expenses associated with the sales of accounts receivables.
Interest
Interest on Long-term Debt
Interest charges decreased $1.7 million (43.0%) for the six months ended June
30, 1996, from the same period of 1995, primarily due to the refinancing of
$35 million during the period from June 1995 through September 1995 and the
redemption of $25 million during the period from January 1996 to May 1996.
<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 1995 Form 10-K of the
registrants. Certain amounts in the 1995 Financial Statements have been
reclassified to conform to the 1996 presentation.
Cinergy, CG&E, PSI, and ULH&P
2. On May 1, 1996, ULH&P redeemed the entire $10 million principal amount
of its 9 1/2% Series First Mortgage Bonds due December 1, 2008, at the
redemption price of 104.35%.
A portion of PSI's 7.44% Series Cumulative Preferred Stock (591,000
shares representing 15%), totaling $15 million, was reacquired by PSI at
a per share price of $25.50 and $25.65 on May 23 and May 24, 1996,
respectively.
Cinergy and PSI
3. As discussed in Cinergy's and PSI's 1995 Form 10-K, RUS requested a
rehearing on the affirmation by the Seventh Circuit Court of Appeals of
WVPA's plan of reorganization which has been approved by the United
States Bankruptcy Court for the Southern District of Indiana and upheld
by the United States District Court for the Southern District of Indiana.
In April 1996, the Seventh Circuit Court of Appeals denied RUS' request
for rehearing. RUS' remaining option is to appeal this decision to the
United States Supreme Court. RUS has until August 30, 1996, to file any
appeal. PSI cannot predict whether RUS will appeal this decision and if
appealed, the outcome of such appeal.
Cinergy, CG&E, PSI, and ULH&P
4. In March 1995, the FASB issued Statement 121, which became effective in
January 1996 for Cinergy and its subsidiaries. Statement 121, which
addresses the identification and measurement of asset impairments for all
enterprises, is particularly relevant for electric utilities as a result
of the potential for deregulation of the generation segment of the
business. Statement 121 requires recognition of impairment losses on
long-lived assets when book values exceed expected future cash flows.
Based on the regulatory environment in which Cinergy's utility
subsidiaries currently operate, compliance with the provisions of
Statement 121 has not had nor is it expected to have an adverse effect on
their financial condition or results of operations. However, this
conclusion may change in the future as competitive pressures and
potential restructuring influence the electric utility industry.
Cinergy and CG&E
5. In July 1996, Cinergy and CG&E filed an application with the SEC under
the PUHCA seeking approval for Cinergy's proposed offer to purchase for
cash any and all outstanding shares of preferred stock of CG&E. The
application also requests, among other things, authority for the Board of
Directors of CG&E to solicit proxies, concurrently with Cinergy's tender
offer, for use at a planned special meeting of shareholders of CG&E to be
held in September 1996. The special meeting would be held to consider an
amendment to CG&E's Articles which would remove a provision of the
Articles that limits CG&E's ability to issue unsecured debt, including
short-term debt. In addition, CG&E has filed its preliminary proxy
materials with the SEC pursuant to the Securities Exchange Act of 1934.
Cinergy's proposed offer is conditioned upon, among other things, the
proposed Articles amendment being approved and adopted at the special
meeting. In addition, preferred shareholders would have the right to
vote for the proposed amendment regardless of whether they tender their
shares. If the proposed amendment is approved and adopted, CG&E would
make a special cash payment to each preferred shareholder who voted in
favor of the proposed amendment, provided that such shares are not
tendered pursuant to Cinergy's offer. Those preferred shareholders who
validly tender their shares would be entitled only to the indicated
purchase price per share plus an amount in cash equivalent to accrued and
unpaid dividends to the date of payment.
At this time, Cinergy and CG&E cannot predict what action the SEC may
take with respect to the proposed tender offer and proxy solicitation.
Cinergy, CG&E, PSI, and ULH&P
6. In January 1996, Cinergy announced a voluntary workforce reduction
program for non-union employees. Under the program, 419 non-union
employees elected to terminate their employment with Cinergy resulting in
a pre-tax cost of approximately $38.2 million (allocated $19.1 million
each to CG&E and PSI). Cinergy has classified these costs as costs to
achieve merger savings which, consistent with the merger savings sharing
mechanisms previously approved by regulators, has resulted in
approximately $14.6 million (pretax) being charged to earnings in the
second quarter of 1996 representing the portion allocable to Ohio
electric jurisdictional customers. The remaining costs have been
deferred for future recovery through rates as an offset against merger
savings. A significant portion of these benefits are eligible for
funding from qualified retirement plan assets.
As a part of the labor agreement reached between PSI and IBEW Local No.
1393, effective May 24, 1996, union employees agreed to participate in a
voluntary workforce reduction program similar to the program offered to
non-union employees. There are 235 PSI union employees who meet certain
age and service requirements and are eligible for enhanced retirement
benefits under this program. Eligible employees who do not meet age and
service requirements will receive severance benefits upon resignation
from their employment. Program costs will not be known until after the
participation election period ends September 16, 1996. Cinergy intends
to classify the costs of the PSI union program as costs to achieve merger
savings and as a result these costs will be deferred for future recovery
through rates as an offset against merger savings. A significant portion
of these benefits will be eligible for funding from qualified retirement
plan assets. Cinergy is continuing to discuss the offer of a similar
voluntary workforce reduction program with CG&E's unions.
Cinergy and PSI
7. As discussed in Cinergy's and PSI's 1995 Form 10-K, PSI currently has
pending before the IURC a retail rate increase request of 10.3% ($102.9
million annually). An order in the rate proceeding is anticipated by the
end of August 1996. Cinergy cannot predict what action the IURC may take
with respect to this proposed rate increase.
Cinergy and CG&E
8. On July 12, 1996, the Staff of the PUCO issued its Report of
Investigation on CG&E's gas rate increase request of 7.8% ($26.7 million
annually) filed in January 1996. The increase is being requested, in
part, to recover capital investments made since CG&E's last gas rate
increase in 1993. The Staff recommended that CG&E receive an annual
increase in gas revenues ranging from $3.5 million to $6.3 million. The
differences between the Staff's recommendation and CG&E's request are
primarily attributable to a decrease in working capital allowance, a
lower rate of return and a reduction in operating expenses. Cinergy
cannot predict what action the PUCO may take with respect to this
proposed rate increase.
Cinergy
9. During the second quarter of 1996, Avon Energy, a 50/50 joint venture
between Cinergy and GPU, began to acquire all of the outstanding common
stock of Midlands. The total consideration to be paid by Avon Energy is
estimated to be approximately $2.6 billion. The funds for the
acquisition will be obtained from Cinergy's and GPU's investment in Avon
Energy of $500 million each, with the remainder being obtained by Avon
Energy through the issuance of non-recourse debt. Cinergy will use debt
to fund its entire investment in Avon Energy, which will be accounted for
under the equity method of accounting. Based on a preliminary allocation
of the purchase price, Avon Energy will record goodwill of approximately
$1.7 billion in connection with this acquisition.
The pro forma financial information presented below assumes Midlands was
acquired on the first day of each respective period. The pro forma
adjustments include recognition of equity in the estimated earnings of
Avon Energy, an adjustment for interest expense on debt associated with
Cinergy's investment in Avon Energy, and related income taxes. The
estimated earnings of Avon Energy include the historical earnings of
Midlands adjusted for the estimated effect of purchase accounting
(including the amortization of goodwill) and conversion to United States
generally accepted accounting principles, interest expense on debt issued
by Avon Energy associated with the acquisition, and related income taxes.
Cinergy's equity in the resulting earnings is 50%, the same as its
ownership share of Avon Energy.
Sales of electricity are affected by seasonal weather patterns, and
therefore the results of Avon Energy/Midlands will not be distributed
evenly during the year. (All dollar amounts have been converted using
the average exchange rates for the quarter, six month, and twelve month
period of $1.540/, $1.543/, and $1.576/, respectively.)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
June 30, 1996 June 30, 1996 June 30, 1996
Net Earnings Net Earnings Net Earnings
Income Per Share Income Per Share Income Per Share
(millions) (millions) (millions)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cinergy $56 $.35 $166 $1.05 $352 $2.23
Pro forma adjustments:
Equity in Earnings
of Avon Energy 5 34 82
Interest expense (9) (18) (33)
Income taxes (1) (6) (18)
Pro forma result $51 $.33 $176 $1.12 $383 $2.43
<FN>
* Based on the average number of common shares outstanding for the
period.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
Cinergy
Joint Venture In May 1996, Cinergy, GPU, and Midlands announced the terms of
a recommended cash offer for Midlands to be made by Avon Energy. Midlands,
one of 12 regional electric companies in the United Kingdom, is headquartered
in Birmingham, England. Midlands' principal business is the distribution of
electricity to approximately 2.2 million customers. For further information,
reference is made to Cinergy's Current Reports on Form 8-K dated May 7, 1996,
and June 6, 1996, as amended. Cinergy and GPU each own 50% of Avon Energy.
Avon Energy commenced the offer to acquire all of the shares of Midlands on
the terms and subject to conditions set out in an offering document. On June
6, 1996, Cinergy and GPU announced that Avon Energy declared the cash offer
wholly unconditional in all respects and thereby is committed to purchase all
outstanding shares of Midlands. As of August 13, 1996, Avon Energy owns 381.3
million of Midlands' shares, representing approximately 97.1% of the issued
share capital of Midlands. The remaining shares are expected to be acquired
during the third quarter of 1996. The total acquisition cost of Midlands is
expected to be approximately (Pound Sterling) 1.7 billion (or approximately
$2.6 billion - U.S.).
See Note 9 of the "Notes to Financial Statements" in "Part I. Financial
Information" for pro forma financial information relating to the acquisition
of Midlands.
Cinergy, CG&E, PSI, and ULH&P
Securities Ratings Following the announcement of the potential acquisition of
Midlands, major credit rating agencies, D&P, Fitch, and S&P, affirmed the
current ratings of Cinergy's operating subsidiaries, after their consideration
of the effects of the potential acquisition. The other major credit rating
agency, Moody's, placed the credit ratings of Cinergy's operating
subsidiaries, CG&E, PSI, and ULH&P, under review for possible downgrade.
Moody's indicated that its review will focus on the likelihood of the
transaction being completed and will assess the operating strategies of the
combined companies and the anticipated benefits of the transaction. It will
also focus on the financial impact the transaction will have on Cinergy and
its operating subsidiaries, including the credit implications. Cinergy cannot
predict the outcome of this review.
Cinergy, CG&E, PSI, and ULH&P
Competitive Pressures As discussed in the 1995 Form 10-K, the primary factor
influencing the future profitability of Cinergy is the changing competitive
environment for energy services, including the impact of emerging
technologies, and the related commoditization of electric power markets.
Changes in the industry include increased competition in wholesale power
markets and ongoing pressure for "customer choice" by large industrial
customers, and ultimately, by all retail customers. Cinergy supports
increased competition in the electric utility industry and has chosen to take
a leadership role in state and Federal debates on industry reform.
As the electric utility industry moves toward a competitive environment,
Cinergy is reassessing its corporate structure, including the issue of whether
to remain vertically integrated. As a first step toward "unbundling" the
business for a competitive environment, Cinergy announced its intention to
reorganize into strategic business units. This functional reorganization will
separate Cinergy's utility businesses into an energy services business unit,
an energy delivery business unit, and an energy commodities business unit.
The design of these new organizations is expected to be completed by the end
of the year. Cinergy continues to analyze what benefits, if any, may exist in
the future for its various stakeholders of separating the business units into
different corporations.
Cinergy and PSI
Contract Negotiations As previously reported, the Labor Agreement between PSI
and IBEW Local No. 1393 was scheduled to expire May 1, 1996. On May 24, 1996,
union members ratified a new labor agreement effective May 24, 1996, and
expiring April 30, 1999.
Regulatory Matters
Cinergy, CG&E, PSI, and ULH&P
FERC Orders 888 and 889 In April 1996, the FERC issued final orders relating
to its previously issued mega-NOPR (FERC Orders 888 and 889). The
unanimously-passed final rules, contain essentially the same provisions as the
mega-NOPR. Additionally, the FERC concurrently issued a related NOPR which
establishes a new system for utilities to use in reserving capacity on their
own and others' transmission lines. Cinergy is currently evaluating its
position with respect to the related NOPR and the potential effects upon the
Company if adopted.
The final rules provide for mandatory filing of open access/comparability
transmission tariffs, provide for functional unbundling of all services,
require utilities to use the filed tariffs for their own bulk power
transactions, establish an electronic bulletin board for transmission
availability and pricing information, and establish a contract-based approach
to recovering any potential stranded costs as a result of customer choice at
the wholesale level. The FERC expects the rules to "accelerate competition
and bring lower prices and more choices to energy customers". The final rules
became effective on July 9, 1996. CG&E, PSI, and ULH&P have made compliance
filings with the FERC and are now operating under open access/comparability
tariffs.
Cinergy and CG&E
Legislation On June 18, 1996, House Bill 476 (HB 476) was signed into law by
the Governor of Ohio. HB 476 addresses regulatory reform of the natural gas
industry at the state level and thus is an extension of Order 636 for local
distribution companies. The Ohio law, among other things, provides that
natural gas commodity sales services may be exempted from PUCO regulation and
that the PUCO allow alternative ratemaking methodologies in connection with
other regulated services. The PUCO has initiated a rulemaking proceeding to
promulgate administrative rules necessary to implement the law.
Cinergy and PSI
PSI's Retail Rate Proceeding See Note 7 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy and CG&E
CG&E's Gas Rate Proceeding See Note 8 of the "Notes to Financial Statements"
in "Part I. Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P
New Accounting Standard See Note 4 of the "Notes to Financial Statements" in
"Part I. Financial Information."
CAPITAL REQUIREMENTS
Cinergy and CG&E
Proposed Proxy Solicitation See Note 5 of the "Notes to Financial Statements"
in "Part I. Financial Information."
Other Commitments
Cinergy and PSI
WVPA Litigation See Note 3 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Cinergy, CG&E, PSI, and ULH&P
1996 Voluntary Workforce Reduction Program See Note 6 of the "Notes to
Financial Statements" in "Part I. Financial Information."
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Long-term Debt and Preferred Stock For information regarding recent
securities redemptions, see Note 2 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt The operating subsidiary companies of Cinergy have the
following short-term debt authorizations and lines of credit:
Committed Unused
Authorized Lines__ Lines
(in millions)
Cinergy & Subsidiaries $838 $281 $202
CG&E 400 80 80
PSI 400 200 121
ULH&P 35 - -
Additionally, in connection with the tender offer to purchase Midlands,
Cinergy has established a $600 million credit facility, which expires in May
2001, of which $462 million remained unused as of August 12, 1996. This new
credit facility was established, in part, to fund the acquisition of Midlands
through Avon Energy ($500 million has been designated for this purpose) with
the remaining portion available for general corporate purposes. The prior
$100 million credit facility, which would have expired in September 1997, has
been terminated.
In addition, M.E. Holdings, entered into a $40 million non-recourse credit
agreement which will also be used to fund the acquisition of Midlands.
Cinergy expects to borrow approximately $500 million under the two agreements
to fund its equity investment in Avon Energy.
Cinergy, CG&E, PSI, and ULH&P
Sales of Accounts Receivables As discussed in each registrant's 1995 Form 10-
K, in January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on
a revolving basis, undivided percentage interests in certain of their accounts
receivables. Under the agreement, the companies have the authority to sell up
to an aggregate maximum of $350 million of which $257 million has been sold as
of July 31, 1996.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL
INFORMATION."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
Merger Litigation In August 1995, AEP filed a petition in the United
States Court of Appeals for the District of Columbia Circuit for review of
the FERC's Merger Order. AEP has objected to the Merger Order alleging
that the post-merger operations of Cinergy would require the use of AEP's
transmission facilities on a continuous basis without compensation. AEP
contends that the FERC, in issuing the Merger Order, did not adequately
evaluate the impact on AEP or whether the need to use AEP's transmission
facilities would interfere with Cinergy achieving merger benefits. In
addition, AEP claims that the FERC failed to evaluate the extent to which
the merged facilities' operations would be consistent with the integrated
public utility concept of the PUHCA. CG&E and PSI have intervened in this
action and have filed a Motion to Dismiss, which Motion was denied on July
17, 1996. At this time, Cinergy, CG&E, and PSI cannot predict the outcome
of the appeal.
Additionally, see Notes 3, 7, and 8 of the "Notes to Financial Statements"
in "Part I. Financial Information."
ITEM 5. OTHER INFORMATION
Cinergy
On June 25, 1996, Power International sold its ownership interest in Bruwabel
and its subsidiaries, including Power Development s.r.o. which owns the
Vytopna Kromeriz Heating Plant. Power International (formerly Enertech
Associates International, Inc.) had acquired Bruwabel and its subsidiaries in
July 1994 for the purpose of pursuing design, engineering, and development
work involving energy privatization projects, primarily in the Czech Republic.
Cinergy, CG&E, and ULH&P
KO Transmission acquired a 32.67% interest in a 90-mile interstate natural gas
pipeline and began flowing gas June 1, 1996, from southeast Kentucky northward
to the service territories of CG&E and ULH&P.
Cinergy, CG&E, PSI, and ULH&P
Additionally, refer to the "Recent Developments" and "Regulatory Matters"
sections in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial Information" for
information concerning contract negotiations between PSI and IBEW Local No.
1393, Cinergy's Joint Venture, the status of the CG&E and PSI retail rate
proceedings, and the Company's functional restructuring.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
10-a Amendment to Cinergy's Employee Stock Purchase
and Savings Plan, adopted April 26, 1996.
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in
electronic submission only).
Cinergy
(b) The following reports on Form 8-K were filed during the quarter or
prior to the filing of this Form 10-Q for the quarter ended June 30,
1996:
Date of Report Item Filed___________________
May 7, 1996 Item 5. Other Events (Announcement of the offer
to acquire Midlands.)
June 6, 1996 Item 2. Acquisition or Disposition of Assets
(Announcement of the cash offer to purchase
Midlands as wholly unconditional.)
June 6, 1996 Item 7. Financial Statements and Exhibits
(Amendment to the June 6, 1996, Form 8-K filing -
Financial Statements of Midlands for the most
recent fiscal year and pro forma financial
information of Cinergy for the acquisition of
Midlands by Avon Energy.)
<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: August 12, 1996 J. Wayne Leonard _________
Duly Authorized Officer
Date: August 12, 1996 Charles J. Winger __
Chief Accounting Officer
<TABLE> <S> <C>
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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.
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